-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SWj3YCDXxRaKsMm5oBpj9kjUbVHpq3rzeVssQ7daR5IMzEbpIeXphzTfTluisLtV hIQZQuiEenIAWEV+skn5dg== 0000946275-00-000102.txt : 20000215 0000946275-00-000102.hdr.sgml : 20000215 ACCESSION NUMBER: 0000946275-00-000102 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANDMARK BANCSHARES INC CENTRAL INDEX KEY: 0000915800 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 481142260 STATE OF INCORPORATION: KS FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23164 FILM NUMBER: 541067 BUSINESS ADDRESS: STREET 1: CENTRAL & SPRUCE STS CITY: DODGE CITY STATE: KS ZIP: 67801 BUSINESS PHONE: 3162278111 MAIL ADDRESS: STREET 2: CENTRAL & SPRUCE STREETS CITY: DODGE CITY STATE: KS ZIP: 67801 10-Q 1 FORM 10-Q UNITED STATES 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 December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number 0-23164 LANDMARK BANCSHARES, INC. (Exact name of registrant as specified in its charter) Kansas 48-1142260 (State or other jurisdiction I.R.S. Employer of incorporation or organization) Identification Number CENTRAL AND SPRUCE STREETS, DODGE CITY, KANSAS 67801 (Address and Zip Code of principal executive offices) (316) 227-8111 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) 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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No The number of shares outstanding of each of the issuer's classes of common stock, as of December 31, 1999: $.10 par value common stock 1,127,806 shares (Class) (Outstanding) LANDMARK BANCSHARES, INC. INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Financial Condition as of December 31, 1999 (unaudited) and September 30, 1999 1 Statements of Income for the Three Months Ended December 31, 1999 and 1998 (unaudited) 2 Statements of Comprehensive Income for the Three Months Ended December 31, 1999 and 1998 (unaudited) 3 Statements of Cash Flows for the Three Months Ended December 31, 1999 and 1998 (unaudited) 4-5 Notes to Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 13-15 PART II OTHER INFORMATION Item 1. Legal Proceedings 16 None Item 2. Changes in Securities and Use of Proceeds 16 None Item 3. Default Upon Senior Securities 16 None Item 4. Submission of Matter to a Vote of Security Holders 16 None Item 5. Other Information 16 None Item 6. Exhibits and Report on Form 8-K 16 (A) None (B) None SIGNATURES 17 1 LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, LANDMARK FEDERAL SAVINGS BANK Consolidated Statements of Financial Condition
December 31, 1999 September 30, 1999 (Unaudited) ------------- ------------- ASSETS Cash and cash equivalents: Interest bearing $ 3,686,458 $ 4,377,197 Non-interest bearing 2,273,043 1,598,533 Time deposits in other financial institutions 292,119 289,864 Securities held to maturity 28,855,630 28,849,853 Securities available for sale 9,398,923 12,022,530 Mortgage-backed securities held to maturity 12,372,483 13,489,174 Loans receivable, net 182,632,907 177,236,196 Loans held for sale 340,268 604,395 Accrued income receivable 1,559,693 1,547,901 Real estate owned or in judgment and other repossessed property, net 486,284 146,883 Office properties and equipment, at cost less accumulated depreciation 1,769,860 1,759,770 Prepaid expenses and other assets 1,764,203 1,949,751 Income taxes receivable, current 0 154,072 Deferred income taxes 113,156 89,865 ------------- ------------- TOTAL ASSETS $ 245,545,027 $ 244,115,984 ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits 156,036,515 158,936,292 Landmark Official Checks 1,301,066 0 Other Borrowed Money 63,500,000 58,000,000 Advances from borrowers for taxes and insurance 738,447 2,143,805 Accrued expenses and other Liabilities 1,141,704 2,631,740 Income taxes Current 215,228 0 ------------- ------------- TOTAL LIABILITIES $ 222,932,960 $ 221,711,837 ------------- ------------- Stockholders' Equity Common Stock 228,131 228,131 $.10 par value; 10,000,000 shares authorized; 2,281,312 shares issued Additional Paid-in Capital 22,705,944 22,706,378 Treasury Stock, at cost, 1,153,506 shares at December 31, 1999 (22,210,403) (22,144,168) and 1,149,748 shares at September 30, 1999 Retained income (substantially restricted) 22,715,346 22,290,140 Employee Stock Ownership Plan (555,841) (555,841) Accumulated other comprehensive income (271,110) (120,493) ------------- ------------- Total Stockholders' Equity 22,612,067 22,404,147 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 245,545,027 $ 244,115,984 ------------- -------------
2 LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, LANDMARK FEDERAL SAVINGS BANK Consolidated Statements of Income Three Months Ended December 31 1998 1999 --------- --------- (unaudited) (unaudited) INTEREST INCOME Interest on loans 3,562,238 3,564,736 Interest and dividends on investment securities 266,837 711,327 Interest on mortgage-backed securities 337,325 203,159 --------- --------- Total interest income 4,166,400 4,479,222 INTEREST EXPENSE Deposits 1,929,393 1,797,441 Borrowed funds 553,789 792,631 --------- --------- Total interest expense 2,483,182 2,590,072 Net interest income 1,683,218 1,889,150 PROVISION FOR LOSSES ON LOANS 75,000 135,000 --------- --------- Net interest income after provision for losses 1,608,218 1,754,150 NON-INTEREST INCOME Service charges and late fees 99,040 106,546 Net gain (loss) on sale of available for sale investments 65,672 10,591 Net gain (loss) on sale of loans 203,178 50,731 Service fees on loans sold 12,059 20,732 Other income 34,828 38,277 414,777 226,877 --------- --------- NON-INTEREST EXPENSE Compensation and related expenses 651,860 608,041 Occupancy expense 63,746 63,447 Advertising 13,042 19,682 Federal insurance premium 37,968 37,718 Loss (gain) from real estate operations 1,028 5,928 Data processing 43,035 37,545 Other expense 204,513 252,763 --------- --------- 1,015,192 1,025,124 Income before income taxes 1,007,803 955,903 INCOME TAXES EXPENSES 403,500 369,300 --------- --------- Net income 604,303 586,603 --------- --------- Basic earnings per share $ 0.50 $ 0.55 Diluted earnings per share $ 0.44 $ 0.50 Dividends per share $ 0.15 $ 0.15 3 LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, LANDMARK FEDERAL SAVINGS BANK Consolidated Statements of Comprehensive Income
Three Months Ended December 31, 1998 1999 --------- --------- (Unaudited) (Unaudited) Net income $ 604,303 $ 586,603 --------- --------- Other comprehensive income, net of tax: Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period 94,337 (144,262) Less: reclassification adjustment for gains included in net income (65,672) (6,355) --------- --------- Total other comprehensive income 28,665 (150,617) --------- --------- Comprehensive income $ 632,968 $ 435,986
4 LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY LANDMARK FEDERAL SAVINGS BANK Consolidated Statements of Cash Flows
Three Months Ended December 31 1998 1999 (unaudited) (unaudited) ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 604,303 $ 586,603 Adjustments to reconcile net income to net cash provided by operating activities: Amortization and impairment of mortgage servicing rights (54,971) (307,571) Depreciation 40,741 58,604 Decrease (increase) in accrued interest receivable 292,956 (100,950) Increase (decrease) in outstanding checks in excess of bank balance 0 543,980 Increase (decrease) in accrued and deferred income taxes 504,188 346,009 Increase (decrease) in accounts payable and accrued expenses (536,864) (1,368,691) Amortization of premiums and discounts on investments and loans (8,756) (14,195) Provision for losses on loans 75,000 135,000 Gain (loss) on sale of available for sale investments (65,672) (10,591) Other non-cash items, net 152,748 320,229 Sale of loans held for sale 10,529,051 2,237,215 Gain on sale of loans held for sale (203,178) (50,731) Origination of loans held for sale (9,486,191) (1,843,451) Purchase of loans held for sale (868,080) (81,600) ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES $ 975,275 $ 449,860 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Loan originations and principal payment on loans held for investment $ 2,452,670 $ 1,841,707 Principal repayments on mortgage-backed securities 2,559,812 1,114,357 Loans purchased for investment (2,931,930) (7,805,475) Acquisition of investment securities held to maturity (2,999,840) 0 Acquisition of investment securities available for sale (168,850) (262,400) Proceeds from sale of available for sale investment securities 112,356 2,878,221 Proceeds from maturities or calls of investment securities held to maturity 4,090,000 0 Sale of real estate acquired in settlement of loans 300 111,877 Acquisition of fixed assets (3,110) (68,694) ------------ ------------ NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES $ 3,111,408 $ (2,190,407) ------------ ------------
5 LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, LANDMARK FEDERAL SAVINGS BANK Consolidated Statements of Cash Flows (Continued)
Three Months Ended December 31 1998 1999 (unaudited) (unaudited) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits $ 613,596 $ (2,142,692) Net increase (decrease) in escrow accounts (1,101,475) (1,405,358) Proceeds from FHLB advance and other borrowings 26,500,000 17,500,000 Repayment of FHLB advance and other borrowings (25,900,000) (12,000,000) Acquisition of Treasury Stock (2,250,228) (66,235) Other Financing Activities 48,261 0 Dividend Payment (187,470) (161,397) ------------ ------------ NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (2,277,316) 1,724,318 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,809,367 (16,229) BEGINNING CASH AND CASH EQUIVALENTS 2,844,378 5,975,730 ------------ ------------ ENDING CASH AND CASH EQUIVALENTS 4,653,745 5,959,501 ------------ ------------ SUPPLEMENTAL DISCLOSURES Cash paid during the year for: Interest on deposits, advances, and other borrowings 2,886,638 2,907,414 Income taxes 752,036 0 Transfers from loans to real estate acquired through foreclosure 0 451,598
6 LANDMARK BANCSHARES, INC. PART I - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS LANDMARK FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited financial statements were prepared in accordance with the requirements for interim financial statements contained in SEC regulation S-X and, accordingly, do not include all information and disclosures necessary to present financial condition, results of operations and cash flows of Landmark Bancshares, Inc. (the "Company") and its wholly-owned subsidiary Landmark Federal Savings Bank (the "Bank") in conformity with generally accepted accounting principles. However, all normal recurring adjustments have been made which, in the opinion of management, are necessary for the fair presentation of the financial statements. The results of operation for the three months ending December 31, 1999, are not necessarily indicative of the results which may be expected for the fiscal year ending September 30, 2000. 2. LIQUIDATION ACCOUNT On March 28, 1994, the Bank segregated and restricted $15,144,357 of retained earnings in a liquidation account for the benefit of eligible savings account holders who continue to maintain their accounts at the bank after the conversion of the bank from mutual to stock form. In the event of a complete liquidation of the Bank, and only in such event, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted balances of all qualifying deposits then held. The liquidation account will be reduced annually at September 30th to the extent that eligible account holders have reduced their qualifying deposits. 3. INVESTMENTS AND MORTGAGE - BACKED SECURITIES A summary of the Bank's carrying value of investment and mortgage - backed securities as of December 31, 1999 and September 30, 1999, is as follows:
Investment Securities December 31, 1999 September 30, 1999 ----------- ----------- Held to maturity: Government Agency Securities $27,470,630 $27,464,853 Municipal Obligations 1,385,000 1,385,000 Other 0 0 ----------- ----------- $28,855,630 $28,849,853 Available for sale: Common Stock 3,991,648 4,378,530 Stock in Federal Home Loan Bank 3,237,400 3,441,000 Other 2,169,875 4,203,000 ----------- ----------- $ 9,398,923 $12,022,530 Mortgage - Backed Securities held to maturity: FNMA - Arms $ 5,640,342 $ 5,901,429 FHLMC -Arms 1,718,315 1,900,940 FHLMC -Fixed Rate 73,575 79,967 CMO Government Agency 3,328,210 3,862,807 CMO Private Issue 1,188,732 1,297,099 FNMA - Fixed Rate 334,671 343,808 GNMA - Fixed Rate 88,638 103,124 ----------- ----------- $12,372,483 $13,489,174
7 4. LOAN RECEIVABLE, NET A summary of the Bank's loans receivable at December 31, 1999 and September 30, 1999, is as follows:
December 31, 1999 September 30, 1999 ----------------- ------------------ Real Estate loans: Residential 144,988,583 138,008,961 Construction 993,122 1,847,609 Commercial 9,912,839 9,050,225 Second mortgage 9,678,012 9,716,029 Commercial business 6,355,748 6,531,200 Consumer 12,269,315 13,578,547 ------------- ------------- Gross loans 184,197,619 178,732,571 Less: Net deferred loan fees, premiums and discounts (164,608) (178,699) Allowance for Loan Losses (1,400,104) (1,317,676) ------------- ------------- Total loans, net $ 182,632,907 $ 177,236,196
A summary of the Bank's allowance for loan losses for the three months ended December 31, 1998 and 1999, are as follows: Three Months Ended December 31 1998 1999 ----------- ----------- Balance Beginning $ 1,136,753 1,317,676 Provisions Charged to Operations 75,000 135,000 Loans Charged Off Net of Recoveries (6,805) (52,572) ----------- ----------- Balance Ending $ 1,204,948 $ 1,400,104 5. REAL ESTATE OWNED OR IN JUDGMENT Real Estate owned or in judgment and other repossessed property:
December 31, 1999 September 30, 1999 --------- -------- Real Estate Acquired by Foreclosure $ 70,187 $ 0 Real Estate Loans in Judgment and Subject to Redemption 393,597 70,081 Other Repossessed Assets 22,500 76,802 --------- -------- $ 486,284 $146,883
6. FINANCIAL INSTRUMENTS The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. The financial instruments include commitments to extend credit and commitments to sell loans. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial condition. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The Bank's exposure to credit loss in the event of non-performance by the other party to the financial instrument for loan commitments is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments. On December 31, 1999, the Bank had outstanding commitments to fund real estate loans of $1,726,127.00. Of the commitments outstanding, $1,060,927.00 are for fixed rate loans at rates of 7.375% to 9.00%. Commitments for adjustable rate loans amount to $665,200.00 with initial rates of 7.125% to 8.75%. Outstanding loan commitments to sell as of December 31, 1999 were $289,905.00. In addition the Bank had outstanding commercial loan commitments of $938,601.00 with initial rates of 7.75% to 10.00%. 8 7. EARNINGS PER SHARE Basic earnings per share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issued common stock (potential common stock) were exercised or converted to common stock. For periods presented potential common stock includes outstanding stock options and nonvested stock awarded under the management stock bonus plan. Earnings per share for the three months ending December 31, 1999 and 1998, was determined as follows: STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE Basic Earnings Per Share Three months ended December 31 1999 1998 --------- --------- Weighted average common shares outstanding Net of Treasury shares 1,131,564 1,327,934 Average unallocated ESOP shares (55,547) (69,235) Weighted average treasury shares purchased (2,042) (31,673) Nonvested MSBP shares 0 (6,842) --------- --------- Weighted Average Shares for Basic EPS 1,073,975 1,220,184 --------- --------- Net Earnings 586,603 604,303 --------- --------- Per share amount $ 0.55 $ 0.50 Diluted Earnings Per Share Three months ended December 31 1999 1998 --------- --------- Weighted average shares for Basic EPS 1,073,975 1,220,184 Dilutive stock options 93,148 135,749 Dilutive MSBP shares 0 2,318 --------- --------- Weighted Average Shares for Diluted EPS 1,167,123 1,358,251 --------- --------- Net Earnings 586,603 604,303 --------- --------- Per share amount $ 0.50 $ 0.44 8. DIVIDENDS At a October 1999 board meeting, the Directors of the Company declared a .15 per share dividend. The dividend was payable to all stockholders of record as of November 10, 1999. 9 LANDMARK BANCSHARES, INC. PART I - FINANCIAL INFORMATION ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General: Landmark Bancshares, Inc. ("Company") is the holding company for Landmark Federal Savings Bank ("Bank"). Apart from the operations of the Bank, the Company did not engage in any significant operations during the quarter ended December 31, 1999. The Bank is primarily engaged in the business of accepting deposit accounts from the general public, using such funds to originate mortgage loans for the purchase and refinancing of single-family homes located in Central and Southwestern Kansas and for the purchase of mortgage-backed and investment securities. In addition, the Bank also offers and purchases loans through correspondent lending relationships in Kansas City, and other cities in Kansas and in Albuquerque and Santa Fe, New Mexico and Madison, Wisconsin. The Bank also has a Loan Origination Office located in Overland Park, Kansas. To a lesser extent, the Bank will purchase adjustable rate mortgages loans, to manage its interest rate risk as deemed necessary. The Bank also makes automobile loans, second mortgage loans, home equity loans, savings deposit loans, and small business loans. Management Strategy: Management's strategy has been to maintain profitability. The Bank's lending strategy has historically focused on the origination of traditional, conforming one to four-family mortgage loans with the primary emphasis on single-family residences. The Bank's secondary focus has been on consumer loans, commercial loans, second mortgage loans, home equity loans, savings deposit loans, and small business lending. This focus, and the application of strict underwriting standards, are designed to reduce the risk of loss on the Bank's loan portfolio. However, this lack of diversification in its portfolio structure does increase the Bank's portfolio concentration risk by making the value of the portfolio more susceptible to declines in real estate values in its market area. This has been mitigated in recent years, through the investment in mortgage-backed securities, the sales of loans in the secondary market, and the entrance into small business lending. Certain risks are inherent in the sales of loans in the secondary market. There is a risk that the Bank will not be able to sell all the loans that it has originated, or conversely, will be unable to fulfill its commitment to deliver loans pursuant to a firm commitment to sell loans. In addition, in periods of rising interest rates, loans originated by the bank may decline in value. Exposure to market and interest rate risk is significant during the period between the time the interest rate on a customer's mortgage loan application is established and the time the mortgage loan closes, and also during the period between the time the interest rate is established and the time the Bank commits to sell the loan. If interest rates change in an unanticipated fashion, the actual percentage of loans that close may differ from projected percentages. The resultant mismatching of commitments to closed loans and commitments to deliver sold loans may have an adverse effect on the profitability of loan originations. A sudden increase in interest rates can cause a higher percentage of loans to close than projected. To the degree that this was not anticipated, the Bank will not have made commitments to sell these loans and may incur significant mark to market losses, adversely affecting results of operations. The Bank historically sells 30 year fixed rate mortgages in the secondary market, however the Bank is keeping all 15 and 20 year or shorter mortgages with fixed rates above 6.625% and 6.875% for investment and selling all other fixed rate loans. Through the first three months of fiscal year 2000 rates continued with a steady increase. As a result of the rates at the end of December 1999, the Bank reflected an unrealized loss of $1,882 in loans held for sale. Sustained levels of gain on sale of loans is dependent on continued stable or downward interest rate movement and could likely be adversely affected by a continued rise in interest rates. 10 Changes in financial condition between December 31, 1999 and September 30, 1999: Total assets increased by $1,429,043, or approximately 0.58% between September 30, 1999 and December 31, 1999. This increase is largely attributed to a $5,396,711 increase in loans receivable partially offset by a decrease of $3,734,521 in investments and mortgage backed securities. The Bank utilizes FHLB line of credit and short term advances which increased $5.5 million from September 30, 1999 to December 31, 1999 to fund the acquisition of adjustable rate mortgages. In managing the Bank's overall interest rate risk, loan purchases have been made which increase the level of risk to the extent that borrowing will reprice more frequently than the adjustments on the mortgages. Results of operations: comparison between the three months ended December 31, 1999 and 1998: Net income for the three-month period ended December 31, 1999 of $586,603 represents a decrease of $17,700 from the net income reported for the three-month period ended December 31, 1998. The decrease was primarily due to $152,447 less gain on sale of loans and $60,000 more placed in loan loss reserves, which were almost totally offset by an increase in net interest income before provision for loan losses of 205,932 from the year ago period. Net interest income after provision for losses on loans for the three-month period ended December 31, 1999 increased $145,932 or approximately 9.1% to $1,754,150 as compared with $1,608,218 for the same period ended December 31, 1998. This increase in interest income is largely due to an increase in the average balance on securities held to maturity from $9,718,696, the three months ended December 31, 1998, to $28,852,089 for the same period ended December 31, 1999. Provision for loan loss has been increased primarily due to increased consumer loan losses. Landmark Federal Savings Bank's charge-off experience for loans for the five years ended September 30, 1998 had averaged only $52,000 per year or .04% of total loans. However, in fiscal 1999 the Bank charged off $658,000 in loans as a result of a quality control issue on automobile loans. The problem arose primarily on individual loans being originated by one loan officer who is no longer employed by the Bank. The Bank has conducted a thorough review of its automobile loan portfolio, has reserved, and continues to reserve for the portfolio. In November, 1998, the loan policies were rewritten. Monitoring has been tightened and all modifications and deferrals require senior management approval. Exceptions are reported to the Board of Directors monthly. The files are reviewed individually by an experienced lender / servicer for insurance and proper documentation. Valuation reserves increased $82,428, or 6.3%, on December 31, 1999 compared to the period ending September 30, 1999. Classified assets decreased by $191,000, or 12.9%, this quarter. For the quarter ended December 31, 1999, net charge-offs totaled $52,500, and were primarily auto loans. Non-interest income for the three-month period ended December 31, 1999 decreased $187,900 or 45.3% to $226,877 as compared with $414,777 for the same period ended December 31, 1998. The decrease was primarily due to a net gain on sale of loans of $203,178 during the quarter ended December 1998, and the fact that more adjustable rate loans were placed in portfolio during the more recent quarter ending December, 1999. Other expenses for the three-month period ended December 31, 1999 increased $9,931 or 0.98% to $1,025,123 as compared with $1,015,192 for the same period ended December 31, 1998. 11 Earning Per Share: Effective with the quarter ended December 31, 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings per Share. The Statement is to be applied to financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. The Statement requires restatement of all prior-period earnings per share (EPS) data presented. FAS No. 128 simplifies the standards for computing EPS and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the company. Diluted EPS is computed similarly to the previously presented fully diluted earnings per share. Year 2000 Issue: The year 2000 posed an important business issue regarding how existing application software programs and operating systems would accommodate this date value. Many computer programs that could only distinguish the final two digits of the year entered were expected to read entries for the year 2000 as the year 1900. Like most financial service providers, the Company thought they may be significantly affected by the Year 2000 issue due to the nature of financial information. The Company evaluated both information technology (computer systems and software) and non-information technology (i.e. vault timers, elevators, electronic door lock and heating, ventilation and air condition controls) both within and outside the Company's direct control and with which the Company electronically or operationally interfaces. Computer systems were changed or updated to identify the year 2000. Prior to the filing of this report the Company has not experienced any unusual problems that would significantly affect the Company or its customers. The Bank continues to evaluate their information technology systems risk in three areas: (1) internal computers and software, (2) computers of others used by our borrowers, (3) external data processing servicers. The Company will continue to monitor for any unusual activities associated with the turn of the century. 12 Liquidity and Capital Resources: The Bank is required to maintain minimum levels of liquid assets, as defined by the Office of Thrift Supervision ("OTS") regulations. This requirement, which may be varied from time to time depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowing. The required minimum ratio is currently 4 percent. The Bank's liquidity ratio averaged 4.66% during December 1999. The Bank manages its liquidity ratio to meet its funding needs, including: deposit outflows, disbursement of payments collected from borrowers for taxes and insurance, and loan principal disbursements. The Bank also manages its liquidity ratio to meet its asset/liability management objectives. In addition to funds provided from operations, the Bank's primary sources of funds are: savings deposits, principal repayments on loans and mortgage-backed securities, and matured or called investment securities. In addition, the Bank may borrow funds from time to time from the Federal Home Loan Bank of Topeka. Scheduled loan repayments and maturing investment securities are a relatively predictable source of funds. However, savings deposit flows and prepayments on loans and mortgage-backed securities are significantly influenced by changes in market interest rates, economic conditions and competition. The Bank strives to manage the pricing of its deposits to maintain a balanced stream of cash flows commensurate with its loan commitments. When applicable, cash in excess of immediate funding needs is invested into longer-term investments and mortgage-backed securities which typically earn a higher yield than overnight deposits, some of which may also qualify as liquid investments under current OTS regulations. As required by the financial institutions reform, recovery and enforcement act of 1989 ("FIRREA"), OTS prescribed three separate standards of capital adequacy. The regulations require financial institutions to have minimum core capital equal to 4.00 percent of adjusted tangible assets; and risk-based capital equal to 8.00 percent of risk-based assets. The Bank's capital requirements and actual capital under the OTS regulations are as follows at December 31, 1999: Amount (Thousands) Percent of Assets Core Capital: Actual $17,524 7.25% Required 9,670 4.00% Excess 7,854 3.25% Risk-Based Capital: Actual 18,926 15.64% Required 9,681 8.00% Excess $ 9,245 7.64% 13 LANDMARK BANCSHARES, INC. PART I - FINANCIAL INFORMATION ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Bank has established an Asset/Liability Management Committee ("ALCO") for the purpose of monitoring and managing interest rate risk. The Bank is subject to the risk of interest rate fluctuations to the extent that there is a difference, or mismatch, between the amount of the Bank's interest-earning assets and interest-bearing liabilities, which mature or reprice in specified periods. Consequently, when interest rates change, to the extent the Bank's interest-earning assets have longer maturities or effective repricing periods than its interest-bearing liabilities, the interest income realized on the Bank's interest-earning assets will adjust more slowly than the interest expense on its interest-bearing liabilities. This mismatch in the maturity and interest rate sensitivity of assets and liabilities is commonly referred to as the "gap." A gap is considered positive when the amount of interest rate sensitive assets maturing or repricing during a specified period exceeds the amount of interest rate sensitive liabilities maturing or repricing during such period, and is considered negative when the amount of interest rate sensitive liabilities maturing or repricing during a specified period exceeds the amount of interest rate assets maturing or repricing during such period. Generally, during a period of rising interest rates, a negative gap would adversely affect net interest income while a positive gap would result in an increase in net interest income, and during a period of declining interest rates, a negative gap would result in an increase in net interest income while a positive gap would adversely affect net interest income. The Bank utilizes internally generated gap reports and externally prepared interest rate sensitivity of the net portfolio value reports to monitor and manage its interest rate risk. The Company has historically invested in interest-earning assets that have a longer duration than its interest-bearing liabilities. The mismatch in duration of the interest-sensitive liabilities indicates that the Bank is exposed to interest rate risk. In a rising rate environment, in addition to reducing the market value of long-term interest-earning assets, liabilities will reprice faster than assets; therefore, decreasing net interest income. To mitigate this risk, the Bank has placed a greater emphasis on shorter-term higher yielding assets that reprice more frequently in reaction to interest rate movements. In addition, the Bank has continued to include in total assets a concentration of adjustable-rate assets to benefit the one-year cumulative gap as such adjustable-rate assets reprice and are more responsive to the sensitivity of more frequently repricing interest-bearing liabilities. Quarterly, the OTS prepares a report on the interest rate sensitivity of the net portfolio value ("NPV") from information provided by the Bank. The OTS adopted a rule in August 1993 incorporating an interest rate risk ("IRR") component into the risk-based capital rules. Implementation of the rule has been delayed until the OTS has tested the process under which institutions may appeal such capital deductions. The IRR component is a dollar amount that will be deducted from total capital for the purpose of calculating an institution's risk-based capital requirement and is measured in terms of the sensitivity of its NPV to changes in interest rates. The NPV is the difference between incoming and outgoing discounted cash flows from assets, liabilities, and off-balance sheet contracts. An institution's IRR is measured as the change to its NPV as the result of a hypothetical 200 basis point change in market interest rates. A resulting change in NPV of more than 2% if the estimated market value of its assets will require the institution to deduct from its capital 50% of that excess change. The rule provides that the OTS will calculate the IRR component quarterly for each institution. 14 The following tables present the Bank's NPV as well as other data as of September 30, 1999 (the most recent available), as calculated by the OTS, based on information provided to the OTS by the Bank.
Change in Interest Rates in Basis Points (Rate Shock) Net Portfolio Value NPV as % of Present Value of Assets $ Amount $ Change % Change NPV Ratio Change - ---------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) +300 bp $ 8,076 $ (11,253) (58)% 3.58% (445) bp +200 bp (1) 12,205 (7,124) (37)% 5.28% (275) bp +100 bp 16,086 (3,243) (17)% 6.81% (122) bp 0 bp 19,329 8.03% -100 bp 21,478 2,150 11 % 8.80% 77 bp -200 bp 22,913 3,585 19 % 9.28% 125 bp -300 bp 24,427 5,099 26 % 9.77% 174 bp
(1) Denotes rate shock used to compute interest rate risk capital component.
September 30, 1999 ------------------ Risk Measures (200 Basis Point Rate Shock): Pre-Shock NPV Ratio: NPV as % of Present Value of Assets 8.03 % Exposure Measure: Post-Shock NPV Ratio 5.28 % Sensitivity Measure: Decline in NPV Ratio 2.75 %
Utilizing the data above, the Bank, at September 30, 1999, would have been considered by the OTS to have been subject to "above normal" interest rate risk. Accordingly, a deduction from risk-based capital would have been required. However, even with this deduction, the capital of the Bank would continue to exceed all regulatory requirements. Set forth below is a breakout, by basis points of the Bank's NPV as of September 30, 1999 by assets, liabilities, and off balance sheet items.
No Net Portfolio Value -300 bp -200 bp -100 bp Change +100 bp +200 bp +300 bp - --------------------------------------------------------------------------------------------------------------- Assets $ 249,953 $ 246,992 $ 244,156 $ 240,660 $ 236,131 $ 231,016 $ 225,690 - -Liabilities 225,614 224,149 222,733 221,358 220,026 218,738 217,484 +Off Balance Sheet 88 70 55 27 (19) (73) (130) --------- --------- --------- --------- --------- --------- --------- Net Portfolio Value $ 24,427 $ 22,913 $ 21,478 $ 19,329 $ 16,086 $ 12,205 $ 8,076
Certain assumptions utilized by the OTS in assessing the interest rate risk of savings associations were employed in preparing the previous table. These assumptions related to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under the various interest rate scenarios. It was also assumed that delinquency rates will not change as a result of changes in interest rates although there can be no assurance that this will be the case. Even if interest rates change in the designated amounts, there can be no assurance that the Bank's assets and liabilities would perform as set forth above. 15 Certain shortcomings are inherent in the preceding NPV tables because the data reflect hypothetical changes in NPV based upon assumptions used by the OTS to evaluate the Bank as well as other institutions. However, net interest income should decline with instantaneous increases in interest rates while net interest income should increase with instantaneous declines in interest rates. Generally, during periods of increasing interest rates, the Bank's interest rate sensitive liabilities would reprice faster than its interest rate sensitive assets causing a decline in the Bank's interest rate spread and margin. This would result from an increase in the Bank's cost of funds that would not be immediately offset by an increase in its yield on earning assets. An increase in the cost of funds without an equivalent increase in the yield of earning assets would tend to reduce net interest income. In times of decreasing interest rates, fixed rate assets could increase in value and the lag in repricing of interest rate sensitive assets could be expected to have a positive effect on the Bank's net interest income. However, changes in only certain rates, such as shorter term interest rate declines without longer term interest rate declines, could reduce or reverse the expected benefit from decreasing interest rates. 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Default Upon Senior Securities None Item 4. Submission of Matter to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Report on Form 8-K (C) None (D) None 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date February 11, 2000 LANDMARK BANCSHARES, INC. By /S/ Larry Schugart ------------------------------------------------ LARRY SCHUGART President and Chief Executive Officer (Duly Authorized Representative) EX-27 2 FDS
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION. 1000 3-MOS SEP-30-2000 DEC-31-1999 5,960 292 0 0 9,399 41,228 39,938 182,973 1,402 245,545 156,037 63,500 3,396 0 0 0 228 22,384 245,545 3,565 914 0 4,479 1,797 2,590 1,889 135 0 1,025 956 0 0 0 587 .55 .50 3.18 469 149 692 1,287 1,318 80 27 1,402 1,402 0 0
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