-----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, CUHu7iIlhog9+E9XNlMe3Aj8dZb6M2fWEofk+AckhoIQ21bYxENOXjdMaCZM4vq0 McZML4vbl0G3yoaixuzJzQ== 0000946275-99-000335.txt : 19990518 0000946275-99-000335.hdr.sgml : 19990518 ACCESSION NUMBER: 0000946275-99-000335 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99625591 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 March 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 March 31, 1999: $.10 par value common stock 1,211,884 shares (Class) (Outstanding) LANDMARK BANCSHARES, INC. INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Financial Condition as of March 31, 1999 (unaudited) and September 30, 1998 1 Statements of Income for the Three and Six Months Ended March 31, 1999 and 1998 (unaudited) 2-3 Statements of Cash Flows for the Six Months Ended March 31, 1999 and 1998 (unaudited) 4-5 Notes to Financial Statements 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 15-17 PART II OTHER INFORMATION Item 2. Changes in Securities 18 Item 4. Submission of Matter to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6(b). Reports on Form 8-K 18 SIGNATURES 19 1 LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, LANDMARK FEDERAL SAVINGS BANK Consolidated Statements of Financial Condition
March 31, 1999 September 30, 1998 (Unaudited) ---------------------------------------- ASSETS Cash and cash equivalents: Interest bearing $ 3,995,433 $ 2,011,819 Non-interest bearing 1,008,277 832,559 Time deposits in other financial institutions 302,939 249,867 Securities held to maturity 22,866,424 11,575,433 Securities available for sale 9,148,888 9,220,910 Mortgage-backed securities held to maturity 17,532,582 21,723,755 Loans receivable, net 175,338,651 172,324,254 Loans held for sale 1,107,320 2,408,689 Accrued income receivable 1,406,662 1,443,847 Real estate owned or in judgment and other repossessed property, net 464,564 70,939 Office properties and equipment, at cost less accumulated depreciation 1,850,297 1,729,282 Prepaid expenses and other assets 1,602,544 1,749,177 Income taxes receivable, current 27,482 --------------------------------------- TOTAL ASSETS $ 236,624,581 $ 225,368,013 --------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits 155,991,248 154,792,916 Landmark Official Checks 1,613,158 0 Other Borrowed Money 53,500,000 41,700,000 Advances from borrowers for taxes and insurance 1,418,864 1,904,170 Accrued expenses and other Liabilities 1,051,087 1,737,080 Deferred income taxes 155,686 210,080 Income taxes Current 29,200 0 --------------------------------------- TOTAL LIABILITIES $ 213,759,243 $ 200,344,246 --------------------------------------- Stockholders' Equity Common Stock 228,131 228,131 $.10 par value; 10,000,000 shares authorized; 2,281,312 shares issued March 31, 1999 Additional Paid-in Capital 22,537,957 22,466,144 Treasury Stock, at cost, 1,069,428 shares at March 31, 1999 (20,621,289) (17,904,245) and 953,378 shares at September 30, 1998 Retained income (substantially restricted) 21,333,879 20,739,642 Employee Stock Ownership Plan (692,719) (692,719) Management Stock Bonus Plan 0 (96,522) Accumulated other comprehensive income 79,378 283,336 --------------------------------------- Total Stockholders' Equity 22,865,337 25,023,767 --------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 236,624,581 $ 225,368,013 ---------------------------------------
2 LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, LANDMARK FEDERAL SAVINGS BANK Consolidated Statements of Income
Three Months Ended March 31 Six Months Ended March 31 1998 1999 1998 1999 (unaudited) (unaudited) ------------------------------------------------------------ INTEREST INCOME Interest on loans 3,416,614 3,494,232 6,757,895 7,062,919 Interest and dividends on investment securities 369,234 398,917 802,162 665,754 Interest on mortgage-backed securities 522,540 288,773 1,106,708 626,097 Total interest income 4,308,388 4,181,922 8,666,765 8,354,770 ------------------------------------------------------------ INTEREST EXPENSE Deposits 1,853,397 1,877,789 3,718,202 3,807,180 Borrowed funds 676,002 558,253 1,383,649 1,118,492 ------------------------------------------------------------ Total interest expense 2,529,399 2,436,042 5,101,851 4,925,672 Net interest income 1,778,989 1,745,880 3,564,914 3,429,098 PROVISION FOR LOSSES ON LOANS 75,000 155,000 145,000 230,000 ------------------------------------------------------------ Net interest income after provision for losses 1,703,989 1,590,880 3,419,914 3,199,098 NON-INTEREST INCOME Service charges and late fees 89,254 108,508 154,615 192,493 Net gain (loss) on sale of available for sale investments 95,042 66,984 95,042 132,655 Net gain (loss) on sale of loans 107,740 117,116 164,189 320,295 Service fees on loans sold 18,772 4,540 58,023 31,654 Other income 41,346 7,332 73,561 42,157 ------------------------------------------------------------ 352,154 304,480 545,430 719,254 NON-INTEREST EXPENSE Compensation and related expenses 614,785 643,377 1,196,942 1,295,237 Occupancy expense 49,392 59,950 96,674 123,697 Advertising 12,691 20,128 29,021 33,169 Federal insurance premium 39,018 37,611 77,840 75,578 Loss (gain) from real estate operations (788) 3,296 2,759 4,324 Data processing 63,245 58,433 109,244 101,468 Other expense 257,863 265,287 437,852 469,797 ------------------------------------------------------------ 1,036,206 1,088,082 1,950,332 2,103,270 Income before income taxes 1,019,937 807,278 2,015,012 1,815,082 INCOME TAXES EXPENSES 407,500 339,300 806,450 742,800 ------------------------------------------------------------ Net income 612,437 467,978 1,208,562 1,072,282 ------------------------------------------------------------ Basic earnings per share $0.39 $0.41 $0.77 $0.90 Fully diluted earnings per share $0.36 $0.36 $0.70 $0.81 Dividends per share $0.20 $0.25 $0.30 $0.40
3 LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, LANDMARK FEDERAL SAVINGS BANK Consolidated Statements of Comprehensive Income
Three Months Ended Six Months Ended March 31 March 31 1998 1999 1998 1999 (Unaudited) (Unaudited) (Unaudited) (Unaudited) --------------------------- --------------------------- Net income $ 612,437 $ 467,978 $1,208,562 $1,072,282 --------------------------- -------------------------- Other comprehensive income, net of tax: Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period 173,407 (192,433) 352,309 (124,364) Less: reclassification adjustment for gains included in net income (57,025) (40,190) (57,025) (79,594) ---------------------------- --------------------------- Total other comprehensive income 116,382 (232,623) 295,284 (203,958) ---------------------------- --------------------------- Comprehensive income $ 728,819 $ 235,355 $1,503,846 $ 868,324
4 LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY LANDMARK FEDERAL SAVINGS BANK Consolidated Statements of Cash Flows
Six Months Ended March 31 1998 1999 (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,208,562 $ 1,072,282 Adjustments to reconcile net income to net cash provided by operating activities: Amortization and impairment of mortgage servicing rights 0 (85,245) Depreciation 64,711 93,538 Decrease (increase) in accrued interest receivable 48,156 (15,482) Increase (decrease) in outstanding checks in excess of bank balance 0 1,613,158 Increase (decrease) in accrued and deferred income taxes 379,426 2,288 Increase (decrease) in accounts payable and accrued expenses 241,397 (633,326) Amortization of premiums and discounts on investments and loans (29,298) (29,228) Provision for losses on loans 145,000 230,000 Gain (loss) on sale of available for sale investments (95,042) (132,655) Other non-cash items, net (652,233) (323,555) Sale of loans held for sale 7,595,266 16,171,338 Gain on sale of loans held for sale (164,189) (320,295) Origination of loans held for sale (6,096,336) (13,003,464) Purchase of loans held for sale (3,507,110) (1,549,460) ----------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ (861,690) $ 3,737,004 ----------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Loan originations and principal payment on loans held for investment 409,567 5,986,698 Principal repayments on mortgage-backed securities 6,957,942 4,954,127 Loans purchased for investment (8,437,257) (9,636,591) Acquisition of mortgage-backed securities 0 (763,809) Acquisition of investment securities held to maturity (4,000,000) (15,464,481) Acquisition of investment securities available for sale (1,503,656) (273,275) Proceeds from sale of available for sale investment securities 0 247,860 Proceeds from maturities or calls of investment securities held to maturity 10,100,000 4,190,000 Net (increase) decrease in time deposits (50,000) (46,907) Sale of real estate acquired in settlement of loans 269,114 28,800 Acquisition of fixed assets (538,587) (214,553) ----------------------------------- NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES $ 3,207,123 $(10,992,131) -----------------------------------
5 19 LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, LANDMARK FEDERAL SAVINGS BANK Consolidated Statements of Cash Flows (Continued)
Six Months Ended March 31 1998 1999 (unaudited) (unaudited) --------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits $ 5,230,818 $ 1,198,332 Net increase (decrease) in escrow accounts (462,479) (485,306) Proceeds from FHLB advance and other borrowings 44,100,000 50,500,000 Repayment of FHLB advance and other borrowings (46,400,000) (38,700,000) Acquisition of Treasury Stock (757,243) (2,717,044) Other Financing Activities 96,522 96,522 Dividend Payment (479,254) (478,045) --------------------------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,328,364 9,414,459 --------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,673,797 (2,159,332) BEGINNING CASH AND CASH EQUIVALENTS 2,741,052 2,844,378 --------------------------------- ENDING CASH AND CASH EQUIVALENTS 6,414,849 5,003,710 --------------------------------- SUPPLEMENTAL DISCLOSURES Cash paid during the year for: Interest on deposits, advances, and other borrowings 5,212,822 5,408,548 Income taxes 684,103 754,210 Transfers from loans to real estate acquired through foreclosure 19,155 0
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 six months ending March 31, 1999, are not necessarily indicative of the results which may be expected for the fiscal year ending September 30, 1999. 2. 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 March 31, 1999 and September 30, 1998, is as follows:
Investment Securities March 31, 1999 September 30, 1998 ---------------------------------- Held to maturity: Government Agency Securities $21,481,424 $10,000,443 Municipal Obligations 1,385,000 1,575,000 Other 0 0 ----------------------------- $22,866,424 $11,575,433 Available for sale: Common Stock 5,615,488 5,800,410 Stock in Federal Home Loan Bank 3,323,400 3,210,500 Other 210,000 210,000 ----------------------------- $ 9,148,888 $ 9,220,910 Mortgage - Backed Securities held to maturity: FNMA - Arms $ 7,604,891 $ 8,841,621 FHLMC -Arms 2,339,274 2,814,514 FHLMC -Fixed Rate 112,117 128,174 CMO Government Agency 5,313,267 7,058,687 CMO Private Issue 1,616,601 2,202,738 FNMA - Fixed Rate 388,641 448,123 GNMA - Fixed Rate 157,791 229,898 ----------------------------- $17,532,582 $21,723,755
4. Loan Receivable, Net A summary of the Bank's loans receivable at March 31, 1999 and September 30, 1998, is as follows:
March 31, 1999 September 30, 1998 -------------------------------------- Real Estate loans: Residential 135,501,542 129,688,030 Construction 1,412,696 1,386,224 Commercial 6,564,043 4,936,897 Second mortgage 9,565,159 10,071,744 Commercial business 7,059,740 8,578,694 Consumer 16,619,881 19,049,741 ------------- ------------- Gross loans 176,723,061 173,711,330 Less: Net deferred loan fees, premiums and discounts (188,835) (250,323) Allowance for Loan Losses (1,195,575) (1,136,753) ------------------------------------- Total loans, net $ 175,338,651 $ 172,324,254
A summary of the Bank's allowance for loan losses for the three and six months ended March 31, 1999 and 1998, are as follows:
Three Months Ended Six Months Ended March 31 March 31 1999 1998 1999 1998 --------------------------------------------------------- Balance Beginning $ 1,204,948 $ 1,043,931 $ 1,136,753 $ 968,623 Provisions Charged to Operations 155,000 75,000 230,000 145,000 Loans Charged Off Net of Recoveries (164,373) (51,577) (171,178) (46,269) -------------------------------------------------------- Balance Ending $ 1,195,575 $ 1,067,354 $ 1,195,575 $ 1,067,354
There has been no significant change in the level of non performing loans from September 30, 1998 to March 31, 1999. 8 5. Real Estate owned or in judgment: March 31, 1999 September 30, 1998 ------------------------------------ Real Estate Acquired by Foreclosure $ 0 $ 0 Real Estate Loans in Judgment and Subject to Redemption 359,384 56,589 Other Repossessed Assets 105,180 14,350 ------------------------------------ $464,564 $ 70,939 6. 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 March 31, 1999, the Bank had outstanding commitments to fund real estate loans of $3,779,754.00. Of the commitments outstanding, $3,093,404.00 are for fixed rate loans at rates of 6.625% to 8.50%. Commitments for adjustable rate loans amount to $686,350.00 with initial rates of 6.375% to 8.00%. Outstanding loan commitments to sell as of March 31, 1999 were $1,583,005.00. In addition the Bank had outstanding commercial loan commitments of $2,679,758.00 with initial rates of 7.75% to 10%. 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. 9 Earnings per share for the three and six months ending March 31, 1999 and 1998, was determined as follows: STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Basic Earnings Per Share Three months ended Six months ended March 31 March 31 1999 1998 1999 1998 -------------------------------------------------------------------- Weighted average common shares outstanding Net of Treasury shares 1,327,934 1,688,641 1,327,934 1,688,641 Average unallocated ESOP shares (65,812) (81,000) (67,523) (82,711) Weighted average treasury shares purchased (106,369) (19,408) (69,021) (9,704) Nonvested MSBP shares (2,281) (20,526) (4,562) (22,810) -------------------------------------------------------------------- Weighted Average Shares for Basic EPS 1,153,472 1,567,707 1,186,828 1,573,416 -------------------------------------------------------------------- Net Earnings 467,978 612,437 1,072,281 1,208,562 -------------------------------------------------------------------- Per share amount $0.41 $0.39 $0.90 $0.77
Diluted Earnings Per Share Three months ended Six months ended March 31 March 31 1999 1998 1999 1998 ------------------------------------------------------------ Weighted average shares for Basic EPS 1,153,472 1,567,707 1,186,828 1,573,416 Dilutive stock options 133,433 134,290 134,591 136,424 Dilutive MSBP shares 759 6,881 1,539 7,781 ------------------------------------------------------------ Weighted Average Shares for Diluted EPS 1,287,664 1,708,877 1,322,958 1,717,647 ------------------------------------------------------------ Net Earnings 467,978 612,437 1,072,281 1,208,562 ------------------------------------------------------------ Per share amount $0.36 $0.36 $0.81 $0.70
8. DIVIDENDS At a January 1999 board meeting, the Directors of the Company declared a .15 per share dividend and a $0.10 per share special dividend. The dividend was payable to all stockholders of record as of February 3, 1999. 9. COMPREHENSIVE INCOME Effective October 1, 1998, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 130 entitled "Reporting Comprehensive Income" (SFAS No. 130). This statement requires disclosure of the components of comprehensive income and the accumulated balance of other comprehensive income within consolidated total stockholders' equity. The adoption of the provisions of SFAS No. 130, which are only of a disclosure nature, did not effect the Corporation's consolidated financial position, results of operations or liquidity. 10 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 March 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 Wichita, Kansas City, and other cities in Kansas and in Albuquerque and Santa Fe, New Mexico and Madison, Wisconsin. 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 and savings deposit loans. Landmark Bancshares, Inc. may from time to time make written or oral "forward-looking statements", including statements contained in the Company's filings with the Securities and Exchange Commission (including this report on Form 10-Q), in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations, estimates and intentions, that are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in forward-looking statements; the strength of the United States economy in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate and market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the willingness of users to substitute competitors' products and services for the Company's products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes, acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks described above involved in the foregoing. The Company cautions that these important factors are not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company. 11 Management Strategy: Management's strategy has been to maintain profitability and increase capital. 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 and savings deposit loans. 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 and the continued sales of loans in the secondary market. 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 7.0% and 7.25% for investment and selling all other fixed rate loans. Through out the first six months of fiscal year 1999 rates continued with moderate decline. As a result of the rates at the end of March 1999, the Bank reflected an unrealized loss of $1,596 in loans held for sale. Sustained levels of gain on sale of loans is dependent on continued stable or downward interest rate movement and would likely be adversely affected by a continued rise in interest rates. Changes in financial condition between March 31, 1999 and September 30, 1998: Total assets increased by $11,256,568, or approximately 4.99% between September 30, 1998 and March 31, 1999. This increase is largely attributed to a $11,290,991 increase in securities held to maturity. The Bank utilizes FHLB line of credit and short term advances which increased $11.8 million from September 30, 1998 to March 31, 1999 to fund the acquisition of securities held to maturity. In managing the Bank's overall interest rate risk, security purchases have been made which stabilize the level of risk to the extent that borrowing will reprice on the call dates of securities. 12 Results of operations: comparison between the three and six months ended March 31, 1999 and 1998: Net income for the three-month period ended March 31, 1999 of $467,978 represents a decrease of $144,459 from the net income reported for the three-month period ended March 31, 1998. The decrease was primarily due to a $233,767 decrease of interest on mortgage-backed securities and a increase of $80,000 in the provision for losses on loans partially offset by a decrease of $93,357 in total interest expense. Net income for the six-month period ending March 31, 1999 of $1,072,282 represents a decrease of $136,280 or a 11.2% decrease from the net income reported for the six-month period ended March 31, 1998. The decrease is primarily due to a decrease of $311,995 in total interest income, a $85,000 increase in the provision for losses on loans, partially offset by a $176,179 decrease in total interest expense. Net interest income after provision for losses on loans for the three-month period ended March 31, 1999 decreased $113,109 or approximately 6.63% to $1,590,880 as compared with $1,703,989 for the same period ended March 31, 1998. This decrease is associated with the decrease in total interest income and the increase of the provision for loan losses. Net interest income after provision for losses on loans for the six-month period ended March 31, 1999 decreased $220,816 or approximately 6.45% to $3,199,098 as compared with $3,419,914 for the same period ended March 31, 1998. This decrease is associated with the decrease in total interest income and the increase of the provision for loan losses. Non-interest income for the three month period ended March 31, 1999 decreased $47,674 or 13.53% to $304,480 as compared with $352,154 for the same period ended March 31, 1998. This decrease was primarily due to a $28,058 or net gain on sale of investments and a decrease of $34,014 in other income. Non-interest income for the six month period ended March 31, 1999 increased $173,824 or 31.86% to $719,254 as compared with $545,430 for the same period ended March 31, 1998. This increase was primarily due to a $156,102 on net gain on sale of loans. Non-interest expense for the three month period ended March 31, 1999 increased $51,876 or 5.00% to $1,088,082 as compared with $1,036,206 for the same period ended March 31, 1998. This increase is primarily due to increased compensation compared to the quarter ending March 31, 1998. Non-interest expense for the six-month period ended March 31, 1999 increased $152,938 or 7.84% to $2,103,270 as compared with $1,950,332 for the same period ended March 31, 1998. This increase is primarily due to increased compensation costs compared to the six months ending March 31, 1998. The bank added $155,000 for the three-month period ending March 31, 1999 and $230,000 for the six-month period ending March 31, 1999 to the provision for loan losses. During the quarter, management recognized that there were changes in risk factors related to the consumer loan porfolio that resulted in an increase in classified loans. Mangement feels that at present, loans that might have potential losses have been identified and are appropriately classified and that adequate provision for loss has been accrued. 13 Earnings 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 poses an important business issue regarding how existing application software programs and operating systems can accommodate this date value. Many computer programs that can only distinguish the final two digits of the year entered are expected to read entries for the year 2000 as the year 1900. Like most financial service providers, the Company may be significantly affected by the Year 2000 issue due to the nature of financial information. The Company has been evaluating 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. If computer systems are not adequately changed to identify the year 2000, many computer applications could fail or create erroneous results. As a result, many calculations that rely on the date field information, such as interest, payment or due dates and other operating functions, may generate results that could be significantly misstated, and the Company could experience a temporary inability to process transactions and engage in normal business activities. The Company has also initiated formal communications with both information technology and non-information technology vendors to determine the extent to which the Company's interface systems may be vulnerable to those third parties' failure to remediate their own Year 2000 issues. We have examined all of our non-information technology systems and have either received certifications of Year 2000 compliance for systems controlled by third party providers or determined that the systems should not be impacted by the Year 2000. We expect to further test the systems we control and receive third party certification, where appropriate, that they will continue to function. We do not expect any material costs to address our non-information technology systems and have not had any material costs to date. We have determined that the information technology systems we use have substantially more Year 2000 risk than the non-information technology systems we use. 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. There is no significant change in the Banks Year 2000 status since the September 30, 1998 annual report. 14 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 4.09% during March 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 regulatory capital equal to 2.00 percent of tangible assets; 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 March 31, 1999: Amount (Thousands) Percent of Assets Core Capital: Actual $16,995 7.32% Required 9,282 4.00% Excess 7,713 3.32% Risk-Based Capital: Actual 18,192 14.92% Required 9,752 8.00% Excess $ 8,440 6.92% 15 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 total assets a concentration of adjustable-rte 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. 16 The following tables present the Bank's NPV as well as other data as of December 31, 1998 (the most recent available), as calculated by the OTS, based on information provided to the OTS by the Bank.
Change in Interest Net Portfolio Value NPV as % of Present Value of Rates in Basis Assets Points (Rate Shock) $ Amount $ Change % Change NPV Ratio Change - ------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands) +400 bp $ 11,297 $ (11,794) (51)% 5.46% (481) bp +300 bp 15,097 ( 7,994) (35)% 7.12% (315) bp +200 bp (1) 18,571 ( 4,520) (20)% 8.56% (171) bp +100 bp 21,370 ( 1,721) ( 7)% 9.65% ( 62) bp 0 bp 23,091 10.27% -100 bp 23,797 706 3 % 10.47% 20 bp -200 bp 24,235 1,144 5 % 10.55% 28 bp -300 bp 25,028 1,937 8 % 10.76% 49 bp -400 bp 25,431 2,340 10 % 10.81% 54 bp
(1) Denotes rate shock used to compute interest rate risk capital component. December 31, 1998 ----------------- Risk Measures (200 Basis Point Rate Shock): Pre-Shock NPV Ratio: NPV as % of Present Value of Assets 8.39 % Exposure Measure: Post-Shock NPV Ratio 6.78 % Sensitivity Measure: Decline in NPV Ratio 1.60 % Utilizing the data above, the Bank, at December 31, 1998, would not have been considered by the OTS to have been subject to "above normal" interest rate risk. Accordingly, no deduction from risk-based capital would have been required. Set forth below is a breakout, by basis points of the Bank's NPV as of December 31, 1998 by assets, liabilities, and off balance sheet items.
No Net Portfolio Value -400 bp -300 bp -200 bp -100 bp Change +100 bp +200 bp +300 bp +400 bp - ------------------------------------------------------------------------------------------------------------------------------------ Assets $235,242 $232,620 $229,751 $227,356 $224,819 $221,402 $217,040 $212,128 $206,989 - -Liabilities 210,097 207,798 205,654 203,637 201,738 199,944 198,241 196,623 195,075 +Off Balance Sheet 286 206 139 78 10 (87) (227) (408) (617) - ------------------------------------------------------------------------------------------------------------------------------------ Net Portfolio Value $ 25,431 $ 25,028 $ 24,235 $ 23,797 $ 23,091 $ 21,370 $ 18,571 $ 15,097 $ 11,297
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. 17 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. 18 PART II - OTHER INFORMATION Item 2. - Changes in Securities NONE Item 4. - Submission of Matter to a Vote of Security Holders An annual meeting was held on January 20, 1999 to ratify the election of David H. Snapp to serve as Director for three years. In addition the stockholders did ratify Regier Carr & Monroe, L.L.P., as independent auditors of Landmark Bancshares, Inc., for the fiscal year ending September 30, 1999. Votes were as follows: Number Percentage David H. Snapp For 1,199,342 99.98% Against 182 .02% Abstain 0 Regier Carr & Monroe For 1,197,975 99.87% Against 107 .01% Abstain 1.442 .12% Directors continuing in office following the annual meeting include C. Duane Ross, Richard A. Ball, Larry Schugart and Jim Lewis. Item 5. - Other Information NONE Item 6(b). - Reports on Form 8-K NONE 19 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 May 17, 1999 LANDMARK BANCSHARES, INC. By /S/ Larry Schugart ------------------------------------- LARRY SCHUGART President and Chief Executive Officer (Duly Authorized Representative) By /S/ James F. Strovas ------------------------------------- JAMES F. STROVAS Senior Vice President and Chief Financial 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 6-MOS Sep-30-1999 Mar-31-1999 5,004 303 0 0 9,149 40,399 40,520 176,446 1,197 236,625 157,604 53,500 2,655 0 0 0 228 22,637 236,625 7,063 1,292 0 8,355 3,807 1,119 3,429 230 0 2,103 1,815 0 0 0 1,072 .90 .81 284 326 366 716 1,729 1,107 168 3 1,197 1,197 0 0
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