SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 000-22951
LANDMARK FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
United States of America 16-1531343
(State or other jurisdiction (IRS Employer Identification
of incorporation or number)
26 Church Street, Canajoharie, New York 13317
(Address of principal executive offices)
Registrant's telephone number, including area code:
(518) 673-2012
----------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check 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 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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 152,000 shares of Common Stock, par value $.10 per share.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
LANDMARK FINANCIAL CORP. AND SUBSIDIARY
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
at June 30, 1998 and March 31, 1998 3
Consolidated Statements of Operations for the
three months ended June 30, 1998 and 1997 4
Consolidated Statement of Changes In Stockholders'
Equity for the three Months ended June 30, 1998 5
Consolidated Statements of Cash Flows for the three
months ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition And Results of Operations 9
PART II OTHER INFORMATION 15
SIGNATURES 17
Landmark Financial Corporation and Subsidiary
Consolidated Statements of Financial Condition
June 30, 1998 and March 31, 1998
(Unaudited)
June 30, March 31,
1998 1998
Assets
Cash $ 572,456 $ 40,236
Interest Bearing Deposits 1,796,693 1,490,000
Investment Securities, Net (Available For Sale) 1,105,792 1,103,916
Mortgage-Backed Securities, Net (Held To Maturity) 59,968 74,080
Loans Receivable, Net 14,761,913 13,640,142
Accrued Interest Receivable 106,033 86,143
Stock In Federal Home Loan Bank, At Cost 87,400 87,400
Premises And Equipment, At Cost
Less Accumulated Depreciation 370,910 197,234
Deferred Tax Asset, Net 13,255 7,100
Other Assets 132,475 84,787
$19,006,895 $16,811,038
Liabilities And Stockholders' Equity
Deposits 16,782,089 14,628,856
Accrued Interest On Deposits 39 0
Advance Payments By Borrowers For Taxes
And Insurance 132,682 97,453
Accrued Expenses And Other Liabilities 44,833 25,374
Total Liabilities 16,959,643 14,751,683
Stockholders' Equity:
Preferred Stock, $0.10 Par Value Per Share:
100,000 Shares Authorized; None Issued 0 0
Common Stock, $0.10 Par Value Per Share:
152,000 Shares Authorized; 152,000 and 0
Issued At June 30, 1998 and
June 30, 1997 Respectively 15,200 15,200
Additional Paid-In Capital 1,192,833 1,192,833
Retained Earnings (Substantially Restricted) 947,246 963,752
Unrealized Gain (Loss) On Securities Available
For Sale, Net Of Taxes 7,412 5,036
Unearned ESOP Shares (115,439) (117,466)
Total Stockholders' Equity 2,047,252 2,059,355
Total Liabilities And Stockholders' Equity $19,006,895 $16,811,038
See accompanying notes to unaudited consolidated financial statements.
Landmark Financial Corporation and Subsidiary
Consolidated Statements of Operation
June 30,1998 and June 30,1997
(Unaudited)
For the Three Months Ended
June 30,
1998 1997
Interest income:
Loans receivable $ 315,157 $ 232,606
Mortgage-backed securities 1,348 2,655
Investments 47,618 10,959
Total interest income 364,123 246,220
Interest expense: 210,190 139,499
Deposits
Total interest expense 210,190 139,499
Net interest income 153,933 106,721
Provision for losses on loans 18,447 0
Net interest income after provision
for losses on loans 135,486 106,721
Noninterest income:
Late charges and other loan fees 6,996 8,683
Gain on sale of investment securities
and mortgage-backed securities 0 12,411
Commissions and other fees 2,637 894
Other 3,923 2,478
Total noninterest income 13,556 24,466
Noninterest expense:
Compensation and employee benefits 81,607 55,921
Office buildings and equipment 2,446 4,683
Data processing 9,936 8,189
Advertising 1,638 1,620
Depositinr,urance premiums 3,848 1,343
Other 64,778 56,046
Amortization of cost in excess of
fair value of net assets acquired 7,450 3,543
Total noninterest expense 171,703 131,345
Income (loss) before income taxes (22,661) (158)
Income tax expense (benefit) (6,155) 0
Net income (loss) ($16,506) ($158)
Earnings per share ($0.12) --
Average common and common equivalent
shares outstanding 139,942 --
See accompanying notes to unaudited consolidated financial
statements.
PAGE
Landmark Financial Corporation and Subsidiary
Consolidated Statement of Changes In Stockholders' Equity
Three Months Ended June 30, 1998
(Unaudited)
Unrealized
gain(loss)
on securities
Additional available for Unearned Total
Common paid-in Retained sale, net, of ESOP stockholders'
stock capital earnings applicable taxes shares equity
Balance, March 31, 1998 $15,200 $1,192,833 $963,752 $5,036 ($117,466) $2,059,355
Net income (loss) (16,506) (16,506)
Issuance of common stock 2,027 2,027
Change in unrealized gain
(loss) on securities
available for sale, net 2,376 2,376
Balance, June 30, 1998 $15,200 $1,192,833 $947,246 $7,412 ($115,439) $2,047,252
See accompanying notes to unaudited consolidated financial statements.
PAGE
Landmark Financial Corporation and Subsidiary
Consolidated Statements of Cub Flows
Three Ended June 30, 1998 and 1997
(Unaudited)
June 30, June 30,
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES
Net income (loss) ($16,506) ($158)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation 4,017 3,543
Amortization (accretion), net 3,433 377
Provision for loan losses 18,447 0
Deferred income taxes (6,155) 0
Decrease (increase) in
Accrued interest receivable (19,890) (12,528)
Conversion costs 0 (72,195)
Trading account securities 0 69,324
Other assets (47,688) (17,658)
Increase (decrease) in
Accrued expenses and other liabilities 19,459 8,107
Accrued interest payable 39 0
Income taxes payable 0 1,000
(44,844) (20,188)
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES
Net increase in loans receivable (1,140,218)(3,277,919)
Purchase of investments required by law 0 (13,100)
Proceeds from sale of held-to-maturity securities 0 127,084
Purchases of avail&tile-for-sale securities 0 (200,000)
Proceeds from principal repayments of 11,180 15,373
mortgage-backed securities
Purchase of premises and equipment (177,694) (7,278)
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES
Net increase (decrease) in deposits 2,153,233 2,960,462
Increase (decrease) in advances from borrowing
taxes and insurance 35,229 71,882
Proceeds from sale of capital stock, net 2,027 0
2,190,489 3,032,344
Net Increase (decrease) In cash 838,913 (343,684)
CASH, beginning of year 1,530,236 709,458
CASH, end of period $2,369,149 $365,774
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Income taxes $0 $900
Interest $210,151 $139,499
Increase (decrease) on unrealized gain
on securities available-for-sale $2,376 $2,713
Transfer from loans receivable to foreclosed
real estate $0 $45,063
See accompanying notes to unaudited consolidated financial
statements.
LANDMARK FINANCIAL CORP. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
June 30, 1998
(1) Landmark Financial Corp. and Subsidiary
Landmark Financial Corp. (the Company) was incorporated
under the laws of the state of Delaware for the purpose of
becoming the savings and loan holding company of Landmark
Community Bank, a Savings Bank (the Bank) in connection with the
Bank's conversion from a federally chartered mutual savings bank
to a federally chartered stock savings bank, pursuant to its Plan
of Conversion. On August 12, 1997, the Company commenced a
Subscription and Community Offering of its shares in connection
with the conversion of the Bank (the Offering). The Offering was
consummated and the Company acquired the Bank on November 13,
1997. The Company had no assets prior to the conversion and
acquisition on November 13, 1997.
The accompanying consolidated financial statements as of and
for the three months ended June 30, 1998, and the statement of
financial condition as of March 31, 1998, respectively include
the accounts of the Company and the Bank. The accompanying
statements of operations and cash flows for the three months
ended June 30, 1997, respectively, are of the Bank.
(2) Basis of Preparation
The accompanying unaudited consolidated financial statements
were prepared in accordance with instructions for Form 10-QSB.
To the extent that information and footnotes required by
generally accepted accounting principles for complete financial
statements are contained in or consistent with the audited
financial statements incorporated by reference in the Company's
Annual Report on Form 10-KSB for the year ended March 31, 1998,
such information and footnotes have not been duplicated herein.
In the opinion of management, all adjustments consisting only of
normal recurring accruals which are necessary for the fair
presentation of the interim financial statements have been
included. The consolidated statement of operations for the three
month period ended June 30, 1998 is not necessarily indicative of
the results which may be expected for the entire year. The March
31, 1998 balance sheet has been derived from the audited
financial statements of that date.
LANDMARK FINANCIAL CORP. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
June 30, 1998
(3) Pro Forma Earnings Per Share
On November 13, 1997, 152,000 shares of the Company's stock
were issued, including 12,160 shares issued to the Employees
Stock Ownership Plan (ESOP). Pro forma income per share amounts
for the three month period ended June 30, 1998 is based upon
140,043 shares, exclusive of shares issued to the ESOP, as though
those shares were outstanding for the entire period.
(4) Stockholders' Equity and Stock Conversion
The Bank converted from a federally chartered mutual savings
bank to a federally chartered stock savings bank pursuant to its
Plan of Conversion which was approved by the Bank's members on
September 23, 1997. The conversion was effective on November 23,
1997 and resulted in the issuance of 152,000 shares of common
stock (par value $0.10) at $10.00 per share for a gross sales
price of $1,520,000. Cost related to conversion (primarily
underwriters' commissions, printing and professional fees)
aggregated $311,967 and were deducted to arrive at the net
proceeds of $1,086,433 net of the ESOP loan. The company
established an employee stock ownership trust which purchased
12,160 shares of common stock of the Company at the issuance
price of $10.00 per share with funds borrowed from the Bank.
(5) Employee Stock Ownership Plan
All employees meeting age and service requirements are
eligible to participate in an ESOP established on November 23,
1997. Contributions made by the Bank to the ESOP are allocated
to participants by a formula based on compensation. Participant
benefits become 100% vested after five years. ESOP expense for
the period ended June 30, 1998 was $2,027. There was no ESOP
expense for the period ended June 30, 1997.
Landmark Financial Corp. and Subsidiary
June 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the financial condition of
Landmark Financial Corp. and its wholly owned subsidiary,
Landmark Community Bank, a Savings Bank, (collectively the Bank)
at June 30, 1998 to the financial condition at March 31, 1998,
its fiscal year-end, and the results of operations for the three
months ended June 30, 1998, with the same period in fiscal 1997.
This discussion should be read in conjunction with the interim
financial statements and notes which are included herein.
During August and September 1997, the Office of Thrift
Supervision (OTS) conducted its previously scheduled routine
safety and soundness on-sight examination of the Bank. During
the course of its examination OTS examiners raised a number of
concerns and noted certain deficiencies in the Bank's operations.
As a result of the examination the Bank had agreed with the OTS
not to originate any new consumer or commercial loans and to
limit one-to-four family loan origination's to no more than
$200,000 per month. Management has addressed the concerns of the
OTS and full operational lending authority was restored effective
February 10, 1998.
General
Landmark Financial Corp. was organized as a Delaware corporation
in June 1997 to acquire all of the capital stock issued by
Landmark Community Bank, a Savings Bank upon its conversion from
the mutual to stock form of ownership. Landmark Community Bank,
a Savings Bank was founded in 1925 as a New York chartered
savings and loan association located in Canajoharie, New York.
In 1997, its members voted to convert to a federal charter. The
business of the holding company consists primarily of the
business of the Bank.
The Bank conducts its business through its main office in
Canajoharie, Montgomery County, New York. The Bank has been, and
intends to continue to be, a community oriented financial
institution offering selected financial services to meet the
needs of the communities it serves. The Bank attracts deposits
from the general public and historically has used such deposits,
together with other funds, primarily to originate one-to-four
family residential mortgage loans, construction and land loans
for single-family residential properties, and consumer loans
consisting primarily of loans secured by automobiles. While the
Bank's primary business has been that of a traditional thrift
institution, originating loans in its primary market area for
retention in its portfolio, the Bank also has been an active
participant in the origination of consumer loans primarily for
the purchase of automobiles.
Landmark Financial Corp. and Subsidiary
June 30, 1998
The most significant factors influencing the operations of the
Bank and other financial institutions include general economic
conditions, competition in the local market place and the related
monetary and fiscal policies of agencies that regulate financial
institutions. More specifically, the cost of funds primarily
consisting of insured deposits is influenced by interest rates on
competing investments and general market rates of interest, while
lending activities are influenced by the demand for real estate
financing and other types of loans, which in turn is affected by
the interest rates at which such loans may be offered and other
factors affecting loan demand and funds availability.
Financial Condition
Total assets increased $2.20 million, or 13.1%, to $19.01 million
at June 30, 1998 from $16.81 million at March 31, 1998. The
increase in assets is due to increases in loans receivable
outstanding and cash on hand.
Loans receivable, net, increased by $1.12 million, or 8.2%, to
$14.76 million at June 30, 1998 from $13.64 million at March 31,
1998, primarily due to increases in consumer loans of $681,000,
an increase in commercial loans of $175,000, and an increase in
one-to-four family portfolio loans of $283,000.
Interest-bearing deposits in other institutions increased by
$307,000, or 20.58%, to $1.80 million at June 30, 1998 from $1.49
million at March 31, 1998, due to net proceeds of new deposits
being temporarily invested in Federal Home Loan Bank overnight
deposits in anticipation of funding new loans.
Deposits increased $2.15 million, or 14.7%, to $16.78 million at
June 30, 1998 from $14.63 million at March 31, 1998. The
increase in deposits is primarily attributable to an increase in
local deposits of $1.84 million held by the bank in the form of
certificates of deposit, and an increase in DDA checking account
deposits of $202,000.
Total equity decreased $12,103, or 0.6%, to $2,047,252 at June
30, 1998 from $2,059,356 at March 31, 1998, primarily due to a
net loss for the three months ended June 30, 1998 of $16,506
which was partially offset by an increase in the unrealized gain
of $2,376 on Available-for Sale-Securities, and the allocation of
$2,027 for ESOP shares.
Comparison of Operating Results for the Three Months Ended June
30, 1997 and the Three Months Ended June 30, 1998
Performance Summary. The Company's net income decreased $16,348
to a loss of $16,506 for the three months ended June 30, 1998,
compared to a net loss of $158 for the three months ended June
30, 1997. The decrease in earnings for the three months ended
June 30, 1998 as compared to the same period in 1997 is primarily
due to an increase in
Landmark Financial Corp. and Subsidiary
June 30, 1998
loan loss provision of $18,447 and a decrease in gain realized on
sale of trading account securities of $12,411, and an increase in
employee compensation and benefits of $25,686, and an increase in
other non-interest expense of $8,732, all of which were not
entirely offset by the increase in net interest income of
$47,212.
Net interest income. The Company's net interest income increased
$47,212, or 44.2%, to $153,933 for the three months ended June
30, 1998, from $106,721 for the three months ended June 30, 1997.
The increase in net interest income reflects an increase of
$117,903 in interest income and a corresponding increase of
$70,691 in interest expense for the three months ended June 30,
1998 as compared to the same period in 1997. The increase in
interest income reflects increased balances of loans receivable,
primarily consumer auto loans and one-to-four family mortgages,
and increased balances in interest bearing deposits held at other
institutions. Interest expense increased primarily due to the
increase in deposits.
Provision for Loan Losses. During the three months ended June
30, 1998, the Bank charged $18,447 against earnings as a
provision for loan losses compared to a provision of 0 (zero)
charged against earnings for the three months ended June 30,
1997. The allowance for loan losses at June 30, 1998 is .89% of
loans receivable, as compared to .89% of loans receivable, at
March 31, 1998. Total nonperforming loans at June 30, 1998 are
$97,000, or .65% of loans receivable, as compared to total
nonperforming loans at March 31, 1998 of 144,000 or 1.05% of
loans receivable.
Management regularly reviews the loan portfolio, including
problem loans, and changes in the relative makeup of the loan
portfolio to determine whether any loans require classification
or the establishment of additional reserves. Management will
continue to monitor its allowance for loan losses and make future
additions to the allowance as economic conditions dictate.
Although the Bank maintains its allowance for loan losses at a
level which it considers to be adequate to provide for potential
losses, there can be no assurance that future losses will not
exceed estimated amounts or that additional provisions for loan
losses will not be required in future periods.
Noninterest Income. For the three months ended June 30, 1998,
noninterest income decreased $10,910 or 44.6%, to $13,556 from
$24,466 for the same period in 1997. The decrease is primarily
due to gain realized in the three months ended June 30, 1997 on
the sale of trading investment securities in the amount of
$12,411. No investment securities were sold in the three months
ended June 30, 1998.
Noninterest Expense. Noninterest expense increased $40,358 or
30.7%, to $171,703 for the three months ended June 30, 1998 from
$131,345 for the same period in 1997. The increase was primarily
due to an increase in employee compensation and related benefits
Landmark Financial Corp. and Subsidiary
June 30, 1998
expense of $25,686 and an increase in other expenses primarily
related to the increased operating expenses of a stock savings
bank.
Nonperforming Assets
On June 30, 1998, nonperforming assets were $119,000 compared to
$144,000 on March 31, 1998. The nonperforming assets consisted of
loans of $96,000 and repossessed assets of $24,000. The balance
of the Bank's allowance for loan losses was $133,000 or 111.17%
of nonperforming assets as of June 30, 1998. The balance of the
Bank's allowance for loan losses was $110,000 or 71.90% of
nonperforming assets as of June 30, 1997. Loans are considered
nonperforming when the collection of principal and/or interest is
not probable, or in the event payments are more than ninety days
delinquent.
Capital Resources
The Bank is subject to three capital to asset requirements in
accordance with OTS regulations. The following table is a
summary of the Bank's regulatory capital requirements versus
actual capital as of June 30, 1998 and March 31, 1998,
respectively:
June 30, 1998
Actual Required Excess
amount/percent amount/percent amount/percent
(dollars in thousands)
Tangible $2,040 10.74% $285 1.50% $1,755 9.24%
Core leverage capital $2,040 10.74% $760 4.00% $1,280 6.74%
Risk-based capital $2,173 18.89% $920 8.00% $1,253 10.89%
March 31, 1998
Actual Required Excess
amount/percent amount/percent amount/percent
(dollars in thousands)
Tangible $2,054 12.22% $252 1.50% $1,802 10.72%
Core leverage capital $2,054 12.22% $674 4.00% $1,380 8.21%
Risk-based capital $2,176 21.88% $799 8.00% $1,377 13.85%
Landmark Financial Corp. and Subsidiary
June 30, 1998
Liquidity
The Bank's principal sources of funds are deposits, principal and
interest payments on loans, deposits in other insured
institutions and investment securities. While scheduled loan
repayments and maturing investments are relatively predictable,
deposit flows and early loan prepayments are more influenced by
interest rates, general economic conditions and competition.
Additional sources of funds may obtained from the FHLB of New
York by utilizing numerous available products to meet funding
needs.
The Bank is required to maintain minimum levels of liquid assets
as defined by regulations. The required percentage is currently
5.0% of net withdrawable savings deposits and borrowings payable
on demand or in one year or less. The Bank has maintained its
liquidity ratio at levels exceeding the minimum requirement. The
eligible liquidity ratios at June 30, 1998 and March 31, 1998
were 20.48% and 18.90%, respectively.
In light of the competition for deposits, the Bank may utilize
the funding source of the FHLB to meet demand in accordance with
the Bank's growth plans. The wholesale funding sources may allow
the Bank to obtain a lower cost of funding and create a more
efficient liability match to the respective assets being funded.
For the purpose of the cash flow statement, all short-term
investments with a maturity of three months or less at date of
purchase are considered cash equivalents. Cash and cash
equivalents for the periods ended June 30, 1998 and March 31,
1998 were $2,369,149 and $1,530,236, respectively. The increase
was primarily due to the fact that an increase in deposits of
$2.2 million was partially offset by an increase in loans
receivable of $1.12 million and an increase in Premises and
Equipment net of accumulated depreciation of $174,000.
Net cash provided by operating activities decreased to
$(44,844) at June 30, 1998, from $(20,188) at June 30, 1997.
Year 2000
The Bank is in the process of conducting a review of its computer
systems in order to determine which systems could be affected by
the "Year 2000" issue, while at the same time developing an
implementation plan to resolve any identified problem. The "Year
2000" problem is the result of computer programs that were
written using a two digit field rather than a four digit field to
define the year. For example, programs that have
Landmark Financial Corp. and Subsidiary
June 30, 1998
date-sensitive fields may recognize a date using "00" as the year
1900 rather than the year 2000. The results of this programming
error could be system failure or miscalculation. Management
believes that with modifications to existing software and by
converting to new hardware, the "Year 2000" problem will not pose
significant operational problems for the Bank. Given the Bank's
interdependence on a third-party service provider, the internal
costs related to the Bank's Year 2000 efforts will consist
primarily of accelerating various hardware and software upgrades
which generally would have been incurred in the normal course of
business. Management does not believe that the internal costs
necessary to address the "Year 2000" issue will have a material
adverse impact on future operations other than the impact such an
event will have on the cost of services provided by its third-
party service providers which is unknown at this time.
Management cannot guarantee that any third-party service provider
will be Year 2000 ready other than through assurances provided
from the third party service provider to the Company.
Landmark Financial Corp. and Subsidiary
June 30, 1998
Part II Other Information
Item 1. Legal Proceedings
From time to time, the Company is involved as a plaintiff
or defendant in various legal actions incident to its business.
None of these actions individually or in the aggregate is
believed to be material to the financial condition of the
Company.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Financial Data Schedule Attached
Landmark Financial Corp. and Subsidiary
June 30, 1998
SIGNATURES
Under the requirement 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.
LANDMARK FINANCIAL CORP.
Date : 08/13/98 /s/ Gordon E. Coleman
------------------------------
Gordon E. Coleman
President and Chief Executive Officer
(Duly Authorized Officer)
Date : 08/13/98 /s/ Paul S. Hofmann
------------------------------
Paul S. Hofmann
Vice President and Chief Financial
Officer
(Principal Financial Officer)