U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] 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 0-22951
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LANDMARK FINANCIAL CORP.
-----------------------
(Exact name of Registrant as specified in its Charter)
Delaware 16-1531343
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
211 Erie Boulevard, Canajoharie, New York 13317
----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 673-2012
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.
X Yes No
--- ----
As of September 30, 1999, there were 154,508 shares of the
Registrant's common stock, par value $0.10 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes X No
--- ---
Form 10-QSB
LANDMARK FINANCIAL CORP. AND SUBSIDIARY
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition at September 30,
1999, (unaudited) and March 31,1999................................3
Consolidated Statements of Operations for the three months and
six months ended September 30, 1999 and 1998,
(unaudited)........................................................4
Consolidated Statement of Changes In Stockholders' Equity for
the six months ended September 30, 1999,
(unaudited)........................................................5
Consolidated Statements of Cash Flows for the six months ended
September 30, 1999 and 1998 (unaudited)............................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....................................................................16
FINANCIAL DATA SCHEDULE.......................................................17
2
Landmark Financial Corporation and Subsidiary
Consolidated Statements of Financial Condition
September 30,1999 and March 31, 1999
September 30, 1999 March 31, 1999
(Unaudited) (Audited)
Assets
Cash $225,688 $285,227
Interest Bearing Deposits 58,843 10,600
Investment Securities, (Available For Sale) 1,982,577 1,900,992
Mortgage-Backed Securities, (Held To Maturity) 29,134 38,468
Loans Receivable, Net 21,509,541 19,189,257
Accrued Interest Receivable 129,440 107,805
Stock In Federal Home Loan Bank, At Cost 125,000 100,900
Premises And Equipment, At Cost
Less Accumulated Depreciation 568,772 583,401
Deferred Tax Asset 31,942 39,597
Foreclosed Real Estate 0 118,815
Other Assets 83,006 78,261
------ ------
Total Assets $24,743,942 $22,453,323
=========== ===========
Liabilities and Stockholders' Equity
Accounts Payable 7,208 1,853
Deposits 20,213,214 19,273,877
Accrued Interest On Deposits 158 0
Advance Payments By Borrowers For Taxes
And Insurance 40,592 108,174
Advances From FHLB 2,498,504 1,084,586
Accrued Expenses And Other Liabilities 66,384 56,899
------ ------
Total Liabilities $22,826,061 $20,525,389
----------- -----------
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:
400,000 Shares Authorized; 154,508 and 152,000
Issued at September 30, 1999 and
March 31, 1999 respectively 15,200 15,200
Additional Paid-In Capital 1,192,833 1,192,833
Retained Earnings, Substantially Restricted 897,490 867,348
Accumulated Other Comprehensive Income (Loss) (51,281) (5,403)
Unearned Stock Based Compensation (30,974) (32,604)
Unearned ESOP Shares (105,387) (109,440)
--------- ---------
Total Stockholders' Equity $ 1,917,881 $1,927,934
----------- ----------
Total Liabilities and Stockholders' Equity $24,743,942 $ 22,453,323
=========== ============
See accompanying notes to unaudited consolidated financial statements.
3
Landmark Financial Corporation and Subsidiary
Consolidated Statements of Operations
September 30, 1999 and 1998
(Unaudited)
For the Three Months Ended 9/30 For the Six Months Ended 9/30
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
Loans receivable $458,144 $347,233 $887,247 $662,390
Mortgage-backed securities 643 917 1,380 2,266
Investments 33,152 37,167 63,675 84,784
------ ------ ------ ------
Total interest income 491,939 385,317 952,302 749,440
Interest expense:
Deposits 252,901 222,855 502,890 433,045
Advances from FHLB 27,336 0 45,214 0
------ ------- -------- -------
Total interest expense 280,237 222,855 548,103 433,045
------- ------- ------- -------
Net interest income 211,702 162,462 404,198 316,395
Provision for losses on loans 13,500 11,721 26,000 30,168
------ ------ ------- -------
Net interest income after provision
for losses on loans 198,202 150,741 378,198 286,227
Non-interest income:
Late charges and other loan fees 4,710 4,159 14,755 11,155
Gain on sale of investment securities
and mortgage-backed securities 1,125 0 2,850 0
Commissions and other fees 0 0 0 2,546
Other 13,542 3,632 24,861 7,645
------ ----- ------ -----
Total non-interest income 19,377 7,791 42,466 21,346
Non-interest expense:
Compensation and employee benefits 86,912 80,951 174,045 162,558
Office buildings and equipment 15,174 8,738 28,952 15,200
Data processing 14,346 9,337 27,298 19,273
Advertising 1,605 2,040 2,739 3,677
Deposit insurance premiums 2,796 3,437 6,652 7,284
Other 71,876 65,744 138,946 130,524
Amortization of cost in excess of fair
Value of net assets acquired 1,017 (752) 1,940 2,681
----- ----- ----- -----
Total non-interest expense 193,726 169,495 380,572 341,197
------- ------- ------- -------
Income (loss) before income taxes 23,853 (10,963) 40,092 (33,624)
Income taxes 5,900 (3,000) 9,950 (9,155)
----- ------- ----- -------
Net income (loss) $17,953 ($7,963) $30,152 ($24,469)
======= ======= ======= =========
Earnings per share $0.12 ($0.06) $0.21 ($0.17)
===== ====== ===== ======
Average common and common
equivalent shares outstanding 143,868 140,550 142,513 140,448
======= ======= ======= =======
See accompanying notes to unaudited consolidated financial statements.
4
Landmark Financial Corporation and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended September 30, 1999
(Unaudited)
Additional Accum other Unearned Unearned Total
Common paid-in Retained Comprehensive Stock Based ESOP Stockholders'
Stock capital earnings income (loss) Compensation Shares Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1999 $15,200 $1,192,833 $867,348 ($5,403) ($32,604) ($109,440) $1,927,934
Comprehensive Income
Net income (loss) 30,142 30,142
Change in unrealized gain on
securities available for sale, net
of tax effects (45,878) (45,878)
------
Total Comprehensive Income (loss) (15,736)
Stock based compensation earned 1,630 1,630
ESOP shares earned 4,053 4,053
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at September 30,1999 $15,200 $1,192,833 $897,490 ($51,281) ($30,974) ($105,387) $1,917,881
======= ========== ========= ========= ========== ======== ==========
See accompanying notes to audited consolidated financial statements.
5
Landmark Financial Corporation and Subsidiary
Consolidated Statements of Cash Flows
Six Months Ended September 30, 1999 and 1998
(Unaudited)
Sept 30, Sept 30,
1999 1998
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES
Net income (loss) $30,142 ($24,469)
Adjustments to reconcile net income to net cash provided by (used in)
Operating activities
Depreciation 24,122 9,269
Amortization (accretion), net 1,940 2,681
Provision for loan losses 26,000 30,168
Deferred income taxes 7,655 (7,569)
Allocation of ESOP Shares 4,053 3,973
Allocation of Stock Based Compensation 1,630 0
Decrease (increase) in
Accrued interest receivable (21,635) (15,164)
Real Estate Foreclosed 118,815 (78,696)
Other assets (4,745) (43,777)
Increase (decrease) in
Accounts payable 5,355 (522)
Other liabilities 9,643 (4,167)
----- -------
202,975 (128,303)
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES
Net increase in loans receivable (2,346,284) (2,501,039)
Proceeds from maturities and calls of available-for-sale securities 91,766 0
Purchases of available-for-sale securities (520,625) (710,644)
Proceeds from principal repayments of mortgage-backed securities 8,791 48,812
Purchase of premises and equipment (9,492) (318,667)
Purchase of investments required by law, FHLB stock (24,100) 0
Proceeds from sale of available-for-sale securities 300,000 500,000
------- -------
(2,499,944) (2,981,538)
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES
Net increase (decrease) in deposits 939,337 2,293,335
Net increase (decrease) in short-term advances, FHLB 750,000 0
Proceeds from long-term advances, FHLB 750,000 0
Payments on long-term advances, FHLB (86,082) 0
Increase (decrease) in advances from borrowers for taxes and insurance (67,582) (55,001)
2,285,673 2,238,334
Net increase (decrease) in cash (11,296) (871,507)
CASH, beginning of year 295,827 1,530,236
------- ---------
CASH, end of period $284,531 $658,729
======== ========
SUPPLEMENTAL DISCLOURES:
Cash paid for:
Income taxes 0 0
= =
Interest $548,103 $433,045
======== ========
Increase (decrease) on unrealized gain
on securities available-for-sale ($45,878) $28,918
========= =======
Transfers from loans receivable to foreclosed real estate 0 0
= =
See accompanying notes to unaudited consolidated financial statements.
6
LANDMARK FINANCIAL CORP. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
September 30,1999
(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 and the statements
of financial condition include the accounts of the Company and 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, 1999, 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 statements of operations for the three month
period and six month period ended September 30, 1999 are not
necessarily indicative of the results which may be expected for the
entire year. The March 31, 1999 balance sheet has been derived from the
audited financial statements as of that date.
(3) 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). On May 21, 1999 an additional 2,508 shares were issued
pursuant to the Recognition and Retention Plan. Income per share
amounts for the three month and six month periods ended September 30,
1999 are based upon average shares outstanding of 143,868 shares and
142,513 shares respectively. The averages are exclusive of 10,539 and
10,944 unearned shares, respectively, issued to the ESOP, as though
those shares were outstanding for the entire period.
7
LANDMARK FINANCIAL CORP. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
September 30, 1999
(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
four years. ESOP expenses for the three and six month periods ended
September 30, 1999 were $2,026 and $4,052 respectively. ESOP expenses
for the three and six month periods ended September 30, 1998 were
$2,026 and $3,729 respectively.
8
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 September 30, 1999 to the financial condition at
March 31, 1999, its fiscal year-end, and the results of operations for the three
month and six month periods ended September 30, 1999, with the same periods in
fiscal 1998. This discussion should be read in conjunction with the interim
financial statements and notes which are included herein.
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 upon its
conversion from the mutual to stock form of ownership. Landmark Community 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 located at 211 Erie
Blvd., 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, small business and agricultural loans, and consumer
loans consisting primarily of loans secured by automobiles.
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 $2.29 million, or 10.2%, to $24.74 million at September
30, 1999 from $22.45 million at March 31, 1999. The increase in assets is
primarily due to increases in loans receivable.
Loans receivable, net, increased by $2.32 million, or 12.1%, to $21.51 million
at September 30, 1999 from $19.19 million at March 31, 1999, primarily due to
increases in commercial and agricultural loans of $1.15 million, an increase in
one-to-four family portfolio loans of $763,000 an increase in home equity loans
of $308,000, and an increase in consumer loans of $229,000.
Deposits increased $939,000, or 4.9%, to $20.21 million at September 30, 1999
from $19.27 million at March 31, 1999. The increase in deposits is primarily
attributable to an increase in DDA checking account deposits of $440,000, an
increase in certificates of deposit of $376,000, and an increase in
9
savings accounts of $213,000, partially offset by a seasonal decrease in
Christmas club deposits of ($77,000).
Advances from FHLB increased $1.41 million from $1.08 million. The increase in
borrowings and the increase in deposits were used to fund loan demand.
Total equity decreased $10,000 or 0.53%, to $1,917,881 at September 30, 1999
from $1,927,934 at March 31, 1999, due to the increase in accumulated other
comprehensive income (loss) of ($45,878) which was the result of decreased
unrealized gain on securities which was partially offset by net income of
$30,142 and the allocation of $4,053 for ESOP shares and $1,630 for stock based
compensation.
Comparison of Operating Results for the Three Months and Six Months Ended
September 30, 1999 and the Three Months and Six Months Ended September 30, 1998
Performance Summary. The Company's net income increased $25,916 to $17,953 for
the three months ended September 30, 1999, compared to a net loss of ($7,963)
for the three months ended September 30, 1998. The increase in net income for
the three months ended September 30, 1999 as compared to the same period in 1998
is due to an increase in net interest income of $49,240, and an increase of
$11,586 in non-interest income. Non-interest expense increased $24,231 and
income tax expense increased $8,900. Net income increased $54,611 to $30,142 for
the six months ended September 30, 1999 as compared to a loss of ($24,469) for
the same period in fiscal year 1998. The increase in earnings is primarily due
to an increase in net interest income of $87,803, and an increase of $21,120 in
non-interest income. Non-interest expense increased $39,375 and income tax
expense increased $19,105, while the provision for loan loss decreased $4,168.
Net Interest Income. The Company's net interest income increased $49,240, or
30.3%, to $211,702 for the three months ended September 30, 1999, from $162,462
for the three months ended September 30, 1998. For the six months ended
September 30, 1999, net interest income increased $87,803, or 27.8%, to $404,198
from $316,395 for the same period in fiscal 1998. The increases in net interest
income reflect an increase of $106,662 in interest income and a corresponding
increase of $57,382 in interest expense for the three months ended September 30,
1999 as compared to the same period in 1998, and an increase of $202,912 in
interest income and an increase of $115,058 in interest expense for the six
months ended September 30, 1999 as compared to the same period in 1998. The
increase in interest income reflects increased balances of loans receivable,
while interest expense increased due to the increase in deposits and in
borrowings from FHLB.
Provision for Loan Losses. During the three months ended September 30, 1999, the
Bank charged $13,500 against earnings as a provision for loan losses compared to
a provision of $11,721 charged against earnings for the three months ended
September 30, 1998. For the six months ended September 30, 1999 the Bank charged
$26,000 against earnings as a provision for losses compared to $30,168 charged
against earnings for same period in fiscal 1998. The allowance for loan losses
at September 30, 1999 is .97% of loans receivable, as compared to .99% of loans
receivable, at March 31, 1999. Total non-performing loans at September 30, 1999
are $9,000 or 0.04% of loans receivable, as compared to total non-performing
loans at March 31, 1999 of 106,182 or 0.55% of loans receivable.
Management regularly reviews the loan portfolio, including problem loans and
changes in the relative makeup of the 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
10
assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods.
Non-interest Income. For the three months ended September 30, 1999, non-interest
income increased $11,586 or 148.7%, to $19,377 from $7,791 for the same period
in 1998. For the six months ended September 30, 1999, non-interest income
increased $21,120 or 98.9% to $42,466 from $21,346 for the same period in 1998.
The increase is primarily due to increased fee income on deposit accounts and to
lease income received for the Bank's former office location.
Non-interest Expense. Non-interest expense increased $24,231 or 14.3%, to
$193,726 for the three months ended September 30, 1999 from $169,495 for the
same period in 1998. The increase was primarily related to the increased
operating expenses of a stock savings bank, increased occupancy expense related
to the Company's facilities and equipment, increased data processing expense due
to higher volumes, and increased employee compensation and benefit expense.
Non-interest expense increased $39,375 or 11.5% for the six months ended
September 30, 1999 to $380,572 from $341,197 in the same period in 1998,
primarily due to the same factors.
Income Taxes. Income tax expense, (benefit) increased $8,900 to $5,900 for the
three months ended September 30, 1999, from ($3,000) for the same period in
1998. For the six months ended September 30, 1999 income tax expense was $9,950
compared to ($9,155) for the six months ended September 30, 1998.
Non-performing Assets
- ---------------------
On September 30, 1999, non-performing assets were $9,000 compared to $225,000 on
March 31, 1999. The non-performing assets on September 30, 1999 consisted of
loans of $9,000 while at March 31, 1999 non-performing assets consisted of loans
of $106,000 and repossessed or foreclosed assets of $119,000. The balance of the
Bank's allowance for loan losses was $211,770 or 23.5 times non-performing
assets as of September 30, 1999. The balance of the Bank's allowance for loan
losses was $191,019 or 84.7% of non-performing assets as of March 31, 1999.
Loans are considered non-performing when the collection of principal and/or
interest is not probable, or in the event payments are more than ninety days
delinquent.
11
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 September 30, 1999 and March
31, 1999, respectively:
September 30, 1999
------------------
Actual Required Excess
amount/percent amount/percent amount/percent
-------------- -------------- --------------
(dollars in thousands)
Tangible $1,929 7.78% $ 372 1.50% $1,557 6.28%
Core leverage capital $1,929 7.78% $ 991 4.00% $938 3.79%
Risk-based capital $2,141 14.81% $1,406 8.00% $734 4.18%
March 31, 1999
--------------
Actual Required Excess
amount/percent amount/percent amount/percent
-------------- -------------- --------------
(dollars in thousands)
Tangible $1,860 8.29% $337 1.50% $1,523 6.79%
Core leverage capital $1,860 8.29% $897 4.00% $963 4.29%
Risk-based capital $2,051 13.18% $1,245 8.00% $806 5.18%
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 be 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 4.0% 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 September 30, 1999 and March 31,
1999 were 11.74% and 12.95%, respectively.
In addition to local deposits, the Bank utilizes the funding sources of the FHLB
and out-of-market certificates of deposit 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/or create a more efficient liability match to the
respective assets being funded.
12
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 September 30, 1999
and March 31, 1999 were $284,531 and $295,827, respectively. The decrease was
primarily due to the fact that increases in deposits of $939,000 and Federal
Home Loan Bank advances of $1.41 million were offset by an increase in loans
receivable of $2.35 million.
Net cash provided (used) by operating activities increased to $202,975 for the
six months ended September 30, 1999, from ($128,303) at September 30, 1998.
Year 2000
- ---------
The Bank has conducted a review of its computer systems in order to determine
which systems could be affected by the "Year 2000" issue, and developed, tested
and implemented improvements and upgrades 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 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 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 have consisted primarily of accelerating various
hardware and software upgrades which generally would have been incurred in the
normal course of business, and testing various information systems. The upgrades
for hardware and software are in place and operational. Management believes that
the internal costs necessary to address the "Year 2000" issue have been
identified and these costs have been, (with the exception of ongoing
depreciation costs of upgraded equipment) expensed. The only anticipated
additional expenses are believed to relate to any costs of excess liquidity
which may be required to meet customer demand. 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. All
third party providers have been contacted and the Company has received such
assurances. Management has also implemented procedures for dealing with
interruptions in electrical and/or communications services.
13
Recent Developments
- -------------------
FASB Statement on Employer Disclosures about Pensions and Post-retirement
Benefits In February, 1998, the FASB issued SFAS No. 132 which standardizes the
disclosure requirements for pensions and other post-retirement benefits;
requires additional information on changes in the benefit obligations and fair
values of plan assets; and eliminates certain present disclosure requirements.
The Statement does not change the measurement or recognition requirements for
post-retirement benefits. SFAS No. 132 is effective for fiscal years beginning
after December 15, 1997 and, accordingly, will be adopted by the Company in the
year ending March 31, 1999. Management does not expect that this standard will
significantly affect the Company's financial reporting.
FASB Statement on Derivatives and Hedging Activities - In June, 1998, the FASB
issued SFAS No. 133 which establishes accounting and reporting standards for
derivative instruments and for hedging activities. The Statement requires that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. If certain conditions are met, a derivative may be
specifically designated as a fair value hedge, a cash flow hedge, or a foreign
currency hedge. Entities may reclassify securities from the held-to-maturity
category to the available-for-sale category at the time adopting SFAS No. 133.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999 and, accordingly, would apply to the Company beginning on
April 1, 2000. The Company plans to adopt the standard at that time and does not
presently intend to reclassify securities between categories. The Company has
not engaged in derivatives and hedging activities covered by the new standard,
and does not expect to do so in the foreseeable future. Accordingly, SFAS No.
133 is not expected to have a material impact on the Company's financial
statements.
FASB Statement on Mortgage-Backed Securities Retained after the Securitization
Of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise - In October,
1998 the FASB issued SFAS No. 134 which amends SFAS No. 65 "Accounting for
Certain Mortgage Banking Activities". Statement No. 65, as amended by Statement
No. 115 and Statement No. 125, required that after securitization of a mortgage
loan held for sale, a mortgage banking enterprise classify the resulting
security as a trading security. Statement No. 134 amends this section to require
that after the securitization of mortgage loans held for sale, the entity
classify the resulting mortgage-backed security or other retained interest based
on its ability and intent to sell or hold those investments. SFAS 134 is
effective for the first quarter beginning after December 15, 1998 and
accordingly would apply to the Company for the year ending March 31, 1999. The
Company has not engaged in retaining securities after the securitization of its
mortgage loans held for sale and does not expect to do so in the foreseeable
future. Accordingly, SFAS No. 134 is not expected to have a material impact on
the Company's financial statements.
14
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 - pages 17&18
15
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: 11/5/99 /s/ Gordon E. Coleman
---------------------------------
Gordon E. Coleman
President and Chief Executive Officer
(Duly Authorized Officer)
Date: 11/5/99 /s/ Paul S. Hofmann
---------------------------------
Paul S. Hofmann
Vice President and Chief Financial Officer
(Principal Financial Officer)
16