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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number 0-23164
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LANDMARK BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Kansas 48-1142260
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(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
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(Registrant's telephone number, including area code)
N/A
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(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, 2000:
$.10 par value common stock 1,147,464 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, 2000 (unaudited) and September 30, 1999 1
Statements of Income for the Three and Six
Months Ended March 31, 2000 and 1999 (unaudited) 2
Statements of Comprehensive Income for the Three and
Six Months Ended March 31, 2000 and 1999 (unaudited) 3
Statements of Cash Flows for the Six Months Ended
March 31, 2000 and 1999 (unaudited) 4-5
Notes to Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13-15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Default Upon Senior Securities 16
Item 4. Submission of Matter to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Report on Form 8-K 16
SIGNATURES 17
LANDMARK BANCSHARES, INC.
Consolidated Statements of Financial Condition
March 31, 2000 September 30, 1999
(Unaudited)
------------- ------------------
ASSETS
Cash and cash equivalents:
Interest bearing $ 4,530,919 $ 4,377,197
Non-interest bearing 1,350,859 1,598,533
Time deposits in other financial institutions 284,004 289,864
Securities held to maturity 28,660,474 28,849,853
Securities available for sale 8,725,208 12,022,530
Mortgage-backed securities held to maturity 11,636,478 13,489,174
Loans receivable, net 183,419,461 177,236,196
Loans held for sale 208,405 604,395
Accrued income receivable 1,535,127 1,547,901
Real estate owned or in judgment and other
repossessed property, net 461,779 146,883
Office properties and equipment, at cost less
accumulated depreciation 1,714,939 1,759,770
Prepaid expenses and other assets 1,841,884 1,949,751
Income taxes receivable, current 0 154,072
Deferred income taxes 291,295 89,865
------------- -------------
TOTAL ASSETS $ 244,660,832 $ 244,115,984
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits 157,606,321 158,936,292
Other Borrowed Money 60,500,000 58,000,000
Advances from borrowers for taxes and insurance 1,374,444 2,143,805
Accrued expenses and other liabilities 2,138,566 2,631,740
Income taxes
Current 82,638 0
------------- -------------
TOTAL LIABILITIES $ 221,701,969 $ 221,711,837
------------- -------------
Stockholders' Equity
Preferred Stock
no par value; 5,000,000 shares authorized;
none issued
Common Stock 228,131 228,131
$.10 par value; 10,000,000 shares authorized;
2,281,312 shares issued
Additional Paid-in Capital 22,528,924 22,706,378
Treasury Stock, at cost, 1,133,848 shares at March 31, 2000
and 1,149,748 shares at September 30, 1999 (21,831,790) (22,144,168)
Retained income (substantially restricted)
23,058,910 22,290,140
Employee Stock Ownership Plan
(555,841) (555,841)
Accumulated other comprehensive income
(469,471) (120,493)
Total Stockholders' Equity $ 22,958,863 $ 22,404,147
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 244,660,832 $ 244,115,984
============= =============
1
LANDMARK BANCSHARES, INC
Consolidated Statements of Income
Three Months Ended March 31 Six Months Ended March 31
2000 1999 2000 1999
( unaudited ) ( Unaudited )
---------------------------------------------------------------
INTEREST INCOME
Interest on loans 3,611,972 3,494,232 7,176,709 7,062,919
Interest and dividends on investment securities 650,927 398,917 1,362,253 665,754
Interest on mortgage-backed securities 194,282 288,773 397,442 626,097
---------------------------------------------------------------
Total interest income 4,457,181 4,181,922 8,936,404 8,354,770
INTEREST EXPENSE
Deposits 1,854,420 1,877,789 3,651,861 3,807,180
Borrowed funds 868,298 558,253 1,660,929 1,118,492
---------------------------------------------------------------
Total interest expense 2,722,718 2,436,042 5,312,790 4,925,672
Net interest income 1,734,463 1,745,880 3,623,614 3,429,098
PROVISION FOR LOSSES ON LOANS 95,000 155,000 230,000 230,000
---------------------------------------------------------------
Net interest income after provision for losses 1,639,463 1,590,880 3,393,614 3,199,098
NON-INTEREST INCOME
Service charges and late fees 111,745 108,508 218,290 192,493
Net gain (loss) on sale of available
for sale investments 32,695 66,984 43,286 132,655
Net gain (loss) on sale of loans 41,481 117,116 92,213 320,295
Service fees on loans sold 20,316 4,540 41,048 31,654
Other income 17,693 7,332 55,968 42,157
---------------------------------------------------------------
223,930 304,480 450,805 719,254
NON-INTEREST EXPENSE
Compensation and related expenses 531,840 643,377 1,139,880 1,295,237
Occupancy expense 61,352 59,950 124,799 123,697
34,851 20,128 54,534 33,169
Advertising
Federal insurance premium 33,261 37,611 70,980 75,578
Loss (gain) from real estate operations (414) 3,296 5,514 4,324
Data processing 62,713 58,433 100,258 101,468
Other expense 278,393 265,287 531,153 469,797
---------------------------------------------------------------
1,001,996 1,088,082 2,027,118 2,103,270
Income before income taxes 861,397 807,278 1,817,301 1,815,082
INCOME TAXES EXPENSES 357,000 339,300 726,300 742,800
---------------------------------------------------------------
Net income 504,397 467,978 1,091,001 1,072,282
---------------------------------------------------------------
Basic earnings per share $0.47 $0.41 $1.01 $0.90
Diluted earnings per share $0.43 $0.36 $0.94 $0.81
Dividends per share $0.15 $0.25 $0.30 $0.40
2
LANDMARK BANCSHARES, INC.
Consolidated Statements of Comprehensive Income
Three Months Ended Six Months Ended
March 31 March 31
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------------------ -----------------------------
Net income $ 504,397 $ 467,978 $1,091,001 $1,072,282
------------------------------ -----------------------------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period (178,744) (192,433) (323,006) (124,364)
Less: reclassification adjustment for gains
included in net income (19,617) (40,190) (25,972) (79,594)
------------------------------ -----------------------------
Total other comprehensive income (198,361) (232,623) (348,978) (203,958)
------------------------------ -----------------------------
Comprehensive income $ 306,036 $ 235,355 $ 742,023 $ 868,324
3
LANDMARK BANCSHARES, INC.
Consolidated Statements of Cash Flows
Six Months Ended
March 31
2000 1999
(unaudited) (unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,091,001 $ 1,072,282
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 116,559 93,538
Decrease (increase) in accrued interest receivable (87,297) (15,482)
Increase (decrease) in accrued and deferred income taxes 35,280 2,288
Increase (decrease) in accounts payable and accrued expenses (845,372) 979,832
Amortization of premiums and discounts on investments and loans (11,614) (29,228)
Provision for losses on loans 230,000 230,000
Gain (loss) on sale of available for sale investments (43,286) (132,655)
Other non-cash items, net (259,355) 238,310
Sale of loans held for sale 4,720,329 16,171,338
Gain on sale of loans held for sale (92,213) (320,295)
Origination of loans held for sale (3,674,878) (13,003,464)
Purchase of loans held for sale (557,900) (1,549,460)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 621,254 $ 3,737,004
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payment on loans held for investment 2,915,038 5,986,698
Principal repayments on mortgage-backed securities 1,849,115 4,954,127
Loans purchased for investment (9,846,025) (9,636,591)
Acquisition of mortgage-backed securities 0 (763,809)
Acquisition of investment securities held to maturity 0 (15,464,481)
Acquisition of investment securities available for sale (300,000) (273,275)
Proceeds from sale of available for sale investment securities 3,046,914 247,860
Proceeds from maturities or calls of investment securities held to security 200,000 4,190,000
Net (increase) decrease in time deposits 0 (46,907)
Sale of real estate acquired in settlement of loans 228,245 28,800
Acquisition of fixed assets (71,730) (214,553)
------------ ------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES $ (1,978,443) $(10,992,131)
============ ============
4
LANDMARK BANCSHARES, INC.
Consolidated Statements of Cash Flows
(Continued)
Six Months Ended
March 31
2000 1999
(unaudited) (unaudited)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (457,549) $ 1,198,332
Net increase (decrease) in escrow accounts (769,361) (485,306)
Proceeds from FHLB advance and other borrowings 36,000,000 50,500,000
Repayment of FHLB advance and other borrowings (33,500,000) (38,700,000)
Acquisition of Treasury Stock 312,378 (2,717,044)
Other Financing Activities 0 96,522
Dividend Payment (322,231) (478,045)
------------ ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES $ 1,263,237 $ 9,414,459
============ ============
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (93,952) 2,159,332
============ ============
BEGINNING CASH AND CASH EQUIVALENTS 5,975,730 2,844,378
============ ============
ENDING CASH AND CASH EQUIVALENTS $ 5,881,778 $ 5,003,710
============ ============
SUPPLEMENTAL DISCLOSURES Cash paid during the year for:
5,722,342 5,408,548
Interest on deposits, advances, and other borrowings 489,590 754,210
Income taxes
------------ ------------
Transfers from loans to real estate acquired through foreclosure 467,009 0
============ ============
5
LANDMARK BANCSHARES, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED 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, 2000 are not
necessarily indicative of the results which may be expected for the fiscal year
ending September 30, 2000.
2. LIQUIDATION ACCOUNT
On March 28, 1994, the Bank segregated and restricted $15,144,357 of retained
earnings in a liquidation account for the benefit of eligible savings account
holders who continue to maintain their accounts at the bank after the conversion
of the bank from mutual to stock form. In the event of a complete liquidation of
the Bank, and only in such event, each eligible account holder will be entitled
to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted balances of all qualifying deposits then
held. The liquidation account will be reduced annually at September 30th to the
extent that eligible account holders have reduced their qualifying deposits.
3. INVESTMENTS AND MORTGAGE - BACKED SECURITIES
A summary of the Bank's carrying value of investment and mortgage - backed
securities as of March 31, 2000 and September 30, 1999, is as follows:
March 31, 2000 September 30, 1999
---------------------------------------------
Investment Securities
Held to maturity:
Government Agency Securities $ 27,475,474 $ 27,464,853
Municipal Obligations 1,185,000 1,385,000
0 0
Other ---------------------------------------------
$ 28,660,474 $ 28,849,853
Available for sale:
Common Stock 3,319,708 4,378,530
Stock in Federal Home Loan Bank 3,275,000 3,441,000
Other 2,130,500 4,203,000
---------------------------------------------
$ 8,725,208 $ 12,022,530
Mortgage - Backed Securities held to maturity:
FNMA - Arms 5,480,732 5,901,429
FHLMC - Arms 1,640,251 1,900,940
FHLMC - Fixed Rate 67,192 79,967
CMO Government Agency 2,943,819 3,862,807
CMO Private Issue 1,112,387 1,297,099
FNMA - Fixed Rate 325,420 343,808
GNMA - Fixed Rate 66,677 103,124
---------------------------------------------
$ 11,636,478 $ 13,489,174
6
4. LOAN RECEIVABLE, NET
A summary of the Bank's loans receivable at March 31, 2000 and September 30,
1999, is as follows:
March 31, 2000 September 30, 1999
------------------------------------------
Real Estate loans
Residential $ 147,353,751 $ 138,008,961
Construction 677,973 1,847,609
Commercial 10,064,343 9,050,225
Second mortgage 10,147,290 9,716,029
Commercial business 5,833,504 6,531,200
Consumer 10,922,446 13,578,547
------------------------------------------
Gross loans 184,999,307 178,732,571
Less: Net deferred loan fees, premiums
and discounts (155,641) (178,699)
Allowance for Loan Losses (1,424,205) (1,317,676)
------------------------------------------
Total loans, net $ 183,419,461 $ 177,236,196
==========================================
A summary of the Bank's allowance for loan losses for the three and six months
ended March 31, 2000 and 1999, are as follows:
Three Months Ended Six Months Ended
March 31 March 31
2000 1999 2000 1999
------------------------------------------------------------
Balance Beginning $ 1,400,104 $ 1,204,948 $ 1,317,676 $ 1,136,753
Provisions Charged to Operations
95,000 155,000 230,000 230,000
Loans Charged Off Net of Recoveries (70,899) (164,373) (123,471) (171,178)
------------------------------------------------------------
Balance Ending $ 1,424,205 $ 1,195,575 $ 1,424,205 $ 1,195,575
============================================================
5. REAL ESTATE OWNED OR IN JUDGMENT
Real Estate owned or in judgment and other repossessed property:
March 31, 2000 September 30, 1999
------------------------------------------
Real Estate Acquired by Foreclosure $ 0 $ 0
Real Estate Loans in Judgement and
Subject to Redemption 410,208 70,081
Other Repossessed Assets
51,571 76,802
------------------------------------------
$ 461,779 $ 146,883
==========================================
6. FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financial needs of its customers and to
reduce its own exposure to fluctuations in interest rates. The financial
instruments include commitments to extend credit and commitments to sell loans.
The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statement of financial
condition. The contract or notional amounts of those instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of non-performance by the other
party to the financial instrument for loan commitments is represented by the
contractual or notional amount of those instruments. The Bank uses the same
credit policies in making commitments as it does for on-balance-sheet
instruments.
On March 31, 2000, the Bank had outstanding commitments to fund real estate
loans of $2,195,835.00. Of the commitments outstanding, $1,446,485.00 are for
fixed rate loans at rates of 7.375% to 9.375%. Commitments for adjustable rate
loans amount to $749,350.00 with initial rates of 6.00% to 8.50%. Outstanding
loan commitments to sell as of March 31, 2000 were $304,695.00. In addition the
Bank had outstanding commercial loan commitments of $966,000.00 with initial
rates of 9.50% to 10.75%.
7
7. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issued common stock (potential
common stock) were exercised or converted to common stock. For periods presented
potential common stock includes outstanding stock options and nonvested stock
awarded under the management stock bonus plan.
Earnings per share for the three and six months ending March 31, 2000 and 1999,
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
2000 1999 2000 1999
-----------------------------------------------------------
Weighted average common shares outstanding,
net of treasury shares 1,131,302 1,221,565 1,130,412 1,258,913
Average unallocated ESOP shares (52,124) (65,812) (53,836) (67,523)
Nonvested MSBP shares 0 (2,281) 0 (4,562)
-----------------------------------------------------------
Weighted Average Shares for Basic EPS 1,079,178 1,153,472 1,076,576 1,186,828
-----------------------------------------------------------
Net Earnings 504,397 467,978 1,091,001 1,072,282
-----------------------------------------------------------
Per share amount $ 0.47 $ 0.41 $ 1.01 $ 0.90
Diluted Earnings Per Share
Three months ended Six months ended
March 31 March 31
2000 1999 2000 1999
-----------------------------------------------------------
Weighted average shares for Basic EPS 1,079,178 1,153,472 1,076,576 1,186,828
Dilutive stock options 84,352 133,433 88,750 134,591
Dilutive MSBP shares 0 759 0 1,539
-----------------------------------------------------------
Weighted Average Shares for Diluted EPS 1,163,530 1,287,664 1,165,326 1,322,958
-----------------------------------------------------------
Net Earnings 504,397 467,978 1,091,001 1,072,282
-----------------------------------------------------------
Per share amount $ 0.43 $ 0.36 $ 0.94 $ 0.81
8. DIVIDENDS
At a January 2000 board meeting, the Directors of the Company declared a $0.15
per share dividend. The dividend was payable to all stockholders of record as of
February 1, 2000.
8
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, 2000. The Bank is primarily engaged in the business of accepting
deposit accounts from the general public, using such funds to originate mortgage
loans for the purchase and refinancing of single-family homes located in Central
and Southwestern Kansas and for the purchase of mortgage-backed and investment
securities. In addition, the Bank also offers and purchases loans through
correspondent lending relationships in Kansas City, and other cities in Kansas
and in Albuquerque and Santa Fe, New Mexico and Madison, Wisconsin. The Bank
also has a Loan Origination Office located in Overland Park, Kansas. To a lesser
extent, the Bank will purchase adjustable rate mortgage loans, to manage its
interest rate risk as deemed necessary. The Bank also makes automobile loans,
second mortgage loans, home equity loans, savings deposit loans, and small
business loans.
Management Strategy:
Management's strategy has been to maintain profitability by managing the Bank's
capital in a prudent manner. The Bank's lending strategy has historically
focused on the origination of traditional, conforming one to four-family
mortgage loans with the primary emphasis on single-family residences. The Bank's
secondary focus has been on consumer loans, commercial loans, second mortgage
loans, home equity loans, savings deposit loans, and small business lending.
This focus, and the application of strict underwriting standards, are designed
to reduce the risk of loss on the Bank's loan portfolio. However, this lack of
diversification in its portfolio structure does increase the Bank's portfolio
concentration risk by making the value of the portfolio more susceptible to
declines in real estate values in its market area. This has been mitigated in
recent years, through the investment in mortgage-backed securities, the sales of
loans in the secondary market, and the entrance into small business lending.
Certain risks are inherent in the sales of loans in the secondary market. There
is a risk that the Bank will not be able to sell all the loans that it has
originated, or conversely, will be unable to fulfill its commitment to deliver
loans pursuant to a firm commitment to sell loans. In addition, in periods of
rising interest rates, loans originated by the bank may decline in value.
Exposure to market and interest rate risk is significant during the period
between the time the interest rate on a customer's mortgage loan application is
established and the time the mortgage loan closes, and also during the period
between the time the interest rate is established and the time the Bank commits
to sell the loan. If interest rates change in an unanticipated fashion, the
actual percentage of loans that close may differ from projected percentages. The
resultant mismatching of commitments to closed loans and commitments to deliver
sold loans may have an adverse effect on the profitability of loan originations.
A sudden increase in interest rates can cause a higher percentage of loans to
close than projected. To the degree that this was not anticipated, the Bank will
not have made commitments to sell these loans and may incur significant mark to
market losses, adversely affecting results of operations.
The Bank historically sells 30 year fixed rate mortgages in the secondary
market, however the Bank is keeping all 15 and 20 year or shorter mortgages with
fixed rates above 7.50% and 7.75% for investment and selling all other fixed
rate loans.
Through the first six months of fiscal year 2000 rates continued with a steady
increase. Sustained levels of gain on sale of loans are dependent on continued
stable or downward interest rate movement and could likely be adversely affected
by a continued rise in interest rates.
9
Changes in financial condition between March 31, 2000 and September 30, 1999:
Total assets increased by $544,848, or approximately 0.22% between September 30,
1999 and March 31, 2000. This increase is largely attributed to a $6,183,265
increase in loans receivable partially offset by a decrease of $5,339,397 in
investments and mortgage backed securities.
The Bank utilizes FHLB line of credit and short term advances, which increased
$2.5 million from September 30, 1999 to March 31, 2000 to fund the acquisition
of adjustable rate mortgages. In managing the Bank's overall interest rate risk,
loan purchases have been made which increase the level of risk to the extent
that borrowing will reprice more frequently than the adjustments on the
mortgages.
Results of operations: comparison between the three and six months ended March
31, 2000 and 1999:
Net income for the three-month period ended March 31, 2000 of $504,397
represents an increase of $36,419 from the net income reported for the
three-month period ended March 31, 1999. The increase was primarily due to an
increase in the net interest income after provision for losses in the amount of
$48,583, and a decrease of $86,086 in non-interest expense, which was partially
offset by a decrease of $80,550 in non-interest income.
Net income for the six-month period ending March 31, 2000 of $1,091,001
represents an increase of $18,719 or a 1.7% increase from the net income
reported for the six-month period ended March 31, 1999. The increase is
primarily due to an increase of $581,634 in total interest income, partially
offset by a $387,118 increase in total interest expense.
Net interest income after provision for losses on loans for the three-month
period ended March 31, 2000 increased $48,583 or approximately 3.0% to
$1,639,463 as compared with $1,590,880 for the same period ended March 31, 1999.
This increase is associated with the increase in total interest income and the
decrease of the provision for loan losses.
Net interest income after provision for losses on loans for the six-month period
ended March 31, 2000 increased $194,516 or approximately 6.0% to $3,393,614 as
compared with $3,199,098 for the same period ended March 31, 1999. This increase
is associated with the increase in total interest income and the same provision
for loan losses as in the year earlier period.
Non-interest income for the three-month period ended March 31, 2000 decreased
$80,550 or 26.4% to $223,930 as compared with $304,480 for the same period ended
March 31, 1999. This decrease was primarily due to a decrease of $34,289 in net
gain on sale of investments and a decrease of $75,635 on the sale of loans.
Non-interest income for the six-month period ended March 31, 2000 decreased
$268,449 or 37.3% to $450,805 as compared with $719,254 for the same period
ended March 31, 1999. This decrease was primarily due to a decrease of $228,082
on net gain on sale of loans as well as a decrease of $89,369 on the net gain on
the sale of investments.
Non-interest expense for the three-month period ended March 31, 2000 decreased
$86,086 or 7.9% to $1,001,996 as compared with $1,088,082 for the same period
ended March 31, 1999. This decrease is primarily due to a decrease in
compensation of $111,537 compared to the quarter ending March 31, 1999.
Non-interest expense for the six-month period ended March 31, 2000 decreased
$76,152 or 3.6% to $2,027,118 as compared with $2,103,270 for the same period
ended March 31, 1999. This decrease is primarily due to decreased compensation
costs compared to the six months ending March 31, 1999.
The bank added $230,000 for the six-month period ending March 31, 2000, the
same as the $230,000 for the six-month period ending March 31, 1999, to the
provision for loan losses. During the quarter ended March 31, 2000, management
continued to recognize that there were changes in risk factors related to the
consumer loan portfolio that resulted in an increase in classified loans.
Management is continuing to closely monitor potential problem loans and feels
they have accrued an appropriate provision for loan losses considering all
available information.
10
Landmark Federal Savings Bank's charge-off experience for loans for the five
years ended September 30, 1998 had averaged only $52,000 per year or .04% of
total loans. However, in fiscal 1999 the Bank charged off $658,000 in loans as a
result of a quality control issue on automobile loans. The problem arose in the
Fall 1998 primarily on individual loans being originated by one loan officer who
is no longer employed by the Bank. The Bank did conduct a thorough review of its
automobile loan portfolio, which prompted management to set aside additional
reserves, which they continue to do at the present time. In November, 1998, the
loan policies were rewritten. Monitoring was tightened and all modifications and
deferrals require senior management approval. Exceptions are reported to the
Board of Directors monthly. The files are reviewed individually by an
experienced lender / servicer for proper documentation and for continual
insurance maintenance on all collateral. In addition, the Bank has contracted an
outside third party for compliance with the bank's underwriting policies, to
review every four months a sampling of loans that they shall select at random.
The findings of the loan review will be presented every four months to the full
Board of Directors at a regular meeting. Valuation reserves increased $106,529,
or 8.1%, on March 31, 2000 compared to the period ending September 30, 1999.
Classified assets increased by $551,000, or 42.9%, this quarter. However, one
residential loan with 30% Private Mortgage Insurance coverage made up $349,000,
and one commercial loan that was in the process of being guaranteed by the SBA
totaled $234,500. Both loans are current at the time of filing this report. For
the quarter ended March 31, 2000, net charge-offs totaled $70,900, and were
primarily auto loans.
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 posed an important business issue regarding how existing
application software programs and operating systems would accommodate this date
value. Many computer programs that could only distinguish the final two digits
of the year entered were expected to read entries for the year 2000 as the year
1900. Like most financial service providers, the Company thought they may be
significantly affected by the Year 2000 issue due to the nature of financial
information. The Company evaluated both information technology (computer systems
and software) and non-information technology (i.e. vault timers, elevators,
electronic door lock and heating, ventilation and air condition controls) both
within and outside the Company's direct control and with which the Company
electronically or operationally interfaces. Computer systems were changed or
updated to identify the year 2000. To date the Company has not experienced any
unusual problems that would significantly affect the Company or its customers.
The Bank continues to evaluate its information technology systems risk in three
areas: (1) internal computers and software, (2) computers of others used by our
borrowers, (3) external data processing servicers. The Company is continuing to
monitor for any unusual activities associated with the turn of the century, and
thus far no malfunctions in the Bank's critical system have been found.
11
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 for
the quarter ending March 31, 2000 averaged 6.83%. 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.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of core and tangible capital (as defined in the regulations) to assets
(as defined) and core and total capital to risk weight assets (as defined).
Management believes, as of March 31, 2000, that the Bank meets all capital
adequacy requirements to which it is subject.
The Bank's actual capital amounts (in thousands) and ratios as of March 31, 2000
are also presented in the following table:
To Be Well
Capitalized Under
For Capital Prompt Corrective Actual
Adequacy Purposes: Action Provisions:
- ----------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- --------- ---------- --------- ---------- ---------
As of March 31, 2000:
Total (Risk-Based) Capital
(to Risk Weighted Assets) $ 19,457 16.07% $9,685 8.00% $ 12,106 10.00%
Core (Tier 1) Capital
(to Risk Weighted Assets) 18,033 14.90% N/A 7,264 6.00%
Core (Tier 1) Capital - leverage
(to Assets) 18,033 7.46% 9,666 4.00% 12,083 5.00%
12
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 externally prepared interest rate
sensitivity of the net portfolio value reports furnished by the OTS to monitor
and manage its interest rate risk.
The Company has historically invested in interest-earning assets that have a
longer duration than its interest-bearing liabilities. The mismatch in duration
of the interest-sensitive liabilities indicates that the Bank is exposed to
interest rate risk. In a rising rate environment, in addition to reducing the
market value of long-term interest-earning assets, liabilities will reprice
faster than assets; therefore, decreasing net interest income. To mitigate this
risk, the Bank has placed a greater emphasis on shorter-term higher yielding
assets that reprice more frequently in reaction to interest rate movements. In
addition, the Bank has continued to include in total assets a concentration of
adjustable-rate assets to benefit the one-year cumulative gap as such
adjustable-rate assets reprice and are more responsive to the sensitivity of
more frequently repricing interest-bearing liabilities.
Quarterly, the OTS prepares a report on the interest rate sensitivity of the net
portfolio value ("NPV") from information provided by the Bank. The OTS adopted a
rule in August 1993 incorporating an interest rate risk ("IRR") component into
the risk-based capital rules. Implementation of the rule has been delayed until
the OTS has tested the process under which institutions may appeal such capital
deductions. The IRR component is a dollar amount that will be deducted from
total capital for the purpose of calculating an institution's risk-based capital
requirement and is measured in terms of the sensitivity of its NPV to changes in
interest rates. The NPV is the difference between incoming and outgoing
discounted cash flows from assets, liabilities, and off-balance sheet contracts.
An institution's IRR is measured as the change to its NPV as the result of a
hypothetical 200 basis point change in market interest rates. A resulting change
in NPV of more than 2% if the estimated market value of its assets will require
the institution to deduct from its capital 50% of that excess change. The rule
provides that the OTS will calculate the IRR component quarterly for each
institution.
13
The following tables present the Bank's NPV as well as other data as of December
31, 1999 (the most recent available), as calculated by the OTS, based on
information provided to the OTS by the Bank.
Change in Interest
Rates in Basis
Points (Rate Shock) Net Portfolio Value NPV
as % of Present Value of Assets
$ Amount $ Change % Change NPV Ratio Change
- ----------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
+400 bp - 0 0% 0.00% 0 bp
+300 bp 3,556 (17,195) (83%) 1.59% (692) bp
+200 bp (1) 9,784 (10,968) (53%) 4.23% (427) bp
+100 bp 16,037 (4,714) (23%) 6.73% (178) bp
0 bp 20,751 8.51%
-100 bp 23,832 3,081 15% 9.61% 110 bp
-200 bp 25,833 5,082 24% 10.29% 178 bp
-300 bp 27,577 6,826 33% 10.86% 236 bp
-400 bp - 0 0% 0.00% 0 bp
(1) Denotes rate shock used to compute interest rate risk capital component.
December 31, 1999
-----------------
Risk Measures (200 Basis Point Rate Shock):
Pre-Shock NPV Ratio: NPV as % of Present Value of Assets 8.51%
Exposure Measure: Post-Shock NPV Ratio 4.23%
Sensitivity Measure: Decline in NPV Ratio 4.27%
Utilizing the data above, the Bank, at December 31, 1999, would have been
considered by the OTS to have been subject to "above normal" interest rate risk.
Accordingly, a deduction from risk-based capital would have been required.
However, even with this deduction, the capital of the Bank would continue to
exceed all regulatory requirements.
Set forth below is a breakout, by basis points of the Bank's NPV as of December
31, 1999 by assets, liabilities, and off balance sheet items.
No
Net Portfolio Value -300 bp -200 bp -100 bp Change +100 bp +200 bp +300 bp
----------------------------------------------------------------------------------------------------
Assets $253,828 $251,048 $248,024 $243,967 $238,308 $231,138 $224,009
-Liabilities 226,341 225,281 224,232 223,212 222,206 221,220 220,248
+Off Balance Sheet 90 66 40 (4) (65) (134) (206)
------------------------------------------------------------------------------
Net Portfolio Value $27,577 $25,833 $23,832 $20,751 $16,037 $ 9,784 $ 3,555
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.
14
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.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
An annual meeting was held on January 19, 2000 to ratify the election
of C. Duane Ross and Richard A. Ball 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, 2000.
Votes were as follows: Number Percentage
C. Duane Ross For 983,551 99.35%
Withheld 6,481 .65%
Richard A. Ball For 983,551 99.35%
Withheld 6,481 .65%
Regier Carr & Monroe For 983,436 99.33%
Against 5,431 .55%
Abstain 1,165 .12%
Directors continuing in office following the annual meeting include Larry
Schugart, Jim Lewis and David H. Snapp.
Item 5. Other Information
None
Item 6. Exhibits and Report on Form 8-K
(A) None
(B) On February 2, 2000, the Company filed a Form 8-K (Item 5).
16
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 15, 2000 LANDMARK BANCSHARES, INC.
By /s/ Larry Schugart
-----------------------------------
LARRY SCHUGART
President and Chief Executive Officer
(Duly Authorized Representative)