UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission File Number 0-23164
LANDMARK BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-1142260
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification Number
CENTRAL AND SPRUCE STREETS, DODGE CITY, KANSAS 67801
(Address and Zip Code of principal executive offices)
(316) 227-8111
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of February 5, 2001:
$.10 par value common stock 1,092,438 shares
(Class) (Outstanding)
LANDMARK BANCSHARES, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Condition as of
December 31, 2000 (unaudited) and September 30, 2000 1
Statements of Income for the Three Months Ended
December 31, 2000 and 1999 (unaudited) 2
Statements of Comprehensive Income for the Three Months Ended
December 31, 2000 and 1999 (unaudited) 4
Statements of Cash Flows for the Three Months Ended
December 31, 2000 and 1999 (unaudited) 5 - 6
Notes to Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 - 20
PART II OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Default Upon Senior Securities 21
Item 4. Submission of Matter to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Report on Form 8-K 21
SIGNATURES 22
LANDMARK BANCSHARES, INC.
Consolidated Statements of Financial Condition
December 31, 2000 September 30, 2000
(Unaudited)
---------------- --------------
ASSETS
Cash and due from banks:
Non-interest bearing $ 1,223,070 $ 1,335,431
Interest bearing 4,713,567 3,754,540
------------- -------------
Total cash and due from banks 5,936,637 5,089,971
Time deposits in other financial institutions 279,125 281,771
Investment securities held-to-maturity 0 28,666,885
Investment securities available-for-sale 28,078,504 9,587,607
Mortgage-backed securities held-to-maturity 0 10,112,018
Mortgage-backed securities available-for-sale 9,279,190 0
Loans receivable, net 179,548,704 182,659,647
Loans held-for-sale 147,509 8,854,493
Accrued income receivable 1,546,123 1,641,904
Foreclosed assets, net 355,200 170,724
Office properties and equipment, net 1,578,689 1,635,170
Prepaid expenses and other assets 1,717,671 1,666,882
Income taxes receivable, current 0 99,217
Deferred income taxes 210,790 209,686
------------- -------------
TOTAL ASSETS $ 228,678,142 $ 250,675,975
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 155,466,198 $ 165,325,440
Advances and other borrowings from
Federal Home Loan Bank 46,000,000 57,000,000
Advances from borrowers for taxes and insurance 892,722 2,337,045
Accrued expenses and other liabilities 2,530,219 2,351,486
Income taxes:
Current 185,783 0
------------- -------------
TOTAL LIABILITIES 205,074,922 227,013,971
------------- -------------
Commitments and contingencies
Stockholders' Equity:
Preferred Stock, no par value; 5,000,000 shares
authorized; none issued
Common Stock, $0.10 par value; 10,000,000 shares
authorized; 2,281,312 shares issued and outstanding 228,131 228,131
Additional paid-in capital 22,383,508 22,475,208
Retained income, substantially restricted 24,329,464 24,022,616
Accumulated other comprehensive income (loss) (113,872) (110,594)
Unamortized stock acquired by Employee Stock
Ownership Plan (418,963) (418,963)
Treasury Stock, at cost, 1,188,874 shares at December 31, 2000
and 1,173,938 shares at September 30, 2000 (22,805,048) (22,534,394)
------------- -------------
Total Stockholders' Equity 23,603,220 23,662,004
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 228,678,142 $ 250,675,975
============= =============
2
LANDMARK BANCSHARES, INC.
Consolidated Statements of Income
Three Months Ended December 31
2000 1999
(unaudited) (unaudited)
------------- -----------
INTEREST INCOME
Interest on loans $ 3,749,080 $ 3,564,736
Interest and dividends on investment securities 569,666 711,327
Interest on mortgage-backed securities 165,890 203,159
----------- -----------
Total interest income 4,484,636 4,479,222
----------- -----------
INTEREST EXPENSE
Deposits 2,116,260 1,797,441
Borrowed funds 761,845 792,631
----------- -----------
Total interest expense 2,878,105 2,590,072
----------- -----------
Net interest income 1,606,531 1,889,150
PROVISION FOR LOSSES ON LOANS 45,000 135,000
----------- -----------
Net interest income after provision for losses 1,561,531 1,754,150
----------- -----------
NON-INTEREST INCOME
Service charges and late fees 119,951 106,545
Net gain on sale of trading investments 43,618 0
Net gain on sale of available-for-sale investments 23,249 10,591
Net gain on sale of loans 318,730 50,731
Service fees on loans sold 11,568 20,732
Other income 26,615 38,277
----------- -----------
543,731 226,876
----------- -----------
NON-INTEREST EXPENSE
Compensation and related expenses 627,247 608,041
Occupancy expense 69,920 63,447
Advertising 20,835 19,682
Federal insurance premium 22,074 37,718
Loss (gain) from real estate operations 5,242 5,928
Data processing 32,008 37,545
Other expense 237,319 252,762
----------- -----------
1,014,645 1,025,123
----------- -----------
Income before income taxes and cumulative
effect of accounting change 1,090,617 955,903
INCOME TAXES EXPENSES 410,144 369,300
----------- -----------
Net income before cumulative effect
of accounting change 680,473 586,603
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR FINANCIAL INSTRUMENTS,
NET OF INCOME TAX BENEFIT OF $125,144 (214,553) 0
----------- -----------
Net income $ 465,920 $ 586,603
=========== ===========
3
LANDMARK BANCSHARES, INC.
Consolidated Statements of Income
Continued
Three Months Ended December 31
2000 1999
(unaudited) (unaudited)
-------------- ---------------
Basic earnings per share
Earnings before cumulative effect of change in
accounting for financial instruments $0.64 $0.55
Cumulative effect of change in accounting for
financial instruments ($0.20) $0.00
-------------- ---------------
Net income $0.44 $0.55
============== ===============
Diluted earnings per share
- --------------------------
Earnings before cumulative effect of change in
accounting for financial instruments $0.59 $0.50
Cumulative effect of change in accounting for
financial instruments ($0.18) $0.00
-------------- ---------------
Net income $0.41 $0.50
============== ===============
Dividends per share $0.15 $0.15
- -------------------
4
LANDMARK BANCSHARES, INC.
Consolidated Statements of Comprehensive Income
Three Months Ended
December 31
2000 1999
(Unaudited) (Unaudited)
--------- ---------
Net income $ 465,920 $ 586,603
--------- ---------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Cumulative effect of change in accounting for
financial instruments (719,863)
Unrealized holding gains (losses) arising during the period 731,232 (144,262)
Less: reclassification adjustment for gains included in net income (14,647) (6,355)
--------- ---------
Total other comprehensive income (3,278) (150,617)
--------- ---------
Comprehensive income $ 462,642 $ 435,986
========= =========
5
LANDMARK BANCSHARES, INC.
Consolidated Statements of Cash Flows
Three Months Ended December 31
2000 1999
(unaudited) (unaudited)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 465,920 $ 586,603
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Cumulative effect of change in accounting of financial instruments 214,553 0
Amortization of mortgage servicing rights (135,600) (307,571)
Depreciation 54,945 58,604
Realized gain on sale of available for sale of investments (23,249) (10,591)
Decrease (increase) in accrued interest receivable 17,904 (100,950)
Increase (decrease) in income taxes 283,896 346,009
Increase (decrease) in accounts payable and accrued expenses 267,081 (824,711)
Amortization of premiums and discounts on investments and loans, net (7,069) (14,195)
Provision for losses on loans and investments 45,000 135,000
Net change in trading securities 9,642,188 0
Other non-cash items, net 192,901 320,229
Sale of loans held-for-sale 16,148,425 2,237,215
Gain on sale of loans (318,730) (50,731)
Origination of loans held-for-sale (7,346,658) (1,843,451)
Purchase of loans held-for-sale 0 (81,600)
------------ ------------
Net cash provided by operating activities 19,501,507 449,860
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal collections, net 2,309,355 1,841,707
Loans purchased for investment 572,050 (7,805,475)
Principal repayments on mortgage-backed securities 0 1,114,357
Principal repayments on available-for-sale mortgage-backed securities 829,467 0
Acquisition of investment securities available-for-sale (10,000) (262,400)
Proceeds from sale of investment securities available-for-sale 201,503 2,878,221
Net (increase) decrease in time deposits 5,431 0
Proceeds from sale of foreclosed assets 181,989 111,877
Acquisition of fixed assets 1,536 (68,694)
------------ ------------
Net cash provided (used) by investing activities 4,091,331 (2,190,407)
------------ ------------
6
LANDMARK BANCSHARES, INC.
Consolidated Statements of Cash Flows
(Continued)
Three Months Ended December 31
2000 1999
(unaudited) (unaudited)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (9,869,713) $ (2,142,692)
Net increase (decrease) in escrow accounts (1,446,733) (1,405,358)
Proceeds from FHLB advances and other borrowings 122,000,000 17,500,000
Repayment of FHLB advances and other borrowings (133,000,000) (12,000,000)
Purchase of treasury stock (270,654) (66,235)
Dividends paid (159,072) (161,397)
------------- -------------
Net cash provided (used) by financing activities (22,746,172) 1,724,318
------------- -------------
Net increase (decrease) in cash and cash equivalents 846,666 (16,229)
Cash and cash equivalents at beginning of period 5,089,971 5,975,730
------------- -------------
Cash and cash equivalents at end of period $ 5,936,637 $ 5,959,501
============= =============
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest on deposits, advances, and other borrowings $ 3,028,109 $ 2,907,414
Income taxes 181,999 0
Transfers from loans to real estate acquired through foreclosure 325,028 70,187
Cumulative effect of change in accounting for financial investments:
Transfer of held-to-maturity securities to trading investments 9,642,188 0
Transfer of held-to-maturity securities to available-for-sale investments 27,657,273 0
7
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 three months ended December 31, 2000 are not
necessarily indicative of the results which may be expected for the fiscal year
ending September 30, 2001.
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 values of investments and mortgage - backed
securities as of December 31, 2000 and September 30, 2000, is as follows:
December 31, 2000 September 30, 2000
------------------- -------------------
Investment Securities
Held to maturity:
Government Agency Securities $ 0 $ 27,481,885
Municipal Obligations 0 1,185,000
------------------- -------------------
$ 0 $ 28,666,885
=================== ===================
Available for sale:
Common Stock $ 3,902,370 $ 3,643,607
Stock in Federal Home Loan Bank 3,800,000 3,800,000
Government Agency Securities 19,121,615 0
Municipal Obligations 1,101,519 0
Other 153,000 2,144,000
------------------- -------------------
$ 28,078,504 $ 9,587,607
=================== ===================
Mortgage - Backed Securities
Held to Maturity:
FNMA - Arms $ 0 $ 4,985,758
FHLMC - Arms 0 1,461,099
FHLMC - Fixed Rate 0 49,505
CMO Government Agency 0 2,363,257
CMO Private Issue 0 903,288
FNMA - Fixed Rate 0 305,495
GNMA - Fixed Rate 0 43,616
------------------- -------------------
$ 0 $ 10,112,018
=================== ===================
8
INVESTMENTS AND MORTGAGE - BACKED SECURITIES -- CONTINUED
December 31, 2000 September 30, 2000
------------------- -------------------
Available for sale:
FNMA - Arms $ 4,520,952 $ 0
FHLMC - Arms 1,428,691 0
FHLMC - Fixed Rate 44,630 0
CMO Government Agency 2,161,576 0
CMO Private Issue 794,084 0
FNMA - Fixed Rate 295,864 0
GNMA - Fixed Rate 33,393 0
------------------- -------------------
$ 9,279,190 $ 0
=================== ===================
9
4. LOAN RECEIVABLE, NET
A summary of the Bank's loans receivable at December 31, 2000 and September 30,
2000, is as follows:
December 31, 2000 September 30, 2000
----------------- ------------------
Real Estate loans
Residential $ 143,133,318 $ 147,514,858
Construction 1,200,615 857,486
Commercial 10,200,500 9,331,198
Second mortgage 10,211,520 10,403,434
Commercial business 7,708,077 7,033,573
Consumer 8,549,724 9,050,233
------------- -------------
Gross loans 181,003,754 184,190,782
Less: Net deferred loan fees, premiums and discounts (76,330) (154,428)
Allowance for Loan Losses (1,378,720) (1,376,707)
------------- -------------
Total loans, net $ 179,548,704 $ 182,659,647
============= =============
A summary of the Bank's allowance for loan losses for the three months ended
December 31, 2000 and 1999, is as follows:
Three Months Ended
December 31
2000 1999
------------------- ------------------
Balance Beginning $ 1,376,707 $ 1,317,676
Provisions Charged to Operations 45,000 135,000
Loans Charged Off Net of Recoveries (42,987) (52,572)
------------------- ------------------
Balance Ending $ 1,378,720 $ 1,400,104
=================== ==================
5. REAL ESTATE OWNED OR IN JUDGMENT
Real Estate owned or in judgment and other repossessed property:
December 31, 2000 September 30, 2000
------------------- ------------------
Real Estate Acquired by Foreclosure $ 0 $ 130,000
Real Estate Loans in Judgement and
Subject to Redemption 333,742 40,724
Other Repossessed Assets 21,458 0
------------------- ------------------
$ 355,200 $ 170,724
=================== ==================
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, reflects the
extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of non-performance by the other
party to the financial instrument for loan commitments is represented by the
contractual or notional amount of those instruments. The Bank uses the same
credit policies in making commitments as it does for on-balance-sheet
instruments.
On December 31, 2000, the Bank had outstanding commitments to fund real estate
loans of $1,625,466.00. Of the commitments outstanding, $887,173.00 are for
fixed rate loans at rates of 7.50% to 9.00%. Commitments for adjustable rate
loans amount to $738,293.00 with initial rates of 7.375% to 9.00%. Outstanding
loan commitments to sell as of December 31, 2000 were $221,983.00. In addition
the Bank had outstanding commercial loan commitments of $329,744.00 with initial
rates of 9.00% to 10.50%, at December 31, 2000.
10
7. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock (potential
common stock) were exercised or converted to common stock. For periods presented
potential common stock includes outstanding stock options and nonvested stock
awarded under the management stock bonus plan.
Earnings per share for the three months ended December 31, 2000 and 1999, were
determined as follows:
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Basic Earnings Per Share
Three months ended
December 31
2000 1999
----------- -----------
Weighted average common shares outstanding,
net of treasury shares $ 1,102,583 $ 1,129,522
Average unallocated ESOP shares (41,859) (55,547)
----------- -----------
Weighted Average Shares for Basic EPS $ 1,060,724 $ 1,073,975
=========== ===========
Net Income before cumulative effect
of accounting change $ 680,473 $ 586,603
----------- -----------
Net Income $ 465,920 $ 586,603
=========== ===========
Earnings per share amount before cumulative effect of
change in accounting for financial instruments $ 0.64 $ 0.55
Earnings Per Share $ 0.44 $ 0.55
=========== ===========
Basic Earnings Per Share
Three months ended
December 31
2000 1999
----------- -----------
Weighted average shares for Basic EPS $ 1,060,724 $ 1,073,975
Dilutive stock options 84,655 93,148
----------- -----------
Weighted Average Shares for Diluted EPS $ 1,145,379 1,167,123
=========== =========
Net Income before cumulative effect
of accounting change $ 680,473 $ 586,603
----------- -----------
Net Income $ 465,920 $ 586,603
=========== ===========
Earnings per share amount before cumulative effect of
change in accounting for financial instruments $ 0.59 $ 0.50
Earnings Per Share $ 0.41 $ 0.50
=========== ===========
8. DIVIDENDS
At the Company's October 2000 board meeting, the Directors of the Company
declared a $0.15 per share dividend. The dividend was paid November 15, 2000 to
all stockholders of record as of November 1, 2000.
11
9. CHANGE IN ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITY
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement requires the recognition of all
derivative financial instruments as either assets or liabilities in the
statement of financial position and measurement of those instruments at fair
value. The accounting for gains and losses associated with changes in the fair
value of a derivative and the effect on the consolidated financial statements
will depend on its hedge designation and whether the hedge is highly effective
in achieving offsetting changes in the fair value or cash flows of the asset or
liability hedged. Management of the Company adopted the provisions of this
statement beginning October 1, 2000.
As permitted by SFAS No. 133, on October 1, 2000, the Company transferred all of
its securities from the held-to-maturity portfolio to the available-for-sale and
trading portfolios as follows:
Securities Transferred
-------------------------------------------------------------------------
Available
Trading For Sale Total Total
Security (at fair value) (at fair value) (at fair value) (at book value)
- -------- ---------------- ---------------- --------------- ----------------
Investment securities $ 9,642,188 $ 17,621,420 $ 27,263,608 $ 28,666,885
Mortgage-backed-securities 10,035,853 10,035,853 10,112,018
---------------- ---------------- --------------- ----------------
Total $ 9,642,188 $ 27,657,273 $ 37,299,461 $ 38,778,903
================ ================ =============== ================
As of October 1, 2000, the effect of the transfer of these securities was
reported as a cumulative adjustment from a change in accounting principle, net
of tax benefits, impacting earnings and other comprehensive income as follows:
Adjustment to
Adjustment Other
to Comprehensive Total
Earnings Income Adjustments
--------------- ----------------- ------------------
Investment securities $ (339,697) $ (1,063,580) $ (1,403,277)
Mortgage-backed securities (76,165) (76,165)
--------------- ----------------- ------------------
Pre-tax loss (339,697) (1,139,745) (1,479,442)
Income tax benefit 125,144 419,882 545,026
--------------- ----------------- ------------------
Net loss $ (214,553) $ (719,863) $ (934,416)
=============== ================= ==================
The impact to earnings resulted in a loss of $214,553 that was recorded against
current operations as of October 1, 2000, as a cumulative adjustment from a
change in accounting principle, net of tax benefits. Future changes in fair
value for any remaining securities in the trading portfolio will be reflected
through current operation. Changes in fair value for any securities in the
available-for-sale portfolio will be adjusted through other comprehensive
income.
12
LANDMARK BANCSHARES, INC.
PART I - FINANCIAL INFORMATION
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Landmark Bancshares, Inc. (the "Registrant" or the "Company") may from time to
time make written or oral "forward-looking statements", including statements
contained in the Company's filings with the Securities and Exchange Commission
(including the reports on Form 10-K, and 10-Q and the exhibits thereto), in its
reports to stockholders and in other communications by the Company, which are
made in good faith by the Company pursuant to the "Safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes; changes in consumer spending and savings
habits; and the success of the Company at managing these risks.
The Company cautions that this list of important factors is not exclusive. The
company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company.
This commentary is based on the assumption the reader of the form 10-Q has read,
or has access to Managements' Discussion and Analysis, MD&A, for the preceding
fiscal year-end September 30, 2000 filed in form 10-K.
General:
Landmark Bancshares, Inc. ("Company") is the holding company for Landmark
Federal Savings Bank ("Bank"). Apart from the operations of the Bank, the
Company did not engage in any significant operations during the quarter ended
December 31, 2000. The Bank is engaged in the business of accepting deposit
accounts from the general public. These funds are used to originate mortgage
loans for the purchase and refinancing of single-family homes located in Central
and Southwestern Kansas, and the purchase of mortgage-backed and investment
securities. In addition, the Bank offers and purchases loans through
correspondent lending relationships. 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.
13
Changes in financial condition between December 31, 2000 and September 30, 2000:
On October 1, 2000, the Company adopted the provisions of Statement of Financial
Accounting Standards 133 (SFAS 133). As permitted by SFAS 133, the Company
transferred all of its securities from the held-to-maturity portfolio to the
available-for-sale and trading portfolios as follows:
Securities Transferred
-------------------------------------------------------------------------
Available
Trading For Sale Total Total
Security (at fair value) (at fair value) (at fair value) (at book value)
- -------- ---------------- ---------------- --------------- ----------------
Investment securities $ 9,642,188 $ 17,621,420 $ 27,263,608 $ 28,666,885
Mortgage-backed-securities 10,035,853 10,035,853 10,112,018
---------------- ---------------- --------------- ----------------
Total $ 9,642,188 $ 27,657,273 $ 37,299,461 $ 38,778,903
================ ================ =============== ================
As of October 1, 2000, the effect of the transfer of these securities was
reported as a cumulative adjustment from a change in accounting principle, net
of tax benefits, impacting earnings and other comprehensive income as follows:
Adjustment to
Adjustment Other
to Comprehensive Total
Earnings Income Adjustments
--------------- ----------------- ------------------
Investment securities $ (339,697) $ (1,063,580) $ (1,403,277)
Mortgage-backed securities (76,165) (76,165)
--------------- ----------------- ------------------
Pre-tax loss (339,697) (1,139,745) (1,479,442)
Income tax benefit 125,144 419,882 545,026
--------------- ----------------- ------------------
Net loss $ (214,553) $ (719,863) $ (934,416)
=============== ================= ==================
The impact to earnings resulted in a loss of $214,553 that was recorded against
current operations as of October 1, 2000, as a cumulative adjustment from a
change in accounting principle, net of tax benefits.
All securities, $9,642,188, transferred to the trading portfolio were sold
between October 1 and December 31, 2000. The pretax profit was $43,618. The
proceeds were used to repay borrowings from Federal Home Loan Bank and fund
current operations.
During the quarter ended December 31, 2000 the Company sold approximately
$16,148,425 of longer term fixed rate loans at a pretax profit of $318,730. The
proceeds were used to repay borrowings from Federal Home Loan Bank and fund
current operations.
The sales of the investments and fixed rate loans noted above, were elements of
the Company's Interest Rate Risk Reduction Plan. The Interest Rate Risk
Reduction Plan is designed to lessen the affects of changing interest rates on
the Company's assets and liabilities.
14
Total assets decreased $22 million, or approximately 9% between September 30,
2000 and December 31, 2001. Components of this change are:
(In Millions)
December 31 September 30 Change
------------ ------------ -----------
Investment securities
Held-to-maturity $ 0 $ 29 $ (29)
Available-for-sale 28 10 18
------------ ------------- -----------
28 39 (11)
------------ ------------- -----------
Mortgaged-backed securities
Held-to-maturity 0 10 (10)
Available-for-sale 9 0 9
------------ ------------- -----------
9 10 (1)
------------ ------------- -----------
Loans receivable, net 179 182 (3)
Loans held-for-sale 0 9 (9)
------------ ------------- -----------
179 191 (12)
------------ ------------- -----------
Total cash and due from banks 6 5 1
------------ ------------- -----------
Other 0 0 1
------------ ------------- -----------
$ 22
===========
The decrease in investment securities as previously discussed, results primarily
from the sales of assets in the trading portfolio.
The decrease in mortgaged-backed securities of $1 million is reflective of
principal payments received in the normal course of business.
The decrease in loans of $12 million, as previously discussed, is the net of
sales of approximately $16 million of loans offset by approximately $4 million
in loans originated, net of repayments, during the quarter ended December 31,
2000.
Liabilities decreased from September 30, 2000 to December 31, 2000 by $22
million. Components of this change are:
(In Millions)
December 31 September 30 Change
------------- ------------- -----------
Deposits $ 155 $ 165 $ (10)
Advances - FHLB 46 57 (11)
Advances from borrowers
For taxes and insurance 1 2 (1)
-----------
Decrease $ (22)
===========
Deposits decreased primarily due to maturing deposits being withdrawn by public
entities.
Advances from FHLB (Federal Home Loan Bank) decreased from September 30, 2000 to
December 31, 2000, as previously discussed, from repayments funded by sales of
investment securities and loans.
Advances from borrowers for taxes and insurance (escrow) from September 30, 2000
to December 31, 2000, decreased primarily due to payments to taxing authorities.
15
Results of operations: comparison between the three months ended December 31,
2000 and 1999:
Total interest income increased $5,000 or 0.12%. Interest on loans increased
$184,000 primarily due to higher loan balances prior to the above noted sales of
loans. Interest and dividends on investment securities decreased $142,000 due to
the sales of investment securities previously discussed. Interest on
mortgage-backed securities decreased $37,000 due to a decrease in the amount of
these securities held by the Company.
Total interest expense increased $288,033, or 11%. Interest expense on deposits
increased $319,000, or 18%. The increase is due primarily to higher interest
rates paid to depositors. The higher interest rates paid were required to
attract and retain deposits in the local market. Although interest rates have
decreased in the last quarter of calendar 2000, the affect of the decrease is
not available to reduce expense until maturing deposits are reinvested with the
Bank at current lower interest rates. Interest expense on borrowed funds
decreased $30,000 due to repayment of principal on loans to Federal Home Loan
Bank previously discussed and declining interest rates on short-term borrowings
from Federal Home Loan Bank.
Provision for loan losses has decreased $90,000 for the current quarter. At
September 30, 2000 management conducted a complete review of its reserves for
losses and concluded reserves were adequate in relation to loan balances.
Management believes current additions to the reserves of $45,000 for the quarter
is adequate. Management continues to closely monitor the loan portfolios for
potential write-downs.
Net interest income after provision for losses for the current quarter decreased
$193,000, or 11%. Components of the decrease for the three months ended December
31, are:
(In Thousands)
2000 1999 Change
------- ------- -------
Interest income $ 4,485 $ 4,479 $ 5
Interest expense 2,878 2,590 (288)
Provision for losses on loans 45 135 90
-------
Decrease $ (193)
=======
Non-interest income increased $317,000 for the current quarter, or 140%. The
increase is due primarily to the gain on sales of investment securities and
loans. Components of the decrease for the three months ended December 31, are:
(In Thousands)
2000 1999 Change
---- ---- ------
Net gain on sales of investments $ 67 $ 11 $ 56
Net gain on sales of loans 319 51 268
Other (7)
-----
Increase $ 317
=====
The increase in gains on sales of investments and loans was previously discussed
as part of the Interest Rate Risk Reduction Plan.
16
Net income for the current quarter decreased $121,000, or 20%. Components of the
decrease for the three months ended December 31, are:
(In Thousands)
2000 1999 Change
------- ------- -------
Net interest income $ 1,562 $ 1,754 $ (192)
Non-interest income 544 227 317
Non-interest expense 1,015 1,025 10
Income taxes 410 369 (41)
Cumulative effect of change in
accounting for financial
instruments, net of income
tax benefit of $125,144 (215) (215)
------- ------- -------
$ 466 $ 587 $ (121)
======= ======= =======
Liquidity and Capital Resources:
The Bank is required to maintain minimum levels of liquid assets, as defined in
regulations of the Office of Thrift Supervision ("OTS"). This requirement, may
vary from time to time depending upon economic conditions and deposit flows, is
currently based upon a percentage of deposits and short-term borrowing. The
required minimum ratio is currently 4 percent. The Bank's regulatory liquidity
ratio for the quarter ended December 31, 2000 averaged 6.19%. 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 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
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 regulations) to assets (as
defined) and core and total capital to risk weight assets (as defined).
Management believes, as of December 31, 2000, that the Bank meets all capital
adequacy requirements to which it is subject.
17
The Bank's actual capital amounts (in thousands) and ratios as of December 31,
2000 are 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 December 31, 2000:
Total (Risk-Based) Capital
(to Risk Weighted Assets) $21,443 18.1% $ 9,460 8.0% $11,825 10.0%
Core (Tier 1) Capital
(to Risk Weighted Assets) $20,065 17.0% n/a n/a $ 7,095 6.0%
Core (Tier 1) Capital - leverage
(to Assets) $20,065 8.9% $ 9,031 4.0% $11,289 5.0%
18
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 Bank 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.
The OTS prepares a report quarterly 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% of 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.
19
The following tables present the Bank's NPV as well as other data as of December
31, 2000 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 PV Ratio Change
- --------------------------------------------------------------------------------------------------
(Dollars in Thousands)
+300 bp 10,525 (13,168) (56%) 4.92% (541 bp)
+200 bp (1) 15,240 (8,453) (36%) 6.95% (338 bp)
+100 bp 19,631 (4,062) (17%) 8.74% (159 bp)
0 bp 23,693 10.33%
-100 bp 35,681 11,988 8% 11.05% 72 bp
-200 bp 26,975 3,282 14% 11.50% 117 bp
-300 bp 28,699 5,006 21% 12.10% 177 bp
(1) Denotes rate shock used to compute interest rate risk capital component.
December 31, 2000
-----------------
Risk Measures (200 Basis Point Rate Shock):
Pre-Shock NPV Ratio: NPV as % of Present Value of Assets 10.33%
Exposure Measure: Post-Shock NPV Ratio 6.95%
Sensitivity Measure: Decline in NPV Ratio 3.38%
Utilizing the data above, the Bank, at September 30, 2000, 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, 2000 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 $237,138 $234,509 $232,325 $229,457 $224,542 $219,324 $213,793
-Liabilities 208,556 207,615 206,694 205,785 204,891 204,014 203,144
+Off Balance Sheet 117 81 50 21 (20) (70) (124)
------------------------------------------------------------------------------
Net Portfolio Value $28,699 $26,975 $25,681 $23,693 $19,631 $15,240 $10,525
==============================================================================
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 would 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.
20
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.
21
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 17, 2001 to ratify the
election of Larry Schugart and Jim Lewis 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, 2001.
Votes were as follows: Number Percentage
Larry Schugart For 967,282 99.94%
Withheld 604 .06%
Jim Lewis For 967,079 99.92%
Withheld 807 .08%
Regier Carr & Monroe For 966,879 99.90%
Against 304 .03%
Abstain 703 .07%
Directors continuing in office following the annual meeting include C.
Duane Ross, Richard A. Ball and David H. Snapp.
Item 5. Other Information
None
Item 6. Exhibits and Report on Form 8-K
None
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date February 12, 2001 LANDMARK BANCSHARES, INC.
-------------------------
By /S/ Larry Schugart
-----------------------------------------
LARRY SCHUGART
President and Chief Executive Officer
(Duly Authorized Representative)
By /S/ Stephen H. Sundberg
-----------------------------------------
STEPHEN H. SUNDBERG
Senior Vice President and
Chief Financial Officer
(Duly Authorized Representative)