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 June 30, 1996
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 July 31, 1996:
$.10 par value common stock 1,904,022 shares
(Class) (Outstanding)
LANDMARK BANCSHARES, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Condition as of
June 30, 1996 (unaudited) and September 30, 1995 1
Statements of Income for the Three and Nine
Months Ended June 30, 1996 and 1995 (unaudited) 2
Statements of Cash Flows for the Nine Months Ended
June 30, 1996 and 1995 (unaudited) 3 - 4
Notes to Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
PART II - OTHER INFORMATION
Item 2. Changes in Securities 13
Item 4. Submission of Matter to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6(b).Reports on Form 8-K 13
SIGNATURES 14
1
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY,
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Financial Condition
June 30, 1996 September 30, 1995
(Unaudited)
-------------------------------------
ASSETS
Cash and cash equivalents:
Interest bearing ................................................... $ 247,977 $ 0
Non-interest bearing ............................................... 563,695 462,021
Time deposits in other financial institutions ................................. 381,946 579,000
Securities held to maturity ................................................... 26,231,401 34,825,052
Securities available for sale ................................................. 3,541,379 1,692,550
Mortgage-backed securities held to maturity ................................... 48,827,355 68,206,569
Loans receivable, net ......................................................... 115,122,031 98,616,725
Loans held for sale ........................................................... 2,140,111 316,991
Accrued income receivable ..................................................... 1,433,051 1,671,075
Real estate owned or in judgment and other
repossessed property, net .......................................... 415 66,320
Office properties and equipment, at cost less
accumulated depreciation ........................................... 958,715 1,005,908
Prepaid expenses and other assets ............................................. 1,020,980 1,175,524
Income taxes receivable - current ............................................. 0 14,127
-------------------------------------
TOTAL ASSETS .... $ 200,469,056 $ 208,631,862
-------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ........................................................... 147,352,595 144,957,084
Outstanding checks in excess of bank balance ....................... 0 1,050,816
Other Borrowed Money ............................................... 17,400,001 25,533,334
Advances from borrowers for taxes and
insurance ................................................ 1,231,071 1,340,156
Accrued expenses and other Liabilities ............................. 1,128,971 935,531
Deferred income taxes .............................................. 179,700 147,495
Income taxes
Current .................................................. 126,317 0
-------------------------------------
TOTAL LIABILITIES $ 167,418,655 $ 173,964,416
-------------------------------------
Stockholders' Equity
Common Stock ....................................................... 228,131 228,131
$.10 par value; 10,000,000 shares authorized;
2,281,312 shares issued June 30, 1996
Additional Paid-in Capital ......................................... 21,893,499 21,893,499
Treasury Stock, at cost; 367,290 shares at June 30, 1996 ........... (5,069,847) 0
Treasury Stock, at cost; 195,980 shares at September 30, 1995 ...... 0 (2,500,900)
Retained income (substantially restricted) ......................... 17,577,063 16,816,492
Employee Stock Ownership Plan ...................................... (1,131,573) (1,131,573)
Management Stock Bonus Plan ........................................ (530,873) (675,657)
Net unrealized gain/losses on equity securities .................... 84,001 37,454
-------------------------------------
Total Stockholders' Equity ............................... 33,050,401 34,667,446
-------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $ 200,469,056 $ 208,631,862
-------------------------------------
2
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY,
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Income
Three Months Ended June 30 Nine Months Ended June 30
1995 1996 1995 1996
(unaudited) (unaudited)
-----------------------------------------------------
INTEREST INCOME
Interest on loans ............................... 1,667,521 2,294,259 4,563,372 6,544,288
Interest and dividends on investment securities . 732,635 473,548 2,206,021 1,415,359
Interest on mortgage-backed securities .......... 1,137,060 813,639 3,234,053 2,804,699
-----------------------------------------------------
Total interest income ................. 3,537,216 3,581,446 10,003,446 10,764,346
INTEREST EXPENSE
Deposits ........................................ 1,833,827 1,814,134 4,986,421 5,586,977
Borrowed funds .................................. 353,642 263,855 939,426 873,745
-----------------------------------------------------
Total interest expense ................ 2,187,469 2,077,989 5,925,847 6,460,722
Net interest income ................... 1,349,747 1,503,457 4,077,599 4,303,624
PROVISION FOR LOSSES ON LOANS .............................. 0 30,000 15,000 90,000
-----------------------------------------------------
Net interest income after provision for losses .. 1,349,747 1,473,457 4,062,599 4,213,624
NON-INTEREST INCOME
Service charges and late fees ................... 48,013 61,521 136,326 159,266
Net gain (loss) on available for sale investments 35,680 3,125 70,801 10,625
Net gain (loss) on sale of loans ................ 35,588 7,853 54,399 51,076
Net gain on sale of available for sale
mortgage-backed securities ............ 0 0 0 135,208
Service fees on loans sold ...................... 42,941 38,895 131,332 121,270
Other income .................................... 37,706 38,803 72,109 85,365
-----------------------------------------------------
199,928 150,197 464,967 562,810
NON-INTEREST EXPENSE
Compensation and related expenses ............... 479,566 462,118 1,433,417 1,409,215
Occupancy expense ............................... 33,018 41,971 106,439 125,654
Advertising ..................................... 17,130 13,849 52,647 51,482
Federal insurance premium ....................... 94,032 96,924 285,656 293,597
Loss (gain) from real estate operations ......... (4,716) (25) 1,311 3,288
Data processing ................................. 42,027 44,128 132,304 142,454
Other expense ................................... 135,749 176,545 505,485 526,419
-----------------------------------------------------
796,806 835,510 2,517,259 2,552,109
Income before income taxes ............ 752,869 788,144 2,010,307 2,224,326
INCOME TAXES EXPENSES ...................................... 288,000 315,300 770,638 888,800
-----------------------------------------------------
Net income ............................ 464,869 472,844 1,239,669 1,335,526
-----------------------------------------------------
Primary earnings per share ................................. $ 0.22 $ 0.25 $ 0.57 $ 0.68
Fully diluted earnings per share ........................... $ 0.22 $ 0.25 $ 0.57 $ 0.68
Dividends per share ........................................ $ 0.05 $ 0.10 $ 0.65 $ 0.30
3
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Cash Flows
Nine Months Ended June 30
1995 1996
(unaudited) (unaudited)
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................. $ 1,239,669 $ 1,335,526
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ...................................................... 79,771 87,464
Decrease (increase) in accrued interest receivable ................ (146,865) 238,024
Increase (decrease) in outstanding checks in excess of bank balance 0 (1,050,816)
Increase (decrease) in accrued and deferred income taxes .......... 149,767 172,649
Increase (decrease) in accounts payable and accrued expenses ...... 1,322,060 193,440
Amortization of premiums and discounts on investments and loans ... (168,241) (105,385)
Provision for losses on loans and investments ..................... 15,000 90,000
Gain (loss) on available for sale securities ...................... (70,801) (10,625)
Gain (loss) on abailable for sale mortgage-backed securities ...... 0 (135,208)
Other non-cash items, net ......................................... (541,651) 205,339
Sale of loans held for sale ....................................... 3,335,641 6,123,880
Gain on sale of loans held for sale ............................... (54,399) (51,076)
Origination of loans held for sale ................................ (3,491,487) (1,074,792)
Purchase of loans held for sale ................................... (177,400) (6,764,627)
------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ............................ $ 1,491,064 $ (746,207)
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payment on loans held for investment ... (8,308,232) (14,281,637)
Principal repayments on mortgage-backed securities ..................... 5,613,684 9,467,934
Loans purchased for investment ......................................... (7,622,762) (2,445,675)
Proceeds from sale of mortgage-backed securities available for sale .... 0 11,490,625
Acquisition of mortgage-backed securities held to maturity ............. (5,875,831) (1,482,865)
Acquisition of investment securities held to maturity .................. (6,802,031) (10,795,500)
Acquisition of investment securities available for sale ................ 0 (1,940,222)
Proceeds from sale of available for sale investment securities ......... 368,018 181,250
Proceeds from maturities or calls of investment securities ............. 5,755,000 19,512,135
Net (increase) decrease in time deposits ............................... 285,000 198,569
Sale of real estate acquired in settlement of loans .................... 140,000 81,811
Acquisition of fixed assets ............................................ (47,625) (40,270)
Other investing activity ............................................... (22,131) (4,272)
------------------------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES ............................ (16,516,910) 9,941,883
------------------------------
4
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY,
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Cash Flows
(Continued)
Nine Months Ended June 30
1995 1996
(unaudited) (unaudited)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits ............................ $ 6,279,047 $ 2,395,511
Net increase (decrease) in escrow accounts ..................... (167,345) (109,085)
Proceeds from FHLB advance ..................................... 30,300,000 5,000,000
Repayment of FHLB advance ...................................... (28,233,333) (5,133,333)
Net increase (decrease) in FHLB line of credit ................. 9,000,000 (8,000,000)
Acquisition of Treasury Stock .................................. 0 (2,568,947)
Other Financing Activities ..................................... (1,302,251) 144,784
Dividend Payment ............................................... (1,408,757) (574,956)
------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES .................... 14,467,361 (8,846,026)
------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ......................................................... (558,485) 349,650
BEGINNING CASH AND CASH EQUIVALENTS ................................. 1,060,539 462,021
------------------------------
ENDING CASH AND CASH EQUIVALENTS .................................... 502,054 811,671
------------------------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest on deposits, advances, and other borrowings ....... 6,224,562 6,617,118
Income taxes ............................................... 522,620 682,351
Transfers from loans to real estate acquired through foreclosure 176,080 91,212
Transfer of mortgage-backed securities from held to maturity to
available for sale ....................................... 0 11,500,000
LANDMARK BANCSHARES, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
LANDMARK FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements were prepared in accordance
with the instructions for form 10-Q 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 and nine months ending June 30, 1996, are
not necessarily indicative of the results which may be expected for the fiscal
year ending September 30, 1996.
2. On March 28, 1994, the Bank segregated and restricted $15,144,357 of
retained earnings in a liquidation account for the benefit of eligible savings
account holders who continue to maintain their accounts at the bank after the
conversion of the bank from mutual to stock form. In the event of a complete
liquidation of the Bank, 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 June 30, 1996 and September 30, 1995, is as follows:
Investment Securities June 30, 1996 September 30, 1995
----------------------------------
Held to maturity:
United States Treasuries .................... $ 0 $ 2,887,463
Corporate Securities ........................ 0 250,000
Government Agency Securities ................ 23,901,401 29,157,953
Municipal Obligations ....................... 2,330,000 2,529,636
----------------------------------
$26,231,401 $34,825,052
Available for sale:
Common Stock ................................ 1,930,279 206,250
Stock in Federal Home Loan Bank.............. 1,601,100 1,476,300
Other ....................................... 10,000 10,000
----------------------------------
$ 3,541,379 $ 1,692,550
6
Mortgage - Backed Securities held to maturity:
GNMA - Arms ................................ $ 0 $11,999,776
FNMA - Arms ................................ 16,387,460 19,763,471
FHLMC -Arms ................................ 6,822,697 7,033,369
FHLMC -Fixed Rate .......................... 436,358 537,844
CMO Government Agency ...................... 17,569,111 19,557,117
CMO Private Issue .......................... 5,988,370 7,388,861
FNMA - Fixed Rate .......................... 904,346 1,032,999
GNMA - Fixed Rate .......................... 585,438 767,085
Unamortized Premiums ....................... 306,334 429,923
Unearned Discounts ......................... (172,759) (303,876)
----------------------------------
$48,827,355 $68,206,569
4. Loan Receivable, Net
A summary of the Bank's loans receivable at June 30, 1996 and
September 30, 1995, is as follows:
June 30, 1996 September 30, 1995
-------------------------------------
Mortgage Loans Secured by
One to Four Family Residences ............... 88,506,179 79,162,144
Secured by Other Properties ................. 3,790,726 4,040,156
Construction Loans .......................... 1,203,234 202,177
Other ....................................... 2,045,815 1,781,074
----------------------------------
95,545,954 85,185,551
Plus (Less):
Unamortized Premium on Loan Purchase ........ 50,093 69,170
Unearned Discount and Loan Fees ............. (325,523) (362,021)
Undisbursed Loan Proceeds ................... (83,990) (45,648)
Allowance for Loan Losses ................... (531,749) (530,956)
----------------------------------
Total Mortgage Loans ........................ 94,654,785 84,316,096
----------------------------------
Consumer and Other Loans:
Automobile .................................. 8,524,332 5,985,574
Financing Leases ............................ 3,159,835 1,398,290
Loans on Deposits ........................... 585,931 604,555
Home Equity and Second Mortgage ............. 7,325,035 5,784,158
Mobile Home ................................. 19,287 7,051
Other ....................................... 1,034,551 633,592
----------------------------------
20,648,971 14,413,220
Less:
Allowance for Loan Losses ................... (181,725) (112,591)
----------------------------------
Total Consumer and Other Loans .............. 20,467,246 14,300,629
----------------------------------
Net Loans Receivable ................................... $115,122,031 $98,616,725
7
A summary of the Bank's allowance for loan losses for the three and nine months
ended June 30, 1996 and 1995, are as follows:
Three Months Ended Nine Months Ended
June 30 June 30
1996 1995 1996 1995
-----------------------------------------------------------------
Balance Beginning $692,420 $633,960 $643,547 $619,218
Provisions Charged to Operations 30,000 0 90,000 15,000
Loans Charged Off Net of Recoveries (8,946) (412) (20,073) (670)
------------------------------------------------------------------
Balance Ending $713,474 $633,548 $713,474 $633,548
There has been no significant change in the level of non performing loans from
September 30, 1995 to June 30, 1996.
5. Real Estate owned or in judgment, including in-substance foreclosures
and other repossessed property:
June 30, 1996 September 30, 1995
-------------------------------------
Real Estate Acquired by Foreclosure .................... $ 0 $ 0
Real Estate Loans in Judgment and
Subject to Redemption ............................... 415 66,320
Loans accounted for as In-Substance
Foreclosures ........................................ 0 0
Other Repossessed Assets ............................... 0 0
-------------------------------------
$ 415 $ 66,320
6. The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financial needs of its customers and
to reduce its own exposure to fluctuations in interest rates. The financial
instruments include commitments to extend credit and commitments to sell loans.
The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statement of financial
condition. The contract or notional amounts of those instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of non-performance by the other
party to the financial instrument for loan commitments is represented by the
contractual or notional amount of those instruments. The Bank uses the same
credit policies in making commitments as it does for on-balance-sheet
instruments.
On June 30, 1996, the Bank had outstanding commitments to fund real estate loans
of $3,313,356. Of the commitments outstanding, $2,385,306 are for fixed rate
loans at rates of 7.25% to 9.50%. Commitments for adjustable rate loans amount
to $928,050 with initial rates of 7.125% to 9.125%. There were outstanding loan
commitments of $1,272,901 to sell as of June 30, 1996, with rates approximating
original loan rate.
7. Earnings per share for the three and nine months ending June 30, 1996 and
1995, was determined by the weighted average shares outstanding as follows;
8
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Primary Earnings Per Share
Three months ended Nine months ended
June 30 June 30
1996 1995 1996 1995
---------------------------------------------------
Weighted average common shares outstanding 2,085,332 2,281,312 2,085,332 2,281,312
Net effect of dilutive stock options ..... 76,518 39,935 70,025 25,833
Average unallocated ESOP shares .......... (106,276) (121,211) (109,711) (125,275)
Weighted average treasury shares purchased (145,706) (47,315) (84,158) (15,772)
---------------------------------------------------
Common Stock Equivalents ................. 1,909,868 2,152,721 1,961,488 2,166,098
---------------------------------------------------
Net Earnings ............................. 472,844 464,869 1,335,526 1,239,669
---------------------------------------------------
Per share amount ......................... $ 0.25 $ 0.22 $ 0.68 $ 0.57
Fully Dilutive Earnings Per Share
Three months ended Nine months ended
June 30 June 30
1996 1995 1996 1995
---------------------------------------------------
Weighted average common shares outstanding 2,085,332 2,281,312 2,085,332 2,281,312
Net effect of dilutive stock options ..... 78,537 38,022 78,537 25,341
Average unallocated ESOP shares .......... (106,276) (121,211) (109,711) (125,275)
Weighted average treasury shares purchased (145,706) (47,315) (84,158) (15,772)
---------------------------------------------------
Common Stock Equivalents ................. 1,911,887 2,150,808 1,970,003 2,165,606
---------------------------------------------------
Net Earnings ............................. 472,844 464,869 1,335,526 1,239,669
---------------------------------------------------
Per share amount ......................... $ 0.25 $ 0.22 $ 0.68 $ 0.57
Earnings per share have been computed on the treasury stock method in using
average market price for the common stock equivalents (options).
Beginning with the fiscal year ending September 30, 1995, the Company accounts
for the 136,878 shares acquired by the Employee Stock Ownership Plan ("ESOP") in
accordance with Statement of Position 93-6. In accordance with this statement,
shares controlled by the ESOP are not considered in the weighted average shares
outstanding until the shares are committed for allocation.
8. At a April 1996 board meeting, the Directors of the Company declared a .10
per share dividend. The dividend was payable to all stockholders of record as of
May 1, 1996.
9
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 June 30, 1996. The Bank is primarily engaged in the business of accepting
deposit accounts from the general public, using such funds to originate mortgage
loans for the purchase and refinancing of single-family homes located in Central
and Southwestern Kansas and for the purchase of mortgage-backed and investment
securities. In addition, the Bank also offers and purchases loans through
correspondent lending relationships in Wichita, Kansas City, and other cities in
Kansas and in Albuquerque and Santa Fe, New Mexico. To a lesser extent, the Bank
will purchase adjustable rate mortgages loans, to manage its interest rate risk
as deemed necessary. The Bank also makes automobile loans, second mortgage
loans, home equity loans and savings deposit loans. The Bank in addition
purchases whole loans from other Mortgage Originators.
Changes in financial condition between June 30, 1996 and September 30, 1995:
Total assets decreased by $8,162,806, or approximately 4.0% between
June 30, 1996 and September 30, 1995 from $208,631,862 to $200,469,056. This
decrease is largely attributed to a $8,593,651 decrease in securities held to
maturity.
Management Strategy:
Management's strategy has been to maintain profitability. 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,
second mortgage loans, home equity loans and savings deposit loans. This focus,
and the application of strict underwriting standards, are designed to reduce the
risk of loss on the Bank's loan portfolio. However, this lack of diversification
in its portfolio structure does increase the Bank's portfolio concentration risk
by making the value of the portfolio more susceptible to declines in real estate
values in its market area. This has been mitigated in recent years, through the
investment in mortgage-backed securities and the continued sales of loans in the
secondary market.
Certain risks are inherent in the sales of loans in the secondary
market. There is a risk that the Bank will not be able to sell all the loans
that it has originated, or conversely, will be unable to fulfill its commitment
to deliver loans pursuant to a firm commitment to sell loans. In addition, in
periods of rising interest rates, loans originated by the bank may decline in
value. Exposure to market and interest rate risk is significant during the
period between the time the interest rate on a customer's mortgage loan
application is established and the time the mortgage loan closes, and also
during the period between the time the interest rate is established and the time
the Bank commits to sell the loan. If interest rates change in an unanticipated
fashion, the actual percentage of loans that close may differ from projected
percentages. The resultant mismatching of commitments to closed loans and
commitments to deliver sold loans may have an adverse effect on the
profitability of loan originations.
A sudden increase in interest rates can cause a higher percentage of
loans to close than projected. To the degree that this was not anticipated, the
Bank will not have made commitments to sell these loans and may incur
significant mark to market losses, adversely affecting results of operations.
The Bank historically sells 30 year fixed rate mortgages in the
secondary market, however the Bank is keeping all 20 year or shorter mortgages
with fixed rates above 7.0% for investment and selling all other fixed rate
loans.
10
Through out the first nine months of fiscal year 1996 rates continued
with moderate decline, however toward the end of June 1996, rates begin to edge
upward. As a result of the rates at the end of June 1996, the Bank reflected an
unrealized loss of $61,884 in loans held for sale. Sustained levels of gain on
sale of loans is dependent on continued stable or downward interest rate
movement and would likely be adversely affected by a continued rise in interest
rates.
Effective October 1, 1994, the Bank adopted the Financial Accounting
Standards Board SFAS Statement No. 115, "accounting for certain investments in
debt and equity securities". This statement is not retroactively applied. In
conjunction with the adoption of SFAS No. 115, investment securities as of
October 1, 1994, are designated as held-to-maturity and available-for-sale. The
effect of classifying securities as available-for-sale was to reflect an
unrealized gain net of tax effect, as a component of stockholders' equity of
$84,001 as of June 30, 1996.
On May 20, 1996, the Board of Directors announced that the Office of Thrift
Supervision ("OTS") had authorized the repurchase of up to 5% of outstanding
common stock in the open market between May 20, 1996 and March 28, 1997.
Results of operations: comparison between the three and nine months ended June
30, 1996 and 1995:
Net income for the three-month period ended June 30, 1996 of $472,844
represents an increase of $7,975 or a 1.7% increase from the net income of
$464,869 reported for the three-month period ended June 30, 1995.
Net income for the nine-month period ended June 30, 1996 of
$1,335,526 represents an increase of $95,857 or a 7.7% increase over the net
income of $1,239,669 reported for the nine-month period ended June 30, 1995.
This increase is due to increased net interest income over the same period and
gain on sale of available for sale mortgage backed securities.
Net interest income before provision for losses on loans for the
three-month period ended June 30, 1996 increased $153,710 or approximately 11.4%
to $1,503,457 as compared with $1,349,747 for the same period ended June 30,
1995. This increase is associated with the increased interest received on the
mortgage loan portfolio.
Net interest income before provision for losses on loans for the
nine-month period ended June 30, 1996 increased $226,025 or 5.5% to $4,303,624
as compared with $4,077,599 for the same period ended June 30, 1995. This
increase is associated with the increased interest received on the mortgage
loans.
Interest expense for the three-month period ended June 30, 1996
decreased $109,480 or 5.0% to $2,077,989 as compared with $2,187,469 for the
same period ended June 30, 1995. This decrease is due to the decreased costs
associated with savings rates during the most recent quarter.
Interest expense for the nine-month period ended June 30, 1996
increased $534,875 or 9.0% to $6,460,722 as compared with $5,925,847 for the
same period ended June 30, 1995. This increase is due to the increased costs
associated with savings rates primarily during the first two quarters.
The Bank added $30,000 to the provision for loan losses for the three
month period ending June 30, 1996 and $90,000 for the nine month period ending
June 30, 1996. These additions are due to increased loan production.
Non interest income including non operating items for the three-month
period ended June 30, 1996 decreased $49,731 or 24.9% to $150,197 as compared
with $199,928 for the same period ended June 30, 1995. This decrease primarily
was due to a decrease in net gains from available for sale investments of
$32,555, and a decrease of $27,735 on net gains from mortgage loan sales during
the quarter.
Non interest income including non operating items for the nine-month
period ended June 30, 1996 increased $97,844 or 21.0% to $562,811 as compared
with $464,967 for the same period ended June 30,
11
1995. This increase primarily was due to $135,208 gain on sales of available for
sale mortgage backed securities.
Non interest expenses for the three-month period ended June 30, 1996
increased $38,704 or 4.9% to $835,510 as compared with $796,806 for the same
period ended June 30, 1995. This increase is due to the general increases in
other operating expenses.
Non interest expenses for the nine-month period ended June 30, 1996
increased $34,850 or 1.3% to $2,552,109 as compared with $2,517,259 for the same
period ended June 30, 1995. This increase is due to the general increases in
other operating expenses.
Liquidity and Capital Resources:
The Bank is required to maintain minimum levels of liquid assets, as defined by
the 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 5
percent. The Bank's liquidity ratio averaged 7.25% during June 1996. The Bank
manages its liquidity ratio to meet its funding needs, including: deposit
outflows, disbursement of payments collected from borrowers for taxes and
insurance, and loan principal disbursements. The Bank also manages its liquidity
ratio to meet its asset/liability management objectives.
In addition to funds provided from operations, the Bank's primary sources of
funds are: savings deposits, principal repayments on loans and mortgage-backed
securities, and matured or called investment securities. In addition, the Bank
may borrow funds from time to time from the Federal Home Loan Bank of Topeka.
Scheduled loan repayments and maturing investment securities are a relatively
predictable source of funds. However, savings deposit flows and prepayments on
loans and mortgage-backed securities are significantly influenced by changes in
market interest rates, economic conditions and competition. The Bank strives to
manage the pricing of its deposits to maintain a balanced stream of cash flows
commensurate with its loan commitments.
When applicable, cash in excess of immediate funding needs is invested into
longer-term investments and mortgage-backed securities which typically earn a
higher yield than overnight deposits, some of which may also qualify as liquid
investments under current OTS regulations.
As required by the financial institutions reform, recovery and enforcement act
of 1989 ("FIRREA"), OTS prescribed three separate standards of capital adequacy.
The regulations require financial institutions to have minimum regulatory
capital equal to 1.50 percent of tangible assets; minimum core capital equal to
3.00 percent of adjusted tangible assets; and risk-based capital equal to 8.00
percent of risk-based assets.
12
The Bank's capital requirements and actual capital under the OTS regulations are
as follows at June 30, 1996:
Amount (Thousands) Percent of Assets
GAAP Capital ...... $27,834 14.05%
Tangible Capital:
Actual . 27,834 14.05%
Required 2,971 1.50%
Excess . 24,863 12.55%
Core Capital:
Actual . 27,834 14.05%
Required 5,943 3.00%
Excess . 21,891 11.05%
Risk-Based Capital:
Actual . 28,547 33.50%
Required 6,817 8.00%
Excess . $21,730 25.50%
13
LANDMARK BANCSHARES, INC.
PART II - OTHER INFORMATION
Item 2. - Changes in Securities
NONE
Item 4. - Submission of Matter to a Vote of Security Holders
NONE
Item 5. - Other Information
Due to a disparity in the capitalization of federal deposit insurance
funds, effective September 30, 1995 the FDIC lowered the insurance premium for
members of the Bank Insurance Fund ("BIF") to a range of between 0.04% and 0.31%
of deposits while maintaining the current range of between .023% and 0.31% of
deposits for members of the Savings Association Insurance Fund ("SAIF").
Additionally effective January 1996, the total annual insurance premium for most
BIF members was lowered to $2,000. These reductions in insurance premiums for
BIF members place SAIF members, such as the Bank, at a material competitive
disadvantage to BIF members. Proposals under consideration for addressing this
disparity include a possible one-time assessment on deposits of approximately
0.85% on SAIF members, sufficient to recapitalize SAIF to a level that would
approach that of BIF. While there can be no assurance that this or any other
proposal will be effected, a one time assessment could have an adverse impact on
the Bank's results of operation. Based on outstanding deposits as of June 30,
1996, a 0.85% assessment would result in expense to the Bank of approximately
$1.2 million on a pre-tax basis.
In connection with the consideration of the BIF/SAIF disparity, various bills
have been introduced in congress which would call for eventual combination of
the insurance funds and would address the tax deductibility of a proposed
one-time assessment. Certain bills introduced call for conversion of the thrift
charter into a bank charter. The tax impact of elimination of the thrift charter
could be significant if it resulted in recapture of existing tax bad debt
reserves in excess of those allowed for banks. As of June 30, 1996, tax bad debt
reserves for which no deferred or current tax liability has been accrued
amounted to approximately $5.6 million.
Item 6(b). - Reports on Form 8-K
NONE
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: July 31, 1996 LANDMARK BANCSHARES, INC.
By /S/ Larry Schugart
LARRY SCHUGART
President and Chief Executive Officer
(Duly Authorized Representative)
By /S/ James F. Strovas
JAMES F. STROVAS
Senior Vice President and
Chief Financial Officer
(Duly Authorized Representative)