SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
0 TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from ________ to ________
Commission File Number 0-33203
LANDMARK BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 43-1930755
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
800 Poyntz Avenue, Manhattan, Kansas 66502
(Address of principal executive offices) (Zip Code)
(785) 565-2000
(Registrant's telephone number, including area code)
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 __
Indicate the number of shares outstanding of each
of the Registrant's classes of common stock as of the
latest practicable date: As of May 10, 2002, the
Registrant had outstanding 2,040,292 shares of its
common stock, $.01 par value per share.
LANDMARK BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
PART I
Page Number
Item 1. Financial Statements and Related Notes 2 - 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 7 - 15
PART II
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Form 10-Q Signature Page 17
LANDMARK BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE
SHEETS
March 31, December 31,
2002 2001
ASSETS (Unaudited)
Cash and cash equivalents
$ 9,994,627 $ 22,163,258
Investment securities available for sale
86,228,489 75,310,561
Loans, net
229,026,138 235,324,457
Loans held for sale
2,544,145 5,654,077
Premises and equipment, net
3,529,423 3,521,469
Goodwill
2,108,801 -
Other assets
5,506,463 7,725,736
Total assets
$ 338,938,266 $ 349,699,558
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
$ 264,301,826 $ 273,246,285
Other borrowings
28,592,969 28,697,063
Accrued expenses, taxes and other liabilities
6,742,454 7,551,457
Total liabilities
299,637,249 309,494,805
Stockholders' equity:
Common stock, $.01 par, 3,000,000 shares authorized,
2,016,496 and 2,082,681 shares issued at 2002
and 2001, respectively
21,135 20,827
Additional paid in capital
17,399,399 17,075,297
Retained earnings
23,715,428 23,073,530
Accumulated other comprehensive income
510,858 423,138
Treasury stock, at cost; 97,039 and 2,306 shares, respectively
(2,006,453) (43,940)
Unearned employee benefits
(339,350) (344,099)
Total stockholders' equity
39,301,017 40,204,753
Total liabilities and stockholders' equity
$ 338,938,266 $ 349,699,558
See accompanying notes to condensed consolidated
financial statements.
LANDMARK BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS
OF EARNINGS
(Unaudited)
For the Three Months
Ended March 31,
2002 2001
Interest income:
Loans $ 4,340,348 $ 3,636,346
Investment securities 645,479 592,418
Other 56,569 39,782
Total interest income
5,042,396 4,268,546
Interest expense:
Deposits 1,733,196 2,001,198
Borrowed funds 343,836 641,909
Total interest expense 2,077,032 2,643,107
Net interest income 2,965,364 1,625,439
Provision for loan losses 33,500 45,000
Net interest income after
provision for loan losses 2,931,864 1,580,439
Noninterest income:
Fees and service charges 399,791 117,173
Gains on sale of loans 250,155 60,041
Gains on sale of investments 25,800 147,163
Other 55,139 24,834
Total noninterest income 730,885 349,211
Noninterest expense:
Compensation and benefits 1,211,954 637,699
Occupancy and equipment 286,389 139,472
Amortization 89,976 41,144
Data processing 83,429 44,096
Other 544,705 191,965
Total noninterest expense 2,216,453 1,054,376
Earnings before income taxes 1,446,296 875,274
Income tax expense 487,956 322,400
Net earnings $ 958,340 $ 552,874
Earnings per share:
Basic $ 0.47 $ 0.50
Diluted $ 0.45 $ 0.47
Dividends per share $ 0.15 $ 0.1428
See accompanying notes to condensed consolidated
financial statements.
LANDMARK BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
2002 2001
Net cash provided by (used in) operating activities
$ 3,767,498 $ (70,044)
INVESTING ACTIVITIES
Net decrease in loans 6,221,865 3,640,448
Maturities and prepayments of investments available for sale
6,730,767 622,050
Purchase of investments available for sale
(17,990,512) (1,250,000)
Proceeds from sale of investment securities
75,800 5,419,953
Payments received and proceeds from sale of foreclosed assets
172,893 90,113
Improvements of real estate owned
(1,016) -
Purchases of premises and equipment, net
(142,828) (4,750)
Net cash provided by (used in) investing activities
(4,933,031) 8,337,814
FINANCING ACTIVITIES
Net decrease in deposits
(8,944,459) (3,186,896)
Federal Home Loan Bank borrowings (repayments), net
(104,094) (4,000,000)
Purchase of 94,733 shares of treasury stock
(1,962,513) -
Issuance of 30,854 shares of common stock under stock option
plan 324,410 -
Payment of dividends
(316,442) (157,581)
Net cash used in financing activities
(11,003,098) (7,344,477)
Net increase (decrease) in cash
(12,168,631) 923,293
Cash at beginning of period
22,163,258 5,936,637
Cash at end of period
$ 9,994,627 $ 9,859,930
Supplemental disclosure of cash flow information:
Cash paid during period for interest
$ 2,143,000 $ 2,760,000
Cash paid during period for taxes
$ 175,000 $ 522,000
Supplemental schedule of noncash investing activities:
Transfer of loans to real estate owned
$ 68,000 $ 105,000
Loan securitized and transferred to investment securities
$ - $ 17,945,000
See accompanying notes to condensed consolidated
financial statements.
LANDMARK BANCORP, INC. AND
SUBSIDIARY
Notes to Condensed Consolidated Financial
Statements
1. Interim Financial Statements
The condensed consolidated financial
statements of Landmark Bancorp, Inc. (the
"Company") and subsidiary have been prepared in
accordance with the instructions to Form 10-Q. To
the extent that information and footnotes required
by accounting principles generally accepted in the
United States of America for complete financial
statements are contained in or consistent with the
consolidated audited financial statements
incorporated by reference in the Company's Form
10-K for the year ended December 31, 2001, such
information and footnotes have not been duplicated
herein. In the opinion of management, all
adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation of
financial statements have been reflected herein. The
December 31, 2001 condensed consolidated balance
sheet has been derived from the audited consolidated
balance sheet as of that date. The results of the
interim period ended March 31, 2002 are not
necessarily indicative of the results expected for the
year ending December 31, 2002.
2. Earnings Per Share
Basic earnings per share have been computed
based upon the weighted average number of
common shares outstanding during each period.
Diluted earnings per share include the effect of all
potential common shares outstanding during each
period. Earnings and dividends per share for all
periods presented have been adjusted to give effect
to the 5% stock dividend paid by the Company in
December 2001.
The shares used in the calculation of basic
and diluted income per share, which have been
restated for the 5% stock dividend paid in December
2001, are shown below:
For the quarters ended March 31,
2002 2001
Weighted average common shares outstanding (basic)
2,044,096 1,106,702
Dilutive stock options
67,381 82,641
Weighted average common shares (diluted)
2,111,477 1,189,343
3. Comprehensive Income
The Company's only component of other
comprehensive income is the unrealized holding
gains on available for sale securities.
For the three months
ended March 31,
2002 2001
Net income
$958,340 $552,874
Unrealized holding gains
167,284 1,062,290
Less - reclassification adjustment for gains
included in net income 25,800 147,163
Net unrealized gains on securities 141,484 915,127
Income tax expense 53,764 176,398
Total comprehensive income $1,046,060 $1,291,603
4. Recent Accounting Developments
Effective October 1, 2001, we adopted
certain provisions of Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill
and Other Tangible Assets", as required for goodwill
and intangible assets resulting from business
combinations consummated after June 30, 2001.
Effective January 1, 2002, we adopted the remaining
provisions of SFAS 142. SFAS 142 addresses the
accounting and reporting for acquired goodwill and
other intangible assets. It requires that goodwill and
intangible assets with indefinite useful lives no
longer be amortized, but instead tested for
impairment at least annually. For acquisitions
consummated after June 30, 2001, goodwill will not
be amortized. It shall be tested for impairment at a
reporting unit level, under certain circumstances.
Intangible assets with definite useful lives shall be
amortized over their respective estimated useful
lives to the estimated residual values, and reviewed
for impairment. In connection with the transitional
goodwill impairment evaluation, SFAS 142 requires
us to assess whether there is an indication that
goodwill is impaired as of the date of adoption. This
assessment is a two-step process. The first step is to
compare the fair value of the reporting unit with its
carrying amount, including goodwill. If the carrying
amount of the reporting unit exceeds its fair value,
the second step of the test must be performed. The
second step is to compare the implied fair value of
reporting unit goodwill with the carrying amount of
that goodwill. If the carrying amount of reporting
unit goodwill exceeds the implied fair value of that
goodwill, an impairment loss must be recognized in
an amount equal to that excess. Upon evaluating
our goodwill for impairment, the fair value of the
reporting unit exceeded the carrying value of the
unit. Therefore, no indication of goodwill
impairment exists and accordingly the performance
of the second step of the transitional goodwill
impairment evaluation described above was not
necessary.
The following table presents information
about our intangible assets which are being
amortized in accordance with SFAS 142:
March 31, 2002 December 31, 2001
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
Amortized intangible assets:
Core deposit premium $780,000 ($70,909) - -
Mortgage servicing rights $770,664 ($232,834) $755,414 ($231,067)
Total $1,550,664 ($303,743) $755,414 ($231,067)
Aggregate amortization expense for the three
months ended March 31, 2002 and March 31, 2001
was $90,000 and $41,000, respectively. The
following is estimated amortization expense for the
years ended:
2002 $328,000
2003 $304,000
2004 $290,000
2005 $156,000
2006 $ 82,000
Prior to our merger with MNB Bancshares
on October 9, 2001, there was no goodwill on our
balance sheet to be amortized. Pursuant to the
guidance of SFAS 142, goodwill resulting from the
merger with MNB Bancshares has not been
amortized since the merger date but will be
evaluated for impairment on an annual basis.
LANDMARK BANCORP, INC. AND
SUBSIDIARY MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General. Landmark Bancorp, Inc. is a one-
bank holding company incorporated under the laws
of the State of Delaware and is engaged in the
banking business through its wholly-owned
subsidiary, Landmark National Bank. Landmark
Bancorp is listed on the Nasdaq Stock Market
National Market System (symbol "LARK").
Landmark National Bank is dedicated to providing
quality services to its local communities and
continues to originate commercial real estate and
non real estate loans, small business loans,
residential mortgage loans, consumer loans, home
equity loans, and student loans. Effective October
9, 2001, Landmark Bancshares, Inc. and MNB
Bancshares, Inc. completed their merger into
Landmark Merger Company, which immediately
changed its name to Landmark Bancorp, Inc. In
addition, Landmark Federal Savings Bank merged
with Security National Bank and the resulting bank
changed its name to Landmark National Bank,
which is the wholly-owned subsidiary of Landmark
Bancorp, Inc. Landmark Bancorp, Inc. is the
accounting successor to the former Landmark
Bancshares and therefore, all financial information
presented for periods prior to October 9, 2001
reflects only the operations of Landmark
Bancshares. The former Landmark Bancshares
utilized a September 30 fiscal year. Landmark
Bancorp has a December 31 fiscal year end and
presented the results for the quarter ended
December 31, 2001 on Form 10-K as a transition
period. The results for the quarter ended March 31,
2001 do not include MNB Bancshares' results.
Our results of operations depend primarily
on net interest income, which is the difference
between interest income from interest-earning assets
and interest expense on interest-bearing liabilities.
Our operations are also affected by non-interest
income, such as service charges, loan fees and gains
and losses from the sale of newly originated loans
and investments. Our principal operating expenses,
aside from interest expense, consist of compensation
and employee benefits, occupancy costs, federal
deposit insurance costs, data processing expenses
and provision for loan losses.
Net earnings for the first three months of
2002 increased $405,000, or 73%, to $958,000 as
compared to the first three months of 2001. Net
interest income increased $1,340,000, or 82%, from
$1.6 million, to $3.0 million. This improvement in
net earnings and net interest income was generally
attributable to the merger and an improvement in net
interest income. Noninterest income increased
$382,000, or 109%, from $349,000 to $731,000, as
fee and service charges resulted in a $283,000
increase and gains on sale of loans increased
$190,000 compared to the prior year. These
increases were offset by a reduction of $121,000 in
gains on sales of investments. Noninterest expense
increased $1.2 million, relating primarily to
increased operating expenses associated with the
merger.
The first three months of 2002 resulted in
diluted earnings per share of $0.45 compared to
$0.47 for the same period in 2001. Return on
average assets was 1.12% for the period compared
to 0.99% for the same period in 2001. Return on
average stockholders' equity was 9.64% for the
period compared to 9.28% for the same period in
2001.
Summary of Results. Our net income for the
quarter ended March 31, 2002, was $958,000, an
increase of $405,000 over the same period for 2001.
The primary reason for the 73% increase in net
income was the merger and an increase in net
interest income relating to interest rates on our
interest bearing liabilities which repriced downward
at a more rapid pace than our interest earnings
assets. The decrease in earnings per share is
primarily the result of the issuance of 817,806 shares
to former MNB Bancshares shareholders as a result
of the October 9, 2001 merger. The following table
summarizes net income and key performance
measures for the two periods presented.
For the three months ended March 31,
2002 2001
Net earnings: $958,340 $552,874
Basic earnings per share $.47 $.50
Diluted earnings per share $.45 $.47
Earnings ratios:
Return on average assets (1) 1.12% 0.99%
Return on average equity (1) 9.64% 9.28%
Dividend payout ratio 33.33% 31.91%
Net interest margin (1) 3.63% 3.00%
(1) The ratio has been annualized and is not
necessarily indicative of the results for the entire
year.
Interest Income. Interest income increased
$774,000, or 18%, to $5.0 million from $4.3 million
in the first three months of 2001. This increase was
primarily related to an increase in average loans
resulting from the merger, which overcame the
decrease in rates experienced as interest earning
assets repriced during 2001. Average loans for the
first three months of 2002 were significantly higher
at $236.8 million, compared to $168.7 million for
the first three months of 2001. The decline was
primarily the result of refinancings and paydowns in
our residential mortgage portfolio.
Interest Expense. As compared to the same
period a year earlier, interest expense during the first
three months of 2002 decreased $566,000, or 21%.
Interest expense on deposits decreased $268,000, or
13% while interest expense on borrowings,
consisting of advances from the Federal Home Loan
Bank of Topeka, decreased $298,000, or 46%
during this time period. This decrease in interest
expense resulted despite an increase in deposits
resulting from the merger, as a result of the decline
in rates. Reduced borrowings from the Federal
Home Loan Bank precipitated the reduced interest
expense on borrowings.
Net Interest Income. Net interest income for
the first quarter of 2002 totaled $3.0 million, an
82% increase as compared to $1.6 million from the
comparable period in 2001. The improvement was
reflective of our growth resulting from the MNB
merger. Average earning assets during the first
quarter of 2002 totaled $324.4 million, versus
$219.4 million during the same quarter of 2001. Net
interest margin on earning assets was 3.63% for the
2002 quarter, up from 3.00% in the first quarter of
2001. The increase in net interest margin reflected
the continued growth in non-residential mortgage
loans, primarily related to the MNB merger. The
increase was also impacted by the significant decline
in interest rates during 2001 as our liabilities
repricing exceeded corresponding reductions in our
asset yields during 2001. Countering the increase,
our net interest margin has been reduced by the fact
that as part of the merger, the assets and liabilities of
MNB were recorded at their respective fair market
values. Based on the relatively low interest rates
prevailing at the merger date, the effective yields on
MNB's interest-earning assets and rates on MNB's
interest-bearing liabilities were significantly reduced,
thus causing our post merger blended yields and cost
of funds to decline.
Provision for Loan Losses. The provision
for loan losses for the first quarter of 2002 was
$33,500, compared to a provision of $45,000 during
the first quarter of 2001. With the loan portfolio
quality remaining strong, our review of the portfolio
prompted a decrease in our provision. At March 31,
2002 and December 31, 2001, the allowance for
loan losses was $2.6 million, or 1.1% of gross loans
outstanding.
Noninterest Income. Noninterest income
increased $382,000, or 109%, for the first three
months of 2002 to $731,000 compared to the same
period in 2001. Fees and service charges increased
from $117,000 to $400,000, relating primarily to the
MNB merger and the fee income associated with
MNB's products and services offered. Also
contributing to this increase was an improvement of
317% in gains on sale of loans from $60,000 to
$250,000, as residential mortgage financing activity
increased due to the decline in home mortgage rates
over the past year. Mortgage refinancing activity is
expected to diminish as many mortgage holders have
already taken advantage of the low interest rates
favorable for mortgage originations. Gains on sales
of investments also partially offset the increases as
fewer equity securities in the company's investment
portfolio were sold in 2002 compared to the first
quarter in 2001.
Quarter ended March 31,
Noninterest income: 2002 2001
Fees and service charges $399,791 $117,173
Gains on sales of loans 250,155 60,041
Gains on sales of investments 25,800 147,163
Other 55,139 24,834
Total noninterest income $730,885 $349,211
Noninterest Expense. Noninterest expense
increased $1.2 million to $2.2 million for the first
three months of 2002 over the same period in 2001,
resulting from additional expenses associated with
the MNB merger primarily related to compensation
and benefits and occupancy and equipment.
Noninterest expense: Quarter ended March 31,
2002 2001
Compensation and benefits $ 1,211,954 $ 637,699
Occupancy and equipment 286,389 139,472
Amortization 89,976 41,144
Data processing 83,429 44,096
Other 544,705 191,965
Total noninterest expense $ 2,216,453 $ 1,054,376
Income Tax Expense. Income tax expense
increased $165,000, or 51%, from $322,000 for the
months ended March 31, 2001 to $488,000 for the
three months ended March 31, 2002. This increase
in income tax expense resulted primarily from an
increase in taxable income. The effective tax rate
for the 2002 quarter was 34% compared to 37% for
the 2001 comparable quarter.
Asset Quality and Distribution. Total assets
declined to $338.9 million at March 31, 2002
compared to $349.7 million at December 31, 2001.
Our primary ongoing sources of funds are deposits,
proceeds from principal and interest payments on
loans and investment securities and proceeds from
the sale of mortgage loans and investment securities.
While maturities and scheduled amortization of
loans are a predictable source of funds, deposit
flows and mortgage prepayments are greatly
influenced by general interest rates, economic
conditions, competition, and the restructuring of the
financial services industry.
During the three months ended March 31,
2002, net loans, excluding loans held for sale,
decreased $9.4 million. This decline was primarily
the result of refinancings and paydowns in our
residential mortgage portfolio. Our loan portfolio
composition continues to diversify as a result;
evidenced by our one-to-four residential real estate
loans comprising 81%, 54% and 49% of total loans
as of September 30, 2001, December 31, 2001 and
March 31, 2002, respectively.
Our primary investing activities are the
origination of mortgage, consumer, and commercial
loans and the purchase of investment and mortgage
backed securities. Generally, we originate long term
fixed rate residential mortgage loans for immediate
sale and do not originate and warehouse those loans
for resale in order to speculate on interest rates.
Many financial institutions have experienced
an increase in non-performing assets during this
difficult economic period, as even well-established
business borrowers have developed cash flow and
other business related problems. It is management's
belief that the allowance for losses on loans at
March 31, 2002, remains adequate. However, there
can be no assurance that the allowance for losses on
loans will be adequate to cover all losses.
The ratio of the allowance for losses on
loans to non-performing loans decreased to 1.8% as
of March 31, 2002 compared to 2.6% as of
December 31, 2001.
The allowance for losses on loans is
established through a provision for losses on loans
based on management's evaluation of the risk
inherent in the loan portfolio and changes in the
nature and volume of its loan activity. Such
evaluation, which includes a review of all loans with
respect to which full collectibility may not be
reasonably assured, considers the fair value of the
underlying collateral, economic conditions, historical
loan loss experience, level of classified loans and
other factors that warrant recognition in providing
for an adequate allowance for losses on loans.
While management believes that it uses the
best information available to determine the
allowance for losses on loans, unforeseen market
conditions could result in adjustment to the
allowance for losses on loans and net earnings could
be significantly affected if circumstances differ
substantially from the assumptions used in
establishing the allowance for losses on loans.
We believe that the quality of the loan
portfolio continues to be strong as evidenced by the
small number and amount of loans past due one
month or more. As of March 31, 2002, loans with a
balance of $1.5 million were on non-accrual status,
or 0.63% of total loans compared to a balance of
$1.0 million loans on non-accrual status, or 0.43%
of total loans as of December 31, 2001.
Liability Distribution. At March 31, 2002,
total deposits decreased $8.9 million from December
31, 2001, while borrowing levels have remained
consistent.
Noninterest bearing demand accounts at the
end of the first quarter of 2002 increased to $21.2
million, or 8% of deposits, compared to
approximately $19.0 million at December 31, 2001.
Certificates of deposit decreased to $153.2 million
at March 31, 2002 from $161.2 million, or 5% from
December 31, 2001. Money market and NOW
accounts decreased from December 31, 2001 to
$68.6 million from $73.3 million, and were 26% of
total deposits, while savings accounts increased from
$19.7 million to $21.3 million. The reduction of
certificate of deposit and money market accounts is
reflective of our excess liquidity position in that we
were not bidding aggressively on public deposits
during the past months.
Certificates of deposit at March 31, 2002,
which were scheduled to mature in one year or less,
totaled $119.1 million. Historically, maturing
deposits have generally remained with our bank and
we believe that a significant portion of the deposits
maturing in one year or less will remain with us
upon maturity.
Liquidity. Our most liquid assets are cash
and cash equivalents and investment securities
available for sale. The level of these assets are
dependent on the operating, financing, lending and
investing activities during any given period. At
March 31, 2002, and December 31, 2001
respectively, these liquid assets totaled $96.2 million
and $97.5 million. During periods in which we are
not able to originate a sufficient amount of loans
and/or periods of high principal prepayments, we
increase our liquid assets by investing in short-term
U. S. Government and agency securities.
Liquidity management is both a daily and
long-term function of the management strategy.
Excess funds are generally invested in short-term
investments. In the event funds are required beyond
the ability to generate them internally, additional
funds are generally available through the use of
Federal Home Loan Bank advances, a line of credit
with the Federal Home Loan Bank or through sales
of securities. At March 31, 2002, we had
outstanding Federal Home Loan Bank advances of
$28.6 million and had no borrowings outstanding on
our line of credit with the Federal Home Loan Bank.
At March 31, 2002, our total borrowings capacity
with the Federal Home Loan Bank was $95.6
million.
At March 31, 2002, we had outstanding loan
commitments of $23.5 million. We anticipate that
sufficient funds will be available to meet current loan
commitments. These commitments consist of letters
of credit, unfunded lines of credit and commitments
to appropriately to finance real estate loans.
Capital. The Federal Reserve Board has
established capital requirements for bank holding
companies which generally parallel the capital
requirements for national banks under the Office of
the Comptroller of the Currency regulations. The
regulations provide that such standards will
generally be applied on a consolidated (rather than a
bank-only) basis in the case of a bank holding
company with more than $150 million in total
consolidated assets.
At March 31, 2002, we continued to
maintain a sound leverage ratio of 10.6% and a total
risk based capital ratio of 18.8%. As shown by the
following table, our capital exceeded the minimum
capital requirements at March 31, 2002 (dollars in
thousands):
Actual Actual Required Required Required
Amount Percent Percent Amount
Leverage $35,918 10.6% 4.0% $13,546
Tier 1 Capital $35,918 17.6% 4.0% $8,175
Total Risk Based Capital $38,473 18.8% 8.0% $16,349
Banks and bank holding companies are
generally expected to operate at or above the
minimum capital requirements. The above ratios are
well in excess of regulatory minimums and should
allow us to operate without capital adequacy
concerns. The Federal Deposit Insurance
Corporation Improvement Act of 1991 establishes a
bank rating system based on the capital levels of
banks. As of March 31, 20002, we were rated "well
capitalized", which is the highest rating available
under this capital-based rating system.
Quantitative and Qualitative Disclosures
About Market Risk. Our assets and liabilities are
principally financial in nature and the resulting net
interest income thereon is subject to changes in
market interest rates and the mix of various assets
and liabilities. Interest rates in the financial markets
affect our decision on pricing our assets and
liabilities which impacts net interest income, a
significant cash flow source for us. As a result, a
substantial portion of our risk management activities
relates to managing interest rate risk.
Our Asset/Liability Management Committee
monitors the interest rate sensitivity of our balance
sheet using earnings simulation models and interest
sensitivity GAP analysis. We have set policy limits
of interest rate risk to be assumed in the normal
course of business and monitor such limits through
our simulation process.
We have been successful in meeting the
interest rate sensitivity objectives set forth in our
policy. Simulation models are prepared to
determine the impact on net interest income for the
coming twelve months, including one using rates at
March 31, 2002 and forecasting volumes for the
twelve-month projection. This position is then
subjected to a shift in interest rates of 100 and 200
basis points rising and 100 basis points falling with
an impact to our net interest income on a one year
horizon as follows:
Scenario $ change in net interest income % of net interest income
100 basis point rising ($137,000) (1.04%)
200 basis point rising (75,000) (0.57%)
100 basis point falling 146,000 1.11%
We believe that no significant changes in our interest
rate sensitivity position have occurred since March
31, 2002. We also believe we are appropriately
positioned for future interest rate movements,
although we may experience some fluctuations in net
interest income due to short term timing differences
between the repricing of assets and liabilities.
Recent Regulatory Developments. On
October 26, 2001, President Bush signed into law
the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (the "USA
PATRIOT Act"). Among its other provisions, the
USA PATRIOT Act requires each financial
institution: (i) to establish an anti-money laundering
program; (ii) to establish due diligence policies,
procedures and controls with respect to its private
banking accounts and correspondent banking
accounts involving foreign individuals and certain
foreign banks; and (iii) to avoid establishing,
maintaining, administering, or managing
correspondent accounts in the United States for, or
on behalf of, foreign banks that do not have a
physical presence in any country. The USA
PATRIOT Act also requires the Secretary of the
Treasury to prescribe, by regulations to be issued
jointly with the federal banking regulators and
certain other agencies, minimum standards that
financial institutions must follow to verify the
identity of customers, both foreign and domestic,
when a customer opens an account. In addition, the
USA PATRIOT Act contains a provision
encouraging cooperation among financial
institutions, regulatory authorities and law
enforcement authorities with respect to individuals,
entities and organizations suspected of engaging in
terrorist acts or money laundering activities.
During the first quarter of 2002, the
Financial Crimes Enforcement Network (FinCEN), a
bureau of the Department of the Treasury, issued
proposed and interim regulations as mandated by the
USA PATRIOT Act that would: (i) prohibit certain
financial institutions from providing correspondent
accounts to foreign shell banks; (ii) require such
financial institutions to take reasonable steps to
ensure that correspondent accounts provided to
foreign banks are not being used to indirectly
provide banking services to foreign shell banks; (iii)
require certain financial institutions that provide
correspondent accounts to foreign banks to maintain
records of the ownership of such foreign banks and
their agents in the United States; (iv) require the
termination of correspondent accounts of foreign
banks that fail to turn over their account records in
response to a lawful request from the Secretary of
the Treasury or the Attorney General; and (v)
encourage information sharing among financial
institutions and federal law enforcement agencies to
identify, prevent, deter and report money laundering
and terrorist activity. To date, it has not been
possible to predict the impact the USA PATRIOT
ACT and its implementing regulations may have on
us or on our bank subsidiary in the future.
Safe Harbor Statement Under the Private
Securities Litigation Reform Act of 1995 - Forward-
Looking Statements. This document (including
information incorporated by reference) contains, and
future oral and written statements of the Company
and its management may contain, forward-looking
statements, within the meaning of such term in the
Private Securities Litigation Reform Act of 1995,
with respect to the financial condition, results of
operations, plans, objectives, future performance
and business of the Company. Forward-looking
statements, which may be based upon beliefs,
expectations and assumptions of the Company's
management and on information currently available
to management, are generally identifiable by the use
of words such as "believe," "expect," "anticipate,"
"plan," "intend," "estimate," "may," "will," "would,"
"could," "should" or other similar expressions.
Additionally, all statements in this document,
including forward-looking statements, speak only as
of the date they are made, and the Company
undertakes no obligation to update any statement in
light of new information or future events.
The Company's ability to predict results or the
actual effect of future plans or strategies is
inherently uncertain. Factors which could have a
material adverse effect on the operations and future
prospects of the Company and its subsidiaries
include, but are not limited to, the following:
- - The strength of the United States
economy in general and the strength
of the local economies in which the
Company conducts its operations
which may be less favorable than
expected and may result in, among
other things, a deterioration in the
credit quality and value of the
Company's assets.
- - The economic impact of the terrorist
attacks that occurred on September
11th, as well as any future threats and
attacks, and the response of the
United States to any such threats and
attacks.
- - The effects of, and changes in,
federal, state and local laws,
regulations and policies affecting
banking, securities, insurance and
monetary and financial matters.
- - The effects of changes in interest
rates (including the effects of changes
in the rate of prepayments of the
Company's assets) and the policies of
the Board of Governors of the
Federal Reserve System.
- - The ability of the Company to
compete with other financial
institutions as effectively as the
Company currently intends due to
increases in competitive pressures in
the financial services sector.
- - The inability of the Company to
obtain new customers and to retain
existing customers.
- - The timely development and
acceptance of products and services,
including products and services
offered through alternative delivery
channels such as the Internet.
- - Technological changes implemented
by the Company and by other parties,
including third party vendors, which
may be more difficult or more
expensive than anticipated or which
may have unforeseen consequences
to the Company and its customers.
- - The ability of the Company to
develop and maintain secure and
reliable electronic systems.
- - The ability of the Company to retain
key executives and employees and
the difficulty that the Company may
experience in replacing key
executives and employees in an
effective manner.
- - Consumer spending and saving habits
which may change in a manner that
affects the Company's business
adversely.
- - Business combinations and the
integration of acquired businesses
which may be more difficult or
expensive than expected.
- - The costs, effects and outcomes of
existing or future litigation.
- - Changes in accounting policies and
practices, as may be adopted by state
and federal regulatory agencies and
the Financial Accounting Standards
Board.
- - The ability of the Company to
manage the risks associated with the
foregoing as well as anticipated.
These risks and uncertainties should be
considered in evaluating forward-looking statements
and undue reliance should not be placed on such
statements. Additional information concerning the
Company and its business, including other factors
that could materially affect the Company's financial
results, is included in the Company's filings with the
Securities and Exchange Commission.
LANDMARK BANCORP, INC. AND
SUBSIDIARY
PART II
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal
proceedings to which the Company
or its subsidiaries is a party other
than ordinary routine litigation
incidental to their respective
businesses.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO
VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON
FORM 8-K.
A. Exhibits
None
B. Reports on Form 8-K
A report on Form 8-K was
filed on January 22, 2002, to
report under Item 5 that the
Company had issued a press
release announcing the
adoption of a stockholders'
rights plan.
A report on Form 8-K was
filed on February 6, 2002, to
report under Item 5 that the
Company had issued a press
release announcing earnings
for the quarter ended
December 31, 2001
and the declaration of a cash
dividend to stockholders.
A report on Form 8-K was
filed on May 1, 2002, to
report under Item 5 that the
Company had issued a press
release announcing earnings
for the quarter ended March
31, 2002, the declaration of a
cash dividend to stockholders
and a stock repurchase
program. A report on Form
8-K/A was filed on May 2,
2002 correcting a statement
included in the Form 8-K filed
on May 1, 2002.
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.
LANDMARK BANCORP, INC.
Date: May 14, 2002
__________________________________
/s/Patrick L. Alexander
President and Chief Executive Officer
Date: May 14, 2002
__________________________________
/s/Mark A. Herpich
Vice President, Secretary, Treasurer
and Chief Financial Officer