U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File Number 0-22951
LANDMARK FINANCIAL CORP.
-----------------------
(Exact name of Registrant as specified in its Charter)
Delaware 16-1531343
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
211 Erie Boulevard, Canajoharie, New York 13317
----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 673-2012
-------------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
X Yes No
As of December 31, 1998, there were 152,000 shares of the
Registrant's common stock, par value $0.10 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes X No
<PAGE>
Form 10-QSB
LANDMARK FINANCIAL CORP. AND SUBSIDIARY
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition at December 31,
1998, (unaudited) and March 31,1998..........................2
Consolidated Statements of Operations for the three months and
nine months ended December 31, 1998 and 1997, (unaudited)....3
Consolidated Statement of Changes In Stockholders' Equity for
the nine months ended December 31, 1998, (unaudited).........4
Consolidated Statements of Cash Flows for the nine months
ended December 31, 1998 and 1997 (unaudited).................5
Notes to Consolidated Financial Statements...................6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations....................................8
PART II - OTHER INFORMATION...................................................14
SIGNATURES....................................................................15
<PAGE>
<TABLE>
<CAPTION>
Landmark Financial Corporation and Subsidiary
Consolidated Statements of Financial Condition
December 31,1998 and March 31, 1998
December 31, 1998 March 31, 1998
----------------- --------------
(Unaudited)
Assets
<S> <C> <C>
Cash $692,558 $40,236
Interest Bearing Deposits 54,013 1,490,000
Investment Securities, (Available For Sale) 1,720,031 1,103,916
Mortgage-Backed Securities, (Held To Maturity) 44,791 74,080
Loans Receivable, Net 17,504,883 13,640,142
Accrued Interest Receivable 111,505 86,143
Stock In Federal Home Loan Bank, At Cost 87,400 87,400
Premises And Equipment, At Cost
Less Accumulated Depreciation 571,760 197,234
Deferred Tax Asset 28,109 7,100
Foreclosed Real Estate 78,236 0
Other Assets 112,949 84,787
------- ------
Total Assets $21,006,235 $16,811,038
=========== ===========
Liabilities and Stockholders' Equity
Accounts Payable 2,983 3,851
Deposits 17,570,876 14,628,856
Accrued Interest On Deposits 50 0
Advance Payments By Borrowers For Taxes
And Insurance 165,196 97,453
Advances From FHLB 1,248,409 0
Accrued Expenses And Other Liabilities 24,392 21,523
------ ------
Total Liabilities $19,011,906 $14,751,683
----------- -----------
Stockholders' Equity:
Preferred Stock, $0.10 Par Value Per Share:
100,000 Shares Authorized; None Issued 0 0
Common Stock, $0.10 Par Value Per Share:
152,000 Shares Authorized; 152,000 Issued and Outstanding 15,200 15,200
Additional Paid-In Capital 1,192,833 1,192,833
Retained Earnings, Substantially Restricted 884,337 963,752
Unrealized Gain On Securities Available For Sale, Net 13,426 5,036
Unearned ESOP Shares (111,467) (117,466)
--------- ---------
Total Stockholders' Equity $ 1,994,329 $2,059,355
----------- ----------
Total Liabilities and Stockholders' Equity $21,006,235 $ 16,811,038
=========== ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
Landmark Financial Corporation and Subsidiary
Consolidated Statements of Operations
December 31, 1998 and 1987
(Unaudited)
<TABLE>
For the Three Months Ended 12/31 For the Nine Months Ended 12/31
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $378,284 $304,111 $1,040,674 $843,800
Mortgage-backed securities 1,260 1,845 3,526 6,567
Investments 23,471 31,604 108,255 68,628
------ ------ ------- ------
Total interest income 403,015 337,560 1,152,455 918,995
Interest expense:
Deposits 226,349 195,950 659,395 537,336
Advances from FHLB 4,565 0 4,565 0
----- -------- -------- -------
Total interest expense 230,914 195,950 663,960 537,336
------- ------- ------- -------
Net interest income 172,101 141,610 488,495 381,659
Provision for losses on loans 54,100 0 84,268 12,000
------ - ------- ------
Net interest income after provision
for losses on loans 118,001 141,610 404,227 369,659
Non-interest income:
Late charges and other loan fees 3,895 4,383 15,050 14,925
Gain on sale of investment securities
and mortgage-backed securities 0 0 0 12,411
Commissions and other fees 200 11,905 2,746 16,944
Other 6,013 12,303 13,660 13,337
----- ------ ------ ------
Total non-interest income 10,108 28,591 31,456 57,617
Non-interest expense:
Compensation and employee benefits 86,844 85,641 249,402 204,091
Office buildings and equipment 14,152 3,057 29,352 10,842
Data processing 13,663 8,879 32,936 26,137
Advertising 3,289 4,586 6,966 7,518
Deposit insurance premiums 3,698 2,092 10,982 5,044
Other 76,597 49,305 207,122 156,362
Amortization of cost in excess of fair
Value of net assets acquired 657 8,666 3,338 18,086
--- ----- ----- ------
Total non-interest expense 198,900 162,226 540,098 428,080
------- ------- ------- -------
Income (loss) before income taxes (70,791) 7,975 (104,415) (804)
Income taxes (15,845) 0 (25,000) (200)
-------- --------- -------- -----
Net income (loss) ($54,946) $7,975 ($79,415) ($604)
========= ====== ========= ======
Earnings per share ($0.39) $0.06 ($0.57) $0.00
======= ===== ======= =====
Average common and common
equivalent shares outstanding 140,752 139,840 140,553 139,840
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Landmark Financial Corporation and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended December 31, 1998
(Unaudited)
Additional Accumulated Unearned Total
Common paid-in Retained other comprehensive ESOP Stockholders'
Stock capital earnings income Shares Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1998 $15,200 $1,192,833 $963,752 $5,036 ($117,466) $2,059.355
Comprehensive Income
Net income (loss) (79,415) (79,415)
Change in unrealized gain on
securities available for sale, net
of deferred income taxes of $6,000 8,390 8,390
Total Comprehensive Income (71,025)
ESOP shares earned 5,999 5,999
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,1998 $15,200 $1,192,833 $884,337 $13,426 ($111,467) $1,994,329
======= ========== ======== ======= ========== ==========
</TABLE>
See accompanying notes to audited consolidated financial statements.
<PAGE>
Landmark Financial Corporation and Subsidiary
Consolidated Statements of Cash Flows
Nine Months Ended December 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES
Net income (loss) ($79,415) ($604)
Adjustments to reconcile net income to net cash provided by (used in)
Operating activities
Depreciation 19,998 16,312
Amortization (accretion), net 3,338 1,774
Provision for loan losses 84,268 12,000
Deferred income taxes (25,485) (16,300)
ESOP Shares Earned 5,999 0
Decrease (increase) in
Accrued interest receivable (25,362) (27,815)
Trading account securities 0 69,324
Other assets (28,162) (34,609)
Increase (decrease) in
Accounts payable (868) 0
Accrued interest payable 50 87
Other liabilities 2,869 23,505
----- ------
(42,770) 43,674
-------- ------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES
Net increase in loans receivable (4,027,245) (4,308,294)
Proceeds from sale of held-to-maturity securities 0 335,533
Proceeds from disposition of available-for-sale securities 500,000 0
Proceeds from sale of investments required by law 0 (13,100)
Purchase of available-for-sale securities (1,204,643) (401,983)
Proceeds from principal repayments of mortgage-backed securities 127,345 35,236
Purchase of premises and equipment (394,524) (28,376)
--------- --------
(4,999,067) (4,380,984)
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES
Net increase (decrease) in deposits 2,942,020 4,379,451
Net increase (decrease) in open line advances from FHLB 500,000 0
Proceeds from term advances from FHLB 750,000 0
Repayments on term advances from FHLB (1,591) 0
Proceeds from sale of capital stock, net 0 1,199,677
Increase (decrease) in advances from borrowing taxes and insurance 67,743 95,604
------ ------
4,258,172 5,674,732
Net increase (decrease) in cash (783,665) 1,337,422
CASH, beginning of year 1,530,236 709,458
--------- -------
CASH, end of year $746,571 $2,046,880
======== ==========
SUPPLEMENTAL DISCLOURES:
Cash paid for:
Income taxes 0 900
= ===
Interest $663,960 $537,249
======== ========
Transfers from loans to real estate acquired through foreclosure $78,236 0
======= =
Increase (decrease) on unrealized gain
on securities available-for-sale $8,390 $9,657
====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
LANDMARK FINANCIAL CORP. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
December 31,1998
(1) Landmark Financial Corp. and Subsidiary
Landmark Financial Corp. (the Company) was incorporated under the laws
of the state of Delaware for the purpose of becoming the savings and
loan holding company of Landmark Community Bank, a Savings Bank (the
Bank) in connection with the Bank's conversion from a federally
chartered mutual savings bank to a federally chartered stock savings
bank, pursuant to its Plan of Conversion. On August 12, 1997, the
Company commenced a Subscription and Community Offering of its shares
in connection with the conversion of the Bank (the Offering). The
Offering was consummated and the Company acquired the Bank on November
13, 1997. The Company had no assets prior to the conversion and
acquisition on November 13, 1997.
The accompanying consolidated financial statements and the statements
of financial condition include the accounts of the Company and the Bank
(2) Basis of Preparation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB. To the extent
that information and footnotes required by generally accepted
accounting principles for complete financial statements are contained
in or consistent with the audited financial statements incorporated by
reference in the Company's Annual Report on Form 10-KSB for the year
ended March 31, 1998, such information and footnotes have not been
duplicated herein. In the opinion of management, all adjustments
consisting only of normal recurring accruals which are necessary for
the fair presentation of the interim financial statements have been
included. The consolidated statements of operations for the three month
period and nine month period ended December 31, 1998 are not
necessarily indicative of the results which may be expected for the
entire year. The March 31, 1998 balance sheet has been derived from the
audited financial statements as of that date.
(3) Earnings Per Share
On November 13, 1997, 152,000 shares of the Company's stock were
issued, including 12,160 shares issued to the Employees Stock
Ownership Plan (ESOP). Income per share amounts for the three month
and nine month periods ended December 31, 1998 are based upon average
shares outstanding of 140,752 shares and 140,553 shares respectively.
The averages are exclusive of 11,248 and 11,447 unearned shares
respectively, issued to the ESOP, as though those shares were
outstanding for the entire period.
<PAGE>
LANDMARK FINANCIAL CORP. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
December 31, 1998
(4) Stockholders' Equity and Stock Conversion
-----------------------------------------
The Bank converted from a federally chartered mutual savings bank to a
federally chartered stock savings bank pursuant to its Plan of
Conversion which was approved by the Bank's members on September 23,
1997. The conversion was effective on November 23, 1997 and resulted
in the issuance of 152,000 shares of common stock (par value $0.10) at
$10.00 per share for a gross sales price of $1,520,000. Cost related
to conversion (primarily underwriters' commissions, printing and
professional fees) aggregated $311,967 and were deducted to arrive at
the net proceeds of $1,086,433 net of the ESOP loan. The company
established an employee stock ownership trust which purchased 12,160
shares of common stock of the Company at the issuance price of $10.00
per share with funds borrowed from the Bank.
(5) Employee Stock Ownership Plan
-----------------------------
All employees meeting age and service requirements are eligible to
participate in an ESOP established on November 23, 1997. Contributions
made by the Bank to the ESOP are allocated to participants by a
formula based on compensation. Participant benefits become 100% vested
after five years. ESOP expenses for the three and nine month periods
ended December 31, 1998 were $2,270 and $5,999, respectively. There
was no ESOP expense for the period ended December 31, 1997.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the financial condition of Landmark Financial
Corp. and its wholly owned subsidiary, Landmark Community Bank, a Savings Bank,
(collectively the Bank) at December 31, 1998 to the financial condition at March
31, 1998, its fiscal year-end, and the results of operations for the three month
and nine month periods ended December 31, 1998, with the same periods in fiscal
1997. This discussion should be read in conjunction with the interim financial
statements and notes which are included herein.
During August and September 1997, the Office of Thrift Supervision (OTS)
conducted its previously scheduled routine safety and soundness on-sight
examination of the Bank. During the course of its examination OTS examiners
raised a number of concerns and noted certain deficiencies in the Bank's
operations. As a result of the examination the Bank had agreed with the OTS not
to originate any new consumer or commercial loans and to limit one-to-four
family loan origination's to no more than $200,000 per month. Management has
addressed the concerns of the OTS and full operational lending authority was
restored effective February 10, 1998.
General
- -------
Landmark Financial Corp. was organized as a Delaware corporation in June 1997 to
acquire all of the capital stock issued by Landmark Community Bank upon its
conversion from the mutual to stock form of ownership. Landmark Community Bank
was founded in 1925 as a New York chartered savings and loan association located
in Canajoharie, New York. In 1997, its members voted to convert to a federal
charter. The business of the holding company consists primarily of the business
of the Bank.
The Bank conducts its business through its main office located at 211 Erie
Blvd., Canajoharie, Montgomery County, New York. The Bank has been, and intends
to continue to be, a community oriented financial institution offering selected
financial services to meet the needs of the communities it serves. The Bank
attracts deposits from the general public and historically has used such
deposits, together with other funds, primarily to originate one-to-four family
residential mortgage loans, construction and land loans for single-family
residential properties, and consumer loans consisting primarily of loans secured
by automobiles. While the Bank's primary business has been that of a traditional
thrift institution, originating loans in its primary market area for retention
in its portfolio, the Bank also has been an active participant in the
origination of consumer loans primarily for the purchase of automobiles.
The most significant factors influencing the operations of the Bank and other
financial institutions include general economic conditions, competition in the
local market place and the related monetary and fiscal policies of agencies that
regulate financial institutions. More specifically, the cost of funds primarily
consisting of insured deposits is influenced by interest rates on competing
investments and general market rates of interest, while lending activities are
influenced by the demand for real estate financing and other types of loans,
which in turn is affected by the interest rates at which such loans may be
offered and other factors affecting loan demand and funds availability.
<PAGE>
Financial Condition
Total assets increased $4.20 million, or 24.96%, to $21.01 million at December
31, 1998 from $16.81 million at March 31, 1998. The increase in assets is
primarily due to increases in loans receivable, premises and equipment, cash,
and investment securities, partially offset by a decrease in interest bearing
deposits.
Loans receivable, net, increased by $3.86 million, or 28.3%, to $17.50 million
at December 31, 1998 from $13.64 million at March 31, 1998, primarily due to
increases in consumer loans of $1.93 million, an increase in commercial loans of
$647,000, and an increase in one-to-four family portfolio loans of $887,000.
Premises and equipment increased $375,000. On August 24, 1998 Landmark Community
Bank moved to an entirely new facility owned by the bank and located at 211 Erie
Blvd., Canajoharie, NY. The Bank also invested in new teller and operations
equipment and software.
Investment securities increased $587,000, or 49.8% to $1.76 million at December
31, 1998 from $1.18 million at March 31, 1998. Interest bearing deposits
decreased $1.44 million.
Deposits increased $2.94 million, or 20.1%, to $17.57 million at December 31,
1998 from $14.63 million at March 31, 1998. The increase in deposits is
primarily attributable to an increase in certificates of deposit of $2.57
million, and an increase in DDA checking account deposits of $470,000.
Total equity decreased $65,000 or 0.32%, to $1,994,329 at December 31, 1998 from
$2,059,355 at March 31, 1998, due to the net loss of $79,415 which was partially
offset by an increase in unrealized gain on securities of $8,390 and the
allocation of $5,999 for ESOP shares.
Comparison of Operating Results for the Three Months and Nine Months Ended
--------------------------------------------------------------------------
December 31, 1998 and the Three Months and Nine Months Ended December 31, 1997
------------------------------------------------------------------------------
Performance Summary. The Company's net income decreased $62,921 to a loss of
$54,946 for the three months ended December 31, 1998, compared to a net profit
of $7,975 for the three months ended December 31, 1997. The increase in net loss
for the three months ended December 31, 1998 as compared to the same period in
1997 is due to an increase in loan loss provision of $54,100, a decrease in
non-interest income of $18,483, and an increase in non-interest expense of
$36,674. Net interest income increased $30,491. The net loss increased $78,811
to $79,415 for the nine months ended December 31, 1998 as compared to a loss of
$604 for the same period in fiscal year 1997. The decrease in earnings is
primarily due to the increase in loan loss provision of $62,268, the increase in
non-interest expense of $112,018 and a decrease in gain on sale of investment
securities of $12,411, and a decrease in commission income of 14,198, partially
offset by the increase in net interest income of $106,836.
Net Interest Income. The Company's net interest income increased $30,491, or
21.5%, to $172,101 for the three months ended December 31, 1998, from $141,610
for the three months ended December 31, 1997. For the nine months ended December
31, 1998, net interest income increased $106,836, or 27.99%, from $381,659 for
the same period in fiscal 1997. The increases in net interest income reflect an
increase of $65,455 in interest income and a corresponding increase of $34,964
in interest expense for the three months ended December 31, 1998 as compared to
the same period in 1997, and an increase of $233,460 in interest income and an
increase of $126,664 in interest expense for the nine months ended December 31,
1998 as compared to the same period in 1997. The increase in interest income
reflects increased balances of loans receivable, primarily consumer auto loans
and one-to-four family mortgages. Interest expense increased primarily due to
the increase in deposits.
<PAGE>
Provision for Loan Losses. During the three months ended December 31, 1998, the
Bank charged $54,100 against earnings as a provision for loan losses compared to
a provision of $0 charged against earnings for the three months ended December
31, 1997. The portion of the $54,100 provision taken as a result of continued
loan growth was $12,455 while $41,645 was taken as a result of specific
writedowns relating to real estate mortgages and other consumer loans. For the
nine months ended December 31, 1998 the Bank charged $84,268 against earnings as
a provision for losses compared to $12,000 charged against earnings for the nine
months ended December 31, 1997. The allowance for loan losses at December 31,
1998 is .89% of loans receivable, as compared to .89% of loans receivable, at
March 31, 1998. Total non-performing loans at December 31, 1998 are $80,000 or
.46% of loans receivable, as compared to total non-performing loans at March 31,
1998 of 144,000 or 1.05% of loans receivable.
Management regularly reviews the loan portfolio, including problem loans, and
changes in the relative makeup of the loan portfolio to determine whether any
loans require classification or the establishment of additional reserves.
Management will continue to monitor its allowance for loan losses and make
future additions to the allowance as economic conditions dictate. Although the
Bank maintains its allowance for loan losses at a level which it considers to be
adequate to provide for potential losses, there can be no assurance that future
losses will not exceed estimated amounts or that additional provisions for loan
losses will not be required in future periods.
Non-interest Income. For the three months ended December 31, 1998, non-interest
income decreased $18,483 or 64.6%, to $10,108 from $28,591 for the same period
in 1997. For the nine months ended December 31, 1998, non-interest income
decreased $26,161 or 45.4% from $57,617 for the same period in 1997. The
decrease is primarily due to gain realized in the nine months ended December 31,
1997 on the sale of trading investment securities in the amount of $12,411 while
no investment securities were sold in the nine months ended December 31, 1998,
and a decrease in commission income of $14,198 over the same period. There are
unrealized gains on securities available for sale of $13,426 reflected on the
Statement of Financial Condition for December 31, 1998 compared to $5,036 on
March 31, 1998.
Non-interest Expense. Non-interest expense increased $36,674 or 22.6%, to
$198,900 for the three months ended December 31, 1998 from $162,226 for the same
period in 1997. The increase was primarily related to the increased operating
expenses of a stock savings bank and increased occupancy expense related to the
Company's new facilities and equipment. Non-interest expense increased $112,018
or 26.2% for the nine months ended December 31, 1998 from $428,080 in the same
period in 1997, primarily due to the increases in employee compensation and
benefits, increased operating expenses related to a stock savings bank, and
increased occupancy expense.
Income Taxes. Income tax expense, (benefit) decreased $15,845 to ($15,845) for
the three months ended December 31, 1998, from ($0) for the same period in 1997.
For the nine months ended December 31, 1998 the tax benefit was ($25,000)
compared to ($200) for the nine months ended December 31, 1997.
Non-performing Assets
- ---------------------
On December 31, 1998, non-performing assets were $174,000 compared to $144,000
on March 31, 1998. The non-performing assets consisted of loans of $80,000 and
repossessed or foreclosed assets of $94,000. The balance of the Bank's allowance
for loan losses was $157,060 or 90.3% of non-performing assets and 50.9% of
non-performing loans as of December 31, 1998. Loans are considered
non-performing when the collection of principal and/or interest is not probable,
or in the event payments are more than ninety days delinquent.
<PAGE>
Capital Resources
- -----------------
The Bank is subject to three capital to asset requirements in accordance with
OTS regulations. The following table is a summary of the Bank's regulatory
capital requirements versus actual capital as of December 31, 1998 and March 31,
1998, respectively:
December 31, 1998
<TABLE>
<CAPTION>
Actual Required Excess
amount/percent amount/percent amount/percent
-------------- -------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible $1.861 8.87% $ 315 1.50% $1,546 7.37%
Core leverage capita $1.861 8.87% $ 839 4.00% $1,022 4.87%
Risk-based capital $2,028 14.81% $1,096 8.00% $ 952 6.81%
</TABLE>
March 31, 1998
<TABLE>
<CAPTION>
Actual Required Excess
amount/percent amount/percent amount/percent
-------------- -------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible $2,054 12.22% $252 1.50% $1,802 10.72%
Core leverage capital $2,054 12.22% $674 4.00% $1,380 8.21%
Risk-based capital $2,176 21.88% $799 8.00% $1,377 13.85%
</TABLE>
Liquidity
The Bank's principal sources of funds are deposits, principal and interest
payments on loans, deposits in other insured institutions and investment
securities. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan prepayments are more
influenced by interest rates, general economic conditions and competition.
Additional sources of funds may be obtained from the FHLB of New York by
utilizing numerous available products to meet funding needs.
The Bank is required to maintain minimum levels of liquid assets as defined by
regulations. The required percentage is currently 4.0% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less. The
Bank has maintained its liquidity ratio at levels exceeding the minimum
requirement. The eligible liquidity ratios at December 31, 1998 and March 31,
1998 were 11.56% and 18.90%, respectively.
In light of the competition for deposits, the Bank utilizes the funding source
of the FHLB to meet demand in accordance with the Bank's growth plans. The
wholesale funding sources allow the Bank to obtain a lower cost of funding and
create a more efficient liability match to the respective assets being funded.
<PAGE>
For the purpose of the cash flow statement, all short-term investments with a
maturity of three months or less at date of purchase are considered cash
equivalents. Cash and cash equivalents for the periods ended December 31, 1998
and March 31, 1998 were $746,571 and $1,530,236, respectively. The decrease was
primarily due to the fact that increases in deposits of $2.94 million and
Federal Home Loan Bank advances of $1.25 million were offset by an increase in
loans receivable of $3.86 million and increases in Premises and Equipment net of
accumulated depreciation of $375,000, and investment securities of $587,000.
Net cash provided (used) by operating activities decreased to $(42,770) at
December 31, 1998, from $43,674 at December 31, 1997.
Year 2000
- ---------
The Bank has conducted a review of its computer systems in order to determine
which systems could be affected by the "Year 2000" issue, and developed an
implementation plan to resolve any identified problem. The testing phase of the
implementation plan is currently under way. The "Year 2000" problem is the
result of computer programs that were written using a two digit field rather
than a four digit field to define the year. For example, programs that have
date-sensitive fields may recognize a date using "00" as the year 1900 rather
than the year 2000. The results of this programming error could be system
failure or miscalculation. Management believes that with modifications to
existing software and by converting to new hardware, the "Year 2000" problem
will not pose significant operational problems for the Bank. Given the Bank's
interdependence on a third-party service provider, the internal costs related to
the Bank's Year 2000 efforts will consist primarily of accelerating various
hardware and software upgrades which generally would have been incurred in the
normal course of business, and testing various information systems. The upgrades
for hardware and software were substantially in place as of December 31, 1998.
Management believes that the internal costs necessary to address the "Year 2000"
issue have been identified and these costs have been estimated to be
approximately $20,000. Management cannot guarantee that any third-party service
provider will be Year 2000 ready other than through assurances provided from the
third party service provider to the Company. All third party providers have been
contacted and the Company has received such assurances.
Recent Developments
- -------------------
FASB Statement on Employer Disclosures about Pensions and Post-retirement
Benefits In February, 1998, the FASB issued SFAS No. 132 which standardizes the
disclosure requirements for pensions and other post-retirement benefits;
requires additional information on changes in the benefit obligations and fair
values of plan assets; and eliminates certain present disclosure requirements.
The Statement does not change the measurement or recognition requirements for
post-retirement benefits. SFAS No. 132 is effective for fiscal years beginning
after December 15, 1997 and, accordingly, will be adopted by the Company in the
year ending March 31, 1999. Management does not expect that this standard will
significantly affect the Company's financial reporting.
FASB Statement on Derivatives and Hedging Activities - In June, 1998, the FASB
issued SFAS No. 133 which establishes accounting and reporting standards for
derivative instruments and for hedging activities. The Statement requires that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. If certain conditions are met, a derivative may be
specifically designated as a fair value hedge, a cash flow hedge, or a foreign
currency hedge. Entities may reclassify securities from the held-to-maturity
category to the available-for-sale category at the time adopting SFAS No. 133.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999 and, accordingly, would apply to the Company beginning on
April 1, 2000. The Company plans to adopt the standard at that time and does not
presently intend to reclassify securities between categories. The Company has
not engaged in derivatives and hedging activities covered by the new standard,
and does
<PAGE>
not expect to do so in the foreseeable future. Accordingly, SFAS No. 133 is not
expected to have a material impact on the Company's financial statements.
FASB Statement on Mortgage-Backed Securities Retained after the Securitization
Of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise - In October,
1998 the FASB issued SFAS No. 134 which amends SFAS No. 65 "Accounting for
Certain Mortgage Banking Activities". Statement No. 65, as amended by Statement
No. 115 and Statement No. 125, required that after securitization of a mortgage
loan held for sale, a mortgage banking enterprise classify the resulting
security as a trading security. Statement No. 134 amends this section to require
that after the securitization of mortgage loans held for sale, the entity
classify the resulting mortgage-backed security or other retained interest based
on its ability and intent to sell or hold those investments. SFAS 134 is
effective for the first quarter beginning after December 15, 1998 and
accordingly would apply to the Company for the year ending March 31, 1999. The
Company has not engaged in retaining securities after the securitization of its
mortgage loans held for sale and does not expect to do so in the foreseeable
future. Accordingly, SFAS No. 134 is not expected to have a material impact on
the Company's financial statements.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
-----------------
From time to time, the Company is involved as a plaintiff or defendant in
various legal actions incident to its business. None of these actions
individually or in the aggregate is believed to be material to the financial
condition of the Company.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Financial Data Schedule Attached - pages 16&17
<PAGE>
SIGNATURES
----------
Under the requirement of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
LANDMARK FINANCIAL CORP.
-----------------------
Date: 1/29/99 /s/ Gorden E. Coleman
------- _____________________________________
Gordon E. Coleman
President and Chief Executive Officer
(Duly Authorized Officer)
/s/ Paul S. Hofmann
Date: 1/29/99 ____________________________________
------- Paul S. Hofmann
Vice President and Chief Financial Officer
(Principal Financial Officer)
<PAGE>
Landmark Financial Corporation and Subsidiary
Financial Data Schedule
Nine Months Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Multiplier: 1,000
Period Type 9 months
Fiscal year-end 03/31/99
Period-end 12/31/98
<S> <C>
Cash 629.6
Interest-bearing deposits 54.0
Federal fiends sold-purchased securities for resale 0.0
Trading account assets 0.0
Investment and mortgage-backed securities held for sale 1,720.0
Investment and mortgage-backed securities held to maturity - carrying value 44.8
Investment and mortgage-backed securities held to maturity - market value 44.8
Loans 17,662.0
Allowance for losses (157.1)
-----
Total assets 21,006.2
Deposits 17,570.9
Short-term borrowings 750.0
Other liabilities 192.6
Long-term debt 498.4
Common stocks 15.2
Preferred stock -mandatory redemption 0.0
Preferred stock - no mandatory redemption 0.0
Other stockholders' equity 1,979.1
-------
Total Liabilities and stockholders' equity 21,006.2
</TABLE>
<PAGE>
Landmark Financial Corporation and Subsidiary
Financial Date Schedule
Nine Months Ended December 31, 1998
(Unaudited)
(Page 2)
Interest and fees on loans 1,040.7
Interest and dividends on investments 111.8
Other interest income 0.0
Total interest income 1,152.5
Interest on deposits 659.4
Total interest expense 664.0
Net interest income 488.5
Provision for loan losses (84.3)
Investment securities gains/losses 0.0
Other expenses (540.1)
Income/loss before income tax (104.4)
Income/loss before extraordinary items (104.4)
Extraordinary items, less tax 0.0
Cumulative change in accounting principles 0.0
Net income or (loss) (79.4)
Earnings per share - primary (0.57)
Earnings per share - fully diluted (0.52)
Net yield - interest-earning assets - actual 3.01
Loans on non-accrual 73.0
Accruing loans past due 90 days or more 7.0
Troubled debt restructuring 94.0
Potential problem loans 386.0
Allowance for loan loss -beginning of period 122.0
Total charge-offs (49.0)
Total recoveries 0.0
Allowance for loan loss - end of period 157.1
Loan loss allowance allocated to domestic loans 0.0
Loan loss allowance allocated to foreign loans 0.0
Loan loss allowance - unallocated 157.1
