SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
|X\ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
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- OR -
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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SEC File Number: 0-23164
LANDMARK BANCSHARES, INC.
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(Exact name of small business issuer in its charter)
Kansas 48-1142260
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(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
Central and Spruce Streets, Dodge City, Kansas 67801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (316) 227-8111
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year $17,720,869.
Issuer's voting stock trades on The Nasdaq Stock Market under the
symbol "LARK". The aggregate market value of the voting stock held by
non-affiliates of the issuer, based upon the closing price of such stock as of
December 26, 1997 ($23 per share), was $31.8 million.
As of December 26, 1997, registrant had 1,688,641 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Part II -- Portions of issuer's 1997 Annual Report to Stockholders.
2. Part III -- Portions of issuer's Proxy Statement for Annual Meeting of
Stockholders to be held in January 1998.
<PAGE>
PART I
Item 1. Description of Business
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General
Landmark Bancshares, Inc. ("Registrant" or the "Company") is a unitary
savings and loan holding company that was incorporated in November 1993 under
the laws of the State of Kansas for the purpose of acquiring all of the issued
and outstanding common stock of Landmark Federal Savings Bank (the "Bank"). This
acquisition occurred in March 1994 at the time Landmark simultaneously converted
from a mutual to stock institution, and sold all of its outstanding capital
stock to the Company and the Company made its initial public offering of common
stock (the "Conversion"). As of September 30, 1997, the Company had total assets
of $227.9 million, total deposits of $144.7 million, and stockholders' equity of
$32.2 million or 14.2% of total assets under generally accepted accounting
principles ("GAAP"). The only subsidiary of the Company is the Bank.
The Bank is a federally chartered stock savings bank headquartered in
Dodge City, Kansas. The Bank was founded in 1920 with a charter from the state
of Kansas under the name of "Dodge City Savings and Loan Association" which
later became a federal association under the name of "First Federal Savings and
Loan of Dodge City." First Federal Savings and Loan of Dodge City became known
as Landmark Federal Savings Association in 1983 when it changed its name at the
time it merged with Peoples Savings and Loan Association of Sterling, Kansas.
Landmark Federal Savings Association changed its name to Landmark Federal Bank
at the time it converted to stock form and was acquired by Registrant in March
1994. The Bank's deposits are federally insured by the Savings Association
Insurance Fund ("SAIF"), as administered by the Federal Deposit Insurance
Corporation ("FDIC").
The primary activity of the Company is directing and planning the
activities of the Bank, the Company's primary asset. At September 30, 1997, the
remainder of the assets of the Company were maintained as deposits in the Bank
or in the form of common stock of other banks. The Company engages in no other
significant activities. As a result, references to the Company or Registrant
generally refer to the Bank, unless the context otherwise indicates. In the
discussion of regulation, except for the discussion of the regulation of the
Company, all regulations apply to the Bank rather than the Company.
Registrant is primarily engaged in attracting deposits from the general
public and using those funds to originate and sell real estate loans on
one-to-four family residences and, to a lesser extent, to originate consumer and
construction loans for its portfolio. Registrant also purchases one- to
four-family residential loans. Registrant has offices in Garden City, Dodge
City, Great Bend, LaCrosse, and Hoisington, Kansas, which are located in its
primary market area of Ford, Finney, Barton, and Rush Counties in the State of
Kansas. In addition, Registrant invests in mortgage-related securities and
investment securities. Registrant offers its customers fixed-rate and
adjustable-rate mortgage loans, as well as FHA/VA loans and consumer loans,
including home equity and savings account loans. Adjustable-rate mortgage loans
and 15-year fixed-rate mortgage loans are originated for retention in
Registrant's portfolio while 30-year fixed-rate mortgage loans are sold into the
secondary market. All consumer loans are retained in Registrant's portfolio.
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The principal sources of funds for Registrant's lending activities are
deposits and the amortization, repayment, and maturity of loans,
mortgage-related securities, and investment securities. Principal sources of
income are interest and fees on loans, mortgage-related securities, investment
securities, and deposits held in other financial institutions. Registrant's
principal expense is interest paid on deposits.
Market Area
The Kansas counties of Ford, Finney, Barton, and Rush, Kansas are
Registrant's primary market area. This area was founded on agriculture, which
continues to play a major role in the economy. Predominant activities involve
the wheat crop and feed lot operations. Dodge City, the location of Registrant's
main office is known as the "Cowboy Capital of the World" and maintains a
significant tourism industry. In the central part of Kansas, where Registrant
has three branch offices, the oil industry is prevalent. In the past several
years, the economic conditions in this area have improved significantly over the
major downturn in oil drilling activity during the 1980s. The largest employment
sector in Registrant's market area is agriculture. The market area of Registrant
is largely dependent upon the agricultural, beef packing, and oil and gas
industries. The effect of a downturn in either or both of these industries could
have a negative impact on the results of operations of Registrant.
Lending Activities
General. Registrant's loan portfolio consists primarily of fixed and
adjustable-rate mortgage loans secured by one- to four-family residences and, to
a lesser extent, consumer loans and construction loans. The portfolio also
includes commercial real estate loans.
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Analysis of Loan Portfolio. Set forth below is selected data relating
to the composition of Registrant's loan portfolio by type of loan on the dates
indicated:
<TABLE>
<CAPTION>
At September 30,
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1997 1996 1995 1994 1993
---------------- ------------------- --------------- ----------------- ---------------------
$ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loan: (1)
Real estate loans
Construction................ $ 1,937 1.22% $ 1,130 .87% $ 202 0.20% $ 221 0.31% $ 201 0.32%
Residential................. 125,961 79.64 105,195 80.98 83,519 84.42 64,169 90.06 58,439 93.32
Commercial.................. 2,666 1.69 1,852 1.43 1,781 1.80 1,300 1.83 1,087 1.74
Second mortgage............. 9,986 6.31 8,140 6.27 5,784 5.85 2,916 4.09 1,952 3.12
Commercial business........... 4,050 2.56 3,601 2.77 1,753 1.77 74 0.10 90 0.14
Consumer:
Savings account............. 574 .36 555 .43 605 0.61 369 0.52 292 0.47
Home improvement............ -- -- -- -- -- -- 1 0.00 2 0.00
Automobile.................. 13,310 8.42 9,784 7.53 5,986 6.05 3,118 4.38 1,509 2.41
Other....................... 968 .61 643 .49 286 0.29 45 0.06 40 0.06
-------- ------ --------- ------- ------ ------ ------ ------ -------- ------
Gross loans................. 159,452 100.81 130,900 100.77 99,916 100.99 72,213 101.35 63,612 101.58
Less:.........................
Unamortized premiums
(discounts) on
loan purchases............. 30 .02 47 .04 69 0.07 -- -- -- --
Loans in process............ (2) -- -- -- (45) (0.05) -- -- (4) (0.01)
Deferred loan
origination fees
and costs................. (348) (.22) (304) (.23) (362) (0.37) (341) (0.48) (272) (0.43)
Allowance for loan losses... (969) (.61) (740) (.58) (644) (6.44) (619) (0.87) (716) (1.14)
-------- ------ --------- ------- ------ ------ ------ ------ ------- ------
Total loans, net.............. $158,163 100.00% $129,903 100.00% $98,934 100.00 % $71,253 100.00% $ 62,620 100.00 %
======= ====== ======== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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(1) Includes loans classified as held for sale.
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Loan Maturity. The following table sets forth the maturity of
Registrant's loan portfolio at September 30, 1997. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totalled $40.2 million, $28.9 million, and $16.3
for the three years ended September 30, 1997, 1996, and 1995, respectively.
Adjustable-rate mortgage loans are shown as maturing based on contractual
maturities.
<TABLE>
<CAPTION>
1-4 Family Other
Real Estate Residential
Mortgage Commercial Construction Consumer Total
-------- ---------- ------------ -------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Amounts Due:
Within 1 year................... $ 143 $ 776 $ 254 $2,238 $3,411
After 1 year:
1 to 3 years.................. 336 2,922 5,375 8,633
3 to 5 years.................. 1,190 919 10,750 12,859
5 to 10 years................. 6,146 733 5,603 12,482
10 to 20 years................ 51,209 4,819 890 726 57,644
Over 20 years................. 63,484 -- 793 146 64,423
------ -------- ----- ------- ------
Total due after one year........ 122,365 9,393 1,683 22,600 156,041
------- ------- ----- ------ -------
Total amount due................ $122,508 $10,169 $1,937 $24,838 $159,452
Less:
Unamortized premium
on loan purchases............... 30 30
Allowance for loan loss......... (603) (88) (278) (969)
Loans in process................ (2) (2)
Deferred loan fees.............. (317) (26) (5) (348)
Loans receivable, net......... $121,616 $10,055 $1,932 $24,560 $158,163
======= ====== ===== ====== =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
September 30, 1998, which have predetermined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
One-to-four family........... $ 47,827 $ 74,538 $122,365
Commercial................... 6,190 3,203 9,393
Construction................. 1,683 1,683
Consumer..................... 22,600 22,600
----------- ------------ ------
Total...................... $ 78,300 $ 77,741 $156,041
=========== ============ =======
Residential Loans. Registrant's primary lending activity consists of
the origination of one-to-four family, owner-occupied, residential mortgage
loans secured by property located in its primary market
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area. Registrant also originates a small number of residential real estate loans
secured by multi-family dwellings.
Registrant offers adjustable-rate mortgages ("ARMs") that adjust every
one, three, and five years and have terms from 1 to 30 years, and fixed-rate
mortgage loans with terms of 1 to 30 years. The interest rates on ARMs are based
on treasury bill rates and the national cost of funds. Registrant considers the
market factors and competitive rates on loans as well as its own cost of funds
when determining the rates on the loans that it offers. Registrant also has a
small network of correspondents from whom Registrant may be referred both fixed-
and adjustable-rate real estate mortgage loans. Registrant retains the
adjustable-rate loans for its own loan portfolio and sells most of the fixed
rate loans into the secondary market, primarily to the Federal Home Loan
Mortgage Corporation ("FHLMC"). Historically, Registrant has sold its 30-year
and 15-year fixed rate loans in the secondary market; however, Registrant has
recently begun to hold its 15-year and 20-year fixed rate mortgage loans to
maturity. Registrant also offers Federal Housing Administration and Veterans
Administration ("FHA/VA") loans. Fixed-rate mortgage loans are generally
originated to FHLMC standards. Although Registrant originates adjustable-rate
mortgage loans for its own portfolio, they are underwritten to FHLMC standards,
so that they are saleable in the secondary market. FHA/VA loans are originated
in accordance with FHA/VA guidelines, most of which are sold to various private
investors.
Generally, during periods of rising interest rates, the risk of default
on an ARM is considered to be greater than the risk of default on a fixed-rate
loan due to the upward adjustment of interest costs to the borrower. To help
reduce such risk, Registrant qualifies the loan at the fully indexed accrual
rate, as opposed to the original interest rate. ARMs may be made at up to 95% of
the loan to value ratio.
Registrant does not originate ARMs with negative amortization.
Regulations limit the amount which a savings association may lend in
relationship to the appraised value of the real estate securing the loan, as
determined by an appraisal at the time of loan origination. Such regulations
permit a maximum loan-to-value ratio of 100% for residential property and 90%
for all other real estate loans. Registrant's lending policies, however,
generally limit the maximum loan-to-value ratio to 80% of the appraised value of
the property, based on an independent or staff appraisal. When Registrant makes
a loan in excess of 80% of the appraised value or purchase price, private
mortgage insurance is generally required for at least the amount of the loan in
excess of 80% of the appraised value. Registrant generally does not make
non-owner occupied one- to four-family loans in excess of 80%.
The loan-to-value ratio, maturity, and other provisions of the
residential real estate loans made by Registrant reflect the policy of making
loans generally below the maximum limits permitted under applicable regulations.
Registrant requires an independent or staff appraisal, title insurance or an
attorney's opinion or with an abstract, flood hazard insurance (if applicable),
and fire and casualty insurance on all properties securing real estate loans
made by Registrant. Registrant reserves the right to approve the selection of
which title insurance companies' policies are acceptable to insure the real
estate in the loan transactions.
While one- to four-family residential real estate loans are normally
originated with 15-30 year terms, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all of the fixed-interest rate
loans in Registrant's loan portfolio contain due-on-sale clauses providing that
Registrant may declare the unpaid amount due
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<PAGE>
and payable upon the sale of the property securing the loan. Registrant enforces
these due-on-sale clauses to the extent permitted by law. Thus, average loan
maturity is a function of, among other factors, the level of purchase and sale
activity in the real estate market, prevailing interest rates, and the interest
rates payable on outstanding loans.
Second Mortgage Loans. Registrant makes loans on real estate secured by
secondary, or junior, mortgages. Secondary mortgage loans possess somewhat
greater risk than primary mortgage loans because the security underlying the
second mortgage loan must first be used to satisfy the obligation under the
primary mortgage loan. Registrant's lending policies for second mortgage loans
secured by one- to four-family residences are similar to those used for
residential loans, including the required loan-to-value ratio. Registrant does
not currently originate any second mortgage loans outside its primary market
area.
Multi-Family Loans. Registrant also makes fixed-rate and
adjustable-rate multi-family loans, including loans on apartment complexes. The
largest multi-family real estate loan had a balance of approximately $740,000 at
September 30, 1997, on an apartment complex located within its primary market
area.
Multi-family loans generally provide higher origination fees and
interest rates, as well as shorter terms to maturity and repricing, than can be
obtained from single-family mortgage loans. Multi-family lending, however,
entails significant additional risks compared with one- to four-family
residential lending. For example, multi-family loans typically involve larger
loan balances to single borrowers or groups of related borrowers, the payment
experience on such loans typically is dependent on the successful operation of
the real estate project, and these risks can be significantly impacted by supply
and demand conditions in the market for multi-family residential units and
commercial office, retail, and warehouse space.
Consumer Loans. Registrant views consumer lending as an important
component of its business operations because consumer loans generally have
shorter terms and higher yields, thus reducing exposure to changes in interest
rates. In addition, Registrant believes that offering consumer loans helps to
expand and create stronger ties to its customer base. Consequently, Registrant
intends to continue its consumer lending. Regulations permit federally-chartered
savings banks to make certain secured and unsecured consumer loans up to 35% of
assets. In addition, Registrant has lending authority above the 35% limit for
certain consumer loans, such as home improvement, credit card, and education
loans, and loans secured by savings accounts.
Consumer loans consist of personal unsecured loans, home improvement
loans, automobile loans, and savings account loans, at fixed rates.
The underwriting standards employed by Registrant for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan. In addition, the stability of the applicant's monthly income from primary
employment is considered during the underwriting process. Credit worthiness of
the applicant is of primary consideration; however, the underwriting process
also includes a comparison of the value of the security in relation to the
proposed loan amount.
Consumer loans entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or secured
by assets that depreciate rapidly, such as automobiles, mobile homes, boats, and
recreational vehicles. In such cases, repossessed collateral for
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a defaulted consumer loan may not provide an adequate source of repayment for
the outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In particular, amounts
realizable on the sale of repossessed automobiles may be significantly reduced
based upon the condition of the automobiles and the lack of demand for used
automobiles. Registrant adds a general provision to its consumer loan loss
allowance, based on general economic conditions, prior loss experience, and
management's periodic evaluation.
Commercial Real Estate Loans. Commercial real estate secured loans are
originated in amounts up to 80% of the appraised value of the property. Such
appraised value is determined by an independent appraiser previously approved by
Registrant. Registrant's commercial real estate loans are permanent loans
secured by improved property such as small office buildings, retail stores,
small strip plazas, and other non-residential buildings. Registrant originates
commercial real estate loans with amortization periods of 1 to 20 years,
primarily as adjustable rate mortgages.
Loans secured by commercial real estate generally involve a greater
degree of risk than residential mortgage loans and carry larger loan balances.
This increased credit risk is a result of several factors, including the
concentration of principal in a limited number of loans and borrowers, the
effects of general economic conditions on income producing properties and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by commercial real estate is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired. At September 30, 1997, the largest commercial
real estate loan had a balance of approximately $746,000 and was performing.
Construction Loans. Registrant does not actively seek to make
construction loans. Construction financing is generally considered to involve a
higher degree of risk of loss than long-term financing on improved, occupied
real estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of construction costs proves to be
inaccurate, Registrant may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate, Registrant may be confronted, at or prior to the
maturity of the loan, with a project having a value which is insufficient to
assure full repayment.
Commercial Business Loans. Regulations authorize Registrant to make
secured or unsecured loans for commercial, corporate, business, and agricultural
purposes. The aggregate amount of such loans outstanding may not exceed 10% of
Registrant's assets. In addition, another 10% of total assets may be invested in
commercial equipment leasing. Registrant has offered limited commercial business
loans since the early 1980s, primarily to existing customers. Most of
Registrant's commercial business loans are secured by real estate or other
assets.
It is the policy of Registrant to annually request financial statements
from commercial loan borrowers. The financial statements are reviewed as
received by management to detect any conditions or trends that may affect the
ability of the borrower, including cash flows of the project, to repay the debt.
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<PAGE>
Loan Solicitation and Processing. Registrant's sources of mortgage loan
applications are referrals from existing or past customers, local realtors,
builders, loan correspondents, and walk-in customers and also as the result of
advertising. The Association actively solicits local realtors and believes they
provide a substantial number of customers that originate loans with Registrant.
Registrant also solicits loans from a small network of correspondent lenders in
Wichita and Kansas City, Kansas and Albuquerque, New Mexico as well as various
communities in central and western Kansas. These correspondents, selected by
management, are located in markets Registrant does not otherwise serve.
The loan approval process is segmented by the type of loan and size of
loan. Consumer loans may be approved by certain loan officers within designated
limits. One or more signatures of members of senior management may also be
required for larger consumer loans. The Board of Directors ratifies all loans
that have been approved by officers or committees.
All commercial real estate loans are submitted to the Board of
Directors for approval upon the recommendation of senior management.
The real estate loan committee consists of various officers. Any two of
those individuals may collectively approve one- to four-family residential real
estate loans up to $100,000. Loans in amounts greater than $100,000 and up to
the current FHLMC maximum loan amount must be approved by no less than three
members of the loan committee. Real estate loans over the current FHLMC limit
require the approval of the Board of Directors.
Registrant uses fee appraisers or staff appraisers on all real estate
related transactions that are originated in the main office or branch offices of
Registrant. It is Registrant's policy to obtain title insurance on all
properties securing real estate loans and to obtain fire and casualty insurance
on all loans that require security. On occasion, when originating loans,
abstracts or attorney opinions may be utilized in lieu of title insurance.
Origination, Purchase, and Sale of Loans
During the fiscal year ended September 30, 1997, Registrant originated
$50.7 million in loans, purchased $31.4 million in loans (all secured by one- to
four-family residences), and sold $13.0 million in loans.
Loan Sales. Registrant generally retains servicing on all loans sold
with the exception of fixed rate FHA/VA loans which are sold with servicing
released. All such loans were sold without recourse to the Company.
Loan Commitments. Registrant issues written, formal commitments to
prospective borrowers on all real estate approved loans. The commitments
generally requires acceptance within 60 days of the date of issuance. For
commercial real estate loans or commercial loans in general, the commitment is
issued for approximately 60 days and must be closed within 60 days of issuance.
Commitments for consumer loans expire 30 days after issuance. At September 30,
1997, Registrant had $1.9 million of commitments to originate mortgage loans.
Loan Processing and Servicing Fees. In addition to interest earned on
loans, the Company recognizes fees and service charges which consist primarily
of fees on loans serviced for others and late charges. The Company recognized
net loan servicing fees of $161,000, $161,000 and $173,000 for the
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years ended September 30, 1997, 1996 and 1995, respectively. As of September 30,
1997, loans serviced for others totalled $55.8 million.
Loans to One Borrower. Savings associations are subject to the same
limits as those applicable to national banks, which under current regulations
generally limit loans-to-one borrower to an amount equal to 15% of unimpaired
capital and unimpaired surplus calculated as the sum of the Bank's core and
supplementary capital included in total capital, plus the balance of the general
valuation allowances for loan and lease losses not included in supplementary
capital, plus investments in subsidiaries that are not included in calculating
core capital, or $500,000, whichever is greater. An additional amount equal to
10% of unimpaired capital and unimpaired surplus may be included if the loan is
secured by readily marketable collateral (generally, financial instruments, not
real estate). Under this general restriction, the Bank's maximum loan to one
borrower ("LTOB") limit at September 30, 1997 was approximately $6.7 million.
Registrant's largest loan to one borrower is a loan originated in June
1994 having a balance of approximately $746,000 as of September 30, 1997. This
loan is secured by commercial real estate. This loan was current at September
30, 1997.
Loan Delinquencies. Registrant's collection procedures provide that
when a mortgage loan is 15 days past due, a computer printed delinquency notice
is sent. If payment is still delinquent at the end of that month, within 15 days
a telephone call is made to the borrower. If the delinquency continues,
subsequent efforts are made to eliminate the delinquency. If the loan continues
in a delinquent status for 60 days or more, the Board of Directors of Registrant
generally approves the initiation of foreclosure proceedings unless other
repayment arrangements are made. Collection procedures for non-mortgage loans
generally begin after a loan is 10 days delinquent.
Loans are reviewed on a regular basis and are generally placed on a
non-accrual status when the loan becomes more than 90 days delinquent and, in
the opinion of management, the collection of additional interest is doubtful.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income. Subsequent interest payments, if any, are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.
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The following table sets forth information regarding non-accrual loans,
real estate owned ("REO") and other repossessed assets, and loans that are 90
days or more delinquent but on which Registrant was accruing interest at the
dates indicated. At such dates, Registrant had no restructured loans within the
meaning of Statement of Financial Accounting Standards ("SFAS") No. 15.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loan secured by 1-4
dwelling units .......................... $ 78 $ 51 $239 $ 37 $ 48
All other mortgage loans ................ -- -- -- -- --
Non-Mortgage loans:
Consumer loans .......................... 294 76 5 -- 30
---- ---- ---- ------- ----
Total ..................................... $372 $127 $244 $ 37 $ 78
==== ==== ==== ======= ====
Accruing loans that are
contractually past due 90 days
or more:
Mortgage loans:
Permanent loans secured by 1-
4 dwelling units ....................... $ 50 $146 $142 $ 171 $160
All other mortgage loans ................ -- 44 -- -- --
---- ---- ---- ------- ----
Total ..................................... $ 50 $190 $142 $ 171 $160
==== ==== ==== ======= ====
Total non-accrual and 90-day
past due accrual loans .................. $422 $317 $386 $ 208 $238
==== ==== ==== ======= ====
Real estate owned ......................... $252 $-- $ 66 $ 200 $351
==== ==== ==== ======= ====
Total non-performing
assets ................................... $674 $317 $452 $ 408 $589
==== ==== ==== ======= ====
Total non-accrual and 90-day
past due accrual loans to net
loans ................................... 0.27% 0.24% 0.39% 0.29% 0.38%
==== ==== ==== ======= ====
Total non-accrual and 90-day
past due accrual loans to total
assets .................................. 0.19% 0.15% 0.19% 0.11% 0.14%
==== ==== ==== ======= ====
Total non-performing
assets to total assets ................... 0.30% 0.15% 0.22% 0.22% 0.36%
==== ==== ==== ======= ====
</TABLE>
Interest income that would have been recorded on renegotiated loans and
loans accounted for on a non-accrual basis under the original terms of such
loans was $37,000 for the year ended September 30, 1997. Amounts foregone and
not included in Registrant's interest income for the year ended September 30,
1997 totalled $13,000.
Classified Assets. Office of Thrift Supervision ("OTS") regulations
provide for a classification system for problem assets of insured institutions
that covers all problem assets. Under this classification
11
<PAGE>
system, problem assets of insured institutions are classified as "substandard,"
"doubtful," or "loss." An asset is considered substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the "distinct possibility" that the insured institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as doubtful have all of
the weaknesses inherent in those classified substandard, with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions and values, "highly
questionable and improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
designated special mention by management are assets included on Registrant's
internal watchlist because of potential weakness but which do not currently
warrant classification in one of the aforementioned categories.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover possible
losses related to assets classified as substandard or doubtful may be included
in determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital. At
September 30, 1997 that Registrant had a general loss allowance for loans and
REO of $969,000.
At
September 30,
1997
-------------
(In Thousands)
Special mention assets........................ $ 262
======
Classified assets
Substandard................................. $1,328
Doubtful.................................... --
Loss........................................ --
------
Total..................................... $1,328
=====
Real Estate Owned. Real estate owned or acquired by Registrant as a
result of foreclosure, judgment, or by a deed in lieu of foreclosure is
classified as real estate owned until it is sold. When property is acquired it
is recorded at fair value as of the date of foreclosure or transfer less
estimated disposal costs. Valuations are periodically performed by management
and subsequent charges to general mortgage loan reserves are taken when it is
determined that the carrying value of the property exceeds the fair value less
estimated costs to sell. It is subsequently carried at the lower of the new
basis (fair value at foreclosure or transfer) or fair value. Registrant had
$252,000 in REO as of September 30, 1997.
12
<PAGE>
Allowance for Loan and Real Estate Losses. It is management's policy to
provide for losses on unidentified loans in its loan portfolio and foreclosed
real estate. A provision for loan losses is charged to operations based on
management's evaluation of the potential losses that may be incurred in
Registrant's loan portfolio. Such evaluation, which includes a review of all
loans of which full collectibility of interest and principal may not be
reasonably assured, considers, among other matters, the estimated net realizable
value of the underlying collateral. During the years ended September 30, 1997,
1996, and 1995, Registrant charged $308,000, $135,000 and $9,000, respectively,
to the provision for loan losses and $0, $0 and $0, respectively, to the
provision for losses on REO or in judgment and other repossessed assets.
Management will continue to review the entire loan portfolio to
determine the extent, if any, to which further additional loss provisions may be
deemed necessary. There can be no assurance that the allowance for losses will
be adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.
13
<PAGE>
The amount and percent of loans in each category to total loans for the
distribution of Registrant's allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ------------------ ------------------ ------------------- ----------------------
$ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate $603 86.47% $523 87.44% $521 89.58% $526 93.21% $619 95.25%
Commercial real estate 12 1.67 9 1.42 10 1.78 10 1.80 11 1.71
Commercial business ... 76 2.54 51 2.75 23 1.76 -- 0.10 -- 0.14
Consumer .............. 278 9.32 157 8.39 90 6.88 83 4.89 86 2.90
---- ------ ---- ------ ---- ------ ---- ------ ---- ------
Total ................. $969 100.00% $740 100.00% $644 100.00% $619 100.00% $716 100.00%
==== ====== ==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
14
<PAGE>
The following table sets forth information with respect to
Registrant's allowance for loan losses at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding .... $ 158,163 $ 129,903 $ 98,934 $ 71,253 $ 62,620
========= ========= ========= ========= =========
Average loans outstanding .. $ 145,395 $ 110,084 $ 81,236 $ 64,245 $ 61,156
========= ========= ========= ========= =========
Allowance balances
(at beginning of period) . 740 644 619 716 574
Provision (credit):
Real estate-mortgage ..... 88 20 (17) (83) 190
Consumer ................. 220 115 26 (2) (6)
--------- --------- --------- --------- ---------
308 135 9 (85) 184
--------- --------- --------- --------- ---------
Charge-offs:
Real estate-mortgage ..... (17) (19) (1) (18) (83)
Consumer ................. (75) (20) (1) (5) (17)
--------- --------- --------- --------- ---------
(92) (39) (2) (23) (100)
--------- --------- --------- --------- ---------
Recoveries:
Real estate-mortgage ..... 13 -- 16 9 48
Consumer ................. -- -- 2 2 10
--------- --------- --------- --------- ---------
13 -- 18 11 58
--------- --------- --------- --------- ---------
Net (charge-offs) recoveries (79) (39) 16 (12) (42)
========= ========= ========= ========= =========
Allowance balance
(at end of period) ....... $ 969 $ 740 $ 644 $ 619 $ 716
========= ========= ========= ========= =========
Allowance for loan losses as
a percent of total loans
outstanding ............... .61% 0.57% 0.65% 0.87% 1.14%
========= ========= ========= ========= =========
Net loans charged off as a
percent of average loans
outstanding .............. 0.05% 0.04% (0.02%) 0.02% 0.07%
========= ========= ========= ========= =========
</TABLE>
The following table sets forth information with respect to Registrant's
allowance for losses on real estate owned and in judgment at the dates
indicated:
<TABLE>
<CAPTION>
At September 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total real estate owned and in
judgment, net .............. $ 252 $ -- $ 66 $ 200 $ 351
======== ========= ========= ========= =======
Allowance balances -
beginning ................. $ -- $ -- $ -- $ -- $ 31
Provision .................... -- -- -- --
Net charge-offs .............. -- -- -- -- (31)
-------- --------- --------- --------- -------
Allowance balances - ending .. $ -- $ -- $ -- $ -- $ --
======== ========= ========= ========= =======
Allowance for losses on real
estate owned and in judgment
to net real estate owned and
in judgment .................. -- % -- % -- % -- % -- %
======== ========= ========= ========= =======
</TABLE>
15
<PAGE>
Interest Bearing Accounts Held at Other Financial Institutions
As of September 30, 1997, the Company had a balance of $2,063,000 on
its interest-bearing deposits in other financial institutions, principally with
the Federal Home Loan Bank ("FHLB") of Topeka (including up to $100,000 at the
other financial institutions covered by FDIC deposit insurance and held in time
deposits). The Company maintains these accounts in order to maintain liquidity
and improve the interest-rate sensitivity of its assets.
Investment Activities
Registrant is required under federal regulations to maintain a minimum
amount of liquid assets that may be invested in specified short-term securities
and certain other investments. Registrant has generally maintained a liquidity
portfolio well in excess of regulatory requirements. Liquidity levels may be
increased or decreased depending upon the yields on investment alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other opportunities and its expectation of future yield levels,
as well as management's projections as to the short-term demand for funds to be
used in Registrant's loan origination and other activities. As of September 30,
1997, Registrant had an investment portfolio of approximately $26.0 million,
consisting primarily of U.S. Government agency obligations, U.S. Treasury
securities, investment grade corporate debt securities, municipal obligations,
and FHLB stock as permitted by the OTS regulations. The level of investment
securities increased significantly as a result of the receipt of proceeds from
the initial issuance of common stock during 1994. During the last year, the
level of investment securities declined as a result of the increase in loan
originations. Registrant has also invested in mortgage-related securities
principally in Federal National Mortgage Association ("FNMA") ARMs and FHLMC
ARMs, and to a lesser extent, Collateralized Mortgage Obligations ("CMOs").
Registrant anticipates having the ability to fund all of its investing
activities from funds held on deposit at FHLB of Topeka. Registrant will
continue to seek high quality investments with short to intermediate maturities
and duration from one to five years.
16
<PAGE>
Investment Portfolio
The following table sets forth the carrying value of Registrant's
investment securities portfolio, short-term investments, mutual funds, and FHLB
stock, at the dates indicated. None of the investment securities held as of
September 30, 1997 was issued by an individual issuer in excess of 10% of
Registrant's capital, excluding the securities of U.S. Government and U.S.
Government Agencies and Corporations. As of September 30, 1997, the market value
of Registrant's total investment portfolio was $26.0 million.
<TABLE>
<CAPTION>
At September 30, 1997
---------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Investments Held to Maturity:
U.S. Government Securities .. $ -- $ -- $ 2,887
U.S. Agency Securities ...... 17,298 27,169 29,158
Corporate Notes and Bonds ... -- -- 250
Municipal Obligations ....... 1,540 2,230 2,530
------- ------- -------
Total Investments Held to
Maturity .................. 18,838 29,399 34,825
------- ------- -------
Investments Available-for-Sale:
Common Stock ................ 4,087 2,396 207
FHLB Stock .................. 2,976 1,732 1,476
Other Equity Securities ..... 10 10 10
Corporate Notes and Bonds ... 50 -- --
------- ------- -------
Total Investments Available
-for-Sale .................. 7,123 4,138 1,693
------- ------- -------
Total Investments ........... $25,961 $33,537 $36,518
======= ======= =======
</TABLE>
Registrant classifies its investments in accordance with SFAS 115. See
the discussion of SFAS 115 under "-- Mortgage-Backed Securities." See Note 2 to
Consolidated Financial Statements.
17
<PAGE>
Investment Portfolio Maturities
The following table sets forth certain information regarding the
carrying values, weighted average yields, and maturities of the Company's
investment securities portfolio as of September 30, 1997.
<TABLE>
<CAPTION>
As of September 30, 1997
----------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Securities:
U.S. Government
Obligations......... $ -- --% $ -- --% $ -- --% $ -- --% $ -- --% $ --
U.S. Agency
Obligations ........ -- -- 3,500 5.71 10,298 7.69 3,500 7.24 17,298 7.20 17,340
Municipal
Obligations ........ 250 5.62 840 5.20 450 5.39 -- -- 1,540 5.32 1,567
Corporate Notes
and Bonds........... -- -- -- -- 50 11.00 -- -- 50 11.00 50
------- ---- ------- ---- ------- ----- ------- ---- ------- ----- -------
Total .............. $ 250 5.62% $ 4,340 5.61% $10,798 7.61% $ 3,500 7.24% $18,888 7.05% $18,957
======= ==== ======= ==== ======= ===== ======= ==== ======= ===== =======
</TABLE>
18
<PAGE>
Mortgage-Backed Securities
To supplement lending activities, Registrant invests in residential
mortgage-backed securities. Mortgage-backed securities can serve as collateral
for borrowings and, through repayments, as a source of liquidity (see notes 3
and 10 to Consolidated Financial Statements).
In May 1993, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities.
This statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. SFAS No. 115 is effective for fiscal years beginning after
December 15, 1993 as of the beginning of the fiscal year (i.e., October 1, 1994
for Registrant).
SFAS No. 115 requires classification of investments into three
categories. Debt securities that Registrant has the positive intent and ability
to hold to maturity must be reported at amortized cost. Debt and equity
securities that are bought and held principally for the purpose of selling them
in the near term must be reported at fair value, with unrealized gains and
losses included in earnings. All other debt and equity securities must be
considered available for sale and must be reported at fair value, with
unrealized gains and losses excluded from earnings but reported as a separate
component of stockholders' equity (net of tax effects).
Registrant adopted SFAS No. 115 as of October 1, 1994. At September 30,
1997, the mortgage-backed securities portfolio had a fair value of $36.9 million
and an amortized cost of $36.7 million. That part of the mortgage-backed
securities portfolio classified as held to maturity is recorded at amortized
cost. That part of the mortgage-backed securities classified as available for
sale is recorded at fair value, with unrealized gains and losses excluded from
earnings but reported as a separate component of stockholders' equity (net of
tax effects). As of September 30, 1997, there were no mortgage-backed securities
that were classified as available for sale.
Mortgage-backed securities represent a participation interest in a pool
of single-family mortgages, the principal and interest payments on which are
passed from the mortgage originators, through intermediaries (generally
quasi-governmental agencies) that pool and repackage the participation interests
in the form of securities, to investors such as the Association. Such
quasi-governmental agencies, which guarantee the payment of principal and
interest to investors, primarily include the Federal Home Loan Mortgage
Corporation ("FHLMC"), Government National Mortgage Association ("GNMA"), and
Federal National Mortgage Association ("FNMA").
FHLMC is a publicly-owned corporation chartered by the United States
Government. FHLMC issues participation certificates backed principally by
conventional mortgage loans. FHLMC guarantees the timely payment of interest and
the ultimate return of principal within one year. FHLMC securities are indirect
obligations of the United States Government. FNMA is a private corporation
chartered by Congress with a mandate to establish a secondary market for
conventional mortgage loans. FNMA guarantees the timely payment of principal and
interest, and FNMA securities are indirect obligations of the United States
Government. GNMA is a government agency within the Department of Housing and
Urban Development ("HUD") which is intended to help finance government assisted
housing programs. GNMA guarantees the timely payment of principal and interest,
and GNMA securities are backed by the full faith and credit of the United States
Government. Because FHLMC, FNMA, and GNMA were established to provide support
for low- and middle-income housing, there are limits to the maximum size of
loans that qualify for these programs. To accommodate larger-sized loans, and
loans that, for other
19
<PAGE>
reasons, do not conform to the agency programs, a number of private institutions
have established their own home-loan origination and securitization programs.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate mortgages or
adjustable rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
As a result, the interest rate risk characteristics of the underlying pool of
mortgages, (i.e., fixed rate or adjustable rate) as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages. Mortgage-backed
securities issued by FHLMC, FNMA, and GNMA make up a majority of the
pass-through certificates market.
The collateralized mortgage obligations ("CMOs") (in the form of real
estate mortgage investment conduits) held by Registrant at September 30, 1997
totaled $17.6 million and consisted of CMOs issued by FHLMC, FNMA and private
issuers. The aggregate book value of CMOs issued by any one private issuer did
not exceed 10% of stockholders' equity at September 30, 1997, 1996, and 1995.
The portfolio of CMOs held in Registrant's mortgage-backed securities portfolio
at September 30, 1997 did not include any residual interests in CMOs. Further,
at September 30, 1997, Registrant's mortgage-backed securities portfolio did not
include any "stripped" CMOs (i.e., CMOs that pay interest only and do not repay
principal or CMOs that repay principal only and do not pay interest).
20
<PAGE>
The following table sets forth the carrying value of Registrant's
mortgage-backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
Weighted
Average
Rate At
September
1997 1997 1996 1995
------ -------- ----------- --------
<S> <C> <C> <C> <C>
Held for Investment:
GNMA ARMs....................................... -- % $ -- $ -- $ 11,989
FNMA ARMs....................................... 6.69 13,158 15,516 19,889
FHLMC ARMs...................................... 6.81 4,768 6,257 7,025
FHLMC Fixed Rate................................ 8.40 246 401 541
GNMA Fixed Rate................................. 8.00 373 553 771
FNMA Fixed Rate................................. 5.59 590 813 954
CMOs............................................ 6.15 17,555 22,337 27,037
------ ------- ------- -------
Total Held for Investment 6.46% 36,690 45,877 68,206
====== ------- ------- -------
Held for Sale................................... -- -- --
------- ------- -------
Total mortgage-backed securities................ $ 36,690 $ 45,877 $ 68,206
======= ======= =======
</TABLE>
Mortgage-Backed Securities Maturity. The following table sets forth the
contractual maturity of Registrant's mortgage-backed securities portfolio at
September 30, 1997. The table does not include scheduled principal payments and
estimated prepayments.
Contractual
Maturities Due
--------------
(In Thousands)
Less than 1 year.............................. $ 1,026
1 to 3 years.................................. 763
3 to 5 years.................................. 494
5 to 10 years................................. 4,711
10 to 20 years................................ 5,350
Over 20 years................................. 24,346
------
Total mortgage-backed securities.............. $36,690
======
Sources of Funds
General. Deposits are the major source of Registrant's funds for
lending and other investment purposes. Registrant derives funds from
amortization and prepayment of loans and mortgage-backed securities, maturities
of investment securities and operations. Scheduled loan principal repayments are
a relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general interest rates and market
conditions. Registrant may also borrow funds from the FHLB of Topeka as a source
of funds.
Deposits. Consumer and commercial deposits are attracted principally
from within Registrant's primary market area through the offering of a broad
selection of deposit instruments including regular
21
<PAGE>
savings, demand and negotiable order of withdrawal ("NOW") accounts, and term
certificate accounts (including negotiated jumbo certificates in denominations
of $100,000 or more). Deposit account terms vary according to the minimum
balance required, the time period the funds must remain on deposit, and the
interest rate, among other factors.
Savings deposits and demand and NOW accounts constituted $27.5 million,
or 19.0% of Registrant's deposit portfolio at September 30, 1997. Certificates
of deposit constituted $117.2 million or 81.0% of the deposit portfolio,
including certificates of deposit with principal amounts of $100,000 or more
which constituted $11.2 million or 7.7% of the deposit portfolio at September
30, 1997. As of September 30, 1997, Registrant had no brokered deposits.
To supplement lending activities in periods of deposit growth and/or
declining loan demand, Registrant has increased its investments in residential
mortgage-backed securities during recent years. Although such securities are
held for investment, they can serve as collateral for borrowings and, through
repayments, as a source of liquidity. At September 30, 1997, $2.0 million in
investment securities and $9.1 million in mortgage-backed securities were
pledged as collateral for public funds.
Jumbo Certificates of Deposit
The following table indicates the amount of Registrant's certificates
of deposit of $100,000 or more by time remaining until maturity as of September
30, 1997.
September 30,
1997
--------------
(In Thousands)
Maturity Period
Within three months....................................... $ 2,175
Over three through six months............................. 4,264
Over six through twelve months............................ 2,496
Over twelve months........................................ 2,239
-------
Total................................................. $11,174
======
Borrowings
Deposits are the primary source of funds of Registrant's lending and
investment activities and for its general business purposes. Registrant may
obtain advances from the FHLB of Topeka to supplement its supply of lendable
funds, and Registrant has utilized this funding source. Advances from the FHLB
of Topeka would typically be secured by a pledge of Registrant's stock in the
FHLB of Topeka and a portion of Registrant's first mortgage loans and certain
other assets. Registrant, if the need arises, may also access the Federal
Reserve Bank discount window to supplement its supply of lendable funds and to
meet deposit withdrawal requirements. At September 30, 1997, Registrant had
$46.2 million outstanding from the FHLB of Topeka and no borrowings of any other
kind.
22
<PAGE>
Personnel
As of September 30, 1997 Registrant had 44 full-time and nine part-time
employees. None of Registrant's employees are represented by a collective
bargaining group.
Competition
Registrant encounters strong competition both in the attraction of
deposits and origination of loans. Competition comes primarily from savings
institutions, commercial banks, and credit unions that operate in counties where
Registrant's offices are located. Registrant competes for savings accounts by
offering depositors competitive interest rates and a high level of personal
service. Registrant competes for loans primarily through the interest rates and
loan fees it charges and the efficiency and quality of services it provides
borrowers, real estate brokers, and contractors.
Regulation
Set forth below is a brief description of certain laws that relate to
the regulation of the Company and the Bank. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
See "--Regulation of the Bank -- Proposed Legislation."
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test or a somewhat
similar test for domestic building and loan associations. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualify as a QTL and were acquired in a supervisory acquisition. See "--
Regulation of the Bank -- Qualified Thrift Lender Test."
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association,
the Bank is subject to extensive regulation by the OTS and the Federal Deposit
Insurance Corporation ("FDIC"). Lending activities and other investments must
comply with various federal statutory and regulatory requirements. The Bank is
also subject to certain reserve requirements promulgated by the Federal Reserve
Board.
23
<PAGE>
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC, or the
Congress could have a material adverse impact on the Company, the Bank, and
their operations.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured member (as defined by law
and regulation). Insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
institution's primary regulator.
As a member of the SAIF, the Bank paid an insurance premium to the FDIC
equal to a minimum of 0.23% of its total deposits. The FDIC also maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. In 1996, the annual insurance premium for most BIF
members was lowered to $2,000. The lower insurance premiums for BIF members
placed SAIF members at a competitive disadvantage to BIF members.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Bank of approximately
.657% of deposits held on March 31, 1995. Beginning January 1, 1997, the deposit
insurance assessment for SAIF members was reduced to .064% of deposits on an
annual basis through the end of 1999. During this same period, BIF members will
be assessed approximately .013% of deposits. After 1999, assessments for BIF and
SAIF members should be the same. It is expected that these continuing
assessments for both SAIF and BIF members will be used to repay outstanding
Financing Corporation bond obligations. As a result of these changes, beginning
January 1, 1997, the rate of deposit insurance assessed the Bank declined by
approximately 70%.
Regulatory Capital Requirements. OTS capital regulations require
savings associations to meet three capital standards: (1) a tangible capital
requirement of 1.5% of total adjusted assets, (2) a leverage ratio (core
capital) requirement of 3% of total adjusted assets and (3) a risk-based capital
requirement equal to 8% of total risk-weighted assets. Additional regulatory
requirements are discussed in Note 12 to the Consolidated Financial Statements.
24
<PAGE>
As shown below, the Bank's regulatory capital exceeded all minimum
regulatory capital requirements applicable to it as of September 30, 1997:
Percent of
Adjusted
Amount Assets
------ ------
(Dollars in Thousands)
Tangible Capital:
Regulatory requirement............. $ 3,349 1.5%
Regulatory capital................. 26,895 12.0
-------- ----
Excess........................... $ 23,546 10.5%
======= ====
Core Capital:
Regulatory requirement............. $ 6,698 3.0%
Regulatory capital................. 26,895 12.0
-------- ----
Excess........................... $ 20,197 9.0%
====== ====
Risk-Based Capital:
Regulatory requirement............. $ 8,627 8.0%
Regulatory capital................. 27,864 25.8
-------- ----
Excess........................... $ 19,237 17.8%
======= ====
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established pursuant
to the Bank's Plan of Conversion.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. As of
September 30, 1997, the Bank was a Tier 1 institution. In the event the Bank's
capital fell below its fully phased-in requirement or the OTS notified it that
it was in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit a
25
<PAGE>
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
Finally, a savings association is prohibited from making a capital
distribution if, after making the distribution, the savings association would be
undercapitalized (not meet any one of its minimum regulatory capital
requirements).
Qualified Thrift Lender Test. Savings institutions must meet either the
QTL test pursuant to OTS regulations or the definition of a domestic building
and loan association in section 7701 of the Internal Revenue Code ("Code:). If
the Bank maintains an appropriate level of certain specified investments
(primarily residential mortgages and related investments, including certain
mortgage-related securities) and otherwise qualifies as a QTL or a domestic
building and loan association, it will continue to enjoy full borrowing
privileges from the FHLB of Topeka. The required percentage of investments under
the QTL test is 65% of assets while the Code requires investments of 60% of
assets. An association must be in compliance with the QTL test or definition of
domestic building and loan association on a monthly basis in nine out of every
12 months. As of September 30, 1997, the Bank was in compliance with its QTL
requirement and met the definition of a domestic building and loan association.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances maintained
to meet the reserve requirements imposed by the Federal Reserve Board may be
used to satisfy the liquidity requirements that are imposed by the OTS. At
September 30, 1997, the Bank was in compliance with this requirement.
Proposed Legislation. The Financial Services Competition Act of 1997,
H.R. 10, (the Act), as reported out of the Committee on Banking and Financial
Services is currently under consideration in Congress. If passed in its current
form, the Act would remove the restrictions in the Glass-Steagall Act of 1933
and the Bank Holding Company Act of 1956, allowing qualified financial holding
companies to control banks, securities firms, insurance companies, and other
financial institutions. Securities companies, insurance companies and other
financial companies would be permitted to own or affiliate with a commercial
bank. In addition, the Act would eliminate the thrift charter, requiring all
thrift institutions, such as the Bank, to convert to a national bank or a state
charter within two years after the date of enactment of the Act. State-chartered
savings associations would also be treated as commercial banks under federal
banking law. The OTS would be merged into the Office of the Comptroller of the
Currency (the "OCC"). The OCC would then become the primary regulator of the
Bank. Therefore, if the Act is passed as it now stands, the Bank will be
required to convert to a national bank or a state bank, which would
significantly alter the regulatory structure of the Bank and the Company. At
this time, however, it is not possible to determine when, if at all, and in what
form the Act will be passed. It also is not possible to determine the extent to
which the Act, if passed, would effect the operations of the Bank and the
Company.
Item 2. Description of Property
- -------------------------------
Registrant owns its main office and three branch offices and leases one
additional branch office. Registrant also leases a parking lot for its main
office.
26
<PAGE>
Item 3. Legal Proceedings
- -------------------------
There are various claims and lawsuits in which Registrant is
periodically involved, such as claims to enforce liens, condemnation proceedings
on properties in which Registrant holds security interests, claims involving the
making and servicing of real property loans, and other issues incident to
Registrant's business.
In the opinion of management, no material loss is expected from any of
the pending claims or lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matter was submitted to a vote of securities holders during the
fourth quarter of the fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------
The information contained under the section captioned "Stock Price
Information" in the Company's Annual Report to Stockholders for the fiscal year
ended September 30, 1997 (the "Annual Report"), is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
Registrant's financial statements listed under Item 14 are incorporated
herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act
- --------------------------------------------------------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors" and "Voting Securities and Principal Holders Thereof --
Security Ownership of Certain Beneficial Owners" in Registrant's definitive
proxy statement for Registrant's Annual Meeting of Stockholders (the "Proxy
Statement") is incorporated herein by reference.
Additional information concerning executive officers is included under
"Part I - Executive Officers of the Company."
27
<PAGE>
Item 10. Executive Compensation
- --------------------------------
The information contained under the section captioned "Director and
Executive Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders Thereof" and to the first table under
"Proposal 1 -- Election of Directors" in the Proxy Statement.
(c) Management of Registrant knows of no arrangements, including
any pledge by any person of securities of Registrant, the
operation of which may at a subsequent date result in a change
in control of Registrant.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" in the Proxy Statement.
Item 13. Exhibits, Lists and Reports on Form 8-K
- ------------------------------------------------
(a) The following documents are filed as a part of this report:
1. The following financial statements and the report of
independent accountants of Registrant included in Registrant's Annual Report to
Stockholders are incorporated herein by reference and also in Item 8 hereof.
Independent Auditor's Report.
Consolidated Statements of Financial Condition as of September 30, 1997
and 1996.
Consolidated Statements of Operations for the Years Ended September 30,
1997, 1996, and 1995.
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended September 30, 1997, 1996, and 1995.
Consolidated Statements of Cash Flows for the Years Ended September 30,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
28
<PAGE>
2. Except for Exhibits 11 and 27 below, Financial Statement
Schedules for which provision is made in the applicable accounting regulations
of the SEC are not required under the related instructions or are inapplicable
and therefore have been omitted.
3. The following exhibits are included in this Report or
incorporated herein by reference:
<TABLE>
<CAPTION>
<S> <C> <C>
(a) List of Exhibits:
3(i) Articles of Incorporation of Landmark Bancshares, Inc.*
3(ii) Bylaws of Landmark Bancshares, Inc.*
10.1 1994 Stock Option Plan of Landmark Bancshares, Inc.**
10.2 Management Stock Bonus Plan and Trust Agreements**
10.3 Employment Agreement with Larry Schugart***
10.4 Stock Option Agreement with Richard Ball****
11 Statement Regarding Computation of Earnings per Share
13 Annual Report to Stockholders for the fiscal year ended September 30, 1997
21 Subsidiaries of Registrant***
23 Consent of Regier Carr & Monroe, L.L.P.
27 Financial Data Schedule
</TABLE>
- ---------------------
* Incorporated by reference to the registration statement on Form S-1 (File
No. 33-72562) declared effective by the SEC on February 9, 1994.
** Incorporated by reference to the proxy statement for a special meeting of
stockholders held on June 22, 1994 and filed with the SEC on May 24, 1994
(File No. 0-23164).
*** Incorporated by reference to the Annual Report on Form 10-K for the fiscal
year ended September 30, 1994 (File No. 0-23164), filed with the SEC.
**** Incorporated by reference to the Annual Report on Form 10-K for the fiscal
year ended September 30, 1996 (File No. 0-23164), filed with the SEC.
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed as
of December 29, 1997 on its behalf by the undersigned, thereunto duly
authorized.
Landmark Bancshares, Inc.
By: /s/ Larry Schugart
Larry Schugart
President and Chief
Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of December 29, 1997.
<TABLE>
<CAPTION>
<S> <C>
/s/ James F. Strovas /s/ Larry Schugart
- ---------------------------------------- --------------------------------
James F. Strovas Larry Schugart
Senior Vice President and Chief President, Chief Executive Officer,
Financial Officer and Director
(Principal Financial and Accounting (Principal Executive Officer)
Officer)
/s/ Gary L. Watkins /s/ Richard A. Ball
- ---------------------------------------- --------------------------------
Gary L. Watkins Richard A. Ball
Senior Vice President, Chief Operating Director
Officer, and Secretary
/s/ David H. Snapp /s/ C. Duane Ross
- ---------------------------------------- --------------------------------
David H. Snapp C. Duane Ross
Director Director
/s/ Jim W. Lewis
Jim W. Lewis
Director
</TABLE>
30
Exhibit 11
<PAGE>
LANDMARK BANCSHARES, INC.
Statement Regarding Computation of Earnings Per Share
Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Primary:
Weighted average common shares outstanding $2,281,312 $2,281,312 $2,281,312
Net effect of dilutive stock options 111,889 72,860 33,707
Average unallocated ESOP shares (94,291) (107,987) (123,231)
Weighted average treasury shares purchased (498,325) (308,365) (50,574)
--------- --------- ---------
1,800,585 1,937,820 2,141,214
========= ========= =========
Fully Diluted:
Weighted average common shares outstanding $2,281,312 $2,281,312 $2,281,312
Net effect of dilutive stock options 144,186 88,814 68,039
Average unallocated ESOP shares (94,291) (107,987) (123,231)
Weighted average treasury shares purchased (498,325) (308,365) (50,574)
--------- --------- ---------
1,832,882 1,953,774 2,175,546
========= ========= =========
Net earnings $2,514,437 $1,404,226 $1,762,523
========== ========== ==========
Earnings per share:
Primary $ 1.40 $ 0.72 $ 0.82
========== ========== ==========
Fully Diluted $ 1.37 $ 0.72 $ 0.81
========== ========== ==========
</TABLE>
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. In accordance with
the provisions of the Statement, the change in accounting for shares held by the
ESOP was applied prospectively.
Landmark Bancshares, Inc.
- --------------------------------------------------------------------------------
CONTENTS
- --------------------------------------------------------------------------------
Message to our Stockholders ........................................... 1
Corporate Profile and Stock Price Information ......................... 3
Five-Year Financial Summary ........................................... 4
Management's Discussion and Analysis .................................. 6
Report of Independent Accountants ..................................... F-1
Consolidated Financial Statements ..................................... F-2
Notes to Consolidated Financial Statements ............................ F-7
Corporate Information ................................................. 19
<PAGE>
MESSAGE TO OUR STOCKHOLDERS:
I am pleased to present to you our fourth annual report with great appreciation
for the confidence and support that you, our stockholders, have shown through
the investment you have made in Landmark Bancshares, Inc. (the "Company").
Landmark Federal Savings Bank, (the "Bank") is a community oriented financial
institution, serving Southwest and Central Kansas with a complete menu of
deposit and loan products. The Bank specializes in one- to four- family
residential mortgage loans and consumer lending, increasing loans receivable
over $29.7 million the past year, a 23.2% increase. We are committed to
maintaining our current operating strategy in meeting the savings and housing
needs of the people we serve.
In July, the Bank established a commercial loan department with the hiring of
two seasoned loan specialists who are well known in the Dodge City and Ford
County area. We believe that this department will become an excellent profit
center for the Bank in the future.
We continue to be pleased with the quality of assets of the Company, as losses
experienced during the past year were negligible. Non-performing loans were
0.27% of net loans, and 0.19% of total assets at fiscal year end, far lower than
the industry average. Our directors, officers and staff are determined to
maintain high quality assets.
Net income for the fiscal year ending September 30, 1997 was $2,514,437 or $1.37
per share, fully diluted, compared to $1,404,226 or $0.72 per share for the year
ended September 30, 1996. Without the one-time SAIF assessment, earnings per
share would have been $1.02 at fiscal year end 1996.
Since the initial public offering on March 28, 1994, at $10 per share, the
common stock reached a high of $27.63 per share and a low of $9.75 per share,
closing on September 30, 1997, at $25.25 per share, a 152.5% increase during the
42-month period. In addition, based on earnings and capital, the Board of
Directors has declared regular quarterly dividends since June 1994.
In April 1997, our board of directors authorized the Company to repurchase up to
15% of the Company's outstanding shares. The current repurchase program of stock
continues, and as of September 30, 1997, total stock repurchased since the
initial offering totaled 592,671 shares, or 25.97% of the original 2,281,312
shares issued.
Fiscal year 1998 poses a challenging year for our management and staff as we
will be opening a new branch office in Dodge City with four drive-thru service
lanes, in addition to a drive-up ATM. Since this will be our first automated
teller machine, ATM cards and debit cards will be
-1-
<PAGE>
distributed to our customer base in early calendar year 1998. Plans are already
underway to add ATMs in our Great Bend and Garden City locations. Furthermore, a
decision was recently made to open a loan origination office in the Kansas City
area. One of our most experienced loan officers will manage this office which
will open in January 1998. We have maintained a presence in Kansas City for the
past ten years through purchasing loans and servicing loans from several
correspondents, and look forward to increasing our business in thriving Johnson
County.
We are proud of our results over the past years as a public company, and believe
our ability to take advantage of market opportunities has contributed to our
success. Realistically, we know that the favorable interest rate environment
will not last indefinitely and that competition and other pressures will mount.
We are ever mindful of our responsibilities to our stockholders and fully intend
to be good stewards of your investment.
All of us at Landmark Federal Savings Bank recognize that to be successful in
the marketplace as we approach the new millennium, we must differentiate
ourselves with high quality, value added products and quick response to ever
changing market conditions. By achieving this, and by focusing on profitable
long-term growth, we expect to continue to add to shareholder value.
Again, we thank our stockholders for their confidence and our employees for
their efforts over the past year.
Respectfully submitted,
/s/Larry Schugart
Larry Schugart
President and Chief Executive Officer
-2-
<PAGE>
================================================================================
Corporate Profile and Related Information
Landmark Bancshares, Inc. (the "Company") is the parent company for Landmark
Federal Savings Bank (the "Bank"). The Company was formed as a Kansas
corporation in November 1993 at the direction of the Bank in connection with the
Bank's conversion from a mutual to stock form of ownership (the "Conversion").
The Company acquired all of the capital stock that the Bank issued upon its
conversion. On March 28, 1994, the Bank completed its conversion in connection
with a $22.8 million initial public offering. The Company is a unitary savings
and loan holding company which, under existing laws, generally is not restricted
in the types of business activities in which it may engage provided that the
Bank retains a specified amount of its assets in housing-related investments. At
the present time, since the Company does not conduct any active business, the
Company does not intend to employ any persons other than officers but utilizes
the support staff and facilities of the Bank from time to time.
Landmark Federal Savings Bank is a federally chartered stock savings bank
headquartered in Dodge City, Kansas. The Bank was founded in 1920 with a charter
from Kansas under the name of "Dodge City Savings and Loan Association" which
later became a federal association under the name of "First Federal Savings and
Loan of Dodge City." First Federal Savings and Loan of Dodge City became known
as "Landmark Federal Savings Association" in 1983 when it changed its name at
the time it merged with Peoples Savings and Loan of Sterling, Kansas. The Bank's
deposits have been federally insured since 1943 and are currently insured by the
Federal Deposit Insurance Corporation (the "FDIC") under the Savings Association
Insurance Fund (the "SAIF"). The Bank conducts its business from its main office
in Dodge City, Kansas and four branch offices located in Barton, Finney and Rush
Counties in Kansas.
Stock Price Information
There were 1,688,641 shares (net of treasury stock) of common stock of Landmark
Bancshares, Inc. outstanding on September 30, 1997, held by approximately 270
stockholders of record (not including the number of persons or entities holding
the stock in nominee or street name through various brokerage firms). Since its
issuance in March 1994, the Company's common stock has been traded on the Nasdaq
National Market. The daily stock quotation for Landmark Bancshares, Inc. is
listed in the Nasdaq National Market section published in The Wall Street
Journal and other leading newspapers under the trading symbol of "LARK". The
following table reflects stock price information based on sales as published by
the Nasdaq National Market statistical report for each quarter for fiscal years
1997 and 1996.
Year Ended September 30,
-----------------------------------------------------
1997 1996
------------------------- --------------------------
HIGH LOW HIGH LOW
----------- ------------ ------------ ------------
First Quarter 18 3/4 16 14 3/4 13 1/2
Second Quarter 20 18 15 1/4 13 1/2
Third Quarter 20 1/8 18 3/4 16 14 1/2
Fourth Quarter 27 5/8 20 1/4 16 1/2 15 1/4
The following table sets forth, for each quarter the dividends paid or payable
on the common stock for the indicated fiscal years ending September 30. The
Company's ability to pay dividends to shareholders is largely dependent upon the
dividends it receives from the Bank. The Bank is subject to regulatory
limitations on the amount of cash dividends it may pay.
Year Ended September 30,
---------------------------------------------
Dividends per share 1997 1996
------------------- ------------- -------------
First Quarter $ 0.10 $ 0.10
Second Quarter 0.10 0.10
Third Quarter 0.10 0.10
Fourth Quarter 0.10 0.10
On October 15, 1997 the Board of Directors declared a quarterly dividend of
$0.10 per share to shareholders of record on November 3, 1997.
-3-
<PAGE>
================================================================================
FIVE-YEAR FINANCIAL SUMMARY
Selected Financial Condition Data (Dollars in Thousands)
<TABLE>
<CAPTION>
============================================================================================================================
At September 30, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 227,850 $ 213,734 $ 208,632 $ 188,727 $ 164,694
Loans receivable, net (1) 158,163 129,903 98,934 71,253 62,620
Investments held-to-maturity 18,838 29,399 34,825 39,922 24,579
Investments available-for-sale 7,123 4,138 1,693 1,743 -
Mortgaged-backed securities
held-to-maturity 36,690 45,877 68,207 70,470 69,986
Cash and cash equivalents 2,741 474 462 1,061 2,432
Deposits 144,735 143,815 144,957 136,858 147,428
FHLB borrowings 46,200 33,467 25,533 13,580 -
Stockholders' equity 32,245 32,389 34,667 36,606 15,144
</TABLE>
Summary of Operations (Dollars in Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 16,695 $ 14,575 $ $ 13,652 $ 10,671 $ 10,964
Interest expense 9,768 8,678 8,224 5,917 6,424
-------------- -------------- -------------- --------------- ---------------
Net interest income 6,927 5,897 5,428 4,754 4,540
Provision for loan losses 308 135 9 (85) 184
Provision for losses on corporate
securities and municipal obligations - - - (128) 42
-------------- -------------- -------------- --------------- ---------------
Net interest income after provision
for losses on loans and investments 6,619 5,762 5,419 4,967 4,314
Non-interest income 1,026 745 684 450 896
Non-interest expense (2) 3,581 4,323 3,315 2,907 2,651
-------------- -------------- -------------- --------------- ---------------
Income before income taxes and
cumulative effect of change
in accounting principle 4,064 2,184 2,788 2,510 2,559
Provision for income taxes 1,550 780 1,025 926 944
-------------- -------------- -------------- --------------- ---------------
Income before cumulative effect of
change in accounting principle 2,514 1,404 1,763 1,584 1,615
Cumulative effect of October 31, 1992
change in accounting for income taxes - - - - 117
-------------- -------------- -------------- --------------- ---------------
Net income $ $ 2,514 $ 1,404 $ 1,763 $ 1,584 $ 1,732
============== ============== ============== =============== ===============
Primary earnings per share (3) $ 1.40 $ 0.72 $ 0.82 $ 0.38 $ -
============== ============== ============== =============== ===============
Fully diluted earnings per share (3) $ 1.37 $ 0.72 $ 0.81 $ 0.38 $ -
============== ============== ============== =============== ===============
Dividends per share (3) $ 0.40 $ 0.40 $ 0.75 $ 0.05 $ -
============== ============== ============== =============== ===============
Book value per common share
outstanding at September 30 $ 19.10 $ 17.48 $ 16.62 $ 16.05 $ -
============== ============== ============== =============== ===============
</TABLE>
(*) Data presented prior to March 28, 1994, the date of conversion, is for
Landmark Federal Savings Bank only.
(1) Includes loans held for sale totaling $490, $1,890, $317, $611 and $6,547
at September 30, 1997, 1996, 1995, 1994 and 1993, respectively.
(2) Includes one-time SAIF special assessment of $973 for the year ended
September 30, 1996.
(3) For periods following conversion from mutual to stock on March 28, 1994
(1994 - March 28 through September 30).
-4-
<PAGE>
================================================================================
FIVE-YEAR FINANCIAL SUMMARY
Selected Ratios and Other Data (*)
<TABLE>
<CAPTION>
==================================================================================================================================
At or For the Year Ended September 30, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets 1.1% 0.7% 0.8% 0.9% 1.0%
Return on average equity 7.79 4.14 4.92 6.06 12.14
Average equity to average assets 14.44 17.00 17.88 14.93 8.89
Equity to assets at period end 14.15 15.15 16.62 19.40 9.20
Net interest spread 2.41 2.11 1.88 2.18 2.51
Net yield on average interest-earning assets 3.16 3.01 2.76 2.77 2.89
Non-performing assets to total assets 0.30 0.15 0.22 0.22 0.36
Non-performing loans to net loans 0.27 0.24 0.39 0.29 0.38
Allowance for loan losses to total loans 0.61 0.57 0.65 0.87 1.14
Dividend payout 26.95 53.58 90.93 13.02 -
Number of:
Loans outstanding 6,210 5,439 4,561 3,859 3,624
Deposit accounts 12,888 13,443 13,731 12,582 13,074
Full service offices 5 5 5 5 5
</TABLE>
[GRAPHICS OMITTED]
Net Income Non-Performing Assets/Total Assets
Total Assets Loans Receivable
(*) Data presented prior to March 28, 1994, the date of conversion, is for
Landmark Federal Savings Bank only.
-5-
<PAGE>
================================================================================
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Landmark Bancshares, Inc.
The following is a discussion of the financial condition and results of
operations of the Company and its subsidiary, Landmark Federal Savings Bank (the
"Bank"), and should be read in conjunction with the accompanying Consolidated
Financial Statements.
General
The Bank is primarily engaged in the business of attracting deposits from the
general public and using those deposits, together with other funds, to originate
mortgage loans for the purchase and refinancing of residential properties
located in central and southwestern Kansas. In addition, the Bank also offers
and purchases loans through correspondent lending relationships in Kansas and in
other states. The Bank also makes commercial, automobile, second mortgage,
equity and deposit loans. The Bank's market has historically provided an excess
of savings deposits over loan demand. Accordingly, in addition to originating
loans in its market the Bank also purchases mortgage-backed securities and
investment securities.
The Company's operations, as with those of the entire banking industry, are
significantly affected by prevailing economic conditions, competition, and the
monetary and fiscal policies of governmental agencies. Lending activities are
influenced by the demand for loans, competition among lenders, the prevailing
market rates of interest, primarily on competing investments, account
maturities, and the levels of personal income and savings in the market area.
The Company's strategy for growth emphasizes both internal and external growth.
Operations focus on increasing deposits, making loans and providing customers
with a high level of customer service. As part of the Bank's emphasis on
external growth, the Bank intends to expand its operations within its market
areas. During fiscal 1998, the Bank will be opening a branch office in Dodge
City and also plans to open a loan origination office in the Kansas City area.
As part of the Bank's strategy for internal growth, during fiscal 1997 the bank
established a commercial loan department and plans to focus on increasing their
commercial market.
Financial Condition
Consolidated total assets increased 6.60% from $213,733,690 at September 30,
1996 to $227,850,154 at September 30, 1997. The principal factor contributing to
the growth in assets was the increase in the loans receivable portfolio during
the year, which more than offset a decrease in investment and mortgage-backed
securities.
Net loans receivable held for investment increased $29,659,375 or 23.17%, from
$128,013,228 at September 30, 1996 to $157,672,603 at September 30, 1997. This
growth in the loan portfolio is attributed to increased lending throughout the
year and the purchase of $30,958,686 in mortgage loan packages during fiscal
year 1997. The Bank has increased its investment in purchased loans in order to
enhance yield on investable funds during periods when such amounts exceeded loan
demand in the Bank's primary lending area. This continued increase in the Bank's
loan portfolio has resulted in a 152.58% increase in total loans during the last
five years. The Bank experienced the majority of this
-6-
<PAGE>
growth during the year in first mortgage loans secured by one- to four- family
residences which increased $22,435,835, or 22.53% and in automobile loans which
increased $3,526,266, or 36.04%.
The Bank had impaired loans of $371,769 and $127,131 at September 30, 1997 or
1996, respectively. A loan is impaired when, based on management's evaluation of
current and historical information and events, it is probable that all amounts
due according to the contractual terms of the loan agreement will not be
collected. Loans which are classified as impaired are typically collateral
dependent; therefore, impairment is measured based upon the fair value of the
collateral less estimated costs to sell. Impairment is recognized by creating a
valuation allowance with a corresponding charge to provision for loss on loans.
Management, as part of the monitoring and evaluation of non-performing loans,
classifies loans and repossessed assets in accordance with regulatory provisions
as loss, doubtful or substandard. Total assets classified as of September 30,
1997 and 1996, amounted to $1,328,000 and $1,101,000, respectively. Those loans
classified which are not recognized as impaired include loans which are
currently past due 90 days or more or have a past history of delinquency. The
level of classified loans has continued to remain consistently low primarily as
a result of improving economic conditions and real estate values. At September
30, 1997 the Bank's ratio of total non-performing assets to total assets was
0.30%, far lower than the industry average. The Bank will continue with its
aggressive collection policies to keep non-performing assets to a minimum, but
no assurance can be given that negotiations with borrowers will continue to be
successful. Classified loans have been considered by management in the
evaluation of the adequacy of the allowance for loan loss. Management is unaware
of any trends which it reasonably expects will materially impact future
operating results, liquidity, or capital resources.
Investment securities held-to-maturity decreased $10,560,578 from $29,398,520 at
September 30, 1996 to $18,837,942 at September 30, 1997. This decrease was
directly related to the increase in the loan portfolio discussed above, as
securities matured or were called, excess funds were used to originate and
purchase loans. Investment securities available-for-sale at September 30, 1997
experienced an increase of $2,985,148 from $4,137,637 at September 30, 1996 to
$7,122,785 at September 30, 1997 as a result of continued purchases of equity
securities by the Company.
Mortgage-backed securities decreased $9,187,569 or 20.03%, from $45,877,120 at
September 30, 1996 to $36,689,551 at September 30, 1997. The Company did not
have any mortgage-backed securities available-for-sale at September 30, 1997 or
1996. Mortgage-backed securities also decreased due to excess funds from
repayments on mortgage-backed securities being used to fund the increase in
loans receivable.
At September 30, 1997, the Company had net unrealized gains on both investment
and mortgage-backed securities held-to-maturity, not reflected on the
consolidated financial statements, of $69,443 and $244,224, respectively. This
was a favorable improvement from the Company's net unrealized losses on both
investment and mortgage-backed securities held-to-maturity, not reflected on the
consolidated financial statements, of $285,153 and $351,113, respectively at
September 30, 1996. The overall decline in fair market value below the amortized
cost of these securities held-to-maturity at September 30, 1996 was deemed to be
due to temporary changes in the interest rate environment, and as noted the
Company has experienced a more favorable interest rate environment during the
year ended September 30, 1997.
The balance in foreclosed assets ("REO") at September 30, 1997 and 1996 was
$251,950 and $0, respectively. The September 30, 1997 balance in REO consisted
of four single-family residences. This REO balance continues to be substantially
lower than that experienced by the Bank in prior years.
-7-
<PAGE>
Deposits increased slightly from $143,814,910 at September 30, 1996 to
$144,734,739 at September 30, 1997. This resulted in a 0.64% increase. The
modest increase was attributable to normal changes in outstanding deposits. The
Bank continues to offer rates competitive with other financial institutions in
the area. The average cost on demand deposits increased 66 basis points from
2.56% at fiscal year 1996 to 3.22% for fiscal year 1997. This increase resulted
from a steady increase in rates offered on NOW accounts throughout the year. The
average cost on savings and certificates of deposit decreased 17 basis points
from 5.49% at fiscal year 1996 to 5.32% for fiscal year 1997. The decrease in
the cost of savings and certificates of deposit is the result of a decrease in
the volume of both savings and certificate of deposit accounts in addition to a
decline in rates. The rate/volume analysis table reflects a decrease of $313,000
due to the changes in volume of savings and certificate of deposit accounts.
Of the $117,214,858 in certificates of deposit held by the Bank at September 30,
1997, $84,320,014 of these deposits will mature during the year ended September
30, 1998. The majority of the Bank's time deposits consist of regular deposits
from consumers within the Bank's surrounding community rather than institutional
or brokered deposit accounts. As a result, most of these accounts of local
customers are expected to be renewed.
The Bank has continued to utilize advances from the Federal Home Loan Bank
("FHLB") as a source of funds. Fixed term advances from the FHLB totaled
$36,200,000 and $14,466,668 at September 30, 1997 and 1996, respectively. The
Bank also has a line of credit with the FHLB. The Bank had an outstanding
balance of $10,000,000 and $19,000,000 at September 30, 1997 and 1996,
respectively. This resulted in a $12,733,332 or 38.05% increase in advances and
other borrowings from the FHLB from September 30, 1996 to September 30, 1997.
The funds provided by these borrowings were used primarily to fund lending
activity throughout the year. The weighted average cost of these borrowings from
the FHLB was 6.16% as of September 30, 1997. Of the advances and other
borrowings outstanding at September 30, 1997, $28,000,000 mature during the year
ended September 30, 1998.
Stockholders' equity decreased $143,845, from $32,389,175 at September 30, 1996
to $32,245,330 at September 30, 1997. The Company was granted approval from the
OTS to purchase up to 15% of the Company's outstanding shares. At September 30,
1997 the Company has repurchased 592,671 shares of its common stock to
significantly enhance stockholder value. The book value per common share
outstanding at September 30, 1997 was $19.10, up from $17.48 at September 30,
1996 and $16.62 at September 30, 1995. As noted in the Stock Price Information
section of this report the Company has also been consistently paying quarterly
dividends to stockholders. In relation to this increase in stockholder value,
the Company's stock price has also increased from $16.375 at September 30, 1996
to $25.25 at September 30, 1997, an increase of $8.875 or 54.20%.
Implementation of New Accounting Pronouncements
During fiscal year 1997, the Company adopted the provisions of two accounting
pronouncements: Statement No. 123 entitled "Accounting for Stock-Based
Compensation" and Statement No. 125 entitled "Accounting for Transfers and
Servicing of Financial Assets and Extinguishements of Liabilities." See Note 1
to the Consolidated Financial Statements for a discussion of these new
accounting pronouncements and their effect on the Company.
Liquidity and Capital Resources
Liquidity is measured by a financial institutions ability to raise funds through
deposits, borrowed funds, capital or the sale of highly marketable assets such
as available-for-sale securities. Additional sources of
-8-
<PAGE>
liquidity, including cash flows from both repayment of loans and maturity of
investment securities, are also included in determining whether liquidity is
satisfactory.
During the years ended September 30, 1997 and 1996, cash and cash equivalents
have increased by $2,267,342 and $11,689, respectively. During the year ended
September 30, 1995 cash and cash equivalents decreased by $598,518.
As reflected in the Consolidated Statement of Cash Flows, net cash flows
provided by operating activities for fiscal year 1997, 1996 and 1995 totaled
$9,687,358, $1,460,520 and $3,399,891, respectively. Amounts fluctuate from
period to period primarily as a result of the purchase and origination of loans
held-for-sale and the subsequent sale of such loans. The sale of loans
held-for-sale was $12,956,185, $9,679,305 and $6,294,625 for fiscal years 1997,
1996 and 1995, respectively. This is offset by the origination and purchase of
loans held-for-sale of $6,309,686, $10,344,957 and $5,886,469 for fiscal years
1997, 1996 and 1995, respectively.
Net cash flows used by investing activities totaled $17,172,688, $4,294,278 and
$20,143,954 for fiscal year 1997, 1996 and 1995, respectively. Amounts fluctuate
from period to period primarily as a result of (i) principal repayments on loans
and mortgage-backed securities, (ii) the purchase and origination of loans,
mortgage-backed securities and investment securities and (iii) proceeds from
maturities and sales of investment securities. Loans originated and purchased
for investment, net of principal payments on loans, were $35,303,920,
$30,405,369 and $27,900,224 for fiscal years 1997, 1996 and 1995, respectively.
Net cash flows provided by financing activities totaled $9,752,672, $2,845,447
and $16,145,545, respectively, for fiscal years 1997, 1996 and 1995. Advances
from the FHLB have been the primary source to balance the Company's funding
needs during each of the fiscal years presented. As of September 30, 1997, the
Bank had an existing line of credit with the FHLB of $30,000,000 against which
the Bank had an outstanding balance of $10,00,000 that could serve as an
additional source of liquidity. Offsetting the cash provided by borrowings has
been the continued repurchase of treasury stock amounting to $3,222,729,
$3,526,306 and $2,500,900 for years ending September 30, 1997, 1996 and 1995,
respectively. The repurchase of treasury stock during this three year period has
resulted in enhanced stockholder value.
The Bank is required under applicable federal regulations to maintain specified
levels of "liquid" investments in qualifying types of U.S. Government, federal
agency and other investments having maturities of five years or less. Current
OTS regulations require that a savings bank maintain liquid assets of not less
than 5% of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less, of which short-term liquid assets must
consist of not less than 1%. At September 30, 1997, the Bank met its liquidity
requirement and expects to meet this requirement in the future. The Bank adjusts
liquidity as appropriate to meet its asset/liability objectives.
OTS has also set minimum capital requirements for institutions such as the Bank.
The capital standards require the maintenance of regulatory capital sufficient
to meet a tangible capital requirement, a core capital requirement and a
risk-based capital requirement. At September 30, 1997 the Bank exceeded all of
the minimum capital requirements as currently required. Please refer to Note 12
of the accompanying Notes to Consolidated Financial Statements for more
information regarding the Bank's regulatory capital position at September 30,
1997.
-9-
<PAGE>
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, nearly all the
assets and liabilities of the Bank are monetary. As a result, interest rates
have a greater impact on the Bank's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
Asset/Liability Management
The Bank has established an Asset/Liability Management Committee ("ALCO") for
the purpose of monitoring and managing interest rate risk. The Bank is subject
to the risk of interest rate fluctuations to the extent that there is a
difference, or mismatch, between the amount of the Bank's interest-earning
assets and interest-bearing liabilities which mature or reprice in specified
periods. Consequently, when interest rates change, to the extent the Bank's
interest-earning assets have longer maturities or effective repricing periods
than its interest-bearing liabilities, the interest income realized on the
Bank's interest-earning assets will adjust more slowly than the interest expense
on its interest-bearing liabilities. This mismatch in the maturity and interest
rate sensitivity of assets and liabilities is commonly referred to as the "gap."
A gap is considered positive when the amount of interest rate sensitive assets
maturing or repricing during a specified period exceeds the amount of interest
rate sensitive liabilities maturing or repricing during such period, and is
considered negative when the amount of interest rate sensitive liabilities
maturing or repricing during a specified period exceeds the amount of interest
rate assets maturing or repricing during such period. Generally, during a period
of rising interest rates, a negative gap would adversely affect net interest
income while a positive gap would result in an increase in net interest income,
and during a period of declining interest rates, a negative gap would result in
an increase in net interest income while a positive gap would adversely affect
net interest income. The Bank utilizes internally generated gap reports and
externally prepared interest rate sensitivity of the net portfolio value reports
to monitor and manage its interest rate risk.
The Company has historically invested in interest-earning assets that have a
longer duration than its interest-bearing liabilities. The mismatch in duration
of the interest-sensitive liabilities indicates that the Bank is exposed to
interest rate risk. In a rising rate environment, in addition to reducing the
market value of long-term interest-earning assets, liabilities will reprice
faster than assets; therefore, decreasing net interest income. To mitigate this
risk, the Bank has placed a greater emphasis on shorter-term higher yielding
assets that reprice more frequently in reaction to interest rate movements. In
addition, the Bank has continued to include in total assets a concentration of
adjustable-rate assets to benefit the one-year cumulative gap as such
adjustable-rate assets reprice and are more responsive to the sensitivity of
more frequently repricing interest-bearing liabilities.
Quarterly, the OTS prepares a report on the interest rate sensitivity of the net
portfolio value ("NPV") from information provided by Bank. The OTS adopted a
rule in August 1993 incorporating an interest rate risk ("IRR") component into
the risk-based capital rules. Implementation of the rule has been delayed until
the OTS has tested the process under which institutions may appeal such capital
deductions. The IRR component is a dollar amount that will be deducted from
total capital for the purpose of calculating an institution's risk-based capital
requirement and is measured in terms of the sensitivity of its NPV to changes in
interest rates. The NPV is the difference between incoming and outgoing
discounted cash flows from assets, liabilities, and off-balance sheet contracts.
An institution's IRR is measured as the change to its NPV as the result of a
hypothetical 200 basis point change in market interest rates. A
-10-
<PAGE>
resulting change in NPV of more than 2% of the estimated market value of its
assets will require the institution to deduct from its capital 50% of that
excess change. The rule provides that the OTS will calculate the IRR component
quarterly for each institution.
The following tables present the Bank's NPV as well as other data as of
September 30, 1997, as calculated by the OTS, based on information provided to
the OTS by the Bank.
<TABLE>
<CAPTION>
Change in Interest
Rates in Basis
Points (Rate Shock) Net Portfolio Value NPV as % of Present Value of Assets
- --------------------- ----------------------------------------------------- -----------------------------------------
$ Amount $ Change % Change NPV Ratio Change
-------------- ----------------- -------------- -------------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
+400 bp $ 15,702 $ (16,629) (51) % 7.57% (658) bp
+300 bp $ 20,244 (12,087) (37) % 9.50% (464) bp
+200 bp (1) $ 24,700 (7,632) (24) % 11.29% (285) bp
+100 bp $ 28,847 (3,484) (11) % 12.88% (126) bp
0 bp $ 32,332 14.14%
-100 bp $ 34,699 2,367 7 % 14.95% 80 bp
-200 bp $ 35,704 3,372 10 % 15.23% 109 bp
-300 bp $ 37,001 4,670 14 % 15.62% 148 bp
-400 bp $ 38,574 6,242 19 % 16.09% 195 bp
</TABLE>
(1) Denotes rate shock used to compute interest rate risk capital component.
<TABLE>
<CAPTION>
September 30, 1997
------------------
<S> <C>
Risk Measures (200 Basis Point Rate Shock):
Pre-Shock NPV Ratio: NPV as % of Present Value of Assets 14.14%
Exposure Measure: Post-Shock NPV Ratio 11.29%
Sensitivity Measure: Change in NPV Ratio (285) bp
Calculation of Capital Component:
Change in NPV as % of Present Value of Assets (3.34)%
</TABLE>
Utilizing the data above, the Bank, at September 30, 1997, would have been
considered by the OTS to have been subject to "above normal" interest rate risk
and a deduction from risk-based capital would have been required.
Set forth below is a breakout, by basis points of the Banks NPV as of September
30, 1997 by assets, liabilities, and off balance sheet items.
<TABLE>
<CAPTION>
No
Net Portfolio Value -400 bp -300 bp -200 bp -100 bp Change +100 bp +200 bp +300 bp +400 bp
- ------------------- ------------ --------- ----------- ---------- ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets $ 239,676 $ 236,877 $ 234,364 $ 232,157 $ 228,619 $ 223,995 $ 218,721 $ 213,156 207,519
- -Liabilities 201,446 200,126 198,830 197,556 196,306 195,085 193,879 192,696 191,531
+Off Balance Sheet 344 250 170 98 19 (63) (142) (216) (286)
------------ --------- ----------- ---------- ------------- ------------ ------------ ------------- ------------
Net Portfolio Value $ 38,574 $ 37,001 $ 35,704 $ 34,699 $ 32,332 $ 28,847 $ 24,700 $ 20,244 $ 15,702
============ ========= =========== ========== ============= ============ ============ ============= ============
</TABLE>
Certain assumptions utilized by the OTS in assessing the interest rate risk of
savings associations were employed in preparing the previous table. These
assumptions related to interest rates, loan prepayment
-11-
<PAGE>
rates, deposit decay rates and the market values of certain assets under the
various interest rate scenarios. It was also assumed that delinquency rates will
not change as a result of changes in interest rates although there can be no
assurance that this will be the case. Even if interest rates change in the
designated amounts, there can be no assurance that the Bank's assets and
liabilities would perform as set forth above.
Certain shortcomings are inherent in the preceding NPV tables because the data
reflect hypothetical changes in NPV based upon assumptions used by the OTS to
evaluate the Bank as well as other institutions. However, net interest income
should decline with instantaneous increases in interest rates while net interest
income should increase with instantaneous declines in interest rates.
Year 2000 Issue
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to the operation of the Bank. Data
processing is also essential to most other financial institutions and many other
companies.
The most significant data processing applications of the Bank that could be
affected by this problem are provided by a third party service bureau. The Bank
is currently in the process of evaluating its situation as it relates to the
year 2000 issue and the Bank's service center, but currently management is
uncertain of the effect the year 2000 issue will have on the Bank's computer
system. If there is a problem with the service center relating to the year 2000
issue the Bank would likely experience significant data processing delays,
mistakes or failures. These delays, mistakes or failures could have a
significant adverse impact on the financial condition and results of operation
of the Bank.
Results of Operations
Net income increased $1,110,211 or 79.06% from $1,404,226 for the year ended
September 30, 1996 to $2,514,437 for the year ended September 30, 1997. As
discussed in the following paragraphs the net income for the year ended
September 30, 1996 included a special one-time SAIF assessment of $937,073
which, net of tax effect, resulted in decreasing fiscal year 1996 net income by
approximately $600,000. Exclusive of the effect of the assessment on 1996, net
income for fiscal 1997 increased over 1996 by approximately $530,000. This
increase is primarily attributable to an increase in net interest income.
Net income decreased $358,279 or 20.33%, from $1,762,523 for the year ended
September 30, 1995 to $1,404,226 for the year ended September 30, 1996. This
decrease relates primarily to the special one-time SAIF assessment of $937,073.
On September 30, 1996, President Clinton signed into law a bill that provided
for a special assessment of SAIF insured institutions amounting to 65.7 basis
points applied to the Bank's deposit base measured as of March 31, 1995. The
total amount of the special assessment for the Bank was accrued as of September
30, 1996 and included in expense for the year ended September 30, 1996. The
after tax effect of the assessment was to reduce net income by approximately
$600,000 for the year ended September 30, 1996. Without the effect of the
assessment net income would have been approximately $2,000,000 for the year
ended September 30, 1996. Earnings per share without the effect of the
assessment would have been approximately $1.02 for the year ended September 30,
1996.
-12-
<PAGE>
Beginning January 1, 1997, deposit insurance assessments for SAIF members were
reduced to approximately 6.4 basis points of deposits on an annual basis and are
expected to remain at that rate through the end of 1999, down from the previous
level of 23 basis points, a reduction in the rate of deposit insurance assessed
the Bank of approximately 70%. Through 1999 BIF members are expected to be
assessed at approximately 1.3 basis points on deposits. Thereafter, assessments
for BIF and SAIF members should be the same and SAIF and BIF may be merged. It
is expected that these continuing assessments for both SAIF and BIF members will
be used to repay outstanding Financing Corporation bond obligations.
The operating results of the Company depend to a great degree on its net
interest income, which is the difference between interest income on
interest-earning assets, primarily loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing liabilities,
primarily deposits and borrowings. The Company's net income is also affected by
the level of its provision for losses on loans, non-interest income and
non-interest expense.
-13-
<PAGE>
Net Interest Income
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from month-end balances. Management does
not believe that the use of month-end balances instead of daily average balances
has caused any material difference in the information presented.
<TABLE>
<CAPTION>
For Year Ended September 30,
At -------------------------------------------------------------------------------------------------
September 30,
1997 1997 1996 1995
-------------- ------------------------------- ---------------------------------------------------------------
Average Average Average Average Average Average
Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
-------------- -------- --------- --------- -------------------- ---------- ----------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
assets:
Loans receivable 8.18% $ 145,395 $ 11,833 8.14% $ 110,084 $ 9,077 8.25% $ 81,236 $ 6,449 7.94%
Mortgage-backed
securities 6.46% 41,747 2,707 6.48% 54,647 3,557 6.51% 70,947 4,359 6.14%
Investment
securities 6.02% 30,956 2,079 6.72% 29,936 1,863 6.22% 42,936 2,744 6.39%
Other interest-
earning assets 5.37% 1,252 76 6.07% 1,085 78 7.19% 1,216 100 8.22%
----------- ---------- ------------ -------- ----------- -------- ---------- ----------- -------- -------
Total interest-
earning assets 7.62% $ 219,350 $ 16,695 7.61% $ 195,752 $14,575 7.45% $196,335 $13,652 6.95%
=========== ========== ============ ======== =========== ======== ========== =========== ======== =======
Non-interest
earning assets: 4,310 3,764 3,903
---------- ----------- ----------
Total assets $ 223,660 $ 199,516 $ 200,238
========== =========== ==========
Interest-bearing
liabilities:
Demand deposits 3.17% $ 21,536 $ 693 3.22% $ 14,249 $ 365 2.56% $ 12,279 $ 267 2.17%
Savings deposits
and certificates
of deposit 5.36% 123,206 6,556 5.32% 128,899 7,077 5.49% 129,319 6,633 5.13%
Other liabilities 6.16% 42,951 2,520 5.87% 19,429 1,237 6.37% 20,473 1,324 6.47%
----------- ---------- ------------ -------- ----------- -------- ---------- ----------- -------- -------
Total interest-
bearing
liabilities 5.30% $ 187,693 $ 9,769 5.20% $ 162,577 $ 8,679 5.34% $ 162,071 $ 8,224 5.07%
=========== ========== ============ ======== =========== ======== ========== =========== ======== =======
Non-interest
bearing liabilities 3,696 3,015 2,371
---------- ----------- ----------
Total liabilities $ 191,389 $ 165,592 $ 164,442
========== =========== ==========
Stockholder's equity 32,271 33,924 35,796
---------- ----------- ----------
Total liabilities
and stockholders'
equity $ 223,660 $ 199,516 $ 200,238
========== =========== ==========
Net interest income $ 6,926 $ 5,896 $ 5,428
============ ========= ========
Interest rate spread 2.32% 2.41% 2.11% 1.88%
=========== ======== ============ =======
Net yield on
interest-earning
assets 3.16% 3.01% 2.76%
======== ============ =======
Ratio of
interest-earning
assets to
interest-
bearing liabilities 116.87% 120.41% 121.14%
======== ============ =======
</TABLE>
<PAGE>
The following Rate/Volume Analysis table presents, for the periods indicated,
information regarding changes in interest income and interest expense (in
thousands) of the Company. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on the changes
attributable to (i) changes in volume (changes in average daily balances of the
portfolio multiplied by the prior year rate), (ii) changes in rate (changes in
rate multiplied by prior year volume), and (iii) changes in rate/volume (changes
in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
------------------------------------------ ---------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------------------ ---------------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
---------- --------- -------- ---------- ----------- ---------- --------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $ 2,913 $ (121) $ (36) $ 2,756 $ 2,291 $ 252 $ 85 $ 2,628
Mortgage-backed securities (840) (16) 6 (850) (1,000) 263 (65) (802)
Investment securities 63 150 3 216 (832) (73) 24 (881)
Other interest-earning assets 13 (11) (4) (2) (11) (13) 2 (22)
------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets $ 2,149 $ 2 $ (31) $ 2,120 $ 448 $ 429 $ 46 $ 923
======= ======= ======= ======= ======= ======= ======= =======
Interest expense:
Demand deposits $ 187 $ 94 $ 47 $ 328 $ 43 $ 48 $ 7 $ 98
Savings deposits and
certificates of deposits (313) (219) 11 (521) (22) 466 -- 444
Other liabilities 1,498 (97) (118) 1,283 (68) (2) (17) (87)
------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ 1,372 $ (222) $ (60) $ 1,090 $ (47) $ 512 $ (10) $ 455
======= ======= ======= ======= ======= ======= ======= =======
Net change in interest income $ 777 $ 224 $ 29 $ 1,030 $ 495 $ (83) $ 56 $ 468
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Interest income was $16,694,848 for the year ended September 30, 1997 compared
to $14,574,868 for the year ended September 30, 1996, an increase of $2,119,980
or 14.55%. This increase resulted from the average yield on interest-earning
assets increasing to 7.61% for the year ended September 30, 1997 compared to
7.45% for the year ended September 30, 1996. This increase was the result of the
increase in the loan portfolio, the rate/volume analysis reflects this increase.
The change in interest income due to the volume of loans receivable was an
increase of $2,913,000 during fiscal year 1997 from fiscal year 1996. Income
resulting from the increase in loan volume was partially offset by decreases in
the volume of mortgage-backed securities.
Interest expense for the year ended September 30, 1997 increased $1,089,924, or
12.56%, to $9,768,292 from $8,678,368 at September 30, 1996. This increase was
due to the increase in borrowed funds throughout the fiscal year. Approximately
$1,498,000 of the increase in interest expense was due to an increase in the
volume of other liabilities, which consists of advances and other borrowing from
the FHLB. The average cost for interest-bearing liabilities decreased slightly
from 5.34% for the year ended September 30, 1996 to 5.20% for the year ended
September 30, 1997.
-15-
<PAGE>
As a result of the above, net interest income increased $1,030,056, or 17.47%,
from $5,896,500 for the year ended September 30, 1996 to $6,926,556 for the year
ended September 30, 1997. The net interest spread of the Bank increased from
2.11% for the year ended September 30, 1996 to 2.41% for the year ended
September 30, 1997, an increase of 30 basis points. Interest costs on
liabilities increase or decrease faster than interest yields on assets, as
shorter term liabilities reprice or adjust for changes in interest rates quicker
than longer maturity assets. This increase in interest spread related to the
significant increase in origination and purchases of mortgage loans at yields in
excess of yields on maturing investments and mortgage-backed securities.
Total interest income increased $922,628, or 6.76%, to $14,574,868 for the year
ended September 30, 1996, from $13,652,240 for the year ended September 30,
1995. As discussed above for fiscal year 1997, this increase is also primarily
the result of an increase in loans receivable during the year ended September
30, 1996, this is reflected in the Bank's rate/volume analysis as the increase
in interest income resulting from the volume of loans receivable was $2,291,000.
Interest expense for the year ended September 30, 1996 increased $454,579, or
5.53%, to $8,678,368 from $8,223,789 at September 30, 1995. This increase is
primarily due to an increase in market interest rates paid on deposits and the
relatively rapid repricing of the deposit base. The Bank's rate/volume analysis
reflects approximately $512,000 of the increase in interest expense resulting
from interest rate changes. Although this results in an increase in interest
expense, there was a $47,000 reduction in interest expense resulting from a
decrease in the volume of interest-bearing liabilities, including $68,000 due to
a reduction in the average balance outstanding of FHLB borrowings.
As a result of the above, net interest income increased $468,049, or 8.62%, from
$5,428,451 for the year ended September 30, 1995 to $5,896,500 for the year
ended September 30, 1996. The increase in net interest income is attributable to
a shift in the composition of interest-earning assets from generally lower
yielding mortgage-backed and investment securities to loans, resulting in an
increase in net interest income attributable to volume of $495,000. The net
interest spread of the Bank increased from 1.88% for the year ended September
30, 1995 to 2.11% for the year ended September 30, 1996, an increase of 23 basis
points. The change in interest rate spread for the year ended September 30, 1996
in comparison to the year ended September 30, 1995 relates to the continued
overall increase in interest rates. As rates have continued to rise, the slower
repricing interest-earning assets have began to catch up with the more rapidly
increasing interest rates on liabilities; therefore, increasing the interest
rate spread during the year ended September 30, 1996.
Provision for Losses on Loans
The Bank maintains, and the Board of Directors monitors, allowances for possible
losses on loans. These allowances are established based upon management's
periodic evaluation of known and inherent risks in the loan portfolio, review of
significant individual loans and collateral, review of delinquent loans, past
loss experience, adverse situations that may affect the borrowers' ability to
repay, current and expected market conditions, and other factors management
deems important. Determining the appropriate level of reserves involves a high
degree of management judgment and is based upon historical and projected losses
in the loan portfolio and the collateral value of specifically identified
problem loans. Additionally, allowance strategies and policies are subject to
periodic review and revision in response to current market conditions, actual
loss experience and management's expectations.
-16-
<PAGE>
The allowance for loan losses was $968,623 and $740,346 at September 30, 1997
and 1996, respectively. The provision for losses on loans is the method by which
the allowance for losses is adjusted during the period. The provision for losses
on loans was $307,979 for the year ended September 30, 1997 and $134,743 for the
year ended September 30, 1996. The increase in the allowance for the year ended
September 30, 1997 was based on management's evaluation of the allowance in
relation to the increase in the Bank's loan portfolio, including increases in
non-mortgage lending, and the slight increase in non-performing loans.
Historical non-performing loan ratios are presented with the five-year financial
summary information. While management maintains its allowance for loan losses at
levels which it considers adequate to provide for potential losses, there can be
no assurance that additions will not be made to the allowance in future years
and that such losses will not exceed the estimated amounts.
The allowance for loan losses was $643,547 at September 30, 1995. The provision
for losses on loans increased from $9,124 for the year ended September 30, 1995
to $134,743 for the year ended September 30, 1996. The $125,619 increase in the
provision for the year ended September 30, 1996 was based on management's
evaluation of the allowance in relation to the increase in the Bank's loan
portfolio, including a 57.44% increase in loans other than first mortgage loans
during the year. Non-performing loans were $317,000 and $386,000 at September
30, 1996 and 1995, respectively.
Non-Interest Income
Non-interest income increased $280,661 or 37.65%, from $745,360 for the year
ended September 30, 1996 to $1,026,021 for the year ended September 30, 1997.
The main reason for this increase was due to the net gain on sale of investments
of $220,154, consisting of sales of corporate equity securities, which was a
$193,047 increase from the net gain on the sale of investments of $27,107
realized during the year ended September 30, 1996. Additionally, gain on sale of
loans increased by 188.63% due to an increase in the volume of loan sales from
fiscal year 1997 to fiscal year 1996. Sale of loans held-for-sale were
$12,956,185 for the year ended September 30, 1997 compared to $9,679,305 for the
year ended September 30, 1996.
Non-interest income increased $61,896, or 9.06%, from $683,464 for the year
ended September 30, 1995 to $745,360 for the year ended September 30, 1996. This
was primarily due to the net gain on the sale of mortgage-backed securities,
after they were reclassified from held-to-maturity to available-for-sale in
accordance with the FASB Guide to Implementation of Statement 115.
On November 15, 1995, the FASB adopted a special report "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities". The guide included, along with other implementation
guidance, a transition provision that allowed for a reassessment of the
appropriateness of the classifications of all securities and allowed a one-time
reclassification of securities which will not call into question the intent of
an enterprise to hold other debt securities to maturity in the future. Those
reclassifications were to be made after the adoption date of November 15, 1995.
In accordance with the guide, management reclassified $11,355,417 of
mortgage-backed securities from held-to-maturity to available-for-sale and
subsequently sold all of these securities for a net realized gain of $135,208.
Net gains on sales of investment securities and loans decreased during fiscal
year 1996 in comparison to 1995 due to reduced sales volume of
available-for-sale investment securities and lower levels of gain recognized on
sales of loans held-for-sale. Service and late charges increased from 1995 to
1996 primarily due to increases in charges on demand accounts.
-17-
<PAGE>
Non-Interest Expense
Non-interest expense decreased $743,222 or 17.19% from $4,323,299 for the year
ended September 30, 1996 to $3,580,077 for the year ended September 30, 1997.
This decrease related primarily to the one time SAIF special assessment of
$937,073 recorded during fiscal 1996. If this special assessment were excluded,
total non-interest expense would have increased $193,851 or 5.72% from fiscal
1996 to 1997. Compensation and related expenses increased $349,144 or 18.44%
during the year ended September 30, 1997. This increase was the result of
overall increases in compensation, an increase in the Employees Stock Ownership
Plan (the "ESOP") expense as a result of higher market values for allocated
shares and additional compensation expense relating to the issuance of stock
options, which were recorded in accordance with SFAS 123 Accounting for Stock
Based Compensation, see Note 15 of the financial statements for further
discussion. The increase in compensation was offset by a $191,250 or 49.04%
decrease in federal insurance premium expense from $389,986 during fiscal year
1996 to $198,736 during fiscal year 1997. The decrease in regulatory insurance
and assessments was substantially due to the revised rate structure on insured
deposits adopted by the FDIC after the recapitalization of the SAIF. The Bank's
annual deposit insurance rate in effect prior to this recapitalization was 0.23%
of insured deposits, declining to 0.18% of insured deposits for the quarter
ended December 31, 1996, and reduced to 0.064% of insured deposits effective
January 1, 1997.
Non-interest expense increased $1,008,266, or 30.41% from $3,315,033 for the
year ended September 30, 1995 to $4,323,299 for the year ended September 30,
1996. This increase relates primarily to the one-time SAIF special assessment of
$937,073 discussed earlier.
Income Taxes
The Company's income tax expense increased $770,492 or 98.83%, from $779,592 for
the year ended September 30, 1996 to $1,550,084 for the year ended September 30,
1997. The principal reason for the increase was the increase in pre-tax income.
Income tax expense decreased $245,643, or 23.96%, from $1,025,235 for the year
ended September 30, 1995 to $779,592 for the year ended September 30, 1996. This
decrease in income tax resulted from a decrease in pre-tax income largely
attributable to the accrual of the special SAIF assessment. Tax benefit
attributable to the SAIF assessment was approximately $355,000.
-18-
<PAGE>
MEMBERS OF
THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
THE DIVISION FOR CPA FIRMS
Regier Carr & Monroe,L.L.P.
- --------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Landmark Bancshares, Inc.
Dodge City, Kansas
We have audited the accompanying consolidated statements of financial condition
of Landmark Bancshares, Inc. and subsidiary as of September 30, 1997 and 1996,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Landmark Bancshares,
Inc. and subsidiary as of September 30, 1997 and 1996, and the results of their
operations and cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.
/s/Regier Carr & Monroe,L.L.P.
Regier Carr & Monroe, L.L.P.
October 29, 1997
Wichita, Kansas
300 WEST DOUGLAS SUITE 100 - WICHITA, KANSAS 67202-2994
316 264-2335 - FAX 316 264-1489
WICHATA - TUCON - TULSA
F - 1
<PAGE>
Landmark Bancshares, Inc.
Consolidated Statements of Financial Condition
September 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
---------------------- ---------------------
<S> <C> <C>
Cash and due from banks:
Non-interest bearing $ 678,173 $ 470,647
Interest bearing 2,062,879 3,063
---------------------- ---------------------
Total cash and due from banks 2,741,052 473,710
Time deposits in other financial institutions 110,580 479,949
Investment securities held-to-maturity (estimated market
value of $18,907,385 and $29,113,367 at September 30,
1997 and 1996, respectively) 18,837,942 29,398,520
Investment securities available-for-sale 7,122,785 4,137,637
Mortgage-backed securities held-to-maturity (estimated
market value of $36,933,775 and $45,526,007 at
September 30, 1997 and 1996, respectively) 36,689,551 45,877,120
Loans receivable, net 157,672,603 128,013,228
Loans held-for-sale 490,234 1,890,007
Accrued income receivable 1,446,605 1,518,640
Foreclosed real estate, net 251,950
Office properties and equipment, at cost
less accumulated depreciation 1,188,250 949,786
Prepaid expenses and other assets 1,233,038 973,383
Deferred income taxes 21,710
Income taxes receivable, current 65,564
---------------------- ---------------------
Total assets $ 227,850,154 $ 213,733,690
====================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 144,734,739 $ 143,814,910
Outstanding checks in excess of bank balance 143,808
Borrowings from Federal Home Loan Bank 46,200,000 33,466,668
Advances from borrowers for taxes and insurance 1,673,057 1,673,142
Accrued expenses and other liabilities 2,304,593 2,193,296
Income taxes payable, current 52,691
Deferred income taxes 692,435
---------------------- ---------------------
Total liabilities 195,604,824 181,344,515
---------------------- ---------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized; no shares outstanding
Common stock, $0.10 par value; 10,000,000 shares
authorized; 2,281,312 shares issued and outstanding 228,131 228,131
Additional paid-in capital 22,173,827 21,944,175
Retained income, substantially restricted 19,305,087 17,468,325
Unrealized gain on available-for-sale securities,
net of deferred taxes 922,384 253,057
Unamortized stock acquired by Employee Stock
Ownership Plan (844,597) (994,695)
Unamortized compensation related to Management
Stock Bonus Plan (289,567) (482,612)
Treasury stock, at cost, 592,671 and 428,316 shares at
September 30, 1997 and 1996, respectively (9,249,935) (6,027,206)
---------------------- ---------------------
Total stockholders' equity 32,245,330 32,389,175
---------------------- ---------------------
Total liabilities and stockholders' equity $ 227,850,154 $ 213,733,690
====================== =====================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F - 2
<PAGE>
Landmark Bancshares, Inc.
Consolidated Statements of Operations
For the Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------ ------------------
<S> <C> <C> <C>
Interest income:
Interest on loans $ 11,832,611 $ 9,076,880 $ 6,448,797
Interest and dividends on investment securities 2,154,856 1,940,908 2,844,191
Interest on mortgage-backed securities 2,707,381 3,557,080 4,359,252
------------------- ------------------ ------------------
Total interest income 16,694,848 14,574,868 13,652,240
------------------- ------------------ ------------------
Interest expense:
Deposits 7,248,750 7,441,797 6,899,764
Borrowed funds 2,519,542 1,236,571 1,324,025
------------------- ------------------ ------------------
Total interest expense 9,768,292 8,678,368 8,223,789
------------------- ------------------ ------------------
Net interest income 6,926,556 5,896,500 5,428,451
Provision for losses on loans 307,979 134,743 9,124
------------------- ------------------ ------------------
Net interest income after provision for losses 6,618,577 5,761,757 5,419,327
------------------- ------------------ ------------------
Non-interest income:
Service charges and late charges 270,622 217,317 192,213
Net gain on sale of investments 220,154 27,107 122,900
Net gain on sale of loans 237,281 82,208 114,246
Net gain on sale of mortgage-backed securities 135,208
Service fees on loans sold 161,304 161,329 173,020
Other 136,660 122,191 81,085
------------------- ------------------ ------------------
Total non-interest income 1,026,021 745,360 683,464
------------------- ------------------ ------------------
Non-interest expense:
Compensation and related expenses 2,242,602 1,893,458 1,911,205
Occupancy expense 173,452 169,780 146,162
Advertising 67,101 63,371 68,876
Federal insurance premium 198,736 389,986 379,086
SAIF special assessment 937,073
Loss from real estate operations 6,000 4,289 3,425
Data processing 181,321 187,237 175,602
Other expense 710,865 678,105 630,677
------------------- ------------------ ------------------
Total non-interest expense 3,580,077 4,323,299 3,315,033
------------------- ------------------ ------------------
Income before income taxes 4,064,521 2,183,818 2,787,758
------------------- ------------------ ------------------
Income taxes:
Currently payable 1,261,177 1,085,774 872,163
Deferred tax expense (benefit) 288,907 (306,182) 153,072
------------------- ------------------ ------------------
1,550,084 779,592 1,025,235
------------------- ------------------ ------------------
Net income $ 2,514,437 $ 1,404,226 $ 1,762,523
=================== ================== ==================
Income per common share
Primary:
Earnings per share $ 1.40 $ 0.72 $ 0.82
=================== ================== ==================
Weighted average common and common
shares outstanding 1,800,585 1,937,820 2,141,214
=================== ================== ==================
Fully diluted:
Earnings per share $ 1.37 $ 0.72 $ 0.81
=================== ================== ==================
Weighted average common and common
shares outstanding 1,832,882 1,953,774 2,175,546
=================== ================== ==================
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F - 3
<PAGE>
Landmark Bancshares, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unamortized
Unrealized Common Unamortized
Additional Gain on Stock Compensation Total
Common Paid-In Retained Available-for- Acquired by Related to Treasury Stockholders'
Stock Capital Income Sale Securities ESOP MSBP Stock Equity
--------- ------------ ----------- ------------- ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1994 $ 228,131 $21,883,578 $16,656,579 $ - $ (1,293,541) $ (868,702) $ - $ 36,606,045
Cumulative effect of
October 1, 1994
change in
accounting for
certain investment
securities 15,569 15,569
Allocation of
shares by
Employees' Stock
Ownership Plan 9,921 161,968 171,889
Amortization of
compensation
related to
Management
Stock Bonus Plan 193,045 193,045
Net income for the
year ended
September 30, 1995 1,762,523 1,762,523
Cash dividend paid
($0.75 per share) (1,602,610) (1,602,610)
Net change in
unrealized gain
on available-
for-sale
investment securities 21,885 21,885
Purchase of 195,980
treasury shares (2,500,900) (2,500,900)
--------- ------------ ----------- ------------- ------------- ------------- ------------ --------------
Balance,
September 30, 1995 228,131 21,893,499 16,816,492 37,454 (1,131,573) (675,657) (2,500,900) 34,667,446
Allocation of shares
by Employees' Stock
Ownership Plan 50,676 136,878 187,554
Amortization of
compensation
related to
Management
Stock Bonus Plan 193,045 193,045
Net income
for the year
ended
September 30, 1996 1,404,226 1,404,226
Cash dividend paid
($0.40 per share) (752,393) (752,393)
Net change in
unrealized gain
available-for-sale
investment securities 215,603 215,603
Purchase of 232,336
treasury shares (3,526,306) (3,526,306)
--------- ------------ ----------- ------------- ------------- ------------- ------------ --------------
Balance,
September 30, 1996 228,131 21,944,175 17,468,325 253,057 (994,695) (482,612) (6,027,206) 32,389,175
Allocation of shares
by Employees' Stock
Ownership Plan 121,277 150,098 271,375
Amortization of
compensation
related to
Management
Stock Bonus Plan 56,928 193,045 249,973
Compensation
related to
stock options
granted 51,447 51,447
Net income for
the year ended
September 30, 1997 2,514,437 2,514,437
Cash dividend paid
($0.40 per share) (677,675) (677,675)
Net change in
unrealized gain on
available-for-sale
investment
securities 669,327 669,327
Purchase of 164,355
treasury shares (3,222,729) (3,222,729)
--------- ------------ ----------- ------------- ------------ ------------- ------------ --------------
Balance,
September 30, 1997 $228,131 $22,173,827 $19,305,087 $ 922,384 $ (844,597) $ (289,567) $(9,249,935) $ 32,245,330
======== ============ =========== ============= ============ ============= ============ ==============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F - 4
<PAGE>
Landmark Bancshares, Inc.
Consolidated Statements of Cash Flows
For the Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,514,437 $ 1,404,226 $ 1,762,523
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 113,881 116,278 109,413
Gain on sale of investment securities
available-for-sale (220,154) (27,107) (122,900)
Decrease (increase) in accrued interest receivable 72,035 152,435 (325,534)
Increase (decrease) in outstanding checks
in excess of bank balance (143,808) (907,008) 1,050,816
Increase (decrease) in accrued and deferred
income taxes 170,652 (239,364) 168,159
Increase in accounts payable and
accrued expenses 111,297 1,257,765 395,949
Amortization of premiums and discounts
on investments and loans (54,424) (171,438) (261,601)
Amortization of mortgage servicing rights 15,329 2,202 3,627
Provision for losses on loans 307,979 134,743 9,124
Sale of loans held-for-sale 12,956,185 9,679,305 6,294,625
Gain on sale of mortgage-backed securities
available-for-sale (135,208)
Gain on sale of loans held-for-sale (237,281) (82,208) (114,246)
Origination of loans held-for-sale (5,896,736) (9,643,647) (5,886,469)
Purchase of loans held-for-sale (412,950) (701,310)
Amortization related to MSBP and ESOP 343,143 329,923 355,013
Other non-cash items, net 47,773 290,933 (38,608)
----------------- ----------------- -----------------
Net cash provided by operating activities 9,687,358 1,460,520 3,399,891
----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payments
on loans held-for-investment (4,345,234) (14,007,163) (13,940,760)
Loans purchased for investment (30,958,686) (16,398,206) (13,959,464)
Principal repayments on mortgage-backed securities 9,134,312 12,396,168 8,046,547
Proceeds from sale of mortgage-backed securities
available-for-sale 11,490,625
Acquisition of mortgage-backed securities
held-to-maturity (1,482,865) (5,875,830)
Acquisition of investment securities held-to-maturity (4,300,000) (16,295,500) (6,451,406)
Acquisition of investment securities available-for-sale (2,413,418) (2,373,880) (748,625)
Proceeds from sale of investment securities
available-for-sale 742,989 308,479 733,382
Proceeds from maturities or calls of investment
securities held-to-maturity 14,890,000 21,862,135 11,830,000
Net decrease in time deposits 369,369 99,051 285,000
Proceeds from sale of foreclosed real estate 110,614 130,923 125,554
Acquisition of fixed assets (352,345) (60,156) (188,533)
Other investing activity, net (50,289) 36,111 181
----------------- ----------------- -----------------
Net cash used in investing activities (17,172,688) (4,294,278) (20,143,954)
----------------- ----------------- -----------------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F - 5
<PAGE>
Landmark Bancshares, Inc.
Consolidated Statements of Cash Flows (Continued)
For the Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ---------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 919,829 $ (1,142,174) $ 8,098,871
Net increase (decrease) in escrow accounts (85) 332,986 196,850
Proceeds from FHLB advances and other borrowings 126,600,000 53,600,000 62,500,000
Repayment of FHLB advances and other borrowings (113,866,668) (45,666,666) (50,546,666)
Purchase of treasury stock (3,222,729) (3,526,306) (2,500,900)
Dividends paid (677,675) (752,393) (1,602,610)
------------------ ---------------- ------------------
Net cash provided by financing activities 9,752,672 2,845,447 16,145,545
------------------ ---------------- ------------------
Net increase (decrease) in cash and cash equivalents 2,267,342 11,689 (598,518)
Cash and cash equivalents at beginning of year 473,710 462,021 1,060,539
------------------ ---------------- ------------------
Cash and cash equivalents at end of year $ 2,741,052 $ 473,710 $ 462,021
================== ================ ==================
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest on deposits, advances and other
borrowings $ 9,895,246 $ 8,519,955 $ 7,718,438
Income taxes 954,195 1,018,956 857,076
Transfers from loans to foreclosed real estate 489,475 27,411 42,658
Loans to facilitate the sale of foreclosed real estate 122,000 25,954 -
Transfer of held-to-maturity mortgage-backed
securities to available-for-sale - 11,355,417 -
Transfer of loans held for investment to held-for-sale 5,155,392 - -
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F - 6
<PAGE>
Landmark Bancshares, Inc.
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
1. Summary of Significant Accounting Policies
Nature of operations:
Landmark Bancshares, Inc. (the Company) is a Kansas corporation and is
the parent company of its wholly-owned subsidiary, Landmark Federal
Savings Bank (the Bank). At the present time, the Company does not
conduct any active business other than the Bank.
Landmark Federal Savings Bank is primarily engaged in attracting
deposits from the general public and using those deposits, together with
other funds, to originate real estate loans on one- to four- family
residences and, to a lesser extent, consumer and commercial loans. The
Bank conducts its business from its main office in Dodge City and also
has four branch offices located in Barton, Finney and Rush Counties,
Kansas. In addition, the Bank invests in mortgage-backed securities and
investment securities. The Bank offers its customers fixed rate and
adjustable rate mortgage loans, as well as consumer and other loans,
including auto, commercial, home equity and savings account loans.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts
of Landmark Bancshares, Inc. and its wholly-owned subsidiary, Landmark
Federal Savings Bank. Significant intercompany transactions and balances
have been eliminated.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly
from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for
loan losses and the valuation of assets acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for loan losses and the valuation of
assets acquired by foreclosure, management obtains independent
appraisals for significant properties.
Management believes that the allowances for losses on loans and
valuations of assets acquired by foreclosure are adequate and
appropriate. While management uses available information to recognize
losses on loans and assets acquired by foreclosure, future loss may be
accruable based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowances for losses on loans and
valuations of assets acquired by foreclosure. Such agencies may require
the Bank to recognize additional losses based on their judgment of
information available to them at the time of their examination.
F-7
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Cash and cash equivalents:
Cash and cash equivalents include unrestricted cash on hand, demand
deposits maintained in depository institutions and other readily
convertible investments with original maturities when purchased of three
months or less. All time deposits in other depository institutions are
treated as non-cash equivalents.
Investment and mortgage-backed securities:
Regulations require the Bank to maintain liquidity for maturities of
deposits and other short-term borrowings in cash, U.S. Government and
other approved securities.
In May, 1993, the Financial Accounting Standards Board issued SFAS
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities. This standard establishes three categories of investments,
including mortgage-backed securities; held-to-maturity, trading, and
available-for-sale. Under SFAS No. 115, held-to-maturity securities are
reported at amortized cost. Trading securities are reported at fair
value, with unrealized changes in value reported in the Company's income
statement as part of its earnings. Available-for-sale securities are
also reported at fair value, but any unrealized appreciation or
depreciation, net of tax effects are reported as a separate component of
equity. The Company adopted SFAS No. 115 with an effective adoption date
of October 1, 1994.
In accordance with the provisions of the Financial Accounting Standards
Board A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities (the Guide), the
management of the Company in December of 1995 transferred $11,355,417 of
mortgage-backed securities from held-to-maturity classification to
available-for-sale classification. These securities were sold subsequent
to the transfer. The transfer was a one-time transaction as provided for
in the Guide in an effort to restructure and enhance the yield and rate
sensitivity of the Company's portfolio of held-to-maturity securities.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Gains and losses on the sale of investment and mortgage-backed
securities are determined using the specific-identification method. All
sales are made without recourse.
Loans receivable:
Loans receivable that management has intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal balances, net of undisbursed loan proceeds, the
allowance for loan losses, any deferred fees or costs on originated
loans and unamortized premiums or discounts on purchased loans.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, the current level of
non-performing assets and current economic conditions.
Premiums and discounts on purchased residential real estate loans are
amortized to income using the interest method over the estimated
remaining period to maturity.
F - 8
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Loan origination fees and certain direct costs are capitalized and
recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when in
management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently recognized
only to the extent cash payments are received.
Loans held-for-sale:
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the
aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income.
Foreclosed real estate:
Real estate properties acquired through, or in lieu of, foreclosure are
to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. Valuations are periodically
performed by management, and an allowance for losses is established by a
charge to operations if the carrying value of a property exceeds the
fair value less estimated costs to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in gain
or loss on foreclosed real estate. The historical average holding period
for such property is approximately one year.
Loan servicing:
In June 1996, the Financial Accounting Standard Board issued SFAS
Statement No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. FASB Statement No. 127,
Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125, was issued in December 1996 to defer certain provisions of
Statement 125. The provisions of SFAS No. 125 for servicing of financial
assets have been applied effective January 1, 1997.
The cost of mortgage servicing rights is amortized in proportion to, and
over the period of, estimated net servicing revenues. Impairment of
mortgage servicing rights is assessed based on the fair value of those
rights. Fair values are estimated using discounted cash flows based on a
current market interest rate. For purposes of measuring impairment, the
rights are stratified based on homogenous interest rate and the life of
the loan (15, 20 and 30 years) at the date of sale. The amount of
impairment recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceed their fair value.
When participating interests in loans sold have an average contractual
interest rate, adjusted for normal servicing fees, that differs from the
agreed yield to the purchases, gains or loses are recognized equal to
the present value of such differential over the estimated remaining life
of such loans. The resulting "excess servicing receivable" or "deferred
servicing receivable" is amortized over the estimated life using a
method approximating the interest method.
Quoted market prices are not available for the excess servicing
receivables. Thus, the excess servicing receivables and the amortization
thereon are periodically evaluated in relation to estimated future
servicing revenues, taking into consideration changes in interest rates,
current prepayment rates, and expected future cash flows. The Bank
evaluates the carrying value of the excess servicing receivable by
estimating the future servicing income of the excess servicing
receivable based on management's best estimate of remaining loan lives
and discounted at the original discount rate. The excess servicing fees
receivable is included in prepaid expenses and other assets on the
consolidated statements of financial condition. At the
F - 9
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
date of implementation of SFAS 125, the Bank did not have any excess
servicing fees receivable.
Prior the implementation of SFAS 125, excess servicing fees receivable
was amortized over the estimated life using the interest method. The
excess servicing fees receivable and the amortization thereon was
periodically evaluated in relation to estimated future net servicing
revenues, taking into consideration changes in interest rates, current
prepayment rates and expected future cash flows. The Bank evaluated the
carrying value of the excess servicing receivables by estimating the
future net servicing income of the excess servicing receivable based on
management's best estimate of remaining loan lives.
Financial instruments:
All derivative financial instruments previously held or issued by the
Company were held or issued for purposes other than trading. The Company
did not hold or issue any derivative financial instruments during the
years ended September 30, 1997, 1996 and 1995.
Off-balance sheet instruments:
In the ordinary course of business the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of
credit, and standby letters of credit. Such financial instruments are
recorded in the financial statements when they are funded or related
fees are incurred or received.
Office properties and equipment:
Office properties and equipment are stated at cost less accumulated
deprecation. Depreciation is computed on a straight-line basis or
accelerated methods over the estimated useful lives of five to fifty
years for buildings and improvements and three to twenty years for
furniture, fixtures, equipment and automobiles.
Income taxes:
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes
in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
Stock-based compensation:
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. This Statement establishes a fair-value-based
method of accounting for stock compensation plans with employees and
others. It applies to all arrangements under which employees receive
shares of stock or other equity instruments of the employer, or the
employer incurs liabilities to employees in amounts based on the price
of the employer's stock. The Company has adopted the recognition and
measurement provisions of SFAS No. 123 effective for the fiscal year
beginning October 1, 1996. SFAS No. 123 effects the Company's stock
options granted after October 1, 1996. These options are recognized and
measured in accordance with the fair-value-based method of accounting.
Impact of new accounting standards:
In February 1997, the FASB issued SFAS No. 128, Earnings per Share. This
Statement changes the manner in which earning per share (EPS) amounts
are calculated and presented. SFAS 128 greatly simplifies the
computations and conforms the determination and presentation of EPS data
with the
F - 10
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
standards of many other countries and with international accounting
standards. Under the new rules two EPS amounts are required: (1) basic
EPS; and (2) diluted EPS. Basic EPS is simply the per share allocation
of income available to common stockholders based only on the weighted
average number of common shares actually outstanding during the period.
Diluted EPS represents the per share allocation of income attributable
to common stockholders based on the weighted average number of common
shares actually outstanding plus all dilutive potential common shares
outstanding during the period. Statement 128 is effective for fiscal
years ending after December 15, 1997. Earlier application is not
permitted. Upon adoption of SFAS 128, EPS data for all prior periods in
income statements, earnings summaries, and selected financial data are
required to be restated. SFAS No. 128 is not expected to have a material
effect on the Company's financial statements.
In February 1997, the FASB issued SFAS No. 129, Disclosure of
Information about Capital Structure. This Statement basically
consolidates disclosure requirements found in other previously existing
accounting literature regarding capital structure. This statement is
effective for fiscal years ending after December 15, 1997, and since it
contains no changes in the disclosure requirements, such adoption will
not have a material effect on the Company's current capital structure
disclosures.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS 130 establishes standards of disclosure and financial
statement display for reporting total comprehensive income and the
individual components thereof. This Statement requires that all items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial
statements. This Statement requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital
in the equity section of a statement of financial position. This
Statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130 provisions
are only of a disclosure nature and will not have a material effect on
the Company's financial statements.
FASB issued Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, in June 1997. SFAS 131 establishes
new standards for determining a reportable segment and for disclosing
information regarding each such segment. This Statement requires that a
public business enterprise report financial and descriptive information
about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing
performance. This Statement requires that a public business enterprise
report a measure of segment profit or loss, certain specific revenue and
expense items, and segment assets. However, this Statement does not
require an enterprise to report information that is not prepared for
internal use if reporting it would be impracticable. Statement 131 is
effective for financial statements for periods beginning after December
15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. SFAS No. 131 provisions are only of
a disclosure nature and would not have a material effect on the
Company's financial statements.
Earnings per share:
Primary earnings per common and common equivalent share and fully
diluted earnings per common and common equivalent share are computed
using the weighted average number of shares outstanding adjusted for
unallocated ESOP shares and for incremental shares related to
outstanding options to purchase common stock.
F - 11
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Financial statement presentation:
Certain items in prior year financial statements have been reclassified
to conform to the 1997 presentation.
2. Investment Securities
Effective October 1, 1994, the Company adopted the Financial Accounting
Standards Board Statement SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In conjunction with the
adoption of SFAS No. 115, investment securities as of October 1, 1994
were designated as held-to-maturity or available-for-sale. The
cumulative effect of classifying securities previously accounted for at
the lower of cost or market in the aggregate as available-for-sale was
to reflect an unrealized gain, net of tax effect, as a component of
retained income of $15,569 as of October 1, 1994.
The amortized cost and estimated market values of investment securities
at September 30 are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1997
------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------ ---------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Held-to-maturity:
Government Agency Securities $ 17,297,942 $ 85,039 $ 42,512 $ 17,340,469
Municipal Obligations 1,540,000 28,908 1,992 1,566,916
------------------ ---------------- ---------------- -------------------
$ 18,837,942 $ 113,947 $ 44,504 $ 18,907,385
================== ================ ================ ===================
Available-for-sale:
Common Stock $ 2,578,390 $ 1,508,395 $ - $ 4,086,785
Stock in Federal Home Loan
Bank, at cost 2,976,000 2,976,000
Corporate Bonds 50,000 50,000
Other, at cost 10,000 10,000
------------------ ---------------- ---------------- -------------------
$ 5,614,390 $ 1,508,395 $ - $ 7,122,785
================== ================ ================ ===================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------ ---------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Held-to-maturity:
Government Agency Securities $ 27,168,520 $ 53,398 $ 363,467 $ 26,858,451
Municipal Obligations 2,230,000 30,291 5,375 2,254,916
------------------ ---------------- ---------------- -------------------
$ 29,398,520 $ 83,689 $ 368,842 $ 29,113,367
================== ================ ================ ===================
Available-for-sale:
Common Stock $ 1,982,407 $ 420,600 $ 6,770 $ 2,396,237
Stock in Federal Home Loan
Bank, at cost 1,731,400 1,731,400
Other, at cost 10,000 10,000
------------------ ---------------- ---------------- -------------------
$ 3,723,807 $ 420,600 $ 6,770 $ 4,137,637
================== ================ ================ ===================
</TABLE>
F - 12
<PAGE>
2. Investment Securities (Continued)
Government agency securities above include bonds and notes issued by
various government agencies. Those agencies include the following:
Federal Farm Credit, Fannie Mae, Freddie Mac, Sallie Mae, Federal Home
Loan Bank, Resolution Trust Corporation, and the Tennessee Valley
Authority.
Federal Home Loan Bank members are required to maintain an investment in
stock at an amount equal to a percentage of outstanding home loans. For
disclosure purposes such stock, which is carried at cost, is assumed to
have a market value which is equal to cost.
The amortized cost and estimated market value of debt securities by
contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties. The
equity securities have been excluded from the maturity table below
because they do not have contractual maturities associated with debt
securities.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
------------------------------------- -------------------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Due in one year or less $ $ 250,000 $ 251,539 $ - $ -
Due after one year through five years 4,340,000 4,346,799
Due after five years through ten years 10,747,942 10,828,687 50,000 50,000
Due after ten years 3,500,000 3,480,360
----------------- ------------------ ----------------- -----------------
$ 18,837,942 $ 18,907,385 $ 50,000 $ 50,000
================= ================== ================= =================
</TABLE>
Gross realized gains and (losses) on sales of investment securities
during the years ended September 30 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ---------------
<S> <C> <C> <C>
Available-for-sale securities:
Realized gains $ 220,154 $ 27,107 $ 122,900
Realized losses - - -
---------------- ---------------- ---------------
$ 220,154 $ 27,107 $ 122,900
================ ================ ===============
</TABLE>
Proceeds from sales of available-for-sale securities were $742,989,
$308,479 and $733,382 for the years ended September 30, 1997, 1996 and
1995, respectively. During the years ended September 30, 1997, 1996 and
1995, sales consisted of common stock of unrelated financial
corporations.
There were no proceeds from sales of debt securities for the years ended
September 30, 1997, 1996 and 1995.
Investment securities with a carrying amount of $2,000,000 and $0 as of
September 30, 1997 and 1996, respectively, were pledged as collateral
for public funds as discussed in Note 9.
F - 13
<PAGE>
3. Mortgage-Backed Securities
Mortgage-backed securities, all of which were classified as
held-to-maturity at September 30, 1997 and 1996, consist of the following:
<TABLE>
<CAPTION>
September 30, 1997
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
GNMA - fixed rate $ 373,311 $ 13,200 $ - $ 386,511
FNMA - ARMs 13,157,644 190,254 25,145 13,322,753
FHLMC - ARMs 4,768,042 114,215 2,003 4,880,254
FHLMC - fixed rate 245,443 6,035 740 250,738
FNMA - fixed rate 589,777 24,017 613,794
Collateralized mortgage
obligations-government
agency issue 13,310,277 38,128 70,443 13,277,962
Collateralized mortgage
obligations-private issues 4,245,057 6,425 49,719 4,201,763
----------------- ----------------- ----------------- -----------------
$ 36,689,551 $ 392,274 $ 148,050 $ 36,933,775
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
GNMA - fixed rate $ 552,879 $ 11,524 $ - $ 564,403
FNMA - ARMs 15,516,459 147,235 137,645 15,526,049
FHLMC - ARMs 6,257,007 77,661 12,704 6,321,964
FHLMC - fixed rate 401,275 10,550 2,561 409,264
FNMA - fixed rate 812,750 66,092 878,842
Collateralized mortgage
obligations-government
agency issue 16,681,922 14,183 402,707 16,293,398
Collateralized mortgage
obligations-private issues 5,654,828 4,899 127,640 5,532,087
----------------- ----------------- ----------------- -----------------
$ 45,877,120 $ 332,144 $ 683,257 $ 45,526,007
================= ================= ================= =================
</TABLE>
Collateralized mortgage obligations consist of floating rate and fixed
rate notes with varying contractual principal maturities. The Bank has
no principal only, interest only, or residual collateralized mortgage
obligations.
Proceeds from sales of mortgage-backed securities available-for-sale
were $0, $11,490,625 and $0 for years ended September 30, 1997, 1996 and
1995, respectively. Sales for the year ended September 30, 1996
consisted of mortgage-backed securities that were transferred from
held-to-maturity to available-for-sale in December 1995. These
securities were transferred in accordance with the one-time transaction
allowed under the FASB Implementation Guide, see Note 1 for further
discussion.
F - 14
<PAGE>
3. Mortgage-Backed Securities (Continued)
Gross realized gains and (losses) on sales of mortgage-backed securities
during the years ended September 30 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ---------------
<S> <C> <C> <C>
Realized gains $ - $ 144,885 $ -
Realized losses (9,677)
---------------- ---------------- ---------------
$ - $ 135,208 $ -
================ ================ ===============
</TABLE>
Mortgage-backed securities with a carrying amount of $9,067,094 and
$7,001,787 at September 30, 1997 and 1996, respectively, were pledged
as collateral for public funds as discussed in Note 9.
4. Loans Receivable
Loans receivable at September 30, are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------
1997 1996
------------------------- --------------------------
<S> <C> <C>
First mortgage loans:
Secured by one to four family residences $ 122,015,418 $ 99,579,583
Secured by other properties 3,452,789 3,726,333
Construction loans 1,936,517 1,129,915
Other 2,666,395 1,852,243
------------------------- --------------------------
130,071,119 106,288,074
Less: Unamortized premium on loans purchased 29,460 46,617
Unearned discounts and loan fees (348,405) (304,237)
Undisbursed loan proceeds (1,724)
Allowance for loan losses (615,049) (531,749)
------------------------- --------------------------
Total first mortgage loans 129,135,401 105,498,705
------------------------- --------------------------
Consumer and other loans:
Automobile 13,309,943 9,783,677
Commercial 4,049,950 3,600,888
Loans on deposits 573,654 554,550
Home equity and second mortgage 9,986,176 8,139,668
Mobile homes 46,900 27,791
Other 924,153 616,546
------------------------- --------------------------
28,890,776 22,723,120
Less: Allowance for loan losses (353,574) (208,597)
------------------------- --------------------------
Total consumer and other loans 28,537,202 22,514,523
------------------------- --------------------------
$ 157,672,603 $ 128,013,228
========================= ==========================
</TABLE>
The following is an analysis of the change in the allowance for loss on
loans:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance, beginning $ 740,346 $ 643,547 $ 619,218
Provision charged to operations 307,979 134,743 9,124
Loans charged off (92,243) (38,631) (2,200)
Recoveries 12,541 687 17,405
----------------- ----------------- -----------------
Balance, ending $ 968,623 $ 740,346 $ 643,547
================= ================= =================
</TABLE>
F - 15
<PAGE>
4. Loans Receivable (Continued)
Impairment of loans having recorded investments of $371,769 at September
30, 1997 and $127,131 at September 30, 1996 have been recognized in
conformity with FASB Statement No. 114, as amended by FASB Statement No.
118. The average recorded investment in impaired loans during the years
ended September 30, 1997 and 1996 was $249,450 and $185,359,
respectively. Allowances for loss on these loans are included in the
above analysis of the overall allowance for loss on loans. There are no
specific loss provisions associated with impaired loans as of September
30, 1997 and 1996. Interest income on impaired loans of $25,662 and
$8,460 was recognized for cash payments received for the year ended
September 30, 1997 and 1996, respectively.
It is Bank policy not to modify interest rates below the then current
market rate on loans associated with troubled debt restructuring. The
Bank is not committed to lend additional funds to debtors whose loans
have been modified.
See Note 18 for disclosure of loans to related parties.
5. Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
statements of financial condition. The unpaid principal balances of
these loans at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C>
FHLMC $ 54,658,716 $ 52,343,707 $ 54,326,611
Other investors 1,108,734 1,396,481 1,721,703
------------------- ------------------- -------------------
$ 55,767,450 $ 53,740,188 $ 56,048,314
=================== =================== ===================
</TABLE>
Custodial escrow balances maintained in connection with the foregoing
loan servicing and included in demand deposits, were approximately
$150,840 and $118,871 at September 30, 1997 and 1996.
The following is an analysis of the changes in mortgage servicing rights
during the year ended September 30, 1997:
Balance, September 30, 1996 $ -
Additions 111,528
Amortization (15,329)
-----------------
Balance, September 30, 1997 $ 96,199
=================
There were no mortgage servicing rights capitalized or amortized during
the year ended September 30, 1996. No valuation allowance was recorded
against mortgage servicing rights at September 30, 1997 and 1996. For
the years ended September 30, 1996 and 1995 amortization of excess
servicing fees retained were $2,202 and $3,627, respectively.
F - 16
<PAGE>
6. Accrued Income Receivable
Accrued interest receivable at September 30 is summarized as follows:
1997 1996
----------------- -----------------
Mortgage-backed securities $ 233,811 $ 290,900
Loans receivable 957,036 762,588
Investments 255,758 465,152
----------------- -----------------
$ 1,446,605 $ 1,518,640
================= =================
7. Foreclosed Real Estate
Real estate owned or in judgment and other repossessed assets consist of
the following:
September
--------------------------------------
1997 1996
----------------- -----------------
Real estate acquired by foreclosure $ 232,851 $ -
Real estate loans in judgment
and subject to redemption 19,099
----------------- -----------------
$ 251,950 $ -
================= =================
There was no activity in the allowance for loss account for the years
ended September 30, 1997, 1996 and 1995.
8. Office Properties and Equipment
Office properties and equipment are stated at cost less accumulated
depreciation as follows:
September 30,
-------------------------------------
1997 1996
---------------- ------------------
Land $ 298,366 $ 298,366
Office building and improvements 1,503,037 1,272,632
Furniture, fixtures and equipment 927,977 835,874
Automobiles 9,642 9,642
---------------- ------------------
2,739,022 2,416,514
Less accumulated depreciation 1,550,772 1,466,728
---------------- ------------------
$ 1,188,250 $ 949,786
================ ==================
Depreciation expense ($109,413 for 1995) $ 113,881 $ 116,278
================ ==================
The Bank is in the process of constructing a branch office in Dodge
City, $234,430 of office building and improvements and $34,590 of
furniture, fixtures and equipment relate to the new branch office.
Outstanding commitments to fund construction and equipment related to
the new branch amounted to $453,000 as of September 30, 1997.
F - 17
<PAGE>
9. Deposits
Deposits at September 30 are summarized as follows:
Demand accounts:
Interest-bearing $ 18,549,636 $ 15,273,551
Non-interest bearing 3,254,991 3,233,958
------------------ ------------------
Total demand accounts 21,804,627 18,507,509
Savings deposits 5,715,254 5,797,182
Certificates of deposit 117,214,858 119,510,219
------------------ ------------------
$ 144,734,739 $ 143,814,910
================== ==================
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 as of September 30, 1997 and 1996 was
approximately $11,174,463 and $7,032,053, respectively. Demand and NOW
accounts as of September 30, 1997 included public funds of $4,243,893.
Public funds were collateralized by investment securities and
mortgage-backed securities as discussed in Notes 2 and 3.
At September 30, 1997, scheduled maturities of certificates of deposit
are as follows:
Year Ending September 30,
- ---------------------------------------
1998 $ 84,320,014
1999 23,686,475
2000 7,461,166
2001 1,387,225
2002 356,596
Thereafter 3,382
--------------------
$ 117,214,858
====================
10. Advances and other Borrowings from Federal Home Loan Bank
Advances and other borrowings from the Federal Home Loan Bank at
September 30 are summarized as follows:
1997 1996
---------------- ----------------
Advances $ 36,200,000 $ 14,466,668
Line of credit 10,000,000 19,000,000
---------------- ----------------
$ 46,200,000 $ 33,466,668
================ ================
F - 18
<PAGE>
10. Advances and other Borrowings from Federal Home Loan Bank (Continued)
Advances and other borrowings from the Federal Home Loan Bank at
September 30 consist of the following:
<TABLE>
<CAPTION>
1997 1996
Fical ---------------------------------------- ---------------------------------------
Year Weighted Weighted
Maturity Amount Average Rate Amount Average Rate
- ------------- -------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
1997 $ - - % $ 28,166,668 6.06%
1998 28,000,000 6.30 5,000,000 6.74
1999 14,200,000 5.91 300,000 7.18
2000 4,000,000 6.09
-------------------- ------------------ ------------------- ------------------
$ 46,200,000 6.16% $ 33,466,668 6.17%
==================== =================== =================== =====================
</TABLE>
At September 30, 1997 the Company had $10,000,000 outstanding under a
$30,000,000 line of credit with the Federal Home Loan Bank. All amounts
outstanding under the line of credit are payable on February 5, 1998 and
bear interest at the line of credit rate established by the Federal Home
Loan Bank. This rate is adjusted from time to time, the rate as of
September 30, 1997 was 6.65%. At September 30, 1996 the Company had
$19,000,000 outstanding under a $24,000,000 line of credit, due February
5, 1997.
The advances and line of credit are collateralized as of September 30,
1997 and 1996 by a blanket pledge agreement, including all stock in
Federal Home Loan Bank, qualifying first mortgage loans, certain
mortgage-related securities and other investment securities.
11. Income Taxes
The Company and subsidiary file consolidated federal income tax returns.
The Company's effective income tax rate was different than the statutory
federal income tax rate for the following reasons:
1997 1996 1995
--------- --------- ---------
Statuatory federal income tax 34.0% 34.0% 34.0%
Increase (reductions) resulting from:
Kansas Privilege Tax 3.9 4.3 5.8
Other 0.2 (2.6) (3.0)
--------- --------- ---------
38.1% 35.7 36.8%
========= ========= =========
Deferred taxes are included in the accompanying Statements of Financial
Condition at September 30, 1997 and 1996 for the estimated future tax
effects of differences between the financial statement and federal
income tax basis of assets and liabilities given the provisions of
currently enacted tax laws.
F - 19
<PAGE>
11. Income Taxes (Continued)
The net deferred tax asset (liability) at September 30, 1997 and 1996
were comprised of the following:
<TABLE>
<CAPTION>
1997 1996
----------------- ------------------
<S> <C> <C>
Deferred tax assets:
Deferred loan fees and costs $ 37,087 $ 53,143
Allowance for loan losses 369,723 282,590
FDIC special assessment 357,681
Deferred compensation and accrued salaries 126,777 105,913
Capital loss carryover 12,976
----------------- ------------------
533,587 812,303
----------------- ------------------
Deferred tax liabilities:
Accumulated depreciation (4,545) (6,063)
Special bad debt deduction (298,034) (347,550)
FHLB stock dividends (337,432) (276,207)
Unrealized gain on available-for-sale securities (586,011) (160,773)
----------------- ------------------
(1,226,022) (790,593)
----------------- ------------------
$ (692,435) $ 21,710
================= ==================
</TABLE>
No valuation allowance was recorded against deferred tax assets at
September 30, 1997 or 1996.
Prior to the year ended September 30, 1997, the Bank was allowed a
special bad debt deduction based on a percentage of taxable income (8%)
or on specified experience formulas, subject to certain limitations
based upon aggregate loan balances at the end of the year. The Bank used
the percentage of taxable income method in 1996 and 1995.
Effective with the tax year beginning October 1, 1996, the Bank is no
longer able to use the percentage of taxable income method and began to
recapture tax bad debt reserves of $936,968 over a six year period. The
Bank recaptured $156,161 in tax bad debt reserves during the year ended
September 30, 1997. The reserves to be recaptured consist of bad debt
deductions after December 31, 1987. If the amounts deducted prior to
December 31, 1987 are used for purposes other than for loan losses, such
as in a distribution in liquidation or otherwise, the amounts deducted
would be subject to federal income tax at the then current corporate tax
rate. The Bank had recorded a deferred tax asset related to the
allowance for loan losses reported for financial reporting purposes and
a deferred tax liability for special bad debt deductions after December
31, 1987. The Bank, in accordance with SFAS No. 109, has not recorded a
deferred tax liability of approximately $1,900,000 related to
approximately $5,585,000 of cumulative special bad debt deductions prior
to December 31, 1987.
12. Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
F - 20
<PAGE>
12. Regulatory Matters (Continued)
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of core and tangible capital (as defined in
the regulations) to assets (as defined) and core and total capital to
risk weight assets (as defined). Management believes, as of September
30, 1997, that the Bank meets all capital adequacy requirements to which
it is subject.
As of September 30, 1997, the most recent notification from the Office
of Thrift Supervision (OTS) categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
in the table. There are no conditions or events since that notification
that management believes have changed the Bank's category.
The Bank's actual capital amounts (in thousands) and ratios are also
presented in the following table:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------------------------ --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------------- --------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997:
Tangible Capital (to Assets) $ 26,895 12.0% $ 3,349 1.5% $ N/A
Total (Risk-Based) Capital
(to Risk Weighted Assets) 27,864 25.8% 8,627 8.0% 10,784 10.0%
Core (Tier I) Capital
(to Risk Weighted Assets) 26,895 24.9% N/A 6,470 6.0%
Core (Tier I) Capital - leverage
(to Assets) 26,895 12.0% 6,698 3.0% 11,168 5.0%
As of September 30, 1996:
Tangible Capital (to Assets) 28,112 13.3% 3,167 1.5% N/A
Total (Risk-Based) Capital
(to Risk Weighted Assets) 28,852 31.1% 7,433 8.0% 9,292 10.0%
Core (Tier I) Capital
(to Risk Weighted Assets) 28,112 30.3% N/A 5,575 6.0%
Core (Tier I) Capital - leveraged
(to Assets) 28,112 13.3% 6,335 3.0% 10,558 5.0%
</TABLE>
F - 21
<PAGE>
12. Regulatory Matters (Continued)
The following is a reconciliation of net worth to regulatory capital
as reported in the September 30, 1997 and 1996 reports to the Offic
of Thrift Supervision:
<TABLE>
<CAPTION>
September 30,
---------------------------------------
1997 1996
------------------ -----------------
<S> <C> <C>
Bank net worth per report
to Office of Thrift Supervision $ 26,991,000 $ 28,112,000
Rounding (126) 45
------------------ -----------------
Net worth as reported in accompanying
financial statements (bank only) 26,990,874 28,112,045
Adjustments to arrive at Core (Tier I)
and Tangible Capital:
Disallowed servicing assets (96,000) -
------------------ -----------------
Core (Tier I) and Tangible Capital 26,894,874 28,112,045
Adjustments to arrive at Total Capital:
Allowable portion of general
allowance for loan losses 969,000 740,000
------------------ -----------------
Total Risk-Based Capital $ 27,863,874 $ 28,852,045
================== =================
Risk weight assets $ 107,838,000 $ 92,918,000
================== =================
</TABLE>
13. Contingencies
The Company is at times a defendant in certain claims and legal actions
arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate
disposition of such matters is not expected to have a material adverse
effect on the consolidated financial condition of the Company.
14. Employee Benefit Plans
Employee Retirement Plan:
The Bank has adopted a 401(k) defined contribution savings plan.
Substantially all employees are covered under the contributory plan.
Pension costs attributable to the years ended September 30, 1997, 1996
and 1995 were $27,274, $26,218 and $24,296, respectively, including all
current service costs.
Deferred Compensation Agreements:
The Bank has entered into deferred compensation agreements with certain
key employees which provide for cash payments to be made after their
retirement. The liabilities under the agreements have been recorded at
the present values of accrued benefits using a 7% interest rate. The
balance of estimated accrued benefits was $165,636 and $128,306 at
September 30, 1997 and 1996, respectively. In connection with the
deferred compensation agreements, the Bank has purchased life insurance
policies on covered employees in which the Bank is the beneficiary to
assist in funding benefits. At September 30, 1997 and 1996, the cash
surrender values on the policies were $501,638 and $379,857,
respectively.
Employee Stock Ownership Plan:
Upon conversion from mutual to stock form, the Bank established an
employee stock ownership plan (ESOP). The original acquisition of
136,878 shares of Company stock by the plan was funded by a loan from
the Company to the ESOP, in the amount of $1,368,780. The loan, together
with interest, is to be repaid over a ten year period through annual
contributions by the Bank.
F - 22
<PAGE>
14. Employee Benefit Plans (Continued)
The Bank makes annual contributions to the ESOP equal to the ESOP's debt
service less dividends received by the ESOP. All dividends received by
the ESOP are used to pay debt service. The ESOP shares initially were
pledged as collateral for its debt. As the debt is repaid, shares are
released from the collateral and will be allocated to active employees,
based on the proportion of debt service paid in the year. The Bank
accounts for its ESOP shares in accordance with Statement of Position
No. 93-6. Accordingly, the debt of the ESOP is recorded as debt of the
Bank and the shares pledged as collateral are reported as unearned ESOP
shares in the Statement of Financial Condition. As of September 30,
l997, the balance of indebtedness from the ESOP to the Company was
$844,597, which is shown as a deduction from stockholders' equity on the
consolidated balance sheet. The debt, which is accounted for as a
liability of the Bank and a receivable for the Company, has been
eliminated in consolidation. As shares are released from collateral, the
Company reports compensation expense equal to the current market price
of the shares, and the shares become outstanding for earnings per share
(EPS) computations. Dividends on allocated ESOP shares are recorded as a
reduction of retained earnings, dividends on unallocated ESOP shares are
recorded as compensation expense. ESOP compensation expense was $257,375
and $179,080 for the years ended September 30, 1997 and 1996,
respectively. As of September 30, 1997, of the 134,469 shares acquired
by the ESOP, 50,009 shares were allocated and 84,460 shares were
unallocated. The 84,460 unallocated shares had an estimated market value
of $2,132,615 at September 30, 1997.
Management Stock Bonus Plan:
In connection with the stock conversion, the Bank adopted three
Management Stock Bonus Plans (collectively the MSBP), the objective of
which is to enable the Bank to retain personnel of experience and
ability in key positions of responsibility. All employees of the Bank
are eligible to receive benefits under the MSBP. Benefits may be granted
at the sole discretion of a committee appointed by the Board of
Directors. The MSBP is managed by trustees who are non-employee
directors and who have the responsibility to invest all funds
contributed by the Bank to the trusts created for the MSBP.
The MSBP has purchased 91,252 shares of the Company's stock for
$965,224. These shares were granted in the form of restricted stock
payable over a five-year period at the rate of one-fifth of such shares
per year following the date of grant of the award. Compensation expense,
in the amount of the fair market value of the common stock at the date
of the grant to the employee, will be recognized pro rata over the five
years during which the shares are payable. A recipient of such
restricted stock will be entitled to all voting and other stockholder
rights, except that the shares, while restricted, may not be sold,
pledged or otherwise disposed of and are required to be held in escrow.
If a holder of such restricted stock terminates employment for reasons
other than death, disability or retirement, the employee forfeits all
rights to the allocated shares under restriction. If the participant's
service terminates as a result of death, disability, retirement or a
change in control of the Bank, all restrictions expire and all shares
allocated become unrestricted. The Board of Directors can terminate the
MSBP at any time, and if it does so, any shares not allocated will
revert to the Company.
15. Stock Option Plan
In connection with the stock conversion, the Bank's Board of Directors
adopted the 1994 Stock Option Plan (the Option Plan). Pursuant to the
Option Plan, 228,131 shares of common stock are reserved for issuance by
the Company upon exercise of stock options granted to officers,
directors and employees of the Bank from time to time under the Option
Plan. The purpose of the Option Plan is to provide additional incentive
to certain officers, directors and key employees by facilitating their
purchase of a stock interest
F - 23
<PAGE>
15. Stock Option Plan (Continued)
in the Company. The Option Plan provides for the granting of incentive
and non-incentive stock options with a duration of ten years, after
which no awards may be made, unless earlier terminated by the Board of
Directors pursuant to the Option Plan. Stock to be offered under the
Plan may be authorized but unissued common stock or previously issued
shares which have been reacquired by the Company and held as Treasury
shares.
The Option Plan is administered by a committee of at least three
non-employee directors designated by the Board of Directors (the Option
Committee). The Option Committee will select the employees to whom
options are to be granted and the number of shares to be granted. The
option price may not be less than 100% of the fair market value of the
shares on the date of the grant, and no option shall be exercisable
after the expiration of ten years from the grant date. In the case of
any employee who owns more than 10% of the outstanding common stock at
the time the option is granted, the option price may not be less than
110% of the fair market value of the shares on the date of the grant,
and the option shall not be exercisable after the expiration of five
years from the grant date. The exercise price may be paid in cash,
shares of the common stock, or a combination of both.
As of the date of conversion, the Option Committee granted 228,131
shares of common stock, at an exercise price of $10 per share,
contingent upon stockholder approval of the Option Plan which was
ratified June 22, 1994. An additional 18,479 shares of common stock, at
an exercise price of $16.50 per share, were awarded on November 20,
1996. All such options are exercisable immediately following stockholder
ratification. As of September 30, 1997, no options have been exercised
and all options granted remain outstanding.
The Company accounts for the fair value of its grants issued under the
plan subsequent to October 1, 1996 in accordance with FASB Statement
123. The compensation cost that has been charged against income for the
plan was $51,447 for the year ended September 30, 1997.
In accordance with SFAS No. 123, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants
during the year ended September 30, 1997: dividend yield of 2.42
percent, expected volatility of 26.83 percent, risk-free interest rate
of 5.5 percent and expected life of two years. Common stock options
granted during the year ended September 30, 1997 had an exercise price
of $16.50 per share and an estimated fair value of $2.78 per share.
Certain information for the years ended September 30, 1997 and 1996
relative to stock options are comprised of the following:
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------
1997 1996
------------------------------------ --------------
Weighted-Average
Fixed Options Shares Exercise Price Shares
- ------------- -------------- ----------------- --------------
<S> <C> <C> <C>
Outstanding at beginning of year 228,131 $ 10.00 228,131
Granted 18,479 16.50
Canceled
Exercised
-------------- ----------------- --------------
Outstanding at end of year 246,610 $ 10.59 228,131
============== ================= ==============
Exercisable at end of year 246,610 228,131
============== ==============
Number of shares available for future grant:
Beginning of year 0 0
============== ==============
End of year 0 0
============== ==============
</TABLE>
F - 24
<PAGE>
16. Financial Instruments
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financial needs of its
customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit
and commitments to sell loans. Those 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 notional amount of those instruments. The
Bank uses the same credit policies in making commitments as it does for
on-balance-sheet instruments.
At September 30, 1997 and 1996, the Bank had outstanding commitments to
fund real estate loans of $1,906,694 and $2,054,583, respectively. Of
the commitments outstanding at September 30, 1997, $1,761,435 were for
fixed rate loans with rates of 7.25% to 12.0%. There was one commitment
to fund an adjustable rate loan of $145,259 with an initial rate of
7.875%. Of the commitments outstanding at September 30, 1996, $898,573
were for fixed rate loans at rates of 7.625% to 9.50%. Commitments for
adjustable rate loans amounted to $1,156,010 with initial rates of 6.50%
to 8.75% at September 30, 1996.
Loan commitments are agreements to lend to a customer as long as there
is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Bank upon
extension of credit is based on management's credit evaluation of the
counter-party. Collateral held is primarily residential real estate, but
may include autos, accounts receivable, inventory, property, plant and
equipment.
The Bank had outstanding commitments from mortgage banking concerns to
purchase $0 and $234,792 of loans yet to be originated at September 30,
1997 and 1996, respectively. The Bank has outstanding commitments to
originate or has applications pending approval at approximately
equivalent interest rates.
The Bank had no commitments to purchase mortgage-backed securities or
investments at September 30, 1997 and 1996.
At September 30, 1997 and 1996, loans with a carrying value of $490,234
and $1,890,007, respectively, have been classified by management as
held-for-sale. The carrying value of these loans is at the lower of cost
or market value as of September 30, 1997 and 1996.
17. Significant Concentrations of Credit Risk
The Bank grants mortgage, consumer and business loans primarily to
customers within the state. Although the Bank has a diversified loan
portfolio, a substantial portion of its customers' ability to honor
their contracts is dependent upon the agribusiness and energy sectors of
the economy. The Bank's net investment in loans is subject to a
significant concentration of credit risk given that the investment is
primarily within a specific geographic area.
F - 25
<PAGE>
17. Significant Concentrations of Credit Risk (Continued)
As of September 30, 1997 the Bank had a net investment of $158,162,837
in loans receivable. These loans possess an inherent credit risk given
the uncertainty regarding the borrower's compliance with the terms of
the loan agreement. To reduce credit risk, the loans are secured by
varying forms of collateral, including first mortgages on real estate,
liens on personal property, savings accounts, etc. It is generally Bank
policy to file liens on titled property taken as collateral on loans,
such as real estate and autos. In the event of default, the Bank's
policy is to foreclose or repossess collateral on which it has filed
liens.
In the event that any borrower completely failed to comply with the
terms of the loan agreement and the related collateral proved worthless,
the Bank would incur a loss equal to the loan balance.
18. Related Party Transactions
Directors and primary officers of the Company were customers of, and had
transactions with, the Bank in the ordinary course of business during
the two years ended September 30, 1997 and 1996, and similar
transactions are expected in the future. All loans included in such
transactions were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than
normal risk of loss or present other unfavorable features.
The following analysis is of loans made to principal officers, directors
and principal holders of equity securities which individually exceeded
$60,000 in aggregate during the year ended September 30, 1997:
Balance, September 30, 1996 $ 2,062,180
New loans 2,345,597
Repayments 1,261,881
=================
Balance, September 30, 1997 $ 3,145,896
=================
19. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
Cash:
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Time deposits in financial institutions: The fair value of fixed
maturity certificate of deposits are estimated using the rates currently
offered for deposits of similar remaining maturities.
Investment securities and mortgage-backed securities:
For marketable equity securities held for investment purposes, fair
values are based on quoted market prices or dealer quotes. For other
securities held as investments, fair value equals quoted market price,
if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
F - 26
<PAGE>
19. Disclosures about Fair Value of Financial Instruments (Continued)
Loans receivable:
The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Deposit liabilities:
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit are estimated
using the rates currently offered for deposits of similar remaining
maturities.
Advances and other borrowings from Federal Home Loan Bank: The fair
value of advances from the Federal Home Loan Bank are estimated using
the rates offered for similar borrowings.
Commitments to extend credit:
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of
the counterparties. For fixed rate loan commitments, fair value also
considers the difference between current levels of interest rates and
the committed rates.
The estimated fair values of the Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
---------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------- ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Interest-bearing $ 2,063 $ 2,063 $ 3 $ 3
Non-interest bearing 678 678 471 471
Time deposits in other financial institutions 111 111 480 480
Investment securities held-to-maturity 18,838 18,907 29,399 29,113
Investment securities available-for-sale 7,123 7,123 4,138 4,138
Mortgage-backed securities held-to-maturity 36,690 36,934 45,877 45,526
Loans receivable 157,673 157,985 128,013 126,244
Loans held-for-sale 490 499 1,890 1,890
Financial liabilities:
Deposits 144,735 144,342 143,815 143,548
Advances and other borrowings from
the Federal Home Loan Bank 46,200 46,058 33,467 33,377
</TABLE>
<TABLE>
<CAPTION>
Par Fair Par Fair
Value Value Value Value
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Unrecognized financial instruments:
Commitments to extend credit $ 1,907 $ 1,938 $ 2,055 $ 2,040
</TABLE>
F - 27
<PAGE>
20. Stock Conversion / Restrictions on Retained Earnings
On August 24, 1993, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from a federally chartered mutual savings and loan
association to a federally chartered stock savings bank with the
concurrent formation of Landmark Bancshares, Inc. to act as a holding
company of the Bank (the "Conversion").
At the date of conversion, March 28, 1994, the Company completed the
sale of 2,281,312 shares of common stock, $0.10 par value, through
concurrent subscription and community offerings at $10.00 per share.
Included in the total shares outstanding are 91,252 shares which were
purchased by the Bank's MSBP at an average price of $10.58 per share and
136,878 shares which were purchased by the Bank's ESOP at $10.00 per
share. Net proceeds from the conversion, after recognizing conversion
expenses and underwriting costs of $701,411, were $22,111,709. From the
net proceeds, the Company used $11,055,855 to purchase all of the
capital stock of the Bank, $965,224 to fund the purchase of 91,252
shares of the Company stock by the MSBP (Note 14) and $1,368,780 to fund
the purchase of 136,878 shares of the Company stock by the ESOP (Note
14).
The Bank may not declare or pay a cash dividend to the Company if the
effect would cause the net worth of the Bank to be reduced below either
the amount required for the "liquidation account" or the net worth
requirement imposed by the OTS. If all capital requirements continue to
be met, the Bank may not declare or pay a cash dividend in an amount in
excess of the Bank's net earnings for the fiscal year in which the
dividend is declared plus one-half of the surplus over the capital
requirements, without prior approval of the OTS.
Office of Thrift Supervision regulations require that upon conversion
from mutual to stock form of ownership, a liquidation account be
established by restricting a portion of net worth for the benefit of
eligible savings account holders who maintain their savings accounts
with the Bank after conversion. In the event of complete liquidation
(and only in such event) each savings account holder who continues to
maintain their savings account shall be entitled to receive a
distribution from the liquidation account after payment to all creditors
but before any liquidation distribution with respect to common stock.
The initial liquidation account was established at $15,489,000. This
account may be proportionately reduced for any subsequent reduction in
the eligible holder's savings accounts.
F - 28
<PAGE>
21. Parent Company Financial Information
Condensed financial statements of Landmark Bancshares, Inc. (Parent
Company) are shown below. The Parent Company has no significant
operating activities.
Condensed Statements of Financial Condition
As of September 30, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 524 $ 666
Time deposits in other financial institutions 111 95
Investment securities available-for-sale 4,137 2,396
Investment in subsidiary 11,039 12,217
Loans receivable 996 1,236
Other assets 76 54
----------------- -----------------
Total assets $ $ 16,883 $ 16,664
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 589 $ 169
----------------- -----------------
Stockholders' equity:
Common stock 228 228
Additional paid-in capital 22,117 21,944
Retained income 3,410 1,574
Net unrealized gain on available-for-sale securities 923 253
Unamortized amounts related to ESOP and MSBP (1,134) (1,477)
----------------- -----------------
25,544 22,522
Treasury stock, at cost (9,250) (6,027)
----------------- -----------------
Total stockholders' equity 16,294 16,495
----------------- -----------------
Total liabilities and stockholders' equity $ 16,883 $ 16,664
================= =================
</TABLE>
Condensed Statements of Operations
For the Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ----------------- -----------------
<S> <C> <C> <C>
Equity earnings of subsidiary $ 2,393 $ 1,331 $ 1,587
Interest and dividend income 176 221 343
Net gain on sale of investments 220 27 123
Other 1 3 3
------------------ ----------------- -----------------
Total income 2,790 1,582 2,056
------------------ ----------------- -----------------
Operating expenses 218 129 190
------------------ ----------------- -----------------
Income before income taxes 2,572 1,453 1,866
Income tax expense 58 49 103
------------------ ----------------- -----------------
Net income $ 2,514 $ 1,404 $ 1,763
================== ================= =================
</TABLE>
F - 29
<PAGE>
21. Parent Company Financial Information (Continued)
Condensed Statements of Cash Flows
For the Years Ended September 30, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
----------------- -------------- --------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,514 $ 1,404 $ 1,763
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of subsidiary (2,393) (1,331) (1,587)
Gain on sale of investments (220) (27) (123)
(Increase) decrease in other assets (47) 449 32
Increase in other liabilities 19 71 28
Other 87 (137) (24)
----------------- -------------- --------------
Net cash provided (used) by operating activities (40) 429 89
----------------- -------------- --------------
Cash Flows from Investing Activities
Dividends from subsidiary 4,000 1,140
Acquisition of investment securities available-for-sale,
including deposits (1,190) (2,214) (748)
Proceeds from sale of investment securities
available-for-sale 749 308 733
Decrease in loans to subsidiary and ESOP, net 150 5,837 3,463
Other loans, net 90 33 (275)
----------------- -------------- --------------
Net cash provided by investing activities 3,799 3,964 4,313
----------------- -------------- --------------
Cash Flows from Financing Activities
Purchase of treasury stock (3,223) (3,526) (2,501)
Cash dividends paid (678) (752) (1,603)
----------------- -------------- --------------
Net cash used by financing activities (3,901) (4,278) (4,104)
----------------- -------------- --------------
Increase (decrease) in cash and cash equivalents (142) 115 298
Cash and cash equivalents at beginning of year 666 551 253
----------------- -------------- --------------
Cash and cash equivalents at end of year $ 524 $ 666 $ 551
================= ============== ==============
</TABLE>
22. Subsequent Event
On October 15, 1997, the Board of Directors declared a $0.10 per share
quarterly dividend payable to stockholders of record as of November 3,
1997.
23. Deposit Insurance
Deposits of the Bank are insured by the SAIF as administered by the
FDIC. As a member of the SAIF, the Bank paid an insurance premium to the
FDIC equal to a minimum of 0.23% of its total deposits. The FDIC also
maintains another insurance fund, the Bank Insurance Fund (BIF), which
primarily insures
F - 30
<PAGE>
23. Deposit Insurance (Continued)
commercial bank deposits. Effective September 30, 1995, the FDIC lowered
the insurance premium of BIF insured deposits to range of between 0.04%
and 0.31% of deposits, with the result that most commercial banks would
pay the lower rate of 0.04%. Effective January 1, 1996, the annual
insurance premium for most BIF members was lowered to $2,000. These
reductions in insurance premiums for BIF members placed SAIF members at
a competitive disadvantage to BIF members.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment of SAIF members such as the Bank of
approximately 0.657% of deposits held on March 31, 1995. The Bank
reflected a $937,073 pre-tax expense for this assessment for the year
ended September 30, 1996. Beginning January 1, 1997, deposit insurance
assessments for SAIF members were reduced to approximately 0.064% of
deposits on an annual basis and are expected to remain at that rate
through the end of 1999. During this same period, BIF members are
expected to be assessed approximately 0.013% of deposits. Thereafter,
assessments for BIF and SAIF members should be the same and SAIF and BIF
may be merged. It is expected that theses continuing assessments for
both SAIF and BIF members will be used to repay outstanding Financing
Corporation bond obligations. Based on this reduction, beginning January
1, 1997, the rate of deposit insurance assessed the Bank declined by
approximately 70%.
F - 31
<PAGE>
Corporate Information
- ---------------------
<TABLE>
<CAPTION>
<S> <C>
Landmark Bancshares, Inc. Form 10-KSB
A copy of the Companys annual report on Form 10-KSB
Central and Spruce for fiscal year ended September 30, 1997, including Dodge
City, Kansas 67801 financial statements schedules, as filed with the (316)
227-8111 Securities and Exchange Commission, will be finished
without charge to stockholders, as of the record date
Board of Directors upon written request to: Corporate Secretary,
Landmark Bancshares, Inc., Central and Spruce,
C. Duane Ross Dodge City, Kansas 67801.
Chairman of the Board
President, High Plains Publishers, Inc.
Annual Meeting
Larry Schugart The annual meeting of Landmark Bancshares, Inc.
President and Executive Officer will be held on January 21, 1997 at 1:30 p.m. at
the Dodge City Country Club, North Avenue C,
David H. Snapp Dodge City, Kansas 67801.
Partner, Waite, Snapp & Doll, Attorneys at Law
Richard Ball Independent Accountants
CPA/Shareholder, Adams, Brown, Regier Carr & Monroe, L.L.P.
Beran & Ball, Chtd. 300 West Douglas, Suite 100
Wichita, Kansas 67202
Jim W. Lewis
Owner, Auto Dealerships
Special Counsel
Executive Officers Malizia, Spidi, Sloane and Fisch, P.C.
1301 K Street, N.W., Suite 700 East
Larry Schugart Washington, D.C. 20005
President and Chief Executive Officer
James F. Strovas Stock Transfer Agent
Treasurer and Chief Financial Officer American Securities Transfer & Trust, Inc.
1825 Lawrence Street, Suite 444
Gary L. Watkins Denver, Colorado 80201
Secretary and Chief Operating Officer
</TABLE>
-19-
EXHIBIT 23
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration statement No.
33-95072 of Landmark Bancshares, Inc. on Form S-8 of our report dated October
29, 1997 incorporated by reference in this Annual Report on Form 10-KSB of
Landmark Bancshares, Inc. for the year ended September 30, 1997.
/s/Regier Carr & Monroe, L.L.P.
Regier Carr & Monroe, L.L.P.
December 26, 1997
Wichita, Kansas
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
annual report on Form 10-KSB and is qualified in its entirety by reference to
such financial information.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,141
<INT-BEARING-DEPOSITS> 2,173
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,123
<INVESTMENTS-CARRYING> 55,527 <F1>
<INVESTMENTS-MARKET> 55,841 <F1>
<LOANS> 158,163
<ALLOWANCE> 969
<TOTAL-ASSETS> 227,850
<DEPOSITS> 144,735
<SHORT-TERM> 28,000
<LIABILITIES-OTHER> 4,670
<LONG-TERM> 18,200
0
0
<COMMON> 228
<OTHER-SE> 32,017
<TOTAL-LIABILITIES-AND-EQUITY> 227,850
<INTEREST-LOAN> 11,833
<INTEREST-INVEST> 4,786
<INTEREST-OTHER> 76
<INTEREST-TOTAL> 16,695
<INTEREST-DEPOSIT> 7,249
<INTEREST-EXPENSE> 9,768
<INTEREST-INCOME-NET> 6,927
<LOAN-LOSSES> 308
<SECURITIES-GAINS> 220
<EXPENSE-OTHER> 3,580
<INCOME-PRETAX> 4,065
<INCOME-PRE-EXTRAORDINARY> 2,514
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,514
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.37
<YIELD-ACTUAL> 3.16
<LOANS-NON> 372
<LOANS-PAST> 50
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 740
<CHARGE-OFFS> 92
<RECOVERIES> 13
<ALLOWANCE-CLOSE> 969
<ALLOWANCE-DOMESTIC> 969
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Consists of investments held-to-maturity.
</FN>
</TABLE>
