UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______________________
to ________________________
Commission File Number 0-23164
LANDMARK BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-1142260
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification Number
CENTRAL AND SPRUCE STREETS, DODGE CITY, KANSAS 67801
(Address and Zip Code of principal executive offices)
(316) 227-8111
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No
The number of shares outstanding of each of the issuer's classes of common
stock, as of June 30, 1998:
$.10 par value common stock 1,549,363 shares
(Class) (Outstanding)
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
<PAGE>
LANDMARK BANCSHARES, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Condition as of
June 30, 1998 (unaudited) and September 30, 1997 1
Statements of Income for the Three and Nine
Months Ended June 30, 1998 and 1997 (unaudited) 2
Statements of Cash Flows for the Nine Months Ended
June 30, 1998 and 1997 (unaudited) 3 - 4
Notes to Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
PART II - OTHER INFORMATION
Item 2. Changes in Securities 13
Item 4. Submission of Matter to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6(b). Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
1
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY,
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
(Unaudited)
---------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Interest bearing $ 0 $ 2,062,879
Non-interest bearing 856,202 678,173
Time deposits in other financial institutions 218,779 110,580
Securities held to maturity 17,325,334 18,837,942
Securities available for sale 9,617,071 7,122,785
Mortgage-backed securities held to maturity 25,506,646 36,689,551
Loans receivable, net 167,769,174 157,672,603
Loans held for sale 3,087,709 490,234
Accrued income receivable 1,396,069 1,446,605
Real estate owned or in judgment and other
repossessed property, net 140,249 251,950
Office properties and equipment, at cost less
accumulated depreciation 1,709,554 1,188,250
Prepaid expenses and other assets 1,708,251 1,233,038
Income taxes receivable, current 2,117 65,564
------------------------------
TOTAL ASSETS $ 229,337,155 $ 227,850,154
------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits 148,128,486 144,734,739
Outstanding checks in excess of bank balance 292,738 0
Other Borrowed Money 47,200,000 46,200,000
Advances from borrowers for taxes and
insurance 1,330,740 1,673,057
Accrued expenses and other Liabilities 1,530,257 2,304,593
Deferred income taxes 887,479 692,435
Income taxes
Current 0 0
------------------------------
TOTAL LIABILITIES $ 199,369,700 $ 195,604,824
------------------------------
Stockholders' Equity
Common Stock 228,131 228,131
$.10 par value; 10,000,000 shares authorized;
2,281,312 shares issued June 30, 1998
Additional Paid-in Capital 22,229,153 22,173,827
Treasury Stock; at cost 731,949 and 592,671 shares at
September 30, 1998 and 1997 respectively (12,876,516) (9,249,935)
Retained income (substantially restricted) 20,382,453 19,305,087
Employee Stock Ownership Plan (844,597) (844,597)
Management Stock Bonus Plan (144,784) (289,567)
Net unrealized gain/losses on equity securities 989,615 922,384
------------------------------
Total Stockholders' Equity 29,967,455 32,245,330
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 229,337,155 $ 227,850,154
------------------------------
</TABLE>
<PAGE>
2
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY,
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended June 30 Nine Months Ended June 30
1997 1998 1997 1998
-------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans 3,012,389 3,444,654 8,616,830 10,202,549
Interest and dividends on investment securities 558,159 369,600 1,642,057 1,171,761
Interest on mortgage-backed securities 653,538 446,840 2,081,862 1,553,548
-------------------------------------------------------
Total interest income 4,224,086 4,261,094 12,340,749 12,927,858
INTEREST EXPENSE
Deposits 1,831,927 1,899,275 5,444,109 5,617,476
Borrowed funds 654,651 638,437 1,747,448 2,022,085
-------------------------------------------------------
Total interest expense 2,486,578 2,537,712 7,191,557 7,639,561
Net interest income 1,737,508 1,723,382 5,149,192 5,288,297
PROVISION FOR LOSSES ON LOANS 110,000 60,000 210,000 205,000
-------------------------------------------------------
Net interest income after provision for losses 1,627,508 1,663,382 4,939,192 5,083,297
NON-INTEREST INCOME
Service charges and late fees 73,506 92,985 197,258 247,600
Net gain (loss) on sale of available
for sale investments 0 82,043 172,916 177,085
Net gain (loss) on sale of loans 121,055 145,167 185,718 309,356
Service fees on loans sold 29,530 24,195 110,578 82,218
Other income 33,979 51,720 101,480 125,292
-------------------------------------------------------
258,070 396,110 767,950 941,551
NON-INTEREST EXPENSE
Compensation and related expenses 530,630 657,792 1,542,408 1,854,733
Occupancy expense 43,436 79,156 126,088 175,830
Advertising 18,240 17,483 50,187 46,504
Federal insurance premium 39,078 39,102 158,892 116,941
Loss (gain) from real estate operations 3,343 2,827 4,332 5,586
Data processing 41,565 45,971 137,379 155,214
Other expense 164,279 244,011 580,499 681,866
-------------------------------------------------------
840,571 1,086,342 2,599,785 3,036,674
Income before income taxes 1,045,007 973,150 3,107,357 2,988,174
INCOME TAXES EXPENSES 417,800 389,500 1,247,600 1,195,950
-------------------------------------------------------
Net income 627,207 583,650 1,859,757 1,792,224
-------------------------------------------------------
Basic earnings per share $ 0.38 $ 0.38 $ 1.11 $ 1.15
Fully diluted earnings per share $ 0.35 $ 0.35 $ 1.04 $ 1.05
Dividends per share $ 0.10 $ 0.15 $ 0.30 $ 0.45
</TABLE>
<PAGE>
3
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended June 30
1997 1998
(unaudited) (unaudited)
---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,859,757 $ 1,792,224
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization and impairment of mortgage servicing rights 10,175 0
Depreciation 84,546 115,596
Decrease (increase) in accrued interest receivable (160,962) 47,791
Increase (decrease) in outstanding checks in excess of bank balance (143,808) 292,738
Increase (decrease) in accrued and deferred income taxes 572,739 258,491
Increase (decrease) in accounts payable and accrued expenses (939,130) (771,592)
Amortization of premiums and discounts on investments and loans 19,291 (25,676)
Provision for losses on loans 210,000 205,000
Gain (loss) on sale of available for sale securities (172,916) (177,085)
Other non-cash items, net (43,901) (198,444)
Sale of loans held for sale 10,799,582 14,911,596
Gain on sale of loans held for sale (185,718) (309,356)
Origination of loans held for sale (7,911,802) (13,192,615)
Purchase of loans held for sale (1,076,500) (4,014,135)
---------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 2,921,353 $ (1,065,467)
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payment on loans held for investment (1,041,365) (1,794,193)
Principal repayments on mortgage-backed securities 6,370,727 11,168,844
Additions to mortgage servicing rights (94,875) (182,936)
Loans purchased for investment (24,282,931) (10,604,217)
Acquisition of investment securities held to maturity (3,300,000) (11,885,625)
Acquisition of investment securities available for sale (1,921,525) (2,949,611)
Proceeds from sale of available for sale investment securities 485,205 379,600
Proceeds from maturities or calls of investment securities held to maturity 8,290,000 13,650,204
Net (increase) decrease in time deposits 279,005 (107,000)
Sale of real estate acquired in settlement of loans 135,990 284,233
Acquisition of fixed assets (119,540) (637,456)
---------------------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (15,199,309) (2,678,157)
---------------------------
</TABLE>
<PAGE>
4
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY,
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Nine Months Ended June 30
1997 1998
(unaudited) (unaudited)
---------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (401,767) $ 3,393,747
Net increase (decrease) in escrow accounts (432,439) (342,317)
Proceeds from FHLB advance and other borrowings 95,123,000 66,600,000
Repayment of FHLB advance and other borrowings (78,456,333) (63,600,000)
Acquisition of Treasury Stock (2,756,970) (3,626,581)
Other Financing Activities 144,783 144,783
Dividend Payment (517,558) (710,858)
---------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 12,702,716 1,858,774
---------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 424,760 (1,884,850)
BEGINNING CASH AND CASH EQUIVALENTS 473,710 2,741,052
---------------------------
ENDING CASH AND CASH EQUIVALENTS 898,470 856,202
---------------------------
SUPPLEMENTAL DISCLOSURES Cash paid during the year for:
Interest on deposits, advances, and other borrowings 7,265,526 7,605,017
Income taxes 906,504 1,132,103
Transfers from loans to real estate acquired through foreclosure 134,731 90,141
</TABLE>
<PAGE>
5
LANDMARK BANCSHARES, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
LANDMARK FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements were prepared in
accordance with the instructions for form 10-QSB and, accordingly, do not
include all information and disclosures necessary to present financial
condition, results of operations and cash flows of Landmark Bancshares, Inc.
(the "Company") and its wholly-owned subsidiary Landmark Federal Savings Bank
(the "Bank") in conformity with generally accepted accounting principles.
However, all normal recurring adjustments have been made which, in the opinion
of management, are necessary for the fair presentation of the financial
statements.
The results of operation for the three and nine months ending June 30, 1998, are
not necessarily indicative of the results which may be expected for the fiscal
year ending September 30, 1998.
2. On March 28, 1994, the Bank segregated and restricted $15,144,357 of retained
earnings in a liquidation account for the benefit of eligible savings account
holders who continue to maintain their accounts at the bank after the conversion
of the bank from mutual to stock form. In the event of a complete liquidation of
the Bank, and only in such event, each eligible account holder will be entitled
to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted balances of all qualifying deposits then
held. The liquidation account will be reduced annually at September 30th to the
extent that eligible account holders have reduced their qualifying deposits.
3. INVESTMENTS AND MORTGAGE - BACKED SECURITIES
A summary of the Bank's carrying value of investment and mortgage -
backed securities as of June 30, 1998 and September 30, 1997, is as follows:
Investment Securities June 30, 1998 September 30, 1997
---------------------------------
Held to maturity:
Government Agency Securities 15,500,334 17,297,942
Municipal Obligations 1,575,000 1,540,000
Other 250,000 0
---------------------------------
$17,325,334 $18,837,942
Available for sale:
Common Stock 6,242,946 4,086,785
Stock in Federal Home Loan Bank 3,151,000 2,976,000
Other 223,125 60,000
---------------------------------
$ 9,617,071 $ 7,122,785
Mortgage - Backed Securities held to maturity:
FNMA - Arms $ 9,908,018 $13,157,644
FHLMC -Arms 3,319,760 4,768,042
FHLMC -Fixed Rate 184,541 245,443
CMO Government Agency 8,439,716 13,310,277
CMO Private Issue 2,944,297 4,245,057
FNMA - Fixed Rate 458,566 589,777
GNMA - Fixed Rate 251,748 373,311
---------------------------------
$25,506,646 $36,689,551
<PAGE>
6
4. Loan Receivable, Net
A summary of the Bank's loans receivable at June 30, 1998 and September
30, 1997, is as follows:
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
-----------------------------------
<S> <C> <C>
Mortgage Loans Secured by
One to Four Family Residences 124,970,282 122,015,418
Secured by Other Properties 3,414,366 3,452,789
Construction Loans 1,352,258 1,936,517
Other 4,762,611 2,666,395
----------------------------------
134,499,517 130,071,119
Plus (Less):
Unamortized Premium on Loan Purchase 35,561 29,460
Unearned Discount and Loan Fees (305,939) (348,405)
Undisbursed Loan Proceeds (89,215) (1,724)
Allowance for Loan Losses (688,566) (615,049)
----------------------------------
Total Mortgage Loans 133,451,358 129,135,401
----------------------------------
Consumer and Other Loans:
Automobile 17,250,776 13,309,943
Commercial Loans 6,023,533 4,049,950
Loans on Deposits 278,595 573,654
Home Equity and Second Mortgage 10,134,888 9,986,176
Mobile Home 35,249 46,900
Other 1,034,982 924,153
----------------------------------
34,758,023 28,890,776
Less:
Allowance for Loan Losses (440,207) (353,574)
----------------------------------
Total Consumer and Other Loans 34,317,816 28,537,202
----------------------------------
Net Loans Receivable $ 167,769,174 $ 157,672,603
</TABLE>
A summary of the Bank's allowance for loan losses for the three and nine months
ended June 30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
1997 1998 1997 1998
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Beginning $ 829,438 $ 1,067,354 $ 740,346 $ 968,623
Provisions Charged to Operations 110,000 60,000 210,000 205,000
Loans Charged Off Net of Recoveries (58,217) (1,419) (69,125) (44,850)
----------------------------------------------------------
Balance Ending $ 881,221 $ 1,128,773 $ 881,221 $ 1,128,773
</TABLE>
There has been no significant change in the level of non performing loans from
September 30, 1997 to June 30, 1998.
<PAGE>
7
5. Real Estate owned or in judgment:
June 30, 1998 September 30, 1997
-------------------------------------
Real Estate Acquired by Foreclosure $ 80,467 $232,851
Real Estate Loans in Judgment and
Subject to Redemption 57,010 19,099
Other Repossessed Assets 2,772 0
-------------------------------------
$140,249 $251,950
6. The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financial needs of its customers and
to reduce its own exposure to fluctuations in interest rates. The financial
instruments include commitments to extend credit and commitments to sell loans.
The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statement of financial
condition. The contract or notional amounts of those instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of non-performance by the other
party to the financial instrument for loan commitments is represented by the
contractual or notional amount of those instruments. The Bank uses the same
credit policies in making commitments as it does for on-balance-sheet
instruments.
On June 30, 1998, the Bank had outstanding commitments to fund real estate loans
of $2,829,894. Of the commitments outstanding, $2,315,644 are for fixed rate
loans at rates of 6.75% to 9.00%. Commitments for adjustable rate loans amount
to $514,250 with initial rates of 6.375% to 8.25%. Outstanding loan commitments
to sell as of June 30, 1998 were $1,928,459. In addition the Bank had
outstanding commercial loan commitments of $4,092,483 with initial rates of 7.90
to 9.50
7. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issued common stock (potential
common stock) were exercised or converted to common stock. For periods presented
potential common stock includes outstanding stock options and nonvested stock
awarded under the management stock bonus plan.
Earnings per share for the three and nine months ending June 30, 1998 and 1997,
was determined as follows;
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Basic Earnings Per Share
Three months ended Nine months ended
June 30 June 30
1998 1997 1998 1997
-----------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding
Net of Treasury shares 1,688,641 1,852,996 1,688,641 1,852,996
Average unallocated ESOP shares (77,578) (92,588) (81,000) (96,010)
Weighted average treasury shares purchased (75,461) (82,549) (31,623) (41,010)
Nonvested MSBP shares (15,965) (34,212) (20,529) (38,776)
-----------------------------------------------------
Weighted Average Shares for Basic EPS 1,519,637 1,643,648 1,555,489 1,677,200
-----------------------------------------------------
Net Earnings 583,650 627,207 1,792,224 1,859,757
-----------------------------------------------------
Per share amount $ 0.38 $ 0.38 $ 1.15 $ 1.11
</TABLE>
<PAGE>
8
<TABLE>
<CAPTION>
Diluted Earnings Per Share
Three months ended Nine months ended
June 30 June 30
1998 1997 1998 1997
-----------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares for Basic EPS 1,519,637 1,643,648 1,555,489 1,677,200
Dilutive stock options 150,838 113,526 141,228 104,423
Dilutive MSBP shares 6,010 9,663 7,191 9,985
-----------------------------------------------
Weighted Average Shares for Diluted EPS 1,676,425 1,766,837 1,703,842 1,791,608
-----------------------------------------------
Net Earnings 583,650 627,207 1,792,224 1,859,757
-----------------------------------------------
Per share amount $ 0.35 $ 0.35 $ 1.05 $ 1.04
</TABLE>
8. DIVIDENDS
At a April 1998 board meeting, the Directors of the Company declared a .15 per
share dividend. The dividend was payable to all stockholders of record as of May
1, 1998.
<PAGE>
9
LANDMARK BANCSHARES, INC.
PART I - FINANCIAL INFORMATION
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General:
Landmark Bancshares, Inc. ("Company") is the holding company for
Landmark Federal Savings Bank ("Bank"). Apart from the operations of the Bank,
the Company did not engage in any significant operations during the quarter
ended June 30, 1998. The Bank is primarily engaged in the business of accepting
deposit accounts from the general public, using such funds to originate mortgage
loans for the purchase and refinancing of single-family homes located in Central
and Southwestern Kansas and for the purchase of mortgage-backed and investment
securities. In addition, the Bank also offers and purchases loans through
correspondent lending relationships in Wichita, Kansas City, and other cities in
Kansas and in Albuquerque and Santa Fe, New Mexico and Madison, Wisconsin. To a
lesser extent, the Bank will purchase adjustable rate mortgages loans, to manage
its interest rate risk as deemed necessary. The Bank also makes automobile
loans, second mortgage loans, home equity loans and savings deposit loans.
Landmark Bancshares, Inc. may from time to time make written or oral
"forward-looking statements", including statements contained in the Company's
filings with the Securities and Exchange Commission (including this report on
Form 10-QSB), in its reports to stockholders and in other communications by the
Company, which are made in good faith by the Company pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in
forward-looking statements; the strength of the United States economy in which
the Company conducts operations; the effects of, and changes in, trade, monetary
and fiscal policies and laws, including interest rate policies of the Board of
Governors of the Federal Reserve System, inflation, interest rate and market and
monetary fluctuations; the timely development of and acceptance of new products
and services of the Company and the perceived overall value of these products
and services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks
described above involved in the foregoing.
The Company cautions that these important factors are not exclusive.
The Company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company.
Management Strategy:
Management's strategy has been to maintain profitability and increase
capital. The Bank's lending strategy has historically focused on the origination
of traditional, conforming one to four-family mortgage loans with the primary
emphasis on single-family residences. The Bank's secondary focus has been on
consumer loans, commercial loans, second mortgage loans, home equity loans and
savings deposit loans. This focus, and the application of strict underwriting
standards, are designed to reduce the risk of loss on the Bank's loan portfolio.
However, this lack of diversification in its portfolio structure does increase
the Bank's portfolio concentration risk by making the value of the portfolio
more susceptible to declines in real estate values in its market area. This has
been mitigated in recent years, through the investment in mortgage-backed
securities and the continued sales of loans in the secondary market.
<PAGE>
10
Certain risks are inherent in the sales of loans in the secondary
market. There is a risk that the Bank will not be able to sell all the loans
that it has originated, or conversely, will be unable to fulfill its commitment
to deliver loans pursuant to a firm commitment to sell loans. In addition, in
periods of rising interest rates, loans originated by the bank may decline in
value. Exposure to market and interest rate risk is significant during the
period between the time the interest rate on a customer's mortgage loan
application is established and the time the mortgage loan closes, and also
during the period between the time the interest rate is established and the time
the Bank commits to sell the loan. If interest rates change in an unanticipated
fashion, the actual percentage of loans that close may differ from projected
percentages. The resultant mismatching of commitments to closed loans and
commitments to deliver sold loans may have an adverse effect on the
profitability of loan originations.
A sudden increase in interest rates can cause a higher percentage of
loans to close than projected. To the degree that this was not anticipated, the
Bank will not have made commitments to sell these loans and may incur
significant mark to market losses, adversely affecting results of operations.
The Bank historically sells 30 year fixed rate mortgages in the
secondary market, however the Bank is keeping all 15 and 20 year or shorter
mortgages with fixed rates above 7.0% and 7.25% for investment and selling all
other fixed rate loans.
Through out the first nine months of fiscal year 1998 rates continued
with moderate decline. As a result of the rates at the end of June 1998, the
Bank reflected an unrealized gain of $31,144 in loans held for sale. Sustained
levels of gain on sale of loans is dependent on continued stable or downward
interest rate movement and would likely be adversely affected by a continued
rise in interest rates.
Changes in financial condition between June 30, 1998 and September 30, 1997:
As of June 30, 1998, total assets were $229,337,155, which represents a
$1.4 million growth over the September 30, 1997 fiscal year end totals. This
growth is mainly attributed to a $12.7 million increase in loan receivables,
which was offset by a $10.1 million decrease in investments and mortgage-baked
securities.
Results of operations: comparison between the three and nine months ended June
30, 1998 and 1997:
Net income for the three-month period ended June 30, 1998 of $583,650
represents a decrease of $43,557 or a 6.99% decrease from the net income
reported for the three-month period ended June 30, 1997. The decrease is mainly
attributed to an increase in non interest expense associated with the opening of
a new branch office.
Net income for the nine-month period ended June 30, 1998 of $1,792,224
represents a decrease of $67,533 or a 3.63% decrease from the net income
reported for the nine-month period ended June 30, 1997. This decrease is mainly
attributed to an increase in non interest expense associated with the opening of
a new branch office.
Net interest income before provision for losses on loans for the
three-month period ended June 30, 1998 decreased $14,126 or approximately 0.08%
to $1,723,382 as compared with $1,737,508 for the same period ended June 30,
1997. This decrease is associated with the increased interest expense on deposit
accounts.
Net interest income before provision for losses on loans for the
nine-month period ended June 30, 1998 increased $139,105 or 2.70 to $5,288,297
as compared with $5,149,192 for the same period ended June 30, 1997. This
increase is associated with the increased interest received on the mortgage
loans.
Interest expense for the three-month period ended June 30, 1998
increased $51,134 or 2.05% to $2,537,712 as compared with $2,426,578 for the
same period ended June 30, 1997. This increase is due to the increased costs
associated with savings rates and increased savings volume.
<PAGE>
11
Interest expense for the nine-month period ended June 30, 1998
increased $448,004 or 6.22% to $7,639,561 as compared with $7,191,557 for the
same period ended June 30, 1997. This increase is due to the increased costs
associated with savings rates and increased rates on adjustable advance from
FHLB.
The Bank added $60,000 for the three month period ending June 30, 1998
and $205,000 for the nine month period ending June 30, 1998 to the provision for
loan losses. These additions are due to increased loan production during this
period and related credit risk.
Other income including non operating items for the three-month period
ended June 30, 1998 increased $138,040 or 53.48% to $396,110 as compared with
$258,090 for the same period ended June 30, 1997. This increase primarily was
due to $24,112 on gains of sale of loans from favorable rate environment and a
$82,043 gain on sale of investment during the quarter ending June 30, 1998.
Other income including non operating items for the nine-month period
ended June 30, 1998 increased $173,601 or 22.60% to $941,551 as compared with
$767,950 for the same period ended June 30, 1997. This increase was primarily
due to a $123,638 increase in net gains on sale of loans from favorable rate
environment. Gain on sale of available for sale investment securities increased
in 1998 over 1997 by $4,169. Service charges and late fees increased over
$50,342 due to increased late fees on installment loans.
Non interest expenses for the three-month period ended June 30, 1998
increased $245,771 or 29.23% to $1,086,342 as compared with $840,571 for the
same period ended June 30, 1997. This increase is primarily due to increased
compensation expense of $127,162, an increase of $35,720 in occupancy expense
and a increase of $79,732 in other expenses associated with the opening of the
new branch.
Non interest expenses for the nine-month period ended June 30, 1998
increased $436,889 or 16.80% to $3,036,674 as compared with $2,599,785 for the
same period ended June 30, 1997. This increase is primarily due to increased
compensation expense of $312,325, an increase of $101,367 in other expenses and
a $49,742 in occupancy expense associated with the opening of the new branch.
Earnings per share:
Effective with the quarter ended December 31, 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 128, Earnings per
Share. The Statement is to be applied to financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. The Statement requires restatement of all prior-period
earnings per share (EPS) data presented.
FAS No. 128 simplifies the standards for computing EPS and makes them comparable
to international EPS standards. It replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the company. Diluted EPS is computed
similarly to the previously presented fully diluted earnings per share.
Y2K Compliance:
The Bank has developed a plan to attain Y2K compliance of critical operation
systems. That plan includes assessment and testing of vendors systems including
external data processing center and equipment and software upgrades. The plan
currently calls for testing of mission critical systems by August 1998. The Y2K
costs are projected to be approximately $75,000 - $100,000 for conversions cost
and approximately $300,000 for hardware and software upgrades.
<PAGE>
12
Liquidity and Capital Resources:
The Bank is required to maintain minimum levels of liquid assets, as defined by
the Office of Thrift Supervision ("OTS") regulations. This requirement, which
may be varied from time to time depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowing. The
required minimum ratio is currently 4 percent. The Bank's liquidity ratio
averaged 4.65% during June 1998. The Bank manages its liquidity ratio to meet
its funding needs, including: deposit outflows, disbursement of payments
collected from borrowers for taxes and insurance, and loan principal
disbursements. The Bank also manages its liquidity ratio to meet its
asset/liability management objectives.
In addition to funds provided from operations, the Bank's primary sources of
funds are: savings deposits, principal repayments on loans and mortgage-backed
securities, and matured or called investment securities. In addition, the Bank
may borrow funds from time to time from the Federal Home Loan Bank of Topeka.
Scheduled loan repayments and maturing investment securities are a relatively
predictable source of funds. However, savings deposit flows and prepayments on
loans and mortgage-backed securities are significantly influenced by changes in
market interest rates, economic conditions and competition. The Bank strives to
manage the pricing of its deposits to maintain a balanced stream of cash flows
commensurate with its loan commitments.
When applicable, cash in excess of immediate funding needs is invested into
longer-term investments and mortgage-backed securities which typically earn a
higher yield than overnight deposits, some of which may also qualify as liquid
investments under current OTS regulations.
As required by the financial institutions reform, recovery and enforcement act
of 1989 ("FIRREA"), OTS prescribed three separate standards of capital adequacy.
The regulations require financial institutions to have minimum regulatory
capital equal to 2.00 percent of tangible assets; minimum core capital equal to
4.00 percent of adjusted tangible assets; and risk-based capital equal to 8.00
percent of risk-based assets.
The Bank's capital requirements and actual capital under the OTS regulations are
as follows at June 30, 1998:
Amount (Thousands) Percent of Assets
Core Capital:
Actual $22,633 10.12%
Required 8,943 4.00%
Excess 13,690 6.12%
Risk-Based Capital:
Actual 23,762 20.12%
Required 9,449 8.00%
Excess $14,313 16.12%
<PAGE>
13
LANDMARK BANCSHARES, INC.
PART II - OTHER INFORMATION
Item 2. - Changes in Securities
NONE
Item 4. - Submission of Matter to a Vote of Security Holders
NONE
Item 5. - Other Information
NONE
Item 6(b). - Reports on Form 8-K
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date July 30, 1998 LANDMARK BANCSHARES, INC.
By /S/ Larry Schugart
-----------------------------------------------
LARRY SCHUGART
President and Chief Executive Officer
(Duly Authorized Representative)
By /S/ James F. Strovas
-----------------------------------------------
JAMES F. STROVAS
Senior Vice President and
Chief Financial Officer
(Duly Authorized Representative)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 856
<INT-BEARING-DEPOSITS> 219
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,617
<INVESTMENTS-CARRYING> 42,832
<INVESTMENTS-MARKET> 42,834
<LOANS> 170,857
<ALLOWANCE> 1,129
<TOTAL-ASSETS> 229,337
<DEPOSITS> 148,129
<SHORT-TERM> 47,200
<LIABILITIES-OTHER> 4,041
<LONG-TERM> 0
0
0
<COMMON> 228
<OTHER-SE> 29,739
<TOTAL-LIABILITIES-AND-EQUITY> 229,337
<INTEREST-LOAN> 10,202
<INTEREST-INVEST> 2,725
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,927
<INTEREST-DEPOSIT> 5,617
<INTEREST-EXPENSE> 2,022
<INTEREST-INCOME-NET> 5,288
<LOAN-LOSSES> 205
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<EXPENSE-OTHER> 3,037
<INCOME-PRETAX> 2,988
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,792
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 286
<LOANS-NON> 3
<LOANS-PAST> 435
<LOANS-TROUBLED> 140
<LOANS-PROBLEM> 1,428
<ALLOWANCE-OPEN> 967
<CHARGE-OFFS> 3
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1,129
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