UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended March 31, 1999
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 March 31, 1999:
$.10 par value common stock 1,211,884 shares
(Class) (Outstanding)
<PAGE>
LANDMARK BANCSHARES, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Condition as of
March 31, 1999 (unaudited) and September 30, 1998 1
Statements of Income for the Three and Six
Months Ended March 31, 1999 and 1998 (unaudited) 2-3
Statements of Cash Flows for the Six Months Ended
March 31, 1999 and 1998 (unaudited) 4-5
Notes to Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15-17
PART II OTHER INFORMATION
Item 2. Changes in Securities 18
Item 4. Submission of Matter to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6(b). Reports on Form 8-K 18
SIGNATURES 19
<PAGE>
1
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY,
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, 1999 September 30, 1998
(Unaudited)
----------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Interest bearing $ 3,995,433 $ 2,011,819
Non-interest bearing 1,008,277 832,559
Time deposits in other financial institutions 302,939 249,867
Securities held to maturity 22,866,424 11,575,433
Securities available for sale 9,148,888 9,220,910
Mortgage-backed securities held to maturity 17,532,582 21,723,755
Loans receivable, net 175,338,651 172,324,254
Loans held for sale 1,107,320 2,408,689
Accrued income receivable 1,406,662 1,443,847
Real estate owned or in judgment and other
repossessed property, net 464,564 70,939
Office properties and equipment, at cost less
accumulated depreciation 1,850,297 1,729,282
Prepaid expenses and other assets 1,602,544 1,749,177
Income taxes receivable, current 27,482
---------------------------------------
TOTAL ASSETS $ 236,624,581 $ 225,368,013
---------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits 155,991,248 154,792,916
Landmark Official Checks 1,613,158 0
Other Borrowed Money 53,500,000 41,700,000
Advances from borrowers for taxes and
insurance 1,418,864 1,904,170
Accrued expenses and other Liabilities 1,051,087 1,737,080
Deferred income taxes 155,686 210,080
Income taxes
Current 29,200 0
---------------------------------------
TOTAL LIABILITIES $ 213,759,243 $ 200,344,246
---------------------------------------
Stockholders' Equity
Common Stock 228,131 228,131
$.10 par value; 10,000,000 shares authorized;
2,281,312 shares issued March 31, 1999
Additional Paid-in Capital 22,537,957 22,466,144
Treasury Stock, at cost, 1,069,428 shares at March 31, 1999 (20,621,289) (17,904,245)
and 953,378 shares at September 30, 1998
Retained income (substantially restricted) 21,333,879 20,739,642
Employee Stock Ownership Plan (692,719) (692,719)
Management Stock Bonus Plan 0 (96,522)
Accumulated other comprehensive income 79,378 283,336
---------------------------------------
Total Stockholders' Equity 22,865,337 25,023,767
---------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 236,624,581 $ 225,368,013
---------------------------------------
</TABLE>
<PAGE>
2
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY,
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended March 31 Six Months Ended March 31
1998 1999 1998 1999
(unaudited) (unaudited)
------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans 3,416,614 3,494,232 6,757,895 7,062,919
Interest and dividends on investment securities 369,234 398,917 802,162 665,754
Interest on mortgage-backed securities 522,540 288,773 1,106,708 626,097
Total interest income 4,308,388 4,181,922 8,666,765 8,354,770
------------------------------------------------------------
INTEREST EXPENSE
Deposits 1,853,397 1,877,789 3,718,202 3,807,180
Borrowed funds 676,002 558,253 1,383,649 1,118,492
------------------------------------------------------------
Total interest expense 2,529,399 2,436,042 5,101,851 4,925,672
Net interest income 1,778,989 1,745,880 3,564,914 3,429,098
PROVISION FOR LOSSES ON LOANS 75,000 155,000 145,000 230,000
------------------------------------------------------------
Net interest income after provision for losses 1,703,989 1,590,880 3,419,914 3,199,098
NON-INTEREST INCOME
Service charges and late fees 89,254 108,508 154,615 192,493
Net gain (loss) on sale of available
for sale investments 95,042 66,984 95,042 132,655
Net gain (loss) on sale of loans 107,740 117,116 164,189 320,295
Service fees on loans sold 18,772 4,540 58,023 31,654
Other income 41,346 7,332 73,561 42,157
------------------------------------------------------------
352,154 304,480 545,430 719,254
NON-INTEREST EXPENSE
Compensation and related expenses 614,785 643,377 1,196,942 1,295,237
Occupancy expense 49,392 59,950 96,674 123,697
Advertising 12,691 20,128 29,021 33,169
Federal insurance premium 39,018 37,611 77,840 75,578
Loss (gain) from real estate operations (788) 3,296 2,759 4,324
Data processing 63,245 58,433 109,244 101,468
Other expense 257,863 265,287 437,852 469,797
------------------------------------------------------------
1,036,206 1,088,082 1,950,332 2,103,270
Income before income taxes 1,019,937 807,278 2,015,012 1,815,082
INCOME TAXES EXPENSES 407,500 339,300 806,450 742,800
------------------------------------------------------------
Net income 612,437 467,978 1,208,562 1,072,282
------------------------------------------------------------
Basic earnings per share $0.39 $0.41 $0.77 $0.90
Fully diluted earnings per share $0.36 $0.36 $0.70 $0.81
Dividends per share $0.20 $0.25 $0.30 $0.40
</TABLE>
<PAGE>
3
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY,
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
1998 1999 1998 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net income $ 612,437 $ 467,978 $1,208,562 $1,072,282
--------------------------- --------------------------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period 173,407 (192,433) 352,309 (124,364)
Less: reclassification adjustment for gains
included in net income (57,025) (40,190) (57,025) (79,594)
---------------------------- ---------------------------
Total other comprehensive income 116,382 (232,623) 295,284 (203,958)
---------------------------- ---------------------------
Comprehensive income $ 728,819 $ 235,355 $1,503,846 $ 868,324
</TABLE>
<PAGE>
4
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended March 31
1998 1999
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,208,562 $ 1,072,282
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization and impairment of mortgage servicing rights 0 (85,245)
Depreciation 64,711 93,538
Decrease (increase) in accrued interest receivable 48,156 (15,482)
Increase (decrease) in outstanding checks in excess of bank balance 0 1,613,158
Increase (decrease) in accrued and deferred income taxes 379,426 2,288
Increase (decrease) in accounts payable and accrued expenses 241,397 (633,326)
Amortization of premiums and discounts on investments and loans (29,298) (29,228)
Provision for losses on loans 145,000 230,000
Gain (loss) on sale of available for sale investments (95,042) (132,655)
Other non-cash items, net (652,233) (323,555)
Sale of loans held for sale 7,595,266 16,171,338
Gain on sale of loans held for sale (164,189) (320,295)
Origination of loans held for sale (6,096,336) (13,003,464)
Purchase of loans held for sale (3,507,110) (1,549,460)
-----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ (861,690) $ 3,737,004
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payment on loans held for investment 409,567 5,986,698
Principal repayments on mortgage-backed securities 6,957,942 4,954,127
Loans purchased for investment (8,437,257) (9,636,591)
Acquisition of mortgage-backed securities 0 (763,809)
Acquisition of investment securities held to maturity (4,000,000) (15,464,481)
Acquisition of investment securities available for sale (1,503,656) (273,275)
Proceeds from sale of available for sale investment securities 0 247,860
Proceeds from maturities or calls of investment securities held to maturity 10,100,000 4,190,000
Net (increase) decrease in time deposits (50,000) (46,907)
Sale of real estate acquired in settlement of loans 269,114 28,800
Acquisition of fixed assets (538,587) (214,553)
-----------------------------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES $ 3,207,123 $(10,992,131)
-----------------------------------
</TABLE>
<PAGE>
5
19
LANDMARK BANCSHARES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY,
LANDMARK FEDERAL SAVINGS BANK
Consolidated Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Six Months Ended March 31
1998 1999
(unaudited) (unaudited)
---------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 5,230,818 $ 1,198,332
Net increase (decrease) in escrow accounts (462,479) (485,306)
Proceeds from FHLB advance and other borrowings 44,100,000 50,500,000
Repayment of FHLB advance and other borrowings (46,400,000) (38,700,000)
Acquisition of Treasury Stock (757,243) (2,717,044)
Other Financing Activities 96,522 96,522
Dividend Payment (479,254) (478,045)
---------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,328,364 9,414,459
---------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,673,797 (2,159,332)
BEGINNING CASH AND CASH EQUIVALENTS 2,741,052 2,844,378
---------------------------------
ENDING CASH AND CASH EQUIVALENTS 6,414,849 5,003,710
---------------------------------
SUPPLEMENTAL DISCLOSURES Cash paid during the year for:
Interest on deposits, advances, and other borrowings 5,212,822 5,408,548
Income taxes 684,103 754,210
Transfers from loans to real estate acquired through foreclosure 19,155 0
</TABLE>
<PAGE>
6
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 requirements for interim financial statements contained in
SEC regulation S-X 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 six months ending March 31, 1999, are not
necessarily indicative of the results which may be expected for the fiscal year
ending September 30, 1999.
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 March 31, 1999 and September 30, 1998, is as follows:
<TABLE>
<CAPTION>
Investment Securities March 31, 1999 September 30, 1998
----------------------------------
<S> <C> <C>
Held to maturity:
Government Agency Securities $21,481,424 $10,000,443
Municipal Obligations 1,385,000 1,575,000
Other 0 0
-----------------------------
$22,866,424 $11,575,433
Available for sale:
Common Stock 5,615,488 5,800,410
Stock in Federal Home Loan Bank 3,323,400 3,210,500
Other 210,000 210,000
-----------------------------
$ 9,148,888 $ 9,220,910
Mortgage - Backed Securities held to maturity:
FNMA - Arms $ 7,604,891 $ 8,841,621
FHLMC -Arms 2,339,274 2,814,514
FHLMC -Fixed Rate 112,117 128,174
CMO Government Agency 5,313,267 7,058,687
CMO Private Issue 1,616,601 2,202,738
FNMA - Fixed Rate 388,641 448,123
GNMA - Fixed Rate 157,791 229,898
-----------------------------
$17,532,582 $21,723,755
</TABLE>
<PAGE>
4. Loan Receivable, Net
A summary of the Bank's loans receivable at March 31, 1999 and
September 30, 1998, is as follows:
<TABLE>
<CAPTION>
March 31, 1999 September 30, 1998
--------------------------------------
<S> <C> <C>
Real Estate loans:
Residential 135,501,542 129,688,030
Construction 1,412,696 1,386,224
Commercial 6,564,043 4,936,897
Second mortgage 9,565,159 10,071,744
Commercial business 7,059,740 8,578,694
Consumer 16,619,881 19,049,741
------------- -------------
Gross loans 176,723,061 173,711,330
Less: Net deferred loan fees, premiums and discounts (188,835) (250,323)
Allowance for Loan Losses (1,195,575) (1,136,753)
-------------------------------------
Total loans, net $ 175,338,651 $ 172,324,254
</TABLE>
A summary of the Bank's allowance for loan losses for the three and six months
ended March 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
1999 1998 1999 1998
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Beginning $ 1,204,948 $ 1,043,931 $ 1,136,753 $ 968,623
Provisions Charged to Operations 155,000 75,000 230,000 145,000
Loans Charged Off Net of Recoveries (164,373) (51,577) (171,178) (46,269)
--------------------------------------------------------
Balance Ending $ 1,195,575 $ 1,067,354 $ 1,195,575 $ 1,067,354
</TABLE>
There has been no significant change in the level of non performing loans from
September 30, 1998 to March 31, 1999.
<PAGE>
8
5. Real Estate owned or in judgment:
March 31, 1999 September 30, 1998
------------------------------------
Real Estate Acquired by Foreclosure $ 0 $ 0
Real Estate Loans in Judgment and
Subject to Redemption 359,384 56,589
Other Repossessed Assets 105,180 14,350
------------------------------------
$464,564 $ 70,939
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 March 31, 1999, the Bank had outstanding commitments to fund real estate
loans of $3,779,754.00. Of the commitments outstanding, $3,093,404.00 are for
fixed rate loans at rates of 6.625% to 8.50%. Commitments for adjustable rate
loans amount to $686,350.00 with initial rates of 6.375% to 8.00%. Outstanding
loan commitments to sell as of March 31, 1999 were $1,583,005.00. In addition
the Bank had outstanding commercial loan commitments of $2,679,758.00 with
initial rates of 7.75% to 10%.
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.
<PAGE>
9
Earnings per share for the three and six months ending March 31, 1999 and 1998,
was determined as follows:
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Basic Earnings Per Share
Three months ended Six months ended
March 31 March 31
1999 1998 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding
Net of Treasury shares 1,327,934 1,688,641 1,327,934 1,688,641
Average unallocated ESOP shares (65,812) (81,000) (67,523) (82,711)
Weighted average treasury shares purchased (106,369) (19,408) (69,021) (9,704)
Nonvested MSBP shares (2,281) (20,526) (4,562) (22,810)
--------------------------------------------------------------------
Weighted Average Shares for Basic EPS 1,153,472 1,567,707 1,186,828 1,573,416
--------------------------------------------------------------------
Net Earnings 467,978 612,437 1,072,281 1,208,562
--------------------------------------------------------------------
Per share amount $0.41 $0.39 $0.90 $0.77
</TABLE>
<TABLE>
<CAPTION>
Diluted Earnings Per Share
Three months ended Six months ended
March 31 March 31
1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares for Basic EPS 1,153,472 1,567,707 1,186,828 1,573,416
Dilutive stock options 133,433 134,290 134,591 136,424
Dilutive MSBP shares 759 6,881 1,539 7,781
------------------------------------------------------------
Weighted Average Shares for Diluted EPS 1,287,664 1,708,877 1,322,958 1,717,647
------------------------------------------------------------
Net Earnings 467,978 612,437 1,072,281 1,208,562
------------------------------------------------------------
Per share amount $0.36 $0.36 $0.81 $0.70
</TABLE>
8. DIVIDENDS
At a January 1999 board meeting, the Directors of the Company declared
a .15 per share dividend and a $0.10 per share special dividend. The dividend
was payable to all stockholders of record as of February 3, 1999.
9. COMPREHENSIVE INCOME
Effective October 1, 1998, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 130 entitled "Reporting
Comprehensive Income" (SFAS No. 130). This statement requires disclosure of the
components of comprehensive income and the accumulated balance of other
comprehensive income within consolidated total stockholders' equity. The
adoption of the provisions of SFAS No. 130, which are only of a disclosure
nature, did not effect the Corporation's consolidated financial position,
results of operations or liquidity.
<PAGE>
10
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 March 31, 1999. 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-Q), 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.
<PAGE>
11
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.
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 six months of fiscal year 1999 rates continued
with moderate decline. As a result of the rates at the end of March 1999, the
Bank reflected an unrealized loss of $1,596 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 March 31, 1999 and September 30, 1998:
Total assets increased by $11,256,568, or approximately 4.99% between
September 30, 1998 and March 31, 1999. This increase is largely attributed to a
$11,290,991 increase in securities held to maturity.
The Bank utilizes FHLB line of credit and short term advances which
increased $11.8 million from September 30, 1998 to March 31, 1999 to fund the
acquisition of securities held to maturity. In managing the Bank's overall
interest rate risk, security purchases have been made which stabilize the level
of risk to the extent that borrowing will reprice on the call dates of
securities.
<PAGE>
12
Results of operations: comparison between the three and six months ended March
31, 1999 and 1998:
Net income for the three-month period ended March 31, 1999 of $467,978
represents a decrease of $144,459 from the net income reported for the
three-month period ended March 31, 1998. The decrease was primarily due to a
$233,767 decrease of interest on mortgage-backed securities and a increase of
$80,000 in the provision for losses on loans partially offset by a decrease of
$93,357 in total interest expense.
Net income for the six-month period ending March 31, 1999 of $1,072,282
represents a decrease of $136,280 or a 11.2% decrease from the net income
reported for the six-month period ended March 31, 1998. The decrease is
primarily due to a decrease of $311,995 in total interest income, a $85,000
increase in the provision for losses on loans, partially offset by a $176,179
decrease in total interest expense.
Net interest income after provision for losses on loans for the
three-month period ended March 31, 1999 decreased $113,109 or approximately
6.63% to $1,590,880 as compared with $1,703,989 for the same period ended March
31, 1998. This decrease is associated with the decrease in total interest income
and the increase of the provision for loan losses.
Net interest income after provision for losses on loans for the
six-month period ended March 31, 1999 decreased $220,816 or approximately 6.45%
to $3,199,098 as compared with $3,419,914 for the same period ended March 31,
1998. This decrease is associated with the decrease in total interest income and
the increase of the provision for loan losses.
Non-interest income for the three month period ended March 31, 1999
decreased $47,674 or 13.53% to $304,480 as compared with $352,154 for the same
period ended March 31, 1998. This decrease was primarily due to a $28,058 or net
gain on sale of investments and a decrease of $34,014 in other income.
Non-interest income for the six month period ended March 31, 1999
increased $173,824 or 31.86% to $719,254 as compared with $545,430 for the same
period ended March 31, 1998. This increase was primarily due to a $156,102 on
net gain on sale of loans.
Non-interest expense for the three month period ended March 31, 1999
increased $51,876 or 5.00% to $1,088,082 as compared with $1,036,206 for the
same period ended March 31, 1998. This increase is primarily due to increased
compensation compared to the quarter ending March 31, 1998.
Non-interest expense for the six-month period ended March 31, 1999
increased $152,938 or 7.84% to $2,103,270 as compared with $1,950,332 for the
same period ended March 31, 1998. This increase is primarily due to increased
compensation costs compared to the six months ending March 31, 1998.
The bank added $155,000 for the three-month period ending March 31,
1999 and $230,000 for the six-month period ending March 31, 1999 to the
provision for loan losses. During the quarter, management recognized that there
were changes in risk factors related to the consumer loan porfolio that resulted
in an increase in classified loans. Mangement feels that at present, loans that
might have potential losses have been identified and are appropriately
classified and that adequate provision for loss has been accrued.
<PAGE>
13
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.
Year 2000 Issue:
The year 2000 poses an important business issue regarding how existing
application software programs and operating systems can accommodate this date
value. Many computer programs that can only distinguish the final two digits of
the year entered are expected to read entries for the year 2000 as the year
1900. Like most financial service providers, the Company may be significantly
affected by the Year 2000 issue due to the nature of financial information. The
Company has been evaluating both information technology (computer systems and
software) and non-information technology (i.e. vault timers, elevators,
electronic door lock and heating, ventilation and air condition controls) both
within and outside the Company's direct control and with which the Company
electronically or operationally interfaces. If computer systems are not
adequately changed to identify the year 2000, many computer applications could
fail or create erroneous results. As a result, many calculations that rely on
the date field information, such as interest, payment or due dates and other
operating functions, may generate results that could be significantly misstated,
and the Company could experience a temporary inability to process transactions
and engage in normal business activities.
The Company has also initiated formal communications with both information
technology and non-information technology vendors to determine the extent to
which the Company's interface systems may be vulnerable to those third parties'
failure to remediate their own Year 2000 issues. We have examined all of our
non-information technology systems and have either received certifications of
Year 2000 compliance for systems controlled by third party providers or
determined that the systems should not be impacted by the Year 2000. We expect
to further test the systems we control and receive third party certification,
where appropriate, that they will continue to function. We do not expect any
material costs to address our non-information technology systems and have not
had any material costs to date. We have determined that the information
technology systems we use have substantially more Year 2000 risk than the
non-information technology systems we use. The Bank continues to evaluate their
information technology systems risk in three areas: (1) internal computers and
software, (2) computers of others used by our borrowers, (3) external data
processing servicers. There is no significant change in the Banks Year 2000
status since the September 30, 1998 annual report.
<PAGE>
14
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 4.09% during March 1999. 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 March 31, 1999:
Amount (Thousands) Percent of Assets
Core Capital:
Actual $16,995 7.32%
Required 9,282 4.00%
Excess 7,713 3.32%
Risk-Based Capital:
Actual 18,192 14.92%
Required 9,752 8.00%
Excess $ 8,440 6.92%
<PAGE>
15
LANDMARK BANCSHARES, INC.
PART I - FINANCIAL INFORMATION
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 total assets a concentration of
adjustable-rte 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 the 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 resulting change
in NPV of more than 2% if 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.
<PAGE>
16
The following tables present the Bank's NPV as well as other data as of December
31, 1998 (the most recent available), as calculated by the OTS, based on
information provided to the OTS by the Bank.
<TABLE>
<CAPTION>
Change in Interest Net Portfolio Value NPV as % of Present Value of
Rates in Basis Assets
Points (Rate Shock) $ Amount $ Change % Change NPV Ratio Change
- ------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+400 bp $ 11,297 $ (11,794) (51)% 5.46% (481) bp
+300 bp 15,097 ( 7,994) (35)% 7.12% (315) bp
+200 bp (1) 18,571 ( 4,520) (20)% 8.56% (171) bp
+100 bp 21,370 ( 1,721) ( 7)% 9.65% ( 62) bp
0 bp 23,091 10.27%
-100 bp 23,797 706 3 % 10.47% 20 bp
-200 bp 24,235 1,144 5 % 10.55% 28 bp
-300 bp 25,028 1,937 8 % 10.76% 49 bp
-400 bp 25,431 2,340 10 % 10.81% 54 bp
</TABLE>
(1) Denotes rate shock used to compute interest rate risk capital component.
December 31, 1998
-----------------
Risk Measures (200 Basis Point Rate Shock):
Pre-Shock NPV Ratio: NPV as % of Present Value of Assets 8.39 %
Exposure Measure: Post-Shock NPV Ratio 6.78 %
Sensitivity Measure: Decline in NPV Ratio 1.60 %
Utilizing the data above, the Bank, at December 31, 1998, would not have been
considered by the OTS to have been subject to "above normal" interest rate risk.
Accordingly, no deduction from risk-based capital would have been required.
Set forth below is a breakout, by basis points of the Bank's NPV as of December
31, 1998 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 $235,242 $232,620 $229,751 $227,356 $224,819 $221,402 $217,040 $212,128 $206,989
- -Liabilities 210,097 207,798 205,654 203,637 201,738 199,944 198,241 196,623 195,075
+Off Balance Sheet 286 206 139 78 10 (87) (227) (408) (617)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Portfolio Value $ 25,431 $ 25,028 $ 24,235 $ 23,797 $ 23,091 $ 21,370 $ 18,571 $ 15,097 $ 11,297
</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 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.
<PAGE>
17
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. Generally,
during periods of increasing interest rates, the Bank's interest rate sensitive
liabilities would reprice faster than its interest rate sensitive assets causing
a decline in the Bank's interest rate spread and margin. This would result from
an increase in the Bank's cost of funds that would not be immediately offset by
an increase in its yield on earning assets. An increase in the cost of funds
without an equivalent increase in the yield of earning assets would tend to
reduce net interest income.
In times of decreasing interest rates, fixed rate assets could increase in value
and the lag in repricing of interest rate sensitive assets could be expected to
have a positive effect on the Bank's net interest income. However, changes in
only certain rates, such as shorter term interest rate declines without longer
term interest rate declines, could reduce or reverse the expected benefit from
decreasing interest rates.
<PAGE>
18
PART II - OTHER INFORMATION
Item 2. - Changes in Securities
NONE
Item 4. - Submission of Matter to a Vote of Security Holders
An annual meeting was held on January 20, 1999 to ratify the election
of David H. Snapp to serve as Director for three years. In addition
the stockholders did ratify Regier Carr & Monroe, L.L.P., as
independent auditors of Landmark Bancshares, Inc., for the fiscal year
ending September 30, 1999.
Votes were as follows: Number Percentage
David H. Snapp For 1,199,342 99.98%
Against 182 .02%
Abstain 0
Regier Carr & Monroe For 1,197,975 99.87%
Against 107 .01%
Abstain 1.442 .12%
Directors continuing in office following the annual meeting include C. Duane
Ross, Richard A. Ball, Larry Schugart and Jim Lewis.
Item 5. - Other Information
NONE
Item 6(b). - Reports on Form 8-K
NONE
<PAGE>
19
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 May 17, 1999 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 EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Sep-30-1999
<PERIOD-END> Mar-31-1999
<CASH> 5,004
<INT-BEARING-DEPOSITS> 303
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,149
<INVESTMENTS-CARRYING> 40,399
<INVESTMENTS-MARKET> 40,520
<LOANS> 176,446
<ALLOWANCE> 1,197
<TOTAL-ASSETS> 236,625
<DEPOSITS> 157,604
<SHORT-TERM> 53,500
<LIABILITIES-OTHER> 2,655
<LONG-TERM> 0
0
0
<COMMON> 228
<OTHER-SE> 22,637
<TOTAL-LIABILITIES-AND-EQUITY> 236,625
<INTEREST-LOAN> 7,063
<INTEREST-INVEST> 1,292
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,355
<INTEREST-DEPOSIT> 3,807
<INTEREST-EXPENSE> 1,119
<INTEREST-INCOME-NET> 3,429
<LOAN-LOSSES> 230
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,103
<INCOME-PRETAX> 1,815
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,072
<EPS-PRIMARY> .90
<EPS-DILUTED> .81
<YIELD-ACTUAL> 284
<LOANS-NON> 326
<LOANS-PAST> 366
<LOANS-TROUBLED> 716
<LOANS-PROBLEM> 1,729
<ALLOWANCE-OPEN> 1,107
<CHARGE-OFFS> 168
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 1,197
<ALLOWANCE-DOMESTIC> 1,197
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
