10-Q 1 f10q_033101-0070.txt FORM 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, 2001 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) (620) 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 May 4, 2001: $.10 par value common stock 1,092,438 shares (Class) (Outstanding) LANDMARK BANCSHARES, INC. INDEX

LANDMARK BANCSHARES, INC. Consolidated Statements of Financial Condition

1 LANDMARK BANCSHARES, INC. Consolidated Statements of Income

2 LANDMARK BANCSHARES, INC. Consolidated Statements of Income Continued Three Months Ended March 31 Six Months Ended March 31 2001 2000 2001 2000 (unaudited) (unaudited) ------------------------------ ----------------------------- Basic earnings per share ------------------------ Earnings before cumulative effect of change in accounting for derivative financial instruments $0.52 $0.47 $1.16 $1.01 Cumulative effect of change in accounting for derivative financial instruments $0.00 $0.00 ($0.20) $0.00 -------------- ------------- ------------ ------------- Net income $0.52 $0.47 $0.96 $1.01 ============== ============= ============ ============= Diluted earnings per share -------------------------- Earnings before cumulative effect of change in accounting for derivative financial instruments $0.49 $0.43 $1.08 $0.94 Cumulative effect of change in accounting for derivative financial instruments $0.00 $0.00 ($0.18) $0.00 -------------- ------------- ------------ ------------- Net income $0.49 $0.43 $0.90 $0.94 ============== ============= ============ ============= Dividends per share $0.15 $0.15 $0.30 $0.30 -------------------

3 LANDMARK BANCSHARES, INC. Consolidated Statements of Comprehensive Income

4 LANDMARK BANCSHARES, INC. Consolidated Statements of Cash Flows

5 LANDMARK BANCSHARES, INC. Consolidated Statements of Cash Flows (Continued)

6 LANDMARK BANCSHARES, INC. PART I - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS NOTES TO CONSOLIDATED 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 ended March 31, 2001 are not necessarily indicative of the results which may be expected for the fiscal year ending September 30, 2001. 2. LIQUIDATION ACCOUNT 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 values of investments and mortgage - backed securities as of March 31, 2001 and September 30, 2000, is as follows:

7 INVESTMENTS AND MORTGAGE - BACKED SECURITIES -- CONTINUED March 31, 2001 September 30, 2000 Available for sale: FNMA - Arms 4,349,612 0 FHLMC - Arms 1,385,928 0 FHLMC - Fixed Rate 15,339,825 0 CMO Government Agency 1,998,418 0 CMO Private Issue 689,407 0 FNMA - Fixed Rate 280,367 0 GNMA - Fixed Rate 24,749 0 ---------------- -------------------- $ 24,068,306 $ 0 ================ ==================== 4. LOAN RECEIVABLE, NET A summary of the Bank's loans receivable at March 31, 2001 and September 30, 2000, is as follows:

A summary of the Bank's allowance for loan losses for the three and six months ended March 31, 2001 and 2000, is as follows:

8 5. FORECLOSED ASSETS - NET Real Estate owned or in judgment and other repossessed property:

6. 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. 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, reflects 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, 2001, the Bank had outstanding commitments to fund real estate loans of $1,845,106. Of the commitments outstanding, $1,648,731 were for fixed rate loans at rates of 6.850% to 9.500%. Commitments for adjustable rate loans amounted to $196,375 with initial rates of 6.875% to 7.125%. Outstanding loan commitments to sell as of March 31, 2001 were $1,721,566. The Bank had outstanding commercial loan commitments of $2,430,000 with initial rates of 8.000% to 9.000%, at March 31, 2001. 9 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 issue 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 six months ended March 31, 2001 and 2000, were determined as follows: STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE

10 8. DIVIDENDS At the Company's January 17, 2001 board meeting, the Directors of the Company declared a $0.15 per share dividend. The dividend was paid February 15, 2001 to all stockholders of record as of February 1, 2001. 9. CHANGE IN ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITY In June 1998, FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement requires the recognition of all derivative financial instruments as either assets or liabilities in the statement of financial position and measurement of those instruments at fair value. The accounting for gains and losses associated with changes in the fair value of a derivative and the effect on the consolidated financial statements will depend on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the fair value or cash flows of the asset or liability hedged. Management of the Company adopted the provisions of this statement beginning October 1, 2000. As permitted by SFAS No. 133, on October 1, 2000, the Company transferred all of its securities from the held-to-maturity portfolio to the available-for-sale and trading portfolios as follows:

As of October 1, 2000, the effect of the transfer of these securities was reported as a cumulative adjustment from a change in accounting principle, net of tax benefits, impacting earnings and other comprehensive income as follows:

The impact to earnings resulted in a loss of $214,553 that was recorded against current operations as of October 1, 2000, as a cumulative adjustment from a change in accounting principle, net of tax benefits. Future changes in fair value for any remaining securities in the trading portfolio will be reflected through current operations. Changes in fair value for any securities in the available-for-sale portfolio will be adjusted through other comprehensive income. 11 LANDMARK BANCSHARES, INC. PART I - FINANCIAL INFORMATION ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Landmark Bancshares, Inc. (the "Registrant" or the "Company") 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 the reports on Form 10-K, and 10-Q and the exhibits thereto), 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 such forward-looking statements: the strength of the United States economy in general and the strength of the local economies 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, 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 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; changes in consumer spending and savings habits; and the success of the Company at managing these risks. The Company cautions that this list of important factors is 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. This commentary is based on the assumption the reader of the form 10-Q has read, or has access to Managements' Discussion and Analysis, MD&A, for the preceding fiscal year-end September 30, 2000 filed in form 10-K. The results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the final year ending September 30, 2001 or any other period. 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, 2001. The Bank is engaged in the business of accepting deposit accounts from the general public. These funds are used to originate mortgage loans for the purchase and refinancing of single-family homes located in Central and Southwestern Kansas, and the purchase of mortgage-backed and investment securities. In addition, the Bank offers and purchases loans through correspondent lending relationships. The Bank also has a Loan Origination Office located in Overland Park, Kansas. To a lesser extent, the Bank will purchase adjustable rate mortgage loans to manage its interest rate risk as deemed necessary. The Bank also makes automobile loans, second mortgage loans, home equity loans, savings deposit loans, and small business loans. 12 Changes in financial condition between March 31, 2001 and September 30, 2000: On October 1, 2000, the Company adopted the provisions of Statement of Financial Accounting Standards 133 (SFAS 133). As permitted by SFAS 133, the Company transferred all of its securities from the held-to-maturity portfolio to the available-for-sale and trading portfolios as follows:

The impact to earnings resulted in a loss of $214,553 that was recorded against current operations as of October 1, 2000, as a cumulative adjustment from a change in accounting principle, net of tax benefits. All securities, $9,642,188, transferred to the trading portfolio were sold between October 1 and December 31, 2000. The pretax profit was $43,618. The proceeds were used to repay borrowings from Federal Home Loan Bank and fund current operations. During the quarter ended December 31, 2000 the Company sold approximately $16,148,425 of longer term fixed rate loans at a pretax profit of $318,730. The proceeds were used to repay borrowings from Federal Home Loan Bank and fund current operations. The sales of the investments and fixed rate loans noted above, were elements of the Company's Interest Rate Risk Reduction Plan. The Interest Rate Risk Reduction Plan is designed to lessen the affects of changing interest rates on the Company's assets and liabilities. 13 Total assets decreased $5 million, or approximately 2% between December 31, 2000 and March 31, 2001. Components of this change are:

Improved market conditions permitted the Company to dispose of some available-for sale assets during the quarter. During the quarter $17,945,036 of loans receivable were exchanged for a like dollar amount of mortgage-backed securities issued by Federal Home Loan Mortgage Corporation, commonly known as, "Freddie Mac." The participation certificates are traded daily. This allows management to take advantage of changes in the market more quickly as opposed to selling loans directly to the market. Other changes to Loans Receivable reflect repayment of loans in the normal course of business. Mortgaged-backed securities increased $17,945,036 as noted in the preceding paragraph. Approximately $3,000,000 of these securities were sold during the quarter. The proceeds were used to repay borrowings from Federal Home Loan Bank and fund current operations. The additional decreases reflect principal payments in the normal course of business. Liabilities decreased from December 31, 2000 to March 31, 2001 by $7 million. Components of this change are: (In Millions) March 31 December 30 Change -------------- ------------------ ------------ Deposits $ 152 $ 155 $ (3) Advances - FHLB 42 46 (4) ------------ Decrease $ (7) ============ Deposits decreased primarily due to maturing deposits being withdrawn by public entities. Advances from FHLB (Federal Home Loan Bank) decreased from December 31, 2000 to March 31, 2001, from repayments funded by sales of mortgage-backed securities. 14 Results of operations: comparison between the three and six months ended March 31, 2001 and 2000: Three months ended March 31, 2001 and 2000: Total interest income decreased $188,635, or 4%. Interest and dividends on investment securities decreased $182,649, or 28%, due to the sales of investment securities previously discussed. Total interest expense decreased $79,611, or 3%. Interest expense on deposits increased $146,778, or 8%. The increase is due primarily to higher interest rates paid to depositors. The higher interest rates paid were required to attract and retain deposits in the local market. Although interest rates have decreased the first quarter of calendar 2001, the effect of the decrease is not available to reduce expense until maturing deposits are reinvested with the Bank at current lower interest rates. Interest expense on borrowed funds decreased $226,389, or 26% due to repayment of principal on loans to Federal Home Loan Bank previously discussed and declining interest rates on short-term borrowings from Federal Home Loan Bank. Provision for loan losses decreased $50,000, or 53%. At September 30, 2000 management conducted a complete review of its reserves for losses and concluded reserves were adequate in relation to loan balances. Management believes current additions to the reserves of $45,000 for the quarter is adequate. Management continues to closely monitor the loan portfolios for potential write-downs. Net interest income after provision for losses decreased $59,204, or 4%. Components of the decrease for the three months ended March 31, are: (In Thousands) 2001 2000 Change ------- ------- ------- Interest income $ 4,269 $ 4,457 $ (188) Interest expense 2,644 2,723 (79) Provision for losses on loans 45 95 (50) ------- Decrease $ (59) ======= Non-interest income increased $125,281, or 56%. The increase is due primarily to the gain on sales of available-for-sale investments. Components of the increase are: (In Thousands) 2001 2000 Change ------- ------- ------- Net gain on sales of available-for-sale investments $ 147 $ 33 $ 114 Net gain on sales of loans 60 41 19 Other (8) ------ Increase $ 125 ====== Non-interest expense increased $52,380, or 5%. The increase is due primarily to increased compensation expenses incurred as a result of filling positions open at March 31, 2000 and annual increases given employees in the quarter ended March 31, 2001. Components of the increase are: (In Thousands) 2001 2000 Change ------ ------ ------- Compensation and related expenses $ 638 $ 532 $ 106 Advertising 18 35 (17) Data processing 44 63 (19) Other expenses 262 278 (16) Other changes (2) ----- Increase $ 52 ===== 15 Net income increased $48,477, or 10%. Components of the increase are: (In Thousands) 2001 2000 Change ------ ------ ------- Net interest income after provision for losses $1,580 $1,639 $ (59) Non-interest income 349 224 125 Non-interest expense 1,054 1,001 (53) Income taxes 322 357 35 ------ ------ ------ Net income $ 553 $ 505 48 ====== ====== ====== Six months ended March 31, 2001 and 2000: Refer to note 9 of the Notes to Consolidated Financial Statements that discusses a change in accounting for derivative instruments and hedging activities. Total interest income decreased $183,223, or 2%. Interest on loans increased $208,716, or 3%, primarily due to higher loan balances prior to sales of loans and exchange of loans previously discussed. Interest and dividends on investment securities decreased $324,309, or 24%, due to the sales of investment securities previously discussed. Total interest expense increased $208,423, or 4%. Interest expense on deposits increased $465,598, or 13%. The increase is due primarily to higher interest rates paid to depositors. The higher interest rates paid were required to attract and retain deposits in the local market. Although interest rates have decreased the first quarter of calendar 2001, the effect of the decrease is not available to reduce expense until maturing deposits are reinvested with the Bank at current lower interest rates. Interest expense on borrowed funds decreased $257,175, or 15% due to repayment of principal on loans to Federal Home Loan Bank previously discussed and declining interest rates on short-term borrowings from Federal Home Loan Bank. Provision for loan losses decreased $140,000, or 61%. At September 30, 2000 management conducted a complete review of its reserves for losses and concluded reserves were adequate in relation to loan balances. Management believes current additions to the reserves of $90,000 for the six months is adequate. Management continues to closely monitor the loan portfolios for potential write-downs. Net interest income after provision for losses decreased $251,646, or 7%. Components of the decrease for the six months ended March 31, are: (In Thousands) 2001 2000 Change ------- ------- -------- Interest income $ 8,753 $ 8,936 $ (183) Interest expense 5,521 5,313 208 Provision for losses on loans 90 230 (140) ------- Decrease $ (251) ======= Non-interest income increased $442,138, or 98%. The increase is due primarily to the gain on sales of available-for-sale investments and loans. Components of the increase are: (In Thousands) 2001 2000 Change ---- ---- ------ Net gain on sales of available-for-sale investments $170 $ 43 $127 Net gain on sales of loans 378 92 286 Other 29 ---- Increase $442 ==== 16 Non-interest expense increased $41,902, or 2%. The increase is due primarily to increased compensation expenses incurred as a result of filling positions open at March 31, 2000 and annual increases given employees in the quarter ended March 31, 2001. Components of the increase are: (In Thousands) 2001 2000 Change ------ ------ ------- Compensation and related expenses $1,265 $1,140 $ 125 Advertising 39 55 (16) Federal insurance premium 49 71 (22) Data processing 76 100 (24) Other expense 499 531 (32) Other charges 11 ------ Increase $ 42 ====== Net income decreased $72,207, or 7%. Components of the decrease are: (In Thousands) 2001 2000 Change ------- ------- ------- Net interest income after provision for losses $ 3,142 $ 3,394 $ (252) Non-interest income 893 451 442 Non-interest expense 2,069 2,027 42 Income taxes 733 727 6 Cumulative effect of change in accounting for derivative financial instruments net of income tax benefit of $125,144 (214) (214) ------- ------- ------- Net income $ 1,019 $ 1,091 $ (72) ======= ======= ======= Liquidity and Capital Resources: The Bank is required by the regulations of the Office of Thrift Supervision ("OTS") to maintain liquid assets sufficient to ensure its safety and soundness. The Bank manages its liquidity 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 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 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. The Bank is subject to various regulatory capital requirements administered by federal banking agencies. 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. 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 regulations) to assets (as defined) and core and total capital to risk weight assets (as defined). Management believes, as of March 31, 2001, that the Bank meets all capital adequacy requirements to which it is subject. 17 The Bank's actual capital amounts (in thousands) and ratios as of March 31, 2001 are presented in the following table:

18 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 externally prepared interest rate sensitivity of the net portfolio value reports furnished by the OTS to monitor and manage its interest rate risk. The Bank 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. The OTS prepares a report quarterly 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% 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. 19 The following tables present the Bank's NPV as well as other data as of December 31, 2000 (latest information available) as calculated by the OTS, based on information provided to the OTS by the Bank.

(1) Denotes rate shock used to compute interest rate risk capital component.

Utilizing the data above, the Bank, at December 31, 2000, would have been considered by the OTS to have been subject to "above normal" interest rate risk. Accordingly, a deduction from risk-based capital would have been required. However, even with this deduction, the capital of the Bank would continue to exceed all regulatory requirements. Set forth below is a breakout, by basis points of the Bank's NPV as of December 31, 2000 (latest information available) by assets, liabilities, and off balance sheet items.

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 would 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. 20 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. 21 PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Default Upon Senior Securities None Item 4. Submission of Matter to a Vote of Security Holders None Item 5. Other Information Events Subsequent to March 31, 2001: April 21, 2001 the Bank's Hoisington Branch Office was damaged by a tornado. The estimated costs to repair the building are $40,000 to $50,000. The building is valued at $80,000. Costs to repair the building are covered by insurance less a $250 deductible. The Bank is also insured for loss of income and related costs incurred by the Bank during the time period the branch is being repaired. The Bank has another branch located approximately 10 miles from the Hoisington Branch. This branch has assumed responsibility for the day-to-day operations of the Hoisington Branch. Repairs are estimated to be completed June 15, 2001. Management does not believe this event will have a material effect upon the earnings of the Bank, or the Company. On April 19, 2001 the Company filed a current report on Form 8-K with the Securities Exchange Commission. The purpose of the filing was to disclose the possible merger of equals between the Company and MNB Bancshares, Inc. Item 6. Exhibits and Report on Form 8-K None 22 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 11, 2001 LANDMARK BANCSHARES, INC. ----------------------- By /S/ Larry Schugart ---------------------------------------- LARRY SCHUGART President and Chief Executive Officer (Duly Authorized Representative) By /S/ Stephen H. Sundberg ---------------------------------------- STEPHEN H. SUNDBERG Senior Vice President and Chief Financial Officer (Duly Authorized Representative)

LANDMARK BANCSHARES INC 10-Q