10-Q/A 1 a2057675z10-qa.txt 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (Amendment No. 1) (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, 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 August 6, 2001: $.10 par value common stock 1,092,438 shares (Class) (Outstanding) LANDMARK BANCSHARES, INC. INDEX

* The provision for loan loss discussion for the three and nine months ended June 30, 2001, has been revised from its original filing on August 14, 2001. 1 LANDMARK BANCSHARES, INC. Consolidated Statements of Financial Condition (unaudited)

2 LANDMARK BANCSHARES, INC. Consolidated Statements of Income

3 LANDMARK BANCSHARES, INC. Consolidated Statements of Income Continued

4 LANDMARK BANCSHARES, INC. Consolidated Statements of Comprehensive Income

5 LANDMARK BANCSHARES, INC. Consolidated Statements of Cash Flows

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

7 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 three and nine months ended June 30, 2001 are not necessarily indicative of the results which may be expected for the fiscal year ending September 30, 2001, or an other future interim period. 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 June 30, 2001 and September 30, 2000, is as follows:

8 INVESTMENTS AND MORTGAGE - BACKED SECURITIES -- CONTINUED

9 4. LOAN RECEIVABLE, NET A summary of the Bank's loans receivable at June 30, 2001 and September 30, 2000, is as follows:

The Company has no foreign loans, or loans defined as, "troubled debt restructurings" in Financial Accounting Standards No.15. * Loans accounted for on a non-accrual basis ** Accruing loans which are contractually past due 90 days or more as to principal or interest payments. *** The amount of interest income on non-accrual loans that was included in income for the period. **** The gross interest income that would have been recorded in the period if the loans had been current in accordance with the original terms and had been outstanding throughout the period or since origination, if held for part of the period. A summary of the Bank's allowance for loan losses for the three and nine months ended June 30, 2001 and 2000, is as follows:

10 The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, the current level of non-performing assets and current economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible ot significant revision as more information becomes available. The Bank has enjoyed a significant reduction in charged off loans, net of recoveries, from FYE September 30, 1999 to June 30, 2001.

The decrease is due to improvements in the asset quality of the consumer loan portfolio. Management, through its Asset Liability Committee, quarterly performs an analytical review of the loan provision to insure the allowance for loan loss is in compliance with policy. Based upon this analytical review and the improvement of the asset quality of the consumer loan portfolio, management has concluded the additions to the Allowance for Loan Losses account are adequate for the current fiscal year. 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 June 30, 2001, the Bank had outstanding commitments to fund real estate loans of $2,292,051. Of the commitments outstanding, $2,017,801 were for fixed rate loans at rates of 6.850% to 9.500%. Commitments for adjustable rate loans amount to $274,250 with initial rates of 7.375% to 9.000%. Outstanding loan commitments to sell as of June 30, 2001 were $1,827,950. The Bank had outstanding commercial loan commitments of $2,385,000 with initial rates of 8.000% to 8.500%, at June 30, 2001. 11 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 three and nine months ended June 30, 2001 and 2000, were determined as follows: STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE

8. DIVIDENDS At the Company's April 18, 2001 board meeting, the Directors of the Company declared a $0.15 per share dividend. The dividend was paid May 15, 2001 to all stockholders of record as of May 1, 2001. 12 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. 10. NEW ACCOUNTING STANDARDS In July of 2001, the Financial Accounting Standards Board issued Statement No. 141, "Business Combinations", and Statement No. 142, "Goodwill and Other Intangible Assets". Statement No. 141 requires all business combinations to be accounted for using the purchase method of accounting as use of the pooling-of-interests method is prohibited. In addition, this Statement requires that 13 negative goodwill that exists after the basis of certain acquired assets is reduced to zero should be recognized as an extraordinary gain. The provisions of this Statement apply to all business combinations initiated after June 30, 2001 and to all business combinations accounted for using the purchase method of accounting for which the acquisition date is July 1, 2001, or later. Statement No. 142 prescribes that goodwill associated with a business combination and intangible assets with an indefinite useful life should not be amortized but should be tested for impairment at least annually. The Statement requires intangibles that are separable from goodwill and that have a determinable useful life to be amortized over the determinable useful life. The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15,2001. Upon adoption of this statement, goodwill and other intangible assets arising from acquisitions completed before adoption of the statement should be accounted for in accordance with the provisions of this statement. This transition provision could require a reclassification of a previously separately recognized intangible to goodwill and vice versa if the intangibles in question do not meet the new criteria for classification as a separately recognizable intangible. The Company has not determined the effect of these new accounting standards in connection with the proposed merger as described in Note 11. 11. PROPOSED MERGER We announced on April 19, 2001, an agreement to enter into a merger of equals with MNB Bancshares, Inc. The proposed merger will be accounted for under the Purchase Method of accounting. MNB Bancshares, Inc is the holding company for Security National Bank based in Manhattan, Kansas. It had total assets of $155 million at June 30, 2001 with branches in Manhattan, Topeka, Osage City, Auburn and Wamego, Kansas. Pursuant to the agreement to merge, Landmark and MNB will merge into a newly formed corporation, Landmark Merger Company, which at the closing of the merger will change its name to Landmark Bancshares, Inc. As a result of the merger, each issued and outstanding share of Landmark common stock will be converted into the right to receive one share of the new company common stock and each issued and outstanding share of MNB common stock will be converted into the right to receive 0.523 of a share of the new company common stock. At the closing of the merger, Landmark Federal Savings Bank will merge with and into Security National Bank, which will change its name to Landmark National Bank. After the merger, it is expected that the combined company's common stock will be traded on the Nasdaq National Market System under the symbol "LARK". We expect the closing date of this merger transaction to occur late in the third quarter or the fourth quarter of this year, subject to stockholder and regulatory approvals. 12. CORRECTED PRESS RELEASE On July 24, 2001, the Company issued a press release for the quarter ended June 30, 2001. On August 13, 2001, the Company issued a corrected press release for the same quarter. The amounts as previously reported on July 24, 2001 and revised on August 13, 2001 are set forth below.

14 LANDMARK BANCSHARES, INC. PART I - FINANCIAL INFORMATION ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995. This quarterly report contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company and the subsidiary include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in our market area, our implementation of new technologies, our ability to develop and maintain secure and reliable electronic systems and accounting principles. 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, 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. We announced on April 19, 2001, an agreement to enter into a merger of equals with MNB Bancshares, Inc. The proposed merger will be accounted for under the Purchase Method of accounting. MNB Bancshares, Inc is the holding company for Security National Bank based in Manhattan, Kansas. It had total assets of $155 million at June 30, 2001 with branches in Manhattan, Topeka, Osage City, Auburn and Wamego, Kansas. Pursuant to the agreement to merge, Landmark and MNB will merge into a newly formed corporation, Landmark Merger Company, which at the closing of the merger will change its name to Landmark Bancshares, Inc. As a result of the merger, each issued and outstanding share of Landmark common stock will be converted into the right to receive one share of the new company common stock and each issued and outstanding share of MNB common stock will be converted into the right to receive 0.523 of a share of the new company common stock. At the closing of the merger, Landmark Federal Savings Bank will merge with and into Security National Bank, which will change its name to Landmark National Bank. After the merger, it is expected that the combined company's common stock will be traded on the Nasdaq National Market System under the symbol "LARK". We expect the closing date of this merger transaction to occur late in the third quarter or the fourth quarter of this year, subject to stockholder and regulatory approvals. 15 On 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 Bank 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. Management does not believe this event will have a material effect upon the earnings of the Bank, or the Company, aside from accelerated loan repayments resulting from insurance claims related to the tornado. The branched opened for business July 30, 2001. Changes in financial condition between June 30, 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. 16 Management's Interest Rate Risk Reduction Plan has resulted in a significant improvement to the Company's interest rate risk. This is illustrated by the increase in post-shock net present value (NPV) and the decrease in the difference between pre-shock and post-shock NPV (sensitivity). The table below points out these values for the quarter ended September 30, 2000, just prior to the implementation of the Interest Rate Risk Reduction Plan, and the two quarters following the implementation of the plan. The results for June 30, 2001 are not available.

* Pre-shock NPV ratio: NPV as a percent of present value of assets, no rate shift ** Post-shock NPV ratio, 200bp rate shift up and down *** Sensitivity measure: Decline in NPV ratio Total assets decreased $13 million, or approximately 6% between March 31, 2001 and June 30, 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 $7 million in Mortgage loans were sold. Lower interest rates have increased refinancing of home loans. This refinancing and principal repayments account for the remaining decline in loans of $3 million. Loans had a total decline of $9,856,082. The proceeds were used to repay borrowings from Federal Home Loan Bank and fund current operations. Mortgaged-backed securities decreased $6,200,370. Approximately $4,000,000 of these securities were sold during the quarter. The proceeds were used to repay borrowings from Federal Home Loan Bank and 17 fund current operations. The additional decreases reflect principal payments in the normal course of business. Liabilities decreased from March 31, 2001 to June 30, 2001 by $14 million. Components of this change are:

Advances from FHLB (Federal Home Loan Bank) decreased from March 31, 2001 to June 30, 2001, from repayments funded primarily by sales of mortgage-backed securities and loans. Results of operations for the three and nine months ended June 30, 2001 and 2000: Three months ended June 30, 2001 and 2000: Total interest income decreased $466,965, or 10%. Interest and dividends on investment securities decreased $191,269, or 29%, due to the sales of investment securities in this and prior quarters of this fiscal year. Interest income on mortgage-backed securities increased $216,073, or 114%. The increase is due to the exchange of loans receivable for mortgage-backed securities in the prior quarter discussed under changes in financial condition in the prior quarter 10Q. Total interest expense decreased $501,992, or 18%. Interest expense on deposits increased $143,894, 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 quarters 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 $645,886, or 60% 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. The provision for loan losses is charged to operations to bring the total allowance for loan losses to a level that represents management's best estimates of the losses inherent in the portfolio, based on historical experience, volume and type of lending conducted by the Company, industry standards, the level and status of past due and non-performing loans, the general economic conditions in the Company's lending area and other factors affecting the collectibility of the loans in its portfolio. For the three months ended June 30, 2001, the provision for loan losses decreased $120,000 to $15,000 compared to $135,000 for the comparable 2000 period. The decrease in the provision for loan losses for the three months ended June 30, 2001 as compared to the same 2000 period resulted from a smaller loan portfolio and a reduction in nonperforming loans. At June 30, 2001, nonperforming loans decreased $595,000 to $53,000 from $648,000 at June 30, 2000. For the three months ended June 30, 2001, net loan receivables decreased $10.0 million to $148.0 million from $158.0 million at March 31, 2001. As previously disclosed, during the first quarter of fiscal 2001, the Company reevaluated its interest rate risk position by reclassifying loans previously held for investment to loans held for sale. Prior to the adoption of the new interest rate risk policy, it was the Company's policy to sell its 30 year fixed rate risk loans in the secondary market and hold its 15 year and 20 year loans to maturity. With the adoption of the new interest rate risk policy, the Company has expanded its loans held for sale to also include certain of its 15 year and 20 year loans which were previously held to maturity. Net interest income after provision for losses increased $155,027, or 10%. Components of the increase for the three months ended June 30, are:

18 Non-interest income increased $355,537, or 141%. The increase is due primarily to the gain on sales of available-for-sale investments and loans. Components of the increase are:

Non-interest expense increased $43,286, or 4%. The increase is due primarily to increased compensation expenses incurred as a result of filling positions open at June 30, 2000 and annual increases given employees. Components of the increase are:

Net income increased $319,628, or 62%. Components of the increase are:

Nine months ended June 30, 2001 and 2000: Total interest income decreased $650,191, or 5%. Interest on loans decreased $283,052 or 3%, primarily due to higher loan balances prior to sales of loans and exchange of loans for mortgage-backed securities in the previous quarter. Interest and dividends on investment securities decreased $515,582, or 26%, due to the sales of investment securities in this and prior quarters of this fiscal year. Interest income on mortgaged backed securities increased $148,443, or 25%. The increase is due to the exchange of loans receivable for mortgage-backed securities in the previous quarters. Total interest expense decreased $293,567, or 4%. Interest expense on deposits increased $609,491, or 11%. 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 and second quarters 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 $903,058, or 33% 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. 19 For the nine months ended June 30, 2001, the provision for loan losses decreased $260,000 to $105,000 compared to $365,000 for the comparable 2000 period. The decrease in the provision for loan losses for the nine months ended June 30, 2001 as compared to the same 2000 period resulted from a smaller loan portfolio, a reduction in nonperforming loans and a reduction in net loan chargeoffs. For the nine months ended June 30, 2001, net loan chargeoffs decreased $64,000 to $73,000 from $137,000 for the same 2000 period. At June 30, 2001, net loan receivables decreased $34.6 million to $148.0 million from $182.6 million at September 30, 2001. See ""-- Results of operations for the three months ended June 30, 2001 and 2000''. Net interest income after provision for losses decreased $96,624, or 2%. Components of the increase for the nine months ended June 30, are:

Non-interest income increased $797,679, or 114%. The increase is due primarily to the gain on sales of available-for-sale investments and loans. Components of the increase are:

Non-interest expense increased $85,185, or 3%. The increase is due primarily to increased compensation expenses incurred as a result of filling positions open at June 30, 2000 and annual increases given employees. Components of the increase are:

Net income increased $247,421, or 15%. Components of the increase are:

20 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 June 30, 2001, that the Bank meets all capital adequacy requirements to which it is subject. The Bank's actual capital amounts (in thousands) and ratios as of June 30, 2001 are presented in the following table:

21 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. 22 The following tables present the Bank's NPV as well as other data as of March 31, 2001 (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 September 30, 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 March 31, 2001 (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. 23 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. 24 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 None Item 6. Exhibits and Report on Form 8-K On April 19, 2001 the Company filed a form 8-K with the Securities Exchange Commission which announced the proposed merger of equals between the Company and MNB Bancshares, Inc. 25 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 August 20, 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/A