UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
(Address of principal executive offices) (Zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol(s) | Name of exchange on which registered: | ||
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ☐ Accelerated filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: as August 12, 2024, the issuer had outstanding shares of its common stock, $ par value per share.
LANDMARK BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
| Page Number | ||
| PART I | ||
| Item 1. | Financial Statements | 2 - 25 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 35 - 36 |
| Item 4. | Controls and Procedures | 36 |
| PART II | ||
| Item 1. | Legal Proceedings | 37 |
| Item 1A. | Risk Factors | 37 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 37 |
| Item 3. | Defaults Upon Senior Securities | 37 |
| Item 4. | Mine Safety Disclosures | 37 |
| Item 5. | Other Information | 37 |
| Item 6. | Exhibits | 38 |
| Signature Page | 39 |
| 1 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| (Dollars in thousands, except per share amounts) | June 30, | December 31, | ||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Interest-bearing deposits at other banks | ||||||||
| Investment securities available-for-sale, at fair value | ||||||||
| Investment
securities, held-to-maturity, net of allowance for credit losses of $ | ||||||||
| Bank stocks, at cost | ||||||||
| Loans,
net of allowance for credit losses of $ | ||||||||
| Loans held for sale, at fair value | ||||||||
| Bank owned life insurance | ||||||||
| Premises and equipment, net | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Mortgage servicing rights | ||||||||
| Real estate owned, net | ||||||||
| Accrued interest and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities: | ||||||||
| Deposits: | ||||||||
| Non-interest-bearing demand | $ | $ | ||||||
| Money market and checking | ||||||||
| Savings | ||||||||
| Certificates of deposit | ||||||||
| Total deposits | ||||||||
| Federal Home Loan Bank and other borrowings | ||||||||
| Subordinated debentures | ||||||||
| Repurchase agreements | ||||||||
| Accrued interest and other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value per share, shares authorized; issued | ||||||||
| Common stock, $ par value per share, shares authorized; and shares issued at June 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost; and shares at June 30, 2024 and December 31, 2023, respectively | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| 2 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
| Three months ended | Six months ended | |||||||||||||||
| (Dollars in thousands, except per share amounts) | June 30, | June 30, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Interest income: | ||||||||||||||||
| Loans | $ | $ | $ | $ | ||||||||||||
| Investment securities: | ||||||||||||||||
| Taxable | ||||||||||||||||
| Tax-exempt | ||||||||||||||||
| Interest-bearing deposits at banks | ||||||||||||||||
| Total interest income | ||||||||||||||||
| Interest expense: | ||||||||||||||||
| Deposits | ||||||||||||||||
| Federal Home Loan Bank and other borrowings | ||||||||||||||||
| Subordinated debentures | ||||||||||||||||
| Repurchase agreements | ||||||||||||||||
| Total interest expense | ||||||||||||||||
| Net interest income | ||||||||||||||||
| Provision for credit losses | ||||||||||||||||
| Net interest income after provision for credit losses | ||||||||||||||||
| Non-interest income: | ||||||||||||||||
| Fees and service charges | ||||||||||||||||
| Gains on sales of loans, net | ||||||||||||||||
| Increase in cash surrender value of bank owned life insurance | ||||||||||||||||
| Other | ||||||||||||||||
| Total non-interest income | ||||||||||||||||
| Non-interest expense: | ||||||||||||||||
| Compensation and benefits | ||||||||||||||||
| Occupancy and equipment | ||||||||||||||||
| Data processing | ||||||||||||||||
| Amortization of mortgage servicing rights and other intangibles | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Other | ||||||||||||||||
| Total non-interest expense | ||||||||||||||||
| Earnings before income taxes | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||
| Earnings per share: | ||||||||||||||||
| Basic (1) | $ | $ | $ | $ | ||||||||||||
| Diluted (1) | $ | $ | $ | $ | ||||||||||||
| Dividends per share (1) | $ | $ | $ | $ | ||||||||||||
| (1) |
See accompanying notes to consolidated financial statements.
| 3 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three months ended | Six months ended | |||||||||||||||
| (Dollars in thousands) | June 30, | June 30, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income: | ||||||||||||||||
| Net unrealized holding (losses) gains on available-for-sale securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax effect on net losses included in earnings | ||||||||||||||||
| Income tax effect on net unrealized holding losses (gains) | ( | ) | ||||||||||||||
| Other comprehensive (loss) gains | ( | ) | ( | ) | ( | ) | ||||||||||
| Total comprehensive income | $ | $ | $ | $ | ||||||||||||
See accompanying notes to consolidated financial statements.
| 4 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| (Dollars in thousands, except per share amounts) | Common stock | Additional paid-in capital | Retained earnings | Treasury stock | Accumulated other comprehensive income (loss) | Total | ||||||||||||||||||
| Balance at April 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Dividends paid ($ per share) (1) | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Balance at April 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Dividends paid ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of restricted common stock, shares | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Purchase of shares treasury stock | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| (1) |
| (Dollars in thousands, except per share amounts) | Common stock | Additional paid-in capital | Retained earnings | Treasury stock | Accumulated other comprehensive income (loss) | Total | ||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Cumulative effect of change in accounting | ||||||||||||||||||||||||
| principle from implementation of ASU 2016-3 | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||||||
| Dividends paid ($ per share) (1) | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Exercise of stock options, shares | ||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Dividends paid ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of restricted common stock, shares | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Purchase of shares treasury stock | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| (1) |
See Notes to Consolidate Financial Statements
| 5 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six months ended | ||||||||
| (Dollars in thousands) | June 30, | |||||||
| Cash flows from operating activities: | 2024 | 2023 | ||||||
| Net earnings | $ | $ | ||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
| Provision for credit losses | ||||||||
| Valuation allowance on real estate owned | ||||||||
| Amortization of investment security premiums, net | ||||||||
| Accretion of purchase accounting adjustments | ( | ) | ( | ) | ||||
| Amortization of mortgage servicing rights and other intangibles | ||||||||
| Depreciation | ||||||||
| Increase in cash surrender value of bank owned life insurance | ( | ) | ( | ) | ||||
| Stock-based compensation | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Net loss on sales of premises and equipment and foreclosed assets | ||||||||
| Net gains on sales of loans | ( | ) | ( | ) | ||||
| Proceeds from sales of loans | ||||||||
| Origination of loans held for sale | ( | ) | ( | ) | ||||
| Changes in assets and liabilities: | ||||||||
| Accrued interest and other assets | ||||||||
| Accrued expenses, taxes, and other liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Net increase in loans | ( | ) | ( | ) | ||||
| Net change in interest-bearing deposits at banks | ||||||||
| Maturities and prepayments of investment securities | ||||||||
| Purchases of investment securities | ( | ) | ( | ) | ||||
| Redemption of bank stocks | ||||||||
| Purchase of bank stocks | ( | ) | ( | ) | ||||
| Proceeds from sales of premises and equipment and foreclosed assets | ||||||||
| Purchases of premises and equipment, net | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net decrease in deposits | ( | ) | ( | ) | ||||
| Federal Home Loan Bank advance borrowings | ||||||||
| Federal Home Loan Bank advance repayments | ( | ) | ( | ) | ||||
| Proceeds from other borrowings | ||||||||
| Repayments on other borrowings | ( | ) | ( | ) | ||||
| Change in repurchase agreements | ( | ) | ( | ) | ||||
| Proceeds from exercise of stock options | ||||||||
| Payment of dividends | ( | ) | ( | ) | ||||
| Purchase of treasury stock | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
(Continued)
| 6 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
| Six months ended | ||||||||
| (Dollars in thousands) | June 30, | |||||||
| 2024 | 2023 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | ||||||||
| Cash paid for operating leases | ||||||||
See accompanying notes to consolidated financial statements.
| 7 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
The unaudited consolidated financial statements of Landmark Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, Landmark National Bank (the “Bank”) and Landmark Risk Management Inc., have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 27, 2024, containing the latest audited consolidated financial statements and notes thereto. The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of financial statements have been reflected herein. The results of the three and six month interim period ended June 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024 or any other future time period. The Company has evaluated subsequent events for recognition and disclosure up to the date the financial statements were issued.
2. Investments
A summary of the Company’s investment securities classified as available-for-sale and held-to-maturity as of June 30, 2024 and December 31, 2023 is as follows:
| (Dollars in thousands) | As of June 30, 2024 | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | unrealized | unrealized | Estimated | |||||||||||||
| cost | gains | losses | fair value | |||||||||||||
| Available-for-sale: | ||||||||||||||||
| U. S. treasury securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Municipal obligations, tax exempt | ( | ) | ||||||||||||||
| Municipal obligations, taxable | ( | ) | ||||||||||||||
| Agency mortgage-backed securities | ( | ) | ||||||||||||||
| Total available-for-sale | $ | $ | $ | ( | ) | $ | ||||||||||
| Held-to-maturity: | ||||||||||||||||
| Other | $ | $ | $ | ( | ) | $ | ||||||||||
| Total held-to-maturity | $ | $ | $ | ( | ) | $ | ||||||||||
| As of December 31, 2023 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | unrealized | unrealized | Estimated | |||||||||||||
| cost | gains | losses | fair value | |||||||||||||
| Available-for-sale: | ||||||||||||||||
| U. S. treasury securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Municipal obligations, tax exempt | ( | ) | ||||||||||||||
| Municipal obligations, taxable | ( | ) | ||||||||||||||
| Agency mortgage-backed securities | ( | ) | ||||||||||||||
| Total available-for-sale | $ | $ | $ | ( | ) | $ | ||||||||||
| Held-to-maturity: | ||||||||||||||||
| Other | $ | $ | $ | ( | ) | $ | ||||||||||
| Total held-to-maturity | $ | $ | $ | ( | ) | $ | ||||||||||
| 8 |
The
amortized cost of the above held-to-maturity investment securities has been further reduced by the allowance for credit losses of $
The tables above show that some of the securities in the Company’s available-for-sale and held-to-maturity investment portfolios had unrealized losses, or were temporarily impaired, as of both June 30, 2024 and December 31, 2023. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date.
The following table summarizes available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded at June 30, 2024 and December 31, 2023 along with the length of time in a continuous loss position:
| As of June 30, 2024 | ||||||||||||||||||||||||||||
| (Dollars in thousands) | Less than 12 months | 12 months or longer | Total | |||||||||||||||||||||||||
| No. of | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||||||
| securities | value | losses | value | losses | value | losses | ||||||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||||||
| U.S. treasury securities | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| Municipal obligations, tax exempt | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Municipal obligations, taxable | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Agency mortgage-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Total for available-for-sale | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||
| No. of | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||||||
| securities | value | losses | value | losses | value | losses | ||||||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||||||
| U.S. treasury securities | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| Municipal obligations, tax exempt | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Municipal obligations, taxable | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Agency mortgage-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Total for available-for-sale | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
The Company’s U.S. treasury portfolio consists of securities issued by the United States Department of the Treasury (“U.S. treasury”). The receipt of principal and interest on U.S. treasury securities is guaranteed by the full faith and credit of the U.S. government. Based on these factors, along with the Company’s intent to not sell the securities and its belief that it was more likely than not that the Company will not be required to sell the securities before recovery of its cost basis, the Company believed that the U.S. treasury securities identified in the table above were temporarily impaired as of June 30, 2024 and December 31, 2023.
The Company’s portfolio of municipal obligations consists of both tax-exempt and taxable general obligations securities issued by various municipalities. As of June 30, 2024, the Company did not intend to sell and it was more likely than not that the Company would not be required to sell its municipal obligations in an unrealized loss position until the recovery of its cost basis. Due to the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms and the expectation that they will continue to do so, the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, the Company believed that the municipal obligations identified in the tables above were temporarily impaired as of June 30, 2024 and December 31, 2023.
The Company’s agency mortgage-backed securities portfolio consists of securities underwritten to the standards of and guaranteed by the government-sponsored agencies of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and the Government National Mortgage Association. The receipt of principal, at par, and interest on agency mortgage-backed securities is guaranteed by the respective government-sponsored agency guarantor, such that the Company believed that its agency mortgage-backed securities did not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and the Company’s belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the agency mortgage-backed securities identified in the table above were temporarily impaired as of June 30, 2024 and December 31, 2023.
| 9 |
The Company’s other investment securities portfolio consists of seven subordinated debentures issued by financial institutions. These investment securities were acquired in the Freedom Bank acquisition in 2022 and classified as held-to-maturity. The securities were issued in 2021 and 2022 with a 10 year maturity and a fixed rate for five years. The securities are callable after the end of the fixed rate term. The following table provides information regarding the Company’s allowance for credit losses related to held-to-maturity investment securities:
| Six months ended | ||||||||
| June 30, | ||||||||
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Balance at January 1, | $ | $ | ||||||
| Impact of adopting ASC 326 | ||||||||
| Provision for credit losses | ||||||||
| Balance at June 30, | $ | $ | ||||||
The table below sets forth the amortized cost and fair value of investment securities at June 30, 2024. The table includes scheduled principal payments and estimated prepayments, based on observable market inputs, for agency mortgage-backed securities. Actual maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.
| (Dollars in thousands) | Amortized | Estimated | ||||||
| cost | fair value | |||||||
| Available-for-sale: | ||||||||
| Due in less than one year | $ | $ | ||||||
| Due after one year but within five years | ||||||||
| Due after five years but within ten years | ||||||||
| Due after ten years | ||||||||
| Total available-for-sale | $ | $ | ||||||
| Held-to-maturity: | ||||||||
| Due after one year but within five years | ||||||||
| Total held-to-maturity | $ | $ | ||||||
The Company did not record any sales of available-for-sale securities during the six months ended June 30, 2024 or 2023.
Securities
with carrying values of $
| 10 |
3. Loans and Allowance for Credit Losses
Loans consisted of the following as of the dates indicated below:
| June 30, | December 31, | |||||||
| (Dollars in thousands) | 2024 | 2023 | ||||||
| One-to-four family residential real estate loans | $ | $ | ||||||
| Construction and land loans | ||||||||
| Commercial real estate loans | ||||||||
| Commercial loans | ||||||||
| Agriculture loans | ||||||||
| Municipal loans | ||||||||
| Consumer loans | ||||||||
| Total gross loans | ||||||||
| Net deferred loan fees and loans in process | ( | ) | ( | ) | ||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Loans, net | $ | $ | ||||||
The following tables provide information on the Company’s allowance for credit losses by loan class and allowance methodology:
| Three and six months and six months ended June 30, 2024 | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | One-to-four family residential real estate loans | Construction and land loans | Commercial real estate loans | Commercial loans | Agriculture loans | Municipal loans | Consumer loans | Total | ||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||
| Balance at April 1, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provision for credit losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provision for credit losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three and six months ended June 30, 2023 | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | One-to-four family residential real estate loans | Construction and land loans | Commercial real estate loans | Commercial loans | Agriculture loans | Municipal loans | Consumer loans | Total | ||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||
| Balance at April 1, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provision for credit losses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Impact of adopting ASC 326 | ( | ) | ||||||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provision for credit losses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The
Company recorded net loan recoveries of $
| 11 |
The following table presents information regarding non-accrual and loans past due over 89 days and still accruing as of the dates indicated:
| (Dollars in thousands) | As of June 30, 2024 | |||||||||||
| Non-accrual with no allowance for credit loss | Non-accrual with allowance for credit losses | Loans past due over 89 days still accruing | ||||||||||
| Commercial real estate loans | $ | $ | $ | |||||||||
| Commercial loans | ||||||||||||
| Agriculture loans | ||||||||||||
| Consumer loans | ||||||||||||
| Total loans | $ | $ | $ | |||||||||
| (Dollars in thousands) | As of December 31, 2023 | |||||||||||
| Non-accrual with no allowance for credit loss | Non-accrual with allowance for credit losses | Loans past due over 89 days still accruing | ||||||||||
| One-to-four family residential real estate loans | $ | $ | $ | |||||||||
| Commercial loans | ||||||||||||
| Agriculture loans | ||||||||||||
| Consumer loans | ||||||||||||
| Total loans | $ | $ | $ | |||||||||
The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following table presents information regarding the amortized cost basis and collateral type of collateral-dependent loans as of the dates indicated:
| (Dollars in thousands) | As of June 30, 2024 | |||||
| Loan balance | Collateral Type | |||||
| One-to-four family residential real estate loans | $ | |||||
| Construction and land loans | $ | |||||
| Commercial real estate loans | ||||||
| Commercial loans | ||||||
| Agriculture loans | ||||||
| Consumer loans | ||||||
| Total loans | $ | |||||
| (Dollars in thousands) | As of December 31, 2023 | |||||
| Loan balance | Collateral Type | |||||
| One-to-four family residential real estate loans | $ | |||||
| Construction and land loans | ||||||
| Commercial real estate loans | ||||||
| Commercial loans | ||||||
| Agriculture loans | ||||||
| Consumer loans | ||||||
| Total loans | $ | |||||
| 12 |
The Company’s key credit quality indicator is a loan’s performance status, defined as accruing or non-accruing. Performing loans are considered to have a lower risk of loss. Non-accrual loans are those which the Company believes have a higher risk of loss. The accrual of interest on non-performing loans is discontinued at the time the loan is 90 days delinquent, unless the credit is well secured and in process of collection. Loans are placed on non-accrual or are charged off at an earlier date if collection of principal or interest is considered doubtful. There were no loans 90 days or more delinquent and accruing interest at either June 30, 2024 or December 31, 2023.
The following tables present information regarding the Company’s past due and non-accrual loans by loan class, as of the dates indicated:
| (Dollars in thousands) | As of June 30, 2024 | |||||||||||||||||||||||||||
| 30-59 days delinquent and accruing | 60-89 days delinquent and accruing | 90 days or more delinquent and accruing | Total past due loans accruing | Non-accrual loans | Total past due and non-accrual loans | Total loans not past due | ||||||||||||||||||||||
| One-to-four family residential real estate loans | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Construction and land loans | ||||||||||||||||||||||||||||
| Commercial real estate loans | ||||||||||||||||||||||||||||
| Commercial loans | ||||||||||||||||||||||||||||
| Agriculture loans | ||||||||||||||||||||||||||||
| Municipal loans | ||||||||||||||||||||||||||||
| Consumer loans | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Percent of gross loans | % | % | % | % | % | % | % | |||||||||||||||||||||
| (Dollars in thousands) | As of December 31, 2023 | |||||||||||||||||||||||||||
| 30-59 days delinquent and accruing | 60-89 days delinquent and accruing | 90 days or more delinquent and accruing | Total past due loans accruing | Non-accrual loans | Total past due and non-accrual loans | Total loans not past due | ||||||||||||||||||||||
| One-to-four family residential real estate loans | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Construction and land loans | ||||||||||||||||||||||||||||
| Commercial real estate loans | ||||||||||||||||||||||||||||
| Commercial loans | ||||||||||||||||||||||||||||
| Agriculture loans | ||||||||||||||||||||||||||||
| Municipal loans | ||||||||||||||||||||||||||||
| Consumer loans | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Percent of gross loans | % | % | % | % | % | % | % | |||||||||||||||||||||
Under
the original terms of the Company’s non-accrual loans, interest earned on such loans for the six months ended June 30, 2024 and
2023 would have increased interest income by $
The Company also categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loan terms. Classified loans are those that are assigned a special mention, substandard or doubtful risk rating using the following definitions:
Special Mention: Loans are currently protected by the current net worth and paying capacity of the obligor or of the collateral pledged but such protection is potentially weak. These loans constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. The credit risk may be relatively minor, yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.
Substandard: Loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. Loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
| 13 |
Doubtful: Loans classified doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
The following table presents information regarding the Company’s risk category of loans by type and year of origination, as of the dates indicated:
| (Dollars in thousands) | As of June 30, 2024 | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving loans amortized cost | Revolving loans converted to term | Total | ||||||||||||||||||||||||||||
| One-to-four family residential real estate loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Construction and land loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Agriculture loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Municipal loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Consumer loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Total loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs for the six month ending 6-30-2024 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| 14 |
| (Dollars in thousands) | As of December 31, 2023 | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving loans amortized cost | Revolving loans converted to term | Total | ||||||||||||||||||||||||||||
| One-to-four family residential real estate loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Construction and land loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Agriculture loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Municipal loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Consumer loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total loans | ||||||||||||||||||||||||||||||||||||
| Nonclassified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Gross charge-offs for the year ending December 31,2023 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| 15 |
The following table provides information regarding the Company’s allowance for credit losses related to unfunded loan commitments for the periods indicated:
| Three months ended | Six months ended | |||||||||||||||
| (dollars in thousands) | June 30, | June 30, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Balance at beginning of period | $ | $ | ||||||||||||||
| Provision for credit losses | ||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
The Company did not make any loan modifications to borrowers experiencing financial difficulty during the three or six months ended June 30, 2024. The Company did not make any loan modifications to borrowers experiencing financial difficulty during the three months ended June 30, 2023. The following table presents the amortized cost basis of loans at June 30, 2023 that were both experiencing financial difficulty and modified during the six months ended June 30, 2023 by class, type of modification and includes the financial effect of the modification.
| As of June 30, 2023 | ||||||||||
| (Dollars in thousands) | Amortized cost basis | % of loan class total | Financial effect | |||||||
| Term extension: | ||||||||||
| Commercial | $ | % | ||||||||
4. Goodwill and Other Intangible Assets
The Company tests goodwill for impairment annually or more frequently if circumstances warrant. The Company’s annual impairment test as of December 31, 2023 concluded that its goodwill was not impaired. Based on that test and current conditions, as of June 30, 2024, the Company concluded it was more likely than not that its goodwill was not impaired.
Core deposit intangible assets are amortized over the estimated useful life of ten years on an accelerated basis. A summary of the other intangible assets that continue to be subject to amortization as of the dates indicated is presented in the following table:
| (Dollars in thousands) | As of June 30, 2024 | |||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||
| Core deposit intangible assets | $ | $ | ( | ) | $ | |||||||
| (Dollars in thousands) | As of December 31, 2023 | |||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||
| Core deposit intangible assets | $ | $ | ( | ) | $ | |||||||
The following sets forth estimated amortization expense for core deposit and intangible assets for the remainder of 2024 and in successive years ending December 31:
| (Dollars in thousands) | Amortization | |||
| expense | ||||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
| 16 |
5. Mortgage Loan Servicing
Mortgage loans serviced for others are not reported as assets. The following table provides information on the principal balances of mortgage loans serviced for others:
| (Dollars in thousands) | June 30, | December 31, | ||||||
| 2024 | 2023 | |||||||
| FHLMC | $ | $ | ||||||
| FHLB | ||||||||
| Total | $ | $ | ||||||
Custodial
escrow balances maintained in connection with serviced loans were $
Activity for mortgage servicing rights for the periods indicated was as follows:
| Three months ended | Six months ended | |||||||||||||||
| (Dollars in thousands) | June 30, | June 30, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Mortgage servicing rights: | ||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||
| Additions | ||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
The
fair value of mortgage servicing rights was $
The
Company had a mortgage repurchase reserve of $
| 17 |
Basic
earnings per share have been computed based upon the weighted average number of common shares outstanding during each period. Diluted
earnings per share included the effect of all potential common shares outstanding during each period. The diluted earnings per share
computation for both the three and six months ended June 30, 2024, excluded of unexercised stock options, because their inclusion
would have been anti-dilutive during such periods. The diluted earnings per share computation for both the three and six months ended
June 30, 2023, excluded of unexercised stock options because their inclusion would have been anti-dilutive during such periods.
The Company’s Board of Directors declared a cash dividend of $ per share to be paid
| Three months ended | Six months ended | |||||||||||||||
| (Dollars in thousands, except per share amounts) | June 30, | June 30, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding - basic (1) | ||||||||||||||||
| Assumed exercise of stock options (1) | ||||||||||||||||
| Weighted average common shares outstanding - diluted (1) | ||||||||||||||||
| Earnings per share (1): | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| (1) |
7. Federal Home Loan Bank Borrowings and Other Borrowings
The
Bank has a line of credit, renewable annually each September, with the Federal Home Loan Bank (“FHLB’) under which there
were $
Although
no loans are specifically pledged, the FHLB requires the Bank to maintain eligible collateral (qualifying loans and investment securities)
that has a lending value at least equal to its required collateral. At June 30, 2024 and December 31, 2023, there were blanket pledges
of loans and securities to the FHLB totaling $
At
June 30, 2024, the Bank had no borrowings through the Federal Reserve discount window, while its borrowing capacity with the Federal
Reserve was $
The Company has a $ million line of credit from an unrelated financial institution maturing on , with an interest rate that adjusts daily based on the This line of credit has covenants specific to capital and other financial ratios, which the Company was in compliance with at June 30, 2024 and December 31, 2023. As of June 30, 2024 and December 31, 2023, the Company did t have an outstanding balance on the line of credit.
On
September 29, 2022, the Company borrowed $ million from the same unrelated financial institution at a fixed rate of %. This borrowing
has covenants specific to capital and other financial ratios, which the Company believes it was in compliance with at June 30, 2024 and
December 31, 2023. This borrowing matures on and requires quarterly principal and interest payments. Early principal
payments are allowed and the balance was $
| 18 |
8. Repurchase Agreements
The Company has overnight repurchase agreements with certain deposit customers whereby the Company uses investment securities as collateral for non-insured funds. These balances are accounted for as collateralized financing and included in other borrowings on the balance sheet.
Repurchase
agreements are comprised of non-insured customer funds, totaling $
The following is a summary of the balances and collateral of the Company’s repurchase agreements as of the dates indicated:
| As of June 30, 2024 | ||||||||||||||||||||
| (dollars in thousands) | Overnight and | Greater | ||||||||||||||||||
| Continuous | Up to 30 days | 30-90 days | than 90 days | Total | ||||||||||||||||
| Repurchase agreements: | ||||||||||||||||||||
| U.S. federal treasury obligations | $ | $ | $ | $ | $ | |||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||
| (dollars in thousands) | Overnight and | Up to | Greater | |||||||||||||||||
| Continuous | 30 days | 30-90 days | than 90 days | Total | ||||||||||||||||
| Repurchase agreements: | ||||||||||||||||||||
| U.S. federal treasury obligations | $ | $ | $ | $ | $ | |||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
The investment securities are held by a third party financial institution in the customer’s custodial account. The Company is required to maintain adequate collateral for each repurchase agreement. Changes in the fair value of the investment securities impact the amount of collateral required. If the Company were to default, the investment securities would be used to settle the repurchase agreement with the deposit customer.
9. Revenue from Contracts with Customers
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. Items outside the scope of ASC 606 are noted as such.
| Three months ended | Six months ended | |||||||||||||||
| (Dollars in thousands) | June 30, | June 30, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Non-interest income: | ||||||||||||||||
| Service charges on deposit accounts | ||||||||||||||||
| Overdraft fees | $ | $ | $ | $ | ||||||||||||
| Other | ||||||||||||||||
| Interchange income | ||||||||||||||||
| Loan servicing fees (1) | ||||||||||||||||
| Office lease income (1) | ||||||||||||||||
| Gains on sales of loans (1) | ||||||||||||||||
| Bank owned life insurance income (1) | ||||||||||||||||
| Losses on sales of real estate owned | ( | ) | ||||||||||||||
| Other | ||||||||||||||||
| Total non-interest income | $ | $ | $ | $ | ||||||||||||
| (1) |
| 19 |
A description of the Company’s revenue streams under ASC 606 follows:
Service Charges on Deposit Accounts
The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM usage fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period during which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Interchange Income
The Company earns interchange fees from debit cardholder transactions conducted through the interchange payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.
Gains (Losses) on Sales of Real Estate Owned
The Company records a gain or loss from the sale of real estate owned when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of real estate owned to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the real estate owned asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. There were no sales of real estate owned that were financed by the Company during the first six months of 2024 or 2023.
10. Fair Value of Financial Instruments and Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
| 20 |
Fair value estimates of the Company’s financial instruments as of June 30, 2024 and December 31, 2023, including methods and assumptions utilized, are set forth below:
| As of June 30, 2024 | ||||||||||||||||||||
| Carrying | ||||||||||||||||||||
| amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Interest-bearing deposits at other banks | ||||||||||||||||||||
| Investment securities available-for-sale | ||||||||||||||||||||
| Investment securities held-to-maturity | ||||||||||||||||||||
| Bank stocks, at cost | n/a | n/a | n/a | n/a | ||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Loans held for sale | ||||||||||||||||||||
| Mortgage servicing rights | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Derivative financial instruments | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Non-maturity deposits | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||
| Certificates of deposit | ( | ) | ( | ) | ( | ) | ||||||||||||||
| FHLB and other borrowings | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Subordinated debentures | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Repurchase agreements | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Accrued interest payable | ( | ) | ( | ) | ( | ) | ||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||
| Carrying | ||||||||||||||||||||
| amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Interest-bearing deposits at other banks | ||||||||||||||||||||
| Investment securities available-for-sale | ||||||||||||||||||||
| Investment securities held-to-maturity | ||||||||||||||||||||
| Bank stocks, at cost | n/a | n/a | n/a | n/a | ||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Loans held for sale | ||||||||||||||||||||
| Mortgage servicing rights | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Derivative financial instruments | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Non-maturity deposits | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||
| Certificates of deposit | ( | ) | ( | ) | ( | ) | ||||||||||||||
| FHLB and other borrowings | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Subordinated debentures | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Repurchase agreements | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Accrued interest payable | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Derivative financial instruments | ( | ) | ( | ) | ( | ) | ||||||||||||||
| 21 |
Transfers
The Company did not transfer any assets or liabilities among levels during the six months ended June 30, 2024 or during the year ended December 31, 2023.
Valuation Methods for Instruments Measured at Fair Value on a Recurring Basis
The following tables represent the Company’s financial instruments that are measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023, allocated to the appropriate fair value hierarchy:
| (Dollars in thousands) | As of June 30, 2024 | |||||||||||||||
| Fair value hierarchy | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Available-for-sale investment securities: | ||||||||||||||||
| U. S. treasury securities | $ | $ | $ | $ | ||||||||||||
| Municipal obligations, tax exempt | ||||||||||||||||
| Municipal obligations, taxable | ||||||||||||||||
| Agency mortgage-backed securities | ||||||||||||||||
| Loans held for sale | ||||||||||||||||
| Derivative financial instruments | ||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||
| Fair value hierarchy | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Available-for-sale investment securities: | ||||||||||||||||
| U. S. treasury securities | $ | $ | $ | $ | ||||||||||||
| Municipal obligations, tax exempt | ||||||||||||||||
| Municipal obligations, taxable | ||||||||||||||||
| Agency mortgage-backed securities | ||||||||||||||||
| Loans held for sale | ||||||||||||||||
| Derivative financial instruments | ||||||||||||||||
| Liability: | ||||||||||||||||
| Derivative financial instruments | ( | ) | ( | ) | ||||||||||||
The Company’s investment securities classified as available-for-sale include U.S. treasury securities, municipal obligations, and agency mortgage-backed securities. Quoted exchange prices are available for the Company’s U.S. treasury securities, which are classified as Level 1. U.S. federal agency mortgage-backed securities are priced utilizing industry-standard models that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. These measurements are classified as Level 2. Municipal obligations are valued using a type of matrix, or grid, pricing in which securities are benchmarked against U.S. treasury rates based on credit rating. These model and matrix measurements are classified as Level 2 in the fair value hierarchy.
Changes in the fair value of available-for-sale securities are included in other comprehensive income to the extent the changes are not considered other-than-temporary impairments. Other-than-temporary impairment tests are performed on a quarterly basis and any decline in the fair value of an individual security below its cost that is deemed to be other-than-temporary results in a write-down of that security’s cost basis.
Mortgage loans originated and intended for sale in the secondary market are carried at fair value. The mortgage loan valuations are based on quoted secondary market prices for similar loans and are classified as Level 2. Changes in the fair value of mortgage loans originated and intended for sale in the secondary market and derivative financial instruments are included in gains on sales of loans.
| 22 |
The aggregate fair value, contractual balance (including accrued interest), and gains on loans held for sale as of June 30, 2024 and December 31, 2023 were as follows:
| As of | As of | |||||||
| June 30, | December 31, | |||||||
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Aggregate fair value | $ | $ | ||||||
| Contractual balance | ||||||||
| Gain | $ | $ | ||||||
The Company’s derivative financial instruments consist of interest rate lock commitments and corresponding forward sales contracts on mortgage loans held for sale. The fair values of these derivatives are based on quoted prices for similar loans in the secondary market. The market prices are adjusted by a factor, based on the Company’s historical data and its judgment about future economic trends, which considers the likelihood that a commitment will ultimately result in a closed loan. These instruments are classified as Level 2. The amounts are included in other assets or other liabilities on the consolidated balance sheets and gains on sales of loans, net in the consolidated statements of earnings. The total amount of gains from changes in fair value of derivative financial instruments included in earnings for the periods indicated were as follows:
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Total change in fair value | $ | $ | $ | $ | ||||||||||||
Valuation Methods for Instruments Measured at Fair Value on a Nonrecurring Basis
The
Company does not record its loan portfolio at fair value. Collateral-dependent loans are generally carried at the lower of cost or fair
value of the collateral, less estimated selling costs. Collateral values are determined based on appraisals performed by qualified licensed
appraisers hired by the Company and then further adjusted if warranted based on relevant facts and circumstances. The appraisals may
utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are
routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available.
Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Individually
evaluated loans are reviewed at least quarterly for additional allowance and adjusted accordingly, based on the same factors identified
above. The carrying value of the Company’s individually evaluated loans was $
Real estate held-for-sale includes premises and equipment that were previously used as a bank branch facility and is included in other assets on the balance sheet. Real estate held-for-sale is initially recorded at the fair value of the collateral less estimated selling costs. Subsequent valuations are updated periodically and are based upon independent appraisals, third party price opinions or internal pricing models. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Real estate held-for-sale is reviewed and evaluated at least annually for additional allowance and adjusted accordingly, based on the same factors identified above.
Real estate owned includes assets acquired through, or in lieu of, foreclosure and land previously acquired for expansion. Real estate owned is initially recorded at the fair value of the collateral less estimated selling costs. Subsequent valuations are updated periodically and are based upon independent appraisals, third party price opinions or internal pricing models. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Real estate owned is reviewed and evaluated at least annually for additional allowance and adjusted accordingly, based on the same factors identified above.
| 23 |
The following table presents quantitative information about Level 3 fair value measurements measured at fair value on a nonrecurring basis as of June 30, 2024 and December 31, 2023:
| (Dollars in thousands) | ||||||||||||
| Fair value | Valuation technique | Unobservable inputs | Range | |||||||||
| As of June 30, 2024 | ||||||||||||
| Individual evaluated loans: | ||||||||||||
| Commercial | $ | | | % | ||||||||
| Real estate held-for-sale: | ||||||||||||
| Commercial real estate | | | % | |||||||||
| As of December 31, 2023 | ||||||||||||
| Individual evaluated loans: | ||||||||||||
| One-to-four family residential real estate | $ | | | % | ||||||||
| Commercial | | | | % | ||||||||
| Real estate owned: | ||||||||||||
| One-to-four family residential real estate | | | % | |||||||||
11. Regulatory Capital Requirements
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believed that as of June 30, 2024, the Company and the Bank met all capital adequacy requirements to which they were subject at that time.
Prompt
corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as
is asset growth and expansion, and capital restoration plans are required. The Company and the Bank are subject to the Basel III Rule,
which is applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding
companies other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets
of less than $
The
Basel III Rule includes a common equity Tier 1 capital to risk-weighted assets minimum ratio of
As of June 30, 2024 and December 31, 2023, the most recent regulatory notifications categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action then in effect. There are no conditions or events since that notification that management believes have changed the institution’s category.
| 24 |
The following is a comparison of the Company’s regulatory capital to minimum capital requirements as of June 30, 2024 and December 31, 2023.
| (Dollars in thousands) | ||||||||||||||||
| For capital | ||||||||||||||||
| Actual | adequacy purposes | |||||||||||||||
| Amount | Ratio | Amount | Ratio (1) | |||||||||||||
| As of June 30, 2024 | ||||||||||||||||
| Leverage | $ | % | $ | % | ||||||||||||
| Common Equity Tier 1 Capital | % | % | ||||||||||||||
| Tier 1 Capital | % | % | ||||||||||||||
| Total Risk Based Capital | % | % | ||||||||||||||
| As of December 31, 2023 | ||||||||||||||||
| Leverage | $ | % | $ | % | ||||||||||||
| Common Equity Tier 1 Capital | % | % | ||||||||||||||
| Tier 1 Capital | % | % | ||||||||||||||
| Total Risk Based Capital | % | % | ||||||||||||||
| (1) |
The following is a comparison of the Bank’s regulatory capital to minimum capital requirements as of June 30, 2024 and December 31, 2023:
| To be well-capitalized | ||||||||||||||||||||||||
| under prompt | ||||||||||||||||||||||||
| (Dollars in thousands) | For capital | corrective | ||||||||||||||||||||||
| Actual | adequacy purposes | action provisions | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio (1) | Amount | Ratio | |||||||||||||||||||
| As of June 30, 2024 | ||||||||||||||||||||||||
| Leverage | $ | % | $ | % | $ | % | ||||||||||||||||||
| Common Equity Tier 1 Capital | % | % | % | |||||||||||||||||||||
| Tier 1 Capital | % | % | % | |||||||||||||||||||||
| Total Risk Based Capital | % | % | % | |||||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||
| Leverage | $ | % | $ | % | $ | % | ||||||||||||||||||
| Common Equity Tier 1 Capital | % | % | % | |||||||||||||||||||||
| Tier 1 Capital | % | % | % | |||||||||||||||||||||
| Total Risk Based Capital | % | % | % | |||||||||||||||||||||
| (1) |
| 25 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview. Landmark Bancorp, Inc. is a financial holding company incorporated under the laws of the State of Delaware and is engaged in the banking business through its wholly owned subsidiary, Landmark National Bank, and in the insurance business through its wholly owned subsidiary, Landmark Risk Management, Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Landmark Bancorp, Inc., Landmark National Bank and Landmark Risk Management, Inc. The Company is listed on the Nasdaq Global Market under the symbol “LARK.” The Bank is dedicated to providing quality financial and banking services to its local communities. Our strategy includes continuing a tradition of holding and acquiring quality assets while growing our commercial, commercial real estate (“CRE”) and agriculture loan portfolios. We are committed to developing relationships with our borrowers and providing a total banking service.
The Bank is principally engaged in the business of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to originate one-to-four family residential real estate, construction and land, CRE, commercial, agriculture, municipal and consumer loans. Although not our primary business function, we invest in certain investment and mortgage-related securities using deposits and other borrowings as funding sources.
Landmark Risk Management, Inc., which was formed and began operations in 2017, is a Nevada-based captive insurance company which provides property and casualty insurance coverage to the Company and the Bank for which insurance may not be currently available or economically feasible in the current insurance marketplace. Landmark Risk Management, Inc. is subject to the regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance.
Our results of operations depend generally on net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Net interest income is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, we are subject to interest rate risk to the degree that our interest-earning assets mature or reprice at different times, or at different speeds, than our interest-bearing liabilities. Our results of operations are also affected by non-interest income, such as service charges, loan fees, gains from the sale of newly originated loans, gains or losses on investments and certain other non-interest related items. Our principal operating expenses, aside from interest expense, consist of compensation and employee benefits, occupancy costs, professional fees, data processing expenses and provision for credit losses.
We are significantly impacted by prevailing economic conditions, including federal monetary and fiscal policies, and federal regulations of financial institutions. Deposit balances are influenced by numerous factors such as competing investments, the level of income and the personal rate of savings within our market areas. Factors influencing lending activities include the demand for housing and the interest rate pricing competition from other lending institutions.
Currently, our business consists of ownership of the Bank, with its main office in Manhattan, Kansas and thirty additional branch offices in central, eastern, southeast and southwest Kansas, one loan production office in Kansas City, Missouri and our ownership of Landmark Risk Management, Inc. On October 1, 2022, the Company completed its acquisition of Freedom Bancshares, Inc., the holding company of Freedom Bank. Freedom Bank was founded in 2006 and operated out of a single location in Overland Park, Kansas.
In August 2024, we declared our 92nd consecutive quarterly dividend, and we currently have no plans to change our dividend strategy given our current capital and liquidity position. However, while we have achieved a strong capital base and expect to continue operating profitably, our future dividend practice is dependent upon the performance of the economy and the Company’s overall performance. In addition, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, we will not be permitted to make capital distributions (including for dividends and repurchases of stock) or pay discretionary bonuses to executive officers without restriction if we do not maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer, a standard we exceeded at June 30, 2024.
Critical Accounting Policies. Critical accounting policies are those which are both most important to the portrayal of our financial condition and results of operations and require our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to the allowance for credit losses and the accounting for business combinations, each of which involve significant judgment by our management. There have been no material changes to the critical accounting policies included under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 27, 2024.
| 26 |
Summary of Results. During the second quarter of 2024, we recorded net earnings of $3.0 million, which was a decrease of $350,000, or 10.4%, from the $3.4 million of net earnings in the second quarter of 2023. During the first six months of 2024, we recorded net earnings of $5.8 million, which was a decrease of $929,000, or 13.8%, from the $6.7 million of net earnings in the first six months of 2023. The decrease in net earnings during 2024 was primarily related to an increase in non-interest expense as we recorded a valuation allowance of $979,000 against real estate held for sale in the second quarter of 2024 and $1.1 million during the first six months of 2024.
The following table summarizes earnings and key performance measures as of or for the periods presented:
| As of or for the | As of or for the | |||||||||||||||
| (Dollars in thousands, except per share amounts) | three months ended June 30, | six months ended June 30, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net earnings: | ||||||||||||||||
| Net earnings | $ | 3,012 | $ | 3,362 | $ | 5,790 | $ | 6,719 | ||||||||
| Basic earnings per share (1) | $ | 0.55 | $ | 0.61 | $ | 1.06 | $ | 1.23 | ||||||||
| Diluted earnings per share (1) | $ | 0.55 | $ | 0.61 | $ | 1.06 | $ | 1.23 | ||||||||
| Earnings ratios: | ||||||||||||||||
| Return on average assets (2) | 0.78 | % | 0.88 | % | 0.75 | % | 0.89 | % | ||||||||
| Return on average equity (2) | 9.72 | % | 11.52 | % | 9.30 | % | 11.77 | % | ||||||||
| Equity to total assets | 8.22 | % | 7.62 | % | 8.22 | % | 7.62 | % | ||||||||
| Net interest margin (2) (3) | 3.21 | % | 3.21 | % | 3.16 | % | 3.26 | % | ||||||||
| Dividend payout ratio | 38.18 | % | 32.31 | % | 39.62 | % | 32.56 | % | ||||||||
| (1) | Per share values for the periods ended June 30, 2023 have been adjusted to give effect to the 5% dividend paid during 2023. |
| (2) | Ratios have been annualized and are not necessarily indicative of the results for the entire year. |
| (3) | Net interest margin is presented on a fully tax equivalent basis, using a 21% federal tax rate. |
Interest Income. Interest income of $18.2 million for the quarter ended June 30, 2024 increased $2.4 million, or 14.9%, compared to the same period of 2023. Interest income on loans increased $2.4 million, or 19.0%, to $15.0 million for the quarter ended June 30, 2024, compared to the same period of 2023 due to higher yields and average balances. Our yields increased from 5.80% in the second quarter of 2023 to 6.33% in the second quarter of 2024. The increase in interest income on loans was also driven by an increase in average loan balances which increased from $873.9 million in the second quarter of 2023 to $955.1 million in the second quarter of 2024. Interest income on investment securities decreased $36,000, or 1.1%, to $3.1 million for the second quarter of 2024, as compared to $3.2 million in the same period of 2023. The decrease in interest income on investment securities was primarily the result of a decrease in the average balances of investment securities which decreased from $495.5 million in the second quarter of 2023 to $437.1 million in the second quarter of 2024.
Interest income of $35.9 million for the six months ended June 30, 2024 increased $5.5 million, or 18.2%, as compared to the same period of 2023. Interest income on loans increased $5.5 million, or 23.0%, to $29.5 million for the six months ended June 30, 2024, compared to the same period of 2023 due to an increase in our average loan balances, which increased from $862.2 million during the first six months of 2023 to $950.4 million during the first six months of 2024. Also contributing to higher interest income were higher yields on loans, which increased from 5.62% in the six months ended June 30, 2023 to 6.25% during the six months ended June 30, 2024. Interest income on investment securities increased $53,000, or 0.8%, to $6.3 million for the first six months of 2024, as compared to $6.3 million in the same period of 2023. The increase in interest income on investment securities was the result of higher yields, which increased from 2.69% in the first six months of 2023 to 2.99% in the first six months of 2024. Partially offsetting the higher yields on investment securities was a decrease in the average balances of investment securities which decreased from $497.5 million in the first half of 2023 to $447.0 million in the first half of 2024.
| 27 |
Interest Expense. Interest expense during the quarter ended June 30, 2024 increased $2.2 million to $7.2 million, as compared to the same period of 2023. Interest expense on interest-bearing deposits increased $2.2 million to $5.7 million for the quarter ended June 30, 2024 as compared to the same period of 2023. Our total cost of interest-bearing deposits increased from 1.57% in the second quarter of 2023 to 2.44% in the second quarter of 2024 as a result of higher rates and increased competition for deposits. Also contributing to higher interest expense was an increase in average interest-bearing deposit balances, which increased from $882.7 million in the second quarter of 2023 to $936.2 million in the second quarter of 2024. For the second quarter of 2024, interest expense on borrowings decreased $8,000, to $1.5 million as compared to the same period of 2023 due to a decrease in our average borrowings and repurchase agreements which decreased $9.7 million from the second quarter of 2023 to the second quarter of 2024. Partially offsetting the decrease in average borrowing was an increase in rates, which increased from 5.34% in the second quarter of 2023 to 5.81% in the same period of 2024.
Interest expense during the six months ended June 30, 2024 increased $5.6 million to $14.2 million, as compared to the same period of 2023. Interest expense on interest-bearing deposits increased $5.1 million to $11.1 million for the six months ended June 30, 2024 compared to the same period of 2023. The increase in interest expense on interest-bearing deposits was the result of higher rates as our cost of interest-bearing deposits increased from 1.38% in the first six months of 2023 to 2.39% in the same period of 2024. The increase in interest expense on deposits was also due to an increase in average interest-bearing deposit balances, which increased from $877.8 million in the first six months of 2023 to $935.8 million in the same period of 2024. For the first six months of 2024, interest expense on borrowings increased $442,000, to $3.1 million as compared to the same period of 2023, due primarily to an increase in our average outstanding borrowings which increased from $105.1 million in the first six months of 2023 to $107.3 million in the first six months of 2024. Also contributing to the higher interest expense on borrowings were higher average rates on our borrowings, which increased to 5.76% for the first six months of 2024 compared to 5.05% for the same period of 2023.
Net Interest Income. Net interest income increased $141,000, or 1.3%, to $11.0 million for the second quarter of 2024 compared to the same period of 2023. The increase in net interest income was primarily a result of an increase in interest on loans and investments, partially offset by higher interest expense. The accretion of purchase accounting adjustments increased net interest income by $263,000 in the second quarter of 2023 compared to an increase of $274,000 in the second quarter of 2024 and was primarily related to fair value adjustments on loans acquired in the Freedom Bank transaction. Compared to the same period last year, the increase in interest rates raised the yields on our interest-earning assets and the cost of our interest-bearing liabilities. Net interest margin, on a tax-equivalent basis, was 3.21% in the second quarter of 2023 and 2024. Continued increases in interest rates may not result in a higher net interest margin as a result of increased competition for loans and deposits.
Net interest income decreased $59,000, or 0.3%, to $21.7 million for the first six months of 2024 compared to the same period of 2023. The decrease in net interest income was primarily a result of higher interest expense offsetting the increase in our interest income. The accretion of purchase accounting adjustments increased net interest income by $439,000 in the first six months of 2023 compared to an increase of $483,000 in the first six months of 2024 and was primarily related to fair value adjustments on loans acquired in the Freedom Bank transaction. Net interest margin, on a tax-equivalent basis, decreased from 3.26% in the first six months of 2023 to 3.16% in the same period of 2024.
| 28 |
Average Assets/Liabilities. The following table reflects the tax-equivalent yields earned on average interest-earning assets and costs of average interest-bearing liabilities (derived by dividing income or expense by the monthly average balance of assets or liabilities, respectively) as well as “net interest margin” (which reflects the effect of the net earnings balance) for the periods shown:
| Three months ended | Three months ended | |||||||||||||||||||||||
| June 30, 2024 | June 30, 2023 | |||||||||||||||||||||||
| Average balance | Income/ expense | Average yield/cost | Average balance | Income/ expense | Average yield/cost | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
| Interest-bearing deposits at banks | $ | 5,700 | $ | 40 | 2.82 | % | $ | 9,600 | $ | 49 | 2.05 | % | ||||||||||||
| Investment securities (1) | 437,136 | 3,307 | 3.04 | % | 495,456 | 3,338 | 2.70 | % | ||||||||||||||||
| Loans receivable, net (2) | 955,104 | 15,026 | 6.33 | % | 873,910 | 12,627 | 5.80 | % | ||||||||||||||||
| Total interest-earning assets | 1,397,940 | 18,373 | 5.29 | % | 1,378,966 | 16,014 | 4.66 | % | ||||||||||||||||
| Non-interest-earning assets | 147,876 | 146,623 | ||||||||||||||||||||||
| Total | $ | 1,545,816 | $ | 1,525,589 | ||||||||||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Money market and checking | $ | 585,300 | $ | 3,477 | 2.39 | % | $ | 591,498 | $ | 2,587 | 1.75 | % | ||||||||||||
| Savings accounts | 151,696 | 48 | 0.13 | % | 163,876 | 25 | 0.06 | % | ||||||||||||||||
| Certificates of deposit | 199,241 | 2,148 | 4.34 | % | 127,352 | 840 | 2.65 | % | ||||||||||||||||
| Total interest-bearing deposits | 936,237 | 5,673 | 2.44 | % | 882,726 | 3,452 | 1.57 | % | ||||||||||||||||
| FHLB advances and other borrowings | 72,875 | 1,027 | 5.67 | % | 77,176 | 1,027 | 5.34 | % | ||||||||||||||||
| Subordinated debentures | 21,651 | 418 | 7.76 | % | 21,651 | 387 | 7.17 | % | ||||||||||||||||
| Repurchase agreements | 11,524 | 88 | 3.07 | % | 16,909 | 127 | 3.01 | % | ||||||||||||||||
| Total borrowings | 106,050 | 1,533 | 5.81 | % | 115,736 | 1,541 | 5.34 | % | ||||||||||||||||
| Total interest-bearing liabilities | 1,042,287 | 7,206 | 2.78 | % | 998,462 | 4,993 | 2.01 | % | ||||||||||||||||
| Non-interest-bearing liabilities | 378,905 | 410,089 | ||||||||||||||||||||||
| Stockholders’ equity | 124,624 | 117,038 | ||||||||||||||||||||||
| Total | $ | 1,545,816 | $ | 1,525,589 | ||||||||||||||||||||
| Interest rate spread (3) | 2.51 | % | 2.65 | % | ||||||||||||||||||||
| Net interest margin (4) | $ | 11,167 | 3.21 | % | $ | 11,021 | 3.21 | % | ||||||||||||||||
| Tax-equivalent interest - imputed | 193 | 188 | ||||||||||||||||||||||
| Net interest income | $ | 10,974 | $ | 10,833 | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 134.1 | % | 138.1 | % | ||||||||||||||||||||
| (1) | Income on tax exempt securities is presented on a fully tax-equivalent basis, using a 21% federal tax rate. | |
| (2) | Includes loans classified as non-accrual. Income on tax-exempt loans is presented on a fully tax-equivalent basis, using a 21% federal tax rate. | |
| (3) | Interest rate spread represents the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. | |
| (4) | Net interest margin represents annualized, tax-equivalent net interest income divided by average interest-earning assets. |
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| Six months ended | Six months ended | |||||||||||||||||||||||
| June 30, 2024 | June 30, 2023 | |||||||||||||||||||||||
| Average balance | Income/ expense | Average yield/cost | Average balance | Income/ expense | Average yield/cost | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
| Interest-bearing deposits at banks | $ | 6,607 | $ | 103 | 3.14 | % | $ | 12,112 | $ | 147 | 2.45 | % | ||||||||||||
| Investment securities (1) | 447,034 | 6,657 | 2.99 | % | 497,486 | 6,633 | 2.69 | % | ||||||||||||||||
| Loans receivable, net (2) | 950,420 | 29,519 | 6.25 | % | 862,186 | 24,008 | 5.62 | % | ||||||||||||||||
| Total interest-earning assets | 1,404,061 | 36,279 | 5.20 | % | 1,371,784 | 30,788 | 4.53 | % | ||||||||||||||||
| Non-interest-earning assets | 146,678 | 146,589 | ||||||||||||||||||||||
| Total | $ | 1,550,739 | $ | 1,518,373 | ||||||||||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Money market and checking | $ | 590,372 | $ | 6,930 | 2.36 | % | $ | 595,780 | $ | 4,694 | 1.59 | % | ||||||||||||
| Savings accounts | 152,020 | 91 | 0.12 | % | 166,721 | 61 | 0.07 | % | ||||||||||||||||
| Certificates of deposit | 193,435 | 4,109 | 4.27 | % | 115,340 | 1,236 | 2.16 | % | ||||||||||||||||
| Total interest-bearing deposits | 935,827 | 11,130 | 2.39 | % | 877,841 | 5,991 | 1.38 | % | ||||||||||||||||
| FHLB advances and other borrowings | 72,747 | 2,049 | 5.66 | % | 61,285 | 1,594 | 5.25 | % | ||||||||||||||||
| Subordinated debentures | 21,651 | 830 | 7.71 | % | 21,651 | 751 | 6.99 | % | ||||||||||||||||
| Repurchase agreements | 12,947 | 195 | 3.03 | % | 22,199 | 287 | 2.61 | % | ||||||||||||||||
| Total borrowings | 107,345 | 3,074 | 5.76 | % | 105,135 | 2,632 | 5.05 | % | ||||||||||||||||
| Total interest-bearing liabilities | 1,043,172 | 14,204 | 2.74 | % | 982,976 | 8,623 | 1.77 | % | ||||||||||||||||
| Non-interest-bearing liabilities | 382,332 | 420,310 | ||||||||||||||||||||||
| Stockholders’ equity | 125,235 | 115,087 | ||||||||||||||||||||||
| Total | $ | 1,550,739 | $ | 1,518,373 | ||||||||||||||||||||
| Interest rate spread (3) | 2.46 | % | 2.76 | % | ||||||||||||||||||||
| Net interest margin (4) | $ | 22,075 | 3.16 | % | $ | 22,165 | 3.26 | % | ||||||||||||||||
| Tax-equivalent interest - imputed | 354 | 385 | ||||||||||||||||||||||
| Net interest income | $ | 21,721 | $ | 21,780 | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 134.6 | % | 139.6 | % | ||||||||||||||||||||
| (1) | Income on tax exempt securities is presented on a fully tax-equivalent basis, using a 21% federal tax rate. | |
| (2) | Includes loans classified as non-accrual. Income on tax-exempt loans is presented on a fully tax-equivalent basis, using a 21% federal tax rate. | |
| (3) | Interest rate spread represents the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. | |
| (4) | Net interest margin represents annualized, tax-equivalent net interest income divided by average interest-earning assets. |
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Rate/Volume Table. The following table describes the extent to which changes in tax-equivalent interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities affected the Company’s interest income and expense for the periods indicated. The table distinguishes between (i) changes attributable to rate (changes in rate multiplied by prior volume), (ii) changes attributable to volume (changes in volume multiplied by prior rate), and (iii) net change (the sum of (i) and (ii)). The net changes attributable to the combined effect of volume and rate that cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
| 2024 vs 2023 | 2024 vs 2023 | |||||||||||||||||||||||
| Increase/(decrease) attributable to | Increase/(decrease) attributable to | |||||||||||||||||||||||
| Volume | Rate | Net | Volume | Rate | Net | |||||||||||||||||||
| (Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||
| Interest income: | ||||||||||||||||||||||||
| Interest-bearing deposits at banks | $ | (119 | ) | $ | 110 | $ | (9 | ) | $ | (116 | ) | $ | 72 | $ | (44 | ) | ||||||||
| Investment securities | (141 | ) | 111 | (30 | ) | (235 | ) | 259 | 24 | |||||||||||||||
| Loans | 1,209 | 1,189 | 2,398 | 2,630 | 2,881 | 5,511 | ||||||||||||||||||
| Total | 949 | 1,410 | 2,359 | 2,279 | 3,212 | 5,491 | ||||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||
| Deposits | 219 | 2,002 | 2,221 | 425 | 4,714 | 5,139 | ||||||||||||||||||
| FHLB advances and other borrowings | - | - | - | 321 | 134 | 455 | ||||||||||||||||||
| Subordinated debentures and other borrowings | - | 31 | 31 | - | 79 | 79 | ||||||||||||||||||
| Repurchase agreements | (42 | ) | 3 | (39 | ) | (150 | ) | 58 | (92 | ) | ||||||||||||||
| Total | 177 | 2,036 | 2,213 | 596 | 4,985 | 5,581 | ||||||||||||||||||
| Net interest income | $ | 772 | $ | (626 | ) | $ | 146 | $ | 1,683 | $ | (1,773 | ) | $ | (90 | ) | |||||||||
Provision for Credit Losses. During the second quarter of 2024, no provision for credit losses was recorded, compared to a $250,000 provision for credit losses recorded in the same period of 2023. As of June 30, 2024, our analysis of our allowance for credit losses indicated no provision was required based on current and projected economic conditions and other qualitative factors. We recorded net loan recoveries of $52,000 during the second quarter of 2024 compared to net loan charge-offs of $68,000 during the second quarter of 2023.
During the first six months of 2024, we recorded a $300,000 provision for credit losses compared to a $299,000 provision for credit losses in the first six months of 2023. The provision for credit losses during the first six months of 2024 consisted of a $250,000 provision to allowance for credit losses on loans and a $50,000 provision to the allowance for unfunded loan commitments, both recorded in the first quarter of 2024. The $299,000 provision for credit losses during the first six months of 2023 consisted of a $250,000 provision to the allowance for credit losses on loans, a $30,000 provision to the allowance for unfunded loan commitments and a $19,000 provision to the allowance for credit losses on held-to-maturity investment securities. We recorded net loan recoveries of $45,000 during the first six months of 2024 compared to net loan charge-offs of $115,000 during the first six months of 2023.
For further discussion of the allowance for credit losses, refer to the “Asset Quality and Distribution” section below.
Non-interest Income. Total non-interest income was $3.7 million in the second quarter of 2024, a decrease of $109,000, or 2.9%, from the same period in 2023. The decrease in non-interest income during the second quarter of 2024 compared to the same period last year was primarily due to a decrease of $182,000 in gains on sales of one-to-four family residential real estate loans as higher interest rates and low housing inventories reduced originations of these loans, which are typically sold in the secondary market. Higher mortgage rates however did result in increased originations of adjustable-rate loans this quarter which are maintained in our one-to-four family residential loan portfolio. Other non-interest income also decreased by $162,000 which was primarily due to a decrease in lease income associated with the rental income from a branch facility. Partially offsetting this decrease was an increase of $210,000 in fees and service charges primarily due to higher fees related to deposit accounts.
Total non-interest income was $7.1 million in the first half of 2024, a decrease of $204,000, or 2.8%, from the first half of 2023, primarily as a result of a decrease of $363,000 in gains on sales of loans. Our gains on sales of loans decreased as our originations of secondary market one-to-four family residential real estate loans slowed high mortgage interest rates and decreased inventory in the housing market in our market areas. Other non-interest income also decreased by $206,000 which was primarily due to a decrease in lease income associated with the rental income from a branch facility. Offsetting the decrease in non-interest income was an increase of $313,000 in fees and services charges due primarily to higher fees related to deposits accounts.
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Non-interest Expense. Non-interest expense totaled $11.1 million for the second quarter of 2024, an increase of $746,000, or 7.2%, over the same quarter of 2023. The increase in non-interest expense in the second quarter of 2024 compared to the same period last year was mainly due to an increase in other non-interest expense associated with a valuation allowance recorded against real estate held for sale. Also contributing to the increase in non-interest expense were increases of $61,000 in data processing and $42,000 in professional fees. Partially offsetting the increase in non-interest expense was a decrease amortization of intangibles, occupancy and equipment and compensation and benefits.
Non-interest expense totaled $21.6 million for the first six months of 2024, an increase of $954,000, or 4.6%, from $20.7 million for the first six months of 2023. The increase in non-interest expense in the first half of 2024 compared to the same period last year was mainly due to an increase in other non-interest expense associated with a valuation allowance recorded against real estate held for sale. Also contributing to the increase in non-interest expense was an increase in professional fees associated with increased legal costs associated with revisions to our benefit plans. Partially offsetting the increase in non-interest expense was a decrease amortization of intangibles, data processing occupancy and equipment and compensation and benefits.
Income Tax Expense. During the second quarter of 2024, we recorded income tax expense of $587,000, compared to income tax expense of $701,000 during the same period of 2023. Our effective tax rate decreased from 17.3% in the second quarter of 2023 to 16.3% in the second quarter of 2024.
We recorded income tax expense of $1.1 million for the first six months of 2024 compared to income tax expense of $1.4 million in the same period of 2023. Our effective tax rate was 17.2% in the first half of 2023 compared to 16.0% in the first half of 2024. The decrease in the effective tax rate was primarily due to lower earnings before taxes while tax-exempt was consistent.
Financial Condition. Economic conditions in the United States remained sluggish during the first six months of 2024 as elevated inflation levels and higher interest rates continued to impact the economy. The sustained high interest rates has impacted financial institutions resulting in continued higher costs of funding and lower fair values for investment securities. We maintain strong capital and liquidity, and a stable, conservative deposit portfolio with a significant majority of our deposits being retail-based and insured by the Federal Deposit Insurance Corporation (“FDIC”) insured. We spend significant time each month monitoring our interest rate and concentration risks through our asset/liability management and lending strategies that involve a relationship-based banking model offering stability and consistency. The State of Kansas and the geographic markets in which the Company operates were also impacted by economic headwinds. Supply chain constraints, labor shortages and geopolitical events have contributed to the rising inflation levels which are impacting all areas of the economy both nationally and locally. The Company’s allowance for credit losses continues to factor in estimates of the economic impact of these conditions and other qualitative factors on our loan portfolio. However, our loan portfolio is diversified across various types of loans and collateral throughout the markets in which we operate. Aside from a few problem loans that management is working to resolve, our asset quality has remained strong over the past few years. While further increases in problem assets may arise, management believes its efforts to run a high quality financial institution with a sound asset base will continue to create a strong foundation for continued growth and profitability in the future.
Asset Quality and Distribution. Our primary investing activities are the origination of one-to-four family residential real estate, construction and land, CRE, commercial, agriculture, municipal and consumer loans and the purchase of investment securities. Total assets decreased $ 918,000, or 0.1%, from December 31, 2023 to $1.6 billion at June 30, 2024.
The allowance for credit losses is established through a provision for credit losses based on our economic projections. At June 30, 2024, our allowance for credit losses on loans totaled $10.9 million, or 1.11% of gross loans outstanding, compared to $10.6 million, or 1.12% of gross loans outstanding, at December 31, 2023. The decrease in our allowance for credit losses on loans as a percentage of gross loans outstanding was primarily due to growth in loan balances of one-to-four family residential real estate loans during the first six months of 2024. One-to-four family residential real estate loans have a lower historical loss rate than other types of loans in our portfolio.
As of June 30, 2024 and December 31, 2023, approximately $17.6 million and $7.5 million, respectively, of loans were considered classified and assigned a risk rating of special mention, substandard or doubtful. These ratings indicate that these loans were identified as potential problem loans having more than normal risk and raised doubts as to the ability of the borrowers to comply with present loan repayment terms. Even though borrowers were experiencing moderate cash flow problems as well as some deterioration in collateral value, management believed the allowance for credit losses was sufficient to cover expected losses related to such loans at June 30, 2024 and December 31, 2023, respectively.
| 32 |
Loans past due 30-89 days and still accruing interest totaled $1.9 million, or 0.19% of gross loans, at June 30, 2024, compared to $1.6 million, or 0.17% of gross loans, at December 31, 2023. At June 30, 2024, $5.01 million in loans were on non-accrual status, or 0.51% of gross loans, compared to $2.4 million, or 0.25% of gross loans, at December 31, 2023. Non-accrual loans consist of loans 90 or more days past due and certain individually evaluated loans. There were no loans 90 days delinquent and accruing interest at either June 30, 2024 or December 31, 2023.
As part of our credit risk management, we continue to manage the loan portfolio to identify problem loans and have placed additional emphasis on CRE and construction and land relationships. We are working to resolve the remaining problem credits or move the non-performing credits out of the loan portfolio. At June 30, 2024 we had $428,000 of real estate owned compared to $928,000 of real estate owned at December 31, 2023. As of June 30, 2024, real estate owned primarily consisted undeveloped land and residential real estate properties. The Company is currently marketing all of the remaining properties in real estate owned.
Liability Distribution. Our primary ongoing sources of funds are deposits, FHLB borrowings, proceeds from principal and interest payments on loans and investment securities and proceeds from the sale of mortgage loans and investment securities. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates and economic conditions. We experienced a decrease of $65.8 million, or 5.0% in total deposits during the first six months of 2024, to $1.3 billion at June 30, 2024. The decrease in deposits was primarily due to a seasonal decrease in our deposit accounts due to public funds and a decrease in brokered deposits.
Non-interest-bearing deposits at June 30, 2024, were $360.6 million, or 28.8% of deposits, compared to $367.1 million, or 27.9% of deposits, at December 31, 2023. Money market and checking deposit accounts were 43.7% of our deposit portfolio and totaled $546.4 million at June 30, 2024, compared to $613.6 million, or 46.6% of deposits, at December 31, 2023. Savings accounts decreased to $151.0 million, or 12.1% of deposits, at June 30, 2024, from $152.4 million, or 11.6% of deposits, at December 31, 2023. Certificates of deposit totaled $192.5 million, or 15.4% of deposits, at June 30, 2024, compared to $183.2 million, or 13.9% of deposits, at December 31, 2023. The increase in certificates of deposit was primarily related to higher brokered certificates of deposits, which increased from $83.2 million at December 31, 2023 to $43.9 million at June 30, 2024.
Overdraft deposits consist of non-interest-bearing deposits, money market and checking deposit accounts with negative balances. These overdraft balances totaled $354,000 at June 30, 2024 and $318,000 as of December 31, 2024 and were presented as loans on the balance sheet.
Total deposits include estimated uninsured deposits of $389.7 million and $197.2 million as of June 30, 2024 and December 31, 2023, respectively. This represents approximately 31.2% of our total deposits at June 30, 2024 and compares favorably with other similar community banking organizations. Over 95% of the Company’s total deposits were considered core deposits at June 30, 2024. These deposit balances are from retail, commercial and public fund customers located in the markets where the Company has bank branch locations.
Certificates of deposit at June 30, 2024, scheduled to mature in one year or less totaled $125.8 million. Historically, maturing deposits have generally remained with the Bank, and we believe that a significant portion of the deposits maturing in one year or less will remain with us upon maturity in some type of deposit account.
Total borrowings increased $62.7 million to $161.7 million at June 30, 2024, from $99.0 million at December 31, 2023. The increase in total borrowings was due to an increase in FHLB borrowings. The increase in FHLB borrowings was to fund loan growth and to offset the decline in deposits.
Cash Flows. During the six months ended June 30, 2024, our cash and cash equivalents decreased by $3.2 million. Our operating activities provided net cash of $7.2 million during the first six months of 2024 primarily as a result of net earnings. Our investing activities used net cash of $4.8 million during the first six months of 2024, primarily due to loan growth. Financing activities used net cash of $5.6 million during the first six months of 2024, primarily as a result of a decrease in deposits.
Liquidity. Our most liquid assets are cash and cash equivalents and investment securities available-for-sale. The levels of these assets are dependent on the operating, financing, lending and investing activities during any given year. These liquid assets totaled $449.2 million at June 30, 2024 and $484.8 million at December 31, 2023. During periods in which we are not able to originate a sufficient amount of loans and/or periods of high principal prepayments, we generally increase our liquid assets by investing in short-term, high-grade investments or holding higher balances of cash and cash equivalents.
| 33 |
Liquidity management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. Excess funds are typically generated as a result of increased deposit balances, while uses of excess funds are generally deposit withdrawals and loan advances. In the event we require funds beyond our ability to generate them internally, additional funds are generally available through the use of FHLB advances, a line of credit with the FHLB, other borrowings or through pledging or sales of investment securities. While the sale of available-for-sale investment securities would result in losses due to the current interest environment, pledging these securities as collateral would not result in a loss. At June 30, 2024, we had $125.3 million borrowed on our line of credit with the FHLB. At June 30, 2024, we had collateral pledged to the FHLB that would allow us to borrow $256.9 million, subject to FHLB credit requirements and policies. At June 30, 2024, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $52.6 million. We also have various other federal funds agreements, both secured and unsecured, with correspondent banks totaling approximately $30.0 million in available credit under which we had no outstanding borrowings at June 30, 2024. At June 30, 2024, we had subordinated debentures totaling $21.7 million and $8.7 million of repurchase agreements. At June 30, 2024, the Company had no borrowings against a $5.0 million line of credit from an unrelated financial institution maturing on November 1, 2024, with an interest rate that adjusts daily based on the prime rate less 0.50%. This line of credit has covenants specific to capital and other financial ratios, which the Company was in compliance with at June 30, 2024. The Company also borrowed $6.0 million from the same unrelated financial institution at a fixed rate of 6.15%. This borrowing matures on September 1, 2027 and requires quarterly principal and interest payments. The original $10.0 million of borrowings was used to fund part of the acquisition of Freedom Bancshares, Inc.
Off Balance Sheet Arrangements. As a provider of financial services, we routinely issue financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by us generally to guarantee the payment or performance obligation of a customer to a third party. While these standby letters of credit represent a potential outlay by us, a significant amount of the commitments may expire without being drawn upon. We have recourse against the customer for any amount the customer is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by us. Most of the standby letters of credit are secured, and in the event of nonperformance by the customers, we have the right to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The contract amount of these standby letters of credit, which represents the maximum potential future payments guaranteed by us, was $1.6 million at June 30, 2024.
At June 30, 2024, we had outstanding loan commitments, excluding standby letters of credit, of $211.1 million. We anticipate that sufficient funds will be available to meet current loan commitments. These commitments consist of unfunded lines of credit and commitments to finance real estate loans.
Capital. Current regulatory capital regulations require financial institutions (including banks and bank holding companies) to meet certain regulatory capital requirements. The Bank is subject to the Basel III Rules that implemented the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Basel III Rules are applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets of less than $3.0 billion). The Company is considered a “small bank holding company” and is not directly subject to these minimum capital requirements.
The Basel III Rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a Tier 1 capital to risk-weighted assets minimum ratio of 6.0%, a Total Capital to risk-weighted assets minimum ratio of 8.0%, and a Tier 1 leverage minimum ratio of 4.0%. A capital conservation buffer, equal to 2.5% common equity Tier 1 capital, is also established above the regulatory minimum capital requirements (other than the Tier 1 leverage ratio). As of June 30, 2024 and December 31, 2023, the Bank met the requirements to be “well capitalized,” which is the highest rating available under the regulatory capital regulations framework for prompt corrective action. Management believed that as of June 30, 2024, the Company and the Bank met all capital adequacy requirements to which we are subject.
Dividends. During the quarter ended June 30, 2024, we paid a quarterly cash dividend of $0.21 per share to our stockholders.
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The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations. In addition, under the Basel III Rules, financial institutions have to maintain 2.5% in common equity Tier 1 capital attributable to the capital conservation buffer in order to pay dividends and make other capital distributions. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of June 30, 2024. The National Bank Act imposes limitations on the amount of dividends that a national bank may pay without prior regulatory approval. Generally, the amount is limited to the bank’s current year’s net earnings plus the adjusted retained earnings for the three preceding years. As of June 30, 2024, approximately $1.3 million was available to be paid as dividends to the Company by the Bank without prior regulatory approval.
Additionally, our ability to pay dividends is limited by the subordinated debentures that are held by three business trusts that we control. Interest payments on the debentures must be paid before we pay dividends on our capital stock, including our common stock. We have the right to defer interest payments on the debentures for up to 20 consecutive quarters. However, if we elect to defer interest payments, all deferred interest must be paid before we may pay dividends on our capital stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our assets and liabilities are principally financial in nature, and the resulting net interest income thereon is subject to changes in market interest rates and the mix of various assets and liabilities. Interest rates in the financial markets affect our decisions relating to pricing our assets and liabilities, which impact net interest income, a significant cash flow source for us. As a result, a substantial portion of our risk management activities relates to managing interest rate risk.
Our Asset/Liability Management Committee monitors the interest rate sensitivity of our balance sheet using earnings simulation models. We have set policy limits of interest rate risk to be assumed in the normal course of business and monitor such limits through our simulation process.
We have been successful in meeting the interest rate sensitivity objectives set forth in our policy. Simulation models are prepared to determine the impact on net interest income for the coming twelve months, including one using interest rates as of the forecast date, and forecasting volumes for the twelve-month projection. This position is then subjected to a shift in interest rates of 100, 200 and 300 basis points with an impact to our net interest income on a one-year horizon as follows:
| As of June 30, 2024 | As of December 31, 2023 | |||||||||||||||
| Scenario | Dollar change in net interest income ($000’s) | Percent change in net interest income | Dollar change in net interest income ($000’s) | Percent change in net interest income | ||||||||||||
| 300 basis point rising | ($ | 6,656 | ) | (15.0 | %) | ($ | 5,924 | ) | (13.8 | %) | ||||||
| 200 basis point rising | ($ | 4,490 | ) | (10.1 | %) | ($ | 4,012 | ) | (9.3 | %) | ||||||
| 100 basis point rising | ($ | 2,338 | ) | (5.3 | %) | ($ | 2,122 | ) | (4.9 | %) | ||||||
| 100 basis point falling | $ | 552 | 1.2 | % | $ | 17 | 0.0 | % | ||||||||
| 200 basis point falling | $ | 135 | 0.3 | % | ($ | 909 | ) | (2.1 | %) | |||||||
| 300 basis point falling | ($ | 649 | ) | (1.5 | %) | ($ | 2,037 | ) | (4.7 | %) | ||||||
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Forward-Looking
Statements
This document (including information incorporated by reference) contains, and future oral and written statements by us and our management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to our financial condition, results of operations, plans, objectives, future performance and business. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of our management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and we undertake no obligation to update any statement in light of new information or future events.
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Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on operations and future prospects of us and our subsidiaries include, but are not limited to, the following:
| ● | The effects of changes in interest rates (including the effects of changes in the rate of prepayments of our assets) and the policies of the Federal Reserve (including potential decreases in rates by the Federal Reserve) including on our net interest income and the value of our security portfolio. | |
| ● | The strength of the United States economy in general and the strength of the local economies in which we conduct our operations, including the effects of continued inflationary pressures and supply chain constraints on such economies, which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of our assets. | |
| ● | The economic impact of past and any future terrorist attacks, acts of war, including the ongoing Israeli-Palestinian conflict and Russian invasion of Ukraine, or threats thereof, and the response of the United States to any such threats and attacks. | |
| ● | The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, consumer protection, insurance, tax, trade and monetary and financial matters, including any changes in response to the recent failures of other banks and including and any other changes as a result of the upcoming 2024 presidential election or any changes in response to failures of other banks. | |
| ● | Our ability to compete with other financial institutions due to increases in competitive pressures in the financial services sector, including from non-bank competitors such as credit unions and “fintech” companies. | |
| ● | Our inability to obtain new customers and to retain existing customers. | |
| ● | The timely development and acceptance of products and services. | |
| ● | Technological changes implemented by us and by other parties, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequences to us and our customers. | |
| ● | Our ability to develop and maintain secure and reliable electronic systems. | |
| ● | The effectiveness of our risk management framework. | |
| ● | The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents and our ability to identify and address such incidents. | |
| ● | Interruptions involving our information technology and telecommunications systems or third-party servicers. | |
| ● | The effects of severe weather, natural disasters, widespread disease or pandemics and other external events. | |
| ● | Our ability to retain key executives and employees and the difficulty that we may experience in replacing key executives and employees in an effective manner. | |
| ● | Consumer spending and saving habits which may change in a manner that affects our business adversely. | |
| ● | Our ability to successfully integrate acquired businesses and future growth. | |
| ● | The costs, effects and outcomes of existing or future litigation. | |
| ● | Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board, such as the implementation of the Current Expected Credit Loss methodology. | |
| ● | Our ability to effectively manage our credit risk. | |
| ● | Our ability to forecast probable credit losses and maintain an adequate allowance for credit losses. | |
| ● | Fluctuations in the value of securities held in our securities portfolio. | |
| ● | Concentrations within our loan portfolio (including CRE loans), large loans to certain borrowers, and large deposits from certain clients. | |
| ● | The concentration of large deposits from certain clients who have balances above current FDIC insurance limits and may withdraw deposits to diversify their exposure. | |
| ● | The level of non-performing assets on our balance sheets. | |
| ● | Our ability to raise additional capital if needed. | |
| ● | The effects of declines in real estate markets. | |
| ● | The effects of fraudulent activity on the part of our employees, customers, vendors, or counterparties. |
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including other factors that could materially affect our financial results, is included in our filings with the Securities and Exchange Commission, including the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2023 filed on March 27, 2024.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2024. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2024 to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2024 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its subsidiaries is a party or which any of their property is subject, other than ordinary routine litigation incidental to their respective businesses.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about purchases by the Company during the quarter ended June 30, 2024, of the Company’s equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans (1) | Maximum number of shares that may yet be purchased under the plans (1) | ||||||||||||
| April 1-30, 2024 | 506 | $ | 19.05 | 506 | 159,311 | |||||||||||
| May 1-31, 2024 | 3,795 | 18.82 | 3,795 | 155,516 | ||||||||||||
| June 1-30, 2024 | - | - | - | 155,516 | ||||||||||||
| Total | 4,301 | $ | 18.83 | 4,301 | 155,516 | |||||||||||
| (1) | In March 2020, our Board of Directors approved a stock repurchase plan, permitting us to repurchase up to 225,890 shares. Unless terminated earlier by resolution of the Board of Directors, the stock repurchase plan will expire when we have repurchased all shares authorized for repurchase thereunder. As of June 30, 2023, there were 155,516 shares remaining to purchase under the March 2020 repurchase Program. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During
the quarter ended June 30, 2024, none of the Company’s directors or executive officers
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ITEM 6. EXHIBITS
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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.
| LANDMARK BANCORP, INC. | |
| Date: August 13, 2024 | /s/ Abigail M. Wendel |
| Abigail M. Wendel | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: August 13, 2024 | /s/ Mark A. Herpich |
| Mark A. Herpich | |
| Vice President, Secretary, Treasurer | |
| and Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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