Landmark Bancorp(LARK) - 2019 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements This section presents Landmark Bancorp's unaudited consolidated financial statements, including balance sheets, earnings, cash flows, and detailed notes Consolidated Balance Sheets Total assets grew to $1.01 billion, driven by increased net loans, while stockholders' equity significantly rose to $106.0 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Loans, net | $520,133 | $489,373 | | Investment securities available-for-sale | $369,317 | $388,345 | | Total Assets | $1,008,731 | $985,784 | | Liabilities & Equity | | | | Total Deposits | $833,754 | $823,648 | | Total Liabilities | $902,693 | $893,883 | | Total Stockholders' Equity | $106,038 | $91,901 | | Total Liabilities & Stockholders' Equity | $1,008,731 | $985,784 | Consolidated Statements of Earnings Net earnings decreased to $2.6 million in Q3 2019 and $7.4 million for the nine months, driven by higher non-interest expenses Earnings Summary (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $7,659 | $7,180 | $22,336 | $20,610 | | Provision for loan losses | $400 | $450 | $1,000 | $900 | | Non-interest income | $4,555 | $4,567 | $11,799 | $12,221 | | Non-interest expense | $8,618 | $7,712 | $24,311 | $22,718 | | Net Earnings | $2,613 | $3,020 | $7,394 | $7,964 | | Diluted EPS | $0.60 | $0.69 | $1.69 | $1.83 | Consolidated Statements of Cash Flows Cash and cash equivalents increased by $2.6 million, with financing activities providing $5.7 million, offsetting uses in operations and investing Net Cash Flow Summary (Nine months ended Sep 30, in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,039) | $11,054 | | Net cash used in investing activities | $(2,054) | $(40,105) | | Net cash provided by financing activities | $5,715 | $28,753 | | Net increase (decrease) in cash and cash equivalents | $2,622 | $(298) | Notes to Consolidated Financial Statements Notes detail accounting policies, investment and loan portfolio composition, regulatory capital status, and the delay of CECL implementation - The company adopted ASU 2016-02 (Leases) on January 1, 2019, which was not material to the consolidated financial statements[28] Loan Portfolio Composition (in thousands) | Loan Type | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | One-to-four family residential | $141,801 | $136,895 | | Commercial real estate | $135,950 | $138,967 | | Commercial | $101,150 | $74,289 | | Agriculture | $100,958 | $96,632 | | Total gross loans | $526,439 | $495,247 | - The company plans to delay the implementation of the new credit loss standard, CECL (ASU 2016-13), until January 1, 2023, as permitted for smaller reporting companies; initial estimates suggest it will increase the allowance for loan losses upon adoption[82] Company Regulatory Capital Ratios (Actual) | Ratio | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Leverage | 10.63% | 10.34% | | Common Equity Tier 1 Capital | 12.92% | 13.12% | | Tier 1 Capital | 16.18% | 16.64% | | Total Risk Based Capital | 17.17% | 17.63% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 7.2% decrease in net earnings to $7.4 million due to higher costs, despite net interest income growth and strong asset quality Summary of Results Net earnings decreased to $7.4 million, lowering ROAA and ROAE, though net interest margin improved to 3.43% Key Performance Ratios (Nine months ended Sep 30) | Ratio | 2019 | 2018 | | :--- | :--- | :--- | | Return on average assets (annualized) | 1.00% | 1.12% | | Return on average equity (annualized) | 10.02% | 12.39% | | Net interest margin (annualized) | 3.43% | 3.36% | Net Interest Income Net interest income increased by $1.7 million (8.4%) to $22.3 million, driven by loan growth and an expanded net interest margin - Interest income for the first nine months of 2019 increased by $3.3 million (13.5%) compared to the prior year, mainly due to a $56.1 million increase in average loan balances and higher loan yields (5.35% vs 5.14%)[96] - Interest expense for the first nine months of 2019 rose by $1.6 million (42.1%), driven by a $2.1 million increase in deposit interest expense due to higher rates and balances, partially offset by lower borrowing costs[98] Provision for Loan Losses The provision for loan losses increased slightly to $1.0 million, with net charge-offs also marginally higher Loan Loss Provision and Charge-offs (in thousands) | Metric | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | | Provision for loan losses | $1,000 | $900 | | Net loan charge-offs | $486 | $470 | Non-interest Income and Expense Non-interest income decreased to $11.8 million due to a non-recurring 2018 recovery, while non-interest expense rose from higher compensation - The decrease in non-interest income was mainly due to a $1.4 million recovery on a deposit-related loss recorded in 2018, which was not repeated in 2019[107] - The increase in non-interest expense was primarily due to higher compensation and benefits ($1.1 million) from the addition of bank employees and increased compensation costs[109] Financial Condition and Asset Quality Total assets grew 2.3% to $1.0 billion, driven by a 6.3% increase in net loans, with minor changes in asset quality - Net loans increased by $30.8 million (6.3%) to $520.1 million at September 30, 2019, from year-end 2018[113] - The allowance for loan losses was $6.3 million, or 1.19% of gross loans, at September 30, 2019, compared to $5.8 million, or 1.16%, at December 31, 2018[114] - Non-accrual loans increased to $5.9 million (1.13% of gross loans) at September 30, 2019, from $5.2 million (1.06% of gross loans) at year-end 2018[116] Liquidity and Capital The company maintains strong liquidity with $391.1 million in liquid assets and robust capital levels, exceeding regulatory requirements - At September 30, 2019, the company had additional borrowing capacity of $95.0 million from the FHLB and $17.9 million from the Federal Reserve discount window[124] - The Bank's capital ratios as of September 30, 2019 were in excess of the requirements to be 'well capitalized' under regulatory guidelines[128] - A quarterly cash dividend of $0.20 per share was paid during the third quarter of 2019[129] Quantitative and Qualitative Disclosures about Market Risk The company manages interest rate risk, with a 100 basis point rate decline projected to increase net interest income by 2.2% over one year Net Interest Income Sensitivity Analysis | Scenario | Dollar Change ($000's) | Percent Change | | :--- | :--- | :--- | | 200 bp rising | $(1,450) | (4.7)% | | 100 bp rising | $(720) | (2.3)% | | 100 bp falling | $683 | 2.2% | | 200 bp falling | $1,236 | 4.0% | Controls and Procedures Management concluded the company's disclosure controls and procedures were effective, with no material changes to internal control - Based on an evaluation as of September 30, 2019, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective[144] - No material changes were made to the Company's internal control over financial reporting during the third quarter of 2019[145] PART II – OTHER INFORMATION Legal Proceedings The company is not a party to any material pending legal proceedings beyond ordinary routine litigation - There are no material pending legal proceedings against the Company or its subsidiaries outside of ordinary routine litigation[147] Risk Factors No material changes have occurred in the company's risk factors since the 2018 Annual Report on Form 10-K - No material changes have occurred in the Company's risk factors since the 2018 Annual Report on Form 10-K[148] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[149] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and interactive data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and interactive data files (101)[154]