Landmark Bancorp(LARK) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis for Q1 2024 ITEM 1. FINANCIAL STATEMENTS This section presents unaudited consolidated financial statements for Q1 2024, detailing key financial performance and position Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity at quarter-end | Metric | March 31, 2024 (Unaudited, thousands) | December 31, 2023 (thousands) | Change (vs. Dec 31, 2023, thousands) | | :--------------------------------- | :------------------------- | :---------------- | :------------------------ | | Total assets | $1,553,217 | $1,561,672 | -$8,455 (-0.54%) | | Cash and cash equivalents | $16,468 | $27,101 | -$10,633 (-39.24%) | | Investment securities available-for-sale | $437,276 | $452,769 | -$15,493 (-3.42%) | | Loans, net | $952,611 | $937,619 | +$14,992 (+1.60%) | | Total deposits | $1,293,524 | $1,316,251 | -$22,727 (-1.73%) | | Federal Home Loan Bank and other borrowings | $74,716 | $64,662 | +$10,054 (+15.55%) | | Total stockholders' equity | $126,671 | $126,914 | -$243 (-0.19%) | Consolidated Statements of Earnings This section reports the company's financial performance, highlighting revenues, expenses, and net earnings for the period | Metric | Three months ended March 31, 2024 (thousands) | Three months ended March 31, 2023 (thousands) | Change (YoY, thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Total interest income | $17,745 | $14,577 | +$3,168 (+21.73%) | | Total interest expense | $6,998 | $3,630 | +$3,368 (+92.78%) | | Net interest income | $10,747 | $10,947 | -$200 (-1.83%) | | Provision for credit losses | $300 | $49 | +$251 (+512.24%) | | Total non-interest income | $3,400 | $3,495 | -$95 (-2.72%) | | Total non-interest expense | $10,551 | $10,343 | +$208 (+2.01%) | | Net earnings | $2,778 | $3,357 | -$579 (-17.25%) | | Basic earnings per share | $0.51 | $0.61 | -$0.10 (-16.39%) | | Diluted earnings per share | $0.51 | $0.61 | -$0.10 (-16.39%) | | Dividends per share | $0.21 | $0.20 | +$0.01 (+5.00%) | Consolidated Statements of Comprehensive Income This section presents net earnings and other comprehensive income, reflecting changes in equity from non-owner sources | Metric | Three months ended March 31, 2024 (thousands) | Three months ended March 31, 2023 (thousands) | Change (YoY, thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Net earnings | $2,778 | $3,357 | -$579 (-17.25%) | | Net unrealized holding (losses) gains on available-for-sale securities | $(2,457) | $6,739 | -$9,196 | | Income tax effect on net unrealized holding losses (gains) | $602 | $(1,651) | +$2,253 | | Other comprehensive (loss) gains | $(1,855) | $5,088 | -$6,943 | | Total comprehensive income | $923 | $8,445 | -$7,522 (-89.07%) | Consolidated Statements of Stockholders' Equity This section details changes in stockholders' equity, including net earnings, dividends, and other comprehensive income | Metric | Balance at January 1, 2024 (thousands) | Balance at March 31, 2024 (thousands) | Change (thousands) | | :--------------------------------- | :------------------------- | :------------------------ | :------------------- | | Total stockholders' equity | $126,914 | $126,671 | -$243 (-0.19%) | | Net earnings | +$2,778 | | | | Other comprehensive loss | -$1,855 | | | | Dividends paid | -$1,148 | | | | Stock-based compensation | +$156 | | | | Purchase of treasury stock | -$174 | | | Consolidated Statements of Cash Flows This section reports cash flows from operating, investing, and financing activities for the period | Metric | Three months ended March 31, 2024 (thousands) | Three months ended March 31, 2023 (thousands) | Change (YoY, thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Net cash provided by operating activities | $2,851 | $3,449 | -$598 (-17.34%) | | Net cash used in investing activities | $(2,670) | $(15,123) | +$12,453 (+82.35%) | | Net cash (used in) provided by financing activities | $(10,814) | $12,282 | -$23,096 | | Net (decrease) increase in cash and cash equivalents | $(10,633) | $608 | -$11,241 | | Cash and cash equivalents at end of period | $16,468 | $23,764 | -$7,296 (-30.70%) | Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements 1. Interim Financial Statements This note clarifies the unaudited nature and preparation basis of the interim financial statements - The financial statements are unaudited and prepared per Form 10-Q instructions, not including all GAAP footnotes, and should be read with the latest 10-K[25] - Management believes all necessary adjustments for fair presentation have been reflected, and Q1 2024 results are not necessarily indicative of future periods[25] 2. Investments This note details the investment portfolio, including available-for-sale securities, fair values, and unrealized gains/losses | Investment Type (Available-for-sale) | Amortized Cost (Mar 31, 2024, thousands) | Estimated Fair Value (Mar 31, 2024, thousands) | Gross Unrealized Losses (Mar 31, 2024, thousands) | | :----------------------------------- | :---------------------------- | :---------------------------------- | :------------------------------------- | | U. S. treasury securities | $97,535 | $93,683 | $(3,852) | | Municipal obligations, tax exempt | $121,586 | $118,445 | $(3,218) | | Municipal obligations, taxable | $79,882 | $75,371 | $(4,640) | | Agency mortgage-backed securities | $162,658 | $149,777 | $(12,947) | | Total available-for-sale | $461,661 | $437,276 | $(24,657) | - The Company's available-for-sale and held-to-maturity investment portfolios had temporary unrealized losses as of March 31, 2024, and December 31, 2023, but the Company does not intend to sell these securities and expects to recover the cost basis[27][29][30] - Securities with carrying values of $375.5 million were pledged to secure public funds, repurchase agreements, and as collateral for borrowings at March 31, 2024[35] 3. Loans and Allowance for Credit Losses This note breaks down loan categories, allowance for credit losses, and key credit quality metrics | Loan Type | March 31, 2024 (thousands) | December 31, 2023 (thousands) | Change (thousands) | | :--------------------------------- | :---------------- | :---------------- | :---------------- | | Total gross loans | $964,040 | $948,656 | +$15,384 (+1.62%) | | Allowance for credit losses | $10,851 | $10,608 | +$243 (+2.29%) | | Loans, net | $952,611 | $937,619 | +$14,992 (+1.60%) | | Credit Quality Metric | March 31, 2024 (thousands) | December 31, 2023 (thousands) | Change (thousands) | | :--------------------------------- | :---------------- | :---------------- | :---------------- | | Net loan charge-offs (Q1) | $7 | $47 | -$40 (-85.11%) | | Loans past due 30-89 days and still accruing | $4,064 | $1,582 | +$2,482 (+156.89%) | | Non-accrual loans | $3,621 | $2,391 | +$1,230 (+51.44%) | | Classified loans (Special Mention, Substandard, Doubtful) | $14,146 | $7,472 | +$6,674 (+89.32%) | - The increase in the allowance for credit losses on loans as a percentage of gross loans outstanding was primarily due to growth in loan balances during the first quarter of 2024[118] 4. Goodwill and Other Intangible Assets This note outlines goodwill and other intangible assets, including carrying amounts and amortization schedules - Goodwill was not impaired as of December 31, 2023, and management believes it remained unimpaired as of March 31, 2024[51] | Intangible Asset | Gross Carrying Amount (Mar 31, 2024, thousands) | Accumulated Amortization (Mar 31, 2024, thousands) | Net Carrying Amount (Mar 31, 2024, thousands) | | :----------------------------- | :----------------------------------- | :-------------------------------------- | :----------------------------------- | | Core deposit intangible assets | $4,170 | $(1,099) | $3,071 | | Year | Estimated Amortization Expense (thousands) | | :---------------- | :--------------------------------- | | Remainder of 2024 | $493 | | 2025 | $588 | | 2026 | $512 | | 2027 | $436 | | 2028 | $360 | | 2029 | $284 | | Thereafter | $398 | | Total | $3,071 | 5. Mortgage Loan Servicing This note details mortgage loan servicing activities, including principal balances, servicing rights, and related income | Metric | March 31, 2024 (thousands) | December 31, 2023 (thousands) | Change (thousands) | | :--------------------------------- | :---------------- | :---------------- | :---------------- | | Principal balance of mortgage loans serviced for others | $680,013 | $688,109 | -$8,096 (-1.18%) | | Mortgage servicing rights (net) | $2,977 | $3,158 | -$181 (-5.73%) | | Fair value of mortgage servicing rights | $9,700 | $9,500 | +$200 (+2.11%) | | Mortgage repurchase reserve | $157 | $159 | -$2 (-1.26%) | - Gross service fee income related to serviced loans was $436,000 for Q1 2024, a decrease from $453,000 in Q1 2023[54] 6. Earnings per Share This note presents basic and diluted earnings per share calculations, along with related share and dividend information | Metric | Three months ended March 31, 2024 (thousands) | Three months ended March 31, 2023 (thousands) | Change (YoY, thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Net earnings | $2,778 | $3,357 | -$579 (-17.25%) | | Basic earnings per share | $0.51 | $0.61 | -$0.10 (-16.39%) | | Diluted earnings per share | $0.51 | $0.61 | -$0.10 (-16.39%) | | Dividends per share | $0.21 | $0.20 | +$0.01 (+5.00%) | - 167,440 unexercised stock options were excluded from diluted EPS calculation for Q1 2024 as their inclusion would have been anti-dilutive[57] 7. Federal Home Loan Bank Borrowings and Other Borrowings This note details FHLB and other borrowings, including capacities and outstanding balances | Metric | March 31, 2024 (millions) | December 31, 2023 (millions) | Change (millions) | | :--------------------------------- | :---------------- | :---------------- | :---------------- | | FHLB borrowings | $68.4 million | $58.0 million | +$10.4 million (+17.93%) | | FHLB total borrowing capacity | $235.0 million | $232.3 million | +$2.7 million (+1.16%) | | FHLB available borrowing capacity | $165.3 million | $153.1 million | +$12.2 million (+7.97%) | | Unrelated financial institution term borrowing | $6.3 million | $6.6 million | -$0.3 million (-4.55%) | - The Bank had no borrowings through the Federal Reserve discount window at March 31, 2024, with a borrowing capacity of $56.9 million[60] - The Company was in compliance with covenants for its $5.0 million line of credit at March 31, 2024, with no outstanding balance[61] 8. Repurchase Agreements This note describes repurchase agreements, including their nature, balances, and securing collateral | Metric | March 31, 2024 (thousands) | December 31, 2023 (thousands) | Change (thousands) | | :--------------------------------- | :---------------- | :---------------- | :---------------- | | Repurchase agreements | $15,895 | $12,714 | +$3,181 (+25.02%) | | Investment securities securing repurchase agreements | $23,700 | $23,700 | $0 (0.00%) | - Repurchase agreements are accounted for as collateralized financing and are secured by U.S. federal treasury obligations held by a third-party financial institution[63][66] 9. Revenue from Contracts with Customers This note breaks down non-interest income categories and explains revenue recognition from customer contracts | Non-Interest Income Category | Three months ended March 31, 2024 (thousands) | Three months ended March 31, 2023 (thousands) | Change (YoY, thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Service charges on deposit accounts | $1,237 | $1,107 | +$130 (+11.74%) | | Interchange income | $684 | $737 | -$53 (-7.19%) | | Loan servicing fees | $436 | $453 | -$17 (-3.75%) | | Gains on sales of loans | $512 | $693 | -$181 (-26.12%) | | Total non-interest income | $3,400 | $3,495 | -$95 (-2.72%) | - Service charges on deposit accounts include overdraft fees and other transaction-based and account maintenance fees, recognized at the time of transaction or over the service period[69] - Interchange income from debit cardholder transactions is recognized daily as a percentage of the underlying transaction value[71] 10. Fair Value of Financial Instruments and Fair Value Measurements This note explains methodologies and categorization of fair value measurements for financial instruments - Fair value measurements are categorized into three levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (significant unobservable inputs)[73][74] - U.S. treasury securities are Level 1. Municipal obligations and agency mortgage-backed securities are Level 2, valued using industry-standard models or matrix pricing with observable inputs[78] - Individually evaluated loans and real estate owned are often measured using Level 3 inputs due to significant unobservable adjustments in appraisals[82][83] 11. Regulatory Capital Requirements This note details the company's and bank's compliance with regulatory capital adequacy requirements - The Company and the Bank met all capital adequacy requirements as of March 31, 2024[86] - The Bank was categorized as "well capitalized" under prompt corrective action regulations at March 31, 2024, and December 31, 2023[89] | Capital Ratio (Company) | Actual Ratio (Mar 31, 2024) | Minimum Required Ratio (1) | | :--------------------------------- | :-------------------------- | :------------------------- | | Leverage | 8.58% | 4.0% | | Common Equity Tier 1 Capital | 10.47% | 7.0% | | Tier 1 Capital | 12.45% | 8.5% | | Total Risk Based Capital | 13.45% | 10.5% | | Capital Ratio (Bank) | Actual Ratio (Mar 31, 2024) | Minimum Required Ratio (1) | Well-Capitalized Ratio | | :--------------------------------- | :-------------------------- | :------------------------- | :--------------------- | | Leverage | 8.81% | 4.0% | 5.0% | | Common Equity Tier 1 Capital | 12.75% | 7.0% | 6.5% | | Tier 1 Capital | 12.75% | 8.5% | 8.0% | | Total Risk Based Capital | 13.75% | 10.5% | 10.0% | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on Q1 2024 financial performance, condition, and key operational aspects Overview This section introduces the company's operations, primary business activities, and key drivers of financial results - The Company operates through Landmark National Bank (banking services) and Landmark Risk Management, Inc. (captive insurance)[94][96] - Primary business involves attracting deposits and originating residential, commercial, agriculture, and consumer loans[95] - Net interest income, non-interest income (service charges, loan fees), and operating expenses (compensation, occupancy, data processing, provision for credit losses) are key drivers of results[97] - The Company declared its 91st consecutive quarterly dividend in April 2024 and maintains a strong capital and liquidity position[100] Critical Accounting Policies This section identifies key accounting policies requiring significant management judgment - Critical accounting policies include the allowance for credit losses and accounting for business combinations, both requiring significant management judgment[101] - No material changes to critical accounting policies since the Annual Report on Form 10-K for the year ended December 31, 2023[101] Summary of Results This section provides a concise overview of the company's financial performance and key profitability ratios | Metric | Three months ended March 31, 2024 (thousands) | Three months ended March 31, 2023 (thousands) | Change (YoY, thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Net earnings | $2,778 | $3,357 | -$579 (-17.3%) | | Basic earnings per share | $0.51 | $0.61 | -$0.10 (-16.4%) | | Diluted earnings per share | $0.51 | $0.61 | -$0.10 (-16.4%) | | Return on average assets | 0.72% | 0.90% | -0.18 pp | | Return on average equity | 8.88% | 12.04% | -3.16 pp | | Net interest margin (tax equivalent) | 3.12% | 3.31% | -0.19 pp | | Dividend payout ratio | 41.18% | 32.81% | +8.37 pp | - The decrease in net earnings was primarily due to interest expense on interest-bearing liabilities increasing faster than the yield on interest-earning assets, reducing the net interest margin[102] Interest Income This section analyzes interest income components, including loans and investment securities, and their respective yields | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Change (YoY) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Total interest income | $17,745 | $14,577 | +$3,168 (+21.7%) | | Interest income on loans | $14,490 | $11,376 | +$3,114 (+27.4%) | | Average loan balances | $945.7 million | $850.3 million | +$95.4 million (+11.2%) | | Yield on loans | 6.16% | 5.43% | +0.73 pp | | Interest income on investment securities | $3,192 | $3,103 | +$89 (+2.9%) | | Yield on investment securities | 2.96% | 2.68% | +0.28 pp | Interest Expense This section details interest expenses, primarily from deposits and borrowings, and their associated costs | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Change (YoY) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Total interest expense | $6,998 | $3,630 | +$3,368 (+92.8%) | | Interest expense on deposits | $5,457 | $2,539 | +$2,918 (+114.9%) | | Cost of interest-bearing deposits | 2.35% | 1.18% | +1.17 pp | | Average interest-bearing deposit balances | $935.4 million | $872.9 million | +$62.5 million (+7.2%) | | Interest expense on borrowings | $1,541 | $1,091 | +$450 (+41.2%) | | Average borrowings | $108.6 million | $94.4 million | +$14.2 million (+15.0%) | | Rates on borrowings | 5.69% | 4.63% | +1.06 pp | Net Interest Income This section discusses net interest income, its drivers, and the impact on the net interest margin | Metric | Three months ended March 31, 2024 (thousands) | Three months ended March 31, 2023 (thousands) | Change (YoY, thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Net interest income | $10,747 | $10,947 | -$200 (-1.8%) | | Net interest margin (tax-equivalent) | 3.12% | 3.31% | -0.19 pp | | Accretion of purchase accounting adjustments | +$209 | +$176 | +$33 (+18.8%) | - The decrease in net interest income was mainly due to increased interest expense on deposits and borrowings, partially offset by higher interest income on loans and investments[107] Average Assets/Liabilities This section presents average yields/costs for interest-earning assets and liabilities, and the interest rate spread | Metric | Q1 2024 Average Yield/Cost | Q1 2023 Average Yield/Cost | Change (YoY) | | :--------------------------------- | :------------------------- | :------------------------- | :------------------- | | Total interest-earning assets yield | 5.11% | 4.39% | +0.72 pp | | Total interest-bearing liabilities cost | 2.70% | 1.52% | +1.18 pp | | Interest rate spread | 2.41% | 2.87% | -0.46 pp | | Net interest margin (tax-equivalent) | 3.12% | 3.31% | -0.19 pp | - The ratio of average interest-earning assets to average interest-bearing liabilities decreased from 141.1% in Q1 2023 to 135.1% in Q1 2024[108] Rate/Volume Table This section analyzes changes in interest income and expense attributable to rate and volume fluctuations | Metric | Increase/(decrease) attributable to Volume (Q1 2024 vs 2023, thousands) | Increase/(decrease) attributable to Rate (Q1 2024 vs 2023, thousands) | Net Change (Q1 2024 vs 2023, thousands) | | :--------------------------------- | :------------------------------------------------ | :---------------------------------------------- | :----------------------------------- | | Total interest income | $1,032 | $2,117 | $3,149 | | Total interest expense | $461 | $2,907 | $3,368 | | Net interest income | $571 | $(790) | $(219) | - The significant increase in interest expense due to rate changes ($2,907 thousand) was the primary factor in the decrease of net interest income[111] Provision for Credit Losses This section explains the provision for credit losses, its drivers, and impact on the allowance | Metric | Three months ended March 31, 2024 (thousands) | Three months ended March 31, 2023 (thousands) | Change (YoY, thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Provision for credit losses | $300 | $49 | +$251 (+512.2%) | | Net loan charge-offs | $7 | $47 | -$40 (-85.1%) | - The increase in provision for credit losses was mainly due to the growth in the overall loan portfolio[111] - The Q1 2024 provision included $250,000 for allowance for credit losses on loans and $50,000 for unfunded loan commitments[111] Non-interest Income This section details non-interest income components, including service charges, interchange income, and gains on loan sales | Metric | Three months ended March 31, 2024 (thousands) | Three months ended March 31, 2023 (thousands) | Change (YoY, thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Total non-interest income | $3,400 | $3,495 | -$95 (-2.7%) | | Gains on sales of loans, net | $512 | $693 | -$181 (-26.1%) | - The decrease was mainly due to lower gains on sales of residential real estate loans, as higher interest rates and low housing inventories reduced originations for sale in the secondary market[113] - Higher mortgage rates led to increased originations of adjustable-rate loans, which are retained in the loan portfolio[113] Non-interest Expense This section breaks down non-interest expenses, such as compensation, occupancy, and data processing | Metric | Three months ended March 31, 2024 (thousands) | Three months ended March 31, 2023 (thousands) | Change (YoY, thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Total non-interest expense | $10,551 | $10,343 | +$208 (+2.0%) | | Other non-interest expense | $2,089 | $1,891 | +$198 (+10.5%) | | Professional fees | $647 | $491 | +$156 (+31.8%) | | Data processing | $481 | $589 | -$108 (-18.3%) | - The increase in other non-interest expense was associated with a valuation allowance against real estate held for sale and increased operating losses[114] - Data processing expenses decreased due to the completion of the Freedom core conversion at the end of Q1 2023[114] Income Tax Expense This section discusses income tax expense and effective tax rate, explaining influencing factors | Metric | Three months ended March 31, 2024 (thousands) | Three months ended March 31, 2023 (thousands) | Change (YoY, thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Income tax expense | $518 | $693 | -$175 (-25.3%) | | Effective tax rate | 15.7% | 17.1% | -1.4 pp | - The decrease in the effective tax rate was primarily related to lower earnings before income taxes[115] Financial Condition This section provides an overview of the company's financial health, including asset levels, capital, and liquidity - Economic conditions remained sluggish in Q1 2024 due to elevated inflation and higher interest rates, impacting funding costs and investment security fair values[116] - The Company maintains strong capital and liquidity, with a stable, conservative, and mostly retail-based, FDIC-insured deposit portfolio[116] - Total assets decreased by $8.5 million (0.5%) from December 31, 2023, to $1.6 billion at March 31, 2024[117] - Management believes its efforts to run a high-quality financial institution with a sound asset base will continue to create a strong foundation for future growth and profitability[116] Asset Quality and Distribution This section analyzes loan portfolio quality, including allowance for credit losses and non-performing assets | Metric | March 31, 2024 | December 31, 2023 | Change | | :--------------------------------- | :---------------- | :---------------- | :---------------- | | Allowance for credit losses on loans | $10.9 million | $10.6 million | +$0.3 million (+2.8%) | | ACL as % of gross loans | 1.13% | 1.12% | +0.01 pp | | Classified loans | $14.1 million | $7.5 million | +$6.6 million (+88.0%) | | Loans past due 30-89 days and still accruing | $4.1 million | $1.6 million | +$2.5 million (+156.3%) | | Non-accrual loans | $3.6 million | $2.4 million | +$1.2 million (+50.0%) | | Real estate owned | $428 | $928 | -$500 (-53.9%) | - The increase in ACL as a percentage of gross loans was primarily due to loan growth[118] - Management is actively working to resolve problem credits and move non-performing credits out of the loan portfolio[121] Liability Distribution This section details the composition of the company's liabilities, focusing on deposits and borrowings | Metric | March 31, 2024 | December 31, 2023 | Change | | :--------------------------------- | :---------------- | :---------------- | :---------------- | | Total deposits | $1.3 billion | $1.316 billion | -$22.7 million (-1.7%) | | Non-interest-bearing deposits | $364.4 million | $367.1 million | -$2.7 million (-0.7%) | | Non-interest-bearing deposits as % of total deposits | 28.2% | 27.9% | +0.3 pp | | Certificates of deposit | $191.8 million | $183.2 million | +$8.6 million (+4.7%) | | Brokered certificates of deposit | $45.1 million | $42.8 million | +$2.3 million (+5.4%) | | Total borrowings | $112.3 million | $99.0 million | +$13.2 million (+13.3%) | - The decrease in deposits was primarily due to a seasonal decrease in public funds[122] - Over 92% of total deposits were considered core deposits at March 31, 2024[124] - The increase in total borrowings was due to FHLB advances used to fund loan growth and offset the decline in non-brokered deposits[126] Cash Flows This section summarizes cash flows from operating, investing, and financing activities, explaining net cash change | Metric | Three months ended March 31, 2024 | Change | | :--------------------------------- | :-------------------------------- | :------------------- | | Net decrease in cash and cash equivalents | $(10.6) million | | | Net cash provided by operating activities | $2.9 million | | | Net cash used in investing activities | $(2.7) million | | | Net cash used in financing activities | $(10.8) million | | - The decrease in cash and cash equivalents was primarily driven by net cash used in financing activities (decrease in deposits) and investing activities (loan growth)[127] Liquidity This section discusses the company's liquidity position, including available funds and borrowing capacities | Metric | March 31, 2024 | December 31, 2023 | Change | | :--------------------------------- | :---------------- | :---------------- | :---------------- | | Liquid assets (cash & AFS securities) | $458.7 million | $484.8 million | -$26.1 million (-5.4%) | | FHLB available borrowing capacity | $165.3 million | $153.1 million | +$12.2 million (+8.0%) | | Federal Reserve borrowing capacity | $56.9 million | N/A | | | Correspondent bank available credit | $30.0 million | N/A | | - Liquidity management is a daily and long-term function, with excess funds invested in short-term, high-grade investments or held as cash[129] - The Company had $68.4 million borrowed on its FHLB line of credit at March 31, 2024[129] Off Balance Sheet Arrangements This section describes off-balance sheet commitments, such as standby letters of credit and loan commitments - Standby letters of credit, representing contingent commitments, totaled $1.6 million at March 31, 2024[130] - Outstanding loan commitments, excluding standby letters of credit, were $195.3 million at March 31, 2024[131] - These arrangements are subject to the same credit policies, underwriting standards, and approval processes as loans, with recourse against the customer and underlying collateral[130] Capital This section assesses the company's capital adequacy and compliance with regulatory requirements - The Company and the Bank met all capital adequacy requirements as of March 31, 2024[133] - The Bank was "well capitalized" under prompt corrective action regulations at March 31, 2024[133] - The Company is considered a "small bank holding company" and is not directly subject to Basel III minimum capital requirements[132] Dividends This section outlines the company's dividend policy and regulatory considerations - A quarterly cash dividend of $0.21 per share was paid in Q1 2024[134] - Dividend payments are contingent on maintaining adequate capital, including a 2.5% common equity Tier 1 capital conservation buffer[135] - The National Bank Act limits dividends to the bank's current year's net earnings plus adjusted retained earnings for the three preceding years, with $574,000 available from the Bank at March 31, 2024, without prior regulatory approval[135] - Interest payments on subordinated debentures must be paid before dividends on capital stock, with the right to defer interest for up to 20 consecutive quarters[136] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the company's market risk exposure, primarily interest rate risk, and its management strategies - The Company's net interest income is subject to changes in market interest rates and the mix of assets and liabilities[137] - Interest rate risk is monitored by the Asset/Liability Management Committee using earnings simulation models, with policy limits in place[138] | Scenario (12-month impact) | Dollar change in net interest income (Mar 31, 2024, thousands) | Percent change in net interest income (Mar 31, 2024) | | :------------------------- | :-------------------------------------------------- | :--------------------------------------------------- | | 300 basis point rising | $(5,561) | (12.6)% | | 200 basis point rising | $(3,774) | (8.5)% | | 100 basis point rising | $(1,999) | (4.5)% | | 100 basis point falling | $342 | 0.8% | | 200 basis point falling | $(260) | (0.6)% | | 300 basis point falling | $(1,233) | (2.8)% | ITEM 4. CONTROLS AND PROCEDURES Management evaluated disclosure controls and procedures as effective for Q1 2024, with no material changes in internal control - Disclosure controls and procedures were effective as of March 31, 2024, ensuring timely and accurate reporting under the Exchange Act[143] - No material changes in internal control over financial reporting occurred during Q1 2024[144] PART II – OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, equity sales, defaults, and exhibits ITEM 1. LEGAL PROCEEDINGS The company reported no material pending legal proceedings beyond ordinary routine litigation incidental to business - No material pending legal proceedings exist, only ordinary routine litigation[146] ITEM 1A. RISK FACTORS No material changes to risk factors since the 2023 Annual Report, with forward-looking statements subject to various risks - No material changes to the risk factors since the Annual Report on Form 10-K for the year ended December 31, 2023[147] - Forward-looking statements are subject to various risks, including changes in interest rates, economic conditions, regulatory policies, competition, technological changes, and credit quality[141] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company reported no unregistered sales of equity securities or use of proceeds during the period - None[148] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The company reported no defaults upon senior securities during the period - None[149] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company's operations - Not applicable[150] ITEM 5. OTHER INFORMATION No other information was reported under this item - None[151] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including corporate governance documents and certifications - Exhibits include Amended and Restated Certificate of Incorporation, Bylaws, CEO/CFO certifications (Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350), Claw Back Policy, and Interactive Data Files (Inline XBRL)[152] SIGNATURES This section contains official signatures of principal executive and financial officers, certifying report accuracy - The report was signed by Abigail M. Wendel (President and CEO) and Mark A. Herpich (VP, Secretary, Treasurer, and CFO) on May 14, 2024[154]