Landmark Bancorp, Inc. reported significantly improved operating results for the last quarter of 2019 as well as for the entire 2019 financial year. Significant changes in the balance sheet occurred during the year as management continued implementing the strategic course established by the Board of Directors. Management sold the remaining credit card balances in February 2019 and almost all of the previously purchased manufactured home loan portfolio in June 2019. The sale of these high‐risk low‐return loan portfolios and management’s efforts to collect and liquidate collateral on problem loans dramatically improved the bank’s credit quality metrics and profitability. The asset quality improvement is directly correlated to reduced loan loss provision expense and other collection expenses including legal expenses on non‐performing legacy loans and assets.
Landmark finished 2019 with net income of just over $1 million or $0.45 a share compared to a $451 thousand loss in 2018. Net income for the fourth quarter was $211 thousand compared to $1.2 million loss for the fourth quarter of 2018. We continue to deliver much improved performance and are well positioned to act upon opportunities for future growth.
2019 net interest income of $9.79 million decreased $1.40 million or 12.47% compared to 2018. The sale of the highyield low return loans as delineated above contributed to the decline in net interest income but eliminated associated risks and expenses due to exorbitant legacy non‐performing assets. The provision for credit losses was a reduction of expense of $81 thousand in the fourth quarter of 2019, compared with an expense of $1.94 million for the fourth quarter of 2018 and a reduction of expense of $11 thousand in the third quarter of 2019. Year to date, the provision for credit losses was a reduction of expense of $79 thousand for the full year ending December 31, 2019 compared with an expense of $2.3 million in 2018. The lower reserves in 2019 are a direct result of the improved credit quality in the loan portfolio that is due to the sale of the legacy purchased manufactured home loan portfolio; and credit card portfolio, as well as the higher‐caliber credit quality of the remainder of the loan portfolio. In 2019, Landmark’s total delinquencies decreased by $4.0 million from $5.0 million at year end 2018 equating to a reduced delinquency percentage from 1.95% to .40%, which includes all non‐accrual loans. The continued improvement in our Texas ratio will put things into perspective as this ratio is used to measure a bank’s credit risk in its loan portfolio. In 2016, our Texas ratio was 32.4%. At year‐end 2018, it was 14.3%. At year‐end 2019, it was 5.21%. As of January 31, 2020, it was 4.20% and is anticipated to be under 4% by the end of the first quarter 2020. These results happen with precise teamwork and a disciplined credit culture.
Non‐interest income was $1.7 million compared to $1.2 million in the previous year or an increase of 44.7%. Noninterest income was $237 thousand in the fourth quarter of 2019 compared to $272 thousand in the year earlier quarter. Management sold the remaining credit card loans in February of 2019. Balances at the time of the sale were approximately $1.4 million and a $200 thousand gain was recognized on the sale. Most of the manufactured home loan portfolio was sold, except for the retention of some non‐accrual loans. The net loan balances sold totaled $10.3 million and recognized $187 thousand gain on the sale. Investments were also sold throughout the year as management repositioned the portfolio to align with the Bancorp’s tax position. Net gains on the investment sale totaling $153 thousand were recognized in 2019. Mortgage banking revenues were down annually from a year earlier, but the trends are much improved in recent months due to new leadership in the mortgage area. A portion of this decline in revenues is related to the decision to portfolio some of the mortgages rather than brokering them. Service charges on deposit accounts have increased $18 thousand from last year; LCB Advisor income increased $19 thousand; there was an additional $265 thousand in other commercial income resulting from a new more sophisticated product line to better compete in the market place; and a $274 thousand reduction in credit card fee and interchange income due to the sale of the credit card portfolio.
Noninterest expenses were $10.4 million for 2019 compared to $10.8 million for 2018, or a $440 thousand, 41 bps, decline year over year. The increase in salaries and employee benefits in the current year is primarily related to the opening of the new branch in Clarks Summit and fully staffing each branch with a branch manager. Professional fees have declined $166 thousand from the year‐end 2018 and is a direct result of lower related legal fees. The reduction in FDIC insurance is related to credits received for small, federally insured banks due to the FDIC fund reaching and exceeding its statutorily required minimum reserve ratio. There was also a year over year reduction due to lower assessments as a result of the much‐improved asset quality position of the bank as well as the end of the FICO assessment for all financial institutions.
Landmark Bancorp, Inc. had total assets of $326.8 million at December 31, 2019 compared with $335.6 million a year earlier. Investment securities finished the year at $59.3 million an increase of $2 million from 2018. Net Loans fell $4.7 million to $244.6 million at December 31, 2019 from $249.3 million a year earlier. As previously stated, the remaining credit card portfolio was sold in 2019 and represented cards issued to Bank customers with approximately $1.4 million in balances at the time of the sale. Most of the purchased manufactured home loan portfolio was also sold in 2019 and consisted of significant net loan balances of approximately $10.3 million. Total deposits were $278.3 million for the recent year‐end, a decline of 3.8% from year end 2018. The contraction of the balance sheet provided management the opportunity to reduce reliance on higher cost of funds, namely time deposits, which have been reduced by $16.5 million or 14.4% from the prior year. The reduction in time deposits that occurred in the past six (6) months totaled $15.3 million as outlined below exhibiting the acceleration of our retail strategic plan to pierce the market via relationship banking. Noninterest bearing DDA’s have increased $4.2 million to $58.8 million at December 31, 2019.
As stated in our message to our shareholders, Landmark Bancorp, Inc. has reached the position to grow the bank in a prudent methodical persistent process. The following results in depository and lending activities will bear out the success of our strategic plan. With the skilled and disciplined branch managers and lending staffs, all Landmark Community Bank core deposit segments and lending sectors have realized positive trends while still improving our overall asset quality metrics as delineated above.