In a very short amount of time, the COVID‐19 pandemic has changed the manner in which business is conducted. Landmark’s remarkable asset quality improvement enabled us to act decisively and immediately to meet the needs of our employees, customers and communities. We continue to take significant and proactive steps to prepare for the economic fallout that is likely yet to come as a result of this worldwide pandemic. The favorable financial trends for the Bancorp continued to improve in the first quarter of 2020, despite this economic turmoil. An analysis of Landmark’s core bank net income clearly reveals the significant improvement compared to last year at this time after adjusting for nonrecurring items such as the $200 thousand gain on the sale of credit cards last year and the $100 thousand contribution to reserve for loan losses related to the pandemic. Although the duration and magnitude of this pandemic is still highly uncertain, management believes the financial position of the bank is better than ever, with high levels of capital, liquidity and asset quality metrics, which will allow us to endure this uncertain economic time. The board strengthened the bank further by authorizing a $1.0 million dividend from the Bancorp to the bank and suspending the quarterly dividend payments enabling the Bank to continue to meet the immediate needs of our Landmark community. We are here to support our customers, staff, shareholders, and everyone in our communities through this pandemic and beyond.
The provision for credit losses was $136 thousand in the first quarter of 2020, compared with an expense of $109 thousand in the year earlier and a reduction of expense of $81 thousand in the fourth quarter of 2019. The first quarter provision of $136 thousand includes $100 thousand which is directly related to the COVID‐19 epidemic and the uncertainty as to when and how long it will take for the economy to recover from this nationwide shutdown and the potential effect it may have on our borrowers. Management applied forbearance measures across the bank’s loan portfolios and continues to work with consumers and businesses that have been negatively impacted by this pandemic. While we don’t currently see forbearance measures as an indication that our portfolio will experience a sharp rise in credit losses, there is still a great deal of uncertainty on the timing and the true impact that this pandemic has caused to our overall economy and our existing portfolio.
Net charge offs in the loan portfolio during the recent quarter continue to subside. Expressed as a percentage of average loans outstanding, net charge offs were 0.01% of the average loans for 2020 and 0.03% of the average loans for 2019.
Loans classified as nonaccrual totaled $587 thousand or 0.23% of total loans outstanding at March 31, 2020, compared with $2 million or 0.81% a year earlier and $784 thousand or 0.32% of total loans outstanding at December 31, 2019. Other real estate and foreclosed assets owned was reduced to $886 thousand in the most recent quarter compared to $1.5 million a year earlier and $1.1 million in the previous quarter. Remedying these troubled assets has been a top priority for management and as a result of this focus; non‐performing assets have declined over 60% from the same period one year ago. This resolution of non‐performing assets has been recognized as a matter of paramount importance for restoring significant and sustainable growth.
Management regularly performs detailed analyses of individual borrowers and portfolios for purposes of assessing the adequacy of the allowance for credit losses. The allowance expressed, as a percentage of outstanding loans, was 1.25% at March 31, 2020 compared with 1.32% a year earlier and 1.22% in the prior quarter. Management believes the current level of ALLLR is commensurate with the overall risks associated with the loan portfolio; however, management will continue monitoring the impact of the pandemic and increase the reserve as needed.
Non‐interest income was $544 thousand in the first quarter of 2020, or a 10.1% increase or $50 thousand when compared to $494 thousand in the year‐earlier quarter. Investment securities were sold throughout the quarter and net gains on the sale totaling $87 thousand were recognized in 2020 or an increase of $71 thousand from the previous year. Mortgage banking revenues increased $78 thousand or 219% from a year earlier; Service charges on deposit accounts have increased $17 thousand or 31% from last year; LCB Advisor income decreased $17 thousand; and, most importantly, there was an additional $130 thousand increase in other commercial income resulting from a new product line. In February 2019, the bank sold the remaining credit card loans, which resulted in a $200 thousand gain on the sale. Notably, total other noninterest income increased from $278 thousand to $457 thousand, a growth of $178 thousand or 64.1%.
Noninterest expense in the first quarter of 2020 totaled $2.5 million compared with $2.7 million in the same quarter of 2019. Salaries and employee benefits increased $19 thousand in the current year. Professional fees have declined $70 thousand from previous quarter end and are a result of lower legal fees related to improved asset credit quality. The reduction in FDIC insurance is related to credits received by all small, federally insured banks due to the FDIC fund reaching and exceeding its statutorily required minimum reserve ratio. The bank’s improved asset quality metrics also contributed to the reduction. Other operating expenses include $128 thousand of expenses associated with the sale of the remaining manufactured housing loans owned by the bank and still declined $108 thousand year over year. The sale of the credit card portfolio resulted in a $24.7 thousand expense reduction by eliminating the revenue sharing and rewards related expenses.
Landmark Bancorp Inc. had total assets of $325.1 million at March 31, 2020, compared with $330.9 million a year earlier. Investment securities finished the quarter at $57.6 million, an increase of almost $6 million from the same quarter in 2019. Net loans fell $781 thousand to $246.8 million at March 31, 2020 from $247.6 million a year earlier. In June 2019, the bank sold $10.3 million in high yielding but high‐risk purchased manufactured home loans. Total deposits were $270.9 million for the recent quarter‐end, a decline of 4.2% from the same quarter ending 2019. This decline is a result of a reduction in assets as well as a restructuring of the portfolio to reduce the amount of time deposits, which have been reduced by 11.9% from the prior year quarter end.
Total shareholders’ equity was $33.7 million at March 31, 2020, an increase of $1.3 million from $32.4 million at March 31, 2019, representing 10.37% and 9.79% of total assets, respectively. The net unrealized gain on the company’s investment portfolio increased from a $190 thousand loss in 2019 to a $567 thousand gain in 2020, which represents a $757 thousand increase in capital from the same period last year. These unrealized gains and losses are excluded from the bank’s regulatory capital ratios and the bank remains well capitalized at March 31, 2020.
Thank you once again for the opportunity to provide highlights of our most recent accomplishments and significant progress. Please continue to follow us on Facebook, Instagram, Twitter and YouTube for all the latest news at Landmark. We invite you to take a close look at what we have to offer and discover the difference at Landmark Community Bank.
Please refer to the bank’s website, www.lcbbbank.com, for additional metrics and information on 2019’s financial results.