UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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For fiscal year ended December 31, 2004 |
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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For transition period from to
Commission File Number 0-33203
LANDMARK BANCORP, INC.
(Exact name of Registrant as specified in its charter)
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Securities registered pursuant to Section 12(g) of the Act: |
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Common
Stock, par value $0.01 per share
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(Title of Class) |
Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities and 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. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 10-K or any amendment to this form 10-K. o .
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the last sales price quoted on the Nasdaq National Market System on June 30, 2004, the last business day of the registrants most recently completed second fiscal quarter, was approximately $41.3 million*. At March 16, 2005, the total number of shares of common stock outstanding was 2,110,588.
Documents incorporated by Reference:
Portions of the 2004 Annual Report to Stockholders for the fiscal year ended December 31, 2004, are incorporated by reference into Parts I and II hereof, to the extent indicated herein. Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held May 18, 2005, are incorporated by reference in Part III hereof, to the extent indicated herein.
* Based on the last reported price of actual transactions in Registrants common stock on June 30, 2004, and reports of beneficial ownership prepared by all directors, executive officers and beneficial owners of more than 5% of the outstanding shares of common stock of Registrant; however, such determination of shares owned by affiliates does not constitute an admission of affiliate status or beneficial interest in shares of common stock of Registrant.
LANDMARK BANCORP, INC.
2004 Form 10-K Annual Report
Table of Contents
PART I
PART I.
ITEM 1. BUSINESS
The Company
Landmark Bancorp, Inc. (the Company) is a bank holding company incorporated under the laws of the State of Delaware. Currently, the Companys business consists solely of the ownership of Landmark National Bank (the Bank), which is a wholly-owned subsidiary of the Company. As of December 31, 2004, the Company had $42.1 million in total assets.
The Company is headquartered in Manhattan, Kansas and has expanded its geographic presence through acquisitions in the past several years. Effective April 1, 2004, the Company acquired First Kansas Financial Corporation (First Kansas), the holding company for First Kansas Federal Savings Association (First Kansas Federal). In conjunction with the transaction, First Kansas Federal was merged into the Bank (the 2004 Acquisition). Effective October 9, 2001, Landmark Bancshares, Inc., the holding company for Landmark Federal Savings Bank, and MNB Bancshares, Inc., the holding company for Security National Bank, completed their merger into Landmark Merger Company, which immediately changed its name to Landmark Bancorp, Inc. (the 2001 Merger). In addition, Landmark Federal Savings Bank merged with Security National Bank and the resulting bank changed its name to Landmark National Bank.
As a bank holding company, the Company is subject to regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve). The Company is also subject to various reporting requirements of the Securities and Exchange Commission (the SEC).
Pursuant to the 2004 Acquisition and 2001 Merger, the Bank succeeded to all of the assets and liabilities of First Kansas, First Kansas Federal, Landmark Federal Savings Bank and Security National Bank. 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 consumer, commercial, multi-family, and one-to-four family residential mortgage loans in the Banks principal market areas, as described below. Since the 2001 Merger, the Bank has focused on originating greater numbers and amounts of consumer, commercial, and agricultural loans. Additionally, greater emphasis has been placed on diversification of the deposit mix through expansion of core deposit accounts such as checking, savings, and money market accounts. The Bank has also diversified its geographical markets as a result of both the 2004 Acquisition and the 2001 Merger. The Companys main office is in Manhattan, Kansas with branch offices in central, eastern and southwestern Kansas. The Company continues to explore opportunities to expand its banking markets through mergers and acquisitions, as well as branching opportunities.
The results of operations of the Bank are dependent primarily upon net interest income and, to a lesser extent, upon other income derived from loan servicing fees and customer deposit services. Additional expenses of the Bank include general and administrative expenses such as
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salaries, employee benefits, federal deposit insurance premiums, data processing, occupancy and related expenses.
Deposits of the Bank are insured by both the Savings Association Insurance Fund (the SAIF) or the Bank Insurance Fund (the BIF) of the Federal Deposit Insurance Corporation (the FDIC) up to the maximum amount allowable under applicable federal law and regulation. The Bank is regulated by the Office of the Comptroller of the Currency (the OCC), as the chartering authority for national banks, and the FDIC, as the administrator of the SAIF and the BIF. The Bank is also subject to regulation by the Board of Governors of the Federal Reserve System with respect to reserves required to be maintained against deposits and certain other matters. The Bank is a member of the Federal Reserve Bank of Kansas City and the Federal Home Loan Bank (the FHLB) of Topeka.
The Companys executive office and the Banks main office are located at 800 Poyntz Avenue, Manhattan, Kansas 66502. The telephone number is (785) 565-2000.
Market Area
The Banks primary deposit gathering and lending markets are geographically diversified with locations in eastern, central, and southwestern Kansas. The primary industries within these respective markets are also diverse and dependent upon a wide array of industry and governmental activity for their economic base. A brief description of these three geographic areas and the communities which the Bank serves within these communities is summarized below.
Shawnee, Miami, Osage, and Bourbon counties are located in eastern Kansas and encompass the Bank locations in Topeka, Auburn, Paola, Louisburg, Osawatomie, and Fort Scott. Shawnee Countiess market, which encompasses the Bank locations in Topeka and Auburn, is strongly influenced by the State of Kansas, City of Topeka, and several major private firms and public institutions. The communities of Paola, Louisburg, and Osawatomie, located within Miami County, are influenced by the high growth of the Kansas City market resulting in housing growth and small private industries and business. Additionally, the Osawatomie State Hospital is a major government employer within the county. Bourbon and Osage Counties are primarily agricultural with small private industries and business firms, while Bourbon County is also influenced by a regional hospital and Fort Scott Community College.
Bank locations within central Kansas include the communities of Manhattan within Riley County, Wamego which is located within Pottawatomie County, Great Bend and Hoisington within Barton County, and LaCrosse located in Rush County. The Riley and Pottawatomie County economies are significantly impacted by employment at Fort Riley Military Base and Kansas State University, the second largest university in Kansas, which is located in Manhattan. Several private industries and businesses are also located within these counties. Agriculture, oil, and gas are the predominant industries in Barton County. Additionally manufacturing and service industries also play a key role within this central Kansas market. LaCrosse, located
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within Rush County, is primarily an agricultural community with an emphasis on crop and livestock production.
The counties of Ford and Finney were founded on agriculture, which continues to play a major role in the economy. Predominant activities involve crop production, feed lot operations, and food processing. Dodge City is known as the Cowboy Capital of the World and maintains a significant tourism industry. Both Dodge City and Garden City are recognized as regional commercial centers within the state with small business, manufacturing, retail, and service industries having a significant influence upon the local economies. Additionally, each community has a community college which also attracts a number of individuals from the surrounding area to live within the community to participate in educational programs and pursue a degree.
Competition
The Company faces strong competition both in attracting deposits and making real estate and other loans. Its most direct competition for deposits comes from commercial banks and other savings institutions located in its principal market areas, including many large financial institutions which have greater financial and marketing resources available to them. The ability of the Company to attract and retain deposits generally depends on its ability to provide a rate of return, liquidity and risk comparable to that offered by competing investment opportunities. The Company competes for loans principally through the interest rates and loan fees it charges and the efficiency and quality of services it provides borrowers. Additionally, competition may increase as a result of the continuing reduction on restrictions on the interstate operations of financial institutions. Under the Gramm-Leach-Bliley Act, which became effective in 2000, securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions. The Gramm-Leach-Bliley Act may significantly change the competitive environment in which the Company conducts business. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.
Employees
At December 31, 2004, the Bank had a total of 151 employees (141.5 full time equivalent employees). The Company has no direct employees. Employees are provided with a comprehensive benefits program, including basic and major medical insurance, life and disability insurance, sick leave, an employee stock ownership plan and a 401(k) profit sharing plan. Employees are not represented by any union or collective bargaining group and the Bank considers its employee relations to be good.
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General . The Company strives to provide each market area it serves a full range of financial products and services to small and medium sized businesses and to consumers. The Company targets owner-operated businesses and utilizes Small Business Administration and Farm Services Administration lending as a part of its product mix. Each market has an established loan committee which has authority to approve credits, within established guidelines. Concentrations in excess of those guidelines must be approved by either a corporate loan committee comprised of the Companys Chief Executive Officer, the Credit Risk Manager, and two other senior commercial lenders or the banks board of directors. When lending to an entity, the Company generally obtains a guaranty from the principals of the entity. The loan mix is subject to the discretion of the Banks board of directors and the demands of the local marketplace.
Residential loans are priced and originated following underwriting standards that are consistent with guidelines established by the major buyers in the secondary market. Commercial and consumer loans generally are issued at or above the national prime rate. The Company has no potential negative amortization loans. The following is a brief description of each major category of the Companys lending activity.
Real Estate Lending . Commercial, residential, construction and multi-family real estate loans represent the largest class of loans of the Company. Generally, residential loans retained in portfolio are variable rate with adjustment periods of five years or less and amortization periods of either 15 or 30 years. Commercial real estate loans, including agricultural real estate, generally have amortization periods of 15 or 20 years. The Company has a security interest in the borrowers real estate. The Company also generates long term fixed rate residential real estate loans which are sold in the secondary market. Commercial real estate, construction and multi-family loans are generally limited, by policy, to 80% of the appraised value of the property. Commercial real estate, including agricultural real estate loans, also are supported by an analysis demonstrating the borrowers ability to repay. Residential loans that exceed 80% of the appraised value of the real estate generally are required, by policy, to be supported by private mortgage insurance, although on occasion the Company will retain non-conforming residential loans to known customers at premium pricing.
Commercial Lending . Loans in this category include loans to service, retail, wholesale and light manufacturing businesses, including agricultural operations. Commercial loans are made based on the financial strength and repayment ability of the borrower, as well as the collateral securing the loans. The Company targets owner-operated businesses as its customers and makes lending decisions based upon a cash flow analysis of the borrower as well as a collateral analysis. Accounts receivable loans and loans for inventory purchases are generally on a one-year renewable term and loans for equipment generally have a term of seven years or less. The Company generally takes a blanket security interest in all assets of the borrower. Equipment loans are generally limited to 75% of the cost or appraised value of the equipment. Inventory loans are generally limited to 50% of the value of the inventory, and accounts receivable loans are generally limited to 75% of a predetermined eligible base.
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The Company also provides short-term credit for operating loans and intermediate term loans for farm product, livestock and machinery purchases and other agricultural improvements. Farm product loans have generally a one-year term and machinery and equipment and breeding livestock loans generally have five to seven year terms. Extension of credit is based upon the borrowers ability to repay, as well as the existence of federal guarantees and crop insurance coverage. These loans are generally secured by a blanket lien on livestock, equipment, feed, hay, grain and growing crops. Equipment and breeding livestock loans are generally limited to 75% of appraised value.
Consumer and Other Lending . Loans classified as consumer and other loans include automobile, boat, student loans, home improvement and home equity loans, the latter two secured principally through second mortgages. The Company generally takes a purchase money security interest in collateral for which it provides the original financing. The terms of the loans typically range from one to five years, depending upon the use of the proceeds, and generally range from 75% to 90% of the value of the collateral. The majority of these loans are installment loans with fixed interest rates.
Loan Origination and Processing
Loan originations are derived from a number of sources. Residential loan originations result from real estate broker referrals, direct solicitation by the Banks loan officers, present depositors and borrowers, referrals from builders and attorneys, walk in customers and, in some instances, other lenders. Residential loan applications are underwritten and closed based upon standards which generally meet secondary market guidelines. Consumer and commercial real estate loan originations emanate from many of the same sources. The average loan is less than $500,000.
The loan underwriting procedures followed by the Bank conform to regulatory specifications and are designed to assess both the borrowers ability to make principal and interest payments and the value of any assets or property serving as collateral for the loan. Generally, as part of the process, a loan officer meets with each applicant to obtain the appropriate employment and financial information as well as any other required loan information. The bank then obtains reports with respect to the borrowers credit record, and orders, on real estate loans, and reviews an appraisal of any collateral for the loan (prepared for the Bank through an independent appraiser).
Loan applicants are notified promptly of the decision of the bank. Prior to closing any long-term loan, the borrower must provide proof of fire and casualty insurance on the property serving as collateral, and such insurance must be maintained during the full term of the loan. Title insurance is required on loans collateralized by real property.
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SUPERVISION AND REGULATION
Financial institutions, their holding companies and their affiliates are extensively regulated under federal and state law. As a result, the growth and earnings performance of the Company may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory authorities, including the Office of the Comptroller of the Currency (the OCC), the Board of Governors of the Federal Reserve System (the Federal Reserve) and the Federal Deposit Insurance Corporation (the FDIC). Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities and securities laws administered by the Securities and Exchange Commission (the SEC) and state securities authorities have an impact on the business of the Company. The effect of these statutes, regulations and regulatory policies may be significant, and cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial institutions regulate, among other things, the scope of business, the kinds and amounts of investments, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers and consolidations and the payment of dividends. This system of supervision and regulation establishes a comprehensive framework for the respective operations of the Company and its subsidiaries and is intended primarily for the protection of the FDIC-insured deposits and depositors of the Bank, rather than shareholders.
The following is a summary of the material elements of the regulatory framework that applies to the Company and its subsidiaries. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those statutes, regulations and regulatory policies that are described. As such, the following is qualified in its entirety by reference to applicable law. Any change in applicable statutes, regulations or regulatory policies may have a material effect on the business of the Company and its subsidiaries.
The Company
General. The Company, as the sole shareholder of the Bank, is a bank holding company. As a bank holding company, the Company is registered with, and is subject to regulation by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the BHCA). In accordance with Federal Reserve policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where the Company might not otherwise do so. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve. The Company is also required to file with the Federal Reserve periodic reports of the Companys operations and such additional information regarding the Company and its subsidiaries as the Federal Reserve may require.
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Acquisitions, Activities and Change in Control. The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company. Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.
The BHCA generally prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve to be so closely related to banking ... as to be a proper incident thereto. This authority would permit the Company to engage in a variety of banking-related businesses, including the operation of a thrift, consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies.
Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature, incidental to any such financial activity or complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. As of the date of this filing, the Company has neither applied for nor received approval to operate as a financial holding company.
Federal law also prohibits any person or company from acquiring control of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. Control is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances at 10% ownership.
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Capital Requirements. Bank holding companies are required to maintain minimum levels of capital in accordance with Federal Reserve capital adequacy guidelines. If capital levels fall below the minimum required levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses.
The Federal Reserves capital guidelines establish the following minimum regulatory capital requirements for bank holding companies: (i) a risk-based requirement expressed as a percentage of total assets weighted according to risk; and (ii) a leverage requirement expressed as a percentage of total assets. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8% and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%. The leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies, with a minimum requirement of 4% for all others. For purposes of these capital standards, Tier 1 capital consists primarily of permanent stockholders equity less intangible assets (other than certain loan servicing rights and purchased credit card relationships). Total capital consists primarily of Tier 1 capital plus certain other debt and equity instruments that do not qualify as Tier 1 capital and a portion of the companys allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserves capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions ( i.e. , Tier 1 capital less all intangible assets), well above the minimum levels. As of December 31, 2004, the Company had regulatory capital in excess of the Federal Reserves minimum requirements.
Dividend Payments. The Companys ability to pay dividends to its shareholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies . As a Delaware corporation, the Company is subject to the limitations of the Delaware General Corporation Law (the DGCL). The DGCL allows the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Additionally, policies of the Federal Reserve caution that a bank holding company should not pay cash dividends that exceed its net income or that can only be funded in ways that weaken the bank holding companys financial health, such as by borrowing. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.
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Federal Securities Regulation. The Companys common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the Exchange Act). Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.
The Bank
General. The Bank is a national bank, chartered by the OCC under the National Bank Act. The deposit accounts of the Bank are insured by the FDICs BIF and its SAIF. The Bank is a member of the Federal Reserve System and the Federal Home Loan Bank System. As a national bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the OCC, the chartering authority for national banks. The FDIC, as administrator of the BIF and the SAIF, also has regulatory authority over the Bank.
Deposit Insurance. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their respective levels of capital and results of supervisory evaluations. Institutions classified as well-capitalized (as defined by the FDIC) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (as defined by the FDIC) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period.
During the year ended December 31, 2004, both BIF and SAIF assessments ranged from 0% of deposits to 0.27% of deposits. For the semi-annual assessment period beginning January 1, 2005, both BIF and SAIF assessment rates will continue to range from 0% of deposits to 0.27% of deposits.
FICO Assessments. Since 1987, a portion of the deposit insurance assessments paid by SAIF members has been used to cover interest payments due on the outstanding obligations of the Financing Corporation (FICO). FICO was created in 1987 to finance the recapitalization of the Federal Savings and Loan Insurance Corporation, the SAIFs predecessor insurance fund. As a result of federal legislation enacted in 1996, beginning as of January 1, 1997, both SAIF members and BIF members became subject to assessments to cover the interest payments on outstanding FICO obligations until the final maturity of such obligations in 2019. These FICO assessments are in addition to amounts assessed by the FDIC for deposit insurance. During the year ended December 31, 2004, the FICO assessment rate for BIF and SAIF members was approximately 0.02% of deposits.
Supervisory Assessments. National banks are required to pay supervisory assessments to the OCC to fund the operations of the OCC. The amount of the assessment is calculated using a formula that takes into account the banks size and its supervisory condition (as determined by the composite rating assigned to the bank as a result of its most recent OCC examination). During the
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year ended December 31, 2004, the Bank paid supervisory assessments to the OCC totaling $105,000.
Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses. The OCC has established the following minimum capital standards for national banks, such as the Bank: (i) a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated banks with a minimum requirement of at least 4% for all others; and (ii) a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8% and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%. For purposes of these capital standards, the components of Tier 1 capital and total capital are the same as those for bank holding companies discussed above.
The capital requirements described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions. For example, regulations of the OCC provide that additional capital may be required to take adequate account of, among other things, interest rate risk or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.
Further, federal law and regulations provide various incentives for financial institutions to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a financial institution that is well-capitalized may qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities and may qualify for expedited processing of other required notices or applications. Additionally, one of the criteria that determines a bank holding companys eligibility to operate as a financial holding company is a requirement that all of its financial institution subsidiaries be well-capitalized. Under the regulations of the OCC, in order to be well-capitalized a financial institution must maintain a ratio of total capital to total risk-weighted assets of 10% or greater, a ratio of Tier 1 capital to total risk-weighted assets of 6% or greater and a ratio of Tier 1 capital to total assets of 5% or greater.
Federal law also provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators powers depends on whether the institution in question is adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized, in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institutions asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.
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As of December 31, 2004: (i) the Bank was not subject to a directive from the OCC to increase its capital to an amount in excess of the minimum regulatory capital requirements; (ii) the Bank exceeded its minimum regulatory capital requirements under OCC capital adequacy guidelines; and (iii) the Bank was well-capitalized, as defined by OCC regulations.
Dividends. The primary source of funds for the Company is dividends from the Bank. Under the National Bank Act, a national bank may pay dividends out of its undivided profits in such amounts and at such times as the banks board of directors deems prudent. Without prior OCC approval, however, a national bank may not pay dividends in any calendar year that, in the aggregate, exceed the banks year-to-date net income plus the banks retained net income for the two preceding years.
The payment of dividends by any financial institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 2004. As of December 31, 2004, approximately $2.3 million was available to be paid as dividends by the Bank. Notwithstanding the availability of funds for dividends, however, the OCC may prohibit the payment of any dividends by the Bank if the OCC determines such payment would constitute an unsafe or unsound practice.
Insider Transactions. The Bank is subject to certain restrictions imposed by federal law on extensions of credit to the Company, on investments in the stock or other securities of the Company and the acceptance of the stock or other securities of the Company as collateral for loans made by the Bank. Certain limitations and reporting requirements are also placed on extensions of credit by the Bank to its directors and officers, to the directors and officers of the Company, to principal stockholders of the Company, and to related interests of such directors, officers and principal stockholders. In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of the Company or the Bank or a principal stockholder of the Company may obtain credit from banks with which the Bank maintains correspondent relationships.
Safety and Soundness Standards. The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.
In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the institutions primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the
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deficiency cited in the regulators order is cured, the regulator may restrict the institutions rate of growth, require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators, including cease and desist orders and civil money penalty assessments.
Branching Authority. National banks headquartered in Kansas, such as the Bank, have the same branching rights in Kansas as banks chartered under Kansas law, subject to OCC approval. Kansas law grants Kansas-chartered banks the authority to establish branches anywhere in the State of Kansas, subject to receipt of all required regulatory approvals.
Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger. The establishment of new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is permitted only in those states that authorize such expansion.
Financial Subsidiaries. Under Federal law and OCC regulations, national banks are authorized to engage, through financial subsidiaries, in any activity that is permissible for a financial holding company and any activity that the Secretary of the Treasury, in consultation with the Federal Reserve, determines is financial in nature or incidental to any such financial activity, except: (i) insurance underwriting, (ii) real estate development or real estate investment activities (unless otherwise permitted by law), (iii) insurance company portfolio investments and (iv) merchant banking. The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well-managed and well-capitalized (after deducting from capital the banks outstanding investments in financial subsidiaries). The Bank has neither applied for nor received approval to establish any financial subsidiaries.
Federal Reserve System. Federal Reserve regulations, as presently in effect, require depository institutions to maintain non-interest earning reserves against their transaction accounts (primarily NOW and regular checking accounts), as follows: for transaction accounts aggregating $47.6 million or less, the reserve requirement is 3% of total transaction accounts; and for transaction accounts aggregating in excess of $47.6 million, the reserve requirement is $1.218 million plus 10% of the aggregate amount of total transaction accounts in excess of $47.6 million. The first $7.0 million of otherwise reservable balances are exempted from the reserve requirements. These reserve requirements are subject to annual adjustment by the Federal Reserve. The Bank is in compliance with the foregoing requirements.
12
Company Website
The Company maintains a corporate website at www.landmarkbancorpinc.com. The Company makes available free of charge on or through its website the annual report on Form 10K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the Company electronically files such material with, or furnish it to, the Securities and Exchange Commission. Many of the Companys policies, committee charters and other investor information are available on the web site. The Company will also provide copies of its filings free of charge upon written request to our Corporate Secretary at the address listed on the front of this Form 10-K.
STATISTICAL DATA
The Company is the accounting successor to the prior Landmark Bancshares, Inc. and therefore, all financial information presented for periods prior to October 9, 2001 reflects only the operations of Landmark Bancshares, Inc. Landmark Bancshares, Inc. filed an Annual Report on Form 10-K for its fiscal year ended September 30, 2001. The Company has a fiscal year ending on December 31. Therefore, the Company elected to file a Form 10-K for the transition period from October 1, 2001 to December 31, 2001, which included audited consolidated financial information. The results for the three month transition period ended December 31, 2001 included MNB Bancshares, Inc.s results commencing October 9, 2001. The information presented in this Form 10-K presents information on behalf of the Company as of and for the year ended December 31, 2004.
The statistical data required by Guide 3 of the Guides for Preparation and Filing of Reports and Registration Statements under the Securities Exchange Act of 1934 is set forth in the following pages. This data should be read in conjunction with the consolidated financial statements, related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations as set forth in the Companys 2004 Annual Report to Stockholders (attached hereto as Exhibit 13.1). All dollars in the tables are expressed in thousands.
13
I. Distribution of Assets, Liabilities, and Stockholders Equity; Interest Rates and Interest Differentials
The average balance sheets are incorporated by reference from the Companys 2004 Annual Report to Stockholders (attached as Exhibit 13.1). The following table describes the extent to which changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities affected the Companys interest income and expense during 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 the previous columns). The net changes attributable to the combined effect of volume and rate, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
|
|
Years Ended
|
|
Years Ended
|
|
|||||||||||||||||
|
|
Volume |
|
Rate |
|
Net |
|
Volume |
|
Rate |
|
Net |
|
|||||||||
|
|
(Dollars in thousands) |
|
(Dollars in thousands) |
|
|||||||||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Investment securities |
|
$ |
1,322 |
|
$ |
(19 |
) |
$ |
1,303 |
|
$ |
189 |
|
$ |
(127 |
) |
$ |
62 |
|
|||
Loans |
|
2,598 |
|
(1,228 |
) |
1,370 |
|
(1,094 |
) |
(1,253 |
) |
(2,347 |
) |
|||||||||
Total |
|
3,920 |
|
(1,247 |
) |
2,673 |
|
(905 |
) |
(1,380 |
) |
(2,285 |
) |
|||||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Deposits |
|
$ |
385 |
|
$ |
(886 |
) |
$ |
(501 |
) |
$ |
278 |
|
$ |
(1,605 |
) |
$ |
(1,327 |
) |
|||
Other borrowings |
|
1,974 |
|
(128 |
) |
1,846 |
|
(13 |
) |
(116 |
) |
(129 |
) |
|||||||||
Total |
|
2,359 |
|
(1,014 |
) |
1,345 |
|
265 |
|
(1,721 |
) |
(1,456 |
) |
|||||||||
Net interest income |
|
$ |
1,561 |
|
$ |
(233 |
) |
$ |
1,328 |
|
$ |
(1,170 |
) |
$ |
341 |
|
$ |
(829 |
) |
|||
14
II. Investment Portfolio
Investment Securities . The following table sets forth the carrying value of the Companys investment securities at the dates indicated. None of the investment securities held as of December 31, 2003 was issued by an individual issuer in excess of 10% of the Companys stockholders equity, excluding the securities of U.S. government and federal agency obligations.
|
|
At
|
|
|||||||
|
|
2004 |
|
2003 |
|
2002 |
|
|||
|
|
(Dollars in thousands) |
|
|||||||
|
|
|
|
|
|
|
|
|||
Investment Securities Available-for-Sale: |
|
|
|
|
|
|
|
|||
U.S. Agency Securities |
|
$ |
33,465 |
|
$ |
32,616 |
|
$ |
12,656 |
|
Municipal Obligations |
|
14,015 |
|
14,020 |
|
13,179 |
|
|||
Mortgage-backed securities |
|
74,504 |
|
46,563 |
|
58,107 |
|
|||
FHLB Stock |
|
5,413 |
|
2,544 |
|
2,521 |
|
|||
Common Stock |
|
710 |
|
662 |
|
1,475 |
|
|||
FRB Stock |
|
1,341 |
|
805 |
|
805 |
|
|||
Corporate Bonds |
|
1,763 |
|
52 |
|
101 |
|
|||
Other investments |
|
2,393 |
|
2,483 |
|
452 |
|
|||
Total Investments Available for-Sale |
|
$ |
133,604 |
|
$ |
99,746 |
|
$ |
89,296 |
|
15
The following table sets forth certain information regarding the carrying values, weighted average yields, and maturities of the Companys investment securities portfolio as of December 31, 2004. Yields on tax-exempt obligations have not been computed on a tax equivalent basis. The table includes scheduled principal payments and estimated prepayments.
|
|
As of December 31, 2004 |
|
|||||||||||||||||||||||
|
|
One Year or Less |
|
One to Five Years |
|
Five to Ten Years |
|
More than Ten Years |
|
Total
Investment
|
|
|||||||||||||||
|
|
Carrying
|
|
Average
|
|
Carrying
|
|
Average
|
|
Carrying
|
|
Average
|
|
Carrying
|
|
Average
|
|
Carrying
|
|
Average
|
|
|||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Investment Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
U.S. government and agency obligations |
|
$ |
19,019 |
|
3.02 |
% |
$ |
13,291 |
|
2.45 |
% |
$ |
1,155 |
|
3.09 |
% |
$ |
|
|
|
% |
$ |
33,465 |
|
2.80 |
% |
Municipal obligations |
|
4,990 |
|
4.60 |
|
7,655 |
|
3.68 |
|
1,370 |
|
3.38 |
|
|
|
|
|
14,015 |
|
3.98 |
|
|||||
Mortgage-backed securities |
|
37,502 |
|
3.29 |
|
35,108 |
|
3.36 |
|
976 |
|
3.26 |
|
918 |
|
4.41 |
|
74,504 |
|
3.34 |
|
|||||
Corporate bonds |
|
1,232 |
|
6.73 |
|
531 |
|
7.13 |
|
|
|
|
|
|
|
|
|
1,763 |
|
6.85 |
|
|||||
Total |
|
$ |
62,743 |
|
3.36 |
% |
$ |
56,585 |
|
3.17 |
% |
$ |
3,501 |
|
3.28 |
% |
$ |
918 |
|
4.41 |
% |
$ |
123,747 |
|
3.28 |
% |
16
II. Loan Portfolio
Loan Portfolio Composition . The following table sets forth the composition of the loan portfolio by type of loan at the dates indicated.
|
|
December 31, |
|
September 30, |
|
||||||||||||||||||||||||||
|
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2001 |
|
2000 |
|
||||||||||||||||||
|
|
Amount |
|
Percent
|
|
Amount |
|
Percent
|
|
Amount |
|
Percent
|
|
Amount |
|
Percent
|
|
Amount |
|
Percent
|
|
Amount |
|
Percent
|
|
||||||
|
|
(Dollars in thousands) |
|
||||||||||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Residential one-to-four family (1) |
|
$ |
131,923 |
|
47.4 |
% |
$ |
82,828 |
|
38.5 |
% |
$ |
106,341 |
|
46.4 |
% |
$ |
135,179 |
|
56.1 |
% |
$ |
118,087 |
|
81.7 |
% |
$ |
166,772 |
|
87.1 |
% |
Commercial |
|
77,208 |
|
27.7 |
|
65,729 |
|
30.6 |
|
62,207 |
|
27.2 |
|
48,818 |
|
20.3 |
|
10,084 |
|
7.0 |
|
9,331 |
|
4.9 |
|
||||||
Construction |
|
11,234 |
|
4.0 |
|
9,171 |
|
4.3 |
|
8,969 |
|
3.9 |
|
10,799 |
|
4.5 |
|
3,248 |
|
2.2 |
|
858 |
|
0.4 |
|
||||||
Commercial loans |
|
51,826 |
|
18.6 |
|
50,054 |
|
23.3 |
|
41,809 |
|
18.2 |
|
33,077 |
|
13.7 |
|
7,604 |
|
5.3 |
|
7,034 |
|
3.7 |
|
||||||
Consumer loans |
|
9,015 |
|
3.2 |
|
9,567 |
|
4.4 |
|
12,810 |
|
5.6 |
|
15,979 |
|
6.6 |
|
6,926 |
|
4.8 |
|
9,050 |
|
4.7 |
|
||||||
Gross loans |
|
281,206 |
|
101.1 |
|
217,349 |
|
101.1 |
|
232,136 |
|
101.3 |
|
145,949 |
|
101.2 |
|
145,949 |
|
101.0 |
|
193,045 |
|
100.8 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deferred fees & loans in process |
|
52 |
|
0.0 |
|
3 |
|
0.0 |
|
459 |
|
0.1 |
|
52 |
|
0.0 |
|
52 |
|
0.0 |
|
154 |
|
0.1 |
|
||||||
Allowance for loan losses |
|
2,894 |
|
1.0 |
|
2,316 |
|
1.1 |
|
2,565 |
|
1.1 |
|
1,424 |
|
1.0 |
|
1,424 |
|
1.0 |
|
1,377 |
|
0.7 |
|
||||||
Total loans |
|
$ |
278,260 |
|
100.0 |
% |
$ |
215,030 |
|
100.0 |
% |
$ |
229,112 |
|
100.0 |
% |
$ |
144,473 |
|
100.0 |
% |
$ |
144,473 |
|
100.0 |
% |
$ |
191,514 |
|
100.0 |
% |
(1) Includes loans held for sale.
17
The following table sets forth the contractual maturities of loans at December 31, 2004.
The table does not include unscheduled prepayments.
|
|
Less than
|
|
2-5 years |
|
Over
|
|
Total |
|
||||
|
|
(Dollars in thousands) |
|
||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
||||
Residential one-to-four family |
|
$ |
17,328 |
|
$ |
57,114 |
|
$ |
57,481 |
|
$ |
131,923 |
|
Commercial |
|
14,501 |
|
32,666 |
|
30,041 |
|
77,208 |
|
||||
Construction |
|
10,600 |
|
199 |
|
435 |
|
11,234 |
|
||||
Commercial |
|
31,820 |
|
16,688 |
|
3,318 |
|
51,826 |
|
||||
Consumer |
|
3,919 |
|
4,838 |
|
258 |
|
9,015 |
|
||||
Gross loans |
|
$ |
78,168 |
|
$ |
111,505 |
|
$ |
91,533 |
|
$ |
281,206 |
|
Deferred loan fees and loans in process |
|
|
|
|
|
|
|
52 |
|
||||
Allowance for loan losses |
|
|
|
|
|
|
|
2,894 |
|
||||
Loans, net |
|
|
|
|
|
|
|
$ |
278,260 |
|
The following table sets forth, at December 31, 2004, the dollar amount of all loans due after December 31, 2005 and whether such loans had fixed interest rates or adjustable interest rates:
|
|
Fixed |
|
Adjustable |
|
Total |
|
|||
|
|
(Dollars in thousands) |
|
|||||||
Real estate loans: |
|
|
|
|
|
|
|
|||
Residential one-to-four family |
|
$ |
32,533 |
|
$ |
82,062 |
|
$ |
114,595 |
|
Commercial |
|
8,666 |
|
54,041 |
|
62,707 |
|
|||
Construction |
|
50 |
|
584 |
|
634 |
|
|||
Commercial |
|
8,949 |
|
11,057 |
|
20,006 |
|
|||
Consumer |
|
4,637 |
|
459 |
|
5,096 |
|
|||
Gross loans |
|
$ |
54,835 |
|
$ |
148,203 |
|
$ |
203,038 |
|
18
Nonperforming Assets . The following table sets forth information with respect to nonperforming assets, including non-accrual loans and real estate acquired through foreclosure or by deed in lieu of foreclosure (real estate owned). Under the original terms of the Companys non-accrual loans at December 31, 2004, interest earned on such loans for the year period ended December 31, 2004 would not have been significantly different than reported.
|
|
At December 31, |
|
At September 30, |
|
|||||||||||||||
|
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2001 |
|
2000 |
|
|||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||
Total non-accrual loans |
|
$ |
1,145 |
|
$ |
1,205 |
|
$ |
925 |
|
$ |
1,033 |
|
$ |
641 |
|
$ |
505 |
|
|
Accruing loans over 90 days past due |
|
|
|
|
|
|
|
148 |
|
145 |
|
634 |
|
|||||||
Real estate owned (REO) |
|
479 |
|
281 |
|
402 |
|
257 |
|
233 |
|
171 |
|
|||||||
Total nonperforming assets |
|
$ |
1,624 |
|
$ |
1,486 |
|
$ |
1,327 |
|
$ |
1,438 |
|
$ |
1,019 |
|
$ |
1,310 |
|
|
Total nonperforming loans to total loans, net |
|
0.4 |
% |
0.6 |
% |
0.4 |
% |
0.4 |
% |
0.5 |
% |
0.6 |
% |
|||||||
Total nonperforming assets to total assets |
|
0.4 |
% |
0.4 |
% |
0.4 |
% |
0.4 |
% |
0.5 |
% |
0.5 |
% |
|||||||
Allowance for loan losses to non-performing loans |
|
252.8 |
% |
192.2 |
% |
277.3 |
% |
233.2 |
% |
181.2 |
% |
120.9 |
% |
|||||||
19
IV. Summary of Loan Loss Experience
The following table sets forth information with respect to the Companys allowance for loan losses at the dates indicated:
|
|
At December 31, |
|
At September 30, |
|
||||||||||||||
|
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2001 |
|
2000 |
|
||||||
|
|
(Dollars in thousands) |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total loans outstanding |
|
$ |
278,260 |
|
$ |
215,030 |
|
$ |
229,112 |
|
$ |
240,979 |
|
$ |
144,473 |
|
$ |
191,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans outstanding |
|
$ |
266,938 |
|
$ |
217,327 |
|
$ |
233,311 |
|
$ |
245,669 |
|
$ |
164,165 |
|
$ |
184,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Allowance balances (at beginning of period) |
|
2,316 |
|
2,565 |
|
2,640 |
|
1,424 |
|
1,377 |
|
1,318 |
|
||||||
Provision (credit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial and consumer |
|
460 |
|
240 |
|
182 |
|
33 |
|
120 |
|
267 |
|
||||||
|
|
460 |
|
240 |
|
182 |
|
33 |
|
120 |
|
267 |
|
||||||
Allowance of merged bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate. |
|
320 |
|
|
|
|
|
483 |
|
|
|
|
|
||||||
Commercial and consumer |
|
32 |
|
|
|
|
|
755 |
|
|
|
|
|
||||||
|
|
352 |
|
|
|
|
|
1,238 |
|
|
|
|
|
||||||
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate |
|
(63 |
) |
(30 |
) |
(17 |
) |
(15 |
) |
(11 |
) |
(21 |
) |
||||||
Commercial and consumer |
|
(232 |
) |
(524 |
) |
(302 |
) |
(49 |
) |
(149 |
) |
(331 |
) |
||||||
|
|
(295 |
) |
(554 |
) |
(319 |
) |
(64 |
) |
(160 |
) |
(352 |
) |
||||||
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate |
|
16 |
|
|
|
30 |
|
|
|
9 |
|
|
|
||||||
Commercial and consumer |
|
44 |
|
65 |
|
32 |
|
9 |
|
78 |
|
144 |
|
||||||
|
|
60 |
|
65 |
|
62 |
|
9 |
|
87 |
|
144 |
|
||||||
Net charge-offs |
|
(235 |
) |
(489 |
) |
(257 |
) |
(55 |
) |
(73 |
) |
(208 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Allowance balance (at end of period) |
|
$ |
2,894 |
|
$ |
2,316 |
|
$ |
2,565 |
|
$ |
2,640 |
|
$ |
1,424 |
|
$ |
1,377 |
|
Allowance for loan losses as a percent of total loans outstanding. |
|
1.04 |
% |
1.08 |
% |
1.12 |
% |
1.10 |
% |
0.99 |
% |
0.72 |
% |
||||||
Net loans charged off as a percent of average loans outstanding (1) |
|
0.09 |
% |
0.23 |
% |
0.11 |
% |
0.09 |
% |
0.04 |
% |
0.11 |
% |
(1) Information for the three months ended December 31, 2001 is annualized.
20
The distribution of the Companys allowance for losses on loans at the dates indicated and the percent of loans in each category to total loans is summarized in the following table. This allocation reflects managements judgment as to risks inherent in the types of loans indicated, but the general allowance included in the table are not restricted and are available to absorb all loan losses. The amount allocated in the following table to any category should not be interpreted as an indication of expected actual charge-offs in that category.
|
|
At December 31, |
|
At September 30, |
|
||||||||||||||||||||||||||
|
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2001 |
|
2000 |
|
||||||||||||||||||
|
|
(Dollars in thousands) |
|
||||||||||||||||||||||||||||
|
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate |
|
$ |
1,158 |
|
78.4 |
% |
$ |
910 |
|
72.6 |
% |
$ |
1,026 |
|
76.5 |
% |
$ |
1,188 |
|
79.9 |
% |
$ |
789 |
|
90.1 |
% |
$ |
771 |
|
91.7 |
% |
Commercial and consumer |
|
1,736 |
|
21.6 |
|
1,406 |
|
27.4 |
|
1,539 |
|
23.5 |
|
1,452 |
|
20.1 |
|
635 |
|
9.9 |
|
606 |
|
8.3 |
|
||||||
Total |
|
$ |
2,894 |
|
100.0 |
% |
$ |
2,316 |
|
100.0 |
% |
$ |
2,565 |
|
100.0 |
% |
$ |
2,640 |
|
100.0 |
% |
$ |
1,424 |
|
100.0 |
% |
$ |
1,377 |
|
100.0 |
% |
21
V. Deposits
As of December 31, 2004, the aggregate amount outstanding of jumbo certificates of deposit (amounts of $100,000 or more) was $31.1 million. The following table presents the maturities of these time certificates of deposit at December 31, 2004:
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
3 months or less |
|
$ |
16,796 |
|
Over 3 months through 6 months |
|
5,921 |
|
|
Over 6 months through 12 months |
|
4,253 |
|
|
Over 12 months |
|
4,152 |
|
|
Total |
|
$ |
31,122 |
|
VI. Return on Equity and Assets
|
|
At or for the years ended
|
|
At or for the
|
|
At or for the
|
|
||||||
|
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2001 |
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (1) |
|
0.98 |
% |
1.46 |
% |
1.35 |
% |
(0.72 |
)% |
1.13 |
% |
.97 |
% |
Return on average equity (1) |
|
9.98 |
|
11.53 |
|
11.31 |
|
(6.29 |
) |
10.17 |
|
10.23 |
|
Equity to total assets |
|
9.54 |
|
12.74 |
|
12.03 |
|
11.50 |
|
13.03 |
|
9.44 |
|
Dividend payout ratio |
|
33.33 |
|
27.63 |
|
27.57 |
|
NM |
|
25.38 |
|
27.31 |
|
NM not meaningful
(1) Information for the three months ended December 31, 2001 is annualized.
22
ITEM 2. PROPERTIES
The Company owns its main office in Manhattan and eleven branch offices and leases 4 branch offices. The Company also leases additional office space in Manhattan and a parking lot for one of the branch offices owned.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company or the Bank is a party, other than ordinary routine litigation incidental to the Banks business. While the ultimate outcome of current legal proceedings cannot be predicted with certainty, it is the opinion of management that the resolution of these legal actions should not have a material effect on the Companys consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter ended December 31, 2004.
PART II.
ITEM 5. MARKET FOR THE COMPANYS COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company incorporates by reference the information called for by Item 5 of this Form 10-K from the section captioned Stock Price Information of the Companys 2004 Annual Report to Stockholders for the year ended December 31, 2004 (attached as Exhibit 13.1).
The following table provides information about purchases by the Company and its affiliated purchasers during the quarter ended December 31, 2004, of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:
Period |
|
Total
|
|
Average
|
|
Total Number of
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1-31, 2004 |
|
|
|
|
|
|
|
11,978 |
|
|
November 1-30, 2004 |
|
10,000 |
|
$ |
29.31 |
|
10,000 |
|
103,482 |
|
December 1-30, 2004 |
|
26,428 |
|
29.84 |
|
26,428 |
|
77,054 |
|
|
Total |
|
36,428 |
|
$ |
29.69 |
|
36,428 |
|
77,054 |
|
23
(1) In November 2003, our Board of Directors approved the repurchase by us up to an aggregate of 100,800 shares of our common stock pursuant to a publicly announced repurchase program (the 2003 Repurchase Program). In November 2004, our Board of Directors approved the repurchase by us up to an additional 5%, or 101,700 shares, of our common stock following the completion of the 2003 Repurchase Program. In December 2004, we exhausted the shares available to repurchase under the 2003 Repurchase Program and began repurchasing shares pursuant to the newly adopted program. Unless terminated earlier by resolution of the Board of Directors, the current repurchase program will expire when we have repurchased all shares authorized for repurchase thereunder.
ITEM 6. SELECTED FINANCIAL DATA
The Company incorporates by reference the information called for by Item 6 of this Form 10-K from the sections entitled Selected Financial and Other Data and Managements Discussion and Analysis of Financial Condition and Results of Operations of the Companys 2004 Annual Report to Stockholders for the year ended December 31, 2004 (attached as Exhibit 13.1).
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company incorporates by reference the information called for by Item 7 of this Form 10-K from the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations of the Companys 2004 Annual Report to Stockholders for the year ended December 31, 2004 (attached as Exhibit 13.1).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company incorporates by reference the information called for by Item 7A of this Form 10-K from the section entitled Quantitative Disclosures About Market Risk of the Companys 2004 Annual Report to stockholders for the year ended December 31, 2004 (attached as Exhibit 13.1).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Company incorporates by reference the information called for by Item 8 of this Form 10-K from the Financial Statements set forth in the Companys 2004 Annual Report to Stockholders for the year ended December 31, 2004 (attached as Exhibit 13.1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
24
ITEM 9A. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2004. Based on that evaluation, the Companys management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Companys disclosure controls and procedures were effective. There have been no significant changes in the Companys internal controls or in other factors that could significantly affect internal controls.
ITEM 9B. OTHER INFORMATION
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The Company incorporates by reference the information called for by Item 10 of this Form 10-K regarding directors of the Company from the sections entitled Election of Directors and Corporate Governance and the Board of Directors of the Companys Proxy Statement for the annual meeting of stockholders to be held May 18, 2005 (the 2005 Proxy Statement).
Section 16(a) of the Exchange Act requires that the Companys executive officers, directors and persons who own more than 10% of their Companys Common Stock file reports of ownership and changes in ownership with the Securities and Exchange Commission and with the exchange on which the Companys shares of Common Stock are traded. Such persons are also required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on the Companys review of the copies of such forms, the Company is not aware that any of its directors and executive officers or 10% stockholders failed to comply with the filing requirements of Section 16(a) during 2004.
25
Executive Officers
The executive officers of the Company, each of whom is also currently an executive officer of the Bank and both of whom serve at the discretion of the Board of Directors, are identified below:
Name |
|
Age |
|
Positions with the Company |
|
|
|
|
|
Patrick L. Alexander |
|
52 |
|
President and Chief Executive Officer |
|
|
|
|
|
Mark A. Herpich |
|
37 |
|
Vice President, Secretary, Chief Financial Officer and Treasurer |
The executive officers of the Bank are identified below:
Name |
|
Age |
|
Positions with the Bank |
|
|
|
|
|
Patrick L. Alexander |
|
52 |
|
President and Chief Executive Officer |
|
|
|
|
|
Mark A. Herpich |
|
37 |
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
Michael E. Scheopner |
|
43 |
|
Executive Vice President, Credit Risk Manager |
|
|
|
|
|
Mark J. Oliphant |
|
52 |
|
Market President Dodge City |
|
|
|
|
|
Dean R. Thibault |
|
53 |
|
Market President - Manhattan |
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference the information called for by Item 11 of this Form 10-K from the sections entitled Corporate Governance and the Board of Directors and Executive Compensation of the 2005 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information called for by Item 12 of this Form 10-K from the section entitled Security Ownership of Certain Beneficial Owners of the 2005 Proxy Statement.
26
Equity Compensation Plan Information
The table below sets forth the following information as of December 31, 2004 for (i) all compensation plans previously approved by the Companys shareholders and (ii) all compensation plans not previously approved by the Companys shareholders:
(a) |
the number of securities to be issued upon the exercise of outstanding options, warrants and rights; |
|
|
(b) |
the weighted-average exercise price of such outstanding options, warrants and rights; |
|
|
(c) |
other than securities to be issued upon the exercise of such outstanding options, warrants and rights, the number of securities remaining available for future issuance under the plans. |
EQUITY COMPENSATION PLAN INFORMATION
Plan category |
|
Number of securities to be
|
|
Weighted-average
|
|
Number of securities
|
|
|
Equity compensation plans approved by security holders |
|
95,433 |
|
$ |
27.41 |
|
264,604 |
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders |
|
- 0 - |
|
- 0 - |
|
- 0 - |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
95,433 |
|
$ |
27.41 |
|
264,604 |
|
(1) Does not include options assumed by the Company in 2001 in connection with the merger of Landmark Bancshares, Inc. and MNB Bancshares, Inc. with and into the Company. At the time of the merger, there were options issued under the previous companies plans, each of which was approved by stockholders of the respective company at the time of their adoption. All of the options granted under these plans fully vested at the time of the merger and no additional options were available for grant after the merger. As of December 31, 2004, there were options outstanding for an aggregate of 35,854 shares of the Companys common stock under the prior plans with a weighted average exercise price of $15.06.
27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference the information called for by Item 13 of this Form 10-K from the section entitled Transactions with Directors, Officers and Associates of the 2005 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company incorporates by reference the information called for by Item 14 of this Form 10-K from the section entitled Independent Public Accountants of the 2005 Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 15(a)1 and 2. Financial Statements and Schedules
LANDMARK BANCORP,
INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following audited Consolidated Financial Statements of the Company and its subsidiaries and related notes and auditors report are incorporated by reference from the Companys 2004 Annual Report to Stockholders (attached as Exhibit 13.1).
All schedules are omitted because they are not required or are not applicable or the required information is shown in the financial statements incorporated by reference or notes thereto.
28
Item 15(a)3. Exhibits
The exhibits required by Item 601 of Regulation S-K are included with this Form 10-K and are listed on the Index to Exhibits immediately following the signature page.
Upon written request to the President of the Company, P.O. Box 308, Manhattan, Kansas 66505-0308, copies of the exhibits listed above are available to stockholders of the Company by specifically identifying each exhibit desired in the request. The Companys filings with the Securities and Exchange Commission are also available via the Internet at www.sec.gov, www.banklandmark.com or www.landmarkbancorpinc.com .
29
Pursuant to the requirements of Section 13 or 15(d) 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. |
|
|||
|
(Registrant) |
|
|||
|
|
|
|||
|
By |
: /s/ Patrick L. Alexander |
|
By: /s/ Mark A. Herpich |
|
|
|
Patrick L. Alexander |
Mark A. Herpich |
||
|
|
President and Chief Executive Officer |
Principal Financial and Accounting Officer |
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE |
|
|
|
TITLE |
|
|
|
|
President, Chief Executive |
/s/ Patrick L. Alexander |
|
March 30, 2005 |
|
Officer and Director |
Patrick L. Alexander |
|
Date |
|
|
|
|
|
|
|
/s/ Larry L. Schugart |
|
March 30, 2005 |
|
Chairman of the Board |
Larry L. Schugart |
|
Date |
|
|
|
|
|
|
|
/s/ Richard A. Ball |
|
March 30, 2005 |
|
Director |
Richard A. Ball |
|
Date |
|
|
|
|
|
|
|
/s/ Brent A. Bowman |
|
March 30, 2005 |
|
Director |
Brent A. Bowman |
|
Date |
|
|
|
|
|
|
|
/s/ Joseph L. Downey |
|
March 30, 2005 |
|
Director |
Joseph L. Downey |
|
Date |
|
|
|
|
|
|
|
/s/ Jim W. Lewis |
|
March 30, 2005 |
|
Director |
Jim W. Lewis |
|
Date |
|
|
|
|
|
|
|
/s/ Jerry R. Pettle |
|
March 30, 2005 |
|
Director |
Jerry R. Pettle |
|
Date |
|
|
|
|
|
|
|
/s/ Susan E. Roepke |
|
March 30, 2005 |
|
Director |
Susan E. Roepke |
|
Date |
|
|
|
|
|
|
|
/s/ C. Duane Ross |
|
March 30, 2005 |
|
Director |
C. Duane Ross |
|
Date |
|
|
|
|
|
|
|
/s/ David H. Snapp |
|
March 30, 2005 |
|
Director |
David H. Snapp |
|
Date |
|
|
30
INDEX TO EXHIBITS
Exhibit
|
|
Description |
|
Incorporated by reference to |
|
Attached
|
3.1 |
|
Amended and Restated Certificate of Incorporation |
|
the registrants transition report on Form 10-K for the transition period ending December 31, 2001, filed with the Commission on March 24, 2002 (SEC file no. 000-33203) |
|
|
|
|
|
|
|
|
|
3.2 |
|
Bylaws |
|
the registrants Form S-4, as amended, filed with the Commission on June 7, 2001 (SEC file no. 333-62466) |
|
|
|
|
|
|
|
|
|
4.1 |
|
Form of stock certificate |
|
the registrants Form S-4, as amended, filed with the Commission on June 7, 2001 (SEC file no. 333-62466) |
|
|
|
|
|
|
|
|
|
10.1 |
|
Form of employment agreement between Larry Schugart and the Company |
|
the registrants Form S-4, as amended, filed with the Commission on June 7, 2001 (SEC file no. 333-62466) |
|
|
|
|
|
|
|
|
|
10.2 |
|
Form of employment agreement between Patrick L. Alexander and the Company |
|
the registrants Form S-4, as amended, filed with the Commission on June 7, 2001 (SEC file no. 333-62466) |
|
|
|
|
|
|
|
|
|
10.3 |
|
Form of employment agreement between Mark A. Herpich and the Company |
|
the registrants Form S-4, as amended, filed with the Commission on June 7, 2001 (SEC file no. 333-62466) |
|
|
|
|
|
|
|
|
|
10.4 |
|
Form of employment agreement between Michael E. Scheopner and the Company |
|
the registrants Form S-4, as amended, filed with the Commission on June 7, 2001 (SEC file no. 333-62466) |
|
|
|
|
|
|
|
|
|
10.5 |
|
Form of employment agreement between Dean R. Thibault and the Company |
|
the registrants Form S-4, as amended, filed with the Commission on June 7, 2001 (SEC file no. 333-62466) |
|
|
|
|
|
|
|
|
|
10.6 |
|
Rights Agreement between the Company and Landmark National Bank |
|
the registrants Form 8-K filed with the Commission on January 22, 2002 (SEC file no. 000-33203) |
|
|
|
|
|
|
|
|
|
10.7 |
|
Indenture dated as of December 19, 2003 between the Company and Wilmington Trust Company |
|
the registrants report on Form 10-K for the period ending December 31, 2003, filed with the Commission on March 30, 2004 (SEC file no. 000-33203) |
|
|
|
|
|
|
|
|
|
10.8 |
|
Form of employment agreement between Mark J. Oliphant and the Company |
|
The registrants Form 8-K filed with the Commission on March 9, 2005 (SEC file no. 000-33203) |
|
|
|
|
|
|
|
|
|
10.9 |
|
Form of 2001 Landmark Bancorp, Inc. Stock Incentive Plan Option Grant Agreement |
|
|
|
ý |
|
|
|
|
|
|
|
10.10 |
|
Landmark Bancorp, Inc. Bonus/Profit Sharing Plan |
|
|
|
ý |
31
10.11 |
|
Form of Landmark Bancorp, Inc. Deferred Compensation Agreements |
|
|
|
ý |
|
|
|
|
|
|
|
10.12 |
|
Summary of directors fees |
|
|
|
ý |
|
|
|
|
|
|
|
13.1 |
|
2004 Annual Report to Stockholders |
|
|
|
ý |
|
|
|
|
|
|
|
21.1 |
|
Subsidiaries of the Company |
|
|
|
ý |
|
|
|
|
|
|
|
23.1 |
|
Consent of KPMG LLP |
|
|
|
ý |
|
|
|
|
|
|
|
31.1 |
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
|
|
|
ý |
|
|
|
|
|
|
|
31.2 |
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
|
|
|
ý |
|
|
|
|
|
|
|
32.1 |
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
ý |
|
|
|
|
|
|
|
32.2 |
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
ý |
32
EXHIBIT 10.9
1. A STOCK OPTION to acquire [ (#)] shares (hereinafter referred to as Shares ) of Common Stock of LANDMARK BANCORP, INC. (hereinafter referred to as the Company ) is hereby granted to [EMPLOYEE NAME] [DIRECTOR NAME] (hereinafter referred to as the Optionee), subject in all respects to the terms and conditions of the LANDMARK BANCORP, INC. 2001 STOCK INCENTIVE PLAN (hereinafter referred to as the Plan ) and such other terms and conditions as are set forth herein. All defined terms herein shall have the meaning given them under the Plan.
2. This Option is not intended to constitute an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended.
3. The option price as determined by the [Committee] [Board] is Dollars and Cents ($ ) per Share. The aggregate option price may be paid in any one of a combination of the methods provided in Section 4(c)(ii) of the Plan.
4. a. This Option shall vest and may be exercised in accordance with the following schedule:
[Date] |
|
# |
[Date] |
|
# |
[Date] |
|
# |
[Date] |
|
# |
b. In the event of the Termination of Service of the Optionee for Cause, this Option shall immediately become unexercisable and all options, vested and unvested, shall be immediately forfeited and terminated.
c. In the event of a Change of Control, as defined in the Plan, this Option shall be fully vested and exercisable.
d. In the event of the Optionees voluntary Termination of Service, the Optionee shall have the right to exercise, within the ninety (90) day period immediately following such Termination of Service, those options that are vested as of the date of Termination of Service.
e. In the event the Optionees Termination of Service is due to termination by the Company or one of its affiliates without Cause, the Optionee shall have the right to exercise, within the ninety (90) day period immediately following such Termination of Service, those options that are vested as of the date of Termination of Service.
5. The Companys obligation to deliver Shares with respect to an award shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intent of
33
the individual to whom such Shares are to be delivered, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions of the Securities Act or any other federal or state securities legislation or regulation. It may be provided that any representation requirement shall become unnecessary upon a registration of the Shares or other action eliminating the necessity of such representation under securities legislation. The Company shall not be required to issue and deliver any Shares under the Plan prior to: (a) the admission of such Shares to listing on any stock exchange on which Shares may then be listed, and (b) the completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation, as the Board shall determine to be necessary or advisable. The Plan is intended to comply with Rule 16b-3, to the extent it is applicable. Any provision of the Plan which is inconsistent with said rule shall, to the extent of such inconsistency, be inoperative and shall not affect the validity of the remaining provisions of the Plan.
6. The Shares issued pursuant to the exercise of this Option shall at all times be subject to the Companys right of first refusal as set forth in Section 8 of the Plan.
7. This Option may not be transferred in any manner, except as provided in Section 5(c)(vi) of the Plan.
8. This Option may not be exercised more than ten (10) years after the date indicated below and may be exercised during such term only in accordance with the terms and conditions set forth in the Plan, including any limitations on post-employment or post-service exercise.
Dated: , 200 . |
|
|||
|
|
|||
|
LANDMARK BANCORP, INC. |
|||
|
|
|||
|
|
|||
|
By: |
|
|
|
|
|
[title] |
||
ATTEST:
The Optionee acknowledges that he has received a copy of the Plan and is familiar with the terms and conditions set forth therein. The Optionee agrees to accept as binding, conclusive, and final all decisions and interpretations of the Committee. As a condition to the exercise of this Option, the Optionee authorizes the Company to withhold from any regular cash compensation payable by the Company any taxes required to be withheld under any federal, state or local law as a result of exercising this Option.
Dated: , 200 . |
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[Employee/Director Name] |
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(TO BE EXECUTED IN DUPLICATE)
34
1. A STOCK OPTION to acquire [ (#)] shares (hereinafter referred to as Shares ) of Common Stock of LANDMARK BANCORP, INC. (hereinafter referred to as the Company ) is hereby granted to [EMPLOYEE NAME] (hereinafter referred to as the Optionee), subject in all respects to the terms and conditions of the LANDMARK BANCORP, INC. 2001 STOCK INCENTIVE PLAN (hereinafter referred to as the Plan ) and such other terms and conditions as are set forth herein. All defined terms herein shall have the meaning given them under the Plan.
2. This Option is intended to constitute an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended.
3. The option price as determined by the [Committee] [Board] is Dollars and Cents ($ ) per Share. The aggregate option price may be paid in any one of a combination of the methods provided in Section 4(c)(ii) of the Plan.
4. a. This Option shall vest and may be exercised in accordance with the following schedule:
[Date] |
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[Date] |
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f. In the event of the Termination of Service of the Optionee for Cause, this Option shall immediately become unexercisable and all options, vested and unvested, shall be immediately forfeited and terminated.
g. In the event of a Change of Control, as defined in the Plan, this Option shall be fully vested and exercisable.
h. In the event of the Optionees voluntary Termination of Service, the Optionee shall have the right to exercise, within the ninety (90) day period immediately following such Termination of Service, those options that are vested as of the date of Termination of Service.
i. In the event the Optionees Termination of Service is due to termination by the Company or one of its affiliates without Cause, the Optionee shall have the right to exercise, within the ninety (90) day period immediately following such Termination of Service, those options that are vested as of the date of Termination of Service.
5. The Companys obligation to deliver Shares with respect to an award shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intent of the individual to whom such Shares are to be delivered, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions of the Securities Act or any other federal or
35
state securities legislation or regulation. It may be provided that any representation requirement shall become unnecessary upon a registration of the Shares or other action eliminating the necessity of such representation under securities legislation. The Company shall not be required to issue and deliver any Shares under the Plan prior to: (a) the admission of such Shares to listing on any stock exchange on which Shares may then be listed, and (b) the completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation, as the Board shall determine to be necessary or advisable. The Plan is intended to comply with Rule 16b-3, to the extent it is applicable. Any provision of the Plan which is inconsistent with said rule shall, to the extent of such inconsistency, be inoperative and shall not affect the validity of the remaining provisions of the Plan.
6. The Shares issued pursuant to the exercise of this Option shall at all times be subject to the Companys right of first refusal as set forth in Section 8 of the Plan.
7. This Option may not be transferred in any manner, except as provided in Section 5(d)(iv) of the Plan.
8. This Option may not be exercised more than ten (10) years after the date indicated below and may be exercised during such term only in accordance with the terms and conditions set forth in the Plan, including any limitations on post-employment or post-service exercise.
Dated: , 200 . |
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LANDMARK BANCORP, INC. |
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By: |
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[title] |
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ATTEST:
The Optionee acknowledges that he has received a copy of the Plan and is familiar with the terms and conditions set forth therein. The Optionee agrees to accept as binding, conclusive, and final all decisions and interpretations of the Committee. As a condition to the exercise of this Option, the Optionee authorizes the Company to withhold from any regular cash compensation payable by the Company any taxes required to be withheld under any federal, state or local law as a result of exercising this Option.
Dated: , 200 . |
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[EmployeeName] |
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(TO BE EXECUTED IN DUPLICATE)
36
EXHIBIT 10.10
The Landmark Bancorp, Inc. Compensation Committee oversees the bonuses for all executive officers. The bonuses are determined based on our financial performance (including return on assets, return on equity and earnings per share growth) while also taking into consideration individual employees performance in achieving our short and long term goals.
1
EXHIBIT 10.11
FORM OF DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made and entered into this day of , , by and between LANDMARK FEDERAL SAVINGS BANK, hereinafter referred to as Corporation, and , a member of the board of directors of the Corporation, hereinafter referred to as Member.
The Member is serving as a member of the board of directors of the Corporation. It is the consensus of the board of directors that the Members services have been of exceptional merit, in excess of the compensation paid to the Member as a member of the board of directors.
It is the mutual desire of the Corporation and the Member that the Member remain as a member of the board of directors of the Corporation and, to assist the Member in establishing a program to provide supplemental retirement benefits and pre-retirement death benefits, they mutually establish this deferred compensation plan. Accordingly, it is the desire of the Corporation and the Member to enter into this Agreement under which the Corporation will agree to make certain payments to the Member upon his retirement and, alternately, to his beneficiaries in the event of his premature death while serving as a member of the board of directors of the Corporation.
It is the intent of the parties hereto that this Agreement be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Member for purposes of the Employee Retirement Security Act of 1974 (ERISA) and for tax purposes. The Member is fully advised of the Corporations financial status and has had substantial input in the design and operation of this benefit plan. The Member understands that this agreement is a mere unsecured promise by the Corporation to make payments in the future.
Therefore, in consideration of the Members services performed in the past and those to be performed in the future and based upon the mutual promises and covenants herein contained, the Corporation and the Member agree as follows:
ARTICLE II
Employment and Prior Agreements
The following benefits provided by the Corporation to the Member shall be available under this Agreement:
The amount to be paid over said one hundred twenty (120) months shall vary from time to time to reflect earnings and losses as hereinafter set forth in Section 3.04 of this Article. It is the intent hereof that the Members Deferred Compensation Account, as increased or decreased as set out in Section 3.04, shall be fully paid to the Member over approximately one hundred twenty (120) months and the computation of said payment shall be in the sole and absolute discretion of the Corporation. Any amount remaining in the Members Deferred Compensation Account at the end of the one hundred twenty (120) months shall be paid to the Member in a lump sum.
In the event the Member shall die following the Normal Retirement Date and prior to the expiration of the one hundred twenty (120) months, the unpaid balance of such monthly payments shall be paid monthly for the remainder of said period to the beneficiary designated by the Member in the beneficiary designation form provided by the Corporation. In the absence of or failure of the Member to designate a beneficiary, the unpaid balance of the Deferred Compensation Account shall be paid in a lump sum to the personal representative of the Members estate.
2
If the designated beneficiary should die prior to the expiration of the one hundred twenty (120) months, the remaining Deferred Compensation Account shall be paid in a lump sum to the personal representative of the designated beneficiary.
The Member shall declare his designated beneficiary in writing in a form as shown on Exhibit A provided by the Corporation. In the absence of or a failure to designate a beneficiary or in the event the designated beneficiary shall have predeceased the Member, the unpaid balance of the Deferred Compensation Account shall be paid in a lump sum to the personal representative of the Members estate.
Notwithstanding anything to the contrary, neither the Corporation nor the Member is obligated to acquire any interest in any fund or investment option and any asset that may be acquired in order to provide a means for payment of any liability shall remain the property of the Corporation.
The Corporation shall have no obligation to set aside, earmark, or entrust any fund or money with which to pay its obligations under this Agreement. The Member, his beneficiary, or any successor in interest to him, shall be and remain simply a general unsecured creditor of the Corporation in the same manner as any other creditor having a general claim for matured and unpaid compensation.
The Corporation reserves the absolute right, at its sole discretion, to either refund the obligations undertaken by this Agreement or refrain from funding the same and to determine the extent, nature, and method of such funding. Should the Corporation elect to fund this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Corporation reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Member be deemed to have any lien or right, title, or interest in or to any specific funding investment or to any assets of the Corporation.
If the Corporation elects to invest in a life insurance, disability, or annuity policy upon the life of the Member, then the Member shall assist the Corporation by freely submitting to a
3
physical exam and supplying such additional information necessary to obtain such insurance or annuity.
4
If claimants desire a second review, they shall notify the Plan Fiduciary and Administrator in writing within sixty (60) days of the first claim denial. Claimants may review the Plan Agreement or any documents relating thereto and submit any written issues and comments they may feel appropriate. In its sole discretion, the Plan Fiduciary and Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of the Plan Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon completed performance of the Agreement or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to a board of arbitration for final arbitration. Said board shall consist of one member selected by the claimant, one member selected by the Corporation, and the third member selected by the first two members. The board shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors, and assigns, shall be bound by the decision of such board with respect to any controversy properly submitted to it for determination.
IN WITNESS WHEREOF, the parties acknowledge that each has carefully read this Agreement and executed the original thereof on the day and year first above written and that, upon execution, each has received a conforming copy.
5
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6
FORM OF DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made and entered into this day of , , by and between LANDMARK FEDERAL SAVINGS BANK, hereinafter referred to as Corporation, and , a member of the board of directors of the Corporation, hereinafter referred to as Member.
The Member is serving as a member of the board of directors of the Corporation. It is the consensus of the board of directors that the Members services have been of exceptional merit, in excess of the compensation paid to the Member as a member of the board of directors.
It is the mutual desire of the Corporation and the Member that the Member remain as a member of the board of directors of the Corporation and, to assist the Member in establishing a program to provide supplemental retirement benefits and pre-retirement death benefits, they mutually establish this deferred compensation plan. Accordingly, it is the desire of the Corporation and the Member to enter into this Agreement under which the Corporation will agree to make certain payments to the Member upon his retirement and, alternately, to his beneficiaries in the event of his premature death while serving as a member of the board of directors of the Corporation.
It is the intent of the parties hereto that this Agreement be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Member for purposes of the Employee Retirement Security Act of 1974 (ERISA) and for tax purposes. The Member is fully advised of the Corporations financial status and has had substantial input in the design and operation of this benefit plan. The Member understands that this agreement is a mere unsecured promise by the Corporation to make payments in the future.
Therefore, in consideration of the Members services performed in the past and those to be performed in the future and based upon the mutual promises and covenants herein contained, the Corporation and the Member agree as follows:
7
The following benefits provided by the Corporation to the Member shall be available under this Agreement:
In the event the Member shall die following the Normal Retirement Date and prior to the expiration of the one hundred twenty (120) months, the unpaid balance of such monthly payments shall be paid monthly for the remainder of said period to the beneficiary designated by the Member in the beneficiary designation form provided by the Corporation. In the absence of or failure of the Member to designate a beneficiary, the unpaid balance shall be commuted at six (6) percent and paid in a lump sum to the personal representatives of the Members estate.
If the designated beneficiary should die prior to the expiration of the one hundred twenty (120) months, the remaining unpaid installments shall be commuted at six (6) percent and paid in a lump sum to the personal representative of the designated beneficiary.
The Member shall declare his designated beneficiary in writing in a form as shown on Exhibit A provided by the Corporation. In the absence of or a failure to designate a beneficiary or in the event the designated beneficiary shall have predeceased the Member, the unpaid
8
balance shall be commuted at six (6) percent and paid in a lump sum to the personal representative of the Members estate.
The Corporation shall have no obligation to set aside, earmark, or entrust any fund or money with which to pay its obligations under this Agreement. The Member, his beneficiary, or any successor in interest to him, shall be and remain simply a general unsecured creditor of the Corporation in the same manner as any other creditor having a general claim for matured and unpaid compensation.
The Corporation reserves the absolute right, at its sole discretion, to either refund the obligations undertaken by this Agreement or refrain from funding the same and to determine the extent, nature, and method of such funding. Should the Corporation elect to fund this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Corporation reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Member be deemed to have any lien or right, title, or interest in or to any specific funding investment or to any assets of the Corporation.
If the Corporation elects to invest in a life insurance, disability, or annuity policy upon the life of the Member, then the Member shall assist the Corporation by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuity.
9
If claimants desire a second review, they shall notify the Plan Fiduciary and Administrator in writing within sixty (60) days of the first claim denial. Claimants may review the Plan Agreement or any documents relating thereto and submit any written issues and comments they may feel appropriate. In its sole discretion, the Plan Fiduciary and Administrator
10
shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of the Plan Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon completed performance of the Agreement or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to a board of arbitration for final arbitration. Said board shall consist of one member selected by the claimant, one member selected by the Corporation, and the third member selected by the first two members. The board shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors, and assigns, shall be bound by the decision of such board with respect to any controversy properly submitted to it for determination.
IN WITNESS WHEREOF, the parties acknowledge that each has carefully read this Agreement and executed the original thereof on the day and year first above written and that, upon execution, each has received a conforming copy.
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LANDMARK FEDERAL SAVINGS BANK |
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11
EXHIBIT 10.12
The Companys directors received a monthly fee of $1,250 for serving on the board of directors in 2004. In 2005, each director will receive a monthly fee of $1,400 for serving on the board of directors.
1
Exhibit 13.1
Landmark National Bank, a Bauer 5-Star rated bank, continues the dedication to our customers and their future by providing security, convenience and expertise. Landmark National Bank continues its customer-focused philosophy with local decision-makers committed to the 14 Kansas communities they serve.
Contents
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1
To our Stockholders, Customers And Friends
2004 marked another year of growth for Landmark Bancorp, Inc. Total assets increased from $334 million at December 31, 2003 to $442 million at year end 2004. Your company achieved net earnings of $4.3 million in 2004. This profit performance translates into a return on average equity of 9.98 percent and a return on average assets of .98 percent. We declared another 5 percent stock dividend which resulted in a 5 percent increase in the cash dividends declared in 2004 when compared to 2003. Additionally, we were able to repurchase 102 thousand shares of Landmark Bancorp stock at a cost of $3.1 million. While gains on sale of loans decreased dramatically as mortgage originations and refinancing activity slowed to more normal levels, we experienced significant growth in net interest income and non-interest income. In 2004 your company continued to expand its footprint across Kansas and provide quality financial services to a growing number of communities and customers. We completed the acquisition of First Kansas Financial Corporation in April. This gives your company a significant market presence in the rapidly growing Miami County, Kansas market and strategically positions us to participate in the exciting economic growth that these markets are experiencing. In the space below I will recap our accomplishments of 2004 and our plans to move the company forward in 2005.
January 1, 2005 marked the nine month anniversary of our acquisition of First Kansas Financial Corporation. Our associates have done an outstanding job of assimilating the First Kansas organization into the Landmark system and culture in nine short months. We completed the computer conversion of the First Kansas accounts to our existing computer system, introduced additional financial services to our new customers, and our new associates have made a tremendous effort to effectively cope with the changes brought about by the merger. We sold the Beloit and Phillipsburg, Kansas branches acquired in the First Kansas acquisition due to our strategic decision to focus our efforts on the Miami County and Ft. Scott markets. We are beginning to make strides transforming the First Kansas assets, which were primarily one to four family residential loans, to a more diverse mix including consumer, commercial, and commercial real estate loans. The transition and growth of these assets to a more traditional commercial banking mix is a key component in our strategy to have these new markets contribute to our financial performance and meet the high expectations which we have for them. We are also focusing upon enhancing our residential mortgage loan capabilities in the Miami County market in an effort to further capitalize upon the market growth and expand our retail market share through the cross sale of other banking services. While much work remains to be accomplished within these new markets, we are extremely optimistic concerning their growth potential and the contribution we expect them to make to the overall success of the company.
Your company experienced outstanding growth in fees and service charges as this area increased $1.2 million in 2004 compared to 2003. We have undertaken an aggressive initiative to increase our retail checking accounts in all of our markets and this effort is beginning to pay dividends. In 2004, we doubled the number of retail checking accounts opened, not including the new account openings experienced in the acquired First Kansas markets. This initiative is consistent with our efforts to grow and expand core transaction deposit accounts and capture a larger portion of the total banking relationship of customer households. Additionally, other fee income increased significantly, primarily as a result of increased income of approximately $140 thousand from the sale of non-deposit investment and life insurance products. These products have been well received by our customers as we increase the convenience of shopping for the diverse financial services that our customers desire. Our focus in this area will continue as we look to diversify our revenue sources and reduce our dependence upon net interest income.
The interest rate environment during the last three years has resulted in a large percentage of mortgage loans being refinanced into lower, fixed rate mortgages. Your company has adopted a strategy of continuing our leadership role in residential mortgage originations within our respective markets. We continue to sell these fixed rate mortgage loans to the secondary market on both a servicing retained and servicing released basis. The high level of refinancing and subsequent sale to the secondary market resulted in a reduction of residential mortgage loans from $101 million as of December 31, 2002 to $77 million on March 31, 2004. With the First Kansas acquisition on April 1, 2004 our mortgage loans increased to $150 million. As of December 31, 2004, mortgage loans decreased further to $131 million. We felt that it was only prudent to sell our fixed rate residential mortgage originations to the secondary market and not maintain these loans on our balance sheet during a time of historically low interest rates. We were concerned that these low fixed rate loans would act like an anvil on our net interest income when interest rates rose from the relatively low levels of the last few years. This reduction in residential mortgage loans within our portfolio will prove beneficial as interest rates rise and allow us to more effectively manage our net interest income in an increasing interest rate environment.
Growth in commercial lending continued in 2004 as commercial and commercial real estate loans increased from $115 million at December 31, 2003 to $129 million at December 31, 2004, an increase of 12 percent. Our continued success in this effort is imperative as we continue to diversify our balance sheet to reduce our dependence upon one to four family residential loans. While commercial and commercial real estate loans have increased by more than $25 million since December 31, 2002, we have not been able to
2
completely offset the decline in residential mortgage loans discussed above. We expect that our growth in commercial loans should begin to exceed our residential mortgage loan repayments as interest rates rise and refinancing activity slows, which actually began to happen in the latter part of 2004. We are proud of our growth in the commercial loan portfolio as this has been accomplished in a manner that emphasized high asset quality and the development of banking relationships with our borrowers. Our associates execute our commercial lending efforts in a highly disciplined manner in an extremely competitive market. This approach has served us well over the years as losses and delinquencies have been maintained at levels either below or within industry standards. Our commercial lending efforts are a cornerstone of your companys success and we intend to continue our aggressive, but disciplined approach to this growth area of our business.
Interest rates during the last few years have been at the lowest levels we have witnessed for a number of decades. Low interest rates have contributed to economic recovery which has recently translated into economic growth. In June 2004, the Federal Open Market Committee of the Federal Reserve Bank began raising short term interest rates. This process has continued into 2005 with short term interest rates increasing 175 basis points through March 2005. While interest rates are still relatively low, the recovering economy and increasing interest rate environment has created challenges for the banking industry. The rate of residential mortgage loan refinancing slowed dramatically in 2004, causing gains on sale of loans to decrease from the historically high levels experienced in 2002 and 2003. As a result of the slowdown in residential refinancing, our gains on sale of loans decreased over $1 million dollars in 2004 as compared to 2003. Economic growth and increasing interest rates have resulted in a highly competitive environment for deposit dollars, causing costs of deposits to increase at a pace faster than anticipated. We expect deposit growth will continue to be a major concern throughout the remainder of 2005. Our net interest margin decreased from 3.71 percent in 2003 to 3.19 percent in 2004. Much of this decrease in net interest margin was caused by the concentration of relatively low rate residential mortgage loans and higher levels of Federal Home Loan Bank borrowings in the acquired First Kansas balance sheet. These pressures are contributing to the challenges your company faces as we work to increase the interest margin on this newly acquired portion of the balance sheet and further improve upon the remaining balance sheet.
Another challenge your company and the industry face in 2005 is increasing regulatory burden. We are finding it necessary to dedicate increasing resources to compliance activities in the areas of consumer protection, the Bank Secrecy Act, Anti-Money Laundering systems, the USA PATRIOT Act, and the Sarbanes-Oxley Act. Regulatory expectations in these areas are high and continue to increase. Failure to comply with these regulations can cause severe monetary penalties and corporate sanctions. The Sarbanes-Oxley Act has raised the bar substantially on internal control documentation and review of financial statement disclosures. Your company has always taken great pride in our regulatory compliance and accurate financial disclosure. However, the regulatory emphasis in these areas utilizes not only extra internal resources, but also creates increased professional fees to meet the new standards. These activities are burdensome and do nothing to enhance the profitability of your organization. However, if we fall short on our compliance efforts, the results could be severe both financially and strategically. Therefore, we are working diligently to meet the increasing regulatory challenges that are being thrust upon our industry.
We continue to be optimistic and excited about Landmark Bancorps future. Your company has never been better prepared to take advantage of the opportunities and challenges that await us in 2005. We feel we have a banking team that is second to none and focused on delivering quality financial services to our customers and the communities we serve. We have a strong capital base in excess of $40 million and an asset base which is both diverse and of high quality. We serve 14 communities within the state of Kansas which provides geographic diversification. We feel we are poised to begin capitalizing on the dynamic growth of the new Miami County markets acquired in 2004. We believe that the future has never been brighter for your company. We expect to continue to grow and enhance our market presence and strive to increase our profitability.
Your support and confidence are critical to our success. We continuously strive to enhance shareholder value through the delivery of first class financial services to our customers and the communities we serve. I would like to thank our shareholders for your continued support and confidence. I also would like to thank my associates for their tireless efforts and dedication to the success of your company. And finally, I thank our customers for their continued confidence and patronage, which is the focus of our efforts and a requisite for our success. We look forward to 2005 and the continued growth and success of Landmark Bancorp.
Sincerely, |
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/s/ Patrick L. Alexander |
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Patrick L. Alexander |
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President and Chief Executive Officer |
3
Selected Financial And Other Data Of
Landmark Bancorp, Inc.
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Three |
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months ended |
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At or for the years ended December 31, |
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December 31, |
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At or for the years ended September 30, |
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2004 |
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2003 |
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2002 |
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2001 |
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2001 |
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2000 |
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(Dollars in thousands, except per share amounts) |
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Selected Financial Data: |
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Total assets |
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$442,091 |
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$334,046 |
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$341,314 |
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$349,700 |
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$200,255 |
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$250,676 |
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Loans (1) |
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278,260 |
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215,030 |
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229,112 |
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240,979 |
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144,473 |
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191,514 |
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Investments held-to-maturity |
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38,779 |
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Investments available-for-sale |
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133,604 |
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99,746 |
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89,296 |
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75,311 |
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30,889 |
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9,869 |
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Cash and cash equivalents |
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7,845 |
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7,708 |
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11,449 |
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22,163 |
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20,001 |
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5,090 |
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Deposits |
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302,868 |
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253,108 |
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264,281 |
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273,246 |
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148,064 |
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165,325 |
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Borrowings |
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94,571 |
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33,755 |
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26,203 |
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28,697 |
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21,000 |
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57,000 |
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Stockholders equity |
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42,169 |
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42,572 |
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41,074 |
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40,205 |
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26,099 |
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23,662 |
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Selected Operating Data: |
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Interest income |
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$19,949 |
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$17,276 |
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$19,562 |
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$5,224 |
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$16,438 |
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$18,230 |
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Interest expense |
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7,000 |
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5,655 |
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7,111 |
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2,475 |
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9,909 |
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11,229 |
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Net interest income |
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12,489 |
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11,622 |
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12,451 |
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2,749 |
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6,529 |
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7,001 |
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Provision for loan losses |
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460 |
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240 |
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182 |
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33 |
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120 |
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267 |
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Net interest income after provision for loan losses |
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12,489 |
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11,382 |
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12,269 |
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2,716 |
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6,409 |
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6,734 |
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Non-interest income |
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5,125 |
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4,974 |
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3,856 |
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1,012 |
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2,353 |
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997 |
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Severance and other costs related to merger with MNB Bancshares |
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2,705 |
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Non-interest expense |
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11,353 |
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9,229 |
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9,184 |
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4,796 |
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4,277 |
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4,056 |
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Income (loss) before income taxes |
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6,261 |
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7,127 |
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6,941 |
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(1,068 |
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4,485 |
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3,655 |
|
Provision (benefit) for income taxes |
|
2,010 |
|
2,275 |
|
2,363 |
|
(430 |
) |
1,780 |
|
1,272 |
|
Cumulative effect of change in accounting principle, net of tax |
|
|
|
|
|
|
|
|
|
(215 |
) |
|
|
Net earnings (loss) |
|
$4,251 |
|
$4,852 |
|
$4,578 |
|
$(638 |
) |
$2,490 |
|
$2,383 |
|
Net earnings (loss) per share (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$1.96 |
|
$2.20 |
|
$1.99 |
|
$(0.28 |
) |
$1.93 |
|
$1.81 |
|
Diluted |
|
1.95 |
|
2.17 |
|
1.93 |
|
(0.28 |
) |
1.79 |
|
1.68 |
|
Dividends per share (2) |
|
0.65 |
|
0.60 |
|
0.52 |
|
0.12 |
|
0.49 |
|
0.49 |
|
Book value per common share outstanding (2) |
|
19.98 |
|
19.42 |
|
18.53 |
|
16.70 |
|
19.49 |
|
17.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (3) |
|
0.98 |
% |
1.46 |
% |
1.35 |
% |
(0.72 |
)% |
1.13 |
% |
0.97 |
% |
Return on average equity (3) |
|
9.98 |
|
11.53 |
|
11.31 |
|
(6.29 |
) |
10.17 |
|
10.23 |
|
Equity to total assets |
|
9.54 |
|
12.74 |
|
12.03 |
|
11.50 |
|
13.03 |
|
9.44 |
|
Net interest rate spread (3) |
|
2.93 |
|
3.35 |
|
3.44 |
|
2.82 |
|
2.57 |
|
2.48 |
|
Net yield on average interest-earning assets (3) |
|
3.19 |
|
3.71 |
|
3.86 |
|
3.22 |
|
3.09 |
|
2.93 |
|
Non-performing assets to total assets |
|
0.37 |
|
0.45 |
|
0.41 |
|
0.37 |
|
0.50 |
|
0.52 |
|
Non-performing loans to net loans |
|
0.41 |
|
0.56 |
|
0.42 |
|
0.43 |
|
0.53 |
|
0.59 |
|
Allowance for loan losses to total loans |
|
1.04 |
|
1.07 |
|
1.12 |
|
1.10 |
|
0.99 |
|
0.72 |
|
Dividend payout ratio |
|
33.33 |
|
27.63 |
|
27.57 |
|
NM |
|
25.38 |
|
27.31 |
|
Number of full service banking offices |
|
16 |
|
12 |
|
12 |
|
12 |
|
6 |
|
6 |
|
**Our selected consolidated financial data should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements, including the related notes.
In conjunction with the October 9, 2001, merger with MNB Bancshares, we changed our fiscal year end from September 30 to December 31. Our selected consolidated financial data presented above as of and for the three months ended December 31, 2001, include our accounts, and commencing October 9, 2001, MNB Bancshares. The selected consolidated financial data for periods prior to October 1, 2001, is Landmark Bancshares historical financial data. (NM: not meaningful)
(1) Includes loans held for sale totaling $846,000, $734,000, $5.1 million, $5.7 million, $2.5 million, and $8.9 million at December 31, 2004, 2003, 2002, and 2001, and September 30, 2001, and 2000, respectively.
(2) All per share amounts have been adjusted to give effect to the 5% stock dividends paid in December 2004, 2003, 2002, and 2001.
(3) Amounts for the three months ended December 31, 2001, have been annualized as a result of the merger in 2001 and the change in our fiscal year.
4
Managements Discussion And Analysis Of Financial Condition And Results Of Operations
Corporate Profile and Overview
Landmark Bancorp, Inc. is a one-bank 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. Landmark Bancorp is listed on the Nasdaq Stock Market under the symbol LARK. Landmark National Bank is dedicated to providing quality financial and banking services to its local communities. Our strategy includes continuing a tradition of quality assets while growing our commercial and commercial real estate loan portfolios. We are committed to developing relationships with our borrowers and providing a total banking service.
Landmark National Bank is principally engaged in the business of attracting deposits from the general public and using such deposits, together with Federal Home Loan Bank (FHLB) borrowings and funds from operations, to originate commercial real estate and non-real estate loans and one-to-four family residential mortgage loans. Landmark National Bank also originates consumer loans, small business loans, multi-family residential mortgage loans, and home equity loans. Although not our primary business function, we do invest in certain investment and mortgage-related securities using deposits and other funds as funding sources.
Our results of operations are primarily dependent 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 and gains and losses from the sale of newly originated loans and investments. Our operating expenses, aside from interest expense, principally consist of compensation and employee benefits, occupancy costs, federal deposit insurance costs, data processing expenses and provisions for potential loan 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 personal investments, the level of personal 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 Landmark National Bank, with its main office in Manhattan, Kansas and fifteen branch offices in eastern, central and southwestern Kansas. On April 1, 2004, we moved forward with our plans of growth and expansion when we completed the cash acquisition of First Kansas Financial Corporation (First Kansas), which had total assets of approximately $150 million, including loans and deposits of $74 million and $84 million, respectively. First Kansas had branches in Osawatomie, Paola, Louisburg, Fort Scott, Beloit, and Phillipsburg, Kansas. This acquisition expanded our presence in high-growth market areas in eastern Kansas, presenting us with potential for revenue generation and asset growth. Our acquisition of First Kansas was accounted for using the purchase method of accounting. The cost in excess of the tangible and identifiable intangible net assets acquired has been recorded as goodwill. In connection with the acquisition and the subsequent sale of our branches as described below, we recorded a core deposit intangible of $605,000, which is being amortized on an accelerated basis over ten years, and goodwill attributable to the acquisition of First Kansas of $5.7 million, none of which is deductible for tax purposes. The results for the year ended December 31, 2004, include First Kansas results of operations since April 1, 2004.
During the third quarter of 2004, we sold our newly acquired Beloit and Phillipsburg branches primarily because these small branches were outside our current geographic range of operations. Upon consummation of the transactions, we sold approximately $7.7 million in deposits and approximately $2.4 million in loans and premises and equipment associated with the Beloit branch and approximately $4.7 million in deposits and approximately $846,000 in loans and premises and equipment related to the Phillipsburg branch. The net proceeds received from the buyers of these branches were recorded as a reduction of goodwill and the core deposit intangible.
5
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 managements 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 loan losses, the valuation of investment securities, and accounting for income taxes, all of which involve significant judgment by our management.
We perform periodic and systematic detailed reviews of our lending portfolio to assess overall collectability. The level of the allowance for loan losses reflects our estimate of the collectability of the loan portfolio. While these estimates are based on substantive methods for determining allowance requirements, nevertheless, actual outcomes may differ significantly from estimated results. Additional explanation of the methodologies used in establishing this reserve is provided in the Asset Quality and Distribution section.
We report our available for sale investment securities at estimated fair values based on readily ascertainable values which are obtained from independent sources. Our management performs periodic reviews of the investment securities to determine if any investment securities have declined in value which might be considered other than temporary. Although we believe that our estimates of the fair values of investment securities to be reasonable, economic and market factors may affect the amounts that will ultimately be realized from these investments.
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entitys financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences, including the effects of IRS examinations and examinations by other state agencies, could materially impact our financial position and results of operations.
6
Comparison Of Operating Results For The Years Ended December 31, 2004 And December 31, 2003
Summary of Performance. Net earnings for the year ended December 31, 2004, decreased $601,000, or 12.4%, to $4.3 million as compared to the year ended December 31, 2003. This decline in net earnings was generally attributable to an increase in non-interest expense which was offset by an improvement of net interest income. Also contributing to the decline in net earnings was an increase of our loan loss provision during 2004. The increases in non-interest expense and the improvement of net interest income primarily resulted from our acquisition of First Kansas on April 1, 2004, as we incurred additional expenses associated with operating these new branches and as our average earning assets increased. The increase in our loan loss provision during the year primarily related to our commercial loan growth.
The year ended December 31, 2004, resulted in diluted earnings per share of $1.95 compared to $2.17 for the same period in 2003. Return on average assets was 0.98% for the year ended December 31, 2004, compared to 1.46% for the same period in 2003. Return on average stockholders equity was 9.98% for the year ended December 31, 2004, compared to 11.53% for the same period in 2003.
We continued our stock repurchase program during 2004, resulting in the repurchase of an additional 102,338 shares. As of December 31, 2004, we held 121,630 shares as treasury stock at an average cost per share of $26.36. We also distributed a 5% stock dividend for the fourth consecutive year in December 2004. All per share and average share data in this report has been restated to reflect the 2004 stock dividend.
Interest Income. Interest income for the year ended December 31, 2004, increased $2.7 million, or 15.5%, to $19.9 million from $17.3 million for the year ended December 31, 2003. This increase was primarily the result of the increase in interest earning assets from the First Kansas acquisition, being offset by the decrease in interest rates experienced as interest earning assets repriced during 2003 and 2004. Average loans for the year ended 2004 increased to $267.0 million from $217.3 million for the same period in 2003. The increase in average loans was primarily the result of the acquisition of First Kansas. Interest income on loans increased $1.4 million, or 9.6%, to $15.7 million for the year ended December 31, 2004. Average investment securities also increased as a result of the First Kansas acquisition, from $93.3 million for the year ended December 31, 2003, to $135.3 million for the same period of 2004. Interest income on investment securities increased $1.3 million, or 43.9%, to $4.2 million for the year ended December 31, 2004.
Interest Expense. Interest expense for the year ended December 31, 2004, increased to $7.0 million from $5.7 million for the year ended December 31, 2003, or 23.8%. Interest expense on deposits declined to $3.9 million, or 11.3%, from $4.4 million during this period, despite an increase in average deposits from $254.8 million at December 31, 2003, to $306.1 million at December 31, 2004. The decrease in interest expense on deposits resulted primarily from the decline in interest rates and the repricing of maturing deposits at these lower rates. Interest expense on borrowings increased $1.8 million, or 152.8%. The increase in interest expense on borrowings resulted primarily from additional advances from the FHLB of approximately $56.4 million which we assumed through the acquisition of First Kansas, the $8.2 million in trust preferred securities that we issued in December 2003, and the $7.0 million that we borrowed in April 2004 to consummate the acquisition of First Kansas.
Net Interest Income. Net interest income represents the difference between income derived from interest-earning assets and the expense incurred on interest-bearing liabilities. Net interest income is affected by both the difference between the rates of interest earned on interest-earnings assets and the rates paid on interest-bearing liabilities (interest rate spread) as well as the relative amounts of interest-earning assets and interest-bearing liabilities.
Net interest income for the year ended December 31, 2004, totaled $12.9 million, a 11.4% increase, as compared to $11.6 million for the year ended December 31, 2003, primarily as a result of the First Kansas acquisition. Average earning assets also increased for the year ended December 31, 2004, as a result of the acquisition of First Kansas, increasing to $405.9 million from $313.2 million for the same period of 2003. The net interest margin on earning assets was 3.19% for the year ended December 31, 2004, down from 3.71% for the same period of 2003. The refinancings and paydowns in the residential mortgage portfolio exceeded the commercial loan growth during 2003, resulting in the excess liquidity being invested into lower yielding investment securities. In addition, the prolonged low-rate environment has caused the net interest margin to compress as assets have continued to reprice with little room left for liability repricing. We believe the increase in Federal Funds rates in the second half of 2004 and in the beginning of 2005 by the Federal Open Market Committee will have a positive impact on our net interest margin in 2005 as our prime rates have increased as a result.
7
Provision For Loan losses. We maintain, and our Board of Directors monitors, an allowance for losses on loans. The allowance is established based upon managements periodic evaluation of known and inherent risks in the loan portfolio, review of significant individual loans and collateral, review of delinquent loans, past loss experience, adverse situations that may affect the borrowers ability to repay, current and expected market conditions, and other factors management deems important. Determining the appropriate level of reserves involves a high degree of management judgment and is based upon historical and projected losses in the loan portfolio and the collateral value of specifically identified problem loans. Additionally, allowance strategies and policies are subject to periodic review and revision in response to a number of factors, including current market conditions, actual loss experience and managements expectations.
The provision for loan losses increased to $460,000 during the year ended December 31, 2004, compared to $240,000 for the year ended December 31, 2003. Our continuous review of the loan portfolio prompted an increase in our provision, relating primarily to our commercial loan growth. First Kansas had an allowance for loan losses approximating $352,000, or 0.47% of outstanding loans, at March 31, 2004, which increased our allowance following the acquisition. At December 31, 2004, the allowance for loan losses was $2.9 million, or 1.0% of gross loans outstanding, compared to $2.3 million, or 1.1% of gross loans outstanding, at December 31, 2003. For further discussion of the provision for loan losses, refer to the Asset Quality and Distribution section.
Non-Interest Income. Non-interest income remained relatively flat, increasing $151,000, or 3.0%, for the year ended December 31, 2004, to $5.1 million compared to $5.0 million for the year ended December 31, 2003. The increase in non-interest income reflected an increase of $1.2 million, or 60.0%, in fees and service charges from $2.0 million for the year ended December 31, 2003, to $3.3 million for the same period of 2004. This significant increase in fees and service charges was the result of substantially increasing the number of our retail checking accounts opened through new marketing initiatives that were introduced in early 2004 and through the acquisition of First Kansas on April 1, 2004. Also contributing to the increase in non-interest income was a $174,000 increase in other fee income for the year ended December 31, 2004, as compared to the same period of 2003, primarily resulting from the sale of non-deposit investment and life insurance products. We plan to continue to grow our sales of non-deposit investment and life insurance products as we seek to diversify our revenue sources and reduce our dependency upon net interest income. We estimate that our acquisition of First Kansas will continue to positively impact our non-interest income for 2005 as we continue to grow these new markets and expand our retail market share through the cross selling of other banking services. Offsetting the increases in fees and service charges and other income experienced during 2004 were decreases in gains on sale of loans and gains on sale of investments. Our gains on sale of loans declined $1.1 million, or 51.6%, from $2.0 million for the year ended December 31, 2003, to $987,000 for the year ended December 31, 2004, as residential mortgage financing activity slowed. Mortgage refinancing and prepayments were much lower during 2004 as compared to 2003, as expected, as many mortgage holders had already taken advantage of the low interest rates favorable for mortgage refinancing and because mortgage rates have risen in the second half of 2004. We expect this trend to continue in 2005.
The gains on sale of investments decreased $193,000, or 35.0%, for the year ended December 31, 2004, as compared to the same period of 2003, and resulted from fewer equity securities sales from our holding companys investment portfolio. We periodically sell equity securities based on performance and other indicators, and we may sell additional equity securities in future periods.
Non-Interest Expense. Non-interest expense increased $2.1 million, or 23.0%, to $11.4 million for the year ended December 31, 2004, as compared to the year ended December 31, 2003. The increase in non-interest expense for 2004 as compared to 2003 resulted primarily from a $1.0 million increase in compensation and benefits, a $358,000 increase in occupancy and equipment and a $104,000 increase in data processing expenses, all of which was associated primarily with the operations of the branches acquired from First Kansas. The acquisition of First Kansas added over 40 employees to our staff. Also contributing to the increase in non-interest expense for the year ended December 2004, was an increase of $122,000 in advertising expenses related to our new marketing initiative that was introduced in early 2004. Offsetting these increases in non-interest expense was a $52,000 decrease in amortization expense and a $41,000 decrease in professional fees for the year ended December 31, 2004, compared to the year ended December 31, 2003. Amortization expense decreased as prepayment speeds on our mortgage servicing portfolio have slowed. Professional fees were higher in 2003 as we incurred an increase in legal fees relating to our intellectual property rights and trade name.
Income Taxes. Income tax expense decreased $265,000, or 11.7%, to $2.0 million for the year ended December 31, 2004, from $2.3 million for the year ended December 31, 2003. The decrease in income tax expense for the year ended December 31, 2004, resulted primarily from a decrease in taxable income. The effective tax rate for the year ended December 31, 2004, was 32.1% as compared to 31.9% the same period of 2003.
8
Average Assets/Liabilities. The following table sets forth information relating to average balances of interest-earning assets and interest-bearing liabilities for the years ended December 31, 2004, 2003 and 2002. The assets and liabilities of First Kansas were recorded at their respective fair market values at the acquisition date. Based on the relatively low interest rates prevailing at the acquisition date, the effective yields on First Kansas interest-earning assets and rates on First Kansas interest bearing liabilities were significantly reduced, thus causing our post acquisition blended yields and cost of funds to decline in comparison to the periods presented prior to the acquisition. This table reflects the average yields on assets and average costs of liabilities for the periods indicated (derived by dividing income or expense by the monthly average balance of assets or liabilities, respectively) as well as the net interest margin (which reflects the effect of the net earnings balance) for the periods shown (dollars in thousands).
Average Balance Sheets Average Yields And Rates
|
|
Year ended December 31, 2004 |
|
Year ended December 31, 2003 |
|
Year ended December 31, 2002 |
|
||||||||||||||||||
|
|
Average |
|
|
|
Average |
|
Average |
|
|
|
Average |
|
Average |
|
|
|
Average |
|
||||||
|
|
Balance |
|
Interest |
|
Yield/Rate |
|
Balance |
|
Interest |
|
Yield/Rate |
|
Balance |
|
Interest |
|
Yield/Rate |
|
||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investment securities (1) |
|
$ |
139,008 |
|
$ |
4,276 |
|
3.08 |
% |
$ |
95,923 |
|
$ |
2,973 |
|
3.10 |
% |
$ |
89,393 |
|
$ |
2,911 |
|
3.26 |
% |
Loans receivable, net (2) |
|
266,938 |
|
15,673 |
|
5.87 |
% |
217,327 |
|
14,303 |
|
6.58 |
% |
233,311 |
|
16,650 |
|
7.14 |
% |
||||||
Total interest-earning assets |
|
405,946 |
|
19,949 |
|
4.91 |
% |
313,250 |
|
17,276 |
|
5.52 |
% |
322,704 |
|
19,561 |
|
6.06 |
% |
||||||
Non-interest-earning assets |
|
27,766 |
|
|
|
|
|
17,899 |
|
|
|
|
|
15,861 |
|
|
|
|
|
||||||
Total |
|
$ |
433,712 |
|
|
|
|
|
$ |
331,149 |
|
|
|
|
|
$ |
338,565 |
|
|
|
|
|
|||
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Certificates of deposit |
|
$ |
160,251 |
|
$ |
2,849 |
|
1.78 |
% |
$ |
141,877 |
|
$ |
3,706 |
|
2.61 |
% |
$ |
152,407 |
|
$ |
4,578 |
|
3.00 |
% |
Money market and NOW accounts |
|
93,640 |
|
811 |
|
0.87 |
% |
76,316 |
|
678 |
|
0.89 |
% |
74,032 |
|
1,026 |
|
1.39 |
% |
||||||
Savings accounts |
|
20,304 |
|
285 |
|
1.40 |
% |
15,033 |
|
62 |
|
0.41 |
% |
17,201 |
|
169 |
|
0.98 |
% |
||||||
FHLB advances and other borrowings |
|
80,109 |
|
3,055 |
|
3.81 |
% |
27,887 |
|
1,209 |
|
4.34 |
% |
28,164 |
|
1,338 |
|
4.75 |
% |
||||||
Total interest-bearing liabilities |
|
354,304 |
|
7,000 |
|
1.98 |
% |
261,113 |
|
5,655 |
|
2.17 |
% |
271,804 |
|
7,111 |
|
2.62 |
% |
||||||
Non-interest-bearing liabilities |
|
36,796 |
|
|
|
|
|
27,603 |
|
|
|
|
|
26,267 |
|
|
|
|
|
||||||
Stockholders equity |
|
42,612 |
|
|
|
|
|
42,433 |
|
|
|
|
|
40,494 |
|
|
|
|
|
||||||
Total |
|
$ |
433,712 |
|
|
|
|
|
$ |
331,149 |
|
|
|
|
|
$ |
338,565 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net interest income |
|
|
|
$ |
12,949 |
|
|
|
|
|
$ |
11,621 |
|
|
|
|
|
$ |
12,450 |
|
|
|
|||
Interest rate spread (3) |
|
|
|
|
|
2.93 |
% |
|
|
|
|
3.35 |
% |
|
|
|
|
3.44 |
% |
||||||
Net interest margin (4) |
|
|
|
|
|
3.19 |
% |
|
|
|
|
3.71 |
% |
|
|
|
|
3.86 |
% |
||||||
Ratio of average interest- earning assets to average interest- bearing liabilities |
|
|
|
114.58 |
% |
|
|
|
|
119.97 |
% |
|
|
|
|
118.73 |
% |
|
|
(1) Income on investment securities includes all securities and interest bearing deposits in other financial institutions.
(2) Includes loans classified as non-accrual.
(3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average interest-earning assets.
9
Comparison Of Operating Results For The Years Ended December 31, 2003 And December 31, 2002
Summary of Performance. Net earnings for the year ended December 31, 2003, increased $274,000, or 6.0%, to $4.9 million as compared to the year ended December 31, 2002. This improvement in net earnings was generally attributable to an increase in non-interest income including increased gains on sale of investments, increased fees and service charges, and increased gains on sale of loans which was offset by a reduction of net interest income. Also contributing to improved net earnings was non-interest expense which remained flat at $9.2 million for the years ended December 31, 2003 and 2002.
The year ended December 31, 2003, resulted in diluted earnings per share of $2.17 compared to $1.93 for the same period in 2002. Return on average assets was 1.46% for the year ended December 31, 2003, compared to 1.35% for the same period in 2002. Return on average stockholders equity was 11.53% for the year ended December 31, 2003, compared to 11.31% for the same period in 2002.
We continued our stock repurchase program during 2003, resulting in the repurchase of an additional 72,228 shares. As of December 31, 2003, we held 119,657 shares as treasury stock at an average cost per share of $23.34. We also distributed a 5% stock dividend for the third consecutive year in December 2003.
Interest Income. Interest income for the year ended December 31, 2003, decreased $2.3 million, or 11.7%, to $17.3 million from $19.6 million for the year ended December 31, 2002. Interest income on loans decreased $2.3 million, or 14.1%, for the year ended December 31, 2003, compared to the same time period of 2002. This decrease was related in part to the decrease in interest rates experienced as interest earning assets repriced downward during 2002 and continued throughout 2003. A continued decline in average loans during 2003, which were $217.3 million, at December 31, 2003, compared to $233.3 million at December 31, 2002, also contributed to the decrease in interest income. The decline in average loans primarily resulted from refinancings and paydowns in our residential mortgage portfolio. Offsetting the decrease in total interest income on loans was an increase in interest earned on investment securities to $2.9 million for the year ended December 31, 2003, from $2.8 million for the same period of 2002. The increase in interest income on investment securities was due primarily to an increase in average investment securities from $93.3 million at December 31, 2003, compared to $84.3 million at December 31, 2002, which was offset by a decline in interest rates on these investments.
Interest Expense. Interest expense for the year ended December 31, 2003, decreased to $5.7 million from $7.1 million for the year ended December 31, 2002, or 20.5%. Interest expense on deposits declined to $4.4 million, or 23.0%, from $5.8 million during this period as a result of the decline in interest rates and a reduction in average deposits from $263.9 million at December 31, 2002, to $254.8 million at December 31, 2003. Interest expense on borrowings, consisting mostly of advances from the FHLB, decreased $129,000, or 9.7%, to $1.2 million for the year ended December 31, 2003, as compared to the year ended December 31, 2002. The decrease in interest expense on borrowings resulted from scheduled principal payments and the decline in interest rates. The interest expense related to the $8.2 million in subordinated debentures that we issued in mid-December 2003 was nominal. The interest expense associated with the subordinated debentures will be higher for 2004 as we incur twelve months of expense.
Net Interest Income. Net interest income for the year ended December 31, 2003, totaled $11.6 million, a 6.7% decrease, as compared to $12.5 million for the year ended December 31, 2002. Average earning assets for 2003 totaled $313.2 million as compared to $322.7 million for 2002. The net interest margin on earning assets was 3.71% for the year ended December 31, 2003, down from 3.86% for the same period of 2002. The refinancings and paydowns in our residential mortgage portfolio exceeded our commercial loan growth during 2002 and 2003, resulting in the excess liquidity being invested into lower yielding investment securities. In addition, the prolonged low-rate environment caused the net interest margin to compress as assets continued to reprice downward with little room left for liability repricing.
Between 2001 and 2003, the Federal Open Market Committee lowered the target for the Federal Funds rate on twelve occasions, decreasing the rate from 6.5% on January 1, 2001, to 1.00% by the end of the first quarter of 2003, for a total decline of 550 basis points. These actions caused a corresponding decrease in our prime loan rates which declined from 9.5% to 4.00%. Since the first quarter of 2003, the Federal Funds rate held steady for the remainder of 2003. This environment had an adverse affect on our net interest margin during 2003 as our interest earning assets continued to reprice downward and caught up with our interest bearing liabilities which had already repriced downward.
10
Provision For Loan losses. The provision for loan losses increased to $240,000 during the year ended December 31, 2003, compared to $181,500 for the year ended December 31, 2002. Our continuous review of the loan portfolio prompted an increase in our provision, primarily as a result of the loan portfolios increased percentage of commercial loans and some deterioration in the asset quality of the commercial and consumer loan portfolios as a result of weak economic conditions. One measure of the adequacy of the allowance for estimated losses on loans is the ratio of the allowance to the total loan portfolio. At December 31, 2003, the allowance for loan losses was $2.3 million, or 1.1% of gross loans outstanding, compared to $2.6 million, or 1.1% of gross loans outstanding, at December 31, 2002. For further discussion of the provision for loan losses, refer to the Asset Quality and Distribution section.
Non-Interest Income. Non-interest income increased $1.1 million, or 29.0%, for the year ended December 31, 2003, to $5.0 million compared to $3.9 million for the year ended December 31, 2002. The increase in non-interest income reflected an improvement in gains on sale of loans from $1.6 million for the year ended December 31, 2002, to $2.0 million for the year ended December 31, 2003, as residential mortgage financing activity increased due to low home mortgage rates. Mortgage refinancing activity slowed down during the fourth quarter of 2003 and is expected to continue at lower levels during 2004 as many mortgage holders have already taken advantage of the low interest rates favorable for mortgage originations and as mortgage rates increase. Also contributing to the increase in non-interest income was increased fees and service charges from $1.9 million for the year ended December 31, 2002, to $2.0 million for the year ended December 31, 2003, relating primarily to the enhancement of our fee-based services and product offerings during the second half of 2002. The increase in non-interest income also reflected a $427,000 increase in gains on sale of investments for the year ended December 31, 2003, as compared to the same period of 2002. This increase in gains on sale of investments resulted from equity security sales from our holding companys investment portfolio. We sell equity securities based on performance and other indicators.
Non-Interest Expense. Non-interest expense increased $45,000, or 0.5%, to $9.2 million for the year ended December 31, 2003, as compared to the year ended December 31, 2002. The increase in non-interest expense was primarily related to an increase of $61,000 in professional fees, a $52,000 increase in occupancy and equipment expense and an increase of $38,000 in amortization expense for the year ended December 31, 2003, compared to the year ended December 31, 2002. The increase in professional fees included legal fees of approximately $25,000 incurred related to securing our Landmark trade name. The increase in occupancy and equipment expense was primarily related to the depreciation of our enhanced computer system while amortization expense increased as prepayments in our mortgage servicing portfolio have accelerated.
Income Taxes. Income tax expense decreased $87,000, or 3.7%, to $2.3 million for the year ended December 31, 2003, from $2.4 million for the year ended December 31, 2002. The effective tax rate for the year ended December 31, 2003, was 31.9% as compared to 34.0% the same period of 2003. The decrease in income tax expense and the effective rate for the year ended December 31, 2003, resulted primarily from the utilization of investment tax credits.
11
Landmark Bancorp, Inc. and
Subsidiary
Quarterly Results of Operations
|
|
Fiscal 2004 Quarters Ended |
|
||||||||||
|
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
||||
Interest income |
|
$ |
4,047,166 |
|
$ |
5,346,342 |
|
$ |
5,325,004 |
|
$ |
5,230,694 |
|
Interest expense |
|
1,282,245 |
|
1,915,993 |
|
1,911,855 |
|
1,890,203 |
|
||||
Net interest income |
|
2,764,921 |
|
3,430,349 |
|
3,413,149 |
|
3,340,491 |
|
||||
Provision for loan losses |
|
60,000 |
|
120,000 |
|
130,000 |
|
150,000 |
|
||||
Net interest income after provision for loan losses |
|
2,704,921 |
|
3,310,349 |
|
3,283,149 |
|
3,190,491 |
|
||||
Non-interest income |
|
946,808 |
|
1,294,185 |
|
1,378,711 |
|
1,505,717 |
|
||||
Non-interest expense |
|
2,257,321 |
|
3,000,461 |
|
2,982,473 |
|
3,113,093 |
|
||||
Earnings before income taxes |
|
1,394,408 |
|
1,604,073 |
|
1,679,387 |
|
1,583,115 |
|
||||
Provision for income taxes |
|
445,647 |
|
529,286 |
|
543,456 |
|
491,836 |
|
||||
Net earnings |
|
$ |
948,761 |
|
$ |
1,074,787 |
|
$ |
1,135,931 |
|
$ |
1,091,279 |
|
Earnings per share(1): |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.43 |
|
$ |
0.50 |
|
$ |
0.52 |
|
$ |
0.51 |
|
Diluted |
|
0.43 |
|
0.49 |
|
0.52 |
|
0.51 |
|
|
|
Fiscal 2003 Quarters Ended |
|
||||||||||
|
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
||||
Interest income |
|
$ |
4,635,165 |
|
$ |
4,311,598 |
|
$ |
4,132,953 |
|
$ |
4,196,586 |
|
Interest expense |
|
1,549,418 |
|
1,454,050 |
|
1,350,762 |
|
1,300,342 |
|
||||
Net interest income |
|
3,085,747 |
|
2,857,548 |
|
2,782,191 |
|
2,896,244 |
|
||||
Provision for loan losses |
|
60,000 |
|
60,000 |
|
60,000 |
|
60,000 |
|
||||
Net interest income after provision for loan losses |
|
3,025,747 |
|
2,797,548 |
|
2,722,191 |
|
2,836,244 |
|
||||
Non-interest income |
|
1,341,228 |
|
1,245,056 |
|
1,297,633 |
|
1,090,274 |
|
||||
Non-interest expense |
|
2,353,190 |
|
2,290,000 |
|
2,191,014 |
|
2,394,551 |
|
||||
Earnings before income taxes |
|
2,013,785 |
|
1,752,604 |
|
1,828,810 |
|
1,531,967 |
|
||||
Provision for income taxes |
|
690,252 |
|
537,198 |
|
597,168 |
|
450,851 |
|
||||
Net earnings |
|
$ |
1,323,533 |
|
$ |
1,215,406 |
|
$ |
1,231,642 |
|
$ |
1,081,116 |
|
Earnings per share(1): |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.60 |
|
$ |
0.55 |
|
$ |
0.56 |
|
$ |
0.49 |
|
Diluted |
|
0.59 |
|
0.54 |
|
0.55 |
|
0.49 |
|
(1) All per share amounts have been adjusted to give effect to the 5% stock dividends in December 2004 and 2003.
12
Financial Condition
Asset Quality And Distribution. Total assets increased to $442.1 million at December 31, 2004, compared to $334.0 million at December 31, 2003. This increase was primarily attributable to the acquisition of First Kansas consummated on April 1, 2004. Our primary ongoing sources of funds are deposits, 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, economic conditions, competition, and the restructuring of the financial services industry.
Net loans, excluding loans held for sale, increased $63.1 million to $277.4 million as of December 31, 2004, from $214.3 million as of December 31, 2003. This increase was primarily the result of the acquisition of First Kansas on April 1, 2004, which had net loans of $74.1 million. The majority of loans acquired from First Kansas were one-to-four family residential loans. As of December 31, 2004, our one-to-four family residential loans comprised 46.8% of totals loans. We anticipate continuing to diversify our loan portfolio composition through our continued planned expansion of commercial lending activities.
Our primary investing activities are the origination of mortgage, consumer, and commercial loans and the purchase of investment and mortgage-backed securities. Generally, we originate fixed-rate, residential mortgage loans with maturities in excess of ten years for sale in the secondary market. We do not originate and warehouse these fixed-rate residential loans for resale in order to speculate on interest rates. As of December 31, 2004, our residential mortgage loan portfolio consisted of $39.8 million with fixed rates and $91.3 million with variable rates.
The allowance for losses on loans is established through a provision for losses on loans based on our evaluation of the risk inherent in the loan portfolio and changes in the nature and volume of its loan activity. Such evaluation, which includes a review of all loans with respect to which full collectibility may not be reasonably assured, considers the fair value of the underlying collateral, economic conditions, historical loan loss experience, level of classified loans and other factors that warrant recognition in providing for an adequate allowance for losses on loans.
We believe that the quality of the loan portfolio continues to be strong as evidenced by our low levels of past due and non-accrual loans. Loans past due more than one month and less than 90 days as of December 31, 2004, totaled $1.7 million. As of December 31, 2004, loans with a balance of $1.1 million were on non-accrual status, or 0.41% of total loans, compared to a balance of $1.2 million loans on non-accrual status, or 0.55% of total loans, as of December 31, 2003. In addition, the ratio of non-performing assets as a percentage of total assets decreased to 0.36% at December 31, 2004, compared to 0.45% at December 31, 2003.
Residential home loans comprised 70.7% of the $1.1 million non-accrual balance at December 31, 2004. These loans have been underwritten according to our residential lending policies and are well secured by real estate collateral, and in many instances, private mortgage insurance or government guarantees. We have historically incurred minimal losses on mortgage loans based on collateral values and underlying insurance or guarantees. Net charge offs were $234,000 for the year ended December 31, 2004, compared to net charge offs of $489,000 for the year ended December 31, 2003.
A slowdown in economic activity beginning in 2001 severely impacted several major industries as well as the economy as a whole. We are pleased that there appear to be numerous indications of emerging strength in the economy, including the Federal Open Market Committee raising the target for the Federal Funds rate by 175 basis points since the June 30, 2004, meeting. The outlook of the economy for 2005, however, depends on whether the strengthening will be sustainable and how quickly consumer confidence responds to the positive effects, if any, on the economy. Based on the outcomes, these events could adversely affect cash flows for both commercial and individual borrowers, as a result of which, we could experience increases in problem assets, delinquencies and losses on loans. Many financial institutions have experienced an increase in non-performing assets during the recent difficult economic period, as even well-established business borrowers developed cash flow, profitability and other business-related problems. We believe that the allowance for losses on loans at December 31, 2004, was adequate. While we believe that we use the best information available to determine the allowance for losses on loans, unforeseen market conditions could result in adjustment to the allowance for losses on loans. In addition, net earnings could be significantly affected if circumstances differ substantially from the assumptions used in establishing the allowance for losses on loans.
L iability Distribution . Total deposits increased $49.8 million to $302.9 million at December 31, 2004, from $253.1 million at December 31, 2003, resulting primarily from the acquisition of First Kansas on April 1, 2004. Borrowings increased $60.8 million to $94.6 million at December 31, 2004, from $33.8 million at December 31, 2003, resulting primarily
13
from $56.4 million of FHLB advances that were assumed through the First Kansas acquisition and the $7.0 million that we borrowed to consummate that acquisition.
Non-interest bearing deposits at December 31, 2004, were $28.5 million, or 9.4% of deposits, compared to $20.5 million, or 8.1% of deposits, at December 31, 2003. Money market and NOW deposit accounts were 31.9% of the portfolio and totaled $96.6 million at December 31, 2004, compared to $77.0 million, or 30.4% of deposits, at December 31, 2003. Savings accounts increased to $23.2 million, or 7.7% of deposits, at December 31, 2004, from $14.8 million, or 5.9% of deposits, at December 31, 2003. Certificates of deposit increased to $154.5 million, or 51.0% of deposits, at December 31, 2004, from $140.8 million, or 55.6% of deposits, at December 31, 2003.
Certificates of deposit at December 31, 2004, which were scheduled to mature in one year or less, totaled $117.6 million. Historically, maturing deposits have generally remained with our Bank and we believe that a significant portion of the deposits maturing in one year or less will remain with us upon maturity.
Cash Flows. During the year ended December 31, 2004, our cash and cash equivalents increased by $137,000. Our operating activities during 2004 provided us net cash of $4.7 million. Our investing activities in 2004 provided us net cash of $15.8 million, primarily from the maturities and prepayments of investment securities of $32.9 million. Also contributing to the cash provided by investing activities was $1.4 million in proceeds from the sales of premises and equipment and foreclosed assets and $972,000 in proceeds from the sales of investment securities. These inflows of cash for investing purposes were offset by net cash of $9.1 million paid in the First Kansas acquisition, net cash of $8.7 million paid in the Beloit and Phillipsburg branch sales, the purchase of investment securities of $6.5 million, and by a $1.2 million net increase in the purchase of premises and equipment. We used net cash of $20.4 million in financing activities during 2004, primarily due to a $21.6 million decrease in our deposits portfolio, the purchase of $3.1 million in treasury stock, the payment of $1.4 million in dividends, and the payment of $83.1 million of debt which was offset by $88.4 million in borrowings. These outflows of cash for financing activities were also offset by $357,000 of proceeds from the issuance of common stock associated with the exercise of stock options.
During the year ended December 31, 2003, our cash and cash equivalents decreased $3.7 million. Our operating activities during 2003 provided us net cash of $5.5 million. We used net cash of $3.2 million in investing activities in 2003, primarily for the purchase of investment securities of $66.5 million and the purchase of equipment of $338,000, net of retirements. These outflows of cash for investing purposes were offset by the maturities and prepayments of investment securities of $52.6 million and a net decrease in our loan portfolio of $9.3 million, the proceeds from sales of investment securities of $1.2 million, and the proceeds from sale of other real estate and premises and equipment of $434,000. We used net cash of $6.0 million in financing activities during 2003, primarily due to an $11.2 million decrease in our deposits portfolio, the purchase of $1.9 million in treasury stock, the payment of $1.3 million in dividends, and the payment of $78.2 million of debt which was offset by $85.9 million in borrowings. The $85.9 million in borrowings during 2003 included the issuance of $8.2 million of subordinated debentures. These outflows of cash for financing activities were also offset by $721,000 of proceeds from the issuance of common stock associated with the exercise of stock options.
Contractual Obligations and Commercial Commitments. The following table presents contractual obligations, defined as operating lease obligations and principal payments due on non-deposit obligations with maturities in excess of one year as of December 31, 2004, for the periods indicated.
Contractual cash |
|
|
|
One year |
|
One to |
|
Four to |
|
More than |
|
|||||
obligations |
|
Total |
|
or less |
|
three years |
|
five years |
|
five years |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
295,839 |
|
$ |
78,449 |
|
$ |
103,632 |
|
$ |
103,632 |
|
$ |
10,126 |
|
Service contracts |
|
2,275,000 |
|
780,000 |
|
1,495,000 |
|
|
|
|
|
|||||
FHLB advances |
|
81,053,321 |
|
13,500,000 |
|
1,000,000 |
|
42,319,791 |
|
24,233,530 |
|
|||||
Other borrowings |
|
13,268,000 |
|
|
|
|
|
5,020,000 |
|
8,248,000 |
|
|||||
Total contractual obligations |
|
$ |
96,892,160 |
|
$ |
14,358,449 |
|
$ |
2,598,632 |
|
$ |
47,443,423 |
|
$ |
32,491,656 |
|
14
Liquidity. Our most liquid assets are cash and cash equivalents and investment securities available for sale. The level of these assets is dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2004 and 2003, the carrying value of these liquid assets totaled $141.4 million and $107.5 million, respectively. During periods in which we are not able to originate a sufficient amount of loans and/or periods of high principal prepayments, we increase our liquid assets by investing in short-term U.S. Government and agency securities or high-grade municipal securities.
Liquidity management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. In the event we require funds beyond our ability to generate them internally, additional funds are available through the use of FHLB advances, a line of credit with the FHLB or through sales of securities. At December 31, 2004, we had outstanding FHLB advances of $77.6 million and had borrowings of $3.5 million on our line of credit with the FHLB. At December 31, 2004, our total borrowing capacity with the FHLB was $105.9 million. We also had other borrowings of $13.5 million at December 31, 2004, which included $8.2 million of subordinated debentures, $5.0 million of long-term debt and $250,000 in repurchase agreements.
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 $2.2 million at December 31, 2004.
At December 31, 2004, we had outstanding loan commitments, excluding standby letters of credit, of $38.5 million. We anticipate that sufficient funds will be available to meet current loan commitments. These commitments consist of letters of credit, unfunded lines of credit and commitments to finance real estate loans.
Capital. The Federal Reserve has established capital requirements for bank holding companies which generally parallel the capital requirements for national banks under the Office of the Comptroller of the Currency regulations. The regulations provide that such standards will generally be applied on a consolidated (rather than a bank-only) basis in the case of a bank holding company with more than $150 million in total consolidated assets.
At December 31, 2004, we continued to maintain a sound leverage capital ratio of 15% and a total risk based capital ratio of 16%. As shown by the following table, our capital exceeded the minimum capital requirements at December 31, 2004 (dollars in thousands):
|
|
Actual |
|
Actual |
|
Required |
|
Required |
|
||
|
|
Amount |
|
Percent |
|
Percent |
|
Amount |
|
||
Leverage |
|
$ |
41,673 |
|
15 |
% |
4 |
% |
$ |
10,858 |
|
Tier 1 capital |
|
$ |
41,673 |
|
9 |
% |
4 |
% |
$ |
17,714 |
|
Total risk based capital |
|
$ |
44,567 |
|
16 |
% |
8 |
% |
$ |
21,716 |
|
At December 31, 2004, our subsidiary bank continued to maintain a sound leverage ratio of 17% and a total risk based capital ratio of 18%. As shown by the following table, Landmark National Banks capital exceeded the minimum capital requirements at December 31, 2004 (dollars in thousands):
|
|
Actual |
|
Actual |
|
Required |
|
Required |
|
||
|
|
Amount |
|
Percent |
|
Percent |
|
Amount |
|
||
Leverage |
|
$ |
45,806 |
|
17 |
% |
4 |
% |
$ |
10,836 |
|
Tier 1 capital |
|
$ |
45,806 |
|
10 |
% |
4 |
% |
$ |
17,624 |
|
Total risk based capital |
|
$ |
48,700 |
|
18 |
% |
8 |
% |
$ |
21,673 |
|
Banks and bank holding companies are generally expected to operate at or above the minimum capital requirements. The above ratios are well in excess of regulatory minimums and should allow us to operate without capital adequacy concerns. The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a bank rating system based on the capital levels of banks. As of December 31, 2004 and 2003, we were rated well capitalized, which is the highest rating available under this capital-based rating system. During December 2003, we obtained $8.2 million in trust preferred securities. In accordance with current capital guidelines, this amount has been included in our Tier 1 capital ratios as of December 31, 2004. Cash distributions on the securities are payable quarterly, are deductible for income tax purposes and are included in interest expense in the consolidated financial statements.
15
On March 1, 2005, the Board of Governors of the Federal Reserve System issued a final rule regarding the continued inclusion of trust preferred securities in the Tier 1 capital of bank holding companies, subject to stricter standards. As a result of the final rule, the Federal Reserve will limit the aggregate amount of a bank holding companys cumulative perpetual preferred stock, trust preferred securities and other minority interests to 25% of a companys core capital elements, net of goodwill. Regulations in place at the time the Company placed its currently outstanding trust preferred securities did not require the deduction of goodwill. The rule also provides that amounts of qualifying trust preferred securities and certain minority interests in excess of the 25% limit may be included in Tier 2 capital but will be limited, together with subordinated debt and limited-life preferred stock, to 50% of Tier 1 capital. The final rule provides a five-year transition period for bank holding companies to meet these quantitative limitations. While management does not anticipate that the final rule will have an impact on the Company when the five-year transition period expires, it is not possible to predict the final impact of the rule on the Company.
Dividends
During the year ended December 31, 2004, we paid quarterly cash dividends of $0.17 per share to our stockholders. Additionally, we distributed a 5% stock dividend for the fourth consecutive year on December 31, 2004.
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. As described above, Landmark National Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 2004. 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 banks current years net earnings plus the adjusted retained earnings for the two preceding years. As of December 31, 2004, approximately $2.3 million was available to be paid as dividends to Landmark Bancorp by Landmark National Bank without prior regulatory approval.
Recent Accounting Developments
In December 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities. FIN 46R clarified the requirements that investments in variable interest entities (VIE) be consolidated by the entity that has a variable interest that will absorb a majority of the VIEs expected losses if they occur, receive a majority of the VIEs expected returns, or both. Public companies were required to apply the unmodified provisions of the Interpretation to special-purpose entities by the end of the first reporting period ending after December 15, 2003. Public companies, other than small business issuers, were required to apply the revised Interpretation by the end of the first reporting period beginning after December 15, 2003, to all entities that were not special-purpose entities. The adoption of this Interpretation did not have a material impact on the Companys consolidated financial statements.
In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-03, Accounting for Certain Loans and Debt Securities Acquired in a Transfer. SOP 03-03 addresses the accounting for acquired loans that show evidence of having deteriorated in terms of credit quality since their origination (i.e. impaired loans). SOP 03-03 requires acquired loans to be recorded as their fair value defined as the present value of future cash flows. SOP 03-03 prohibits the carryover of an allowance for loan loss on certain acquired loans as credit losses are considered in the future cash flows assessment. SOP 03-03 is effective for loans that are acquired in fiscal years beginning after December 15, 2004. The Company will evaluate the applicability of the SOP for all prospective loans acquired in fiscal years beginning after December 15, 2004. The Company does not anticipate this Statement will have a material impact on its consolidated financial statements.
In March 2004, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments (SAB 105). SAB 105 provides additional guidance in determining the fair market value of mortgage loan commitments. The new guidance prohibits the inclusion of the expected cash flows related to the associated servicing of the loan when determining the fair value of the loan commitment. This change in accounting tends to reduce the fair market value of the loan commitment and defers the income recognition resulting from the valuation of the commitment. SAB 105 was effective for loan commitments accounted for as derivatives and entered into on or after April 1, 2004, at which time the Company began excluding these expected cash flows in its determination of fair value. The effect of the change was not material to the Companys consolidated financial statements.
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised), Shared-Based Payment. The revision disallows the expense recognition alternatives permitted in the original statement and requires entities to recognize stock-based compensation cost in their statements of income. The revision contains additional guidance in several areas including award modifications and
16
forfeitures, measuring fair value, classifying an award as equity or as a liability, and attributing compensation cost to reporting periods. It also contains additional disclosure requirements. The Company does not expect that adoption of the revised Statement in 2005 will have a material impact on its consolidated financial statements.
Effects Of Inflation
Our consolidated financial statements and accompanying footnotes have been prepared in accordance with U.S. generally accepted accounting principles, which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation can be found in the increased cost of our operations because our assets and liabilities are primarily monetary and interest rates have a greater impact on our performance than do the effects of inflation.
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 decision on pricing our assets and liabilities which impacts our 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 and interest sensitivity GAP analysis. 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 using rates at December 31, 2004, and forecasting volumes for the twelve month projection. This position is then subjected to a shift in interest rates of 100 and 200 basis points rising and 100 basis points falling with an impact to our net interest income on a one year horizon as follows:
|
|
$ change in net |
|
% of net |
|
|
Scenario |
|
interest income |
|
interest income |
|
|
100 basis point rising |
|
$ |
810,000 |
|
6.2 |
% |
200 basis point rising |
|
$ |
1,596,000 |
|
12.3 |
% |
100 basis point falling |
|
$ |
(965,000 |
) |
(7.4 |
)% |
We believe that no significant changes in our interest rate sensitivity position have occurred since December 31, 2004. We believe we are appropriately positioned for future interest rate movements, although we may experience some fluctuations in net interest income due to short term timing differences between the repricing of assets and liabilities.
Asset/Liability Management
We are emphasizing the origination of adjustable rate mortgages for portfolio retention along with shorter-term consumer and commercial loans to reduce the sensitivity of our earnings to interest rate fluctuations. Interest rate gap analysis is a common, though imperfect, measure of interest rate risk which measures the relative dollar amounts of interest-earning assets and interest bearing liabilities which reprice within a specific time period, either through maturity or rate adjustment. The gap is the difference between the amounts of such assets and liabilities that are subject to such repricing. A positive gap for a given period means that the amount of interest-earning assets maturing or otherwise repricing within that period exceeds the amount of interest-bearing liabilities maturing or otherwise repricing during that same period. In a rising interest rate environment, an institution with a positive gap would generally be expected, absent the effects of other factors, to experience a greater increase in the yield of its assets relative to the cost of its liabilities. Conversely, the cost of funds for an institution with a positive gap would generally be expected to decline less quickly than the yield on its assets in a falling interest rate environment. Changes in interest rates generally have the opposite effect on an institution with a negative gap.
Following is our static gap schedule. One-to-four family and consumer loans included prepayment assumptions, while all other loans assume no prepayments. The mortgage-backed securities included published prepayment assumptions, while all other investments assume no prepayments.
Certificates of deposit reflect contractual maturities only. Money market accounts are rate sensitive and accordingly, a higher percentage of the accounts have been included as repricing immediately in the first period. Savings and NOW accounts are not as rate sensitive as money market accounts and for that reason a significant percentage of the accounts are reflected in the more than 1 to 5 years category.
We have been successful in meeting the interest sensitivity objectives set forth in our policy. This has been accomplished primarily by managing the assets and liabilities while maintaining our traditional high credit standards.
17
Interest-Earning Assets And
Interest-Bearing Liabilities
Repricing Schedule (Gap Table)
At December 31, 2004
|
|
3 months |
|
More than |
|
More than |
|
|
|
|
|
|||||
|
|
or less |
|
3 to 12 months |
|
1 to 5 years |
|
Over 5 years |
|
Total |
|
|||||
|
|
(Dollars in thousands) |
|
|||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Overnight investments |
|
$ |
4,935 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
4,935 |
|
Investment securities |
|
31,374 |
|
40,868 |
|
56,602 |
|
4,760 |
|
133,604 |
|
|||||
Loans |
|
63,401 |
|
92,691 |
|
111,428 |
|
12,840 |
|
280,360 |
|
|||||
Total interest-earning assets |
|
$ |
99,710 |
|
$ |
133,559 |
|
$ |
168,030 |
|
$ |
17,600 |
|
$ |
418,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Certificates of deposit |
|
$ |
49,519 |
|
$ |
68,049 |
|
$ |
36,712 |
|
$ |
210 |
|
$ |
154,490 |
|
Money market and NOW accounts |
|
17,801 |
|
46,510 |
|
32,416 |
|
|
|
96,727 |
|
|||||
Savings accounts |
|
3,038 |
|
8,468 |
|
11,715 |
|
|
|
23,221 |
|
|||||
Borrowed money |
|
22,018 |
|
5,000 |
|
40,000 |
|
27,553 |
|
94,571 |
|
|||||
Total interest-bearing liabilities |
|
$ |
92,376 |
|
$ |
128,027 |
|
$ |
120,843 |
|
$ |
27,763 |
|
$ |
369,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest sensitivity gap per period |
|
$ |
7,334 |
|
$ |
5,532 |
|
$ |
47,187 |
|
$ |
(10,163 |
) |
$ |
49,890 |
|
Cumulative interest sensitivity gap |
|
$ |
7,334 |
|
$ |
12,866 |
|
$ |
60,053 |
|
$ |
49,890 |
|
|
|
|
Cumulative gap as a percent of total interest-earning assets |
|
1.75 |
% |
3.07 |
% |
14.34 |
% |
11.91 |
% |
|
|
|||||
Cumulative interest sensitive assets as a percent of cumulative interest sensitive liabilities |
|
107.94 |
% |
105.84 |
% |
117.60 |
% |
113.52 |
% |
|
|
18
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.
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 by us and our subsidiaries include, but are not limited to, the following:
The strength of the United States economy in general and the strength of the local economies in which we conduct our operations 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 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, insurance and monetary and financial matters.
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 Board of Governors of the Federal Reserve System.
Our ability to compete with other financial institutions as effectively as we currently intend due to increases in competitive pressures in the financial services sector.
Our inability to obtain new customers and to retain existing customers.
The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet.
Technological changes implemented by us and by other parties, including third party vendors, which may be more difficult 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.
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.
Business combinations and the integration of acquired businesses which may be more difficult or expensive than expected.
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.
Our ability to manage the risks associated with the foregoing as well as anticipated.
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.
C ontrols And Procedures.
An evaluation was performed under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operations of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2004. Based on that evaluation, the Companys management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Companys disclosure controls and procedures were effective. There have been no significant changes in the Companys internal controls or in other factors that could significantly affect internal controls.
19
Report of Independent Registered Public Accounting Firm
The Board of Directors
Landmark Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Landmark Bancorp, Inc. and subsidiary (the Company) as of December 31, 2004 and 2003, and the related consolidated statements of earnings, stockholders equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP |
|
Kansas City, Missouri |
|
March 17, 2005 |
20
LANDMARK BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
|
|
December 31, |
|
December 31, |
|
|
|
|
2004 |
|
2003 |
|
|
Assets |
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
Cash |
|
$ |
2,910,297 |
|
1,768,914 |
|
Interest-bearing deposits in other financial institutions |
|
4,935,141 |
|
5,939,201 |
|
|
Total cash and cash equivalents |
|
7,845,438 |
|
7,708,115 |
|
|
Investment securities available-for-sale |
|
133,604,335 |
|
99,746,365 |
|
|
Loans, net |
|
277,413,963 |
|
214,295,940 |
|
|
Loans held for sale |
|
846,003 |
|
734,456 |
|
|
Premises and equipment, net |
|
5,864,258 |
|
3,631,102 |
|
|
Goodwill |
|
7,651,892 |
|
1,971,178 |
|
|
Other intangible assets, net |
|
1,339,832 |
|
959,532 |
|
|
Accrued interest and other assets |
|
7,525,173 |
|
4,999,601 |
|
|
Total assets |
|
$ |
442,090,894 |
|
334,046,289 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Non-interest bearing demand |
|
$ |
28,549,224 |
|
20,538,514 |
|
Money market and NOW |
|
96,607,511 |
|
76,990,610 |
|
|
Savings |
|
23,221,065 |
|
14,801,950 |
|
|
Time, $100,000 and greater |
|
31,121,564 |
|
28,294,325 |
|
|
Time, other |
|
123,368,357 |
|
112,482,821 |
|
|
Total deposits |
|
302,867,721 |
|
253,108,220 |
|
|
Federal Home Loan Bank borrowings |
|
81,053,321 |
|
25,257,104 |
|
|
Other borrowings |
|
13,518,000 |
|
8,498,000 |
|
|
Accrued interest and expenses, taxes, and other liabilities |
|
2,482,875 |
|
4,610,862 |
|
|
Total liabilities |
|
399,921,917 |
|
291,474,186 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
Common stock, $0.01 par. Authorized 3,000,000 shares; issued 2,232,218 and 2,207,807, respectively |
|
22,322 |
|
22,078 |
|
|
Additional paid-in capital |
|
19,969,551 |
|
19,332,130 |
|
|
Retained earnings |
|
25,228,826 |
|
25,213,188 |
|
|
Treasury stock, at cost; 121,630 and 119,657 shares, respectively |
|
(3,205,823 |
) |
(2,792,225 |
) |
|
Accumulated other comprehensive income |
|
154,101 |
|
796,932 |
|
|
Total stockholders equity |
|
42,168,977 |
|
42,572,103 |
|
|
Total liabilities and stockholders equity |
|
$ |
442,090,894 |
|
334,046,289 |
|
See accompanying notes to consolidated financial statements.
21
LANDMARK BANCORP, INC. AND
SUBSIDIARY
Consolidated Statements of Earnings
|
|
Years ended December 31, |
|
|||||
|
|
2004 |
|
2003 |
|
2002 |
|
|
Interest income: |
|
|
|
|
|
|
|
|
Loans |
|
$ |
15,672,834 |
|
14,303,182 |
|
16,649,738 |
|
Investment securities |
|
4,237,362 |
|
2,945,302 |
|
2,809,559 |
|
|
Other |
|
39,010 |
|
27,818 |
|
102,229 |
|
|
Total interest income |
|
19,949,206 |
|
17,276,302 |
|
19,561,526 |
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Deposits |
|
3,945,344 |
|
4,446,050 |
|
5,773,331 |
|
|
Borrowings |
|
3,054,952 |
|
1,208,522 |
|
1,337,868 |
|
|
Total interest expense |
|
7,000,296 |
|
5,654,572 |
|
7,111,199 |
|
|
Net interest income |
|
12,948,910 |
|
11,621,730 |
|
12,450,327 |
|
|
Provision for loan losses |
|
460,000 |
|
240,000 |
|
181,500 |
|
|
Net interest income after provision for loan losses |
|
12,488,910 |
|
11,381,730 |
|
12,268,827 |
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
Fees and service charges |
|
3,270,509 |
|
2,048,482 |
|
1,903,454 |
|
|
Gains on sales of loans |
|
986,864 |
|
2,039,102 |
|
1,588,296 |
|
|
Gains (losses) on sales of investment securities, net |
|
358,385 |
|
551,038 |
|
124,333 |
|
|
Other |
|
509,663 |
|
335,569 |
|
239,933 |
|
|
Total non-interest income |
|
5,125,421 |
|
4,974,191 |
|
3,856,016 |
|
|
Non-interest expense: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
5,844,352 |
|
4,834,982 |
|
4,849,011 |
|
|
Occupancy and equipment |
|
1,607,804 |
|
1,250,212 |
|
1,198,710 |
|
|
Amortization of intangibles |
|
374,758 |
|
426,442 |
|
388,568 |
|
|
Professional fees |
|
301,870 |
|
343,208 |
|
281,949 |
|
|
Advertising |
|
300,006 |
|
177,899 |
|
183,072 |
|
|
Data processing |
|
415,175 |
|
311,364 |
|
347,900 |
|
|
Other |
|
2,509,383 |
|
1,884,648 |
|
1,934,981 |
|
|
Total non-interest expense |
|
11,353,348 |
|
9,228,755 |
|
9,184,191 |
|
|
Earnings before income taxes |
|
6,260,983 |
|
7,127,166 |
|
6,940,652 |
|
|
Income tax expense |
|
2,010,225 |
|
2,275,469 |
|
2,362,739 |
|
|
Net earnings |
|
$ |
4,250,758 |
|
4,851,697 |
|
4,577,913 |
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.96 |
|
2.20 |
|
1.99 |
|
Diluted |
|
$ |
1.95 |
|
2.17 |
|
1.93 |
|
See accompanying notes to consolidated financial statements.
22
LANDMARK BANCORP, INC. AND
SUBSIDIARY
Consolidated Statements of Stockholders Equity
and Comprehensive Income
Years ended December 31, 2004, 2003 and 2002
|
|
Common
|
|
Additional
|
|
Retained
|
|
Treasury
|
|
Unearned
|
|
Accumulated
other
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2001 |
|
$ |
20,827 |
|
17,075,297 |
|
23,073,530 |
|
(43,940 |
) |
(344,099 |
) |
423,138 |
|
40,204,753 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
4,577,913 |
|
|
|
|
|
|
|
4,577,913 |
|
|
Change in fair value of investment securities available-for-sale, net of tax |
|
|
|
|
|
|
|
|
|
|
|
1,475,832 |
|
1,475,832 |
|
|
Total comprehensive income |
|
|
|
|
|
4,577,913 |
|
|
|
|
|
1,475,832 |
|
6,053,745 |
|
|
Dividends paid ($0.52 per share) |
|
|
|
|
|
(1,239,819 |
) |
|
|
|
|
|
|
(1,239,819 |
) |
|
Amortization of unearned employee benefits |
|
|
|
151,104 |
|
|
|
|
|
198,892 |
|
|
|
349,996 |
|
|
Exercise of stock options, 75,184 shares including tax benefit of $313,383 |
|
751 |
|
1,045,564 |
|
|
|
|
|
|
|
|
|
1,046,315 |
|
|
Stock-based compensation |
|
|
|
4,307 |
|
|
|
|
|
|
|
|
|
4,307 |
|
|
Purchase of 242,409 treasury shares |
|
|
|
|
|
|
|
(5,345,522 |
) |
|
|
|
|
(5,345,522 |
) |
|
5% stock dividend, 96,684 shares |
|
|
|
(6,690 |
) |
(2,116,413 |
) |
2,123,103 |
|
|
|
|
|
|
|
|
Balance at December 31, 2002 |
|
21,578 |
|
18,269,582 |
|
24,295,211 |
|
(3,266,359 |
) |
(145,207 |
) |
1,898,970 |
|
41,073,775 |
|
|
Net earnings |
|
|
|
|
|
4,851,697 |
|
|
|
|
|
|
|
4,851,697 |
|
|
Change in fair value of investment securities available-for-sale, net of tax |
|
|
|
|
|
|
|
|
|
|
|
(1,102,038 |
) |
(1,102,038 |
) |
|
Total comprehensive income |
|
|
|
|
|
4,851,697 |
|
|
|
|
|
(1,102,038 |
) |
3,749,659 |
|
|
Dividends paid ($0.60 per share) |
|
|
|
|
|
(1,331,146 |
) |
|
|
|
|
|
|
(1,331,146 |
) |
|
Amortization of unearned employee benefits |
|
|
|
82,731 |
|
|
|
|
|
145,207 |
|
|
|
227,938 |
|
|
Exercise of stock options, 49,942 shares, including tax benefit of $241,775 |
|
500 |
|
720,857 |
|
|
|
|
|
|
|
|
|
721,357 |
|
|
Stock-based compensation |
|
|
|
1,727 |
|
|
|
|
|
|
|
|
|
1,727 |
|
|
Purchase of 72,228 treasury shares |
|
|
|
|
|
|
|
(1,871,207 |
) |
|
|
|
|
(1,871,207 |
) |
|
5% stock dividend, 100,602 shares |
|
|
|
257,233 |
|
(2,602,574 |
) |
2,345,341 |
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
|
22,078 |
|
19,332,130 |
|
25,213,188 |
|
(2,792,225 |
) |
|
|
796,932 |
|
42,572,103 |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
4,250,758 |
|
|
|
|
|
|
|
4,250,758 |
|
|
Change in fair value of investment securities available-for-sale and interest rate swap, net of tax |
|
|
|
|
|
|
|
|
|
|
|
(642,831 |
) |
(642,831 |
) |
|
Total comprehensive income |
|
|
|
|
|
4,250,758 |
|
|
|
|
|
(642,831 |
) |
3,607,927 |
|
|
Dividends paid ($0.65 per share) |
|
|
|
|
|
(1,420,885 |
) |
|
|
|
|
|
|
(1,420,885 |
) |
|
Stock-based compensation |
|
|
|
107,975 |
|
|
|
|
|
|
|
|
|
107,975 |
|
|
Exercise of stock options, 24,411 shares, including tax benefit of $135,511 |
|
244 |
|
356,818 |
|
|
|
|
|
|
|
|
|
357,062 |
|
|
Purchase of 102,338 treasury shares |
|
|
|
|
|
|
|
(3,055,205 |
) |
|
|
|
|
(3,055,205 |
) |
|
5% stock dividend, 100,365 shares |
|
|
|
172,628 |
|
(2,814,235 |
) |
2,641,607 |
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
$ |
22,322 |
|
19,969,551 |
|
25,228,826 |
|
(3,205,823 |
) |
|
|
154,101 |
|
42,168,977 |
|
See accompanying notes to consolidated financial statements.
23
LANDMARK BANCORP, INC. AND
SUBSIDIARY
Consolidated Statements of Cash Flows
|
|
Years ended December 31, |
|
|||||
|
|
2004 |
|
2003 |
|
2002 |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
4,250,758 |
|
4,851,697 |
|
4,577,913 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
460,000 |
|
240,000 |
|
181,500 |
|
|
Amortization of intangibles |
|
374,758 |
|
426,442 |
|
388,568 |
|
|
Depreciation |
|
650,082 |
|
461,836 |
|
462,458 |
|
|
Stock-based compensation |
|
107,975 |
|
1,727 |
|
4,307 |
|
|
Deferred income taxes |
|
625,904 |
|
364,465 |
|
83,674 |
|
|
Net gains on sales of investment securities, premises and equipment, and foreclosed assets |
|
(502,114 |
) |
(561,155 |
) |
(120,364 |
) |
|
Net gain on sales of loans |
|
(986,864 |
) |
(2,039,102 |
) |
(1,588,296 |
) |
|
Proceeds from sale of loans |
|
39,598,536 |
|
97,351,328 |
|
71,268,001 |
|
|
Origination of loans held for sale |
|
(38,723,219 |
) |
(90,996,079 |
) |
(69,076,231 |
) |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accrued interest and other assets |
|
1,200,310 |
|
63,920 |
|
1,182,652 |
|
|
Accrued expenses, taxes, and other liabilities |
|
(2,318,289 |
) |
(4,689,368 |
) |
1,617,213 |
|
|
Net cash provided by operating activities |
|
4,737,837 |
|
5,475,711 |
|
8,981,395 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Net decrease in loans |
|
6,104,388 |
|
9,304,074 |
|
10,445,920 |
|
|
Maturities and prepayments of investment securities |
|
32,936,261 |
|
52,601,851 |
|
27,067,374 |
|
|
Net cash paid in First Kansas acquisition |
|
(9,140,845 |
) |
|
|
|
|
|
Net cash paid in Beloit and Phillipsburg branch sales |
|
(8,714,311 |
) |
|
|
|
|
|
Purchases of investment securities |
|
(6,502,342 |
) |
(66,450,936 |
) |
(40,587,495 |
) |
|
Proceeds from sale of investment securities |
|
971,571 |
|
1,203,725 |
|
437,604 |
|
|
Proceeds from sales of premises and equipment and foreclosed assets |
|
1,419,456 |
|
433,969 |
|
569,330 |
|
|
Purchases of premises and equipment, net |
|
(1,232,019 |
) |
(337,967 |
) |
(759,993 |
) |
|
Other investing activity, net |
|
|
|
|
|
(992 |
) |
|
Net cash provided by (used in) investing activities |
|
15,842,159 |
|
(3,245,284 |
) |
(2,828,252 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net decrease in deposits |
|
(21,606,877 |
) |
(11,172,650 |
) |
(8,965,415 |
) |
|
Federal Home Loan Bank borrowings |
|
78,800,000 |
|
77,400,000 |
|
34,055,000 |
|
|
Federal Home Loan Bank repayments |
|
(78,536,768 |
) |
(78,215,350 |
) |
(36,418,276 |
) |
|
Proceeds from other borrowings |
|
9,555,000 |
|
8,498,000 |
|
|
|
|
Repayments on other borrowings |
|
(4,535,000 |
) |
|
|
|
|
|
Proceeds from issuance of common stock under stock option plans |
|
221,551 |
|
479,582 |
|
732,932 |
|
|
Net tax benefit related to stock option plans |
|
135,511 |
|
241,775 |
|
313,383 |
|
|
Payment of dividends |
|
(1,420,885 |
) |
(1,331,146 |
) |
(1,239,819 |
) |
|
Purchase of treasury stock |
|
(3,055,205 |
) |
(1,871,207 |
) |
(5,345,522 |
) |
|
Net cash used in financing activities |
|
(20,442,673 |
) |
(5,970,996 |
) |
(16,867,717 |
) |
|
Net increase (decrease) in cash and cash equivalents |
|
137,323 |
|
(3,740,569 |
) |
(10,714,574 |
) |
|
Cash and cash equivalents at beginning of year |
|
7,708,115 |
|
11,448,684 |
|
22,163,258 |
|
|
Cash and cash equivalents at end of year |
|
$ |
7,845,438 |
|
7,708,115 |
|
11,448,684 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes |
|
$ |
1,494,000 |
|
1,985,000 |
|
1,403,000 |
|
Cash paid during the year for interest |
|
6,652,000 |
|
5,690,000 |
|
7,195,000 |
|
|
Supplemental schedule of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Transfer of loans to real estate owned |
|
1,044,000 |
|
303,000 |
|
717,000 |
|
|
First Kansas acquisition: |
|
|
|
|
|
|
|
|
Fair value of liabilities assumed |
|
140,619,000 |
|
|
|
|
|
|
Fair value of assets acquired, including goodwill |
|
149,760,000 |
|
|
|
|
|
|
Beloit and Phillipsburg branch sales: |
|
|
|
|
|
|
|
|
Fair value of liabilities transferred |
|
(12,489,000 |
) |
|
|
|
|
|
Fair value of assets sold |
|
(3,774,000 |
) |
|
|
|
|
See accompanying notes to consolidated financial statements.
24
LANDMARK BANCORP, INC. AND
SUBSIDIARY
Notes to
Consolidated Financial Statements
December 31, 2004, 2003, and 2002
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Landmark Bancorp, Inc. (the Company) and its wholly owned subsidiary, Landmark National Bank (the Bank). Intercompany balances and transactions have been eliminated in consolidation. 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 commercial real estate and non-real estate loans, one-to-four family residential mortgage loans, consumer loans, home equity loans, and one-to-four family residential mortgage loans.
(b) Investment Securities
The Company classifies its investment securities portfolio as available-for-sale, which are recorded at fair value, determined principally based on quoted market prices, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders equity until realized. Purchased premiums and discounts on investment securities are amortized/accreted into interest income over the estimated lives of the securities using a method which approximates the interest method. Declines in the fair value of individual securities below their cost that are deemed to be other than temporary result in write-downs of individual securities to their estimated fair value, and a new cost basis is established. The related write-downs are included in earnings as realized losses. Gains and losses on sales of available-for-sale securities are recorded on a trade date basis and are calculated using the specific identification method.
(c) Loans and Allowance for Loan Losses
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balances, net of undisbursed loan proceeds, the allowance for loan losses, and any deferred fees or costs on originated loans.
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value. Net unrealized losses are recognized through a valuation allowance by charges to income. Origination fees received on such loans are deferred and recognized in income as part of the gain or loss on sale. Origination fees received on other loans held in portfolio in excess of amounts representing the estimated costs of origination are deferred and credited to interest income using the interest method.
The Company maintains an allowance to absorb probable loan losses inherent in the portfolio. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Managements periodic evaluation of the adequacy of the allowance is based on the Banks past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay, the estimated value of any underlying collateral, the current level of nonperforming assets, and current economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length
25
of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial, commercial real estate and construction loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller individual balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures.
The accrual of interest on nonperforming loans is discontinued at the time the loan is ninety 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.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
(d) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line or accelerated methods over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:
Buildings and improvements |
|
10 50 years |
|
Furniture, fixtures, and equipment |
|
1 15 years |
|
Automobiles |
|
2 5 years |
|
Major replacements and betterments are capitalized while maintenance and repairs are charged to expense when incurred. Gains or losses on dispositions are reflected in operations as incurred.
(e) Goodwill and Intangible Assets
The Companys goodwill and core deposit intangible resulted from the acquisition of MNB Bancshares, Inc. (MNB) by Landmark Bancorp, Inc. on October 9, 2001, and from the acquisition of First Kansas Financial Corporation (First Kansas) on April 1, 2004. Goodwill resulting from the merger with MNB and from the acquisition of First Kansas is not amortized; however, it is tested for impairment. When facts and circumstances indicate potential impairment of amortizable intangible assets, the Company will evaluate the recoverability of the asset carrying value, using estimates of undiscounted future cash flows over the remaining asset life. Any impairment loss is measured by the excess of carrying value over fair value. Goodwill impairment tests are performed at each calendar year end or when events or circumstances dictate. The Companys impairment test performed as of December 31, 2004, indicated that there was no impairment.
Intangible assets that have finite useful lives, such as core deposit intangibles and mortgage servicing rights, continue to be amortized over their useful lives. The core deposit intangible is being amortized over ten years on an accelerated basis. Amortization expense related to the core deposit intangible asset was $194,000, $124,000, and $138,000 for the years ended December 31, 2004, 2003, and 2002, respectively.
Mortgage servicing assets are recognized as separate assets when rights are acquired through the sale of financial assets. Capitalized servicing rights are reported in other intangible assets and are amortized into non-interest expense in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are recorded at the lower of cost or fair value, and are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Amortization expense related to the mortgage servicing assets was $181,000, $302,000, and $250,000 for the years ended December 31, 2004, 2003, and 2002, respectively.
26
(f) Income Taxes
Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective income tax basis. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities, of a change in tax rates, is recognized in income in the period that includes the enactment date.
(g) Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.
(h) Comprehensive Income
The Companys other comprehensive income (loss) consists of unrealized holding gains and losses on available-for-sale securities and an unrealized gain on an interest rate swap as shown below:
|
|
Years ended December 31, |
|
|||||
|
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities |
|
$ |
(736,440 |
) |
(1,226,442 |
) |
2,504,707 |
|
Less reclassification adjustment for gains included in net income |
|
358,385 |
|
551,038 |
|
124,333 |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on securities |
|
(1,094,825 |
) |
(1,777,480 |
) |
2,380,374 |
|
|
Unrealized gain on interest rate swap |
|
58,000 |
|
|
|
|
|
|
Income tax expense (benefit) |
|
(393,994 |
) |
(675,442 |
) |
904,542 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
$ |
(642,831 |
) |
(1,102,038 |
) |
1,475,832 |
|
(i) Foreclosed assets
Assets acquired through, or in lieu of, foreclosure are to be sold and are initially recorded at the date of foreclosure, at the lower of carrying value or fair value, establishing a new cost basis. Subsequent to foreclosure, management periodically performs valuations, and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds the fair value less estimated costs to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other non-interest expense on the income statement.
(j) Stock Based Compensation
The Company has a stock-based employee compensation plan, which is described more fully in note 11. The Company utilizes the fair value recognition provisions of Statement of Financial Accounting Standard (SFAS) Statement No. 123, Accounting for Stock-Based Compensation. SFAS 123 establishes a fair-value method of accounting for employee stock options or similar equity instruments. The fair value of stock-based awards to employees is calculated through the use of option pricing models. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company uses the Black-Scholes option pricing model to estimate the grant date fair value of its stock options. The fair value is recognized as additional compensation expense over the option vesting period, which is typically five years.
27
In December 2004, The Financial Accounting Standards Board issued SFAS No. 123 (revised), Shared-Based Payment. The revision disallows the expense recognition alternatives permitted in the original statement and requires entities to recognize stock-based compensation cost in their statements of earnings. The revision contains additional guidance in several areas including award modifications and forfeitures, measuring fair value, classifying an award as equity or as a liability, and attributing compensation cost to reporting periods. It also contains additional disclosure requirements. The Company does not expect that adoption of the revised Statement in 2005 will have a material effect on its consolidated financial statements.
(k) Earnings per Share
Basic earnings per share represents net earnings divided by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method. Earnings per share for all periods presented have been adjusted to give effect to the 5% stock dividends paid by the Company in December 2004, 2003, and 2002.
The shares used in the calculation of basic and diluted earnings per share, which have been restated for the 5% stock dividends paid in December 2004, 2003, and 2002, are shown below:
|
|
Years ended December 31, |
|
||||
|
|
2004 |
|
2003 |
|
2002 |
|
Weighted average common shares outstanding basic |
|
2,169,612 |
|
2,208,068 |
|
2,297,600 |
|
Stock options |
|
13,117 |
|
30,598 |
|
64,486 |
|
Weighted average common shares outstanding diluted |
|
2,182,729 |
|
2,238,666 |
|
2,362,086 |
|
(l) Treasury Stock
Purchases of the Companys common stock are recorded at cost. Upon reissuance, treasury stock is reduced based upon the average cost basis of shares held.
(m) Cash and cash equivalents
Cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits, and fed funds sold.
(n) Derivatives
The Company is exposed to market risk, including changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures, the Companys risk management policies permit its use of derivative products. The Company uses derivatives on a limited basis mainly to stabilize interest rate margins. The Company more often manages normal asset and liability positions by altering the terms of the products it offers.
Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, requires that all derivative financial instruments be recorded on the balance sheet at fair value, with the adjustment to fair value recorded in current earnings. Derivatives that qualify under the Statement in a hedging relationship are designated, based on the exposure being hedged, as fair value or cash flow hedges. Under the cash flow hedging model, the effective portion of the gain or loss related to the derivative is recognized as a component of other comprehensive income. The ineffective portion is recognized in current earnings.
(o) Reclassifications
Certain reclassifications to prior year amounts have been made to conform to the current year presentation.
28
(2) Acquisition of First Kansas Financial Corporation
On April 1, 2004, the Company acquired all of the outstanding stock of First Kansas Financial Corporation (First Kansas) for cash of $19 per share. First Kansas was a single thrift holding company based in Osawatomie, Kansas. The thrift was merged into the Companys wholly-owned subsidiary, Landmark National Bank, immediately following the acquisition. This acquisition expanded the Companys presence in high-growth market areas, presenting the Company with potential for revenue generation and asset growth. At March 31, 2004, First Kansas had total assets of approximately $150 million, including loans and deposits of approximately $74 million and $84 million, respectively. The acquisition cost in excess of the tangible and identifiable intangible net assets acquired has been recorded as goodwill. In connection with the acquisition and the subsequent sale of two branches as described below, the Company recorded a core deposit intangible of $605,000, which is being amortized on an accelerated basis over ten years, and goodwill of approximately $5.7 million, none of which is deductible for tax purposes.
The Company sold its branches in Beloit and Phillipsburg, Kansas on August 13, 2004, and September 10, 2004, respectively. These branches had been acquired in the acquisition of First Kansas. Upon consummation of these transactions, the Company sold approximately $7.7 million in deposits and approximately $2.4 million in loans and premises and equipment associated with the Beloit branch and approximately $4.7 million in deposits and approximately $846,000 in loans and premises and equipment related to the Phillipsburg branch. The net proceeds received were recorded as an adjustment to the fair value of the assets acquired from First Kansas, resulting in a reduction of goodwill and the core deposit intangible.
The accompanying consolidated financial statements for the year ended December 31, 2004 include the accounts of the Company and, commencing April 1, 2004 First Kansas. Pro forma information, as if the acquisition was consummated January 1, 2003, is as follows:
|
|
Years Ended December 31, |
|
|||
|
|
2004 |
|
2003 |
|
|
Revenue |
|
$ |
26,903 |
|
29,932 |
|
Net earnings |
|
4,329 |
|
5,280 |
|
|
Basic earnings per share |
|
2.00 |
|
2.51 |
|
|
Diluted earnings per share |
|
1.98 |
|
2.48 |
|
|
(3) Investment Securities Available-for-Sale
A summary of investment securities information is as follows:
|
|
December 31, 2004 |
|
|||||||
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
U.S. Government and agency obligations |
|
$ |
33,703,700 |
|
38,250 |
|
(276,457 |
) |
33,465,493 |
|
Municipal obligations |
|
13,801,603 |
|
295,860 |
|
(82,624 |
) |
14,014,839 |
|
|
Mortgage-backed securities |
|
74,667,732 |
|
733,185 |
|
(897,298 |
) |
74,503,619 |
|
|
Federal Home Loan Bank stock |
|
5,413,000 |
|
|
|
|
|
5,413,000 |
|
|
Common stocks |
|
302,646 |
|
407,763 |
|
(754 |
) |
709,655 |
|
|
Federal Reserve Bank stock |
|
1,341,600 |
|
|
|
|
|
1,341,600 |
|
|
Corporate bonds |
|
1,790,154 |
|
|
|
(27,375 |
) |
1,762,779 |
|
|
Other investments |
|
2,393,350 |
|
|
|
|
|
2,393,350 |
|
|
Total |
|
$ |
133,413,785 |
|
1,475,058 |
|
(1,284,508 |
) |
133,604,335 |
|
29
|
|
December 31, 2003 |
|
|||||||
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
U.S. Government and agency obligations |
|
$ |
32,341,892 |
|
326,624 |
|
(52,249 |
) |
32,616,267 |
|
Municipal obligations |
|
13,577,760 |
|
462,791 |
|
(20,231 |
) |
14,020,320 |
|
|
Mortgage-backed securities |
|
46,379,211 |
|
515,246 |
|
(331,014 |
) |
46,563,443 |
|
|
Federal Home Loan Bank stock |
|
2,543,600 |
|
|
|
|
|
2,543,600 |
|
|
Common stocks |
|
280,310 |
|
384,197 |
|
(2,114 |
) |
662,393 |
|
|
Federal Reserve Bank stock |
|
805,050 |
|
|
|
|
|
805,050 |
|
|
Corporate bonds |
|
50,000 |
|
2,125 |
|
|
|
52,125 |
|
|
Other investments |
|
2,483,167 |
|
|
|
|
|
2,483,167 |
|
|
Total |
|
$ |
98,460,990 |
|
1,690,983 |
|
(405,608 |
) |
99,746,365 |
|
Included in investment securities available-for-sale are restricted stock investments in the Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) that are required to be maintained by the Bank for regulatory purposes and borrowing availability. The cost of such investments represents their redemption value.
The tables above show that some of the securities in the available for sale investment portfolio had unrealized losses, or were temporarily impaired, as of December 31, 2004 and 2003. This temporary impairment represents the amount of loss that would be realized if the securities were sold at valuation date. Securities which were temporarily impaired at December 31, 2004 are shown below, along with the length of the impairment period.
|
|
Less than 12 month |
|
12 months or longer |
|
Total |
|
|||||||
|
|
Fair Value |
|
Unrealized
|
|
Fair Value |
|
Unrealized
|
|
Fair Value |
|
Unrealized
|
|
|
U. S. Government and agency obligations |
|
$ |
20,865,795 |
|
(180,698 |
) |
7,424,355 |
|
(95,759 |
) |
28,290,150 |
|
(276,457 |
) |
Municipal obligations |
|
1,972,236 |
|
(58,821 |
) |
2,915,038 |
|
(23,803 |
) |
4,887,274 |
|
(82,624 |
) |
|
Mortgage-backed securities |
|
17,389,387 |
|
(596,728 |
) |
26,257,900 |
|
(300,570 |
) |
43,647,287 |
|
(897,298 |
) |
|
Corporate bonds |
|
1,762,779 |
|
(27,375 |
) |
|
|
|
|
1,762,779 |
|
(27,375 |
) |
|
Common stock |
|
|
|
|
|
2,932 |
|
(754 |
) |
2,932 |
|
(754 |
) |
|
Total |
|
$ |
41,990,197 |
|
(863,622 |
) |
36,600,225 |
|
(420,886 |
) |
78,590,422 |
|
(1,284,508 |
) |
At December 31, 2004, the total investment portfolio consisted of over 370 securities. The table above includes 88 securities that were in an unrealized loss position. The decrease in market value of the securities in an unrealized loss position is related to interest rate changes. None of the unrealized losses are related to credit deterioration. The Company has the intent and ability to hold these securities until market values recover.
Maturities of investment securities at December 31, 2004 are as follows:
|
|
Amortized
|
|
Estimated
|
|
|
Due in less than one year |
|
$ |
15,067,132 |
|
15,087,293 |
|
Due after one year but within five years |
|
29,149,304 |
|
29,034,237 |
|
|
Due after five years |
|
5,079,021 |
|
5,121,581 |
|
|
Mortgage-backed securities, FHLB stock, FRB stock, common stock, and other investments |
|
84,118,328 |
|
84,361,224 |
|
|
Total |
|
$ |
133,413,785 |
|
133,604,335 |
|
For mortgage-backed securities, actual maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties. At December 31, 2004, the Companys mortgage-backed securities portfolio consisted of securities predominantly underwritten to the standards and guaranteed by the government-sponsored agencies of FHLMC, FNMA and GNMA.
30
Gross realized gains and losses on sales of available-for-sale securities are as follows:
|
|
Years ended December 31, |
|
|||||
|
|
2004 |
|
2003 |
|
2002 |
|
|
Realized gains |
|
$ |
358,385 |
|
551,038 |
|
124,333 |
|
Realized losses |
|
|
|
|
|
|
|
|
Total |
|
$ |
358,385 |
|
551,038 |
|
124,333 |
|
At December 31, 2004 and 2003, securities pledged to secure public funds on deposit had a carrying value of approximately $84.2 million and $70.3 million, respectively. Except for U. S. government and agency obligations, no investment in a single issuer exceeded 10% of stockholders equity.
(4) Loans
Loans consist of the following:
|
|
December 31,
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
One-to-four family residential |
|
$ |
131,077,310 |
|
82,093,729 |
|
Commercial |
|
77,207,618 |
|
65,728,619 |
|
|
Construction |
|
11,233,964 |
|
9,171,510 |
|
|
Commercial loans |
|
51,826,283 |
|
50,053,993 |
|
|
Consumer loans |
|
9,014,411 |
|
9,566,650 |
|
|
Total |
|
280,359,586 |
|
216,614,501 |
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
Deferred loan fees and loans in process |
|
52,020 |
|
2,691 |
|
|
Allowance for loan losses |
|
2,893,603 |
|
2,315,870 |
|
|
Loans, net |
|
$ |
277,413,963 |
|
214,295,940 |
|
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet customers financing needs. These financial instruments consist principally of commitments to extend credit. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Companys exposure to credit loss in the event of nonperformance by the other party is represented by the contractual amount of those instruments. In the normal course of business, there are various commitments and contingent liabilities, such as guarantees, commitments to extend credit, letters of credit, and lines of credit, which are properly not recorded in the accompanying consolidated financial statements. The Company generally requires collateral or other security on unfunded loan commitments and irrevocable letters of credit. Unfunded commitments to extend credit, excluding standby letters of credit, aggregated $38.5 million and $25.6 million at December 31, 2004 and 2003, respectively. Standby letters of credit totaled $2.2 million and $2.4 at December 31, 2004 and 2003, respectively.
The Company is exposed to varying risks associated with concentrations of credit relating primarily to lending activities in specific geographic areas. The Companys principal lending area consists of the cities of Manhattan, Auburn, Dodge City, Garden City, Great Bend, Hoisington, LaCrosse, Osage City, Topeka, Wamego, Paola, Osawatomie, Louisburg, and Fort Scott, Kansas and the surrounding communities, and substantially all of the Companys loans are to residents of or secured by properties located in its principal lending area. Accordingly, the ultimate collectibility of the Companys loan portfolio is dependent in part upon market conditions in those areas. These geographic concentrations are considered in managements establishment of the allowance for loan losses.
A summary of the activity in the allowance for loan losses is as follows:
|
|
Years ended December 31, |
|
|||||
|
|
2004 |
|
2003 |
|
2002 |
|
|
Balance at beginning of year |
|
$ |
2,315,870 |
|
2,565,201 |
|
2,640,288 |
|
Allowance of acquired bank |
|
352,113 |
|
|
|
|
|
|
Provision for loan losses |
|
460,000 |
|
240,000 |
|
181,500 |
|
|
Charge-offs |
|
(294,624 |
) |
(553,768 |
) |
(318,557 |
) |
|
Recoveries |
|
60,244 |
|
64,437 |
|
61,970 |
|
|
Balance at end of year |
|
$ |
2,893,603 |
|
2,315,870 |
|
2,565,201 |
|
31
At December 31, 2004 and 2003, impaired loans, including nonaccrual loans, aggregated $1.1 million and $1.2 million, respectively. The net amount of interest income recorded on such loans during their impairment periods was not significant. There were no loans 90 days delinquent and still accruing interest at December 31, 2004 and 2003. Average impaired loans were $1.5 million for 2004 and $1.1 million for 2003. Specific reserves related to these impaired loans at December 31, 2004 and 2003, were not significant.
The Company serviced loans for others with outstanding principal balances of $111.1 million and $107.2 million at December 31, 2004 and 2003, respectively. Gross service fee income related to such loans was $277,000, $274,000, and $253,000 for the years ended December 31, 2004, 2003, and 2002, respectively.
The following is an analysis of the changes in mortgage servicing rights:
|
|
Years ended December 31, |
|
|||||
|
|
2004 |
|
2003 |
|
2002 |
|
|
Balance at beginning of year |
|
$ |
477,350 |
|
525,311 |
|
524,247 |
|
Additions |
|
150,058 |
|
254,390 |
|
251,362 |
|
|
Amortization |
|
(181,076 |
) |
(302,351 |
) |
(250,298 |
) |
|
Balance at end of year |
|
$ |
446,332 |
|
477,350 |
|
525,311 |
|
The Company had loans to directors and officers at December 31, 2004, which carry terms similar to those for other loans. Management believes such outstanding loans do not represent more than a normal risk of collection. A summary of such loans is as follows:
Balance at December 31, 2003 |
|
$ |
5,823,718 |
|
New loans |
|
3,682,627 |
|
|
Repayments |
|
(3,937,248 |
) |
|
Balance at December 31, 2004 |
|
$ |
5,569,097 |
|
(5) Premises and Equipment
Premises and equipment consisted of the following:
|
|
December 31,
|
|
December 31,
|
|
|
Land |
|
$ |
1,306,023 |
|
651,778 |
|
Work in progress |
|
179,620 |
|
|
|
|
Office buildings and improvements |
|
5,498,984 |
|
4,286,586 |
|
|
Furniture and equipment |
|
4,304,450 |
|
3,661,110 |
|
|
Automobiles |
|
258,855 |
|
203,683 |
|
|
Total |
|
11,547,932 |
|
8,803,157 |
|
|
Less accumulated depreciation |
|
5,683,674 |
|
5,172,055 |
|
|
Total |
|
$ |
5,864,258 |
|
3,631,102 |
|
The Company has multi-year operating lease agreements for several of its branch locations. The following is the Companys minimum lease commitments for the years ending December 31:
Year |
|
Amount |
|
|
2005 |
|
$ |
78,449 |
|
2006 |
|
51,816 |
|
|
2007 |
|
51,816 |
|
|
2008 |
|
51,816 |
|
|
2009 |
|
51,816 |
|
|
Total |
|
$ |
285,713 |
|
Total rent expense for the years ended December 31, 2004, 2003 and 2002 was $125,000, $117,000 and $69,000, respectively, and was included in occupancy and equipment on the consolidated statements of earnings.
32
(6) Deposits
Maturities of time deposits were as follows at December 31, 2004:
Year |
|
Amount |
|
|
2005 |
|
$ |
117,568,019 |
|
2006 |
|
22,019,000 |
|
|
2007 |
|
8,703,000 |
|
|
2008 |
|
3,813,000 |
|
|
2009 |
|
2,177,000 |
|
|
Thereafter |
|
209,902 |
|
|
Total |
|
$ |
154,489,921 |
|
Regulations of the Federal Reserve System require reserves to be maintained by all banking institutions according to the types and amounts of certain deposit liabilities. These requirements restrict a portion of the amounts shown as consolidated cash and due from banks from everyday usage in operation of the banks. The minimum reserve requirements for the Bank totaled $25,000 at December 31, 2004.
(7) Federal Home Loan Bank Borrowings
Advances from the FHLB at December 31, 2004 and 2003, amounted to $77,553,321 and $23,057,104, respectively. Maturities of such borrowings at December 31, 2004, are summarized as follows:
Year ending December 31: |
|
Amount |
|
Rates |
|
||
2005 |
|
$ |
10,000,000 |
|
6.02%6.18% |
|
|
2006 |
|
1,000,000 |
|
5.5%5.62% |
|
||
2007 |
|
|
|
|
|
||
2008 |
|
4,000,000 |
|
2.11%4.74% |
|
||
2009 |
|
38,319,791 |
|
4.44%5.77% |
|
||
Thereafter |
|
24,233,530 |
|
4.44%6.37% |
|
||
Total |
|
$ |
77,553,321 |
|
|
|
|
Additionally, the Bank also has a line of credit, renewable annually each September, with the FHLB under which there were outstanding borrowings of $3.5 million and $2.2 million at December 31, 2004 and 2003, respectively. Interest on any outstanding balances on the line of credit accrues at the federal funds rate plus 0.15% (2.47% at December 31, 2004).
Included in the table above is a $2.0 million advance with the FHLB which has a variable rate, adjustable quarterly, and matures in 2008 with no prepayment penalties. All of the Banks remaining advances with the FHLB have fixed rates and prepayment penalties. However, certain borrowings contain a convertible provision at which date the FHLB may exercise an option to convert the borrowing to a variable rate equal to the FHLB one month short-term advance rate. The Bank would then have the option to prepay the advances without penalty. Interest would adjust monthly upon conversion. The Bank may refinance the advance at each respective conversion date if the FHLB first exercises its option to convert the fixed-rate borrowing.
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 December 31, 2004, the Banks total borrowing capacity with the FHLB was approximately $105.9 million.
33
(8) Other Borrowings
In 2003, the Company issued $8.2 million of subordinated debentures. These debentures, which are due in 2034 and are redeemable beginning in 2009, were issued to a wholly owned grantor trust (the Trust) formed to issue preferred securities representing undivided beneficial interests in the assets of the Trust. The Trust then invested the gross proceeds of such preferred securities in the debentures. The Trusts preferred securities and the subordinated debentures require quarterly interest payments and have variable rates, adjustable quarterly. After the first quarter of 2004, interest has accrued at LIBOR plus 2.85%. The interest rates at December 31, 2004 and 2003, were 5.01% and 1.17%, respectively. While the Trust is accounted for as an unconsolidated equity investment under the requirements of Financial Accounting Interpretation No. 46R, Consolidation of Variable Interest Entities, a portion of the trust preferred securities issued by the Trust qualifies as Tier 1 Capital for regulatory purposes.
During the first quarter of 2004, the Company obtained $9.0 million in loan commitments from an unrelated financial institution. On April 1, 2004, the Company borrowed $7.0 million against these commitments to consummate the acquisition of First Kansas. The $9.0 million commitment was comprised of a $6.0 million line of credit and a $3.0 million loan, both of which mature on March 31, 2009 with an interest rate adjusting daily based on the prime rate less 0.50%. The balance of the line of credit at December 31, 2004, was $2.0 million and is included in other borrowings. The remaining unused balance on this line of credit at December 31, 2004, was $3.6 million.
At December 31, 2004, the Company had an interest rate swap in place effectively fixing the interest rate on $3.0 million of the variable rate debt to a rate of 5.68%. This contract expires on March 31, 2009, however, the Company maintains a put option on the swap whereby they can settle the outstanding balance of the swap. During 2004, this agreement resulted in additional interest expense of $39,000. The Company has applied cash flow hedge accounting to the swap agreement, and therefore, its fair value, aggregating $58,000, is recorded as a component of other assets in the accompanying balance sheet. Also, included in accumulated other comprehensive income is approximately $36,000 related to the swap at December 31, 2004.
Additionally, the Bank had $250,000 in repurchase agreements outstanding and included in other borrowings at December 31, 2004 and 2003.
(9) Income Taxes
Income tax expense attributable to income from operations consisted of:
Total income tax expense, including amounts allocated directly to stockholders equity, was as follows:
|
|
Years ended December 31, |
|
|||||
|
|
2004 |
|
2003 |
|
2002 |
|
|
Income from operations |
|
$ |
2,010,225 |
|
2,275,469 |
|
2,362,739 |
|
Stockholders equity, recognition of tax benefit for stock options exercised |
|
(135,511 |
) |
(241,775 |
) |
(313,383 |
) |
|
Stockholders equity, recognition of unrealized (losses)/gains on available-for-sale securities and interest rate swap |
|
(393,994 |
) |
(675,442 |
) |
904,542 |
|
|
|
|
$ |
1,480,720 |
|
1,358,252 |
|
2,953,898 |
|
34
The reasons for the difference between actual income tax expense and expected income tax expense attributable to income from operations at the 34% statutory federal income tax rate were as follows:
|
|
Years ended December 31, |
|
|||||
|
|
2004 |
|
2003 |
|
2002 |
|
|
Computed expected tax expense |
|
$ |
2,128,734 |
|
2,423,236 |
|
2,359,822 |
|
Increase (reduction) in income taxes resulting from: |
|
|
|
|
|
|
|
|
Tax-exempt interest income, net |
|
(189,782 |
) |
(156,473 |
) |
(162,637 |
) |
|
Contributions to employee stock ownership plan |
|
|
|
28,129 |
|
51,375 |
|
|
State income taxes, not of federal benefit |
|
182,496 |
|
186,586 |
|
196,483 |
|
|
Investment tax credits |
|
(75,000 |
) |
(125,000 |
) |
(42,000 |
) |
|
Other, net |
|
(36,223 |
) |
(81,009 |
) |
(40,304 |
) |
|
|
|
$ |
2,010,225 |
|
2,275,469 |
|
2,362,739 |
|
The tax effects of temporary differences that give rise to the significant portions of the deferred tax assets and liabilities at the following dates were as follows:
|
|
December 31,
|
|
December 31,
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
Carrying value of FHLB advances |
|
$ |
1,881,218 |
|
|
|
Carrying value of loans, including allowance for loan losses |
|
670,284 |
|
744,360 |
|
|
Net operating loss carry forwards |
|
700,824 |
|
|
|
|
Deferred compensation agreements |
|
355,624 |
|
332,082 |
|
|
State taxes |
|
86,806 |
|
47,463 |
|
|
Accrued expenses |
|
74,601 |
|
69,487 |
|
|
Total deferred tax assets |
|
3,769,357 |
|
1,193,392 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
Unrealized gain on investment securities available-for-sale and interest rate swap |
|
94,449 |
|
488,443 |
|
|
FHLB stock dividends |
|
590,392 |
|
353,816 |
|
|
Carrying value of investments |
|
261,045 |
|
53,386 |
|
|
Carrying value of intangible assets |
|
211,245 |
|
|
|
|
Carrying value of premises and equipment, net of depreciation |
|
182,194 |
|
103,940 |
|
|
Other, net |
|
3,731 |
|
43,856 |
|
|
Total deferred tax liabilities |
|
1,343,056 |
|
1,043,441 |
|
|
Net deferred tax asset |
|
$ |
2,426,301 |
|
149,951 |
|
The Company has recorded deferred taxes for temporary differences related to loans, investment securities, deposits, and borrowings of First Kansas at the date of acquisition. In addition, the Company has also recorded a deferred tax asset for the future benefit of First Kansas net operating loss and alternative minimum tax credit carry forwards. The net operating loss carry forwards will expire, if not utilized, between 2014 and 2024. The alternative minimum tax credit carry forward does not expire. A valuation allowance related to deferred tax assets has not been provided because management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.
Retained earnings at December 31, 2004 and 2003, included approximately $6.3 million and $5.6 million, respectively, for which no provision for federal income tax had been made. This amount represents allocations of income to bad debt deductions in years prior to 1988 for tax purposes only. Reduction of amounts allocated for purposes other than tax bad debt losses will create income for tax purposes only, which will be subject to the then current corporate income tax rate.
35
(10) Employee Benefit Plans
Employee Retirement Plan
Substantially all employees are covered under 401(k) defined contribution savings plans. Contributions of $104,000, $78,000 and $91,000 were charged to operations for the years ended December 31, 2004, 2003, and 2002, respectively.
Deferred Compensation and Retirement Agreements
The Company entered into deferred compensation and retirement agreements with certain key employees that provided for cash payments to be made after their retirement. The liabilities under these arrangements have been recorded at the present values of accrued benefits using a 2% discount rate. The Company has also entered into agreements with certain directors and officers to defer portions of their compensation. The balance of estimated accrued benefits under all of these arrangements was $993,000 and $977,000 at December 31, 2004 and 2003, respectively, and was included as a component of other liabilities in the accompanying balance sheets. To assist in funding benefits under each of these plans, the Bank has purchased certain assets including life insurance policies on covered employees in which the Bank is the beneficiary. At December 31, 2004 and 2003, the cash surrender values on the policies and other assets were $3.0 million and $1.2 million, respectively, and were included in other assets in the accompanying consolidated balance sheets.
Employee Stock Ownership Plan (ESOP)
The Company established an ESOP in connection with its formation in 1994. The original acquisition of stock by the plan was funded by a loan from the Company to the ESOP. The loan, together with interest, was repaid over a ten-year period through annual contributions by the Bank. The Bank made annual contributions to the ESOP equal to the ESOPs debt service less dividends received by the ESOP. All dividends received by the ESOP were used to pay debt service. The ESOP shares initially were pledged as collateral for its debt. As the debt was repaid, shares were released from the collateral and allocated to active employees based on the proportion of debt service paid in each year.
The Company and the Bank account for the ESOP shares in accordance with AICPA Statement of Position No. 93-6. Accordingly, the ESOP indebtedness of $344,000 at December 31, 2001, is shown as a deduction from stockholders equity. The note was fully repaid in 2003. As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as compensation expense. All shares were fully allocated at December 31, 2003. ESOP compensation expense was $70,000 and $267,000 for the years ended December 31, 2003, and 2002, respectively.
(11) Stock Option Plan
The Company has a stock option plan, the purpose of which is to provide additional incentive to certain officers, directors, and key employees by facilitating their purchase of a stock interest in the Company. The plan is administered by the board of directors who will select employees to whom options are granted and the number of shares granted. The option price may not be less than 100% of the fair market value of the shares on the date of the grant, and no option shall be exercisable after the expiration of ten years from the grant date. In the case of any employee who owns more than 10% of the outstanding common stock at the time the option is granted, the option price may not be less than 110% of the fair market value of the shares on the date of the grant, and the option shall not be exercisable after the expiration of ten years from the grant date. Options outstanding at December 31, 2004, were exercisable at prices ranging from $12.54 to $28.71.
The Company records the fair value of options issued under the plan as expense in accordance with SFAS No. 123, Accounting for Stock Based Compensation. The compensation cost that has been charged to compensation and benefits expense for the plan was $108,000, $1,700 and $4,300 for the years ended December 31, 2004, 2003, and 2002, respectively. The fair value of each option grant is estimated on the date of grant. The fair value of options granted in 2004 were estimated utilizing the following assumptions: dividend rate of 4.8%, volatility of 19.0%, risk-free interest rate of 3.2%, and expected lives of five years, resulting in a fair value of $3.14 per option at grant date. The fair value of options granted in 2002 were estimated utilizing the following assumptions: dividend of 4.7%, volatility of 20.8%, risk-free interest rate of 4.5%, and expected lives of five years, resulting in a fair value of $3.03 per option at grant date. There were no options granted in 2003.
36
Certain information relative to stock options is as follows:
|
|
Year
ended
|
|
Year
ended
|
|
Year
ended
|
|
|||||||||
|
|
Shares |
|
Weighted
|
|
Shares |
|
Weighted
|
|
Shares |
|
Weighted
|
|
|||
Outstanding at beginning of year |
|
61,366 |
|
$ |
13.17 |
|
109,274 |
|
$ |
11.97 |
|
179,781 |
|
$ |
11.48 |
|
Granted |
|
87,996 |
|
29.20 |
|
|
|
|
|
2,625 |
|
16.78 |
|
|||
Effect of 5% stock dividend |
|
6,336 |
|
|
|
3,289 |
|
|
|
5,202 |
|
|
|
|||
Expired |
|
|
|
|
|
(1,255 |
) |
16.76 |
|
(3,150 |
) |
22.14 |
|
|||
Exercised |
|
(24,411 |
) |
9.08 |
|
(49,942 |
) |
9.60 |
|
(75,184 |
) |
9.59 |
|
|||
Outstanding at end of year |
|
131,287 |
|
$ |
24.04 |
|
61,366 |
|
$ |
13.17 |
|
109,274 |
|
$ |
11.97 |
|
Exercisable at end of year |
|
37,921 |
|
$ |
15.07 |
|
59,977 |
|
$ |
13.10 |
|
107,510 |
|
$ |
11.89 |
|
Weighted-average contractual remaining life in years |
|
|
|
7.98 |
|
|
|
3.94 |
|
|
|
3.54 |
|
The number of shares available for future grants at December 31, 2004 was 264,604.
( 12) Fair Value of Financial Instruments
Fair value estimates of the Companys financial instruments as of December 31, 2004 and 2003, including methods and assumptions utilized, are set forth below:
|
|
December 31, 2004 |
|
December 31, 2003 |
|
|||||
|
|
Carrying
|
|
Estimated
|
|
Carrying
|
|
Estimated
|
|
|
Cash and cash equivalents |
|
$ |
7,845,438 |
|
7,845,000 |
|
7,708,115 |
|
7,708,000 |
|
Investment securities |
|
$ |
133,604,335 |
|
133,604,000 |
|
99,746,365 |
|
99,746,000 |
|
Loans, net of unearned fees and allowances for loan losses |
|
$ |
277,413,963 |
|
274,823,000 |
|
214,295,940 |
|
215,802,000 |
|
Loans held for sale |
|
$ |
846,003 |
|
862,000 |
|
734,456 |
|
750,000 |
|
Non-interest bearing demand deposits |
|
$ |
28,549,224 |
|
28,549,000 |
|
20,538,514 |
|
20,539,000 |
|
Money market and NOW deposits |
|
96,607,511 |
|
96,608,000 |
|
76,990,610 |
|
76,991,000 |
|
|
Savings deposits |
|
23,221,065 |
|
23,221,000 |
|
14,801,950 |
|
14,802,000 |
|
|
Time deposits |
|
154,489,921 |
|
154,870,000 |
|
140,777,146 |
|
141,819,000 |
|
|
Total deposits |
|
$ |
302,867,721 |
|
303,248,000 |
|
253,108,220 |
|
254,151,000 |
|
FHLB advances |
|
$ |
81,053,321 |
|
79,963,000 |
|
25,257,104 |
|
26,745,000 |
|
Other borrowings |
|
$ |
13,518,000 |
|
13,518,000 |
|
8,498,000 |
|
8,498,000 |
|
Off-Balance Sheet Financial Instruments
The fair value of letters of credit and commitments to extend credit is based on the fees currently charged to enter into similar agreements. The aggregate of these fees is not material. These instruments are also discussed in note 17 on Commitments, Contingencies and Guarantees.
Methods and Assumptions Utilized
The carrying amount of cash and cash equivalents, repurchase agreements, federal funds sold, and accrued interest receivable and payable are considered to approximate fair value.
The estimated fair value of investment securities, except certain obligations of states and political subdivisions, is based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of certain obligations of states and political subdivisions is not readily available through market sources other than dealer quotations, so fair value estimates are based upon quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued.
37
The estimated fair value of the Companys loan portfolio is based on the segregation of loans by collateral type, interest terms, and maturities. In estimating the fair value of each category of loans, the carrying amount of the loan is reduced by an allocation of the allowance for loan losses. Such allocation is based on managements loan classification system which is designed to measure the credit risk inherent in each classification category. The estimated fair value of performing variable rate loans is the carrying value of such loans, reduced by an allocation of the allowance for loan losses. The estimated fair value of performing fixed rate loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the interest rate risk inherent in the loan, reduced by an allocation of the allowance for loan losses. The estimate of maturity is based on the Companys historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions. The fair value for nonperforming loans is the estimated fair value of the underlying collateral based on recent external appraisals or other available information, which generally approximates carrying value, reduced by an allocation of the allowance for loan losses.
The fair value of loans held for sale is estimated utilizing forward sales commitments or dealer quotations.
The estimated fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, money market accounts, and NOW accounts, is equal to the amount payable on demand. The fair value of interest-bearing time deposits is based on the discounted value of contractual cash flows of such deposits. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.
The fair value of advances from the FHLB is estimated using current rates offered for similar borrowings. The fair values of other variable rate borrowings approximate the carrying value.
Limitations
Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Companys entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Companys financial instruments, fair value estimates are based on judgments regarding future loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
(13) Regulatory Capital Requirements
Current regulatory capital regulations require financial institutions to meet certain regulatory capital requirements. Institutions are required to have minimum leverage capital equal to 4% of total average assets and total qualifying capital equal to 8% of total risk-weighted assets in order to be considered adequately capitalized. As of December 31, 2004 and 2003, the Company and the Bank were rated well capitalized, which is the highest rating available under this capital-based rating system. Management believes that as of December 31, 2004, the Company and the Bank meet all capital adequacy requirements to which they are subject. The following is a comparison of the Banks regulatory capital to minimum capital requirements at December 31, 2004 and 2003, (dollars in thousands):
|
|
Actual |
|
For
capital
|
|
To be
well -
|
|
|||||||||
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|||
As of December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total capital (to risk weighted assets) |
|
$ |
48,700 |
|
18 |
% |
$ |
> 21,673 |
|
> 8 |
% |
$ |
> 27,091 |
|
> 10 |
% |
Tier 1 capital (to risk weighted assets) |
|
45,806 |
|
17 |
|
> 10,836 |
|
> 4 |
|
> 16,255 |
|
> 6 |
|
|||
Tier 1 capital (to average assets) |
|
45,806 |
|
10 |
|
> 17,624 |
|
> 4 |
|
> 22,030 |
|
> 5 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
As of December 31, 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total capital (to risk weighted assets) |
|
$ |
37,091 |
|
17 |
% |
$ |
> 17,029 |
|
> 8 |
% |
$ |
> 21,286 |
|
> 10 |
% |
Tier 1 capital (to risk weighted assets) |
|
34,775 |
|
16 |
|
> 8,514 |
|
> 4 |
|
> 12,772 |
|
> 6 |
|
|||
Tier 1 capital (to average assets) |
|
34,775 |
|
10 |
|
> 13,223 |
|
> 4 |
|
> 16,528 |
|
> 5 |
|
38
The following is a comparison of the Companys regulatory capital to minimum capital requirements at December 31, 2004, and 2003 (dollars in thousands):
|
|
Actual |
|
For
capital
|
|
To be
well-
|
|
|||||||||
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|||
As of December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total capital (to risk weighted assets) |
|
$ |
44,567 |
|
16 |
% |
$ |
> 21,716 |
|
> 8 |
% |
$ |
> 27,146 |
|
> 10 |
% |
Tier 1 capital (to risk weighted assets) |
|
41,673 |
|
15 |
|
> 10,858 |
|
> 4 |
|
> 16,287 |
|
> 6 |
|
|||
Tier 1 capital (to average assets) |
|
41,673 |
|
9 |
|
> 17,714 |
|
> 4 |
|
> 22,143 |
|
> 5 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
As of December 31, 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total capital (to risk weighted assets) |
|
$ |
49,838 |
|
23 |
% |
$ |
> 17,097 |
|
> 8 |
% |
$ |
> 21,371 |
|
> 10 |
% |
Tier 1 capital (to risk weighted assets) |
|
47,522 |
|
22 |
|
> 8,548 |
|
> 4 |
|
> 12,823 |
|
> 6 |
|
|||
Tier 1 capital (to average assets) |
|
47,522 |
|
14 |
|
> 13,273 |
|
> 4 |
|
> 16,591 |
|
> 5 |
|
(14) Parent Company Condensed Financial Statements
The following is condensed financial information of the parent company as of December 31, 2004 and 2003, and for years ended December 31, 2004, 2003 and 2002 (dollars in thousands):
Condensed Balance Sheets
|
|
December 31,
|
|
December 31,
|
|
|
Assets |
|
|
|
|
|
|
Cash |
|
$ |
40 |
|
10,162 |
|
Investment securities |
|
1,065 |
|
1,109 |
|
|
Investment in Bank |
|
54,261 |
|
37,834 |
|
|
Other |
|
571 |
|
1,732 |
|
|
Total assets |
|
$ |
55,937 |
|
50,837 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
Borrowed funds |
|
$ |
13,268 |
|
8,248 |
|
Other |
|
500 |
|
17 |
|
|
Stockholders equity |
|
42,169 |
|
42,572 |
|
|
Total liabilities and stockholders equity |
|
$ |
55,937 |
|
50,837 |
|
Condensed Statements of Earnings
|
|
Years ended December 31, |
|
|||||
|
|
2004 |
|
2003 |
|
2002 |
|
|
Dividends from Bank |
|
$ |
5,105 |
|
3,424 |
|
2,649 |
|
Interest income |
|
70 |
|
75 |
|
90 |
|
|
Other income |
|
316 |
|
559 |
|
131 |
|
|
Interest expense |
|
(542 |
) |
(4 |
) |
|
|
|
Other expense, net |
|
(196 |
) |
(198 |
) |
(167 |
) |
|
Earnings before equity in undistributed earnings of Bank |
|
4,753 |
|
3,856 |
|
2,703 |
|
|
(Decrease)/increase in undistributed equity of Bank |
|
(625 |
) |
1,097 |
|
1,881 |
|
|
Earnings before income taxes |
|
4,128 |
|
4,953 |
|
4,584 |
|
|
Income tax (benefit)/expense |
|
(123 |
) |
101 |
|
6 |
|
|
Net earnings |
|
$ |
4,251 |
|
4,852 |
|
4,578 |
|
39
Condensed Statements of Cash Flows
|
|
Years ended December 31, |
|
|||||
|
|
2004 |
|
2003 |
|
2002 |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
4,251 |
|
4,852 |
|
4,578 |
|
(Decrease)/increase in undistributed equity of Bank |
|
625 |
|
(1,097 |
) |
(1,881 |
) |
|
Other |
|
1,364 |
|
(1,789 |
) |
193 |
|
|
Net cash provided by operating activities |
|
6,240 |
|
1,966 |
|
2,890 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of investment securities available-for-sale |
|
(551 |
) |
|
|
|
|
|
Proceeds from sales and maturities of investment securities available-for-sale |
|
926 |
|
1,252 |
|
287 |
|
|
Cash paid in acquisition of First Kansas |
|
(17,502 |
) |
|
|
|
|
|
Net cash provided by/(used in) investing activities |
|
(17,127 |
) |
1,252 |
|
287 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Issuance of shares under stock option plan |
|
221 |
|
479 |
|
733 |
|
|
Proceeds from other borrowings |
|
9,555 |
|
8,248 |
|
|
|
|
Repayments on other borrowings |
|
(4,535 |
) |
|
|
|
|
|
Purchase of treasury stock |
|
(3,055 |
) |
(1,871 |
) |
(5,345 |
) |
|
Payment of dividends |
|
(1,421 |
) |
(1,331 |
) |
(1,240 |
) |
|
Net cash provided by /(used in) financing activities |
|
765 |
|
5,525 |
|
(5,852 |
) |
|
Net (decrease)/increase in cash |
|
(10,122 |
) |
8,743 |
|
(2,675 |
) |
|
|
|
|
|
|
|
|
|
|
Cash at beginning of year |
|
10,162 |
|
1,419 |
|
4,094 |
|
|
Cash at end of year |
|
$ |
40 |
|
10,162 |
|
1,419 |
|
Dividends paid by the Company are provided through subsidiary bank dividends. At December 31, 2004, the Bank could distribute dividends of up to $2.3 million without regulatory approvals.
(15) Stockholders Rights Plan
On October 11, 2001, the Companys board of directors adopted a stockholders rights plan (the Rights Plan). The Rights Plan provided for the distribution of one right on February 13, 2002, for each share of the Companys outstanding common stock as of February 1, 2002. The rights have no immediate economic value to stockholders because they cannot be exercised unless and until a person, group or entity acquires 15% or more of the Companys common stock or announces a tender offer. The Rights Plan also permits the Companys board of directors to redeem each right for one cent under various circumstances. In general, the Rights Plan provides that if a person, group or entity acquires a 15% or larger stake in the Company or announces a tender offer, and the Companys board of directors chooses not to redeem the rights, all holders of rights, other than the 15% stockholder or the tender offeror, will be able to purchase a certain amount of the Companys common stock for half of its market price.
(16) Intangible Assets
The following table presents information about the Companys intangible assets:
|
|
December 31, 2004 |
|
December 31, 2003 |
|
|||||
|
|
Gross
|
|
Accumulated
|
|
Gross
|
|
Accumulated
|
|
|
Amortizing intangible assets: |
|
|
|
|
|
|
|
|
|
|
Core deposit premium |
|
$ |
1,385,000 |
|
(491,501 |
) |
780,000 |
|
(297,818 |
) |
Mortgage servicing rights |
|
766,891 |
|
(320,559 |
) |
727,158 |
|
(249,808 |
) |
|
Total |
|
$ |
2,151,891 |
|
(812,060 |
) |
1,507,158 |
|
(547,626 |
) |
40
Aggregate amortization expense for the years ended December 31, 2004, 2003 and 2002, was $375,000, $426,000 and $389,000, respectively. The following is estimated amortization expense for the years ending December 31:
Year |
|
Amount |
|
|
2005 |
|
$ |
377,000 |
|
2006 |
|
352,000 |
|
|
2007 |
|
233,000 |
|
|
2008 |
|
122,000 |
|
|
2009 |
|
97,000 |
|
|
(17) Commitments, Contingencies and Guarantees
Commitments to extend
credit are legally binding agreements to lend to a borrower providing there are
no violations of any conditions established in the contract. The Company, as a
provider of financial services, routinely issues financial guarantees in the
form of financial and performance commercial and standby letters of credit. As
many of the commitments are expected to expire without being drawn upon, the
total commitment does not necessarily represent future cash requirements (see
Note 4).
The Company guarantees payments to holders of certain trust preferred securities issued by a wholly owned grantor trust. The securities are due in 2034 and are redeemable beginning in 2009. The maximum potential future payments guaranteed by the Company, which includes future interest and principal payments through maturity, was approximately $21.9 million at December 31, 2004. At December 31, 2004, the Company had a recorded liability of $8.3 million of principal and accrued interest to date, representing amounts owed to the Trust.
There are no pending legal proceedings to which the Company or the Bank is a party other than ordinary routine litigation incidental to the Banks business. While the ultimate outcome of current legal proceedings cannot be predicted with certainty, it is the opinion of management that the resolution of these legal actions should not have a material effect on the Companys consolidated financial position or results of operations.
41
Directors Of landmark Bancorp, Inc. and Landmark National Bank |
|
Larry Schugart, Chairman |
Former President and Chief Executive Officer |
Landmark Bancshares, Inc. |
|
Patrick L. Alexander |
President and Chief Executive Officer |
Landmark Bancorp, Inc. and Landmark National Bank |
|
Richard A. Ball |
CPA |
Adams, Brown, Beran & Ball, Chtd. |
|
Brent A. Bowman |
President |
Brent Bowman and |
Associates Architects, P.A. |
|
Joseph L. Downey |
Retired Senior Vice President, Director and Executive Officer |
Dow Chemical Company |
|
Jim W. Lewis |
Owner, Various Automobile Dealerships |
|
Jerry R. Pettle |
Retired Dentist |
Dental Associates of Manhattan, P.A. |
|
Susan E. Roepke |
Retired Vice President, Secretary and Treasurer, |
MNB Bancshares, Inc. |
Retired Senior Vice President/Secretary/Cashier, |
Security National Bank |
|
C. Duane Ross |
President |
High Plains Publishers, Inc. |
|
David H. Snapp |
Law Partner |
Waite, Snapp & Doll |
Executive Officers Of
|
|
Patrick L. Alexander |
President and Chief Executive Officer |
|
Mark A. Herpich |
Chief Financial Officer, Vice President, Secretary and |
Treasurer |
|
Executive officers Of
|
|
Patrick L. Alexander |
President and Chief Executive Officer |
|
Mark A. Herpich |
Executive Vice President, Secretary and Cashier |
|
Michael E. Scheopner |
Executive Vice President, Credit Risk Manager |
|
Mark J. Oliphant |
Market President - Dodge City |
|
Dean R. Thibault |
Market President - Manhattan |
42
Stock Price Information
Our common stock has traded on the Nasdaq National Market System under the symbol LARK since 2001. At December 31, 2004, the Company had approximately 1,090 stockholders, consisting of approximately 450 owners of record and approximately 640 beneficial owners of our common stock. Set forth below are the reported high and low bid prices of the common stock and dividends paid during the past two years. Information presented below has been restated to give effect to the 5% stock dividends paid in December 2004 and 2003.
Year Ended December 31, 2004
|
|
High |
|
Low |
|
Cash
|
|
|||
First Quarter |
|
$ |
29.26 |
|
$ |
25.90 |
|
$ |
0.1619 |
|
Second Quarter |
|
29.86 |
|
26.67 |
|
0.1619 |
|
|||
Third Quarter |
|
29.86 |
|
26.50 |
|
0.1619 |
|
|||
Fourth Quarter |
|
29.54 |
|
26.96 |
|
0.1619 |
|
|||
Year Ended December 31, 2003
|
|
High |
|
Low |
|
Cash
|
|
|||
First Quarter |
|
$ |
22.04 |
|
$ |
21.00 |
|
$ |
0.1451 |
|
Second Quarter |
|
25.17 |
|
21.54 |
|
0.1451 |
|
|||
Third Quarter |
|
26.24 |
|
22.40 |
|
0.1542 |
|
|||
Fourth Quarter |
|
26.56 |
|
22.28 |
|
0.1542 |
|
|||
Corporate Headquarters
800 Poyntz Avenue
Manhattan, Kansas 66502
Annual Meeting
The annual meeting of stockholders will be held at the Kansas State University Alumni Center, 17th and Anderson Avenue, Manhattan, Kansas, on Wednesday, May 18, 2005 at 2:00 PM.
Form 10-K
A copy of the Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) may be obtained by stockholders without charge on written request to Patrick L. Alexander, President and Chief Executive Officer, Landmark Bancorp, Inc., P.O. Box 308, Manhattan, Kansas 66505-0308, or by accessing our website at www.landmarkbancorpinc.com or the SECs website at www.sec.gov.
Registrar and Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
Independent Registered
Public Accounting Firm
KPMG LLP
1000 Walnut, Suite 1000
Kansas City, Missouri 64199
43
Mission Statement
We are dedicated to providing quality financial services to customers in a manner that exceeds customer expectations. These services will be delivered by outgoing, professional, and knowledgeable associates that are focused on asking for the business and establishing long-term banking relationships. These banking relationships will have a foundation of personal service and quality products that are delivered in a convenient manner that meet our customers needs at a fair and competitive price.
44
EXHIBIT 21.1
SUBSIDIARIES OF LANDMARK BANCORP, INC.
The only significant subsidiary of the Company is Landmark National Bank, a national banking association with its main office located in Manhattan, Kansas, and with branch offices located in Auburn, Dodge City (2), Garden City, Great Bend, Hoisington, LaCrosse, Manhattan, Osage City, Topeka and Wamego, Kansas. The Company also owns all of the common securities of Landmark Capital Trust I, which was formed to issue trust preferred securities in a private placement. .
1
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors |
Landmark Bancorp, Inc.: |
We consent to incorporation by reference in the Registration Statement No. 333-103091 on Form S-8 of Landmark Bancorp, Inc. of our report dated March 17, 2005, relating to the consolidated balance sheets of Landmark Bancorp, Inc. as of December 31, 2004 and 2003 and the related consolidated statements of earnings, stockholders equity and comprehensive income, and cash flows for each of the years in the three year period ended December 31, 2004, which report appears in the December 31, 2004 annual report on Form 10-K of Landmark Bancorp, Inc.
/s/ KPMG LLP |
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|
|
|
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Kansas City, Missouri |
|
March 28, 2005 |
1
Exhibit 31.1
CERTIFICATION
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Patrick L. Alexander, certify that:
1. I have reviewed this annual report on Form 10-K of Landmark Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [intentionally omitted]
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: March 30, 2005 |
/s/ Patrick L. Alexander |
|
|
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Patrick L. Alexander |
|
|
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Chief Executive Officer |
|
|
1
Exhibit 31.2
CERTIFICATION
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark A. Herpich, certify that:
1. I have reviewed this annual report on Form 10-K of Landmark Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [intentionally omitted]
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: March 30, 2005 |
/s/ Mark A. Herpich |
|
|
|
Mark A. Herpich |
|
|
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Chief Financial Officer |
|
|
1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Landmark Bancorp, Inc. (the Company) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Patrick L. Alexander, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Patrick L. Alexander |
|
Patrick L. Alexander |
|
Chief Executive Officer |
|
March 30, 2005 |
1
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Landmark Bancorp, Inc. (the Company) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Mark A. Herpich, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Mark A. Herpich |
|
Mark A. Herpich |
|
Chief Financial Officer |
|
March 30, 2005 |
1