UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-33203
LANDMARK BANCORP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 43-1930755 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
701 Poyntz Avenue, Manhattan, Kansas 66502
(Address of principal executive offices) (Zip code)
(785) 565-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol(s) | Name of exchange on which registered: | ||
| Common Stock, par value $0.01 per share | LARK | Nasdaq Global Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: as of November 11, 2021, the issuer had outstanding 4,759,890 shares of its common stock, $0.01 par value per share.
LANDMARK BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
| Page Number | ||
| PART I | ||
| Item 1. | Financial Statements | 2 - 25 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 – 35 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 36 |
| Item 4. | Controls and Procedures | 37 |
| PART II | ||
| Item 1. | Legal Proceedings | 38 |
| Item 1A. | Risk Factors | 38 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 38 |
| Item 3. | Defaults Upon Senior Securities | 38 |
| Item 4. | Mine Safety Disclosures | 38 |
| Item 5. | Other Information | 38 |
| Item 6. | Exhibits | 38 |
| Signature Page | 39 | |
| 1 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| (Dollars in thousands, except per share amounts) | September 30, | December 31, | ||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 117,314 | $ | 84,818 | ||||
| Investment securities available-for-sale, at fair value | 378,518 | 297,270 | ||||||
| Bank stocks, at cost | 2,985 | 4,473 | ||||||
| Loans, net of allowance for loans losses of $8,766 at September 30, 2021 and $8,775 at December 31, 2020 | 656,908 | 702,782 | ||||||
| Loans held for sale, at fair value | 8,929 | 15,533 | ||||||
| Bank owned life insurance | 31,914 | 25,420 | ||||||
| Premises and equipment, net | 20,361 | 20,493 | ||||||
| Goodwill | 17,532 | 17,532 | ||||||
| Other intangible assets, net | 104 | 206 | ||||||
| Mortgage servicing rights | 4,201 | 3,726 | ||||||
| Real estate owned, net | 2,578 | 1,774 | ||||||
| Accrued interest and other assets | 13,190 | 14,000 | ||||||
| Total assets | $ | 1,254,534 | $ | 1,188,027 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities: | ||||||||
| Deposits: | ||||||||
| Non-interest-bearing demand | $ | 317,827 | $ | 264,878 | ||||
| Money market and checking | 488,213 | 491,275 | ||||||
| Savings | 151,380 | 126,124 | ||||||
| Certificates of deposit | 109,267 | 133,750 | ||||||
| Total deposits | 1,066,687 | 1,016,027 | ||||||
| Subordinated debentures | 21,651 | 21,651 | ||||||
| Other borrowings | 6,219 | 6,371 | ||||||
| Accrued interest, taxes, and other liabilities | 24,571 | 17,306 | ||||||
| Total liabilities | 1,119,128 | 1,061,355 | ||||||
| Commitments and contingencies | - | |||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.01 par value per share, 200,000 shares authorized; none issued | - | - | ||||||
| Common stock, $0.01 par value per share, 7,500,000 shares authorized; 4,759,636 and 4,750,838 shares issued at September 30, 2021 and December 31, 2020, respectively | 48 | 48 | ||||||
| Additional paid-in capital | 72,489 | 72,230 | ||||||
| Retained earnings | 56,957 | 44,947 | ||||||
| Accumulated other comprehensive income | 5,912 | 9,447 | ||||||
| Total stockholders’ equity | 135,406 | 126,672 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,254,534 | $ | 1,188,027 | ||||
See accompanying notes to consolidated financial statements.
| 2 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| (Dollars in thousands, except per share amounts) | September 30, | September 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Interest income: | ||||||||||||||||
| Loans | $ | 8,461 | $ | 7,998 | $ | 25,705 | $ | 22,890 | ||||||||
| Investment securities: | ||||||||||||||||
| Taxable | 782 | 945 | 2,356 | 3,335 | ||||||||||||
| Tax-exempt | 748 | 814 | 2,285 | 2,491 | ||||||||||||
| Total interest income | 9,991 | 9,757 | 30,346 | 28,716 | ||||||||||||
| Interest expense: | ||||||||||||||||
| Deposits | 258 | 354 | 800 | 1,798 | ||||||||||||
| Borrowings | 120 | 136 | 362 | 534 | ||||||||||||
| Total interest expense | 378 | 490 | 1,162 | 2,332 | ||||||||||||
| Net interest income | 9,613 | 9,267 | 29,184 | 26,384 | ||||||||||||
| Provision for loan losses | - | 1,000 | 500 | 2,600 | ||||||||||||
| Net interest income after provision for loan losses | 9,613 | 8,267 | 28,684 | 23,784 | ||||||||||||
| Non-interest income: | ||||||||||||||||
| Fees and service charges | 2,268 | 2,122 | 6,454 | 5,838 | ||||||||||||
| Gains on sales of loans, net | 2,660 | 4,944 | 8,664 | 10,961 | ||||||||||||
| Bank owned life insurance | 193 | 152 | 494 | 460 | ||||||||||||
| Gains on sales of investment securities, net | 30 | 678 | 1,138 | 2,448 | ||||||||||||
| Other | 314 | 269 | 913 | 783 | ||||||||||||
| Total non-interest income | 5,465 | 8,165 | 17,663 | 20,490 | ||||||||||||
| Non-interest expense: | ||||||||||||||||
| Compensation and benefits | 5,132 | 5,559 | 15,096 | 15,394 | ||||||||||||
| Occupancy and equipment | 1,101 | 1,106 | 3,268 | 3,248 | ||||||||||||
| Data processing | 498 | 447 | 1,491 | 1,311 | ||||||||||||
| Amortization of mortgage servicing rights and intangibles | 376 | 465 | 1,225 | 1,166 | ||||||||||||
| Professional fees | 413 | 381 | 1,236 | 1,095 | ||||||||||||
| Other | 1,923 | 1,564 | 5,390 | 4,531 | ||||||||||||
| Total non-interest expense | 9,443 | 9,522 | 27,706 | 26,745 | ||||||||||||
| Earnings before income taxes | 5,635 | 6,910 | 18,641 | 17,529 | ||||||||||||
| Income tax expense | 1,118 | 1,483 | 3,777 | 3,639 | ||||||||||||
| Net earnings | $ | 4,517 | $ | 5,427 | $ | 14,864 | $ | 13,890 | ||||||||
| Earnings per share: | ||||||||||||||||
| Basic (1) | $ | 0.95 | $ | 1.15 | $ | 3.13 | $ | 2.92 | ||||||||
| Diluted (1) | $ | 0.95 | $ | 1.14 | $ | 3.12 | $ | 2.91 | ||||||||
| Dividends per share (1) | $ | 0.20 | $ | 0.19 | $ | 0.60 | $ | 0.57 | ||||||||
| (1) | Per share amounts for the periods ended September 30, 2020 have been adjusted to give effect to the 5% stock dividend paid during December 2020. |
See accompanying notes to consolidated financial statements.
| 3 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| (Dollars in thousands) | September 30, | September 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net earnings | $ | 4,517 | $ | 5,427 | $ | 14,864 | $ | 13,890 | ||||||||
| Net unrealized holding (losses) gains on available-for-sale securities | (754 | ) | 661 | (3,544 | ) | 7,970 | ||||||||||
| Reclassification adjustment for net gains included in earnings | (30 | ) | (678 | ) | (1,138 | ) | (2,448 | ) | ||||||||
| Net unrealized (losses) gains | (784 | ) | (17 | ) | (4,682 | ) | 5,522 | |||||||||
| Income tax effect on net gains included in earnings | 8 | 166 | 279 | 600 | ||||||||||||
| Income tax effect on net unrealized holding (losses) gains | 184 | (162 | ) | 868 | (1,953 | ) | ||||||||||
| Other comprehensive (loss) income | (592 | ) | (13 | ) | (3,535 | ) | 4,169 | |||||||||
| Total comprehensive income | $ | 3,925 | $ | 5,414 | $ | 11,329 | $ | 18,059 | ||||||||
See accompanying notes to consolidated financial statements.
| 4 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| (Dollars in thousands, except per share amounts) | Common stock | Additional paid-in capital | Retained earnings | Treasury stock | Accumulated other comprehensive income | Total | ||||||||||||||||||
| Balance at July 1, 2020 | $ | 46 | $ | 69,224 | $ | 40,938 | $ | (2,349 | ) | $ | 9,421 | $ | 117,280 | |||||||||||
| Net earnings | - | - | 5,427 | - | - | 5,427 | ||||||||||||||||||
| Other comprehensive loss | - | - | - | - | (13 | ) | (13 | ) | ||||||||||||||||
| Dividends paid ($0.19 per share) | - | - | (903 | ) | - | - | (903 | ) | ||||||||||||||||
| Issuance of restricted common stock, 17,350 shares | - | - | - | - | - | - | ||||||||||||||||||
| Stock-based compensation | - | 79 | - | - | - | 79 | ||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Purchase of 106,894 treasury shares | ||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | 46 | $ | 69,303 | $ | 45,462 | $ | (2,349 | ) | $ | 9,408 | $ | 121,870 | |||||||||||
| Balance at July 1, 2021 | $ | 48 | $ | 72,413 | $ | 53,391 | $ | - | $ | 6,504 | $ | 132,356 | ||||||||||||
| Net earnings | - | - | 4,517 | - | - | 4,517 | ||||||||||||||||||
| Other comprehensive loss | - | - | - | - | (592 | ) | (592 | ) | ||||||||||||||||
| Dividends paid ($0.20 per share) | - | - | (951 | ) | - | - | (951 | ) | ||||||||||||||||
| Issuance of restricted common stock, 2,880 shares | - | - | - | - | - | - | ||||||||||||||||||
| Stock-based compensation | - | 76 | - | - | - | 76 | ||||||||||||||||||
| Exercise of stock options, 152 shares | - | - | - | - | - | - | ||||||||||||||||||
| Balance at September 30, 2021 | $ | 48 | $ | 72,489 | $ | 56,957 | $ | - | $ | 5,912 | $ | 135,406 | ||||||||||||
| (Dollars in thousands, except per share amounts) | Common stock | Additional paid-in capital | Retained earnings | Treasury stock | Accumulated other comprehensive income | Total | ||||||||||||||||||
| Balance at January 1, 2020 | $ | 46 | $ | 69,029 | $ | 34,293 | $ | - | $ | 5,239 | $ | 108,607 | ||||||||||||
| Net earnings | - | - | 13,890 | - | - | 13,890 | ||||||||||||||||||
| Other comprehensive income | - | - | - | - | 4,169 | 4,169 | ||||||||||||||||||
| Dividends paid ($0.57 per share) | - | - | (2,721 | ) | - | - | (2,721 | ) | ||||||||||||||||
| Issuance of restricted common stock, 17,350 shares | - | - | - | - | - | - | ||||||||||||||||||
| Stock-based compensation | - | 241 | - | - | - | 241 | ||||||||||||||||||
| Exercise of stock options, 3,136 shares | - | 33 | - | - | - | 33 | ||||||||||||||||||
| Purchase of 106,894 treasury shares | - | - | - | (2,349 | ) | - | (2,349 | ) | ||||||||||||||||
| Balance at September 30, 2020 | $ | 46 | $ | 69,303 | $ | 45,462 | $ | (2,349 | ) | $ | 9,408 | $ | 121,870 | |||||||||||
| Balance at January 1, 2021 | $ | 48 | $ | 72,230 | $ | 44,947 | $ | - | $ | 9,447 | $ | 126,672 | ||||||||||||
| Net earnings | - | - | 14,864 | - | - | 14,864 | ||||||||||||||||||
| Other comprehensive loss | - | - | - | - | (3,535 | ) | (3,535 | ) | ||||||||||||||||
| Dividends paid ($0.60 per share) | - | - | (2,854 | ) | - | - | (2,854 | ) | ||||||||||||||||
| Issuance of restricted common stock, 2,880 shares | - | - | - | - | - | - | ||||||||||||||||||
| Issuance of restricted common stock | - | - | - | - | - | - | ||||||||||||||||||
| Dividends paid | - | - | (2,854 | ) | - | - | (2,854 | ) | ||||||||||||||||
| Stock-based compensation | - | 237 | - | - | - | 237 | ||||||||||||||||||
| Exercise of stock options, 5,918 shares | - | 22 | - | - | - | 22 | ||||||||||||||||||
| Exercise of stock options | - | 22 | - | - | - | 22 | ||||||||||||||||||
| Balance at September 30, 2021 | $ | 48 | $ | 72,489 | $ | 56,957 | $ | - | $ | 5,912 | $ | 135,406 | ||||||||||||
See accompanying notes to consolidated financial statements.
| 5 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| 2021 | 2020 | |||||||
| Nine months ended | ||||||||
| (Dollars in thousands) | September 30, | |||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net earnings | $ | 14,864 | $ | 13,890 | ||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
| Provision for loan losses | 500 | 2,600 | ||||||
| Valuation allowance on real estate owned | 48 | 19 | ||||||
| Amortization of investment security premiums, net | 1,481 | 906 | ||||||
| Amortization of purchase accounting adjustment on loans | (43 | ) | (42 | ) | ||||
| Amortization of mortgage servicing rights and other intangibles | 1,225 | 1,166 | ||||||
| Depreciation | 742 | 743 | ||||||
| Increase in cash surrender value of bank owned life insurance | (494 | ) | (460 | ) | ||||
| Stock-based compensation | 237 | 241 | ||||||
| Deferred income taxes | 105 | 1,041 | ||||||
| Net gains on sales of investment securities | (1,138 | ) | (2,448 | ) | ||||
| Net (gains) losses on sales of premises and equipment and foreclosed assets | (24 | ) | 38 | |||||
| Net gains on sales of loans | (8,664 | ) | (10,961 | ) | ||||
| Proceeds from sales of loans | 277,635 | 285,497 | ||||||
| Origination of loans held for sale | (263,965 | ) | (286,207 | ) | ||||
| Changes in assets and liabilities: | ||||||||
| Accrued interest and other assets | 906 | (3,615 | ) | |||||
| Accrued expenses, taxes, and other liabilities | 2,560 | 4,005 | ||||||
| Net cash provided by operating activities | 25,975 | 6,413 | ||||||
| Cash flows from investing activities: | ||||||||
| Net decrease (increase) in loans | 44,224 | (199,351 | ) | |||||
| Maturities and prepayments of investment securities | 37,194 | 46,231 | ||||||
| Purchases of investment securities | (134,562 | ) | (36,863 | ) | ||||
| Proceeds from sales of investment securities | 16,623 | 61,164 | ||||||
| Redemption of bank stocks | 2,277 | 1,655 | ||||||
| Purchase of bank stocks | (789 | ) | (3,005 | ) | ||||
| Purchase bank owned life insurance | (6,000 | ) | - | |||||
| Proceeds from sales of premises and equipment and foreclosed assets | 488 | 343 | ||||||
| Purchases of premises and equipment, net | (610 | ) | (239 | ) | ||||
| Net cash used in investing activities | (41,155 | ) | (130,065 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net increase in deposits | 50,660 | 122,894 | ||||||
| Federal Home Loan Bank advance borrowings | - | 156,950 | ||||||
| Federal Home Loan Bank advance repayments | - | (139,881 | ) | |||||
| Proceeds from other borrowings | - | 1,075 | ||||||
| Repayments on other borrowings | (152 | ) | (10,223 | ) | ||||
| Proceeds from exercise of stock options | 22 | 33 | ||||||
| Payment of dividends | (2,854 | ) | (2,721 | ) | ||||
| Purchase of treasury stock | - | (2,349 | ) | |||||
| Net cash provided by financing activities | 47,676 | 125,778 | ||||||
| Net increase in cash and cash equivalents | 32,496 | 2,126 | ||||||
| Cash and cash equivalents at beginning of period | 84,818 | 13,694 | ||||||
| Cash and cash equivalents at end of period | $ | 117,314 | $ | 15,820 | ||||
(Continued)
| 6 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
| Nine months ended | ||||||||
| (Dollars in thousands) | September 30, | |||||||
| 2021 | 2020 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash payments for income taxes | $ | 4,390 | $ | 2,890 | ||||
| Cash paid for interest | 1,195 | 2,523 | ||||||
| Cash paid for operating leases | 108 | 134 | ||||||
| Supplemental schedule of noncash investing and financing activities: | ||||||||
| Transfer of loans to real estate owned | 1,193 | 1,586 | ||||||
| Investment securities purchases not yet settled | 5,528 | - | ||||||
| Operating lease asset and related lease liability recorded | 219 | - | ||||||
See accompanying notes to consolidated financial statements.
| 7 |
LANDMARK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
The unaudited consolidated financial statements of Landmark Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, Landmark National Bank (the “Bank”) and Landmark Risk Management Inc., have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 22, 2021, containing the latest audited consolidated financial statements and notes thereto. The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of financial statements have been reflected herein. The results of the three-month and nine-month interim periods ended September 30, 2021 are not necessarily indicative of the results expected for the year ending December 31, 2021 or any other future time period. The Company has evaluated subsequent events for recognition and disclosure up to the date the financial statements were issued.
2. Investments
A summary of investment securities available-for-sale is as follows:
Schedule of Available-for-sale Securities
| As of September 30, 2021 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | unrealized | unrealized | Estimated | |||||||||||||
| (Dollars in thousands) | cost | gains | losses | fair value | ||||||||||||
| U. S. treasury securities | $ | 40,397 | $ | 11 | $ | (94 | ) | $ | 40,314 | |||||||
| U. S. federal agency obligations | 17,211 | 95 | (9 | ) | 17,297 | |||||||||||
| Municipal obligations, tax exempt | 135,818 | 4,999 | (29 | ) | 140,788 | |||||||||||
| Municipal obligations, taxable | 37,599 | 1,447 | (58 | ) | 38,988 | |||||||||||
| Agency mortgage-backed securities | 132,034 | 1,904 | (436 | ) | 133,502 | |||||||||||
| Certificates of deposit | 7,629 | - | - | 7,629 | ||||||||||||
| Total available-for-sale | $ | 370,688 | $ | 8,456 | $ | (626 | ) | $ | 378,518 | |||||||
| As of December 31, 2020 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | unrealized | unrealized | Estimated | |||||||||||||
| (Dollars in thousands) | cost | gains | losses | fair value | ||||||||||||
| U. S. treasury securities | $ | 2,000 | $ | 37 | $ | - | $ | 2,037 | ||||||||
| U. S. federal agency obligations | 18,804 | 138 | (18 | ) | 18,924 | |||||||||||
| Municipal obligations, tax exempt | 136,321 | 6,367 | (12 | ) | 142,676 | |||||||||||
| Municipal obligations, taxable | 46,643 | 2,892 | - | 49,535 | ||||||||||||
| Agency mortgage-backed securities | 75,530 | 3,108 | - | 78,638 | ||||||||||||
| Certificates of deposit | 5,460 | - | - | 5,460 | ||||||||||||
| Total available-for-sale | $ | 284,758 | $ | 12,542 | $ | (30 | ) | $ | 297,270 | |||||||
| 8 |
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 September 30, 2021 and December 31, 2020. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date. Securities which were temporarily impaired are shown below, along with the length of time in a continuous unrealized loss position.
Schedule of Available for Sale Securities Continuous Unrealized Loss Position Fair Value
| As of September 30, 2021 | ||||||||||||||||||||||||||||
| (Dollars in thousands) | Less than 12 months | 12 months or longer | Total | |||||||||||||||||||||||||
| No. of | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||||||
| securities | value | losses | value | losses | value | losses | ||||||||||||||||||||||
| U.S. treasury securities | 15 | $ | 28,065 | $ | (94 | ) | $ | - | $ | - | $ | 28,065 | $ | (94 | ) | |||||||||||||
| U.S. federal agency obligations | 4 | 7,125 | (7 | ) | 3,068 | (2 | ) | 10,193 | (9 | ) | ||||||||||||||||||
| Municipal obligations, tax exempt | 25 | 8,628 | (28 | ) | 280 | (1 | ) | 8,908 | (29 | ) | ||||||||||||||||||
| Municipal obligations, taxable | 8 | 4,781 | (58 | ) | - | - | 4,781 | (58 | ) | |||||||||||||||||||
| Agency mortgage-backed securities | 21 | 72,908 | (436 | ) | - | - | 72,908 | (436 | ) | |||||||||||||||||||
| Total | 73 | $ | 121,507 | $ | (623 | ) | $ | 3,348 | $ | (3 | ) | $ | 124,855 | $ | (626 | ) | ||||||||||||
| As of December 31, 2020 | ||||||||||||||||||||||||||||
| (Dollars in thousands) | Less than 12 months | 12 months or longer | Total | |||||||||||||||||||||||||
| No. of | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||||||
| securities | value | losses | value | losses | value | losses | ||||||||||||||||||||||
| U.S. federal agency obligations | 4 | $ | 11,772 | $ | (18 | ) | $ | - | $ | - | $ | 11,772 | $ | (18 | ) | |||||||||||||
| Municipal obligations, tax exempt | 12 | 4,191 | (12 | ) | - | - | 4,191 | (12 | ) | |||||||||||||||||||
| Total | 16 | $ | 15,963 | $ | (30 | ) | $ | - | $ | - | $ | 15,963 | $ | (30 | ) | |||||||||||||
The Company’s U.S. treasury portfolio consists of securities issued by the United States Department of the Treasury. The receipt of principal and interest on U.S. treasury securities is guaranteed by the full faith and credit of the U.S. government. Based on these factors, along with the Company’s intent to not sell the securities and its belief that it was more likely than not that the Company will not be required to sell the securities before recovery of its cost basis, the Company believed that the U.S. treasury securities identified in the table above were temporarily impaired as of September 30, 2021.
The Company’s U.S. federal agency portfolio consists of securities issued by the government-sponsored agencies of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Bank (“FHLB”). The receipt of principal and interest on U.S. federal agency obligations is guaranteed by the respective government-sponsored agency guarantor, such that the Company believes that its U.S. federal agency obligations do not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and its belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the U.S. federal agency obligations identified in the tables above were temporarily impaired as of September 30, 2021 and December 31, 2020.
The Company’s portfolio of municipal obligations consists of both tax-exempt and taxable general obligations securities issued by various municipalities. As of September 30, 2021, the Company did not intend to sell and it was more likely than not that the Company will not be required to sell its municipal obligations in an unrealized loss position until the recovery of its cost. Due to the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms and the expectation that they will continue to do so, the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, the Company believed that the municipal obligations identified in the tables above were temporarily impaired as of September 30, 2021 and December 31, 2020.
The Company’s agency mortgage-backed securities portfolio consists of securities underwritten to the standards of and guaranteed by the government-sponsored agencies of FHLMC, FNMA and the Government National Mortgage Association. The receipt of principal, at par, and interest on agency mortgage-backed securities is guaranteed by the respective government-sponsored agency guarantor, such that the Company believed that its agency mortgage-backed securities did not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and the Company’s belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the agency mortgage-backed securities identified in the table above were temporarily impaired as of September 30, 2021.
| 9 |
The table below sets forth amortized cost and fair value of investment securities at September 30, 2021. The table includes scheduled principal payments and estimated prepayments, based on observable market inputs, for agency mortgage-backed securities. Actual maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.
Schedule of Investments Classified by Contractual Maturity Date
| (Dollars in thousands) | Amortized | Estimated | ||||||
| cost | fair value | |||||||
| Due in less than one year | $ | 29,938 | $ | 30,020 | ||||
| Due after one year but within five years | 232,658 | 235,528 | ||||||
| Due after five years but within ten years | 52,948 | 55,177 | ||||||
| Due after ten years | 55,144 | 57,793 | ||||||
| Total | $ | 370,688 | $ | 378,518 | ||||
Sales proceeds and gross realized gains and losses on sales of available-for-sale securities were as follows for the periods indicated:
Schedule of Realized Gain (loss)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (Dollars in thousands) |
Three months ended September 30, |
Nine months ended September 30, |
||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Sales proceeds | $ | 1,400 | $ | 16,655 | $ | 16,623 | $ | 61,164 | ||||||||
| Realized gains | $ | 30 | $ | 678 | $ | 1,138 | $ | 2,450 | ||||||||
| Realized losses | - | - | - | (2 | ) | |||||||||||
| Net realized gains | $ | 30 | $ | 678 | $ | 1,138 | $ | 2,448 | ||||||||
Securities with carrying values of $309.6 million and $282.2 million were pledged to secure public funds on deposit, repurchase agreements and as collateral for borrowings at September 30, 2021 and December 31, 2020, respectively. Except for U.S. federal agency obligations, no investment in a single issuer exceeded 10% of consolidated stockholders’ equity.
3. Loans and Allowance for Loan Losses
Loans consisted of the following as of the dates indicated below:
Schedule of Loans
| September 30, | December 31, | |||||||
| (Dollars in thousands) | 2021 | 2020 | ||||||
| One-to-four family residential real estate loans | $ | 161,120 | $ | 157,984 | ||||
| Construction and land loans | 26,658 | 26,106 | ||||||
| Commercial real estate loans | 193,455 | 172,307 | ||||||
| Commercial loans | 135,790 | 134,047 | ||||||
| Paycheck protection program loans | 28,671 | 100,084 | ||||||
| Agriculture loans | 91,305 | 96,532 | ||||||
| Municipal loans | 2,115 | 2,332 | ||||||
| Consumer loans | 25,624 | 24,122 | ||||||
| Total gross loans | 664,738 | 713,514 | ||||||
| Net deferred loan costs (fees) and loans in process | 936 | (1,957 | ) | |||||
| Allowance for loan losses | (8,766 | ) | (8,775 | ) | ||||
| Loans, net | $ | 656,908 | $ | 702,782 | ||||
| 10 |
The following tables provide information on the Company’s allowance for loan losses by loan class and allowance methodology:
Schedule of Allowance for Credit Losses on Financing Receivables
| Three and nine months ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | One-to-four family residential real estate loans | Construction and land loans | Commercial real estate loans | Commercial loans | Paycheck protection program loans | Agriculture loans | Municipal loans | Consumer loans | Total | |||||||||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2021 | $ | 725 | $ | 131 | $ | 3,412 | $ | 2,588 | $ | - | $ | 2,156 | $ | 5 | $ | 146 | $ | 9,163 | ||||||||||||||||||
| Charge-offs | - | - | (540 | ) | - | - | - | - | (75 | ) | (615 | ) | ||||||||||||||||||||||||
| Recoveries | 8 | 120 | - | 11 | - | 50 | - | 29 | 218 | |||||||||||||||||||||||||||
| Provision for loan losses | (89 | ) | (117 | ) | 25 | 18 | - | 117 | - | 46 | - | |||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | 644 | $ | 134 | $ | 2,897 | $ | 2,617 | $ | - | $ | 2,323 | $ | 5 | $ | 146 | $ | 8,766 | ||||||||||||||||||
| Balance at January 1, 2021 | $ | 859 | $ | 181 | $ | 2,482 | $ | 2,388 | $ | - | $ | 2,690 | $ | 6 | $ | 169 | $ | 8,775 | ||||||||||||||||||
| Charge-offs | (81 | ) | - | (540 | ) | (72 | ) | - | (50 | ) | - | (164 | ) | (907 | ) | |||||||||||||||||||||
| Recoveries | 10 | 221 | - | 13 | - | 50 | 6 | 98 | 398 | |||||||||||||||||||||||||||
| Provision for loan losses | (144 | ) | (268 | ) | 955 | 288 | - | (367 | ) | (7 | ) | 43 | 500 | |||||||||||||||||||||||
| Balance at September 30, 2021 | $ | 644 | $ | 134 | $ | 2,897 | $ | 2,617 | $ | - | $ | 2,323 | $ | 5 | $ | 146 | $ | 8,766 | ||||||||||||||||||
| Three and nine months ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | One-to-four family residential real estate loans | Construction and land loans | Commercial real estate loans | Commercial loans | Paycheck protection program loans | Agriculture loans | Municipal loans | Consumer loans | Total | |||||||||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2020 | $ | 707 | $ | 273 | $ | 1,693 | $ | 2,356 | $ | - | $ | 2,565 | $ | 6 | $ | 147 | $ | 7,747 | ||||||||||||||||||
| Charge-offs | (89 | ) | (91 | ) | - | (167 | ) | - | (3 | ) | - | (57 | ) | (407 | ) | |||||||||||||||||||||
| Recoveries | - | - | - | 1 | - | - | - | 25 | 26 | |||||||||||||||||||||||||||
| Provision for loan losses | 213 | 22 | 264 | 436 | - | 15 | - | 50 | 1,000 | |||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | 831 | $ | 204 | $ | 1,957 | $ | 2,626 | $ | - | $ | 2,577 | $ | 6 | $ | 165 | $ | 8,366 | ||||||||||||||||||
| Balance at January 1, 2020 | $ | 501 | $ | 271 | $ | 1,386 | $ | 1,815 | $ | - | $ | 2,347 | $ | 7 | $ | 140 | $ | 6,467 | ||||||||||||||||||
| Charge-offs | (109 | ) | (191 | ) | (120 | ) | (200 | ) | - | (3 | ) | - | (180 | ) | (803 | ) | ||||||||||||||||||||
| Recoveries | - | - | 13 | 3 | - | - | 6 | 80 | 102 | |||||||||||||||||||||||||||
| Provision for loan losses | 439 | 124 | 678 | 1,008 | - | 233 | (7 | ) | 125 | 2,600 | ||||||||||||||||||||||||||
| Balance at Seeptember 30, 2020 | $ | 831 | $ | 204 | $ | 1,957 | $ | 2,626 | $ | - | $ | 2,577 | $ | 6 | $ | 165 | $ | 8,366 | ||||||||||||||||||
| 11 |
| As of September 30, 2021 | ||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | One-to-four family residential real estate loans | Construction and land loans | Commercial real estate loans | Commercial loans | Paycheck protection program loans | Agriculture loans | Municipal loans | Consumer loans | Total | |||||||||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
| Individually evaluated for loss | $ | - | $ | - | $ | 45 | $ | 505 | $ | - | $ | 143 | $ | - | $ | - | $ | 693 | ||||||||||||||||||
| Collectively evaluated for loss | 644 | 134 | 2,852 | 2,112 | - | 2,180 | 5 | 146 | 8,073 | |||||||||||||||||||||||||||
| Total | $ | 644 | $ | 134 | $ | 2,897 | $ | 2,617 | $ | - | $ | 2,323 | $ | 5 | $ | 146 | $ | 8,766 | ||||||||||||||||||
| Loan balances: | ||||||||||||||||||||||||||||||||||||
| Individually evaluated for loss | $ | 917 | $ | 919 | $ | 6,124 | $ | 1,086 | $ | - | $ | 2,387 | $ | 36 | $ | 2 | $ | 11,471 | ||||||||||||||||||
| Collectively evaluated for loss | 160,203 | 25,739 | 187,331 | 134,704 | 28,671 | 88,918 | 2,079 | 25,622 | 653,267 | |||||||||||||||||||||||||||
| Total | $ | 161,120 | $ | 26,658 | $ | 193,455 | $ | 135,790 | $ | 28,671 | $ | 91,305 | $ | 2,115 | $ | 25,624 | $ | 664,738 | ||||||||||||||||||
| As of December 31, 2020 | ||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | One-to-four family residential real estate loan | Construction and land loans | Commercial real estate loans | Commercial loans | Paycheck protection program loans | Agriculture loans | Municipal loans | Consumer loans | Total | |||||||||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
| Individually evaluated for loss | $ | - | $ | - | $ | 177 | $ | 22 | $ | - | $ | 67 | $ | - | $ | - | $ | 266 | ||||||||||||||||||
| Collectively evaluated for loss | 859 | 181 | 2,305 | 2,366 | - | 2,623 | 6 | 169 | 8,509 | |||||||||||||||||||||||||||
| Total | $ | 859 | $ | 181 | $ | 2,482 | $ | 2,388 | $ | - | $ | 2,690 | $ | 6 | $ | 169 | $ | 8,775 | ||||||||||||||||||
| Loan balances: | ||||||||||||||||||||||||||||||||||||
| Individually evaluated for loss | $ | 914 | $ | 1,137 | $ | 8,119 | $ | 1,639 | $ | - | $ | 614 | $ | 36 | $ | 3 | $ | 12,462 | ||||||||||||||||||
| Collectively evaluated for loss | 157,070 | 24,969 | 164,188 | 132,408 | 100,084 | 95,918 | 2,296 | 24,119 | 701,052 | |||||||||||||||||||||||||||
| Total | $ | 157,984 | $ | 26,106 | $ | 172,307 | $ | 134,047 | $ | 100,084 | $ | 96,532 | $ | 2,332 | $ | 24,122 | $ | 713,514 | ||||||||||||||||||
The Company recorded net loan charge-offs of $397,000 during the third quarter of 2021 compared to net loan charge-offs of $381,000 during the third quarter of 2020. The Company recorded net loan charge-offs of $509,000 during the nine months ended September 30, 2021 compared to net loan charge-offs of $701,000 during the nine months ended September 30, 2020.
| 12 |
The Company’s impaired loans decreased from $12.5 million at December 31, 2020 to $11.5 million at September 30, 2021. The difference between the unpaid contractual principal and the impaired loan balance is a result of charge-offs recorded against impaired loans. The difference in the Company’s non-accrual loan balances and impaired loan balances at September 30, 2021 and December 31, 2020, was related to troubled debt restructurings (“TDR”) that are current and accruing interest, but still classified as impaired. Interest income recognized on a cash basis was immaterial during the nine months ended September 30, 2021 and 2020.
The following tables present information on impaired loans:
Schedule of Impaired Loans
| (Dollars in thousands) | As of September 30, 2021 | |||||||||||||||||||||||||||
| Unpaid contractual principal | Impaired loan balance | Impaired loans without an allowance | Impaired loans with an allowance | Related allowance recorded | Year-to-date average loan balance | Year-to-date interest income recognized | ||||||||||||||||||||||
| One-to-four family residential real estate | $ | 917 | $ | 917 | $ | 917 | $ | - | $ | - | $ | 933 | $ | 6 | ||||||||||||||
| Construction and land | 2,569 | 919 | 919 | - | - | 996 | 16 | |||||||||||||||||||||
| Commercial real estate | 6,124 | 6,124 | 2,384 | 3,740 | 45 | 6,173 | 28 | |||||||||||||||||||||
| Commercial | 1,437 | 1,086 | 573 | 513 | 505 | 1,127 | 30 | |||||||||||||||||||||
| Agriculture | 2,555 | 2,387 | 808 | 1,579 | 143 | 2,212 | 48 | |||||||||||||||||||||
| Municipal | 36 | 36 | 36 | - | - | 36 | - | |||||||||||||||||||||
| Consumer | 2 | 2 | 2 | - | - | 2 | - | |||||||||||||||||||||
| Total impaired loans | $ | 13,640 | $ | 11,471 | $ | 5,639 | $ | 5,832 | $ | 693 | $ | 11,479 | $ | 128 | ||||||||||||||
| (Dollars in thousands) | As of December 31, 2020 | |||||||||||||||||||||||||||
| Unpaid contractual principal | Impaired loan balance | Impaired loans without an allowance | Impaired loans with an allowance | Related allowance recorded | Year-to-date average loan balance | Year-to-date interest income recognized | ||||||||||||||||||||||
| One-to-four family residential real estate | $ | 914 | $ | 914 | $ | 914 | $ | - | $ | - | $ | 925 | $ | 3 | ||||||||||||||
| Construction and land | 2,872 | 1,137 | 1,137 | - | - | 1,211 | 26 | |||||||||||||||||||||
| Commercial real estate | 8,119 | 8,119 | 4,302 | 3,817 | 177 | 8,152 | 8 | |||||||||||||||||||||
| Commercial | 1,990 | 1,639 | 1,543 | 96 | 22 | 1,984 | 43 | |||||||||||||||||||||
| Agriculture | 829 | 614 | 538 | 76 | 67 | 618 | 67 | |||||||||||||||||||||
| Municipal | 36 | 36 | 36 | - | - | 54 | 1 | |||||||||||||||||||||
| Consumer | 3 | 3 | 3 | - | - | 4 | - | |||||||||||||||||||||
| Total impaired loans | $ | 14,763 | $ | 12,462 | $ | 8,473 | $ | 3,989 | $ | 266 | $ | 12,948 | $ | 148 | ||||||||||||||
The Company’s key credit quality indicator is a loan’s performance status, defined as accruing or non-accruing. Performing loans are considered to have a lower risk of loss. Non-accrual loans are those which the Company believes have a higher risk of loss. The accrual of interest on non-performing loans is discontinued at the time the loan is 90 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. There were no loans 90 days or more delinquent and accruing interest at September 30, 2021 or December 31, 2020.
| 13 |
The following tables present information on the Company’s past due and non-accrual loans by loan class:
Schedule of Past Due Financing Receivables
| (Dollars in thousands) | As of September 30, 2021 | |||||||||||||||||||||||||||
| 30-59 days delinquent and accruing | 60-89 days delinquent and accruing | 90 days or more delinquent and accruing | Total past due loans accruing | Non-accrual loans | Total past due and non-accrual loans | Total loans not past due | ||||||||||||||||||||||
| One-to-four family residential real estate loans | $ | 47 | $ | 40 | $ | - | $ | 87 | $ | 756 | $ | 843 | $ | 160,277 | ||||||||||||||
| Construction and land loans | - | - | - | - | 684 | 684 | 25,974 | |||||||||||||||||||||
| Commercial real estate loans | - | - | - | - | 6,124 | 6,124 | 187,331 | |||||||||||||||||||||
| Commercial loans | 110 | 369 | - | 479 | 597 | 1,076 | 134,714 | |||||||||||||||||||||
| Paycheck protection program loans | - | - | - | - | - | - | 28,671 | |||||||||||||||||||||
| Agriculture loans | 437 | 500 | - | 937 | 1,666 | 2,603 | 88,702 | |||||||||||||||||||||
| Municipal loans | - | - | - | - | - | - | 2,115 | |||||||||||||||||||||
| Consumer loans | 39 | - | - | 39 | 2 | 41 | 25,583 | |||||||||||||||||||||
| Total | $ | 633 | $ | 909 | $ | - | $ | 1,542 | $ | 9,829 | $ | 11,371 | $ | 653,367 | ||||||||||||||
| Percent of gross loans | 0.09 | % | 0.14 | % | 0.00 | % | 0.23 | % | 1.48 | % | 1.71 | % | 98.29 | % | ||||||||||||||
| (Dollars in thousands) | As of December 31, 2020 | |||||||||||||||||||||||||||
| 30-59 days delinquent and accruing | 60-89 days delinquent and accruing | 90 days or more delinquent and accruing | Total past due loans accruing | Non-accrual loans | Total past due and non-accrual loans | Total loans not past due | ||||||||||||||||||||||
| One-to-four family residential real estate loans | $ | 262 | $ | 185 | $ | - | $ | 447 | $ | 749 | $ | 1,196 | $ | 156,788 | ||||||||||||||
| Construction and land loans | - | - | - | - | 694 | 694 | 25,412 | |||||||||||||||||||||
| Commercial real estate loans | - | - | - | - | 8,119 | 8,119 | 164,188 | |||||||||||||||||||||
| Commercial loans | 832 | - | - | 832 | 874 | 1,706 | 132,341 | |||||||||||||||||||||
| Paycheck protection program loans | - | - | - | - | - | - | 100,084 | |||||||||||||||||||||
| Agriculture loans | 206 | 29 | - | 235 | 76 | 311 | 96,221 | |||||||||||||||||||||
| Municipal loans | - | - | - | - | - | - | 2,332 | |||||||||||||||||||||
| Consumer loans | 15 | 1 | - | 16 | 3 | 19 | 24,103 | |||||||||||||||||||||
| Total | $ | 1,315 | $ | 215 | $ | - | $ | 1,530 | $ | 10,515 | $ | 12,045 | $ | 701,469 | ||||||||||||||
| Percent of gross loans | 0.19 | % | 0.03 | % | 0.00 | % | 0.22 | % | 1.47 | % | 1.69 | % | 98.31 | % | ||||||||||||||
Under the original terms of the Company’s non-accrual loans, interest earned on such loans for the nine months ended September 30, 2021 and 2020 would have increased interest income by $635,000 and $264,000, respectively. No interest income related to non-accrual loans was included in interest income for the nine months ended September 30, 2021 and 2020.
The Company also categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loan terms. Classified loans are those that are assigned a special mention, substandard or doubtful risk rating using the following definitions:
Special Mention: Loans are currently protected by the current net worth and paying capacity of the obligor or of the collateral pledged but such protection is potentially weak. These loans constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. The credit risk may be relatively minor, yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.
Substandard: Loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. Loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
| 14 |
The following table provides information on the Company’s risk categories by loan class:
Schedule of Risk Categories by Loan Class
| As of September 30, 2021 | As of December 31, 2020 | |||||||||||||||
| (Dollars in thousands) | Nonclassified | Classified | Nonclassified | Classified | ||||||||||||
| One-to-four family residential real estate loans | $ | 158,071 | $ | 3,049 | $ | 154,985 | $ | 2,999 | ||||||||
| Construction and land loans | 25,879 | 779 | 25,412 | 694 | ||||||||||||
| Commercial real estate loans | 184,756 | 8,699 | 161,661 | 10,646 | ||||||||||||
| Commercial loans | 133,856 | 1,934 | 132,023 | 2,024 | ||||||||||||
| Paycheck protection program loans | 28,671 | - | 100,084 | - | ||||||||||||
| Agriculture loans | 86,043 | 5,262 | 87,662 | 8,870 | ||||||||||||
| Municipal loan | 2,115 | - | 2,332 | - | ||||||||||||
| Consumer loans | 25,622 | 2 | 24,119 | 3 | ||||||||||||
| Total | $ | 645,013 | $ | 19,725 | $ | 688,278 | $ | 25,236 | ||||||||
At September 30, 2021, the Company had thirteen loan relationships consisting of 17 outstanding loans that were classified as TDRs. During the three and nine months ended September 30, 2021, an agriculture loan totaling $237,000 was classified as a TDR after originating a new loan to an existing classified loan relationship. The additional loan provided funds to stabilize the borrower’s operations through the fall harvest. During the three and nine months ended September 30, 2021, an agriculture loan paid off that was previously classified as a TDR in 2016. During the nine months ended September 30, 2021, a commercial loan relationship consisting of five loans was modified after originally being classified as a TDR in 2020. The borrower liquidated some of the collateral securing the loans and refinanced the remaining balance of $479,000 into one loan which retained a TDR classification. During the three and nine months ended September 30, 2020, the Company modified the payment terms for two agriculture loans totaling $571,000 and classified the restructurings as TDRs. A commercial loan totaling $33,000 and a $1.4 million loan relationship consisting of two commercial real estate loans and one construction loan were classified as TDRs during the three and nine months ended September 30, 2020 after negotiating restructuring agreements with the borrowers. Five loans totaling $827,000 related to one commercial loan relationship were classified as TDRs during the nine months ended September 30, 2020, after the payments were modified to interest only. All of the loans classified as TDRs were experiencing financial difficulties prior to the COVID-19 pandemic.
The Company evaluates each TDR individually and returns the loan to accrual status when a payment history is established after the restructuring and future payments are reasonably assured. There were no loans modified as TDRs for which there was a payment default within 12 months of modification as of September 30, 2021 and 2020. The Company did not record any charge-offs against loans classified as TDRs in the first nine months of 2021 or 2020. A credit provision for loan losses of $2,000 was recorded against TDRs in the three months ended September 30, 2021 as compared to no provision for loan losses in the three months ended September 30, 2020. A credit provision for loan losses of $7,000 was recorded against TDRs in the nine months ended September 30, 2021 as compared to no provision for loan losses in the nine months ended September 30, 2020. The Company allocated $2,000 of the allowance for loan losses recorded against loans classified as TDRs at September 30, 2021 compared to $9,000 at December 31, 2020.
The following table presents information on loans that are classified as TDRs:
Schedule of Troubled Debt Restructurings on Financing Receivables
| (Dollars in thousands) | ||||||||||||||||||||||||
| As of September 30, 2021 | As of December 31, 2020 | |||||||||||||||||||||||
| Number of loans | Non-accrual balance | Accruing balance | Number of loans | Non-accrual balance | Accruing balance | |||||||||||||||||||
| One-to-four family residential real estate loans | 2 | $ | - | $ | 161 | 2 | $ | - | $ | 165 | ||||||||||||||
| Construction and land loans | 4 | 684 | 235 | 5 | 693 | 443 | ||||||||||||||||||
| Commercial real estate loans | 2 | 1,227 | - | 2 | 1,227 | - | ||||||||||||||||||
| Commercial loans | 4 | 33 | 489 | 7 | 33 | 765 | ||||||||||||||||||
| Agriculture loans | 4 | - | 721 | 4 | - | 538 | ||||||||||||||||||
| Municipal loan | 1 | - | 36 | 1 | - | 36 | ||||||||||||||||||
| Total | 17 | $ | 1,944 | $ | 1,642 | 21 | $ | 1,953 | $ | 1,947 | ||||||||||||||
| 15 |
As of September 30, 2021, the Company had one loan modification with an outstanding loan balance of $3.7 million in connection with the COVID-19 pandemic which was also designated non-accrual and impaired; this loan subsequently paid off. This modification consisted of the deferral of principal payments. The Company also entered into short-term forbearance plans or short-term repayment plans on two one-to-four family residential mortgage loans totaling $74,000 as of September 30, 2021. Consistent with the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Joint Interagency Regulatory Guidance, these loan modifications were not classified as TDRs and are excluded from the table above.
4. Goodwill and Other Intangible Assets
The Company tests goodwill for impairment annually or more frequently if circumstances warrant. The Company’s annual step one impairment test as of December 31, 2020 concluded that its goodwill was not impaired. The Company concluded there were no triggering events during the first nine months of 2021 that required an interim goodwill impairment test.
Lease intangible assets are amortized over the life of the lease. Core deposit intangible assets are amortized over the estimated useful life of ten years on an accelerated basis. A summary of the other intangible assets that continue to be subject to amortization was as follows:
Schedule of Other Intangible Assets and Goodwill
| (Dollars in thousands) | As of September 30, 2021 | |||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||
| Core deposit intangible assets | $ | 2,018 | $ | (1,914 | ) | $ | 104 | |||||
| Lease intangible asset | - | - | - | |||||||||
| Total other intangible assets | $ | 2,018 | $ | (1,914 | ) | $ | 104 | |||||
| (Dollars in thousands) | As of December 31, 2020 | |||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||
| Core deposit intangible assets | $ | 2,018 | $ | (1,838 | ) | $ | 180 | |||||
| Lease intangible asset | 350 | (324 | ) | 26 | ||||||||
| Total other intangible assets | $ | 2,368 | $ | (2,162 | ) | $ | 206 | |||||
The following sets forth estimated amortization expense for core deposit and lease intangible assets for the remainder of 2021 and in successive years ending December 31:
Schedule of Finite-lived Intangible Assets, Future Amortization Expense
| (Dollars in thousands) | Amortization | |||
| expense | ||||
| Remainder of 2021 | $ | 20 | ||
| 2022 | 58 | |||
| 2023 | 26 | |||
| Total | $ | 104 | ||
5. Mortgage Loan Servicing
Mortgage loans serviced for others are not reported as assets. The following table provides information on the principal balances of mortgage loans serviced for others:
Schedule of Participating Mortgage Loans
| (Dollars in thousands) | September 30, | December 31, | ||||||
| 2021 | 2020 | |||||||
| FHLMC | $ | 694,967 | $ | 639,875 | ||||
| FHLB | 19,000 | 28,157 | ||||||
| Total | $ | 713,967 | $ | 668,032 | ||||
Custodial escrow balances maintained in connection with serviced loans were $10.4 million and $5.8 million at September 30, 2021 and December 31, 2020, respectively. Gross service fee income related to such loans was $452,000 and $391,000 for the three months ended September 30, 2021 and 2020, respectively, and is included in fees and service charges in the consolidated statements of earnings. Gross service fee income related to such loans was $1.3 million and $1.1 million for the nine months ended September 30, 2021 and 2020, respectively.
| 16 |
Activity for mortgage servicing rights was as follows:
Schedule of Servicing Asset at Amortized Cost
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| (Dollars in thousands) | September 30, | September 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Mortgage servicing rights: | ||||||||||||||||
| Balance at beginning of period | $ | 4,143 | $ | 2,806 | $ | 3,726 | $ | 2,446 | ||||||||
| Additions | 406 | 946 | 1,598 | 1,915 | ||||||||||||
| Amortization | (348 | ) | (420 | ) | (1,123 | ) | (1,029 | ) | ||||||||
| Balance at end of period | $ | 4,201 | $ | 3,332 | $ | 4,201 | $ | 3,332 | ||||||||
The fair value of mortgage servicing rights was $6.1 million and $4.4 million at September 30, 2021 and December 31, 2020, respectively. Fair value at September 30, 2021 was determined using discount rates ranging from 8.87% to 12.00%; prepayment speeds ranging from 6.10% to 25.31%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.34%. Fair value at December 31, 2020 was determined using discount rates ranging from 8.78% to 12.00%; prepayment speeds ranging from 7.10% to 29.61%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.36%.
The Company had a mortgage repurchase reserve of $226,000 at September 30, 2021 and $235,000 at December 31, 2020, which represents the Company’s best estimate of probable losses that the Company will incur related to the repurchase of one-to-four family residential real estate loans previously sold or to reimburse investors for credit losses incurred on loans previously sold where a breach of the contractual representations and warranties occurred. The Company charged a $9,000 loss against the reserve during the first nine months ended September 30, 2021. The Company did not incur any losses charged against the reserve or make any provisions to the reserve during the first nine months of 2020. As of September 30, 2021, the Company did not have any outstanding mortgage repurchase requests.
6. Earnings per Share
Basic earnings per share have been computed based upon the weighted average number of common shares outstanding during each period. Diluted earnings per share include the effect of all potential common shares outstanding during each period. The diluted earnings per share computation for the three and nine months ended September 30, 2021 excluded 31,733 of unexercised stock options because their inclusion would have been anti-dilutive during such period. The diluted earnings per share computation for the three and nine months ended September 30, 2020 excluded 105,041 of unexercised stock options because their inclusion would have been anti-dilutive during such period. The Company’s Board of Directors declared a cash dividend of $0.20 per share to be paid November 24, 2021, to common stockholders of record as of the close of business on November 10, 2021. The Board of Directors also declared a 5% stock dividend issuable December 15, 2021 to common stockholders of record on December 1, 2021. Historical earnings per share are revised to reflect the impact of stock dividends when such dividends are distributed and as a result, the information in the subsequent table does not reflect the stock distribution to be made in December 2021. The shares used in the calculation of basic and diluted earnings per share are shown below:
Schedule of Earnings Per Share, Basic and Diluted
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| (Dollars in thousands, except per share amounts) | September 30, | September 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net earnings | $ | 4,517 | $ | 5,427 | $ | 14,864 | $ | 13,890 | ||||||||
| Weighted average common shares outstanding - basic (1) | 4,758,494 | 4,730,201 | 4,756,008 | 4,753,107 | ||||||||||||
| Assumed exercise of stock options (1) | 13,861 | 17,889 | 9,340 | 18,762 | ||||||||||||
| Weighted average common shares outstanding - diluted (1) | 4,772,355 | 4,748,090 | 4,765,348 | 4,771,869 | ||||||||||||
| Earnings per share (1): | ||||||||||||||||
| Basic | $ | 0.95 | $ | 1.15 | $ | 3.13 | $ | 2.92 | ||||||||
| Diluted | $ | 0.95 | $ | 1.14 | $ | 3.12 | $ | 2.91 | ||||||||
| (1) | Share and per share values for the periods ended September 30, 2020 have been adjusted to give effect to the 5% stock dividend paid during December 2020. |
| 17 |
7. Repurchase Agreements
The Company has overnight repurchase agreements with certain deposit customers whereby the Company uses investment securities as collateral for non-insured funds. These balances are accounted for as collateralized financing and included in other borrowings on the balance sheet.
Repurchase agreements are comprised of non-insured customer funds, totaling $6.2 million at September 30, 2021 and $6.4 million at December 31, 2020, which were secured by $7.1 million and $8.7 million of the Company’s investment portfolio at the same dates, respectively.
The following is a summary of the balances and collateral of the Company’s repurchase agreements:
Schedule of Repurchase Agreements
| As of September 30, 2021 | ||||||||||||||||||||
| (dollars in thousands) | Overnight | Greater | ||||||||||||||||||
|
and Continuous |
Up to 30 days | 30-90 days | than 90 days | Total | ||||||||||||||||
| Repurchase agreements: | ||||||||||||||||||||
| U.S. federal agency obligations | $ | 2,640 | $ | - | $ | - | $ | - | $ | 2,640 | ||||||||||
| Agency mortgage-backed securities | 3,579 | - | - | - | 3,579 | |||||||||||||||
| Total | $ | 6,219 | $ | - | $ | - | $ | - | $ | 6,219 | ||||||||||
| As of December 31, 2020 | ||||||||||||||||||||
| (dollars in thousands) | Overnight and | Up to | Greater | |||||||||||||||||
| Continuous | 30 days | 30-90 days | than 90 days | Total | ||||||||||||||||
| Repurchase agreements: | ||||||||||||||||||||
| U.S. federal agency obligations | $ | 2,412 | $ | - | $ | - | $ | - | $ | 2,412 | ||||||||||
| Agency mortgage-backed securities | 3,959 | - | - | - | 3,959 | |||||||||||||||
| Total | $ | 6,371 | $ | - | $ | - | $ | - | $ | 6,371 | ||||||||||
The investment securities are held by a third party financial institution in the customer’s custodial account. The Company is required to maintain adequate collateral for each repurchase agreement. Changes in the fair value of the investment securities impact the amount of collateral required. If the Company were to default, the investment securities would be used to settle the repurchase agreement with the deposit customer.
8. Revenue from Contracts with Customers
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. Items outside the scope of ASC 606 are noted as such.
Schedule of Revenue from Contracts with Customers Within Non-interest Income
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| (Dollars in thousands) | September 30, | September 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Non-interest income: | ||||||||||||||||
| Service charges on deposit accounts | ||||||||||||||||
| Overdraft fees | $ | 835 | $ | 780 | $ | 2,160 | $ | 2,196 | ||||||||
| Other | 168 | 169 | 514 | 479 | ||||||||||||
| Interchange income | 778 | 689 | 2,347 | 1,817 | ||||||||||||
| Loan servicing fees (1) | 452 | 391 | 1,325 | 1,115 | ||||||||||||
| Office lease income (1) | 165 | 164 | 496 | 488 | ||||||||||||
| Gains on sales of loans (1) | 2,660 | 4,944 | 8,664 | 10,961 | ||||||||||||
| Bank owned life insurance income (1) | 193 | 152 | 494 | 460 | ||||||||||||
| Gains on sales of investment securities (1) | 30 | 678 | 1,138 | 2,448 | ||||||||||||
| Gains (losses) on sales of real estate owned | 13 | 7 | 18 | (38 | ) | |||||||||||
| Other | 171 | 191 | 507 | 564 | ||||||||||||
| Total non-interest income | $ | 5,465 | $ | 8,165 | $ | 17,663 | $ | 20,490 | ||||||||
| (1) | Not within the scope of ASC 606. |
A description of the Company’s revenue streams under ASC 606 follows:
| 18 |
Service Charges on Deposit Accounts
The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM usage fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period during which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Interchange Income
The Company earns interchange fees from debit cardholder transactions conducted through the interchange payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.
Gains (Losses) on Sales of Real Estate Owned
The Company records a gain or loss from the sale of real estate owned when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of real estate owned to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the real estate owned asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. There were no sales of real estate owned that were financed by the Company during the first nine months of 2021 or 2020.
9. Fair Value of Financial Instruments and Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
| 19 |
Fair value estimates of the Company’s financial instruments as of September 30, 2021 and December 31, 2020, including methods and assumptions utilized, are set forth below:
Schedule of Fair Value, by Balance Sheet Grouping
| As of September 30, 2021 | ||||||||||||||||||||
| Carrying | ||||||||||||||||||||
| amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 117,314 | $ | 117,314 | $ | - | $ | - | $ | 117,314 | ||||||||||
| Investment securities available-for-sale | 378,518 | 40,314 | 338,204 | - | 378,518 | |||||||||||||||
| Bank stocks, at cost | 2,985 | n/a | n/a | n/a | n/a | |||||||||||||||
| Loans, net | 656,908 | - | - | 666,080 | 666,080 | |||||||||||||||
| Loans held for sale | 8,929 | - | 8,929 | - | 8,929 | |||||||||||||||
| Accrued interest receivable | 4,613 | 127 | 1,543 | 2,943 | 4,613 | |||||||||||||||
| Derivative financial instruments | 824 | - | 824 | - | 824 | |||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Non-maturity deposits | $ | (957,420 | ) | $ | (957,420 | ) | $ | - | $ | - | $ | (957,420 | ) | |||||||
| Certificates of deposit | (109,267 | ) | - | (109,328 | ) | - | (109,328 | ) | ||||||||||||
| Subordinated debentures | (21,651 | ) | - | (16,271 | ) | - | (16,271 | ) | ||||||||||||
| Other borrowings | (6,219 | ) | - | (6,219 | ) | - | (6,219 | ) | ||||||||||||
| Accrued interest payable | (135 | ) | - | (135 | ) | - | (135 | ) | ||||||||||||
| As of December 31, 2020 | ||||||||||||||||||||
| Carrying | ||||||||||||||||||||
| amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 84,818 | $ | 84,818 | $ | - | $ | - | $ | 84,818 | ||||||||||
| Investment securities available-for-sale | 297,270 | 2,037 | 295,233 | - | 297,270 | |||||||||||||||
| Bank stocks, at cost | 4,473 | n/a | n/a | n/a | n/a | |||||||||||||||
| Loans, net | 702,782 | - | - | 718,071 | 718,071 | |||||||||||||||
| Loans held for sale | 15,533 | - | 15,533 | - | 15,533 | |||||||||||||||
| Accrued interest receivable | 4,885 | - | 1,697 | 3,188 | 4,885 | |||||||||||||||
| Derivative financial instruments | 1,796 | - | 1,796 | - | 1,796 | |||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Non-maturity deposits | $ | (882,277 | ) | $ | (882,277 | ) | $ | - | $ | - | $ | (882,277 | ) | |||||||
| Certificates of deposit | (133,750 | ) | - | (134,048 | ) | - | (134,048 | ) | ||||||||||||
| Subordinated debentures | (21,651 | ) | - | (15,232 | ) | - | (15,232 | ) | ||||||||||||
| Other borrowings | (6,371 | ) | - | (6,371 | ) | - | (6,371 | ) | ||||||||||||
| Accrued interest payable | (168 | ) | - | (168 | ) | - | (168 | ) | ||||||||||||
| Derivative financial instruments | (466 | ) | - | (466 | ) | - | (466 | ) | ||||||||||||
Transfers
The Company did not transfer any assets or liabilities among levels during the three or nine months ended September 30, 2021 or during the year ended December 31, 2020.
| 20 |
Valuation Methods for Instruments Measured at Fair Value on a Recurring Basis
The following tables represent the Company’s financial instruments that are measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020, allocated to the appropriate fair value hierarchy:
Schedule of Fair Value, Assets Measured on Recurring Basis
| (Dollars in thousands) | As of September 30, 2021 | |||||||||||||||
| Fair value hierarchy | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Available-for-sale investment securities: | ||||||||||||||||
| U. S. treasury securities | $ | 40,314 | $ | 40,314 | $ | - | $ | - | ||||||||
| U. S. federal agency obligations | 17,297 | - | 17,297 | - | ||||||||||||
| Municipal obligations, tax exempt | 140,788 | - | 140,788 | - | ||||||||||||
| Municipal obligations, taxable | 38,988 | - | 38,988 | - | ||||||||||||
| Agency mortgage-backed securities | 133,502 | - | 133,502 | - | ||||||||||||
| Certificates of deposit | 7,629 | - | 7,629 | - | ||||||||||||
| Loans held for sale | 8,929 | - | 8,929 | - | ||||||||||||
| Derivative financial instruments | 824 | - | 824 | - | ||||||||||||
| As of December 31, 2020 | ||||||||||||||||
| Fair value hierarchy | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Available-for-sale investment securities: | ||||||||||||||||
| U. S. treasury securities | $ | 2,037 | $ | 2,037 | $ | - | $ | - | ||||||||
| U. S. federal agency obligations | 18,924 | - | 18,924 | - | ||||||||||||
| Municipal obligations, tax exempt | 142,676 | - | 142,676 | - | ||||||||||||
| Municipal obligations, taxable | 49,535 | - | 49,535 | - | ||||||||||||
| Agency mortgage-backed securities | 78,638 | - | 78,638 | - | ||||||||||||
| Certificates of deposit | 5,460 | - | 5,460 | - | ||||||||||||
| Loans held for sale | 15,533 | - | 15,533 | - | ||||||||||||
| Derivative financial instruments | 1,796 | - | 1,796 | - | ||||||||||||
| Liability: | ||||||||||||||||
| Derivative financial instruments | (466 | ) | - | (466 | ) | - | ||||||||||
The Company’s investment securities classified as available-for-sale include U.S. treasury securities, U.S. federal agency obligations, municipal obligations, agency mortgage-backed securities and certificates of deposit. Quoted exchange prices are available for the Company’s U.S. treasury securities, which are classified as Level 1. U.S. federal agency securities and agency mortgage-backed securities are priced utilizing industry-standard models that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. These measurements are classified as Level 2. Municipal obligations are valued using a type of matrix, or grid, pricing in which securities are benchmarked against U.S. treasury rates based on credit rating. These model and matrix measurements are classified as Level 2 in the fair value hierarchy.
Changes in the fair value of available-for-sale securities are included in other comprehensive income to the extent the changes are not considered other-than-temporary impairments. Other-than-temporary impairment tests are performed on a quarterly basis and any decline in the fair value of an individual security below its cost that is deemed to be other-than-temporary results in a write-down of that security’s cost basis.
Mortgage loans originated and intended for sale in the secondary market are carried at fair value. The mortgage loan valuations are based on quoted secondary market prices for similar loans and are classified as Level 2. Changes in the fair value of mortgage loans originated and intended for sale in the secondary market and derivative financial instruments are included in gains on sales of loans.
| 21 |
The aggregate fair value, contractual balance (including accrued interest), and gain on loans held for sale were as follows:
Schedule of Fair Value Contractual Balance and Gain Loss on Loans Held for Sale
| As of | As of | |||||||
| September 30, | December 31, | |||||||
| (Dollars in thousands) | 2021 | 2020 | ||||||
| Aggregate fair value | $ | 8,929 | $ | 15,533 | ||||
| Contractual balance | 8,822 | 15,151 | ||||||
| Gain | $ | 107 | $ | 382 | ||||
The Company’s derivative financial instruments consist of interest rate lock commitments and corresponding forward sales contracts on mortgage loans held for sale. The fair values of these derivatives are based on quoted prices for similar loans in the secondary market. The market prices are adjusted by a factor, based on the Company’s historical data and its judgment about future economic trends, which considers the likelihood that a commitment will ultimately result in a closed loan. These instruments are classified as Level 2. The amounts are included in other assets or other liabilities on the consolidated balance sheets and gains on sales of loans, net in the consolidated statements of earnings. The total amount of gains from changes in fair value of derivative financial instruments included in earnings were as follows:
Schedule of Gains and Losses from Changes in Fair Value of Loans Held for Sale
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Total change in fair value | $ | (279 | ) | $ | (315 | ) | $ | (506 | ) | $ | 1,657 | |||||
Valuation Methods for Instruments Measured at Fair Value on a Nonrecurring Basis
The Company does not record its loan portfolio at fair value. Collateral-dependent impaired loans are generally carried at the lower of cost or fair value of the collateral, less estimated selling costs. Collateral values are determined based on appraisals performed by qualified licensed appraisers hired by the Company and then further adjusted if warranted based on relevant facts and circumstances. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Impaired loans are reviewed and evaluated at least quarterly for additional impairment and adjusted accordingly, based on the same factors identified above. The carrying value of the Company’s impaired loans was $11.5 million and $12.5 million, with an allocated allowance of $693,000 and $266,000, at September 30, 2021 and December 31, 2020, respectively.
Real estate owned includes assets acquired through, or in lieu of, foreclosure and land previously acquired for expansion. Real estate owned is initially recorded at the fair value of the collateral less estimated selling costs. Subsequent valuations are updated periodically and are based upon independent appraisals, third party price opinions or internal pricing models. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Real estate owned is reviewed and evaluated at least annually for additional impairment and adjusted accordingly, based on the same factors identified above.
| 22 |
The following table presents quantitative information about Level 3 fair value measurements measured at fair value on a nonrecurring basis as of September 30, 2021 and December 31, 2020.
Schedule of Fair Value Measurements on Nonrecurring, Valuation Techniques
| (Dollars in thousands) | ||||||||||||
| Fair value | Valuation technique | Unobservable inputs | Range | |||||||||
| As of September 30, 2021 | ||||||||||||
| Impaired loans: | ||||||||||||
| Commercial real estate | $ | 3,695 | Sales comparison | Adjustment to appraised value | 20 | % | ||||||
| Commercial | 8 | Sales comparison | Adjustment to comparable sales | 0%-100% | ||||||||
| Agriculture | 1,436 | Sales comparison | Adjustment to appraised value | 0 | % | |||||||
| Real estate owned: | ||||||||||||
| Commercial real estate | 1,193 | Sales comparison | Adjustment to appraised value | 0 | % | |||||||
| As of December 31, 2020 | ||||||||||||
| Impaired loans: | ||||||||||||
| Commercial real estate | $ | 3,640 | Sales comparison | Adjustment to appraised value | 20 | % | ||||||
| Commercial | 74 | Sales comparison | Adjustment to comparable sales | 0%-69% | ||||||||
| Agriculture | 9 | Sales comparison | Adjustment to appraised value | 20 | % | |||||||
| Real estate owned: | ||||||||||||
| One-to-four family residential real estate | 48 | Sales comparison | Adjustment to appraised value | 10 | % | |||||||
10. Regulatory Capital Requirements
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believed that as of September 30, 2021, the Company and the Bank met all capital adequacy requirements to which they were subject at that time.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. The Company and the Bank are subject to the Basel III Rule, which is applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets of less than $3.0 billion).
The Basel III Rule includes a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, a minimum ratio of Total Capital to risk-weighted assets of 8.0%, and a minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer, equal to 2.5% of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements for the common equity Tier 1 capital ratio, and Tier 1 capital and total risk based capital ratios.
As of September 30, 2021 and December 31, 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action then in effect. There are no conditions or events since that notification that management believes have changed the institution’s category.
| 23 |
The following is a comparison of the Company’s regulatory capital to minimum capital requirements at September 30, 2021 and December 31, 2020:
Schedule of Compliance with Regulatory Capital Requirements for Mortgage Companies
| (Dollars in thousands) | To be well-capitalized | |||||||||||||||||||||||
| For capital | under regulatory | |||||||||||||||||||||||
| Actual | adequacy purposes | guidelines | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio (1) | Amount | Ratio | |||||||||||||||||||
| As of September 30, 2021 | ||||||||||||||||||||||||
| Leverage | $ | 133,511 | 10.78 | % | $ | 49,523 | 4.0 | % | $ | 61,904 | 5.0 | % | ||||||||||||
| Common Equity Tier 1 Capital | 112,511 | 14.82 | % | 53,138 | 7.0 | % | 49,342 | 6.5 | % | |||||||||||||||
| Tier 1 Capital | 133,511 | 17.59 | % | 64,525 | 8.5 | % | 60,729 | 8.0 | % | |||||||||||||||
| Total Risk Based Capital | 142,417 | 18.76 | % | 79,707 | 10.5 | % | 75,912 | 10.0 | % | |||||||||||||||
| As of December 31, 2020 | ||||||||||||||||||||||||
| Leverage | $ | 121,068 | 10.70 | % | $ | 45,262 | 4.0 | % | $ | 56,577 | 5.0 | % | ||||||||||||
| Common Equity Tier 1 Capital | 100,068 | 13.77 | % | 50,866 | 7.0 | % | 47,233 | 6.5 | % | |||||||||||||||
| Tier 1 Capital | 121,068 | 16.66 | % | 61,766 | 8.5 | % | 58,133 | 8.0 | % | |||||||||||||||
| Total Risk Based Capital | 129,983 | 17.89 | % | 76,300 | 10.5 | % | 72,666 | 10.0 | % | |||||||||||||||
| (1) | The required ratios for capital adequacy purposes include a capital conservation buffer of 2. |
The following is a comparison of the Bank’s regulatory capital to minimum capital requirements at September 30, 2021 and December 31, 2020:
Schedule of Compliance with Regulatory Capital Requirements Under Banking Regulation
| To be well-capitalized | ||||||||||||||||||||||||
| under prompt | ||||||||||||||||||||||||
| (Dollars in thousands) | For capital | corrective | ||||||||||||||||||||||
| Actual | adequacy purposes | action provisions | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio (1) | Amount | Ratio | |||||||||||||||||||
| As of September 30, 2021 | ||||||||||||||||||||||||
| Leverage | $ | 129,962 | 10.53 | % | $ | 49,375 | 4.0 | % | $ | 61,718 | 5.0 | % | ||||||||||||
| Common Equity Tier 1 Capital | 129,962 | 17.14 | % | 53,065 | 7.0 | % | 49,275 | 6.5 | % | |||||||||||||||
| Tier 1 Capital | 129,962 | 17.14 | % | 64,436 | 8.5 | % | 60,646 | 8.0 | % | |||||||||||||||
| Total Risk Based Capital | 138,868 | 18.32 | % | 79,598 | 10.5 | % | 75,807 | 10.0 | % | |||||||||||||||
| As of December 31, 2020 | ||||||||||||||||||||||||
| Leverage | $ | 118,174 | 10.47 | % | $ | 45,139 | 4.0 | % | $ | 56,423 | 5.0 | % | ||||||||||||
| Common Equity Tier 1 Capital | 118,174 | 16.27 | % | 50,829 | 7.0 | % | 47,199 | 6.5 | % | |||||||||||||||
| Tier 1 Capital | 118,174 | 16.27 | % | 61,721 | 8.5 | % | 58,091 | 8.0 | % | |||||||||||||||
| Total Risk Based Capital | 127,089 | 17.50 | % | 76,244 | 10.5 | % | 72,613 | 10.0 | % | |||||||||||||||
| (1) | The required ratios for capital adequacy purposes include a capital conservation buffer of 2.5%. |
11. Impact of Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), commonly referred to as “CECL.” The provisions of the update eliminate the probable initial recognition threshold under current GAAP which requires reserves to be based on an incurred loss methodology. Under CECL, reserves required for financial assets measured at amortized cost will reflect an organization’s estimate of all expected credit losses over the expected term of the financial asset and thereby require the use of reasonable and supportable forecasts to estimate future credit losses. Because CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity debt securities. Under the provisions of the update, credit losses recognized on available for sale debt securities will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for only purchased credit impaired loans. Under prior GAAP, a purchased loan’s contractual balance was adjusted to fair value through a credit discount, and no reserve was recorded on the purchased loan upon acquisition. Since under CECL reserves will be established for purchased loans at the time of acquisition, the accounting for purchased loans is made more comparable to the accounting for originated loans. Finally, increased disclosure requirements under CECL oblige organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. The FASB expects that the evaluation of underwriting standards and credit quality trends by financial statement users will be enhanced with the additional vintage disclosures. In October 2019, the FASB approved a change in the effective dates for CECL which delayed the effective date to fiscal years beginning after December 15, 2022 for smaller reporting companies. Because the Company is a smaller reporting company, the proposed delay is applicable to the Company, and the Company plans to delay the implementation of CECL until January 1, 2023. Management has initiated an implementation committee that has implemented a process to collect the data and is utilizing a vendor solution for the new standard. Initial calculations estimate the effect will be an increase to the allowance for loan losses upon adoption. However, the size of the overall increase is uncertain at this time. Management is utilizing the delay to continue to refine and back test the CECL calculation. The internal controls over financial reporting specifically related to CECL are in the design stage and are currently being evaluated.
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In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this update simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this ASU are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. In October 2019, the FASB approved a change in the effective dates for ASU 2017-04 which delayed the effective date to fiscal years beginning after December 15, 2022 for smaller reporting companies. Because the Company is a smaller reporting company, the proposed delay is applicable to the Company, and the Company plans to delay the implementation of ASU 2017-04 until January 1, 2023. Early adoption of the amendments of this ASU is permitted. The adoption of ASU 2017-04 is not expected to have a material effect on the Company’s operating results or financial condition.
In May 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Reference rate reform relates to the effects undertaken to eliminate certain reference rates such as the London Interbank Offered Rate (“LIBOR”) and introduce new reference rates that may be based on larger or more liquid observations and transactions. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other contracts. Generally, ASU 2020-04 would allow entities to consider contract modifications due to reference rate reform to be a continuation of an existing contract; thus, the Company would not have to determine if the modification is considered insignificant. The Company is in the process of reviewing loan documentation, along with the transition procedures it will need in order to implement reference rate reform. While the Company has yet to adopt ASU 2020-04, the standard was effective upon issuance and terminates December 31, 2022 such that changes made to contracts beginning on or after January 1, 2023 would not apply. The adoption of ASU 2020-04 is not expected to have a material effect on the Company’s operating results or financial condition.
12. COVID-19 Pandemic
The COVID-19 pandemic in the United States caused a substantial disruption to the economy, employment and financial markets and continues to have a complex and significant adverse impact on the economy, the banking industry and the Company. Additional federal government stimulus, declining COVID-19 cases and the distribution of vaccines may lead to positive impacts on the economy and employment while increasing cases and new variants of COVID-19 present risks to the recovery. The Company’s pandemic response plan continues to focus foremost on the safety and well-being of our customers and associates. The COVID-19 pandemic could adversely impact our customers, employees or vendors which may impact our operations and financial results. The COVID-19 pandemic may cause economic declines in excess of current projections, or if the pandemic lasts longer than currently projected, the Company’s provision for loan losses may increase in future periods. The Company may see higher loan delinquencies and defaults in future periods as a result of the COVID-19 pandemic and will continue to monitor our allowance for loan losses in light of changing economic conditions related to COVID-19. The COVID-19 pandemic may also impact the Company’s deposit balances and service charge income. In addition, the fair value of certain assets may be adversely impacted by the pandemic and the economic downturn, including the fair value of goodwill, mortgage servicing rights and other real estate. These declines could result in impairments in future periods. The pandemic has caused a significant decline in market interest rates which may cause our net interest margin to continue to decline. At this time, the full impact of the COVID-19 pandemic on the Company’s financial statements is uncertain.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview. Landmark Bancorp, Inc. is a financial 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, and in the insurance business through its wholly owned subsidiary, Landmark Risk Management, Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Landmark Bancorp, Inc., Landmark National Bank and Landmark Risk Management, Inc. The Company is listed on the Nasdaq Global Market under the symbol “LARK.” The Bank is dedicated to providing quality financial and banking services to its local communities. Our strategy includes continuing a tradition of holding and acquiring quality assets while growing our commercial, commercial real estate and agriculture loan portfolios. We are committed to developing relationships with our borrowers and providing a total banking service.
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 one-to-four family residential real estate, construction and land, commercial real estate, commercial, agriculture, municipal and consumer loans. Although not our primary business function, we invest in certain investment and mortgage-related securities using deposits and other borrowings as funding sources.
Landmark Risk Management, Inc., which was formed and began operations on in 2017, is a Nevada-based captive insurance company which provides property and casualty insurance coverage to the Company and the Bank for which insurance may not be currently available or economically feasible in the current insurance marketplace. Landmark Risk Management, Inc. is subject to the regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance.
Our results of operations depend generally 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, gains from the sale of newly originated loans, gains or losses on investments and certain other non-interest related items. Our principal operating expenses, aside from interest expense, consist of compensation and employee benefits, occupancy costs, professional fees, data processing expenses and provision for 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 investments, the level of 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 the Bank, with its main office in Manhattan, Kansas and twenty- nine additional branch offices in central, eastern, southeast and southwest Kansas, and our ownership of Landmark Risk Management, Inc.
Impact of COVID-19. The COVID-19 pandemic in the United States has had and continues to have a complex and significant adverse impact on the economy, the banking industry and the Company.
Effects on Our Business. The COVID-19 pandemic, federal, state and local government responses to the pandemic, and the effects of existing and future variants of the disease, such as the Delta variant, have had, and are expected to continue to have, a significant impact on our business. In particular, a significant portion of the Bank’s borrowers in the retail, restaurant and hospitality industries were adversely impacted by the COVID-19 pandemic. Future outbreaks may impact these customers, which may cause them to draw on their existing lines of credit and adversely affect their ability to repay existing indebtedness. The decline in interest rates as a result of the COVID-19 pandemic increased our origination of one-to-four family residential mortgage loans in 2020, as the lower interest rates drove an increase in refinancings and sales. The origination of one-to-four family residential mortgage loans has slowed during 2021 due to lower housing inventories and higher mortgage interest rates. We do not expect that future outbreaks will cause a similar increase in origination volumes. The economic conditions as a result of COVID-19 has impacted our commercial real estate portfolio, as cash flows and collateral values were impacted by the economic downturn. Future outbreaks may negatively impact these borrowers and the value of the collateral securing our loans. As a result, we anticipate that our financial condition, capital levels and results of operations may be adversely affected, as described in further detail below.
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Our Response. We have taken numerous steps in response to the COVID-19 pandemic, including the following:
| ● | We established a pandemic response team, which has been meeting as needed since mid-March 2020 to address changes resulting from the COVID-19 pandemic. Some of our associates are still working from home, and for those that remain in our bank facilities, we have enhanced safety precautions in place for their safety. We have repositioned associates to support our customer care call center to handle increased volumes of customer requests and to support our customers’ access to our digital banking platforms. |
| ● | As a preferred lender with the SBA, we were able and prepared to immediately respond to help existing and new clients access Paycheck Protection Program (PPP) loans authorized by the CARES Act. In addition, we were a participating lender in the second round of PPP lending. From the beginning of the PPP through September 30, 2021, we funded 2,195 PPP loans totaling approximately $186.0 million. We are actively working with the PPP loan borrowers through the SBA’s loan forgiveness process. As of September 30, 2021, we had approximately $28.7 million of PPP loans outstanding. |
| ● | As of September 30, 2021, we had entered into short-term forbearance plans and short-term repayment plans on two one-to-four family residential mortgage loans totaling $74,000. We continue to work with our customers by offering loan forbearance and modifications to those borrowers impacted by COVID-19. |
| ● | As of September 30, 2021, we had one loan modification in connection with the COVID-19 pandemic on an outstanding loan balance of $3.7 million that had not yet returned to contractual terms. This modification consisted of the deferral of principal payments. As of December 31, 2020, we had nine loan modifications in connection with the COVID-19 pandemic on outstanding loan balances of $7.2 million. |
In October 2021, we declared our 81st consecutive quarterly dividend, and we currently have no plans to change our dividend strategy given our current capital and liquidity position. However, while we have achieved a strong capital base and expect to continue operating profitably, this is dependent upon the performance of the economy. In addition, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, we will not be permitted to make capital distributions (including for dividends and repurchases of stock) or pay discretionary bonuses to executive officers without restriction if we do not maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.
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 management’s 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, accounting for goodwill and the accounting for income taxes, all of which involve significant judgment by our management. There have been no material changes to the critical accounting policies included under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 22, 2021.
Summary of Results. During the third quarter of 2021, we recorded net earnings of $4.5 million, which was a decrease of $910,000, or 16.8%, from the $5.4 million of net earnings in the third quarter of 2020. The decrease in net earnings during the third quarter of 2021 was primarily driven by a $2.7 million decrease in non-interest income. During the first nine months of 2021, we recorded net earnings of $14.9 million, which was an increase of $974,000, or 7.0%, from the $13.9 million of net earnings in the first nine months of 2020. The increase in net earnings during the first nine months of 2021 was primarily driven by a $2.8 million increase in net interest income and a $2.1 million decrease in our provision for loan losses.
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The following table summarizes earnings and key performance measures for the periods presented:
| As of or for the | As of or for the | |||||||||||||||
| (Dollars in thousands, except per share amounts) | three months ended September 30, | Nine months ended September 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net earnings: | ||||||||||||||||
| Net earnings | $ | 4,517 | $ | 5,427 | $ | 14,864 | $ | 13,890 | ||||||||
| Basic earnings per share (1) | $ | 0.95 | $ | 1.15 | $ | 3.13 | $ | 2.92 | ||||||||
| Diluted earnings per share (1) | $ | 0.95 | $ | 1.14 | $ | 3.12 | $ | 2.91 | ||||||||
| Earnings ratios: | ||||||||||||||||
| Return on average assets (2) | 1.42 | % | 1.89 | % | 1.59 | % | 1.71 | % | ||||||||
| Return on average equity (2) | 13.36 | % | 18.06 | % | 15.23 | % | 16.19 | % | ||||||||
| Equity to total assets | 10.79 | % | 10.61 | % | 10.79 | % | 10.61 | % | ||||||||
| Net interest margin (2) (3) | 3.36 | % | 3.60 | % | 3.47 | % | 3.66 | % | ||||||||
| Dividend payout ratio | 21.05 | % | 16.67 | % | 19.23 | % | 19.61 | % | ||||||||
(1) Per share values for the periods ended September 30, 2020 have been adjusted to give effect to the 5% stock dividend paid during December 2020.
(2) Ratios have been annualized and are not necessarily indicative of the results for the entire year.
(3) Net interest margin is presented on a fully tax equivalent basis, using a 21% federal tax rate.
Interest Income. Interest income of $10.0 million for the quarter ended September 30, 2021 increased $234,000, or 2.4%, as compared to the same period of 2020. Interest income on loans increased $463,000, or 5.8%, to $8.5 million for the quarter ended September 30, 2021, compared to the same period of 2020 due primarily to higher yields on loans, which increased from 4.42% in the third quarter of 2020 to 5.03% in the third quarter of 2021. The increase in yields on loans was driven by an increase in interest income on PPP loans, which increased from $832,000 in the third quarter of 2020 to $1.6 million in the third quarter of 2021. A significant amount of PPP loans were forgiven in the third quarter of 2021 which increased the yields on PPP loans from 2.53% in the third quarter of 2020 to 15.4% in the third quarter of 2021 as the remaining unamortized loan origination fees were recognized. Excluding PPP loans, our loan portfolio generally repriced lower during the third quarter of 2021 in the current low interest rate environment. We anticipate our loan portfolio will continue to reprice lower until market interest rates increase. Partially offsetting the higher yields on loans was a decrease in our average loan balances, which decreased from $720.7 million in the third quarter of 2020 to $668.0 million in the third quarter of 2021. Our average loan balances included average PPP loans of $40.4 million in the third quarter of 2021 and $130.8 million in the third quarter of 2020. Interest income on investment securities decreased $229,000, or 13.0%, to $1.5 million for the third quarter of 2021, as compared to $1.8 million in the same period of 2020. The decrease in interest income on investment securities was primarily the result of lower yields on investment securities, which decreased from 2.54% in the third quarter of 2020 to 1.86% in the third quarter of 2021. Partially offsetting the lower yields was an increase in the average balances of investment securities which increased from $307.9 million in the third quarter of 2020 to $357.7 million in the third quarter of 2021.
Interest income of $30.3 million for the nine months ended September 30, 2021 increased $1.6 million, or 5.7%, as compared to the same period of 2020. Interest income on loans increased $2.8 million, or 12.3%, to $25.7 million for the nine months ended September 30, 2021, compared to the same period of 2020 due mainly to an increase in our average loan balances, which increased from $647.5 million during the first nine months of 2020 to $702.5 million during the first nine months of 2021. Also contributing to the increase were higher yields on loans, which increased from 4.73% in the nine months ended September 30, 2020 to 4.90% during the nine months ended September 30, 2021. Our average loan balances included average PPP loans of $82.7 million in the nine months ended September 30, 2021 compared to $78.1 million in the same period of 2020. Interest income on PPP loans increased from $1.5 million in the first nine months of 2020 to $4.9 million in the first nine months of 2021. The yield on PPP loans increased from 3.82% in the first nine months of 2020 to 7.85% in the first nine months of 2021. Interest income on investment securities decreased $1.2 million, or 20.3%, to $4.6 million for the first nine months of 2021, as compared to $5.8 million in the same period of 2020. The decrease in interest income on investment securities was the result of lower yields, which decreased from 2.63% in the first nine months of 2020 to 2.05% in the first nine months of 2021. Partially offsetting the lower yields were higher average balances, which increased from $327.6 million in the first nine months of 2020 to $335.2 million in the first nine months of 2021.
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Interest Expense. Interest expense during the quarter ended September 30, 2021 decreased $112,000, or 22.9%, to $378,000 as compared to the same period of 2020. Interest expense on interest-bearing deposits decreased $96,000, or 27.1%, to $258,000 for the quarter ended September 30, 2021 as compared to the same period of 2020. Our total cost of interest-bearing deposits decreased from 0.20% in the third quarter of 2020 to 0.13% in the third quarter of 2021 as a result of lower rates paid on money market and checking accounts, as the rates repriced based on market indexes, and lower rates on our certificates of deposit. Partially offsetting the lower interest rates was an increase in average interest-bearing deposit balances, which increased from $690.9 million in the third quarter of 2020 to $769.7 million in the third quarter of 2021. For the third quarter of 2021, interest expense on borrowings decreased $16,000, or 11.8%, to $120,000 as compared to the same period of 2020 due to a decrease in our average outstanding borrowings, which decreased from $40.1 million in the third quarter of 2020 to $27.0 million in the same period of 2021. Partially offsetting the lower average balance of borrowings were higher rates, which increased from 1.35% in the third quarter of 2020 to 1.76% in the same period of 2021.
Interest expense during the nine months ended September 30, 2021 decreased $1.2 million, or 50.2%, to $1.2 million as compared to the same period of 2020. Interest expense on interest-bearing deposits decreased $998,000, or 55.5%, to $800,000 for the nine months ended September 30, 2021 as compared to the same period of 2020. The decrease in interest expense on interest-bearing deposits was the result of lower rates paid on money market and checking accounts, as the rates repriced based on market indexes, and lower rates on our certificates of deposit. The average rate of interest-bearing deposits decreased 22 basis points to 0.14% for the first nine months of 2021 as compared to 0.36% in the same period of 2020. Partially offsetting the lower rates was an increase in average interest-bearing deposit balances, which increased from $663.5 million in the first nine months of 2020 to $768.1 million in the same period of 2021. For the first nine months of 2021, interest expense on borrowings decreased $172,000, or 32.2%, to $362,000 as compared to the same period of 2020, due primarily to a decrease in our average outstanding borrowings, which decreased from $40.1 million in the first nine months of 2020 to $26.9 million in the first nine months of 2021. Partially offsetting the lower interest expense on borrowings were slightly higher average rates on our borrowings, which increased to 1.80% for the first nine months of 2021 compared to 1.78% for the same period of 2020.
Net Interest Income. Net interest income increased $346,000, or 3.7%, to $9.6 million for the third quarter of 2021 compared to the same period of 2020. The increase in net interest income was primarily a result of higher yields on PPP loans and an increase of 10.4% in average interest-earning assets, from $1.0 billion in the third quarter of 2020 to $1.2 billion for the same period of 2021. The increase in average interest-earning assets was primarily due to growth in the average balances of interest-bearing deposits at banks and investment securities. The higher balances of interest-bearing deposits at banks were the result of deposit growth and negatively impacted our net interest margin due to the low yields on these balances. Our net interest margin, on a tax-equivalent basis, decreased from 3.60% during the third quarter of 2020 to 3.36% in the same period of 2021.
Net interest income increased $2.8 million, or 10.6%, to $29.2 million for the first nine months of 2021 compared to the same period of 2020. The increase was primarily due to higher yields on PPP loans and a result of a 16.3% increase in average interest-earning assets, from $987.4 million in the first nine months of 2020 to $1.1 billion in the first nine months of 2021. The increase in average interest-earning assets was primarily due to growth in our average balances of interest-bearing deposits at banks and loans. Net interest margin, on a tax-equivalent basis, decreased from 3.66% in the first nine months of 2020 to 3.47% in the same period of 2021.
As a result of the COVID-19 pandemic, we originated approximately $186.0 million of PPP loans from April 3, 2020, the first day of the program, through May 31, 2021, the last day of the program. These loans have an interest rate of 1.00% plus the amortization of the origination fee. The maturity date of these loans is two to five years from the date of borrowing unless the borrower’s loan is forgiven, in which case the loan may be repaid sooner. The yield on PPP loans incorporating the acceleration of the origination fee can vary significantly based on the number of loans forgiven, which may increase or decrease our net interest margin. In addition, the economic effects of the COVID-19 pandemic have slowed our origination of new loans, excluding PPP loans, which may lead to lower net interest income and net interest margin in future periods. Our deposit growth, part of which was as a result of government stimulus payments, has exceeded the growth of our loans and investment securities resulting in an increase in our cash balances of interest-bearing deposits at banks and a decrease in borrowings. The yield on interest-bearing deposits at banks is significantly lower than the yields on loans and investment securities, which has negatively impacted our net interest margin. The continuation of the low market interest rates will also likely adversely impact our net interest income and net interest margin because lower yields on loans and investment securities will likely more than offset the lower cost of funds.
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Average Assets/Liabilities. The following table reflects the tax-equivalent yields earned on average interest-earning assets and costs of average interest-bearing liabilities for the periods indicated (derived by dividing income or expense by the monthly average balance of assets or liabilities, respectively) as well as “net interest margin” (which reflects the effect of the net earnings balance) for the periods shown:
| (1) | Income on tax exempt securities is presented on a fully tax-equivalent basis, using a 21% federal tax rate. | |
| (2) | Includes loans classified as non-accrual. Income on tax-exempt loans is presented on a fully tax-equivalent basis, using a 21% federal tax rate. | |
| (3) | Interest rate spread represents the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. | |
| (4) | Net interest margin represents annualized, tax-equivalent net interest income divided by average interest-earning assets. |
| Nine months ended | Nine months ended | |||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||
| Average balance | Interest | Average yield/rate | Average balance | Interest | Average yield/rate | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
| Interest-bearing deposits at banks | $ | 110,288 | $ | 99 | 0.12 | % | $ | 12,300 | $ | 20 | 0.22 | % | ||||||||||||
| Investment securities (1) | 335,186 | 5,142 | 2.05 | % | 327,608 | 6,452 | 2.63 | % | ||||||||||||||||
| Loans receivable, net (2) | 702,450 | 25,721 | 4.90 | % | 647,535 | 22,908 | 4.73 | % | ||||||||||||||||
| Total interest-earning assets | 1,147,924 | 30,962 | 3.61 | % | 987,443 | 29,380 | 3.97 | % | ||||||||||||||||
| Non-interest-earning assets | 100,903 | 95,030 | ||||||||||||||||||||||
| Total | $ | 1,248,827 | $ | 1,082,473 | ||||||||||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Money market and checking | $ | 505,355 | $ | 388 | 0.10 | % | $ | 416,077 | $ | 778 | 0.25 | % | ||||||||||||
| Savings accounts | 142,659 | 36 | 0.03 | % | 111,025 | 29 | 0.03 | % | ||||||||||||||||
| Time deposit | 120,043 | 376 | 0.42 | % | 136,378 | 991 | 0.97 | % | ||||||||||||||||
| Total deposits | 768,057 | 800 | 0.14 | % | 663,480 | 1,798 | 0.36 | % | ||||||||||||||||
| FHLB advances and other borrowings | 26,872 | 362 | 1.80 | % | 40,079 | 534 | 1.78 | % | ||||||||||||||||
| Total interest-bearing liabilities | 794,929 | 1,162 | 0.20 | % | 703,559 | 2,332 | 0.44 | % | ||||||||||||||||
| Non-interest-bearing liabilities | 323,377 | 364,306 | ||||||||||||||||||||||
| Stockholders’ equity | 130,521 | 114,608 | ||||||||||||||||||||||
| Total | $ | 1,248,827 | $ | 1,182,473 | ||||||||||||||||||||
| Interest rate spread (3) | 3.41 | % | 3.53 | % | ||||||||||||||||||||
| Net interest margin (4) | $ | 29,800 | 3.47 | % | $ | 27,048 | 3.66 | % | ||||||||||||||||
| Tax-equivalent interest - imputed | 616 | 664 | ||||||||||||||||||||||
| Net interest income | $ | 29,184 | $ | 26,384 | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 144.4 | % | 140.3 | % | ||||||||||||||||||||
| (1) | Income on tax exempt securities is presented on a fully tax-equivalent basis, using a 21% federal tax rate. | |
| (2) | Includes loans classified as non-accrual. Income on tax-exempt loans is presented on a fully tax-equivalent basis, using a 21% federal tax rate. | |
| (3) | Interest rate spread represents the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. | |
| (4) | Net interest margin represents annualized, tax-equivalent net interest income divided by average interest-earning assets. |
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Rate/Volume Table. The following table describes the extent to which changes in tax-equivalent interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities affected the Company’s interest income and expense for 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 (i) and (ii)). The net changes attributable to the combined effect of volume and rate that cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||
| 2021 vs 2020 | 2021 vs 2020 | |||||||||||||||||||||||
| Increase/(decrease) attributable to | Increase/(decrease) attributable to | |||||||||||||||||||||||
| Volume | Rate | Net | Volume | Rate | Net | |||||||||||||||||||
| (Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||
| Interest income: | ||||||||||||||||||||||||
| Interest-bearing deposits at banks | $ | 44 | $ | 4 | $ | 48 | $ | 84 | $ | (5 | ) | $ | 79 | |||||||||||
| Investment securities | 446 | (739 | ) | (293 | ) | 153 | (1,463 | ) | (1,310 | ) | ||||||||||||||
| Loans | (523 | ) | 985 | 462 | 1,976 | 837 | 2,813 | |||||||||||||||||
| Total | (33 | ) | 250 | 217 | 2,213 | (631 | ) | 1,582 | ||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||
| Deposits | 46 | (142 | ) | (96 | ) | 347 | (1,345 | ) | (998 | ) | ||||||||||||||
| Other borrowings | (223 | ) | 207 | (16 | ) | (178 | ) | 6 | (172 | ) | ||||||||||||||
| Total | (177 | ) | 65 | (112 | ) | 169 | (1,339 | ) | (1,170 | ) | ||||||||||||||
| Net interest income | $ | 144 | $ | 185 | $ | 329 | $ | 2,044 | $ | 708 | $ | 2,752 | ||||||||||||
Provision for Loan Losses. We maintain, and our Board of Directors monitors, an allowance for losses on loans. The allowance is established based upon management’s 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 or discounted cash flows of specifically identified impaired loans. Additionally, allowance policies are subject to periodic review and revision in response to a number of factors, including current market conditions, actual loss experience and management’s expectations.
During the third quarter of 2021, we did not record a provision for loan losses compared to a provision of $1.0 million in the third quarter of 2020. We recorded net loan charge-offs of $397,000 during the third quarter of 2021 compared to net loan charge-offs of $381,000 during the third quarter of 2020. A charge-off of $540,000 was recorded during the third quarter of 2021 on a previously impaired commercial real estate loan which had a related allowance recorded against it as of June 30, 2021. The economic impact of COVID-19 improved during the third quarter of 2021, which resulted in no provision for loan losses during the third quarter of 2021.
During the first nine months of 2021, we recorded a provision for loan losses of $500,000 compared to $2.6 million during the same period of 2020. We recorded net loan charge-offs of $509,000 during the nine months ended September 30, 2021 compared to $701,000 during the same period of 2020. The increase in our provision for loan losses during 2020 was primarily due to the estimated economic impact of the COVID-19 pandemic at that time. If the COVID-19 pandemic causes economic declines in excess of our estimations, or if the pandemic lasts longer than currently projected, our provision for loan losses may increase in future periods. We may see higher loan delinquencies and defaults in future periods as a result of the COVID-19 pandemic. We will continue to monitor our allowance for loan losses in light of changing economic conditions related to COVID-19.
For further discussion of the allowance for loan losses, refer to the “Asset Quality and Distribution” section below.
Non-interest Income. Total non-interest income was $5.5 million in the third quarter of 2021, a decrease of $2.7 million, or 33.1%, from the same period in 2020, primarily as a result of a decrease of $2.3 million in gains on sales of loans. Our gains on sales of loans decreased as our originations of secondary market one-to-four family residential real estate loans slowed due to the increase in mortgage interest rates and decreased inventory in the housing market in Landmark’s market areas. Also contributing to the decrease was a $648,000 decrease in gain on sales of investment securities during the third quarter of 2021. Partially offsetting this decrease was an increase of $146,000 in fees and services charges primarily due to higher interchange and servicing fees.
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Total non-interest income was $17.7 million in the first nine months of 2021, a decrease of $2.8 million, or 13.8%, from the first nine months of 2020. The decrease in non-interest income was primarily due to a decrease of $2.3 million in gains on sales of loans. Our gains on sales of loans decreased as our originations of secondary market one-to-four family residential real estate loans slowed due to the increase in mortgage interest rates and decreased inventory in the housing market in Landmark’s market areas. Also contributing to the decrease in non-interest income was the gains on sales of investment securities as a result of the Company recording $2.4 million in net gains on sales of investment securities during the first nine months of 2020 compared to net gains of $1.1 million in the same period of 2021. Partially offsetting these decreases was a $616,000 increase in fees and services charges due to higher interchange and servicing fees.
Non-interest Expense. Non-interest expense totaled $9.4 million for the third quarter of 2021, a decrease of $79,000, or 0.8%, from $9.5 million for the third quarter of 2020. The decrease was primarily due to a decrease of $427,000 in compensation and benefits expense which was primarily a result of lower one-to-four family residential mortgage commissions. Partially offsetting this decrease was an increase of $359,000 in other non-interest expense which was primarily related to costs associated with the PPP loan forgiveness process and costs associated with foreclosure and real estate owned.
Non-interest expense totaled $27.7 million for the first nine months of 2021, an increase of $961,000 or 3.6%, from $26.7 million for the first nine months of 2020. The increase was primarily due to an increase of $859,000 in other non-interest expense which was primarily related to costs associated with the PPP loan forgiveness process and costs associated with foreclosure and real estate owned. Partially offsetting this increase was a decrease of $298,000 in compensation and benefits expense which was primarily a result of lower one-to-four family residential mortgage commissions.
Income Tax Expense. During the third quarter of 2021, we recorded income tax expense of $1.1 million, compared to $1.5 million during the same period of 2020. Our effective tax rate decreased from 21.5% in the third quarter of 2020 to 19.8% in the third quarter of 2021.
We recorded income tax expense of $3.8 million for the first nine months of 2021 compared to $3.6 million in the same period of 2020. Our effective tax rate was 20.8% in the first nine months of 2020 compared to 20.3% in the first nine months of 2021.
Financial Condition. Economic conditions in the United States deteriorated during 2020 as the impact of COVID-19 caused portions of the economy to shut down or be subject to operating restrictions. On March 28, 2020, a stay at home order was issued for the entire state of Kansas and was lifted on May 3, 2020, with a phased approach to reopening the Kansas economy. The State of Kansas and the geographic markets in which the Company operates were significantly impacted by this pandemic; however, the economic reopening has driven a rebound in the regional economy in late 2020 and 2021. The Company’s allowance for loan losses included estimates of the economic impact of COVID-19 on our loan portfolio. The COVID-19 pandemic and its effects on the economy may cause an increase in our delinquent and non-accrual loans as the economic slowdown continues to impact our customers. However, our loan portfolio is diversified across various types of loans and collateral throughout the markets in which we operate. Aside from a few problem loans that management is working to resolve, our asset quality has remained strong over the past few years. While further increases in problem assets may arise as a result of COVID-19, management believes its efforts to run a high quality financial institution with a sound asset base will continue to create a strong foundation for continued growth and profitability in the future.
Asset Quality and Distribution. Our primary investing activities are the origination of one-to-four family residential real estate, construction and land, commercial real estate, commercial, agriculture, municipal and consumer loans and the purchase of investment securities. Total assets increased $66.5 million, or 5.6%, from December 31, 2020 to $1.3 billion at September 30, 2021.
The allowance for loan losses is established through a provision for loan losses based on our evaluation of the risk inherent in the loan portfolio and changes in the nature and volume of our loan activity. This evaluation, which includes a review of all loans with respect to which full collectability 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 appropriate allowance for loan losses. At September 30, 2021, our allowance for loan losses totaled $8.8 million, or 1.32% of gross loans outstanding, compared to $8.8 million, or 1.23% of gross loans outstanding, at December 31, 2020. Our allowance for loan losses as a percentage of gross loans outstanding, excluding PPP loans of $28.7 million at September 30, 2021 and $100.1 million at December 31, 2020, was 1.38% at September 30, 2021 compared to 1.43% at December 31, 2020. This reflects a more comparable ratio to periods prior to PPP, as no allowance for loan losses has been allocated to PPP loans since they are guaranteed by the Small Business Administration.
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As of September 30, 2021 and December 31, 2020, approximately $19.7 million and $25.2 million, respectively, of loans were considered classified and assigned a risk rating of special mention, substandard or doubtful. These ratings indicate that these loans were identified as potential problem loans having more than normal risk that raised doubts as to the ability of the borrowers to comply with present loan repayment terms. Even though borrowers were experiencing moderate cash flow problems as well as some deterioration in collateral value, management believed the allowance was sufficient to cover the risks and probable incurred losses related to such loans at September 30, 2021 and December 31, 2020, respectively.
Loans past due 30-89 days and still accruing interest totaled $1.5 million, or 0.23% of gross loans, at September 30, 2021, compared to $1.5 million, or 0.22% of gross loans, at December 31, 2020. At September 30, 2021, $9.8 million in loans were on non-accrual status, or 1.48% of gross loans, compared to $10.5 million, or 1.47% of gross loans, at December 31, 2020. Non-accrual loans consist of loans 90 or more days past due and certain impaired loans. There were no loans 90 days delinquent and accruing interest at September 30, 2021 or December 31, 2020. Our impaired loans totaled $11.5 million at September 30, 2021 compared to $12.5 million at December 31, 2020. The difference in the Company’s non-accrual loan balances and impaired loan balances at September 30, 2021 and December 31, 2020 was related to TDRs that were accruing interest but still classified as impaired.
At September 30, 2021, the Company had thirteen loan relationships consisting of 17 outstanding loans that were classified as TDRs. During the three and nine months ended September 30, 2021, an agriculture loan totaling $237,000 was classified as a TDR because the loan was a new loan to an existing classified loan relationship. The additional loan provided funds to stabilize the borrower’s operations through the fall harvest. During the three and nine months ended September 30, 2021, an agriculture loan paid off that was previously classified as a TDR in 2016. During the nine months ended September 30, 2021, a commercial loan relationship consisting of five loans was modified after originally being classified as a TDR in 2020. The borrower liquidated some of the collateral securing the loans and refinanced the remaining balance of $479,000 into one loan which retained a TDR classification. During the three and nine months ended September 30, 2020, the Company modified the payment terms for two agriculture loans totaling $571,000 and classified the restructurings as TDRs. A commercial loan totaling $33,000 and a $1.4 million loan relationship consisting of two commercial real estate loans and one construction loan were classified as TDRs during the three and nine months ended September 30, 2020 after negotiating restructuring agreements with the borrowers. Five loans totaling $827,000 related to one commercial loan relationship were classified as TDRs during the nine months ended September 30, 2020, after the payments were modified to interest only. All of the loans classified as TDRs were experiencing financial difficulties prior to the COVID-19 pandemic.
As of September 30, 2021, the Company had one loan modification with an outstanding loan balance of $3.7 million in connection with the COVID-19 pandemic which was also designated non-accrual and impaired; this loan subsequently paid off. This modification consisted of the deferral of principal payments. The Company also entered into short-term forbearance plans or short-term repayment plans on two one-to-four family residential mortgage loans totaling $74,000 as of September 30, 2021. Consistent with the CARES Act and the Joint Interagency Regulatory Guidance, these loan modifications were not classified as TDRs.
As part of our credit risk management, we continue to manage the loan portfolio to identify problem loans and have placed additional emphasis on commercial real estate and construction and land relationships. We are working to resolve the remaining problem credits or move the non-performing credits out of the loan portfolio. At September 30, 2021, we had $2.6 million of real estate owned compared to $1.8 million at December 31, 2020. As of September 30, 2021, real estate owned primarily consisted of commercial and residential real estate properties. The Company is currently marketing all of the remaining properties in real estate owned. During the third quarter of 2021, the Company acquired two multi-family commercial real estate properties with a fair value of $1.2 million through a deed in lieu of foreclosure. The loan was previously classified as impaired and resulted in a $540,000 charge-off during the third quarter.
Liability Distribution. Our primary ongoing sources of funds are deposits, FHLB borrowings, 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 and economic conditions. We experienced an increase of $50.7 million, or 5.0%, in total deposits during the first nine months of 2021, to $1.1 billion at September 30, 2021. The increase in deposits was primarily due to increases in non-interest-bearing demand accounts and savings accounts. Offsetting those increases were decreases in certificates of deposit and money market and checking deposit accounts. The decrease in certificates of deposit and money market and checking deposit accounts was primarily associated with a decline in public funds accounts.
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Non-interest-bearing deposits at September 30, 2021, were $317.8 million, or 29.8% of deposits, compared to $264.9 million, or 26.1% of deposits, at December 31, 2020. Money market and checking deposit accounts were 45.8% of our deposit portfolio and totaled $488.2 million at September 30, 2021, compared to $491.3 million, or 48.3% of deposits, at December 31, 2020. Savings accounts increased to $151.4 million, or 14.2% of deposits, at September 30, 2021, from $126.1 million, or 12.4% of deposits, at December 31, 2020. Certificates of deposit totaled $109.3 million, or 10.2% of deposits, at September 30, 2021, compared to $133.8 million, or 13.2% of deposits, at December 31, 2020.
Certificates of deposit at September 30, 2021, scheduled to mature in one year or less totaled $62.6 million. Historically, maturing deposits have generally remained with the Bank, and we believe that a significant portion of the deposits maturing in one year or less will remain with us upon maturity in some type of deposit account.
Total borrowings decreased $152,000 to $27.9 million at September 30, 2021, from $28.0 million at December 31, 2020. The decrease in total borrowings was due to a decrease in repurchase agreement accounts as customers have migrated to other deposit accounts.
Cash Flows. During the nine months ended September 30, 2021, our cash and cash equivalents increased by $32.5 million. Our operating activities provided net cash of $26.0 million during the first nine months of 2021 primarily as a result of the proceeds from the sales of loans. Our investing activities used net cash of $41.2 million during the first nine months of 2021, primarily due to the purchase of investment securities and the purchase of bank owned life insurance. Financing activities provided net cash of $47.7 million during the first nine months of 2021, primarily as a result of an increase in deposits.
Liquidity. Our most liquid assets are cash and cash equivalents and investment securities available-for-sale. The levels of these assets are dependent on the operating, financing, lending and investing activities during any given year. These liquid assets totaled $495.8 million at September 30, 2021 and $382.1 million at December 31, 2020. During periods in which we are not able to originate a sufficient amount of loans and/or periods of high principal prepayments, we generally increase our liquid assets by investing in short-term, high-grade investments or holding higher balances of cash and cash equivalents. The higher balances of cash and cash equivalents are primarily held in our Federal Reserve account.
Liquidity management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. Excess funds are typically generated as a result of increased deposit balances, while uses of excess funds are generally deposit withdrawals and loan advances. In the event we require funds beyond our ability to generate them internally, additional funds are generally available through the use of FHLB advances, a line of credit with the FHLB, other borrowings or through sales of investment securities. At September 30, 2021, we had no borrowings against our line of credit with the FHLB. At September 30, 2021, we had collateral pledged to the FHLB that would allow us to borrow $63.8 million, subject to FHLB credit requirements and policies. At September 30, 2021, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $81.1 million. We also have various other federal funds agreements, both secured and unsecured, with correspondent banks totaling approximately $30.0 million in available credit under which we had no outstanding borrowings at September 30, 2021. At September 30, 2021, we had subordinated debentures totaling $21.7 million and $6.2 million of repurchase agreements. At September 30, 2021, the Company had no borrowings against a $7.5 million line of credit from an unrelated financial institution maturing on November 1, 2022, with an interest rate that adjusts daily based on the prime rate less 0.25%. This line of credit has covenants specific to capital and other financial ratios, which the Company was in compliance with at September 30, 2021.
Off Balance Sheet Arrangements. 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 $1.2 million at September 30, 2021.
At September 30, 2021, we had outstanding loan commitments, excluding standby letters of credit, of $141.2 million. We anticipate that sufficient funds will be available to meet current loan commitments. These commitments consist of unfunded lines of credit and commitments to finance real estate loans.
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Capital. Current regulatory capital regulations require financial institutions (including banks and bank holding companies) to meet certain regulatory capital requirements. The Company and the Bank are subject to the Basel III Rules that implemented the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Basel III Rules are applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets of less than $3.0 billion).
The Basel III Rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a Tier 1 capital to risk-weighted assets minimum ratio of 6.0%, a Total Capital to risk-weighted assets minimum ratio of 8.0%, and a Tier 1 leverage minimum ratio of 4.0%. A capital conservation buffer, equal to 2.5% common equity Tier 1 capital, is also established above the regulatory minimum capital requirements (other than the Tier 1 leverage ratio). As of September 30, 2021 and December 31, 2020, the Bank met the requirements to be “well capitalized,” which is the highest rating available under the regulatory capital regulations framework for prompt corrective action. Management believed that as of September 30, 2021, the Company and the Bank met all capital adequacy requirements to which we are subject.
We believe the Company has adequate capital to withstand the impact of the COVID-19 pandemic and any economic downturn on our asset quality and net earnings. The Company performs stress tests on the loan portfolio to measure the impact of severe economic recessions on its capital levels to ensure we are prepared for events like the COVID-19 pandemic.
Dividends. During the quarter ended September 30, 2021, we paid a quarterly cash dividend of $0.20 per share to our stockholders.
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. In addition, under the Basel III Rules, financial institutions have to maintain 2.5% in common equity Tier 1 capital attributable to the capital conservation buffer in order to pay dividends and make other capital distributions. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of September 30, 2021. 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 bank’s current year’s net earnings plus the adjusted retained earnings for the two preceding years. As of September 30, 2021, approximately $31.3 million was available to be paid as dividends to the Company by the Bank without prior regulatory approval.
Additionally, our ability to pay dividends is limited by the subordinated debentures that are held by three business trusts that we control. Interest payments on the debentures must be paid before we pay dividends on our capital stock, including our common stock. We have the right to defer interest payments on the debentures for up to 20 consecutive quarters. However, if we elect to defer interest payments, all deferred interest must be paid before we may pay dividends on our capital stock.
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ITEM 3. 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 decisions relating to pricing our assets and liabilities, which impact 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. 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 one using interest rates as of the forecast date, 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 with an impact to our net interest income on a one-year horizon as follows:
| As of September 30, 2021 | As of December 31, 2020 | |||||||||||||||
| Scenario | Dollar change in net interest income ($000’s) | Percent change in net interest income | Dollar change in net interest income ($000’s) | Percent change in net interest income | ||||||||||||
| 200 basis point rising | $ | 2,383 | 7.20 | % | $ | (99 | ) | -0.30 | % | |||||||
| 100 basis point rising | $ | 1,218 | 3.70 | % | $ | (169 | ) | -0.50 | % | |||||||
| 100 basis point falling | $ | (708 | ) | -2.10 | % | $ | (180 | ) | -0.50 | % | ||||||
| 200 basis point falling | NM | NM | NM | NM | ||||||||||||
The 200 basis point falling scenario is considered to be not meaningful (“NM”) in the current low interest rate environment.
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 of us and our subsidiaries include, but are not limited to, the following:
| ● | The effects of the COVID-19 pandemic, including its effects on the economic environment, our customers and our operations, including due to supply chain disruptions, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic. | |
| ● | The impact of the COVID-19 pandemic on our financial results, including possible lost revenue and increased expenses (including the cost of capital), as well as possible goodwill impairment charges. | |
| ● | The strength of the United States economy in general and the strength of the local economies in which we conduct our operations, including the effects of the COVID-19 pandemic on such economies, 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. |
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| ● | The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, consumer protection, insurance, tax, trade 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 Federal Reserve including on our net interest income and the value of our securities portfolio. | |
| ● | Our ability to compete with other financial institutions 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. | |
| ● | Technological changes implemented by us and by other parties, including third-party vendors, which may be more difficult to implement 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. | |
| ● | The effectiveness of our risk management framework. | |
| ● | The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents and our ability to identify and address such incidents. | |
| ● | Interruptions involving our information technology and telecommunications systems or third-party servicers. | |
| ● | Changes in and uncertainty related to the availability of benchmark interest rates used to price our loans and deposits, including the expected elimination of LIBOR and the development of a substitute. | |
| ● | The effects of severe weather, natural disasters, widespread disease or pandemics, and other external events. | |
| ● | 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. | |
| ● | Our ability to successfully integrate acquired businesses and future growth. | |
| ● | 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 FASB, such as the implementation of CECL. | |
| ● | 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. | |
| ● | Our ability to effectively manage our credit risk. | |
| ● | Our ability to forecast probable loan losses and maintain an adequate allowance for loan losses. | |
| ● | The effects of declines in the value of our investment portfolio. | |
| ● | Our ability to raise additional capital if needed. | |
| ● | The effects of declines in real estate markets. | |
| ● | The effects of fraudulent activity on the part of our employees, customers, vendors, or counterparties. |
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, including the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2020 filed on March 22, 2021.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2021. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2021 to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2021 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its subsidiaries is a party or which any of their property is subject, other than ordinary routine litigation incidental to their respective businesses.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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SIGNATURES
Pursuant to the requirements 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.
| Date: November 12, 2021 | /s/ Michael E. Scheopner |
| Michael E. Scheopner | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: November 12, 2021 | /s/ Mark A. Herpich |
| Mark A. Herpich | |
| Vice President, Secretary, Treasurer and Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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Exhibit 10.1
BUSINESS LOAN AGREEMENT
| Principal | Loan Date | Maturity | Loan No | Call/Coll | Account | Officer | Initials |
| $7,500,000.00 | 11-01-2021 | 11-01-2022 | xxxxxxx | *** |
| Borrower: | Landmark Bancorp, Inc. | Lender: | First National Bank of Omaha |
| 701 Poyntz Ave | Downtown-Corporate Banking Group | ||
| Manhattan KS 66502-6055 | 1620 Dodge St SC 3206 | ||
| Omaha, NE 68197 |
THIS BUSINESS LOAN AGREEMENT dated November 1, 2021, is made and executed between Landmark Bancorp, Inc. (“Borrower”) and First National Bank of Omaha (“Lender”) on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower’s representations, warranties, and agreements as set forth in this Agreement (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender’s sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement. This Agreement shall apply to any and all present and future loans, loan advances, extension of credit, financial accommodations and other agreements and undertakings of every nature and kind that may be entered into by and between Borrower and Lender now and in the future.
TERM. This Agreement shall be effective as of November 1, 2021, and shall continue in full force and effect until such time as all of Borrower’s Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys’ fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.
LINE OF CREDIT. The Indebtedness includes a revolving line of credit. Advances under the Indebtedness, as well as directions for payment from Borrower’s accounts, may be requested either orally or in writing by Borrower. Lender may, but need not require that all non-written requests be confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person as described in the “Advance Authority” section below or (B) credited to any of Borrower’s accounts with Lender.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender’s obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender’s satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender’s Security Interests; (4) evidence of insurance as required below; (5) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender’s counsel.
Borrower’s Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.
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REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:
Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of Borrower’s state of incorporation. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 701 Poyntz Ave, Manhattan, KS 66502. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower’s state of organization or any change in Borrower’s name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower’s business activities.
Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None.
Authorization. Borrower’s execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower, do not require the consent or approval of any other person, regulatory authority, or governmental body, and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower’s articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower’s properties. Borrower has the power and authority to enter into the Note and the Related Documents and to grant collateral as security for the Loan. Borrower has the further power and authority to own and to hold all of Borrower’s assets and properties, and to carry on Borrower’s business as presently conducted.
Financial Information. Each of Borrower’s financial statements supplied to Lender truly and completely disclosed Borrower’s financial condition as of the date of the statement, and there has been no material adverse change in Borrower’s financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower’s financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower’s properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower’s properties are titled in Borrower’s legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years.
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Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower’s ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower’s expense and tor Lender’s purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower’s due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender’s acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower’s financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower’s knowledge, all of Borrower’s tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower’s Loan and Note, that would be prior or that may in any way be superior to Lender’s Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for business or commercially related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (1) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (2) Borrower has not withdrawn from any such plan or initiated steps to do so, (3) no steps have been taken to terminate any such plan or to appoint a trustee to administer such a plan, and (4) there are no unfunded liabilities other than those previously disclosed to Lender in writing.
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Investment Company Act. Borrower is not an “investment company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.
Public Utility Holding Company Act. Borrower is not a “holding company”, or a “subsidiary company” of a “holding company”, or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company”, within the meaning of the Public Utility Holding Company Act of 1935, as amended.
Regulations T and U. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System).
Information. All information previously furnished or which is now being furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated by this Agreement is, and all information furnished by or on behalf of Borrower to Lender in the future will be, true and accurate in every material respect on the date as of which such information is dated or certified; and no such information is or will be incomplete by omitting to state any material fact the omission of which would cause the information to be misleading.
Claims and Defenses. There are no defenses or counterclaims, offsets or other adverse claims, demands or actions of any kind, personal or otherwise, that Borrower, any Granter, or any Guarantor could assert with respect to the Note, Loan, this Agreement, or the Related Documents.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:
Repayment. Repay the Loan in accordance with its terms and the terms of this Agreement.
Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower’s financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower’s books and records at all reasonable times.
Financial Statements. Furnish Lender with the following:
Additional Requirements.
For Landmark Bancorp, Inc., the following:
Compliance Certification. As soon as available, but in no event later than 30 days after the end of each fiscal quarter, a certificate executed by Borrower’s chief financial officer, or other officer or person acceptable to Lender, and in a format acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement.
Financial Statements Interim 1OQ. Promptly upon the filing thereof with the Securities and Exchange Commission (but in no event more than forty-five (45) days after the end of each fiscal quarter), a copy of each signed Quarterly Report on Form 10-Q of the Borrower. Such report shall include the Borrower’s quarterly financial statements, including but not limited to consolidated balance sheets of the Borrower for the period commencing at the end of the previous fiscal year and ending with the end of such fiscal quarter, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year and all prepared in accordance with GAAP consistently applied and certified by the President of the Borrower to fairly present the financial condition of the Borrower (subject to year-end adjustments).
FRY-9LP. Immediately upon the filing thereof with the applicable Bank Regulatory Authority (but in no event more than forty-five (45) days after the end of each fiscal quarter), a copy of the FRY-9LP for Landmark Bancorp, Inc.
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For Landmark National Bank the following:
Bank Call Reports. Immediately upon the filing thereof with the applicable Bank Regulatory Authority (but in no event more than forty-five (45) days after the end of each fiscal quarter), a copy of the Call Report for Landmark National Bank for such calendar quarter.
Non-Performing Assets to Tier 1 Capital and Loan Loss Reserves Ratio. Maintain a Non-Performing Assets to Tier 1 Capital and Loan Loss Reserves Ratio (expressed as a percentage) shall not in any event exceed twenty percent (20.00%) and shall be measured on a quarterly basis. “Non-Performing Assets” means with the sum of (a) Non-Performing Loans, (b) leases and other Assets for which payments or other obligations are past due or in default by ninety (90) days or more, (c) the total of all non-accrual leases and other Assets, and (d) all other Assets acquired through foreclosure or other realization upon collateral or rearrangement or satisfaction of Debt. “Tier 1 Capital” means, at any time, on any date, the amount of Tier 1 Capital as reflected in the most recent call report. “Loan loss reserve” or the “allowance for loan and lease losses” in Landmark National Bank.
Non-Performing Loans to Total Loans. The ratio (expressed as a percentage) of Non-Performing loans to the total of all loans made by such Person of less than five percent (5%) measured on a quarterly basis. “Non-performing loans” means, as of any date of determination, the sum of; (a) loans classified as non-accrual (regardless of whether such classification is internal or as reported to or directed by a Bank Regulatory Authority); plus (b) loans past due by ninety (90) or more days that are still accruing interest.
Tier 1 Risk Based Capital Ratio. Maintain a Tier 1 Risk-Based Capital Ratio (expressed as a percentage) shall not be less than twelve and one-half percent (12.50%) and shall be measured on a quarterly basis. “Tier 1 Risk Based Capital Ratio” means Tier 1 Risk Based Capital Ratio as currently defined in the Landmark National Bank’s most recent Call Report.
For the above Additional Requirements, “Call Report” means, with respect to the Borrower, its FR Y-9C and FR Y-9LP quarterly reports to the Federal Reserve System, and, its “Consolidated Reports of Condition and Income” (or similar reports) filed with its applicable Bank Regulatory Authority, or such other forms of call reports as may be required by the Bank Regulatory Authority from time to time; provided, however, if at any time such reports are not required by the applicable Bank Regulatory Authorities, then “Call Reports” shall mean reports containing information similar to the reports set forth above or such other reports as the parties hereto agree upon.
All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements, as Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower’s properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender’s loss payable or other endorsements as Lender may require.
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Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower’s business operations, unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower’s properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower’s books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender, and in all other loan agreements now or in the future existing between Borrower and any other party. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.
Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner
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Environmental Studies. Promptly conduct and complete, at Borrower’s expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.
Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower’s properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans with Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender’s sole opinion, Lender’s interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender’s interest.
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Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower’s other properties and to examine or audit Borrower’s books, accounts, and records and to make copies and memoranda of Borrower’s books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower’s expense.
Change of Location. Immediately notify Lender in writing of any additions to or changes in the location of Borrower’s businesses.
Title to Assets and Property. Maintain good and marketable title to all of Borrower’s assets and properties.
Notice of Default, Litigation and ERISA Matters. Forthwith upon learning of the occurrence of any of the following, Borrower shall provide Lender with written notice thereof, describing the same and the steps being taken by Borrower with respect thereto: (1) the occurrence of any Event of Default, or (2) the institution of, or any adverse determination in, any litigation, arbitration proceeding or governmental proceeding, or (3) the occurrence of a Reportable Event under, or the institution of steps by Borrower to withdraw from, or the institution of any steps to terminate, any employee benefit plan as to which Borrower may have any liability.
Other Information. From time to time Borrower will provide Lender with such other information as Lender may reasonably request.
Employee Benefit Plans. So long as this Agreement remains in effect, Borrower will maintain each employee benefit plan as to which Borrower may have any liability, in compliance with all applicable requirements of law and regulations.
Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower’s part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower’s part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.
LENDER’S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower’s failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note’s maturity.
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NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:
Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower’s assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower’s accounts, except to Lender.
Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge or restructure as a legal entity (whether by division or otherwise), consolidate with or acquire any other entity, change its name, convert to another type of entity or redomesticate, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower’s stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a “Subchapter S Corporation” (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower’s stock, or purchase or retire any of Borrower’s outstanding shares or alter or amend Borrower’s capital structure.
Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets to any other person, enterprise or entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business.
Agreements. Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower’s obligations under this Agreement or in connection herewith.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (8) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower’s financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor’s guaranty of the Loan or any other loan with Lender; or (E) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.
DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Borrower fails to make any payment when due under the Loan.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
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Default in Favor of Third Parties. Borrower or any Granter defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s or any Grantor’s property or Borrower’s or any Grantor’s ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf, or made by Guarantor, under this Agreement or the Related Documents in connection with the obtaining of the Loan evidenced by the Note or any security document directly or indirectly securing repayment of the Note is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Execution; Attachment. Any execution or attachment is levied against the Collateral, and such execution or attachment is not set aside, discharged or stayed within thirty (30) days after the same is levied.
Change in Zoning or Public Restriction. Any change in any zoning ordinance or regulation or any other public restriction is enacted, adopted or implemented, that limits or defines the uses which may be made of the Collateral such that the present or intended use of the Collateral, as specified in the Related Documents, would be in violation of such zoning ordinance or regulation or public restriction, as changed.
Default Under Other Lien Documents. A default occurs under any other mortgage, deed of trust or security agreement covering all or any portion of the Collateral.
Judgment. Unless adequately covered by insurance in the opinion of Lender, the entry of a final judgment for the payment of money involving more than ten thousand dollars ($10,000.00) against Borrower and the failure by Borrower to discharge the same, or cause it to be discharged, or bonded off to Lender’s satisfaction, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.
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Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.
Insecurity. Lender in good faith believes itself insecure.
Change in Membership. If Borrower or Guarantor is a limited liability company, any change in ownership of twenty-five percent (25%) or more of the membership interest of Borrower or Guarantor is an Event of Default.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender’s option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the “Insolvency” subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender’s rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender’s right to declare a default and to exercise its rights and remedies.
ADDITIONAL DOCUMENTS. Borrower shall provide Lender with the following additional documents:
Corporate Resolution. Borrower has provided or will provide Lender with a certified copy of resolutions properly adopted by Borrower’s Board of Directors, and certified by Borrower’s corporate secretary, assistant secretary, or other authorized officer, under which Borrower’s Board of Directors authorized one or more designated officers or employees to execute this Agreement, the Note and any and all Security Agreements directly or indirectly securing repayment of the same, and to consummate the borrowings and other transactions as contemplated under this Agreement, and to consent to the remedies following any default by Borrower as provided in this Agreement and in any Security Agreements.
Opinion of Counsel. When required by Lender, Borrower has provided or will provide Lender with an opinion of Borrower’s counsel certifying to and that: (1) Borrower’s Note, any Security Agreements and this Agreement constitute valid and binding obligations on Borrower’s part that are enforceable in accordance with their respective terms; (2) Borrower is validly existing and in good standing; (3) Borrower has authority to enter into this Agreement and to consummate the transactions contemplated under this Agreement; and (4) such other matters as may have been requested by Lender or by Lender’s counsel.
GUARANTOR PROVISION. Borrower agrees to deliver to Lender any required Guarantor financial items per the Agreement.
ELECTRONIC COPIES. Lender may copy, electronically or otherwise, and thereafter destroy, the originals of this Agreement and/or Related Documents in the regular course of Lender’s business. All such copies produced from an electronic form or by any other reliable means (i.e., photographic image or facsimile) shall in all respects be considered equivalent to an original, and Borrower hereby waives any rights or objections to the use of such copies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
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Attorneys’ Fees; Expenses. Borrower agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s attorneys’ fees and legal expenses whether or not there is a lawsuit, including attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.
Borrower Information. Borrower consents to the release of information on or about Borrower by Lender in accordance with any court order, law or regulation and in response to credit inquiries concerning Borrower.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender’s sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower’s obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.
Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Nebraska without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Nebraska.
Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of Douglas County, State of Nebraska.
Non-Liability of Lender. The relationship between Borrower and Lender created by this Agreement is strictly a debtor and creditor relationship and not fiduciary in nature, nor is the relationship to be construed as creating any partnership or joint venture between Lender and Borrower. Borrower is exercising Borrower’s own judgment with respect to Borrower’s business. All information supplied to Lender is for Lender’s protection only and no other party is entitled to rely on such information. There is no duty for Lender to review, inspect, supervise or inform Borrower of any matter with respect to Borrower’s business. Lender and Borrower intend that Lender may reasonably rely on all information supplied by Borrower to Lender, together with all representations and warranties given by Borrower to Lender, without investigation or confirmation by Lender and that any investigation or failure to investigate will not diminish Lender’s right to so rely.
Notice of Lender’s Breach. Borrower must notify Lender in writing of any breach of this Agreement or the Related Documents by Lender and any other claim, cause of action or offset against Lender within thirty (30) days after the occurrence of such breach or after the accrual of such claim, cause of action or offset. Borrower waives any claim, cause of action or offset for which notice is not given in accordance with this paragraph. Lender is entitled to rely on any failure to give such notice.
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Indemnification of Lender. Borrower agrees to indemnify, to defend and to save and hold Lender harmless from any and all claims, suits, obligations, damages, losses, costs and expenses (including, without limitation, Lender’s attorneys’ fees), demands, liabilities, penalties, fines and forfeitures of any nature whatsoever that may be asserted against or incurred by Lender, its officers, directors, employees, and agents arising out of, relating to, or in any manner occasioned by this Agreement and the exercise of the rights and remedies granted Lender under this, as well as by: (1) the ownership, use, operation, construction, renovation, demolition, preservation, management, repair, condition, or maintenance of any part of the Collateral; (2) the exercise of any of Borrower’s rights collaterally assigned and pledged to Lender hereunder; (3) any failure of Borrower to perform any of its obligations hereunder; and/or (4) any failure of Borrower to comply with the environmental and ERISA obligations, representations and warranties set forth herein. The foregoing indemnity provisions shall survive the cancellation of this Agreement as to all matters arising or accruing prior to such cancellation and the foregoing indemnity shall survive in the event that Lender elects to exercise any of the remedies as provided under this Agreement following default hereunder. Borrower’s indemnity obligations under this section shall not in any way be affected by the presence or absence of covering insurance, or by the amount of such insurance or by the failure or refusal of any insurance carrier to perform any obligation on its part under any insurance policy or policies affecting the Collateral and/or Borrower’s business activities. Should any claim, action or proceeding be made or brought against Lender by reason of any event as to which Borrower’s indemnification obligations apply, then, upon Lender’s demand, Borrower, at its sole cost and expense, shall defend such claim, action or proceeding in Borrower’s name, if necessary, by the attorneys for Borrower’s insurance carrier (if such claim, action or proceeding is covered by insurance), or otherwise by such attorneys as Lender shall approve. Lender may also engage its own attorneys at its reasonable discretion to defend Borrower and to assist in its defense and Borrower agrees to pay the fees and disbursements of such attorneys.
Counterparts. This Agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same Agreement.
No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender’s rights or of any of Borrower’s or any Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower’s current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.
Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.
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Sole Discretion of Lender. Whenever Lender’s consent or approval is required under this Agreement, the decision as to whether or not to consent or approve shall be in the sole and exclusive discretion of Lender and Lender’s decision shall be final and conclusive.
Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word “Borrower” as used in this Agreement shall include all of Borrower’s subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower’s subsidiaries or affiliates.
Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower’s successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower’s rights under this Agreement or any interest therein, without the prior written consent of Lender.
Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower’s Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.
Time is of the Essence. Time is of the essence in the performance of this Agreement.
Waive Jury. All parties to this Agreement hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party.
DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:
Advance. The word “Advance” means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower’s behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.
Agreement. The word “Agreement” means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.
Borrower. The word “Borrower” means Landmark Bancorp, Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.
Collateral. The word “Collateral” means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.
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Environmental Laws. The words “Environmental Laws” mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.
ERISA. The word “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and including all regulations and published interpretations of the act.
Event of Default. The words “Event of Default” mean individually, collectively, and interchangeably any of the events of default set forth in this Agreement in the default section of this Agreement.
GAAP. The word “GAAP” means generally accepted accounting principles.
Grantor. The word “Grantor” means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest.
Guarantor. The word “Guarantor” means any guarantor, surety, or accommodation party of any or all of the Loan, and, in each case, Borrower’s successors, assigns, heirs, personal representatives, executors and administrators of any guarantor, surety, or accommodation party.
Guaranty. The word “Guaranty” means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.
Hazardous Substances. The words “Hazardous Substances” mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words “Hazardous Substances” are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.
Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.
Lender. The word “Lender” means First National Bank of Omaha, its successors and assigns.
Loan. The word “Loan” means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time, and further including any and all subsequent amendments, additions, substitutions, renewals and refinancings of any of Borrower’s Loans.
Note. The word “Note” means any and all of Borrower’s liabilities, obligations and debts to Lender, now existing or hereinafter incurred or created, including, without limitation, all loans, advances, interest, costs debts, overdraft indebtedness, credit card indebtedness, lease obligations, liabilities and obligations under interest rate protection agreements or foreign currency exchange agreements or commodity price protection agreements, other obligations, and liabilities of Borrower together with all modifications, increases, renewals, and extensions of the aforementioned. Additionally, hereby incorporated as if fully set forth herein are the terms and conditions of any promissory note, agreement or other document executed by Borrower and/or Lender indicating this security instrument or the property described herein shall be considered “Collateral” securing such promissory note, agreement, or other instrument, or any similar reference.
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Permitted Liens. The words “Permitted Liens” mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled “Indebtedness and Liens”; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower’s assets.
Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.
Security Agreement. The words “Security Agreement” mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.
Security Interest. The words “Security Interest” mean, individually, collectively, and interchangeably, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED NOVEMBER 1, 2021.
| BORROWER: | |
| LANDMARK BANCORP, INC | |
| /s/ Mark A Herpich | |
| Mark A Herpich, Chief Fin. Officer/Secretary of | |
| Landmark Bancorp, Inc. |
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CHANGE IN TERMS AGREEMENT
| Principal | Loan Date | Maturity | Loan No | Call/Coll | Account | Officer | Initials |
| $7,500,000.00 | 11-01-2021 | 11-01-2022 | xxxxxxx | *** |
| Borrower: | Landmark Bancorp, Inc. | Lender: | First National Bank of Omaha |
| 701 Poyntz Ave | Downtown-Corporate Banking Group | ||
| Manhattan KS 66502-6055 | 1620 Dodge St SC 3206 | ||
| Omaha, NE 68197 |
| Principal Amount: $7,500,000.00 | Date of Agreement: November 1, 2021 |
DESCRIPTION OF EXISTING INDEBTEDNESS. This Change in Terms Agreement is an amendment and/or modification of the terms and conditions of indebtedness of Borrower as set forth in a Promissory Note dated November 1, 2016, in the amount of $7,500,000.00, and most recently documented in a Change in Terms Agreement dated October 30, 2020, and shall include all renewals, modifications and extensions of such documents.
DESCRIPTION OF CHANGE IN TERMS. As fully set forth herein below, this Change in Terms Agreement generally modifies the terms applicable to the existing indebtedness by extending the maturity date to November 1, 2022. Any sums due and owing hereunder shall take into account any principal and interest payments made by the Borrower in accordance with regular established billing cycles.
PROMISE TO PAY. Landmark Bancorp, Inc. (“Borrower”) promises to pay to First National Bank of Omaha (“Lender”), or order, in lawful money of the United States of America, the principal amount of Seven Million Five Hundred Thousand & 00/100 Dollars ($7,500,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on November 1, 2022. In addition, Borrower will pay regular quarterly payments of all accrued unpaid interest due as of each payment date, beginning December 1, 2021, with all subsequent interest payments to be due on the same day of each quarter after that. Unless otherwise agreed or required by applicable law, payments will be applied to interest, principal, and expenses owing under the Note in an order determined by Lender. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this loan is subject to change from time to time based on changes in an independent index which is the U.S. Prime Rate as published by the Wall Street Journal and currently is determined by the base rate on corporate loans posted by at least seventy percent (70%) of the nations ten (10) largest banks (the “Index”). The Index is not necessarily the lowest rate charged by Lender on its loans. Lender will tell Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur more often than each day during the term of the loan. If at any time the Index is less than zero, then it shall be deemed to be zero for the purpose of calculating the interest rate on this Note. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 3.250% per annum. Interest on the unpaid principal balance of this loan will be calculated as described in the “INTEREST CALCULATION METHOD” paragraph using a rate of 0.250 percentage points under the Index (the “Margin”), adjusted if necessary for any minimum and maximum rate limitations described below, resulting in an initial rate of 3.000% per annum based on a year of 360 days. If Lender determines, in its sole discretion, that the Index has become unavailable or unreliable, either temporarily, indefinitely, or permanently, during the term of this loan, Lender may amend this loan by designating a substantially similar substitute index. Lender may also amend and adjust the Margin to accompany the substitute index. The change to the Margin may be a positive or negative value, or zero. In making these amendments, Lender may take into consideration any then-prevailing market convention for selecting a substitute index and margin for the specific Index that is unavailable or unreliable. Such an amendment to the terms of this loan will become effective and bind Borrower 10 business days after Lender gives written notice to Borrower without any action or consent of the Borrower. NOTICE: Under no circumstances will the interest rate on this loan be less than 3.000% per annum or more than the maximum rate allowed by applicable law.
INTEREST CALCULATION METHOD. Interest on this loan is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this loan is computed using this method.
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PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Agreement, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: First National Bank of Omaha, Downtown- Corporate Banking Group, 1620 Dodge St SC 3206, Omaha, NE 68197.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $25.00, whichever is greater.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this loan shall be increased by adding an additional 6.000 percentage point margin (“Default Rate Margin”). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.
DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Borrower fails to make any payment when due under the Indebtedness.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or ability to perform Borrower’s obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf, or made by Guarantor, or any other guarantor, endorser, surety, or accommodation party, under this Agreement or the Related Documents in connection with the obtaining of the Indebtedness evidenced by this Agreement or any security document directly or indirectly securing repayment of this Agreement is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Execution; Attachment. Any execution or attachment is levied against the Collateral, and such execution or attachment is not set aside, discharged or stayed within thirty (30) days after the same is levied.
Change in Zoning or Public Restriction. Any change in any zoning ordinance or regulation or any other public restriction is enacted, adopted or implemented, that limits or defines the uses which may be made of the Collateral such that the present or intended use of the Collateral, as specified in the Related Documents, would be in violation of such zoning ordinance or regulation or public restriction, as changed.
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Default Under Other Lien Documents. A default occurs under any other mortgage, deed of trust or security agreement covering all or any portion of the Collateral.
Judgment. Unless adequately covered by insurance in the opinion of Lender, the entry of a final judgment for the payment of money involving more than ten thousand dollars ($10,000.00) against Borrower and the failure by Borrower to discharge the same, or cause it to be discharged, or bonded off to Lender’s satisfaction, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor, or any other guarantor, endorser, surety, or accommodation party of any of the Indebtedness or any Guarantor, or any other guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness evidenced by this Note.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired.
Insecurity. Lender in good faith believes itself insecure.
LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Agreement and all accrued unpaid interest immediately due, and then Borrower will pay that amount.
ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Agreement if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including attorneys’ fees expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.
JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.
GOVERNING LAW. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Nebraska without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Nebraska.
CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of Douglas County, State of Nebraska.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $30.00 if Borrower makes a payment on Borrower’s loan and the check or preauthorized charge with which Borrower pays is later dishonored.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.
COLLATERAL. Borrower acknowledges this Agreement is secured by a Commercial Pledge Agreement dated November 1, 2021, and any and all other security agreements or documents and any and all other collateral agreements or documents associated with this Loan or Note whether now existing or hereafter arising.
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LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances under this Agreement may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender’s office shown above. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Agreement at any time may be evidenced by endorsements on this Agreement or by Lender’s internal records, including daily computer print-outs.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. Consent by Lender to this Agreement does not waive Lender’s right to strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms. Nothing in this Agreement will constitute a satisfaction of the obligation(s). It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing. Any maker or endorser, including accommodation makers, will not be released by virtue of this Agreement. If any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally, based on the representation to Lender that the non-signing party consents to the changes and provisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also to all such subsequent actions.
U.S.A. PATRIOT ACT. To help the government fight the funding of terrorism and money laundering activities, the USA PATRIOT Act requires all banks to obtain and verify the identity of each person or business that opens an account. When Borrower opens an account Lender will ask Borrower for information that will allow Lender to properly identify Borrower and Lender will verify that information. If Lender cannot properly verify identity within 30 calendar days, Lender reserves the right to deem all of the balance and accrued interest due and payable immediately.
ELECTRONIC COPIES. Lender may copy, electronically or otherwise, and thereafter destroy, the originals of this Agreement and/or Related Documents in the regular course of Lender’s business. All such copies produced from an electronic form or by any other reliable means (i.e., photographic image or facsimile) shall in all respects be considered equivalent to an original, and Borrower hereby waives any rights or objections to the use of such copies.
CHANGE IN MEMBERSHIP. If Borrower or Guarantor is a limited liability company, any change in ownership of twenty-five percent (25%) or more of the membership interest of Borrower or Guarantor is an Event of Default.
CROSS DEFAULT. An Event of Default, beyond the applicable cure period, if any, or an Event of Default under any other Loan or any Related Document will constitute an Event of Default under this Agreement and a default and an Event of Default under any other agreement by Borrower or any affiliate or subsidiary of Borrower with or in favor of Lender and under any evidence of any Loan or Indebtedness held by Lender, whether or not such is specified therein. Borrower acknowledges that some Loan Documents will be preprinted forms and that it is the intent of Borrower and Lender that all Loans and Guaranties by Borrower or any affiliate or subsidiary of Borrower with or in favor of Lender be cross-defaulted with each other.
SUCCESSORS AND ASSIGNS. Subject to any limitations stated in this Agreement on transfer of Borrower’s interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Borrower, Lender, without notice to Borrower, may deal with Borrower’s successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Borrower from the obligations of this Agreement or liability under the Indebtedness.
MISCELLANEOUS PROVISIONS. If any part of this Agreement cannot be enforced, this fact will not affect the rest of the Agreement. Lender may delay or forgo enforcing any of its rights or remedies under this Agreement without losing them. Borrower and any other person who signs, guarantees or endorses this Agreement, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Agreement, and unless otherwise expressly stated in writing, no party who signs this Agreement, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Agreement are joint and several.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE AGREEMENT.
| BORROWER: | |
| LANDMARK BANCORP, INC | |
| /s/ Mark A Herpich | |
| Mark A Herpich, Chief Fin. Officer/Secretary of | |
| Landmark Bancorp, Inc. |
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COMMERCIAL PLEDGE AGREEMENT
| Principal | Loan Date | Maturity | Loan No | Call/Coll | Account | Officer | Initials |
| $7,500,000.00 | 11-01-2021 | 11-01-2022 | xxxxxxx | *** |
| Borrower: | Landmark Bancorp, Inc. | Lender: | First National Bank of Omaha |
| 701 Poyntz Ave | Downtown-Corporate Banking Group | ||
| Manhattan KS 66502-6055 | 1620 Dodge St SC 3206 | ||
| Omaha, NE 68197 |
THIS COMMERCIAL PLEDGE AGREEMENT dated November 1, 2021, is made and executed between Landmark Bancorp, Inc. (“Granter”) and First National Bank of Omaha (“Lender”).
GRANT OF SECURITY INTEREST. For valuable consideration, Granter grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.
COLLATERAL DESCRIPTION. The word “Collateral” as used in this Agreement means Grantor’s present and future rights, title and interest in and to the following described investment property, together with any and all present and future additions thereto, substitutions therefor, and replacements thereof, together with any and all present and future certificates and/or instruments evidencing any securities and further together with all Income and Proceeds as described herein:
Stock Cert #R3 - 2 Million shares of Landmark National Bank
CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. Grantor represents and warrants to Lender that:
Ownership. Grantor is the lawful owner of the Collateral free and clear of all security interests, liens, encumbrances and claims of others except as disclosed to and accepted by Lender in writing prior to execution of this Agreement.
Right to Pledge. Grantor has the full right, power and authority to enter into this Agreement and to pledge the Collateral.
Authority; Binding Effect. Grantor has the full right, power and authority to enter into this Agreement and to grant a security interest in the Collateral to Lender. This Agreement is binding upon Grantor as well as Grantor’s successors and assigns, and is legally enforceable in accordance with its terms. The foregoing representations and warranties, and all other representations and warranties contained in this Agreement are and shall be continuing in nature and shall remain in full force and effect until such time as this Agreement is terminated or cancelled as provided herein.
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No Further Assignment. Grantor has not, and shall not, sell, assign, transfer, encumber or otherwise dispose of any of Grantor’s rights in the Collateral except as provided in this Agreement.
No Defaults. There are no defaults existing under the Collateral, and there are no offsets or counterclaims to the same. Grantor will strictly and promptly perform each of the terms, conditions, covenants and agreements, if any, contained in the Collateral which are to be performed by Grantor.
No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.
Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender’s security interest. At Lender’s request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender’s security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement.
LENDER’S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. Lender may hold the Collateral until all Indebtedness has been paid and satisfied. Thereafter Lender may deliver the Collateral to Grantor or to any other owner of the Collateral. Lender shall have the following rights in addition to all other rights Lender may have by law:
Maintenance and Protection of Collateral. Lender may, but shall not be obligated to, take such steps as it deems necessary or desirable to protect, maintain, insure, store, or care for the Collateral, including paying of any liens or claims against the Collateral. This may include such things as hiring other people, such as attorneys, appraisers or other experts. Lender may charge Grantor for any cost incurred in so doing. When applicable law provides more than one method of perfection of Lender’s security interest, Lender may choose the method(s) to be used. If the Collateral consists of stock, bonds or other investment property for which no certificate has been issued, Grantor agrees, at Lender’s request, either to request issuance of an appropriate certificate or to give instructions on Lender’s forms to the issuer, transfer agent, mutual fund company, or broker, as the case may be, to record on its books or records Lender’s security interest in the Collateral. Grantor also agrees to execute any additional documents, including but not limited to, a control agreement, necessary to perfect Lender’s security interest as Lender may desire.
Income and Proceeds from the Collateral. Lender may receive all Income and Proceeds and add it to the Collateral. Grantor agrees to deliver to Lender immediately upon receipt, in the exact form received and without commingling with other property, all Income and Proceeds from the Collateral which may be received by, paid, or delivered to Grantor or for Grantor’s account, whether as an addition to, in discharge of, in substitution of, or in exchange for any of the Collateral.
Application of Cash. At Lender’s option, Lender may apply any cash, whether included in the Collateral or received as Income and Proceeds or through liquidation, sale, or retirement, of the Collateral, to the satisfaction of the Indebtedness or such portion thereof as Lender shall choose, whether or not matured.
Transactions with Others. Lender may (1) extend time for payment or other performance, (2) grant a renewal or change in terms or conditions, or (3) compromise, compound or release any obligation, with any one or more Obligors, endorsers, or Guarantors of the Indebtedness as Lender deems advisable, without obtaining the prior written consent of Grantor, and no such act or failure to act shall affect Lender’s rights against Grantor or the Collateral.
All Collateral Secures Indebtedness. All Collateral shall be security for the Indebtedness, whether the Collateral is located at one or more offices or branches of Lender. This will be the case whether or not the office or branch where Grantor obtained Grantor’s loan knows about the Collateral or relies upon the Collateral as security.
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Collection of Collateral. Lender at Lender’s option may, but need not, collect the Income and Proceeds directly from the Obligors. Grantor authorizes and directs the Obligors, if Lender decides to collect the Income and Proceeds, to pay and deliver to Lender all Income and Proceeds from the Collateral and to accept Lender’s receipt for the payments.
Power of Attorney. Granter irrevocably appoints Lender as Grantor’s attorney-in-fact, with full power of substitution, (a) to demand, collect, receive, receipt for, sue and recover all Income and Proceeds and other sums of money and other property which may now or hereafter become due, owing or payable from the Obligors in accordance with the terms of the Collateral; (b) to execute, sign and endorse any and all instruments, receipts, checks, drafts and warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and in the place and stead of Grantor, execute and deliver Grantor’s release and acquittance for Grantor; (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in Lender’s own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable; and (e) to execute in Grantor’s name and to deliver to the Obligors on Grantor’s behalf, at the time and in the manner specified by the Collateral, any necessary instruments or documents.
Perfection of Security Interest. Upon Lender’s request, Granter will deliver to Lender any and all of the documents evidencing or constituting the Collateral. When applicable law provides more than one method of perfection of Lender’s security interest, Lender may choose the method(s) to be used. Upon Lender’s request, Grantor will sign and deliver any writings necessary to perfect Lender’s security interest. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender.
LENDER’S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor’s failure to discharge or pay when due any amounts Granter is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Granter. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note’s maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of any Event of Default.
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care in the physical preservation and custody of the Collateral in Lender’s possession, but shall have no other obligation to protect the Collateral or its value. In particular, but without limitation, Lender shall have no responsibility for (A) any depreciation in value of the Collateral or for the collection or protection of any Income and Proceeds from the Collateral, (B) preservation of rights against parties to the Collateral or against third persons, (C) ascertaining any maturities, calls, conversions, exchanges, offers, tenders, or similar matters relating to any of the Collateral, or (D) informing Granter about any of the above, whether or not Lender has or is deemed to have knowledge of such matters. Except as provided above, Lender shall have no liability for depreciation or deterioration of the Collateral.
DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Grantor fails to make any payment when due under the Indebtedness.
Other Defaults. Granter fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Granter.
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Default in Favor of Third Parties. Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Grantor’s property or ability to perform Grantor’s obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Granter or on Grantor’s behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor’s existence as a going business, the insolvency of Granter, the appointment of a receiver for any part of Grantor’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Granter or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Granter as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the Indebtedness or guarantor, endorser, surety, or accommodation party dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.
Adverse Change. A material adverse change occurs in Grantor’s financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired.
Insecurity. Lender in good faith believes itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender may exercise any one or more of the following rights and remedies:
Accelerate Indebtedness. Declare all Indebtedness, including any prepayment penalty which Granter would be required to pay, immediately due and payable, without notice of any kind to Granter.
Collect the Collateral. Collect any of the Collateral and, at Lender’s option and to the extent permitted by applicable law, retain possession of the Collateral while suing on the Indebtedness.
Sell the Collateral. Sell the Collateral, at Lender’s discretion, as a unit or in parcels, at one or more public or private sales. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender shall give or mail to Granter, and other persons as required by law, notice at least ten (10) days in advance of the time and place of any public sale, or of the time after which any private sale may be made. However, no notice need be provided to any person who, after an Event of Default occurs, enters into and authenticates an agreement waiving that person’s right to notification of sale. Granter agrees that any requirement of reasonable notice as to Granter is satisfied if Lender mails notice by ordinary mail addressed to Granter at the last address Granter has given Lender in writing. If a public sale is held, there shall be sufficient compliance with all requirements of notice to the public by a single publication in any newspaper of general circulation in the county where the Collateral is located, setting forth the time and place of sale and a brief description of the property to be sold. Lender may be a purchaser at any public sale.
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Sell Securities. Sell any securities included in the Collateral in a manner consistent with applicable federal and state securities laws. If, because of restrictions under such laws, Lender is unable, or believes Lender is unable, to sell the securities in an open market transaction, Grantor agrees that Lender will have no obligation to delay sale until the securities can be registered. Then Lender may make a private sale to one or more persons or to a restricted group of persons, even though such sale may result in a price that is less favorable than might be obtained in an open market transaction. Such a sale will be considered commercially reasonable. If any securities held as Collateral are “restricted securities” as defined in the Rules of the Securities and Exchange Commission (such as Regulation D or Rule 144) or the rules of state securities departments under state “Blue Sky” laws, or if Granter or any other owner of the Collateral is an affiliate of the issuer of the securities, Grantor, agrees that neither Granter, nor any member of Grantor’s family, nor any other person signing this Agreement will sell or dispose of any securities of such issuer without obtaining Lender’s prior written consent.
Rights and Remedies with Respect to Investment Property, Financial Assets and Related Collateral. In addition to other rights and remedies granted under this Agreement and under applicable law, Lender may exercise any or all of the following rights and remedies: (1) register with any issuer or broker or other securities intermediary any of the Collateral consisting of investment property or financial assets (collectively herein, “investment property”) in Lender’s sole name or in the name of Lender’s broker, agent or nominee; (2) cause any issuer, broker or other securities intermediary to deliver to Lender any of the Collateral consisting of securities, or investment property capable of being delivered; (3) enter into a control agreement or power of attorney with any issuer or securities intermediary with respect to any Collateral consisting of investment property, on such terms as Lender may deem appropriate, in its sole discretion, including without limitation, an agreement granting to Lender any of the rights provided hereunder without further notice to or consent by Granter; (4) execute any such control agreement on Grantor’s behalf and in Grantor’s name, and hereby irrevocably appoints Lender as agent and attorney-in-fact, coupled with an interest, for the purpose of executing such control agreement on Grantor’s behalf; (5) exercise any and all rights of Lender under any such control agreement or power of attorney; (6) exercise any voting, conversion, registration, purchase, option, or other rights with respect to any Collateral; (7) collect, with or without legal action, and issue receipts concerning any notes, checks, drafts, remittances or distributions that are paid or payable with respect to any Collateral consisting of investment property. Any control agreement entered with respect to any investment property shall contain the following provisions, at Lender’s discretion. Lender shall be authorized to instruct the issuer, broker or other securities intermediary to take or to refrain from taking such actions with respect to the investment property as Lender may instruct, without further notice to or consent by Granter. Such actions may include without limitation the issuance of entitlement orders, account instructions, general trading or buy or sell orders, transfer and redemption orders, and stop loss orders. Lender shall be further entitled to instruct the issuer, broker or securities intermediary to sell or to liquidate any investment property, or to pay the cash surrender or account termination value with respect to any and all investment property, and to deliver all such payments and liquidation proceeds to Lender. Any such control agreement shall contain such authorizations as are necessary to place Lender in “control” of such investment collateral, as contemplated under the provisions of the Uniform Commercial Code, and shall fully authorize Lender to issue “entitlement orders” concerning the transfer, redemption, liquidation or disposition of investment collateral, in conformance with the provisions of the Uniform Commercial Code.
Foreclosure. Maintain a judicial suit for foreclosure and sale of the Collateral.
Transfer Title. Effect transfer of title upon sale of all or part of the Collateral. For this purpose, Granter irrevocably appoints Lender as Grantor’s attorney-in-fact to execute endorsements, assignments and instruments in the name of Granter and each of them (if more than one) as shall be necessary or reasonable.
Other Rights and Remedies. Have and exercise any or all of the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, at law, in equity, or otherwise.
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Application of Proceeds. Apply any cash which is part of the Collateral, or which is received from the collection or sale of the Collateral, to reimbursement of any expenses, including any costs for registration of securities, commissions incurred in connection with a sale, attorneys’ fees and court costs, whether or not there is a lawsuit and including any fees on appeal, incurred by Lender in connection with the collection and sale of such Collateral and to the payment of the Indebtedness of Granter to Lender, with any excess funds to be paid to Granter as the interests of Granter may appear. Granter agrees, to the extent permitted by law, to pay any deficiency after application of the proceeds of the Collateral to the Indebtedness.
Election of Remedies. Except as may be prohibited by applicable law, all of Lender’s rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Granter under this Agreement, after Grantor’s failure to perform, shall not affect Lender’s right to declare a default and exercise its remedies.
ELECTRONIC COPIES. Lender may copy, electronically or otherwise, and thereafter destroy, the originals of this Agreement and/or Related Documents in the regular course of Lender’s business. All such copies produced from an electronic form or by any other reliable means (i.e., photographic image or facsimile) shall in all respects be considered equivalent to an original, and Borrower hereby waives any rights or objections to the use of such copies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
Attorneys’ Fees; Expenses. Lender may hire or pay someone else to help enforce this Agreement, and Granter shall pay the costs and expenses of such enforcement. Costs and expenses include all reasonable costs incurred in the collection of the Indebtedness, including but not limited to, court costs, attorneys’ fees and collection agency fees, except that such costs of collection shall not include recovery of both attorneys’ fees and collection agency fees.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
Governing Law. With respect to procedural matters related to the perfection and enforcement of Lender’s rights against the Collateral, this Agreement will be governed by federal law applicable to Lender and to the extent not preempted by federal law, the laws of the State of Kansas. In all other respects, this Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Nebraska without regard to its conflicts of law provisions. However, if there ever is a question about whether any provision of this Agreement is valid or enforceable, the provision that is questioned will be governed by whichever state or federal law would find the provision to be valid and enforceable. The loan transaction that is evidenced by the Note and this Agreement has been applied for, considered, approved and made, and all necessary loan documents have been accepted by Lender in the State of Nebraska.
Choice of Venue. If there is a lawsuit, Granter agrees upon Lender’s request to submit to the jurisdiction of the courts of Douglas County, State of Nebraska.
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No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Granter, shall constitute a waiver of any of Lender’s rights or of any of Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Granter agrees to keep Lender informed at all times of Grantor’s current address. Unless otherwise provided or required by law, if there is more than one Granter, any notice given by Lender to any Granter is deemed to be notice given to all Granters.
Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.
Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor’s interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Granter, Lender, without notice to Granter, may deal with Grantor’s successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Granter from the obligations of this Agreement or liability under the Indebtedness.
Time is of the Essence. Time is of the essence in the performance of this Agreement.
Waive Jury. All parties to this Agreement hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party.
DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:
Agreement. The word “Agreement” means this Commercial Pledge Agreement, as this Commercial Pledge Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Pledge Agreement from time to time.
Borrower. The word “Borrower” means Landmark Bancorp, Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.
Collateral. The word “Collateral” means all of Grantor’s right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement.
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Event of Default. The words “Event of Default” mean any of the events of default set forth in this Agreement in the default section of this Agreement.
Granter. The word “Grantor” means Landmark Bancorp, Inc.
Guaranty. The word “Guaranty” means the guaranty from guarantor, endorser, surety, or accommodation party to Lender, including without limitation a guaranty of all or part of the Note.
Income and Proceeds. The words “Income and Proceeds” mean all present and future income, proceeds, earnings, increases, and substitutions from or for the Collateral of every kind and nature, including without limitation all payments, interest, profits, distributions, benefits, rights, options, warrants, dividends, stock dividends, stock splits, stock rights, regulatory dividends, subscriptions, monies, claims for money due and to become due, proceeds of any insurance on the Collateral, shares of stock of different par value or no par value issued in substitution or exchange for shares included in the Collateral, and all other property Grantor is entitled to receive on account of such Collateral, including accounts, documents, instruments, chattel paper, investment property, and general intangibles.
Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, Indebtedness includes all amounts that may be indirectly secured by the Cross-Collateralization provision of this Agreement.
Lender. The word “Lender” means First National Bank of Omaha, its successors and assigns.
Note. The word “Note” means any and all of Borrower’s liabilities, obligations and debts to Lender, now existing or hereinafter incurred or created, including, without limitation, all loans, advances, interest, costs debts, overdraft indebtedness, credit card indebtedness, lease obligations, liabilities and obligations under interest rate protection agreements or foreign currency exchange agreements or commodity price protection agreements, other obligations, and liabilities of Borrower together with all modifications, increases, renewals, and extensions of the aforementioned. Additionally, hereby incorporated as if fully set forth herein are the terms and conditions of any promissory note, agreement or other document executed by Borrower and/or Lender indicating this security instrument or the property described herein shall be considered “Collateral” securing such promissory note, agreement, or other instrument, or any similar reference.
Obligor. The word “Obligor” means without limitation any and all persons obligated to pay money or to perform some other act under the Collateral.
Property. The word “Property” means all of Grantor’s right, title and interest in and to all the Property as described in the “Collateral Description” section of this Agreement.
Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.
GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL PLEDGE AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED NOVEMBER 1, 2021.
| GRANTOR: | |
| LANDMARK BANCORP, INC | |
| /s/ Mark A Herpich | |
| Mark A Herpich, Chief Fin. Officer/Secretary of | |
| Landmark Bancorp, Inc. |
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a)
I, Michael E. Scheopner, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Landmark Bancorp, Inc.; |
| 2. | Based on my knowledge, this 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 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 registrant’s other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting. |
| Date: November 12, 2021 | /s/ Michael E. Scheopner |
| Michael E. Scheopner | |
| Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a)
I, Mark A. Herpich, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Landmark Bancorp, Inc.; |
| 2. | Based on my knowledge, this 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 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 registrant’s other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting. |
| Date: November 12, 2021 | /s/ Mark A. Herpich |
| Mark A. Herpich | |
| Chief Financial Officer |
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 Quarterly Report of Landmark Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael E. Scheopner, 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, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Michael E. Scheopner | |
| Michael E. Scheopner | |
| Chief Executive Officer | |
| November 12, 2021 |
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 Quarterly Report of Landmark Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021 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, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Mark A. Herpich | |
| Mark A. Herpich | |
| Chief Financial Officer | |
| November 12, 2021 |