Landmark Bancorp, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with 2022. This is an annual report, not a standalone fourth-quarter earnings release. Landmark is a Kansas-focused financial holding company operating Landmark National Bank and a captive insurance subsidiary. It reported approximately $1.6 billion in assets and 31 offices across Kansas, plus a loan production office in Missouri.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Net earnings | $12.2 million | $9.9 million |
| Diluted earnings per share | $2.23 | $1.79 |
| Net interest income | $43.3 million | $38.9 million |
| Net interest margin, tax-equivalent | 3.17% | 3.21% |
| Total assets at year-end | $1.562 billion | $1.503 billion |
| Gross loans at year-end | $948.7 million | $850.2 million |
| Total deposits at year-end | $1.316 billion | $1.301 billion |
| Stockholders’ equity at year-end | $126.9 million | $111.4 million |
- Interest income increased 49.6% to $64.7 million, reflecting higher loan yields and growth in average earning assets. Interest expense rose to $21.4 million from $4.3 million as deposit and borrowing costs increased sharply.
- Non-interest income was $13.2 million, down 3.4%, principally because mortgage loan sale gains declined and investment-security sale losses increased to $1.2 million. Non-interest expense rose 1.7% to $42.0 million; the absence of $3.4 million in 2022 acquisition costs partly offset higher compensation and operating expenses.
- Net interest margin slipped despite higher asset yields, as funding costs rose. Return on average assets was 0.80%, versus 0.73%; return on average equity was 10.70%, versus 8.25%.
- Net cash from operating activities was $12.6 million; investing activities used $50.6 million, mainly to fund loan growth; financing activities provided $42.0 million. Cash and cash equivalents increased $3.9 million to $27.1 million. Cash plus available-for-sale securities totaled $479.9 million at year-end.
- Year-end borrowings totaled about $99.0 million: $64.7 million of FHLB and other borrowings, $21.7 million of subordinated debentures, and $12.7 million of repurchase agreements. The FHLB line had $58.0 million outstanding.
- The Bank reported regulatory capital ratios of 12.74% CET1, 12.74% Tier 1, 13.70% total risk-based capital, and 8.68% leverage, above stated minimums. Management reported that the Bank was well-capitalized.
Material changes versus 2022
- Net earnings increased 23.9%, mainly because of higher interest income and the contribution of the Freedom Bank acquisition, completed October 1, 2022. Higher interest expense substantially offset the asset-yield benefit; the margin declined 4 basis points.
- Net loans grew 11.5% to $937.6 million. Growth included one-to-four-family residential, commercial real estate, commercial, and agricultural lending. Residential loans rose to $302.5 million; commercial real estate loans were $321.0 million.
- Core deposits represented approximately 93.7% of deposits, but brokered deposits increased to $83.2 million, or 6.3% of total deposits, from $10.3 million. Certificates of deposit rose to $183.2 million from $93.3 million, while non-interest-bearing demand deposits declined to $367.1 million from $410.1 million.
- Available-for-sale securities decreased to $452.8 million from $489.3 million. Their gross unrealized losses narrowed to $22.6 million from $33.4 million; accumulated other comprehensive loss improved to $16.6 million from $25.1 million.
- Non-accrual loans declined to $2.4 million, or 0.25% of gross loans, from $3.3 million, or 0.39%. The allowance for credit losses increased to $10.6 million, or 1.12% of gross loans, from $8.8 million, or 1.03%.
Outlook, risks and notable items
- The filing gives no quantified earnings, margin, loan-growth, or deposit-growth guidance. Management described a strategy of expanding commercial, commercial real estate, and agricultural lending and stated that it believes a strong asset base supports future growth and profitability.
- Management highlighted inflation, elevated interest rates, competition for deposits, and uncertainty in the economy. It said the Bank’s relationship-based model, retail-oriented deposit base, and monitoring of interest-rate and concentration risks supported its liquidity and funding position. Management also noted that local commercial real estate markets had, to date, been less affected than some other U.S. markets.
- Interest-rate sensitivity simulations showed estimated 12-month net interest income declines of 4.9% under a 100-basis-point rise and 13.8% under a 300-basis-point rise, based on year-end assumptions. The filing cautions that actual results may differ from modeled outcomes.
- Real estate lending made up approximately 67.9% of gross loans. Commercial real estate loans represented 36.1% of gross loans and 237% of Bank capital; the Company said it was below the regulatory CRE concentration guideline and had identified no current negative CRE trends. Agricultural credit also faces exposure to commodity prices, weather, and farm economics.
- The Company adopted CECL on January 1, 2023. Adoption increased the loan allowance by $1.5 million and reduced retained earnings by $1.2 million, net of tax. The allowance’s qualitative assumptions were identified as a critical audit matter; a 5-basis-point change across qualitative factors would change the allowance by approximately $474,000.
- Unfunded loan commitments were $211.8 million and standby letters of credit were $1.6 million. Management expected sufficient funds to meet current commitments. The filing reports no material pending legal proceedings beyond routine litigation.
- The Company paid adjusted quarterly cash dividends of $0.20 per share in 2023 and issued its 23rd consecutive 5% stock dividend. It stated no current plan to change its dividend strategy, subject to capital, liquidity, regulatory, and earnings constraints.
- After year-end, the Company announced that Abigail M. Wendel would become CEO effective March 29, 2024, succeeding Michael E. Scheopner, who planned to retire from the role. The Bank opened a Kansas City, Missouri loan production office in February 2024.
Important facts for investors to verify
- Whether deposit pricing, brokered funding, and maturing certificates of deposit pressure funding costs or net interest margin further.
- Loan performance and reserve adequacy, particularly in commercial real estate, commercial, and agricultural portfolios; confirm trends in past-due, classified, and non-accrual loans.
- The securities portfolio’s remaining unrealized losses and the potential effect of rates or liquidity needs on any securities sales.
- Liquidity capacity and collateral availability, including the conditions on FHLB borrowing capacity and the Bank’s reliance on wholesale funding.
- The assumptions underlying CECL estimates and the effects of economic forecasts, collateral values, and qualitative adjustments on the allowance.
- The sustainability of earnings growth and dividends given rising funding costs, securities losses, and the change in CEO.