Landmark Bancorp, Inc. — Q3 2021 Form 10-Q
Period: Three and nine months ended September 30, 2021. The unaudited consolidated results cover Landmark Bancorp, Landmark National Bank, and Landmark Risk Management. The company operates a Kansas community bank and captive insurance subsidiary.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Interest income | $10.0 million | $9.8 million | $30.3 million | $28.7 million |
| Net interest income | $9.6 million | $9.3 million | $29.2 million | $26.4 million |
| Provision for loan losses | $0 | $1.0 million | $0.5 million | $2.6 million |
| Non-interest income | $5.5 million | $8.2 million | $17.7 million | $20.5 million |
| Non-interest expense | $9.4 million | $9.5 million | $27.7 million | $26.7 million |
| Net earnings | $4.5 million | $5.4 million | $14.9 million | $13.9 million |
| Diluted EPS | $0.95 | $1.14 | $3.12 | $2.91 |
| Net interest margin, tax-equivalent | 3.36% | 3.60% | 3.47% | 3.66% |
Q3 net earnings fell 16.8%, principally as non-interest income declined $2.7 million, including lower gains on loan sales and investment securities. Nine-month net earnings rose 7.0%, supported by higher net interest income and lower loan-loss provision. Nine-month total comprehensive income was $11.3 million, down from $18.1 million, reflecting a $3.5 million other comprehensive loss, mainly from unrealized securities losses.
Balance sheet, cash flow, and capital
- At September 30, 2021, total assets were $1.255 billion, up 5.6% from year-end 2020. Loans, net, were $656.9 million; available-for-sale securities were $378.5 million.
- Deposits were $1.067 billion, up 5.0% from December 31, 2020. Non-interest-bearing deposits were $317.8 million, or 29.8% of deposits.
- Cash and cash equivalents were $117.3 million. Cash plus available-for-sale securities totaled $495.8 million, versus $382.1 million at year-end.
- Total borrowings were approximately $27.9 million, including $21.7 million in subordinated debentures and $6.2 million in repurchase agreements. The company reported no borrowings against its FHLB line, Federal Reserve discount window, or $7.5 million third-party line of credit.
- For the first nine months, operating activities provided $26.0 million, investing activities used $41.2 million, and financing activities provided $47.7 million. Cash increased $32.5 million to $117.3 million.
- Stockholders’ equity was $135.4 million. The Bank was categorized as well capitalized; its total risk-based capital ratio was 18.32% and leverage ratio was 10.53% at September 30.
Material changes and asset quality
- Gross loans declined to $664.7 million from $713.5 million at year-end, with PPP loans falling to $28.7 million from $100.1 million. Commercial real estate loans increased to $193.5 million from $172.3 million.
- The allowance for loan losses was $8.8 million, or 1.32% of gross loans, compared with 1.23% at year-end. Excluding PPP loans, the allowance ratio was 1.38%, versus 1.43%.
- Non-accrual loans were $9.8 million, or 1.48% of gross loans; classified loans were $19.7 million, down from $25.2 million at year-end. Net charge-offs were $0.5 million for the nine months.
- Real estate owned rose to $2.6 million from $1.8 million. A previously impaired commercial real estate loan resulted in a $540,000 Q3 charge-off; two multi-family properties valued at $1.2 million were acquired through deed in lieu of foreclosure.
Outlook, risks, and other notable items
No numerical earnings or revenue guidance is provided. Management said lower market rates could continue to pressure loan yields, net interest income, and margin; PPP forgiveness-related fee recognition can also cause loan yields and margin to vary. Mortgage originations slowed amid higher mortgage rates and limited housing inventory. Management reported no current plan to change its dividend strategy, subject to economic performance and capital requirements.
- COVID-19 remains a material uncertainty: a weaker or prolonged recovery could raise delinquencies, defaults, loan-loss provisions, and impairments, and could affect deposits, fee income, and operations. Two residential loans totaling $74,000 were under short-term forbearance or repayment plans at quarter-end. One COVID-related $3.7 million loan modification subsequently paid off.
- The company declared a $0.20-per-share cash dividend payable November 24, 2021, and a 5% stock dividend issuable December 15, 2021. It reported its 81st consecutive quarterly dividend.
- CECL implementation was planned for January 1, 2023; initial estimates indicated an increase in the allowance may result, but its size was uncertain.
- Interest-rate sensitivity modeling estimated a 7.2% increase in 12-month net interest income under a 200-basis-point rate rise and a 2.1% decrease under a 100-basis-point decline. A 200-basis-point decline was considered not meaningful in the low-rate environment.
- Loan commitments were $141.2 million and standby letters of credit were $1.2 million. Management said it expected sufficient funds to meet current commitments. No material pending legal proceedings or material changes to previously disclosed risk factors were reported.
Key facts for investors to verify
- Whether margin pressure persists as loan and securities yields reprice, and how deposit growth and excess liquidity affect asset yields.
- Whether lower mortgage production and reduced loan-sale gains continue to weigh on non-interest income.
- Credit trends in commercial real estate, agriculture, and other classified/non-accrual loans, including resolution of real estate owned.
- The durability of deposit growth and the maturity profile of $62.6 million of certificates of deposit due within one year.
- The eventual CECL allowance impact and the company’s capacity to maintain dividends under capital requirements.