Landmark Bancorp, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. Landmark Bancorp is a Kansas-focused bank holding company operating through Landmark National Bank, with 21 banking locations. Figures below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Financial performance and condition
| Metric | 2011 | 2010 |
|---|---|---|
| Total assets, year-end | $598.2 million | $561.5 million |
| Net earnings | $4.484 million | $2.043 million |
| Basic and diluted EPS | $1.61 | $0.74 |
| Net interest income | $17.927 million | $18.046 million |
| Net interest margin, taxable-equivalent | 3.77% | 3.78% |
| Provision for loan losses | $2.0 million | $5.9 million |
| Non-interest income | $8.901 million | $9.140 million |
| Non-interest expense | $19.954 million | $20.030 million |
| Deposits, year-end | $454.1 million | $431.3 million |
| Borrowings, year-end | $76.6 million | $70.3 million |
| Cash and cash equivalents, year-end | $17.5 million | $9.7 million |
| Operating cash flow | $13.1 million | $(2.1) million |
- Net earnings rose 119.5%, primarily because the loan-loss provision fell by $3.9 million as asset quality and charge-offs improved. The effective tax rate was 10.1%, compared with a tax benefit in 2010.
- Interest income declined 7.3% to $22.6 million, while interest expense fell 26.1% to $4.7 million. Lower funding costs only partly offset lower asset yields and reduced average loan balances.
- Gross loans increased modestly to $314.6 million from $311.3 million; net loans were $310.1 million. Commercial real estate was the largest loan category at $93.8 million. Construction and land loans continued to decline.
- Non-performing assets fell to $4.8 million, or 0.80% of assets, from $9.1 million, or 1.63%. Non-accrual loans decreased to $1.4 million from $4.8 million. Loans 30–89 days delinquent increased to $2.2 million from $1.4 million.
- The allowance for loan losses was $4.7 million, equal to 1.50% of gross loans, versus $5.0 million and 1.60% in 2010. Net charge-offs declined to $2.3 million from $6.4 million.
- Cash, cash equivalents and available-for-sale securities totaled $215.7 million at year-end, compared with $177.4 million. Management reported $51.5 million of additional FHLB borrowing capacity, subject to collateral and lender requirements; other stated backup capacity included a $17.0 million Federal Reserve discount-window capacity and $60.3 million of correspondent-bank agreements.
- The Company reported regulatory capital ratios of 9.84% leverage and 16.84% total risk-based capital; the Bank reported 10.29% and 16.97%, respectively. Both were described as well-capitalized.
Changes, outlook and risks
- Profit improved substantially year over year, but net interest income remained nearly flat and the margin edged down. Management said near-term margin improvement was unlikely and warned that reinvestment and loan renewals could pressure yields further.
- Deposit growth of $22.8 million was concentrated in non-interest-bearing demand, money market, NOW and savings accounts. Borrowings increased $6.3 million. Certificates of deposit totaling $124.9 million were scheduled to mature in 2012.
- Operating cash flow was positive, while investing activities used $32.5 million, mainly reflecting increased investment-security and loan balances. Financing activities provided $27.2 million, primarily from deposit growth and FHLB borrowings.
- Non-interest income was pressured by lower gains on residential loan sales and a higher mortgage repurchase reserve provision. The reserve was $500,000 at year-end; the Company recorded $650,000 of provision and $170,000 of losses charged to it during 2011.
- Management continued to emphasize commercial, commercial real estate and agricultural lending, but described loan demand as weak and curtailed land-development and construction lending amid oversupply and soft property values. Consumer loan demand was also weak.
- In January 2012, the Company agreed to acquire The Wellsville Bank, with approximately $31.5 million in deposits and $15.6 million in loans; closing was expected in the second quarter of 2012, subject to customary conditions. The filing elsewhere describes the target as having approximately $35 million in assets.
- Key risks include Kansas-market and real-estate concentration, borrower credit deterioration, uncertain collateral values and allowance estimates, interest-rate movements, competition, regulatory changes including Dodd-Frank and Basel III, and potential further impairment of investment securities. Two pooled trust preferred securities had $699,000 of non-credit unrealized losses; management stated that additional impairment remained possible.
- The Company disclosed $57.8 million of unfunded loan commitments and $1.7 million of standby letters of credit at year-end. It reported routine litigation only as material proceedings and said such matters were not expected to materially affect its financial position or results.
- The 2011 financial statements received an unqualified KPMG audit opinion. Management concluded disclosure controls and internal control over financial reporting were effective; the filing did not include an auditor attestation of internal controls.
Important facts for investors to verify
- Whether the decline in non-performing loans and charge-offs persists, and whether the $4.7 million allowance remains adequate as local property and economic conditions evolve.
- How the 2012 certificate-of-deposit maturities are retained or repriced, and the effect of funding costs and asset yields on net interest margin.
- The final terms, regulatory approvals, closing and integration results of the Wellsville acquisition.
- Potential losses related to mortgage repurchase claims, the remaining pooled trust preferred securities, and real estate owned valuations.
- The effect of regulatory implementation and capital rules on operating costs, lending, dividends and future expansion.
- The Bank had approximately $1.3 million available for dividends to the parent without prior OCC approval at year-end; confirm ongoing regulatory and capital capacity for shareholder distributions.