Landmark Bancorp, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 22, 2022. Landmark Bancorp is a Kansas-focused financial holding company operating Landmark National Bank and a captive insurance subsidiary. The Bank had 30 offices in 24 Kansas communities.
Financial performance and condition
Amounts below are in millions unless stated otherwise.
| Metric | 2021 | 2020 |
|---|---|---|
| Total assets, year-end | $1,329.0 | $1,188.0 |
| Net interest income | $38.3 | $36.5 |
| Net interest margin, tax-equivalent | 3.39% | 3.72% |
| Non-interest income | $22.3 | $27.4 |
| Non-interest expense | $37.3 | $36.3 |
| Provision for loan losses | $0.5 | $3.3 |
| Net earnings | $18.0 | $19.5 |
| Diluted earnings per share | $3.60 | $3.91 |
| Cash and cash equivalents, year-end | $189.2 | $84.8 |
| Total deposits, year-end | $1,148.5 | $1,016.0 |
| Loans, net of allowance, year-end | $653.2 | $702.8 |
| Return on average assets / equity | 1.44% / 13.80% | 1.77% / 16.70% |
- Cash flow: Operating activities provided $31.2 million; investing activities used $56.5 million; financing activities provided $129.7 million. Cash and cash equivalents increased $104.4 million.
- Liquidity: Cash and available-for-sale securities totaled $577.3 million at year-end. The Bank reported $67.5 million of available FHLB borrowing capacity, $79.3 million of Federal Reserve discount-window capacity and approximately $30 million of correspondent-bank credit facilities; none was drawn at year-end.
- Debt and capital: Subordinated debentures were $21.7 million and other borrowings were $7.4 million. The Bank’s leverage ratio was 10.58% and total risk-based capital ratio was 18.46%, above applicable minimums and well-capitalized thresholds.
- Credit quality: Allowance for loan losses was $8.8 million, or 1.32% of gross loans. Non-accrual loans were $5.2 million (0.79% of gross loans); non-performing assets were $7.8 million (0.59% of assets). Net charge-offs were $0.5 million.
Changes versus 2020
- Net earnings declined $1.5 million, or 7.6%, mainly because gains on loan sales fell $4.7 million as lower housing inventory and higher mortgage rates reduced refinancing. Lower interest expense and a smaller loan-loss provision partly offset the decline.
- Net interest income increased 5.0%, supported by lower deposit costs and PPP-related loan income; the net interest margin nevertheless fell from 3.72% to 3.39%.
- Non-interest income fell 18.6% to $22.3 million, including lower loan-sale and investment-security gains. Non-interest expense rose 2.7%.
- Total assets increased 11.9%. Deposits grew 13.0%, while net loans fell 7.1%, largely because PPP loans declined by $82.9 million as borrowers received forgiveness. Excluding PPP loans, management reported loan growth, primarily in commercial real estate.
- Non-accrual loans declined from $10.5 million to $5.2 million, principally following repayment or transfer to real estate owned of two commercial real estate relationships. Real estate owned increased to $2.6 million.
- Unrealized losses on available-for-sale securities contributed to other comprehensive loss of $5.6 million, versus $4.2 million of other comprehensive income in 2020.
Outlook, risks and unusual items
- No formal earnings or financial guidance was provided. Management said deposit costs were near zero and expected limited further reductions. Higher rates could improve net interest income and margin, but competition and possible deposit outflows or a need for higher-cost funding could offset that benefit.
- Management cited continued uncertainty from COVID-19 and variants, inflation and supply-chain pressures, interest-rate movements, and the health of Kansas markets—particularly agriculture and real estate. The Bank’s real estate loans represented about 59.2% of gross loans at year-end.
- PPP activity remained significant: the Bank originated approximately $186 million across 2,195 loans; 101 loans totaling $17.2 million remained at year-end, and $639,000 of origination fees remained to be recognized.
- CECL is scheduled for adoption on January 1, 2023. Management’s initial estimates indicated an increase in the allowance may result, but its size was uncertain. The Bank also had approximately $33 million of LIBOR-linked loans transitioning to SOFR; the treatment of its $21.7 million LIBOR-linked subordinated debentures was not yet certain.
- Off-balance-sheet exposure included $139.5 million of unfunded loan commitments and $1.9 million of standby letters of credit. Management said it expected adequate funds to meet current commitments. No material pending legal proceedings were reported; routine litigation was not expected to materially affect results.
- The company declared a $0.21-per-share quarterly cash dividend in January 2022, a 10.3% increase from the 2021 quarterly rate. It also distributed a 5% stock dividend in December 2021. Management reported no current plan to change its dividend strategy, subject to capital and liquidity conditions.
- The auditor issued an unqualified opinion on the financial statements. The allowance for loan losses’ qualitative factors were identified as a critical audit matter. The auditor did not opine on internal-control effectiveness; management concluded its controls were effective.
Investor verification priorities
- Confirm the sustainability of earnings given lower mortgage-sale gains, margin compression and the contribution of PPP fee accretion.
- Assess whether deposit growth persists and how a reversal, repricing or greater competition could affect funding costs and liquidity.
- Review commercial real estate exposure, real estate owned, classified loans and allowance adequacy, including the assumptions behind qualitative reserve factors.
- Evaluate the sensitivity of the securities portfolio and capital to rising rates, including the reported $5.6 million decline in accumulated other comprehensive income.
- Track CECL implementation and quantify its eventual allowance and capital impact; confirm completion of LIBOR-to-SOFR transitions, including for subordinated debt.
- Verify dividend capacity and the terms, collateral and potential utilization of loan commitments and contingent credit facilities.