Landmark Bancorp, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. Landmark Bancorp is a Kansas-focused financial holding company operating Landmark National Bank and a captive insurance subsidiary. This unaudited filing covers the three months ended March 31, 2021; comparative earnings and cash-flow figures are for Q1 2020, while balance-sheet comparisons are with December 31, 2020. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Key financial results and position
| Metric | Q1 2021 / March 31, 2021 | Comparison |
|---|---|---|
| Net interest income | $9.6 million | Up 18.4% from $8.1 million in Q1 2020 |
| Provision for loan losses | $0.5 million | Down from $1.2 million |
| Non-interest income | $6.7 million | Up from $5.4 million |
| Non-interest expense | $9.1 million | Up from $8.1 million |
| Net earnings | $5.4 million; $1.13 basic and diluted EPS | Up from $3.4 million; $0.70 EPS |
| Net interest margin | 3.51% tax-equivalent | Down from 3.67% |
| Return on average assets / equity | 1.77% / 17.06% | 1.35% / 12.21% |
| Total assets | $1,248.9 million | Up 5.1% from $1,188.0 million at year-end |
| Gross loans / net loans | $730.7 million / $717.8 million | Gross loans were $713.5 million at year-end |
| Total deposits | $1,071.2 million | Up $55.2 million from year-end |
| Borrowings | $25.8 million, including $21.7 million subordinated debentures | Down from $28.0 million at year-end |
| Cash and available-for-sale securities | $430.1 million combined | Up from $382.1 million at year-end |
| Stockholders’ equity | $128.3 million | Up from $126.7 million at year-end |
| Cash flows | Operating +$6.9 million; investing −$34.7 million; financing +$52.1 million | Cash and cash equivalents increased $24.3 million to $109.2 million |
The Bank’s March 31 regulatory capital ratios included a 10.19% leverage ratio, 16.84% Common Equity Tier 1 and Tier 1 ratios, and 18.09% total risk-based capital. The Bank was categorized as well capitalized. Its allowance for loan losses was $9.3 million, or 1.27% of gross loans; excluding PPP loans, the allowance was 1.51% of loans.
Material changes versus the prior comparable period
- Net earnings rose by approximately $2.0 million. Management attributed the increase primarily to $1.9 million higher gains on loan sales, $1.5 million higher net interest income, and a $0.7 million lower loan-loss provision.
- Average loans increased substantially, in part reflecting PPP lending; average interest-earning assets grew 24%. Lower asset yields nevertheless reduced tax-equivalent net interest margin to 3.51%.
- Funding costs fell: interest expense declined 66.9%, largely because deposit costs fell to 0.15% from 0.61%. Non-interest expense increased 11.9%, including higher compensation and servicing-rights amortization.
- Compared with year-end, deposits and loans grew, while borrowings declined. Non-interest-bearing deposits increased to $314.6 million, or 29.4% of deposits.
- Available-for-sale securities were $320.9 million, versus $297.3 million at year-end. The quarter recorded a $2.9 million other comprehensive loss, principally reflecting unrealized securities losses; accumulated other comprehensive income fell to $6.5 million from $9.4 million.
Outlook, commentary, risks and unusual items
- COVID-19 and credit risk: Management warned that pandemic-related economic effects could increase delinquencies, defaults, provisions and collateral losses, and could affect deposits, service-charge income and asset values. The full impact remained uncertain. Kansas unemployment was reported at 3.2% in February 2021, after peaking at 12.6% in April 2020.
- PPP: PPP loans outstanding were $117.3 million at quarter-end. The company reported originating approximately $185.2 million cumulatively through April 30, 2021. PPP loans are SBA-guaranteed; the filing says no allowance was allocated to them.
- Credit indicators: Non-accrual loans were $11.0 million, or 1.51% of gross loans, compared with $10.5 million, or 1.47%, at year-end. Loans 30–89 days past due and accruing rose to $5.0 million from $1.5 million. Classified loans were $24.8 million versus $25.2 million. Net charge-offs were $4,000, compared with $188,000 in Q1 2020.
- Four COVID-related loan modifications totaling $6.8 million and two short-term residential mortgage forbearance or repayment plans totaling $250,000 were outstanding at quarter-end; these were not classified as troubled debt restructurings. Management said it expected higher problem loans if economic conditions deteriorated further.
- Management expected the low-rate environment to pressure loan and securities yields and potentially net interest income and margin. Its interest-rate simulation estimated a 4.20% increase in one-year net interest income under a 200-basis-point rise and a 2.00% decrease under a 100-basis-point fall; a 200-basis-point fall was not meaningful in the low-rate environment.
- Management declared the 79th consecutive quarterly dividend in May 2021 and said it had no current plans to change its dividend strategy, subject to capital, liquidity and economic conditions. The Q1 dividend paid was $0.20 per share.
- The company plans to adopt CECL on January 1, 2023. Initial estimates indicate an increase in the allowance at adoption, but the amount is uncertain. Management said goodwill was not impaired at year-end 2020 and that no first-quarter triggering event required an interim test.
- Liquidity sources included $99.6 million of potential FHLB borrowing capacity, $87.1 million of Federal Reserve discount-window capacity and approximately $30.0 million of correspondent-bank lines; none was drawn at quarter-end. Loan commitments were $142.6 million and standby letters of credit were $1.9 million.
- The filing reported no material pending legal proceedings beyond routine litigation, no material changes to the previously disclosed risk factors, and effective disclosure controls as of March 31, 2021. It provided no formal earnings guidance.
Important facts for investors to verify
- Whether loan delinquencies, non-accrual balances, classified loans and the allowance develop as anticipated, especially in commercial real estate, agriculture and other pandemic-exposed borrowers.
- How PPP forgiveness, runoff and fee amortization affect reported loan balances, interest income and margin.
- Whether gains on mortgage-loan sales and securities sales remain significant sources of earnings, and whether higher operating expenses persist.
- How interest rates and deposit mix affect net interest margin, funding costs and securities-related accumulated other comprehensive income.
- The eventual size of the CECL adoption impact and the company’s continuing capital, liquidity and dividend capacity.