A Letter From Our CEO
April 25, 2016
Landmark Bancorp Inc. first quarter results declined compared to the same period in 2015. While assets grew 7.3%, net income decreased compared to the first quarter of last year.
Landmark’s net income was $233.2 thousand compared to $528.6 thousand for the first quarter of 2015. First quarter earnings per share were $.12 compared to $.27 for the first quarter of 2015. Return on assets was .32% for the quarter compared to .78% during the first quarter of last year. Return on equity was 3.38% for the first quarter compared to 7.95% during the same period in 2015.
Three factors contributed to this decline. First, the bank’s net interest margin declined 32 basis points over the comparable period accounting for a reduction of more than $200 thousand in revenue for the quarter. Margins are compressing across the industry. Loan and investment yields continue to reprice at lower rates while the cost of funding these assets has hit bottom. The second factor is related to growth of the loan portfolio. On the bright side gross loans grew 8.6% over the same period last year. However the growth of new loans requires growth of the provision for loan losses. A significant portion of the loan loss provision was related to that growth. The final factor was in the noninterest expense category which was up 4.5% from prior year. If there is a silver lining, this category included some one-time expenses which will not repeat at this level during the remainder of the year.
I am certain this is frustrating for our shareholders because I know it is frustrating for our Board of Directors and Management team. In prior years asset growth of 7.3% and loan growth of 8.2% would translate into increased profits, but in the current environment it is difficult if not impossible to maintain levels of growth that will offset compressed margins. Any bank that can achieve that level of growth is taking on significant additional risk to earn the same as the prior year. Landmark would need to book over $24 million of new loans to offset the margin compression of the prior year.
Assets grew 7.3% to $294.7 million compared to $274.6 million for the first quarter of 2015. Net loan growth was 8.2%. The investment portfolio increased to 6.4% to $58.3 million compared to the same period of 2015. The deposit portfolio expanded 8.5% to $248.6 million compared to the first quarter of 2015. Non-interest bearing deposits grew 3.9% to $46.7 million at quarter end. Landmark remains well capitalized. According to regulatory guidelines, a bank is considered well capitalized with a Tier 1 Leverage Ratio of 5%. Landmark’s Tier 1 Leverage Ratio was 9.36%. Stockholders’ equity was $27.8 million at quarter end compared to $27.2 during the same period of 2015, and book value per share increased to $13.90 compared to $13.67 for the first quarter of 2015.
This historically long period of near zero interest rates continues to take a toll on the banking industry and Landmark is not immune. As referenced earlier, our net interest margin is declining. The only defense a bank can offer in this low rate environment is growth of the loan and investment portfolios. As you can see from our results, loans are up 8.2% and total assets are up 7.3%. The remainder of 2016 will continue to be challenging and we would ask each of you to refer your friends, family and business associates to your bank.
On April 14, 2016 the Board of Directors of Landmark Bancorp, Inc. declared a dividend of $.08 per share, payable on May 9, 2016 to stockholders of record on April 29, 2016.
On October 8, 2015 the Board of Directors of Landmark Bancorp, Inc. declared a dividend of $.08 per share, payable on November 3, 2015 to stockholders of record on October 23, 2015.
Landmark Community Bank’s staff, management, Board of Directors and Advisory Board members are committed to building a strong community bank and providing unparalleled service to our clients, as well as delivering long term value to our shareholders. We appreciate your support and we encourage you to continue to use Landmark Community Bank for all your banking needs and request that you refer prospective clients to your bank.
Very Truly Yours,
Daniel R. Nulton
President & CEO
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