A Letter From Our CEO
April 11, 2013
The current interest rate environment is driving significant margin compression for the banking industry as both loans and investments continue to reprice at much lower rates. During the first quarter of 2013, Landmark Bancorp, Inc. achieved levels of profitability that compare favorably with the returns reported by our national peer group for 2012, but are lower than what we experienced during the first quarter of 2012.This is driven, primarily, by a reduction in our net interest margin of .30% which equates to approximately $185 thousand for the first quarter. Expenses have also increased due to rising costs of compliance, regulation, and FDIC insurance.
Landmark’s net income after tax was $372.7 thousand compared to $558.8 thousand for the first quarter of 2012. First quarter earnings per share were nineteen cents compared to thirty two cents for the first quarter of 2012. Book value per share was $12.14 compared to $12.31 for the first quarter of 2012.Return on assets was .59% for the quarter compared to .95% during the first quarter of 2012. Return on equity was 6.25% for the first quarter compared to 10.58% during the same period in 2012. Landmark’s net interest margin declined to 3.61% compared to 3.91% during the first quarter of 2012.
Assets grew 8.1% to $260.0 million compared to $240.4 million for the first quarter of 2012. The loan portfolio declined slightly to $178.9 million from $180.2 million compared to the first quarter of 2012. The investment portfolio expanded by 26.5% to $49.0 million from $38.7 million in the same period of 2012, but yields on this portfolio have dropped .79%. Total cash and equivalents grew 101% to $18.4 million compared to $9.1 million during the first quarter of 2012. The deposit portfolio grew 12.9% to $221.5 million compared to the same period in 2012.
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 grew to 9.16% compared to 8.72% at quarter end 2012. Stockholders equity grew 13.0% to $24.3 million compared to $21.5 million during the same period in 2012.
The impact of rate cycles on bank profitability is fairly predictable. It is important to understand that the impact of falling rates increases bank profitability over the short term as funding costs drop while yields on assets are fixed, for a period of time, which causes the net interest margin to grow. There comes a point where funding costs bottom out but asset yields continue to fall. This causes margin compression and reduced profitability. Banks can mitigate this trend with growth in low yielding assets but it is important to balance short term profitability with the risk of rates rising in the future.
On April 11, 2013 the Board of Directors of Landmark Bancorp, Inc. declared a dividend of six cents per share, payable on May 2, 2013 to stockholders of record on April 25, 2013.
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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