Q4 2020 Landmark Bancorp Inc Earnings Call
Good day and welcome to the landmark Bancorp fourth quarter, 'twenty and 'twenty earnings Conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing star and then zero.
After todays presentation, there will be in the opportunity to ask questions to ask a question you May Press Star and then one on a touchtone phone to withdraw your question. Please press Star and then two please note that this event is being recorded I would now like to turn the conference over to Michael <unk>. Please go ahead.
Thank you and good morning. Thank.
Thank you for joining our call today to discuss landmark's earnings and results of operations for the fourth quarter and fiscal year ending 2020.
Joining the call with me to discuss various aspects of our 2000 and 'twenty performance is Mark Murphy Chief Financial Officer for the company.
Before we get started I'd like to remind our listeners that some of the information and we will be providing today falls under the guidelines for forward looking statements.
It's defined by the Securities and Exchange Commission.
And as part of these guidelines I must point out that any statements made during this presentation that discuss our hopes beliefs expectations or predictions of the future are forward looking statements and our actual results could differ materially from those expressed additional.
Information on these factors is included from time to time in our 10-K and 10-Q filings.
It can be obtained by contacting the company or the SEC.
The first wanted to take this opportunity the safe all of our associates the landmark National Bank the.
And the challenges that were faced by our associates and 2020, resulting from the COVID-19 pandemic, we're truly unprecedented.
The response to these challenges and our ability to work with our clients as they dealt with the economic uncertainty presented by the pandemic.
Something that I am very proud of and I feel honored to be a member of this team.
Each associate of landmark took their role as part of the nation's critical infrastructure sector seriously their daily focus on executing our strategies and deliver.
Operating extra ordinary service to our clients and communities and carrying out our company vision and everyone starts as a customer and leaves as a friend was an integral part of our 2020 record performance.
We are pleased to report the landmark achieved record results for the fourth quarter and the full year of 2020, we.
We reported record net earnings of $5 $6 million for the fourth quarter and record net earnings of $19 $5 million for the year ending 2020.
And the fourth quarter earnings were $1.18 per share on a fully diluted basis, while you're in the earnings totaled $4.10 Pearl per fully diluted share.
Our 2020 return on average assets calculates to 1.7 and 7%.
And return on average equity was $16 seven zero percent.
Our 2000 and 'twenty earnings benefited from increased gains on sales of loans as the continued low mortgage interest rate environment probe and act of housing market and refinance activity.
In addition, our community banking relationships across the state of Kansas generated strong growth and earnings as our loans grew by 32, 1% and our deposits grew by 21, 7% during 2020.
Which increased our net interest margin to 372%, resulting and a 22% increase and net interest income as compared to 2019.
Also during 2020 strategic liquidations of our higher coupon mortgage backed investment securities.
All of it of $2.4 million gain on sale of investments.
As a result of continued economic uncertainty due to COVID-19, as well as the loan growth previously mentioned, we recorded a $3 $3 million provision for loan losses during 2020.
And I previously mentioned and the efforts of our associates and their work with our clients. During this period of economic uncertainty. These efforts include the COVID-19 related loan modifications and access to funding and through the small business administrations Paycheck protection program.
We were pleased to report the COVID-19 loan modifications have declined significantly with most of our borrowers returning to the alone contractual terms.
We are also currently actively working with borrowers to navigate the SBA loan forgiveness process as well as to apply for additional P. P. P funds that were authorized by the economic aid the hard hit small businesses nonprofits and venues Act, which was signed into law in late December 2020.
As we began 2021, we believe landmarks risk management practices liquidity and capital strength continue to position us well to meet the financial needs of families and businesses across Kansas During these challenging times.
And I am pleased to report that the board of directors has declared a cash dividend of <unk> 20 per share to be paid March three 2021 to shareholders of record as of February 17th 2021.
This represents the 78th consecutive quarterly cash dividend since the company's formation, resulting from the merger of Landmark Bancorp, Inc. With.
M and be Bancshares, Inc. In October 2001.
I will now turn the call over to Mark Herbers, Our CFO, who will review the financial results and asset quality indicators with you.
Thanks, Michael and good morning to everyone. Michael mentioned, our record net earnings for the fourth quarter and year ended December 31 of 2020, now I would like to make a few comments on various elements comprising those results.
Starting with highlights of the fourth quarter income statement net interest income was $10 1 million or an increase of $2 1 million or 26% and comparison to the prior year's fourth quarter.
The improvement of net interest income built upon.
A $153 5 million or 16, 9% increase and average interest earning assets to 1.060 billion in comparison to the prior year fourth quarter period.
And this growth was entirely attributable to loan growth of 192.6 million or 35, 8% as our average investment balance actually declined by $67 8 million.
The loan growth was impacted significantly by our S. P. A P. P P loans, which totaled $100 1 million at December 31st.
In addition, landmark's net interest margin on a tax equivalent basis improved to three 8% in the fourth quarter of 2000, and 'twenty as compared to 3.61 in the same period of 2019.
The net interest margin benefited significantly from the increase in average loan balance as our asset allocation continues to be weighted more heavily to loans and less to investments as a proportion while our overall cost of interest bearing liabilities declined from 0.85% and the fourth quarter of 2019.
0.24% and the current quarter.
Our loans to deposit ratio increased to 69.2% as of December 31, 2000, and 'twenty as compared to 63, 7% as of December 31 2019.
Looking at our provision for loan losses, our analysis resulted in providing $700000 to the allowance for loan losses, and the fourth quarter of 2000, and 'twenty as compared to 400000 and the fourth quarter of 2019.
On a year to date basis as Michael mentioned earlier, our 2020 provision for loan losses of $3 3 million and comparison to one 4.002 million 19.
The provision for loan losses on loans reflects loan growth and our best estimate of the economic environment, considering the effects of COVID-19 and.
The economic outlook evolves and our pandemic related loss experience develops we will continue to adjust our allowance for credit losses, and provisioning and accordingly.
Noninterest income increased to $6 9 million for the fourth quarter of 2000, and 'twenty compared to 4.0 million and the same period of 2020.
The primary driver of the increase and noninterest income was related to a 2.8 million dollar increase in gains on sales of loans relating to the increased volumes of one to four family real estate loans originated for sale.
And at the low interest rate environment has driven up purchase and refinancing activity in our markets during the fourth quarter of 2020.
Noninterest expenses increased by 1.2 million or 14, 2% to $9 5 million in the quarter compared to the fourth quarter of 2019. This was driven by an increase of $543000 in compensation and benefits.
Primarily related to our increased mortgage loan volumes and to a lesser extent by a commercial loan growth as we added employees in this area over the past year and by general increased compensation costs.
The effective tax rate was 17.8% and the current quarter up from 0.7% and the fourth quarter of 2019.
The increase and the effective tax rate and the current quarter compared to the same quarter last year is mostly due to an increase and pre tax earnings while our tax exempt income declined over the comparable periods.
In addition income tax expense included the recognition of 229000 and 558000 in the fourth quarter of 2020, and 2019, respectively of previously unrecognized tax benefits, reducing the effective tax rate in both periods.
Moving on to discuss some financial highlights for the full year of 2000 and 'twenty. Our net earnings of $19 $5 million represented a record year for landmark and exceeded 2019 by 8.8 million.
These results were driven by our improvement in net interest income of $6 1 million as compared to 2019 too.
The $2.4 million and get and investment securities gains and the eight 8 million increase and gains on sales of mortgage loans as a result of the significant drop in interest rates during 2000 and 'twenty.
In 'twenty and 'twenty net interest income grew to $36 5 million up 22% from a year earlier as the result of average interest earning assets, increasing 11, 7% from 900 and point 5 million during 2019, two 1 billion.
During 'twenty and 'twenty.
Consistent with my comments earlier on the fourth quarter net interest margin benefited significantly from a 150.4 million increase and average loan balances.
$88 5 million of which was related to P. P. P loans during 2000 and 'twenty as compared to 2019.
The resulting in our net interest margin on the tax equivalent basis, improving from 3.48% and 2019% to 3.72% and 2020.
Noninterest income totaled $27 4 million from 2020 and increase of $11 5 million or 73, 1% from the prior year. This.
And this results primarily from an increase of $8 8 million and gains on sales of loans and $2 6 million and.
Of gains on sales of investment Securities as we sold approximately $61 million of our higher coupon mortgage backed investment securities during 2020.
These sales were based on our evaluation of the risk associated with accelerating prepayments speeds to the market prices on this portion of our investment securities portfolio.
Looking at noninterest expense, we reported an increase of 11, 1% or $3 6 million for 2020 in comparison the 2019.
Consistent with my fourth quarter of comments this increase primarily relates to a 2.9.
A million of increase in compensation and benefits related to our increased mortgage loan volumes.
And to a lesser extent, our commercial loan growth over the past year as we added employees in this area as well as general increased compensation costs.
The effective tax rate increased from 12% and 2019 to 19, 7% and 2020, mostly due to an increase and pretax earnings while our tax exempt income declined over the comparable period.
Yeah.
To touch on a few balance sheet highlights total assets increased $189 6 million to 1.2 billion at December 31, 2000, and 'twenty compared to $998 5 million at December 31 2019.
Our loan portfolio was the driver of our increase and total assets has loans increased $170 6 million to $702 8 million at December 31, 2020.
From $532 2 million at year end 2019, while our investment securities decreased $64 4 million to $301.7 million at the.
December 31, 2020 from $366 1 million at December 31, 2019.
Deposits increased 181.1 million to one point of 1 billion of at December 31, 2000, and 'twenty compared to 835.1 million at year end 2019.
Additionally, our federal home loan bank and other borrowings decreased $14 2 million to 28 million at December 31, 2000, and 'twenty compared to $42 2 million at December 31 2019.
Stockholders' equity increased to $126 7 million at December 31, and 2024 of book value of $26.66 per share up from $108 6 million at December 31, 2019, or a book value of $22 57 per share.
The increase in book value was primarily of primarily a result of net earnings and an increase from the fair value of available for sale of securities.
Our consolidated and bank regulatory capital ratios as of this December 31, 2020 continue to exceed the levels considered well capitalized.
The bank's leverage capital ratio was 10, 5% at December 31, 2020, while the total risk based capital ratio of 17, 5%.
I would now like to provide some additional details on asset quality and our loan portfolio.
But as I mentioned earlier net loans outstanding as of December 31, and 2020 totaled $702 8 million of which P. P. P loans comprised of $100 1 million.
Nonperforming loans, which primarily consist of loans greater than 90 days past due totaled $10 5 million or 1.47% of gross loans as of December 31 2020.
This represents an increase from the year end 2019 level of $5 5 million.
We're one point of 3% of gross loans.
Our credit risk and collection efforts continue to focus on reducing these totals.
And.
Another indicator, we monitor as part of our credit risk management efforts is the level of loans past due 30 to 89 days.
The level of past due loans between 30, and 89 days still accruing interest totaled $1.5 million were 0.21% of gross loans as of December 31 2020.
This ratio has decreased from 0.64 and of gross loans as of December 31, 2019.
We continue to monitor delinquency trends carefully and all loan categories.
Yeah.
Our balance and other real estate owned totaled 1.8 million as of December 31, and the other real estate owned balances are being marketed for sale currently.
We recorded net loan charge offs of 992000, and during 2020, which was up from 698000.
In 2019.
I will now turn the call back over to Michael to review, our loan portfolio segments and the credit risk outlook.
Thank you for your comments Mark as Mark noted net loans outstanding as of the end of 2020 of totaled $702 $8 million. This was the 32% increase from our year end 2019 net loan total of.
$532 2 million.
P. P. P loans made up $100.1 million of the net loan total as of year end.
Loan growth, excluding the P. P. P volume was $70 5 million or 13, 3% during 2020.
As of year end 2020 of our construction and land of loan portfolio balances increased by 16, 2% to 26 million or three seven percentage of our total loan portfolio.
The outstanding loan balances and our commercial real estate portfolio increased by 29, 1% to $172 3 million, representing 24, 2% of our total loan portfolio.
Commercial and industrial loans were $234 million as of year end 2020, or 32, 8% of the current portfolio.
And that includes the $100 million and PPP loans, excluding those PPP loans, our commercial and industrial loans increased by 22, 3% during 2020.
With regard to our agricultural loan portfolio of total balances decreased by two 1% to $96 $5 million or 13, 5% of the total loan portfolio as of the end of the year.
Our mortgage one to four family loan portfolio represented 22, 1% of the portfolio at $158 million as of December 31, which was an increase of seven 8%.
As I noted in my opening comments, our mortgage banking activity. During 2020 was extremely strong driven by historically low long rates, our 2020 single family loan production totaled nearly $450 million.
Production volume was nearly equally spit split of 49% purchase money transactions versus 51% refinance activity.
Our mortgage pipeline levels remain high and we anticipate significant production volumes extending through the first part of 2021.
And as previously noted we recorded a $3 $3 million provision for loan losses. During 2020 based on the continued economic uncertainty surrounding the impact of COVID-19 on our loan portfolio as well as the net loan growth we experienced.
As I previously mentioned, we actively worked with clients on a case by case basis related to payment deferrals or loan modifications. The solutions were specific to our clients' capital and liquidity needs.
As of year end 2020 landmark had six loan modifications on the outstanding loan balances of $7 $2 million and connection with the COVID-19 pandemic.
There was one commercial real estate loans totaling $3 $7 million that was modified and is also on non accrual status as of year end 2020.
Consistent with the cares act and regulatory guidance. The company also entered into short term forbearance plans and short term repayment plans on three 1% of four family residential mortgage loans totaling $366000 as of December 31, and 2020.
Before we go to questions I want to summarize by saying 2020 contained very positive operating results for landmark, resulting and a record earnings year.
And again want to express my thanks, and appreciation to all of the associates at landmark National Bank. It.
Was a total team effort.
As we enter 2021, we believe that the company's risk management practices and capital strength positions us well as we continue to navigate these uncertain times.
With that I'll open the call up the questions that anyone might have.
We will now begin the question and answer session to ask a question you May Press Star and then one on your Touchtone phone if youre using a speakerphone. Please pick up of your handset before pressing the keys. If at any time of your question has been addressed and you would like to withdraw your question. Please press Star and then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from John Rhodus with Janney. Please go ahead.
Good morning, guys.
Morning, John.
Guys are doing well, maybe just first question just as it relates to the P. P. P program I'm just curious you know what you're seeing the.
And I guess call it phase two of round two.
You know what sort of demand do you think youre going to see from from your customers relative to the to the first round.
Yeah, John Thanks, we actually where and the group that opened the.
Portal right. After the holiday so we had and opened a few weeks and and we've seen fairly steady demand. We don't expect it to be nearly at the volumes that we looked at in 2020.
And we are seeing the interestingly enough and addition to the site the draw of loans, we are seeing and appetite for borrowers to go back and and apply for first draw PPP funds.
But.
Overall, I think from the standpoint of of our client base I mean, it's mostly existing clients that we're seeing that are active and this two.
2021 round of for the PPP funding.
Okay, and then as far as.
P. P. P fees remaining I think you said you had a $1.5 million and the fourth quarter and how much and P. P. Pes are actually remaining currently.
As far as of fee revenue from the 2020 room, yeah from yeah from as the loans pay off or forgiven.
That's the number I guess, we haven't put out yet John.
And the.
On our balance sheet, maybe yeah.
Consider putting that out but it's it's still as we got that $1 5 million on the which was interest income as well as the fee recognition of them in.
And the fourth quarter well.
And we were down from 132 of them.
100 million at that point in time so.
One would gauge that it's.
And we still got.
Quite a bit left to come in and this year is depending on how fast they ask for forgiveness.
Okay.
Michael just another question for you on core loan trends you know excluding P. P. P. So you grew loans roughly 13% and.
2020.
What.
Do you think you can do something close to that again in 'twenty, one or the the that seems a little bit high to me, but it's true.
That would be that would be a little aggressive huh, John just from the standpoint that we were still enjoying some of them some business development growth from the commercial bankers that we added in the Metro Kansas City market and 2020.
And so that contributed to the double digit.
Loan growth levels of last year as we look at our budget and model for this year, John we do expect to see.
Non P. P P loan growth in 2021 of them.
But it would be in the high single digits from a from a modeling standpoint.
Okay and just one more question from me just Michael you you just sort of an update on the on the AG economy, the usually typically give.
Sure.
You know really as we look at agribusiness conditions across of Kansas.
Kansas.
For the.
Winter wheat is probably the the crop debt as most of interest right now and those conditions I think are pretty.
Pretty favorable really across the entire franchise.
We are seeing a little bit of and I won't call. It a significant drought, but a little bit of a moisture concerns and across the state with.
You know I guess, the moisture tests being a little bit below average so we are of.
Of course always concerned about that.
Overall as I look at our portfolio and and the way our borrowers are positioned.
I would say that as we're entering 2021 of conditions for our AG business clients are probably as favorable as they have been over the last couple of years.
Okay. Thank you guys.
Hey, Thanks, John.
As we have no further questions. This concludes our question and answer session I would now like to turn the conference back over to Michael Shatner for any closing remarks.
Thank you and I do want to thank everyone for participating in todays earnings call and I truly do appreciate your continued support and the confidence that you have and our company.
I look forward to sharing news related to our first quarter of 2021 results at our next earnings conference call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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