Q1 2021 Landmark Bancorp Inc Earnings Call

Good day and welcome to the landmark Bancorp.

Q1 earnings conference call, all participants will be in listen only mode.

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I would now like to turn the conference over to Michael <unk>, President and Chief Executive Officer. Please go ahead, thank you and good morning.

Thank you for joining our call today to discuss landmark's earnings and results of operations for the first quarter ending 2021.

Joining the call with me today to discuss various aspects of our first quarter performance and smart perfect Chief Financial Officer of the company and the company's Chief Credit Officer Raymond Mcclanahan.

And where we get started and I would like to remind our listeners that some of the information we will be providing today falls under the guidelines for forward looking statements as defined by the Securities and Exchange Commission.

As part of these guidelines I must point out that any statements made during this presentation and discuss our hopes beliefs expectations or predictions of the future are forward looking statements and are at.

Actual results could differ materially from those expressed and.

Additional information on these factors is included from time to time, and our 10-K and 10-Q filings, which can be obtained by contacting the company or the SEC.

We are pleased to report continued strong earnings for the first quarter of 2021, driven mainly by solid mortgage banking activities and continued growth in loans and deposits and stable expenses.

First quarter 2021, net income amounted to $5 $4 million, resulting in earnings per share on a fully diluted basis of $1.13.

Return on average assets for the quarter was $1 77 per cent.

And the return on average equity was 17.0% to 6%.

These are strong ratios.

And while last year loan growth was very strong we continued to achieve solid loan growth and the current quarter as total gross loans grew $17 million or an annualized rate of over 9%.

Total deposits also increased this quarter by $55 million or an annualized growth rate of over 21%.

Additionally, strategic liquidations of higher coupon municipal investment securities resulted in a $1 $1 million gain on sale of investments during the first three months of 2021.

Mortgage banking activities remained strong due to the low interest rate environment, which has supported and active housing market and credit quality also remained solid this quarter with low levels of net loan charge offs solid reserves and only a small increase and nonperforming loans.

We continue to value our community banking relationships across the state of Kansas, which are important and contributed significantly to our strong earnings performance.

Landmark continued to support our customers with access to funding through the 2021 round of the small business administrations Paycheck protection program.

We are also currently actively working with borrowers to navigate the SBA loan forgiveness process for PPP loans.

We're also pleased to report that COVID-19, and loan modifications have declined significantly with most of our borrowers returning to their loan contractual terms.

We believe landmark risk management practices liquidity and capital strength continue to position us well to meet the financial needs of families and businesses across Kansas.

I am pleased to report that our board of directors has declared a cash dividend of <unk> 20 per share to be paid June 2021 to shareholders of record as of May 19 2021.

This represents the 79th consecutive quarterly cash dividend since the company's formation, resulting from the merger of Landmark Bancorp, Inc. With him and be Bancshares, Inc. In October 2000 22001.

I will now turn the call over to Mark Harris, Our CFO, who will review the financial results with you.

Thanks, Michael and good morning to everyone.

Michael alluded to our continued strong net earnings for the first quarter ended March 31 and 2021.

And don't reflect back a year during our 2020.

First quarter earnings call. We noted that last year's net earnings of $3 4 million was the highest quarterly earnings landmark Bancorp had ever reported which makes 2020 one's first quarter earnings of $5 4 million reflective of how far we have come and the last 12 months.

Now I would like to make a few comments on various elements comprising those results.

Starting with earnings highlights for the first quarter.

Net interest income was $9 6 million and increase of $1 5 million or 18, 4% and comparison to the prior year's first quarter, while on a linked quarter basis. Our net interest income was down 509000.

The growth and net interest income for the first quarter last year and.

And was the result of and increase in loan interest of $1 3 million, coupled with a decline and interest costs of 814000 offset by lower securities interest.

Average interest, earning assets grew by $218 8 million or 24% over the same period last year and was funded by strong deposit growth of over 240 million over the same period and it was invested mostly and loans, which grew by $183 3 million or.

And were 33, 5% this quarter.

The balance of our average investment securities balance declined by $54 2 million from the same period last year.

And the loan growth was impacted significantly by our SBA, PPP loans, which averaged $111 million during the first quarter and we're not present and the first quarter of last year.

Interest earned on PPP loans totaled one 1 million this quarter.

Landmark's net interest margin on a tax equivalent basis declined to 3.51% and the first quarter of 2021 as compared to 3.87% and the fourth quarter of 2020.

And still remains strong from an industry standpoint, but our yield on interest, earning assets declined by 39 basis points to 3.65%.

From the fourth quarter, while our overall cost of funding.

Only declined by three basis points to 0.21 per sales.

And finally, our net interest income compared to the fourth quarter of 2020, mostly was the result of lower interest on PPP loans, which declined by 395000.

As loan forgiveness levels were higher and the fourth quarter, which results in higher loans. He is recognized.

Our loan to deposit ratio, which totaled 67% at March 31, 2021 remains low and giving us plenty of opportunities to fund and the loan growth.

Looking at our provision for loan losses, our analysis resulted in providing $500000 to the allowance for loan losses, and the first quarter of 2021 as compared to 700000 and the fourth quarter of 2020.

The provision for loan losses reflects our best estimate of the economic environment, considering the effects of COVID-19.

Levels of our reserves, excluding the impact of the $117 3 million and PPP loans.

On the balance sheet at March 31 was $1 five 1% to gross loans, which is up eight basis points from the end of December.

And if the economic outlook evolves and our pandemic related loss experience continues to develop we will continue to adjust our allowance for credit losses, and provisioning and accordingly.

Noninterest income continues to be strong this quarter totaling $6 7 million compared to $5 4 million for the first quarter of 2020.

Slightly lower than in the prior quarter.

The primary driver of the $1 4 million increase and noninterest income over the same period last year was due to increased revenue from sales of one to four family real estate loans, we originated.

As the low interest rate environment, which began in the later part of the first quarter of 2020 drove up purchase and refinancing activity and our markets.

Loans originated this quarter totaled $96 6 million.

Compared to $45 9 million and the same period last year.

143000 dollar decline and noninterest income as compared to the linked quarter results from lower fee and service charges and gains on sales as loans.

Offset by a gain of $1 1 million on.

On the sale of higher coupon and municipal investment securities that did not occur and the prior quarter.

Okay.

Noninterest income for the first or excuse me non interest expense for the first quarter of 2021 with $444000 lower than the preceding fourth quarter of 2020.

So it was $966000 higher than the first quarter of 2020.

Both period comparisons were primarily driven by the fluctuations and our compensation and benefits expense more specifically, our mortgage lending and incentives.

And the FERC 2021, and first quarter origination volumes were much higher than a year earlier.

And slightly lower than the mortgage loans originated and the fourth quarter of 2020.

The effective tax rate was 24% and the current quarter up from 18, 9% and the first quarter of 2020 and with <unk>.

Slightly higher due to a higher ratio of taxable earnings to tax exempt revenue this quarter.

That's on a few balance sheet highlights total assets increased five 1% or $60 8 million during the first quarter to $1 2 billion at March 31, 2021 compared to the prior quarter.

Our gross loans increased $17 2 million.

During the first quarter, driven by increases and P. P P and commercial real estate lending.

Which were offset by lower commercial and agricultural loan balances.

Our deposits increased by $55 2 million during the quarter to $1 1 billion, which funded not only loan growth, but also also growth and investment securities of $23 6 million and cash and cash equivalents of $23 4 million this quarter.

Additionally, our bar or other borrowings, which are primarily customer repurchase agreements decreased $2 2 million to $4 2 million at March 31 2020.

Stockholders' equity increased to $128 3 million at March 31.

2021, a book value of $26.97 per share up from $126 7 million at December 31, and 2020, which was a book value of $26 six six.

<unk> per share.

Validated and bank regulatory capital ratios as of March 31, 2021 continue to remain very strong and exceed the regulatory.

Capital levels considered well capitalized.

Thanks leverage capital ratio was 10, 2% at March 31, and 2021, while the total risk based capital ratio and $18 one per cent.

I will now turn the call back over to Raymond to review highlights on our loan portfolio and the credit risk outlook.

Thank you Mark and good morning to everyone.

Gross loans outstanding as of March 31, 2021 totaled $737 million. This represents a $17 million increase or an annualized growth of nine 6% from the previous quarter and gross loan total of $713 $5 million.

This increase is mainly due to an increase in both P. P P and commercial real estate loans.

SBA Paycheck protection program loans experienced a net increase of approximately $17 $2 million, while commercial real estate loans increased $7 $5 million during the quarter.

Nonperforming loans, which primarily consist of non accrual loans and loans greater than 90 days past due totaled $11 million or 151% of gross loans as of March 31 2021.

This represents an increase from the year end 2020 level of $10 $5 million or 1.47% of gross loans.

This slight increase is the result of continued delinquency of one previously identified agricultural loan.

We remain focused on improving and these totals.

Another indicator, we monitor as part of our credit risk management efforts is the level of loans past due 30 to 89 days.

Level of past due loans between 30, and 89 days still accruing interest totaled $5 million or 0.69% of gross loans as of March 31 2021.

This ratio has increased from $1 $5 million or 0.21% of gross loans as of December 31 2020.

This increase is mainly due to the delinquency of two larger credits at quarter end.

One credit was a $1 3 million dollar commercial loan that had matured and was and the process of renewal.

That Lam has since been renewed and is now current.

The other was a $1 1 million dollar commercial real estate loan that was 44 days past due at quarter and.

That loan is also now current.

We continue to monitor delinquency trends carefully across all loan categories.

Our balance and foreclosed real estate totaled $1 $5 million as of March 31, 2021, a decrease from $1 $8 million as of year end 2020.

We continually we continue to actively pursue the sale of these properties.

We recorded net loan charge offs of $4000. During the first quarter of 2021 compared to net loan charge offs of $188000. During the first quarter of 2020.

And $291000 and the previous quarter, ending December 31st 2021, or 2020.

In terms of exposure to credit concentrations, we continue to focus on portfolio management and maintain and a diversified loan portfolio.

As of quarter, and our top three long portfolio pool categories, where commercial real estate loans, which represented 24, 6% of gross loans.

One to four family residential real estate, which represented 21, 9% of gross loans and commercial loans, which represented 17, 4% of gross loans.

Our COVID-19 impacted loan modifications declined again this quarter currently only for commercial loans totaling $6 $8 million remain and some form of COVID-19 deferral.

Additionally, only two consumer one to four family first mortgage loans totaling $250000 remain and some form of COVID-19 deferral.

We continue to work proactively with our customers and a manner, that's consistent with regulatory guidance and safe and sound lending practices.

One of the COVID-19 impacted sectors that we continue to monitor is our accommodations and food services economic sector.

This economic sector was limited to $25 9 million of our total loan portfolio.

Looking at the two subsectors within that total the accommodation sub sector made up $15 2 million on the total while the food services sub sector made up $10 7 million of the total.

And while this economic sector has certainly experienced its share of challenges over the past year. We're pleased with how this portion of our portfolio has performed despite the stress created by the pandemic.

The current economic landscape and Kansas is improving steadily following the negative impacts of COVID-19 on our state's economy.

Preliminary seasonally adjusted unemployment rate for Kansas as of March 31st is three 7%. According to the Bureau of Labor Statistics.

This represents an improvement from 12, 6% at the onset of the pandemic and April of 2020.

Partially driven by historically low interest rates on sales across Kansas have remained strong.

According to the Kansas Association of Realtors February 2021 housing market Statistics report on.

On sold were up 5%.

And of listings were down 53% and the average sale price was up 6% compared to a year earlier.

Additionally, the Wall Street Journal and Realtor Dot Com recently ranked our state capital of Topeka, Kansas as the number one market and the state.

The two entities ranked metro areas. According to their real estate market data economic health and quality of life.

In addition to being number one and the state Topeka ranked 57 out of the 300 and metro areas they evaluated nationwide.

Switching to our AG economy, United States Department of Agriculture, recently stated that in 2020 one.

Livestock and poultry sectors will face additional pressure and the form of higher feed cost.

But faced with an expected more stable demand pattern.

Stock and poultry prices should average above 2020 levels.

Additionally, current outlook for corn and soybeans appears favorable.

Corn used for ethanol is projected to be up 5% relative to a year ago and the average farm price for the next marketing year is projected at $11.25 per bushel for soybeans.

And while current conditions and the sector reflect the uncertainty and volatility associated with the extreme events of last year. The long term global demand outlook for U S agricultural commodities remains favorable.

And with that I, Thank you and I'll now turn the call back over to Michael.

Thanks Raymond.

Before we go to questions I want to summarize by saying and our first quarter of 2021 reflected a continued trend very positive operating results for landmark.

And to express my thanks, and appreciation to all of the associates at landmark National Bank their.

And their daily focus on executing our strategies deliberate and extra ordinary service to our clients and communities and <unk>.

Carrying out our company vision that everyone starts as a customer and leaves as a friend is the key to our success.

With that I'll open the call up to questions that anyone might have.

Thank you.

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At this time, we'll pause momentarily to assemble IRA.

And having no question and I would like to turn the conference back over to Michael Chopp, and there for any closing remarks. Thank.

Thank you and I do want to thank everyone for participating in todays earnings call.

I appreciate your continued support and the confidence that you had and our company.

And I look forward to sharing news related to our second quarter 2021 earnings.

2020, one results and our next earnings conference call. Thank.

Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.