Q2 2021 Landmark Bancorp Inc Earnings Call
Good morning, and welcome to the landmark Bancorp second quarter 2021 earnings call on.
All participants will be in listen only mode.
Need assistance, please signal a conference.
Specialist by pressing the Starkey followed by zero.
After todays presentation, there will be an opportunity to ask a question to ask a question you May Press Star then 1 on your Touchtone phone.
To withdraw your question. Please press Star then 2 please.
Please note this event is being recorded.
I would now like to turn the conference over to Michael Schaffner, President and Chief Executive Officer. Please go ahead.
Good morning, Thank you for joining our call today to discuss landmark's earnings and results of operations for the second quarter and year to date 2021.
Joining the call with me to discuss various.
So our second quarter performance is Mark <unk>, Chief Financial Officer of the company and the Companys Chief Credit Officer Raymond Mcclenahan.
Before we get started 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.
Aspen.
As part of these guidelines I must point out that any statements made during this presentation to 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.
<unk> Commission in 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 during the second quarter of 2021, driven mainly by increased net interest income lower credit cost continued solid mortgage.
<unk> activities and good expense control.
Second quarter 2021, net income amounted to $5 million.
Year to date 2021, net income totaled $10.3 million and resulted in earnings per share on a fully diluted basis of $2.17 sales.
The <unk>.
Mortgage by average assets year to date 2021 was 168% and return on average equity was $16.2 2%.
Excluding the SBA PPP loans, our gross loans grew by $10.6 million or 6.9% annualized during the second quarter.
Turn on it mainly to growth in commercial real estate and residential real estate loans.
Total deposits increased $6.5 million this quarter and have increased 14, 1% over the same period last year.
Credit quality remained strong this quarter there was no there was no provision for loan.
<unk> this quarter.
Modifications made last year to support our customers have mostly been returned to their original contractual terms are.
Our capital position remains strong with total equity to assets of 10, 6%.
We believe landmarks risk management practices liquidity and capital strength continue to position us well.
Losses meet the financial needs of families and businesses in our markets.
I am pleased to report that our board of directors has declared a cash dividend of <unk> 20 per share to be paid August 25, 2021 to shareholders of record.
As of August 11th 2021.
This.
This represents the 18th consecutive quarterly cash dividend since the company's formation in 2001.
I will now turn the call over to Mark <unk>, 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.
Second quarter ended June 30th 2021, and looking back a year during our 2022nd quarter earnings call. We noted that last year's net earnings of $5.1 million was the highest quarterly earnings landmark Bancorp had ever reported.
This year, our 2021 second quarter earnings.
A 5.1 million is reflective of how well we have been able to sustain our earnings level over the past year.
Now I'd like to make a few comments on various elements comprising these results.
Starting with the earnings highlights for the second quarter net our interest income was $10.1 million, an increase of 1.1 million or 10.
7% in comparison to the prior year's second quarter, while on a linked quarter basis, our net interest income was up by $389000.
The growth in net interest income from the second quarter of last year was the result of an increase in loan interest of $1.1 million coupled with a decline in interest.
Expense of $244000, but offset.
My lower interest earned on investment Securities.
Interest earned on SBA PPP loans totaled $2.2 million this quarter compared to $665000 in the second quarter of 2020.
And was a primary driver.
Driver of this quarter's increase in loan interest income.
Loan yields in general are repricing downward exclusive of SBA PPP loans.
Average interest, earning assets grew by $155.8 million.
Or 15, 6% over the same period last year and was funded by strong deposits.
Positive growth of over $134 million over this same period.
Average loans grew by $35.7 million.
Were 5.3% this quarter over the same period last year.
Despite a decrease of $5.3 million in average SBA PPP loans outstanding.
During the comparable quarters.
Average investment securities and interest bearing cash balances increased by $121 million.
From the same period last year as we are letting declines in loans and increases in deposits to be kept in cash or investment securities.
Landmark's net interest margin on a tax equivalent basis increased to 354% in the second quarter of 2021 as compared to $3.5 1% in the first quarter of 2021.
And still remains strong from an industry standpoint and.
In comparison to the prior year's second quarter net interest margin of.
Standing by 7.2%, we experienced a 19 basis point drop.
Our loan to deposit ratio, which totaled 62% at June 32021 remains low, giving us plenty of opportunities to fund new loan growth.
Looking at our provision for loan losses, our analysis resulted.
<unk> and no provision to the allowance for loan losses in the second quarter of 2021.
Compared to 500000 in the first quarter of 2020.
1.
The provision for loan losses on loans reflects our best estimate of the economic environment, considering the effects of COVID-19.
At.
342021, the ratio of our loan loss reserve to gross loans, excluding the impact of the $61.2 million on PPP loans.
Was 147%.
And the economic outlook evolves and our pandemic related loss experience develops we will continue to adjust our allowance for credit losses.
And provisioning accordingly.
Noninterest income totaled $5.5 million this quarter decreasing $1.5 million compared to the second quarter of 2020 and.
And $1.3 million lower than the prior linked quarter.
Primary driver of the decrease in noninterest income over the same period last year was due to lower raw.
Revenue of 2.1 million from sales of 1 to 4 family real estate loans that the bank originated.
During the current quarter higher interest rates, coupled with a lack of housing inventory in our markets slowed purchase and refinancing abatis activities as compared to the second quarter last year when mortgage activity.
Certainly strong.
This decline in gains on sales of loans was offset by an increase over the same quarter last year of $399000 in fees and service charge income.
The $1.3 million decline in noninterest income compared to the prior quarter resulted primarily from a gain of 1.1.
$1 million on the sale of higher coupon on municipal investment securities in the first quarter of 2021.
While the second quarter of 2021 only included $33000 of gains on the sale of low balance mortgage backed investment securities.
Noninterest expense for the second quarter of 2021 totaled $9.2.
We're an increase of approximately 1% over the same period last year and was $117000 higher than the prior quarter.
The increase over the second quarter of 2020 was driven by an increase in other noninterest expense relating to costs associated with our SBA PPP origination and forgiveness processes.
The linked quarter increase was primarily driven.
By increases in compensation and benefits expense.
The effective tax rate was 25% in the current quarter down from 21, 2%.
In the second quarter of 2020.
That's on a few back.
Highlights total assets increased $1.6 million during the second quarter to $1.3 billion at June 32021, compared to the prior quarter.
Our gross loans, excluding PPP loans increased $10.6 million during the second quarter driven by growth in commercial.
Real estate and residential mortgage lending.
<unk> was offset by slightly lower agricultural loan balances.
Our deposits increased by $6.5 million during the quarter to $1.1 billion, which combined.
With a decline of $56.1 million on PPP loans funded growth in both investment securities of $23.8 million in.
Cash and cash equivalents of $21.9 million this quarter.
Stockholders' equity increased to $132.4 million at June 32021, or a book value of $27.83 per share.
Up from $128.3 million at March 31, 2021.
Or a book value of $26.97 per share.
Our consolidated and bank regulatory capital ratios as of June 32021 are very strong and exceed the regulatory levels considered well capitalized bank.
The bank's leverage capital ratio was 10, 3% at June 32000.
'twenty 1 while the total risk based capital ratio was 18, 4%.
I will now turn the call 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 June 32021.
$685.2 million.
This represents a decrease of $45.5 million or 6.2% from the previous quarter and gross loan total of $737 million.
Throughout the first half of 2020, 1 we've helped several business clients successfully.
Total day, the SBA Paycheck protection program.
And as you will recall, we originated $131.3 million and SBA PPP loans during 2020.
And as of December 31, 2020, our outstanding SBA PPP loans totaled $100 million.
In contrast during the first half of 2021, we originated $55 million in SBA PPP loans.
The difference in volume is largely due to changes made in the SBA Paycheck protection program.
We're very proud of our efforts to support businesses and the communities that we serve during these uncertain times.
Now in addition to assisting our clients during the 2021round of PPP funding, we continue to assist our customers navigate the SBA PPP forgiveness process throughout the first half of the year.
As of June 30th 2021, 88% of our 'twenty 'twenty SBA.
A P P P loans and 18% of our 2021 SBA PPP loans have been paid in full.
This success resulted in a $56.1 million decrease in our outstanding SBA PPP loans during the quarter and welcome peace of mind to many of our business customers.
<unk> due to changes made to the SBA PPP program in 2021, we saw strong participation among our agricultural customers during the second round of funding.
Approximately $5.5 million of our 2021, SBA PPP loans were to agricultural borrowers.
We believe.
Additional liquidity for our agricultural customers resulted in a $2.8 million decrease in our agricultural loans during the quarter.
These quarterly decreases were partially offset by increases in our 1 to 4 family mortgage and our commercial real estate loan portfolios.
Commercial real estate loans.
This decreased $9.3 million during the quarter, while our 1 to 4 family mortgage loans increased $2.8 million during the quarter.
And as we said earlier, excluding SBA PPP loans gross loans grew by $10.6 million or at an annualized rate of 6.9% we continue.
And the growth opportunities in all of our geographical markets.
Nonperforming loans, which primarily consist of non accrual loans and loans greater than 90 days past due totaled $13.3 million or 194% of gross loans as of June 32021.
This represents an increase from the previous quarter end level of $11 million or $1.5 1% of gross loans.
This increase is the result of continued delinquency of 1 previously identified agricultural loan.
At the end of the quarter legal collection efforts were underway for 3 of our nonperforming borrowers.
To see combined totaled $4.3 million in nonaccrual loans.
We believe notable improvements in these totals are likely over the next 2 quarters as the legal collection efforts currently underway come to a conclusion.
Another indicator, we monitor as part of our credit risk management efforts is the level of loans past due.
What would be to 89 days.
The level of past due loans between 30, and 89 days still accruing interest totaled $1.9 million or 0.27% of gross loans as of June 32021, representing a decrease of $3.1 million during the second quarter of 2020.
1 we continue to monitor delinquency trends carefully across all loan categories.
Total foreclosed real estate amounted to $1.4 million as of June 32021.
Decrease from $1.5 million as of March 31, 2021.
We continue we continue to actively pursue.
<unk> 30, all of these properties.
We recorded net loan charge offs of $108000 during the second quarter of 2021 compared to net loan charge offs of $132000 during the second quarter of 2020.
During the 6 months that ended June 32021.
Through the sale on charge offs totaled $112000 compared to $320000 through the same period in 2020.
In terms of exposure to credit concentrations, we continue to focus on portfolio management and analysis to maintain a diversified loan portfolio.
At quarter end our largest.
On net portfolio concentrations, where commercial real estate loans, which represented 27, 6% of gross loans, 1 to 4 family residential real estate loans, which represented 23, 7% of gross loans and commercial loans, which represented 18, 6% of gross loans.
Our COVID-19.
Impacted loan modifications declined again this quarter currently only 1 commercial real estate loans totaling $3.8 million, representing a single hotel property remains in some form of Covid deferral.
And as hotel Occupancies improve over time, our hope is that this loan will migrate back to its original and contracted.
<unk> 3 repayment amount sometime in early 2022.
Additionally, only 1 small 1 to 4 family first mortgage loan remains on a short term for parents plan as of June 32021.
We continue to work proactively with our customers in a manner, that's consistent with regulatory guidance.
Tractor Nathan sound lending practices.
The current economic landscape in Kansas, while still somewhat uncertain has seen improvement this year.
The preliminary seasonally adjusted unemployment rate for Kansas as of June 30 is 3.7%. According to the Bureau of Labor Statistics and represents an improved.
And sent from 12, 6% at the onset of the pandemic in April of 2020.
With the recent uptick in Covid cases in the last several months, we continue to closely monitor this situation.
Our rural markets, especially our western Kansas market have seen notable improvements in employment rates.
Proved man May Kansas Governor, Laura Kelly jointly announced with a California based cheese company their decision to build a state of the art cheese, and whey protein processing plant and our Dodge City, Kansas market.
The new facility is expected to create 247, new jobs in the local community and 700.
Empty new jobs for the regional economy, Kansas.
Kansas continues to be enacted attractive market for investment.
Partially driven by historically low interest rates home sales across Kansas have remained strong.
According to the Kansas Association of Realtors May 2021 housing market Statistics report.
Third film sales in Kansas Rose by 19, 3% in May compared to the same period last year.
On prices continue to increase across the state.
The statewide average sales price in May was up 29% compared to a year earlier.
Supply remains very low at a time when demand.
On the remains strong.
The Wall Street Journal and Realtor Dot com in their most recent emerging housing market Index report ranked our state capital of Topeka, Kansas as the number 1 market in the state and number 11 in the country.
This is the second time to peak has been ranked as the number 1 market in the.
Demand by the Wall Street Journal based on the real estate market data economic health and quality of life.
Switching to our AG economy, United States Department of Agriculture, recently reported favorable crop conditions across the state.
Winter wheat harvest is approximately 96% complete corn and soybean crop conditions.
Additionally, we're also rated as favorable.
While we saw cattle prices moderate through most of the second quarter, we've seen stronger price support during July.
Overall, we believe agricultural conditions in Kansas remained favorable and with that I. Thank you and I will turn the call back over to Michael.
Thank you Raymond.
And Mark Thanks for your earlier comments.
Before we go to questions I want to summarize by saying our second quarter of 2021 reflected a continued trend of very positive operating results for landmark.
I want to express my thanks, and appreciation to all of the associates at landmark National Bank.
Their daily focus.
So on executing our strategies delivering extraordinary service to our clients and communities and 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.
We will now begin the question and answer.
Okay.
Ask a question you May press Star then 1 on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
Yeah.
Our first question today comes from Jon wrote.
<unk> with <unk> partners.
Hey, good morning, guys, Hey, good morning, John.
Thanks for the color very helpful. Maybe.
Maybe Michael just a question for you on on sort of your loan loan growth outlook. Excluding P. P. P loans showed solid growth this quarter sort of.
Through cycle digits, if you analyze the growth and over the past year. It looks like sort of core loans. Excluding P. P. P are up 9% you sort of you think going forward sort of the mid single digit growth rate, if not a little bit better is still achievable based on what you're seeing John.
John that's really our target from the standpoint of Av.
On the model that we want to pursue is in that mid single digit growth and we've been able to.
We've seen good activity really across the entire geography.
I think the other thing that supports that as we've been able to continue to recruit additional commercial banking talent.
To join the company.
Particularly in the.
On the Metro market market of Kansas City, and we think that will.
The strategies that we've employed we believe will support that kind of budget forecast from a from a loan growth standpoint.
And can you maybe just give an update on sort of those new new lender new hires over the last couple of quarters.
Now we've added expertise in Treasury management, and then some additional expertise in the commercial real estate.
Sector from the standpoint of.
<unk> loan opportunities.
Both of those have a have a focus or a <unk>.
History of commercial banking.
And the Kansas City Metro area.
Okay. Thank you guys.
Hey, Thanks, John.
And again, if you have a question. Please press Star then 1.
Seeing no further questions I'd like to turn the call back over.
Michael Schachner for any closing remarks.
Thank you and I do want to thank everyone for participating in todays earnings call I truly do appreciate your continued support and the confidence that you have in the company.
I look forward to sharing news related to our third quarter 2021 results at our next earnings call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.