Q3 2021 Landmark Bancorp Inc Earnings Call
Good morning, or good afternoon, and welcome to today's landmark Bancorp Q3 earnings call. My name is Adam and I'll be your operator today, if you'd like to ask a question during the Q&A portion of today's call can reduce hooker pressing star one on your telephone keypad I will now hand, you over to Michael <unk>, President and Chief Executive Officer to begin so Michael. Please go ahead when you're ready.
Thank you and good morning, Thank you for joining our call today to discuss Landmark's earnings and results of operations for the third quarter and year to date 2021, joining the call with me to discuss various aspects of our third quarter performance is Mark Harbage, Chief Financial Officer of the company and the Companys Chief Credit Officer Raymond Mcclanahan.
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 Commission.
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 <unk>.
10-K, and 10-Q filings, which can be obtained by contacting the company or the SEC.
We are pleased to report continued solid earnings during the third quarter of 2021, driven mainly by our growth in core lending solid credit metrics and strong capital.
Third quarter 2021, net earnings amounted to $4 $5 million year to date 2021 net earnings totaled $14 9 million and resulted in earnings per share on a fully diluted basis of $3.12.
The return on average assets year to date 2021 was $1 five 9% and the return on average equity was 15.23%.
We continue to see a reduction in our paycheck protection program loans this quarter as they are being forgiven by the small business administration. Excluding these loans, our loan portfolio increased $12 $1 million or seven 7% from solid growth in both our commercial and commercial real estate loan portfolios.
While gains on sales of loans. This quarter are down from the same quarter of last year, mostly the result of the tight housing supply in our markets and reduced refinancing activity, but nevertheless, our a significant portion of our noninterest income, which we can count on in the future.
Credit quality remained strong this quarter the allowance for loan losses totaled $8 8 million at September 32021, and there was no provision for loan losses this quarter.
Our capital and liquidity positions remained strong with total equity to assets of $10 seven 9%.
The deposits of 61, 6%.
We believe landmarks risk management practices liquidity and capital strength continue to position us well to 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 November 24th 2021 to shareholders of record as of November 10th 2021. This represents the 81 consecutive quarterly cash dividend since the company's formation in 2001.
Our board also declared a 5% stock dividend to be issued December 15th 2021 to shareholders of record on December one 2021.
This represents the 20 <unk> consecutive year that the <unk>.
<unk> has declared a 5% stock dividend a continued demonstration of our long term commitment to support growth in value and liquidity for our shareholders.
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 has already alluded to our continued strong core net earnings for the third quarter ended September 32021, but now I would like to make a few comments on various elements comprising those results.
Starting with earnings highlights for the third quarter net interest income was $9 6 million, an increase of 346000 or three 7% in comparison to the prior year's third quarter.
On a linked quarter basis, our net interest income was down by 367000.
The growth in.
Net interest income from the third quarter last year was the result of an increase in loan interest of $463000, coupled with lower deposit costs, but offset by lower interest earned on investment securities.
The decline in net interest income from the prior quarter was mainly due to a decline in loan interest of $379000.
Okay.
Compared to the same quarter last year the increase in interest income on loans was mainly the result of an increase in interest on PPP loans, which totaled $1 6 million in the current quarter compared to $832000 in the third quarter of last year.
Also average loans, excluding PPP loans grew by $37 6 million.
This quarter over the same period last year.
Compared to our prior quarter the decline in loan interest was mainly due to a decline in interest on P. P. P loans of $600000, partly offset by higher average loans this quarter.
The average tax equivalent yield on the loan portfolio was five point O 3% in the current quarter compared to 4.42% in the same period last year and 5.00 last quarter.
Interest income on investment Securities decreased $229000 this quarter compared to the same period last year, mostly due to lower rates earned offset by growth in average balances, which grew by $49 7 million.
The yield on investment Securities declined from 2.54% in the third quarter of 2022, 1.86% in the current quarter.
Interest costs on interest bearing deposits totaled 13 basis points in the current quarter compared to 20 basis points in the third quarter last year.
Interest expense on deposits declined $96000 from the third quarter last year, mostly due to lower rates offset by growth in average balances of $78 8 million in interest bearing deposits.
Landmark's net interest margin on a tax equivalent basis decreased to 3.36% in the third quarter of 2021 as compared to 3.54% in the second quarter of 2020.
One and 3.60% in the third quarter of last year.
Our net interest margin remained strong from an industry standpoint.
Our loan to deposit ratio, which totaled 62% at September 30th 2021 remains low, giving us plenty of opportunities to fund new loan growth.
Based on our analysis, we did not make a provision to the allowance for loan losses in the third quarter of 2021 and this was consistent also with the second quarter of 2021.
The provision for loan losses.
It reflects our best estimate of the E gnomic environment, especially considering the effects of the pandemic on our credit results.
At September 30th 2021, the ratio of our loan loss reserve to gross loans, excluding the impact of the $28 7 million in the P. P. P loans was 1.38%.
As the economic outlook evolves and more 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 $2 7 million compared to the third quarter of 2020.
And while remaining almost identical to the prior linked quarter.
The decrease in noninterest income over the same period last year was mainly due to a decline of $2 3 million in sales of one to four 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 activities as compared to the third quarter last year.
When mortgage activity was extremely strong.
This decline in gains on sale of loans was offset by an increase over the same quarter last year of $146000 in fees and service charge income primarily due to increased interchange revenue and loan servicing fees.
The decline in noninterest income was also impacted by a gain of $678000 on the sale of higher coupon mortgage backed securities in the third quarter of 2020.
While the third quarter of 2021 only included $30000 of gains on sales of low balance mortgage backed investment securities.
Noninterest expense for the third quarter of 2021 totaled $9 4 million or a decrease of approximately 1% over the same period last year and it was $253000 higher than the prior quarter.
The decrease over the third quarter of 2020 was driven by a decline in compensation and benefits primarily related to lower mortgage lending activities, but offset by an increase in other noninterest expense relating to costs associated with our S. P. A P. P P processing fees and expenses.
She ended with other real estate owned.
The linked quarter increase was primarily due to increases in other real estate owned expenses.
The effective tax rate was 19, 8% in the current quarter down from 21, 5% in the third quarter of 2020.
To touch on a few balance sheet highlights total assets increased $4 1 million during the third quarter to $1 3 billion at September 30th 2021 compared to the prior quarter.
Our gross loans, excluding P. P. P loans increased $12 1 million during the third quarter, reflecting an annual growth rate of seven 7% and as mentioned was driven.
By growth in both commercial and commercial real estate lending.
Our deposits decreased by $11 1 million during the quarter to $1 1 billion, which combined with declines of $32 6 million in P. P. P loans and cash and cash equivalents of $13 7 million funded growth in investment securities of $34 6 million this quarter.
Stockholders equity increased $3 1 million this quarter to $135 4 million.
At September 30th 2021, or a book value, which totaled $28 45 per share up from $27.83 in the prior quarter.
Our consolidated and bank regulatory capital ratios as of September 30th 2021 are very strong and exceed the regulatory levels considered to be well capitalized.
The bank's leverage capital ratio was 10, 5% at September 30th 2021, while the total risk based capital ratio was $8 18, 3%.
I will now turn the call back over to Raman 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 September 30th 'twenty, 'twenty, one totaled $664 $7 million and declined $25 million this quarter, mainly due to lower P. P. P loans in our portfolio.
During the quarter, we continued to successfully assist our customers as they navigated the S. P. A P. P P forgiveness process.
That risk that success resulted in a $32 $6 million reduction in our outstanding P. P. P loans during the quarter.
This quarter, we were successful in recording a number of new commercial and commercial real estate loans, which helped to offset the decline in P. P. P loans.
Commercial loans increased $8 $1 million during the quarter, while our commercial real estate loans increased $4.4 million during the quarter.
This increase loan growth was observed across the landmark footprint and was a nice mix of new client relationships and expansion of existing relationships. We're very pleased and excited to continue to see 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 $9 $8 million or 1.48% of gross loans as of September 32021.
This represents a decline of $3 $5 million from the previous quarter and this decrease is the result of improvement in one large agricultural relationship and the successful collection of one commercial real estate relationship.
Total total foreclosed real estate increased $1 $2 million to $2 $6 million. This quarter as a result of foreclosing on one commercial real estate loan, which also reduced total non accrual loans.
We continue to actively pursue the sale of these properties.
Another indicator that 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 remains low and was only point to 3% of gross loans this quarter compared to point to 7% the previous quarter.
We continue to monitor delinquency trends carefully across all of our loan categories.
Net loan charge offs remained low and well controlled this quarter.
We recorded net loan charge offs of $397000 during the third quarter of 2021 compared to net loan charge offs of $381000 during the third quarter of 2020.
The ratio of annualized net loan charge offs to total average loans was 24 basis points in the current quarter and 21 basis points in the same period last year.
During the nine months that ended September 30th 2021 net loan charge offs totaled $509000 compared to $701000. During the same period in 2020.
In terms of exposure to credit concentrations, we continue to focus on strong portfolio management to maintain a diversified loan portfolio.
As of quarter end, our largest three portfolio concentrations, where commercial real estate loans, which represented 29% of gross loans, one to four family residential loans, which represented 24% of gross loans and commercial loans, which represented 20% of gross loans.
The current economic landscape in Kansas, while still somewhat uncertain has improved this year.
The preliminary seasonally adjusted unemployment rate for Kansas as of September 30th is three 9%. According to the Bureau of Labor Statistics and represents an improvement from an unemployment rate of 12, 6% at the onset of the pandemic in April of 2020.
And partially driven by historically low interest rates home sells across Kansas have remained strong but challenged by a lack of available homes for sale.
According to the Kansas Association of Realtors August 2021 housing market Statistics report.
Home sales in Kansas fell by one 4% in August compared to a year earlier.
Year to date sales across the state, we're up six 3% compared to last year.
Home prices continue to increase across the state.
<unk> average sales price in August was up nine 4% compared to a year earlier.
Switching to our AG economy, the United States Department of Agriculture, recently reported that corn and soybean harvests are well underway.
Harvest conditions remain favorable and early reports indicate good yields for yields for both corn and soybeans.
Cattle prices in Kansas have remained strong throughout the quarter, but uncertainty is increasing within the cattle industry.
While we do not have a significant animal production.
Boser from a portfolio perspective, we are monitoring some of the headwinds within this segment on our economy.
In September <unk>.
As Governor Laura Kelly announced that Kansas had received area development magazine's prestigious Golden Shovel Award for 2021, including being recognized on their 20 top states for doing business lesson.
Overall, we believe the health of our Kansas economy remains strong.
And with that I. Thank you and I will now turn the call back over to Michael.
Thank you Raymond and Mark. Thank you for your earlier comments also.
Where we go to questions I want to summarize by saying our third quarter of 2021 reflected a continued trend of very positive operating results for landmark.
Want to express my thanks, and appreciation to all of the associates at landmark National Bake their daily focus 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 up the call to questions that anyone might have.
As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad now preparing to ask a question. Please ensure you had said its pretty plugged in and not immediate locally I've stopped Philip I wanted to ask a question.
Our first question today is from John <unk> from Janney John Please go ahead.
Good morning, guys.
Morning, John.
Hey, Mark Mark a question for you on the P. P. P fees do you have how much of those fees are remaining after this quarter.
I do have that and I think it'll probably come out in our Q as well, but and we've got about one point.
Two 4 million.
Remaining in deferral at the end of the quarter.
And do you guys think that most of the remaining P. P. P loans, you know run off in the fourth quarter and then maybe some in the first quarter too.
I definitely think it'll reach into the first quarter next next year, Jon the pace was going fairly fast through I'd say August and now it's really slowed down most of our.
P. P. P loans from round, one have almost paid off but now we've still got the balance of our $27 million large part in our <unk>.
2021, second wave of PPP loans, and those havent been paying off quite as fast, but so I think I would expect them to go into the first quarter of 2022.
Okay, Okay. It sounds good.
Michael maybe a question or two for you. Just you know you guys put up put up you know continued good core loan growth. Excluding P. P. P. D. Do you still sort of think given the outlook. You presented do you think sort of mid maybe mid to high single digit loan growth going forward is still achievable.
John I would say, we're still seeing decent activity across the geography from a pipeline standpoint, and as we do our modeling I think that mid single digit.
Growth projection is.
Continues to be what we would be forecasting.
Okay, and then as far as the recent growth by market is most of it still sort of around the Kansas City area are some of more your rural locations or are you seeing any growth there.
It's really across the entire footprint John.
Decent.
Growth opportunities.
And really across the entire geography, we continue to.
Invest in human resources in.
In markets all across the state and so from the standpoint of commercial lending capacity.
Seeing it everywhere.
Okay. So so you're seeing some opportunities to hire some new lenders to us is that sort of what you're alluding to.
Yeah. We you know we continue to look for a.
Capable commercial bankers that we can add to our team and even that has.
You know that has we have been successful in that this year.
Okay Super and then Michael maybe just one final question just on the M&A maybe.
Maybe just your thoughts your appetite today and the level of conversations that youre seeing.
No nothing nothing tangible to report today, John I mean.
Company and the board will continue to evaluate opportunities to return value to our shareholders.
And so we.
We look forward to looking at.
<unk> would be strategic in nature and add value.
And can you just remind me you know as far as markets what would what what markets would make the most sense would you would you go outside the state of Kansas and so forth.
Yes, we would go across the state line, if if we found an attractive candidate that would.
Add to our shareholder value and franchise value.
And you know in Kansas, I think it would be we'd be pretty surgical in the markets that we would.
They will look to expand or grow in in Kansas, but we would definitely look at opportunities across the state line if it made sense.
Okay Super Thanks, guys nice quarter.
Thanks, so much.
Our next question is from Ross Haberman from <unk> investments Ross. Please go ahead.
Good morning, gentlemen, how are you. Thanks for thanks for taking my call.
I just had a quick question on the gain on sale of loans.
Two questions the $2 6 million you booked for the quarter.
Much of that do you think falls into the pretax number given the associated expenses.
Yeah.
You say, how much falls into the pre tax.
Yeah, given the related fees and commissions and so on and so forth.
About.
Yeah.
I think after you take out compensation and benefits and other expenses.
We have a number of that.
Yeah, I don't have off the top of my head that we've pushed usually haven't reported are our business by lines of business I guess, a little bit purposely from segmentation accounting with our <unk>.
Auto nerves and public reporting, but but it's yeah. It provides us a nice revenue and line of business that that goes in but quantifying. It is probably a little oh, we have that information hasn't been something we've.
Disclosed in and if we do then we gotta start segmenting our income statement into columns.
No no I'm, just saying that I hear you usually from a number of other banks.
Roughly.
Other banks anywhere from 50 to 60% to 70% share within a range.
Would that be.
Reasonable gas.
Yeah that was all about half hour.
I think on that pipeline would be.
Be about rights.
And.
And what's your what are you beginning to or to assume for mortgage.
Volume I guess for for the for the fourth quarter and next year.
You know what are you beginning to.
To guesstimate for that.
Sure. This is Michael I would tell you that we saw continued active refinance.
Activity in the first half of the year.
Production pipeline.
The third quarter.
Was was trending much more normal from a purchase to refi split.
So we would look for activity to be a little more normal for us in the in the fourth quarter and moving into 2022.
From a volume standpoint, you know our our pipelines as we're entering the third quarter have.
They've decreased in and to some extent, it's as I mentioned in earlier comments very tight housing supply available.
Available in most of our geography so.
Yes, we still have a decent third quarter from the standpoint of production activity, probably something in the neighborhood of another.
Oh $70 million to $75 million 70, $75 million to $80 million in production activity through the end of the third quarter and typically it flows in the in the middle of the fourth and into the first quarter, but I would I would if I were to guess on our production values going forward into.
2022.
The pipelines will look much more normal and probably back to volume levels that we enjoyed a pre pandemic.
And that was what gross gross gross production of what kind of range.
Gross production in the neighborhood of.
$250 million to $300 million.
Got it Okay 253, okay.
And just one last question.
If we do see the 10 year sort of meander up two 2% over the next couple of quarters would that scenario.
Positively affect your spread in your margin.
And it would yes, we've got a lot of cash on the balance sheet right now and in investments that are maturing in the next couple of years. So we're.
Anxiously and maybe what would be the right term.
Awaiting rates to go up so we can reinvest in and potentially see some of the loans not reprice downward any further either as rates go up so.
Where we.
We would welcome rates to go up at this point in time.
Got it okay. Thanks, a lot guys.
I appreciate the help thank you have a good week.
Thank you.
Yes.
Nothing for either in the queue at present, but as a reminder that stuff on your telephone keypad.
As we have no further questions I'll hand back to the management team 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 our company and I look forward to sharing news related to our fourth quarter 2021 results at our next earnings conference call. Thank you.
This concludes today's COVID-19. Thank you very much for your attendance you may now disconnect your lines.
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