Landmark Bancorp Inc (LARK) 2021 Q1 法說會逐字稿

Good day and welcome to the Landmark Bancorp Q1 earnings conference call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Michael Scheopner, 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 is Mark Herpich, Chief Financial Officer of the company; and the company's Chief Press Officer, Raymond McLanahan.

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 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, 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. The return on average assets for the quarter was 1.77%, and the return on average equity was 17.06%. These are strong ratios.

While last year, loan growth was very strong we continued to achieve solid loan growth in 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 3 months of 2021.

Mortgage banking activities remain strong due to the low interest rate environment, which has supported an 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 in 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 Administration's 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 loan modifications have declined significantly, with most of our borrowers returning to their loan contractual terms. We believe Landmark's 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 $0.20 per share to be paid June 2, 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 MNB Bancshares, Inc. in October, 2001.

I will now turn the call over to Mark Herpich, 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, 2021. And if you 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 2021's first quarter earnings of $5.4 million reflective of how far we have come in the last 12 months.

Now I'd 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, an increase of $1.5 million or 18.4% in comparison to the prior year's first quarter, while on a linked quarter basis, our net interest income was down $509,000. The growth in net interest income for the first quarter last year was the result of an increase in loan interest of $1.3 million, coupled with a decline in interest costs of $814,000, 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 was invested mostly in loans, which grew by $183.3 million or 33.5% this quarter.

Balance of our average investment securities balance declined by $54.2 million from the same period last year. The loan growth was impacted significantly by our SBA PPP loans, which averaged $111 million during the first quarter and were not present in the first quarter of last year. Interest earned on PPP loans totaled $1.1 million this quarter.

Landmark's net interest margin on a tax equivalent basis declined to 3.51% in the first quarter of 2021 as compared to 3.87% in 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 3 basis points to 0.21%. Decline in our net interest income compared with the fourth quarter of 2020 mostly was the result of lower interest on PPP loans, which declined by $395,000 as loan forgiveness levels were higher in the fourth quarter, which results in higher loan fees recognized. Our loan-to-deposit ratio, which totaled 67% at March 31, 2021, remains low giving us plenty of opportunities to fund new loan growth.

Looking at our provision for loan losses, our analysis resulted in providing $500,000 to the allowance for loan losses in the first quarter of 2021 as compared to $700,000 in the fourth quarter of 2020. Provision for loan losses reflects our best estimate of the economic environment, considering the effects of COVID-19. The level of our reserves, excluding the impact of the $117.3 million in PPP loans on the balance sheet at March 31, was 1.51% to gross loans, which is up 8 basis points from the end of December. As 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 accordingly.

Noninterest income continued to be strong this quarter, totaling $6.7 million compared to $5.4 million for the first quarter of 2020, so slightly lower than in the prior quarter. The primary driver of the $1.4 million increase in noninterest income over the same period last year was due to increased revenue from sales of 1-4 family real estate loans we originated, and the low interest rate environment which began in the later part of the first quarter of 2020 drove up purchase and refinancing activity in our markets.

Loans originated this quarter totaled $96.6 million compared to $45.9 million in the same period last year. $143,000 decline in noninterest income as compared to the linked quarter results from lower fee and service charges and gains on sales of loans, offset by a gain on $1.1 million on the sale of coupon municipal investment securities that did not occur in the prior quarter.

Noninterest income for the first -- or excuse me, noninterest expense for the first quarter of 2021 was $444,000 lower than the preceding fourth quarter of 2020 but was $966,000 higher than the first quarter of 2020. Those period comparisons were primarily driven by the fluctuations in our compensation and benefits expense, more specifically, our mortgage lending incentives as the first 2021 first quarter origination volumes were much higher than a year earlier but slightly lower than the mortgage loans originated in the fourth quarter of 2020. Effective tax rate was 20.4% in the current quarter, up from 18.9% in the first quarter of 2020 and was slightly higher due to a higher ratio of taxable earnings to tax exempt revenue this quarter.

Let's run a few balance sheet highlights. Total assets increased 5.1% 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 in PPP 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 growth in investment securities of $23.6 million and cash and cash equivalents of $23.4 million this quarter. Additionally, our 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 cents per share, up from $126.7 million at December 31, 2020, which was a book value of $26.66 per share. Consolidated and bank regulatory capital ratios as of March 31, 2021, continues to remain very strong and exceeds the regulatory capital levels considered well-capitalized. The bank's leverage capital ratio was 10.2% at March 31, 2021, while the total risk-based capital ratio was 18.1%.

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 $730.7 million. This represents a $17 million increase or an annualized growth of 9.6% from the previous quarter in gross loan total of $713.5 million. This increase is mainly due to an increase in both PPP 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 nonaccrual loans and loans greater than 90 days past due, totaled $11 million or 1.51% 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 1 previously identified agricultural loan. We remain focused on improving 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. The level of past-due loans between 30 and 89 days still incurring 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 2 larger credits at quarter end. One credit was a $1.3 million commercial loan that had matured and was in the process of renewal. That loan has since been renewed and is now current. The other was a $1.1 million commercial real estate loan that was 44 days past due at quarter end. That loan is also now current. We continue to monitor delinquency trends carefully across all loan categories. Our balance in foreclosed real estate totaled $1.5 million as of March 31, 2021, a decrease from $1.8 million as of year-end 2020. We continue to actively pursue the sale of these properties.

We recorded net loan charge-offs of $4,000 during the first quarter of 2021 compared to net loan charge-offs of $188,000 during the first quarter of 2020 and $291,000 in the previous quarter ending December 31, 2021 -- or 2020. In terms of exposure to credit concentrations, we continue to focus on portfolio management and maintaining a diversified loan portfolio. As of quarter end, our top 3 loan portfolio pool categories were commercial real estate loans, which represented 24.6% of gross loans, 1-4 family residential real estate, which represented 21.9% of gross loans and commercial loans, which represented 17.4% of gross loans.

Our COVID-impacted loan modifications declined again this quarter. Currently, only 4 commercial loans totaling $6.8 million remain in some form of COVID deferral. Additionally, only 2 consumer 1-4 family first mortgage loans totaling $250,000 remain in some form of COVID deferral. We continue to work proactively with our customers in a manner that's consistent with regulatory guidance and safe and sound lending practices.

One of the COVID-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 2 subsectors within that total, the accommodation sub-sector made up $15.2 million of the total, while the food services subsector 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 in Kansas is improving steadily following the negative impacts of COVID-19 on our state's economy. The preliminary seasonally adjusted unemployment rate for Kansas as of March 31st is 3.7% according to the Bureau of Labor Statistics. This represents an improvement from 12.6% at the onset of the pandemic in April 2020. Partially driven by historically low interest rates, home sales across Kansas have remained strong.

According to the Kansas Association of Realtors' February 2021 housing market statistics report, homes sold were up 5%, active listings were down 53% and the average sale price was up 6% compared to a year earlier. Additionally, the Wall Street Journal and realtor.com recently ranked our state capitol of Topeka, Kansas, as the #1 market in the state. The 2 entities ranked metro areas according to their real estate market data, economic health and quality of life. In addition to being #1 one in the state, Topeka ranked 57 out of the 300 metro areas they evaluated nationwide.

Switching to our ag economy, the United States Department of Agriculture recently stated that in 2021, livestock and poultry sectors will face additional pressure in the form of higher feed costs. But faced with an expected more stable demand pattern, livestock 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 in the sector reflect the uncertainty and volatility associated with the extreme events of last year, the long-term global demand outlook for US 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 our first 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 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.

(Operator Instructions) Having no questions, I would like to turn the conference back over to Michael Scheopner for any closing remarks.

Thank you. And I do want to thank everyone for participating in today's earnings call. I appreciate your continued support and the confidence that you have in our company. I look forward to sharing news related to our second quarter 2021 earnings or 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.