Landmark Bancorp, Inc.
Q4 2020 Earnings Call Transcript

Published: 3 Feb 2021

[Operator:]

Good day, and welcome to the Landmark Bancorp Fourth Quarter 2020 Earnings Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Michael Scheopner. Please go ahead.

[Michael Scheopner:]

Thank you, and good morning. 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 2020 performance is Mark Herpich, Chief Financial Officer for the company. 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.

[Mark Herpich:]

Thanks Michael, and good morning to everyone. Michael mentioned our record net earnings for the fourth quarter and year ended December 31, 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% in comparison to the prior year's fourth quarter. The improvement in net interest income built upon a $153.5 million, or 16.9% increase in average interest-earning assets to $1.060 billion in comparison to the prior year fourth quarter period. 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 SBA PPP loans, which totaled $100.1 million at December 31. In addition, Landmark's net interest margin on a tax equivalent basis improved to 3.8% in the fourth quarter of 2020, 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% in the fourth quarter of 2019 to 0.24% in the current quarter. Our loans-to-deposit ratio increased to 69.2% as of December 31, 2020 as compared to 63.7% as of December 31, 2019.

[Michael Scheopner:]

Thank you for your comments, Mark. As Mark noted, net loans outstanding as of the end of 2020 totaled $702.8 million. This was a 32% increase from our year-end 2019 net loan total of $532.2 million. PPP loans made up $100.1 million of the net loan total as of year-end. Loan growth excluding the PPP volume was $70.5 million or 13.3% during 2020. As of year end 2020, our construction and land loan portfolio balances increased by 16.2% to $26 million or 3.7% of our total loan portfolio. The outstanding loan balances in 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. That includes the $100 million in PPP loans. Excluding those PPP loans, our commercial and industrial loans increased by 22.3% during 2020.

[Operator:]

We will now begin the question-and-answer session. The first question comes from John Rodis with Janney. Please go ahead.

[John Rodis:]

Good morning guys.

[Michael Scheopner:]

Hey good morning John.

[John Rodis:]

Hope you guys are doing well. Maybe just first question just as it relates to the PPP program. Just curious what you're seeing I guess call it Phase 2 or Round 2, what sort of demand do you think you're going to see from your customers relative to the first round?

[Michael Scheopner:]

Yes, John thanks. We actually were in the group that opened the portal right after the holiday. So, we had it open a few weeks and we've seen fairly steady demand. We don't expect it to be nearly at the volumes that we looked at in 2020. We are seeing interestingly enough in addition to the second draw of loans we are seeing an appetite for borrowers to go back and apply for first draw PPP funds. But overall, I think from the standpoint of our client base I mean it's mostly existing clients that we're seeing that are active in this 2021 round for the PPP funding.

[John Rodis:]

Okay. And then as far as PPP fees remaining, I think you said you had $1.5 million in the fourth quarter. How much in PPPs are actually remaining currently?

[Michael Scheopner:]

As far as fee revenue from the 2020 round?

[John Rodis:]

Yes. Yes. From -- as the loans pay-off are forgiven.

[Mark Herpich:]

That's a number I guess we haven't put out yet John deferred for on our balance sheet. Maybe we may consider putting that out. But its still -- as we got that $1.5 million on the -- which was interest income as well as the fee recognition in the fourth quarter, we were down from $130 million to $100 million at that point in time. So, one would gauge that it's -- that we still got quite a bit left to come in this year depending on how fast they ask for forgiveness.

[John Rodis:]

Okay. Michael just another question for you on core loan trends excluding PPP. So, you grew loans roughly 13% in 2020. What -- do you think you can do something close to that, again in 2021? Or that seems a little bit high to me, but...

[Michael Scheopner:]

That would be a little aggressive, John, just from the standpoint. We were still enjoying some business development growth from the commercial bankers that we added in the metro Kansas City market in 2020. And so that contributed to that double-digit loan growth levels last years. We look at our budgeting model for this year, John. We do expect to see non-PPP loan growth in 2021, but it would be in the high-single digits from a modeling standpoint.

[John Rodis:]

Okay. And just one more question from me. Just Michael, just sort of an update on the ag economy, that you usually typically give.

[Michael Scheopner:]

Sure. Really as we look at agri business conditions across Kansas, for the -- I guess winter wheat is probably the crop that is most of interest right now. And those conditions I think are pretty favorable, really across the entire franchise. We are seeing a little bit of I won't call it significant drought, but a little bit of moisture concerns in -- across the state with I guess, moisture test being a little bit below average. So we are of course, always concerned about that. I think overall as I look at our portfolio and the way our borrowers are positioned, I would say that, as we're entering 2021, conditions for our ag business clients are probably as favorable as they have been, over the last couple of years.

[John Rodis:]

Okay. Thank you, guys.

[Michael Scheopner:]

Thanks, John.

[Operator:]

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 Scheopner, for any closing remarks.

[Michael Scheopner:]

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

[Operator:]

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