Landmark Bancorp, Inc. (LARK) Earnings Call Transcript & Summary

Hello and welcome to the Annual Meeting of Stockholders of Landmark Bancorp, Inc. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Michael Scheopner, President and Chief Executive Officer of Landmark Bancorp. Mr. Scheopner, the floor is yours.

Thank you, and good afternoon, ladies and gentlemen. Welcome to the 2021 Annual Meeting of Stockholders of Landmark Bancorp, Inc. I'm Michael Scheopner, President and Chief Executive Officer of the company. It is my pleasure to serve as Chair of this meeting. Thank you for your time and attendance today. We are holding our Annual Meeting of Stockholders virtually this year because of the COVID-19 pandemic. Over the past year, we have taken measures to protect the health and well-being of our employees and stockholders, and holding this meeting virtually again this year is one of those steps. Before we move to the business at hand, there are a few housekeeping items I will address related to today's virtual meeting. To vote your shares or submit questions, you will need the control number provided on your proxy card. If you have not yet voted and wish to vote, or if you wish to revoke a previously submitted proxy and change your vote, you may do so by clicking Cast Your Vote. Stockholders who have already voted by Internet, telephone or mail need not vote again online at this meeting. Your voting instructions will be carried out at this meeting by Mark Herpich and myself as your appointed proxies. [Operator Instructions] We have reserved time after the adjournment of the meeting to address any questions that don't directly relate to today's proposals. At this time, I will call the meeting to order. Landmark's executive leadership team and directors are all in attendance at the meeting today. We are very proud of the members of our management team and our Board of Directors, and we are grateful for their dedicated service. Thank you all. Also in attendance is a representative of our independent registered public accounting firm, Crowe LLP. Andy Gripp is here today to represent Crowe and is available to respond to appropriate questions during the general question-and-answer period. We will now conduct the formal part of the annual meeting. Mark Herpich will act as the Secretary of this meeting. Mark has advised me that a quorum is present at this meeting, so I declare this a properly constituted meeting, duly organized and ready for business. Mark has delivered an affidavit from Computershare, which states the mailing of the notice and proxy statement, originally commenced on April 15, 2021, and was mailed to all stockholders of record as of the close of business on March 31, 2021, the record date for the annual meeting. Jeremy Hinkle is serving as the Inspector of Election at this meeting. That completes the necessary formalities. The purpose of our meeting today is to conduct the following business matters: To elect 3 Class II directors who will each serve a 3-year term; and to ratify the appointment of Crowe LLP as the company's independent registered public accounting firm for the year ending December 31, 2021. We will now take stockholder questions related to the proposals presented. [Operator Instructions] We have not received any questions regarding the business before this meeting, so the question-and-answer session is now closed. If you have not already done so, please submit your vote now on each matter by clicking Cast Your Vote. Voting is about to be closed. [Voting]

I now declare that the polls are closed on all matters before the stockholders. That concludes the voting on the proposals considered at this meeting. The results of the vote are as follows: Each of the 3 nominees has been elected as a Class II director of the company; and the appointment of Crowe LLP was ratified. That completes the formal business items on today's agenda, and I declare that this meeting is adjourned. I would now like to ask Mark Herpich to make some comments regarding a brief review of the company's financial performance. Following Mark's comments, I will then provide my remarks regarding the company and our strategies for driving shareholder value, after which, we can then take any stockholder questions. Let me direct your attention to the forward-looking statement slide for today's meeting.

Thank you, Michael, and good afternoon, everyone. It is my pleasure to share with you some of the financial information of the company for 2020 and the first quarter of 2021. The information as of December 31 is obtained from the audited financial statements, and the information as of March 31 is unaudited. Let's begin by taking a look at an overview of Landmark Bancorp, which is the holding company for Landmark National Bank. We currently have 30 locations serving 24 communities across Kansas, with our most recent banking location opening in Prairie Village, Kansas during July of 2019. As of March 31, Landmark's total assets have increased to $1.2 billion, along with $1.1 billion in total deposits. And based on our closing stock price on April 30 of $24.05, our market capitalization approximates of $114 million. This next slide presents a variety of Landmark stock performance metrics as of March 31, 2021. As you can see, once again, based on the LARK stock price for April 30, Landmark's price to tangible book value was 104% as our tangible book value was roughly $23.25 per share at March 31. Another typical industry multiple in comparing stock values is the price to earnings multiple, in which banks historically have traded in the 12x to 15x earnings range. Based on our 2020 earnings, we are still only trading at a 5.9x earnings multiple. Each of these valuation metrics are based on our current stock price. Hopefully, this means we still have room for improvement in our stock price based on our announcements of record earnings in recent quarters. Lastly, our dividend yield to our shareholders based on our April stock price computes to 3.3%. Over the years, including the recessionary years and continued low interest rate cycle, Landmark has continued to pay a cash and stock dividend. As this slide shows, we have paid 79 consecutive quarterly cash dividends and annual 5% stock dividend since we became Landmark in October 2001. This streak would even be longer if we included our former company dating back to the mid-1990s. And not only did Landmark continue their dividends, SNL Financial cited Landmark as 1 of only 16 banks that increased dividends greater than 3% annually between 2010 and 2017. Landmark has actually increased our cash dividends by at least 5% each year as a result of the 5% stock dividend impact. Turning to some financial highlights, as we look back over the last 4 quarters for Landmark, you can see our loans have continued to grow steadily, increasing by $47 million or an annual growth rate of 8.5% since the first quarter of 2020, excluding the Small Business Administration's Paycheck Protection Program, or PPP loans. Landmark has also been very active in funding PPP loans over the past year to support our customers as they navigate through the COVID-19 pandemic and gain access to the federal stimulus opportunities available to them. As this slide shows, in the gray shaded bars, we had $117 million in PPP loans outstanding at March 31. As this next slide shows, our net interest margin has declined to 3.51% in the first quarter of 2021, but still remains strong from an industry standpoint. The loan growth has helped maintain our net interest margin over the past 5 quarters as the interest rates on loans are higher than the alternative of purchasing lower-yielding investment securities in this low rate environment. Next slide shows our net earnings trends over the past 3 years, culminating in 2020's previously reported record net income of $19.5 million. Landmark's core earnings element, net interest income, also shows steady increases over the past years. Landmark has followed up the 2020 record earnings year by starting off 2021 strong, with our recently announced first quarter earnings of $5.4 million. A couple of ratios that banks are traditionally analyzed on are the returns on average assets and equity. As the presentation illustrates, our return on average assets has exceeded 1% in all recent periods presented, which is a standard for designating high-performing banks. In 2020 and the first quarter of 2021, our ROA has improved into the 1.7% range. Additionally, our ROE has remained above 10% for all periods presented and has exceeded 16% for the most recent periods. While we haven't acquired another financial institution in recent years, we have been able to achieve growth organically and supplemented with the acquisition of a couple of lending teams in the Kansas City metro area during 2018 and early 2019. Our net loans have increased by $228 million since 12/31/18, reaching $718 million at March 31, 2021. Our lending efforts are focused on relationships instead of individual transactions, which has helped grow our deposit balances to $1.1 billion. Also of note, our stockholders' equity has increased over $36 million since 12/31/18 from $92 million to just over $128 million in the last 2.5 -- 2.25 years. An earlier slide showed the quarterly earnings of $5.4 million from March 31, 2021, and the net interest margin of 3.51%. Landmark's first quarter earnings were aided by increases in various categories of our diverse noninterest income, but in particular, our gains on sales of 1 to 4 family loans originated grew to $3.1 million from $1.2 million in the comparable 2020 first quarter. This increase was driven by the low interest rate environment, which began in the later part of the first quarter of 2020, driving up purchase and refinancing activity in our markets. One of Landmark's most valuable attributes is our deposit portfolio, of which noninterest-bearing deposits comprise approximately 26%. This is a key driver enabling us to achieve a 0.15% cost of funds. Our efforts to achieve consistent earnings over the years has resulted in Landmark achieving a strong capital base, as exemplified by our risk-based capital ratios exceeding 17% at March 31. Our capital strength and our solid low-cost deposit base position us well to meet the financial needs of families and businesses across Kansas. As I wrap up my comments, I would like to thank my associates in the various departments with whom I work for all their hard work over the past year as they adapted to all the changes and challenges presented by the COVID-19 pandemic. We have a very knowledgeable and professional group of associates who are willing to do whatever is necessary to ensure Landmark's success. And while we are pleased with the company's performance in 2020 and the first quarter of 2021, we are continuing to work diligently navigating Landmark through the remaining economic uncertainties brought about by the COVID-19 pandemic, which presented a variety of challenges to Landmark during 2020 and into 2021 as we continue our efforts to grow and diversify your company, with shareholder value our foremost goal. Thank you. And I would now like to turn the virtual podium back over to Michael Scheopner.

Mark, thank you for your comments and for all of your hard work and efforts. I want to start my comments this afternoon by extending a thank you to all of my associates at Landmark National Bank. The challenges faced by these dedicated bankers in 2020, resulting from the COVID-19 pandemic were truly unprecedented. Their response to these challenges and our ability to work with our clients as they dealt with the uncertainty presented by the pandemic is something that I am very proud of. Each associate at Landmark took their role as part of the nation's critical infrastructure seriously. 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, was an integral part of our 2020 record performance. When the national emergency related to the COVID-19 pandemic was declared in March 2020, our daily operating model was radically altered. We witnessed firsthand the impact that this crisis had on our clients and communities, and we immediately adjusted our focus to assist them through these troubled and uncertain times. As part of our pandemic response plan and with the safety and well-being of our associates and customers foremost in mind, we limited access to our traditional bank lobby network. We repositioned a significant portion of our associates to a remote work-from-home environment, and we implemented enhanced precautions recommended by the Centers for Disease Control for the safety of those that remained in our bank facilities. To meet our customer needs, we reassigned associates to support our customer care center to handle increased call volumes relating to client questions and to support client access to all of our digital banking platforms. As a preferred lender with the Small Business Administration, we were able to provide significant assistance to help existing and new clients access the 2020 and the 2021 rounds of the Paycheck Protection Program funding that was authorized by Congress. As of the end of April 2021, we have assisted over 2,100 customers access over $185 million of PPP funding. In addition to the SBA PPP efforts, we proactively worked with clients who requested payment deferrals or loan modifications. These decisions were made on a case-by-case basis so that the solutions were specific to the clients' capital or liquidity needs. As of the end of the first quarter of 2021, only a small number of customers remained in a modified agreement, with all others returning to their original contractual terms. One of Landmark's key credit risk disciplines is to maintain a good geographic and industry mix or diversification in the loan portfolio. Looking at exposure to credit concentrations, as of the end of the first quarter 2021, our commercial real estate portfolio totaled 24.6% of our portfolio. This was additionally diversified by a mix of owner-occupied versus nonowner-occupied CRE. Commercial and industrial loans represented 17.4% of the portfolio, and our agricultural loan portfolio accounted for 12.7% of total loans as of first quarter end. At quarter end, we had approximately $117 million in PPP loans in our portfolio. We would anticipate that this number will fall significantly during the remainder of 2021 as borrowers move through the SBA loan forgiveness process. During 2020, we provided $3.3 million to the provision for loan losses as a result of core commercial loan growth and the ongoing uncertainty of the economic impact of COVID-19 on our loan portfolio. We provided an additional $500,000 during the first quarter of 2021. Our current allowance for loan and lease losses to outstanding gross loans is 1.27% as of quarter end. Net of the PPP loans, the allowance ratio to gross loans is 1.51%. We saw a slight uptick in 1Q '21 in our past due and nonaccrual to total loans ratio. This increase was mainly due to the delinquency of 2 larger credits as of the end of the first quarter. 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. Overall, I'm very pleased with our asset quality trends, given the overall uncertainty associated with the COVID-19 pandemic. I want to wrap up my remarks today by focusing on a few of our many successes from last year. We continued to enjoy positive organic growth trends. I earlier referenced our commercial banking efforts related to PPP lending. Loan growth in 2020, excluding the PPP volume was $70.5 million or 13.3%. We realized commercial banking loan growth across all of our geographic markets. Our retail banking efforts resulted in a 21.7% growth in our core deposit account balances. Our past and continued investment in a platform of products and services to meet the financial needs of our client base, with a focus on digital services and solutions that are simple, intuitive, integrated and relevant, proved timely in 2020 as our clients migrated their access to our products and services through online, mobile and video delivery channels versus in-lobby meetings. Lastly, but certainly not least, the efforts of our mortgage banking team in 2020 were at historic levels for the company. Mortgage loan production totaled nearly $450 million, doubling our $225 million production level from 2019. And our 2020 production was almost equally split between purchase and refinance activity. As of the end of 2020, our $1.2 billion in total assets places us as the 11th largest bank headquartered in the state of Kansas. There are currently 210 banks chartered in the state. We will continue to evaluate merger and acquisition strategies that provide an appropriate return to our shareholders. I'm also pleased to note our history with respect to the payment of dividends to our shareholders. Shareholders of record as of today's date will be paid a cash dividend of $0.20 per share on June 2, representing the 79th consecutive quarterly cash dividend since the company's formation resulting from the merger of Landmark Bancorp, Inc. with MNB Bancshares in October 2001. As we focus on 2021 and beyond, your Landmark team will continue to work at recruiting new business in a conservative and disciplined manner. We are dedicated to prudently underwriting loans and investments, monitoring interest rate risk and maintaining an organizational risk profile to prepare for any unforeseen future events. As a community bank with a strong presence across the state, Landmark is committed to growing our customer relationships and meeting the diverse financial needs of families and businesses. I expect our success in organically growing market share across the Landmark franchise to continue. In closing, I again want to acknowledge and express my sincere appreciation to all of my fellow Landmark associates. They have been doing great work. They are highly talented community bankers, dedicated to exceeding the expectations of Landmark customers, and I am proud to be associated with this team. I also want to express my thanks to our Board of Directors, whose leadership, knowledge of our banking markets and contributions to developing Landmark's strategic plan helped to set the stage for our continued success. And thank you also to each of our Landmark customers and shareholders. Your support and confidence have made our team's successes possible. We look forward to continuing to contribute to your success in the years to come.

We would now like to answer any questions that you have. We will do our best to address any relevant questions that have already been submitted. [Operator Instructions] We have not received any relevant questions, so the question-and-answer session is now closed. Thank you so much, so very much for attending this year's annual meeting.

This concludes the meeting. You may now disconnect.