Landmark Bancorp Inc.

Good morning, everyone, and welcome to today's conference call titled Landmark Bank Corp Third Quarter Earnings Call. My name is Ellen, and I'll be the call operator for today. All participants' lines will be muted throughout the presentation. At the end of today's presentation, there'll be an opportunity to ask a question. If you'd like to do so at this time, please press star followed by one on your telephone keypad. And if at any point your question's been answered or you'd like to withdraw your question, please press star followed by two. I'd now like to send the call over to Michael Shetner, CEO, to begin. Michael, please go ahead whenever you're ready.

Thank you, and good morning. Thank you for joining our call today to discuss Landmark's earnings and operating results for the third quarter and year-to-date 2023. Joining the call with me to discuss various aspects of our third quarter performance is Mark Herbick, Chief Financial Officer of the company, and the company's 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 10-K and 10-Q filing, which can be obtained by contacting the company or the SEC. Landmark reported net earnings of $2.9 million during the third quarter of 2023. Earnings per share on a fully diluted basis for the third quarter was $0.55. For the three months ended September 30th, the return on average assets was 0.74%. and the return on average equity was 9.87%. Year to date in 2023, net income grew 10.7% to $9.6 million. Our return on average assets was 0.84%, and the return on average equity was 11.13%. Our third quarter results reflected solid growth in loans coupled with strong credit results. Compared to the second quarter of 2023, Total gross loans increased by $44.2 million, or 19.6% on an annualized basis this quarter. Deposits also increased in the third quarter by $27.1 million due to growth in non-interest demand deposits and an increase in certificate of deposit accounts. This quarter, our net interest margin totaled 3.06%. That's down from 3.21% last quarter. while our loan-to-deposit ratio totaled 70.8%, reflecting ample liquidity for future loan growth. Credit quality remained very strong this quarter as we recorded net loan recoveries of $521,000 this quarter. The allowance for credit losses remains robust, totaling $11 million at September 30, 2023. Landmark continues to maintain strong capital and liquidity and a stable conservative deposit portfolio, with most of our deposits being retail-based and FDIC-insured. We spend significant time each month monitoring our interest rate and concentration risk through our asset liability management practices. Further, we employ a relationship-based banking model which offers stability and consistency to all of our customers. We continue to remain disciplined in maintaining the credit standards that have historically served us well. Our 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 21 cents per share to be paid November 29th, 2023 to shareholders of record as of November 15th, 2023. This represents the 89th consecutive quarterly cash dividend since the company's formation in 2001. The Board also declared a 5% stock dividend to be issued December 15, 2023 to shareholders of record on December 1, 2023. This represents the 23rd consecutive year that the Board 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 Herbeck, our CFO, who will review the financial results with you.

Thanks, Michael, and good morning to everyone. While Michael has already highlighted our overall financial performance in the third quarter of 2023, I'd like to provide further details on our performance this quarter. Comparisons to the prior year third quarter results and year-to-date are impacted by the Freedom Bank acquisition, which was effective October 1, 2022. As a reminder, the acquisition of Freedom Bank brought loans of $118 million and deposits of $150.4 million onto our balance sheet as of October 1. As Michael mentioned, net income in the third quarter of 2023 totaled $2.9 million, compared to $3.4 million in the prior quarter and $2.5 million in the third quarter of 2022. Compared to the same period last year, net income increased 15.1%, mainly due to growth in net interest income and non-interest income, but partially offset by higher non-interest expense. Net income this quarter declined in comparison with the prior quarter, mainly due to lower gains on sales of residential loans and an increase in non-interest expense. In the third quarter of 2023, net interest income totaled $10.6 million, a decrease of $207,000 compared to the second quarter of 2023, due primarily to increased interest costs, which more than offset the increase in interest income. Total interest income on loans increased $908,000 this quarter, and the tax equivalent yield on the loan portfolio increased 13 basis points to 5.93%. Average loans also increased by $32.4 million during the third quarter, adding to loan interest income. Interest income on investment securities increased $63,000 to $3.2 million this quarter as a result of higher yields earned. despite a decline in average investment securities balances of $8.8 million. The yield on investment securities totaled 2.77% in the current quarter compared to 2.70% in the prior quarter and 2.18% in the third quarter of 2022. Interest expense on deposits in the third quarter of 2023 increased $932,000, mainly due to higher rates and balances. The average rate on our interest-bearing deposits increased this quarter to 1.93% compared to 1.57% last quarter, while the average balance of interest-bearing deposits increased 20.0 million. Interest expense on borrowed funds increased $243,000 this quarter due to higher rates, while total average borrowed fund balances increased 10.7 million as compared to the second quarter. Landmark's net interest margin on a tax equivalent basis decreased to 3.06% in the third quarter of 2023 as compared to 3.21% in the second quarter of 2023. As a reminder, on January 1st, we implemented the new accounting standard, commonly referred to as CECL, which resulted in an increase of $1.5 million to the allowance for credit losses on loans at that time. This quarter, no provision for credit losses was made as our credit models considered the economic environment, along with our strong loan growth, continued strong credit experience, and a $626,000 loan recovery received during the third quarter. At September 30, 2023, the ratio of our allowance for credit losses to gross loans was 1.17%. Non-interest income totaled $3.7 million this quarter, increasing $123,000 compared to the third quarter last year, while decreasing $177,000 compared to the second quarter of 2023. This increase from the prior year was primarily the result of recognizing a $353,000 loss on investment sales on the sale of lower-yielding investments in the third quarter of 2022. as well as an increase of $107,000 in fees and service charges and increases in bank-owned life insurance and other non-interest income of $41,000 and $180,000, respectively. The increase in fees and service charges and bank-owned life insurance related primarily to the acquisition of Freedom Bank last year. The increase in other non-interest income was related to an increase in rental income associated with a branch location which was vacant in the third quarter last year but is now being rented. These increases were offset by a decline of $558,000 in gains on sales of residential mortgage loans. As higher interest rates and lower housing inventories continue to slow purchase and refinancing activity, of these fixed-rate loans in 2023. The decrease in non-interest income compared to the prior quarter is mainly due to a decrease of $339,000 in gains on sales of residential mortgage loans, offset by an increase of $137,000 in fees and service charge income. We continue to see growth in our new loan originations of one adjustable rate mortgages, which we normally keep in our loan portfolio, instead of selling into the market. Noninterest expense for the third quarter of 2023 totaled $10.7 million, an increase of $380,000 compared to the prior quarter, and was $1.3 million higher than the same period last year. Noninterest expense increased in comparison to the second quarter of 2023 due to higher compensation expense associated with adjustable rate mortgage loan production, along with the higher FDIC insurance premiums and other insurance costs. The increase in non-interest expense compared to the third quarter last year was mainly due to higher operating costs for compensation and benefits, occupancy and equipment, data processing, amortization, and other costs associated with the Freedom Bank acquisition. This quarter we recorded tax expense of $671,000 resulting in an effective tax rate of 18.9% as compared to tax expense of 522,000 in the third quarter of last year or an effective tax rate of 17.3%. Loan growth continued strong this quarter as gross loans increased 44.2 million or 19.6% annualized during the third quarter. we continued to see solid demand from our commercial real estate, commercial, and residential mortgage lending portfolios. Our investment securities portfolio actually decreased $27.5 million in the third quarter of 2023. Gross unrealized net losses in this portfolio increased $12.8 million to $42.8 million, principally due to higher interest rates during the quarter. Our investment portfolio has an average life of 4.7 years with maturities of $67.6 million coming due in the next 12 months. Deposits totaled $1.3 billion at September 30, 2023 and increased by $27.1 million this quarter. Non-interest demand deposits and certificates of deposit grew by $12.6 million and increased 37.6 million this quarter, respectively, while money market, interest checking, and savings accounts declined by 23.1 million. Our loan-to-deposit ratio totaled 70.8% at September 30th, which remains low, giving us ample liquidity to fund new loan growth. We operate in stable markets throughout the state of Kansas, which provides us predictable liquidity through access to retail, commercial, and municipal deposits. In addition, we continue to maintain and manage multiple other sources of liquidity, including the Federal Home Loan Bank and Federal Reserve Bank lines of credit and Fed funds agreements. Combined, they provide approximately $216 million of additional borrowing capacity as of September 30th. Our investment portfolio also has unpledged securities available to serve as collateral for additional borrowings. Stockholders' equity decreased to $109.6 million at September 30, 2023, and our book value decreased to $20.98 per share at September 30, compared to $22.50 at June 30. The decrease in stockholders' equity mainly resulted from the increase in unrealized losses on our investment securities portfolio mentioned above. Our consolidated and bank regulatory capital ratios as of September 30, 2023, are strong and exceed the regulatory levels considered well capitalized. The bank's leverage ratio was 8.7% at September 30, 2023, while the total risk-based capital ratio was 13.7%. Now let me turn the call over to Raymond to review highlights of our loan portfolio and credit risk outlook.