Landmark Bancorp Inc.

Good morning or good afternoon all, and welcome to the Landmark Bancorp Inc. Q4 Earnings Call. My name is Adam, and I'll be your operator for today. If you'd like to ask a question at the Q&A portion of today's event, you may do so by pressing star followed by one on your telephone keypad. I will now hand the call over to Michael Shepner, 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 the operating results for the fourth quarter and fiscal year ending 2023. Joining the call with me to discuss various aspects of our fourth quarter performance is Mark Herpich, 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, our 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. Landmark's results in 2023 were strong. Net income for the 12 months ending December 31st totaled over $12 million, or an increase of over 23% from the prior year. This increase was achieved through solid growth in net interest income, well-controlled expenses, and excellent credit quality in our loan portfolio. Further, in 2023, we realized significant benefits from the integration of both people and systems as a result of our acquisition of Freedom Bank in the fourth quarter of 2022. For the fourth quarter 2023, we reported net earnings of $2.6 million compared to $2.9 million in the prior quarter and $1.2 million in the fourth quarter 2022. Earnings per share on a fully diluted basis for the fourth quarter was $0.48. For the three months ended December 31, 2023, the return on average assets was 0.67%. The return on average equity was 9.39%. and the efficiency ratio was 71.9%. In the fourth quarter, the Federal Reserve started to stabilize short-term rates and long-term interest rates declined. This enabled us to grow deposits, reduce investment securities, and fund continued loan growth. We also reduced our reliance on borrowed funds as we sold some lower-rate investment securities at a pre-tax loss of $1.2 million and reduced higher-cost funding sources. Lower rates overall effectively increased our book value per share to $23.17, while also increasing equity to assets. Compared to the third quarter of 2023, total gross loans increased by $11.2 million, mainly due to growth in residential mortgage and agricultural loans. Deposits also increased $6.8 million during the fourth quarter of 2023. Debt interest income grew 2.4% from the prior quarter, and our net interest margin increased to 3.11% during the fourth quarter of 2023. Non-interest income decreased $1.4 million compared to the third quarter of 2023, mostly due to the security losses mentioned earlier, while non-interest expense declined mainly due to acquisition costs incurred in 2022 in the fourth quarter that did not reoccur. The credit quality of our loan portfolio remains solid, Non-accrual loans declined significantly this quarter, while the balance of other past due loans remains relatively very low. The allowance for credit losses remains robust, totaling $10.6 million at December 31, 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. During the fourth quarter, our company distributed a 5% stock dividend representing the 23rd consecutive year that we have done this. We also paid a cash dividend of $0.20 per share, representing a 5% increase when adjusted for the 5% stock dividend. I'm also pleased to report that our Board of Directors has declared a cash dividend of $0.21 per share to be paid February 28, 2024, to shareholders of record as of February 14, 2024. This represents the 90th consecutive quarterly cash dividend since the company's formation in 2001. I will now turn the call over to Mark Herbert, our CFO, who will review the financial results with you.

Thanks, Michael, and good morning to everyone. While Michael has already summarized our financial results and performance in the fourth quarter of 2023, I'd like to provide further details on those results. As Michael mentioned, net income in the fourth quarter of 2023 totaled $2.6 million compared to $2.9 million in the prior quarter and $1.2 million in the fourth quarter of 2022. Net income this quarter declined in comparison to the prior quarter, mainly due to a $1.2 million loss on sales of investment securities totaling $27 million, but offset by growth in net interest income and a slight decline in non-interest expense. In the fourth quarter of 2023, net interest income totaled $10.9 million, an increase of $260,000 compared to the third quarter of 2023, due primarily to increased interest income on loans, which more than offset an increase in interest expense. Total interest income on loans increased $692,000 this quarter, and the tax equivalent yield on the loan portfolio increased 11 basis points to 6.04%. Average loans also increased by $28 million during the fourth quarter, adding to loan interest income. Interest income on investment securities decreased $3,000 to $3.2 million this quarter as a result of higher yields earned but offset by a decline in average investment securities balances of $22.9 million. The yield on investment securities totaled 2.86% in the current quarter compared to 2.77% in the prior quarter and 2.56% in the fourth quarter of 2022. Interest expense on deposits in the fourth quarter of 2023 increased $495,000, mainly due to higher rates and balances. The average rate on our interest-bearing deposits increased this quarter to 2.13% compared to 1.93% last quarter, while the average balance of interest-bearing deposits increased $7.9 million. Interest expense on borrowed funds decreased $63,000 this quarter, despite higher rates as total borrowed fund balances declined $17.8 million during the fourth quarter. Landmark's net interest margin on a tax equivalent basis increased to 3.11% in the fourth quarter of 2023 as compared to 3.06% in the third quarter of 2023. As a reminder, on January 1st, 2023, 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, a $50,000 provision for credit losses was made to our liability for unfunded lending commitments, and we did not make a loan-related provision. While net loan charge-offs increased this quarter, our allowance for credit losses of $10.6 million remains strong and represents 1.12% of gross loans. Noninterest income totaled $2.3 million this quarter, decreasing $558,000 compared to the fourth quarter last year, while decreasing $1.4 million compared to the third quarter of 2023. The decrease from the prior year was primarily the result of recognizing a loss of $1.2 million on the sale of lower-yielding investments compared with a securities loss of $496,000 in the same period last year. Also, the gain on sales of fixed-rate residential mortgages declined by $162,000 compared to the fourth quarter last year. These decreases were partially offset by a $191,000, or 7.4%, increase in fees and service charges. The decrease in non-interest income compared to the prior quarter is mainly due to the securities loss of $1.2 million mentioned earlier. and a decrease of $236,000 in gains on sales of residential mortgage loans, offset by an increase of $145,000 in fees and service charge income. We continue to see growth in new loan originations of adjustable rate mortgages, which we normally keep in our loan portfolio instead of selling into the market. Non-interest expense for the fourth quarter of 2023 totaled $10.6 million in a decrease of $167,000 compared to the prior quarter and was $3.4 million lower than the same period last year. The decrease in non-interest expense compared to the prior quarter was mainly due to lower losses incurred by our captive insurance subsidiary coupled with a decline in comp and benefits. The decrease in non-interest expense compared to the fourth quarter last year was mainly due to costs associated with the Freedom Bank acquisition in the prior year that did not reoccur plus higher costs for foreclosed real estate and captive insurance costs last year. This quarter, we recorded a tax benefit of $111,000 compared to a tax benefit of $466,000 in the fourth quarter of last year, an income tax expense of $671,000 in the prior quarter. The fourth quarter of 2023 included $517,000 of previously unrecognized tax benefits. Gross loans increased 11.2 million or 4.8% annualized during the fourth quarter and totaled 948.7 million. We saw solid demand from our adjustable rate residential mortgage and agricultural lending portfolios. Our investment securities portfolio decreased 4.1 million on a period end basis. In the fourth quarter, 2023, mainly due to the sale of U.S. Treasury securities I mentioned earlier, offset by purchases of municipal and agency-backed mortgage securities. Gross unrealized net losses in the portfolio decreased $20.9 million to $21.9 million due to lower overall interest rates during the quarter and the securities sale mentioned earlier. Our investment portfolio has an average life of 4.2 years with a projected cash flow of $83.4 million coming due in the next 12 months. Our year-end deposits totaled $1.3 billion, representing an increase of $6.8 million this quarter. Interest checking and money market deposits and certificates of deposit grew by $25.6 million and $13.9 million, respectively, this quarter, while non-interest-bearing checking and savings accounts declined by $32.7 million. Our loan-to-deposit ratio totaled $71.3 million at December 31st, which remains low, giving us ample liquidity to fund new loan growth. We operate in stable markets throughout the state of Kansas, which provide 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 $244 million of additional borrowing capacity as of December 31st. Our investment portfolio also has unpledged securities available as collateral for additional borrowings. Stockholders' equity increased to $126.9 million at December 31, 2023, and our book value grew to $23.17 per share at December 31, compared to $19.99 per share at September 30. The increase in stockholders' equity mainly resulted from the decrease in net unrealized losses on our investment securities portfolio mentioned above. Our consolidated and banked regulatory capital ratios as of December 31, 2023 are strong and exceed the regulatory levels considered to be well capitalized. The bank's leverage ratio was 8.7% at December 31, 2023, while the total risk-based capital ratio was 13.7%. Landmark's return on average equity was 10.7% for the year ended 2023. Now let me turn the call over to Raymond to review highlights of our loan portfolio and credit risk outlook.