Landmark Bancorp Inc.

Hello, everyone, and welcome to the Landmark Bank Corp Q2 earnings call, conference call. My name is Carla, and I will be coordinating your call today. During the presentation, you can register to ask questions by pressing star followed by one on your telephone keypad. And if you change your mind, please press star followed by two. I would now like to hand you over to Abby Wendell, President and Chief Executive at Landmark, to begin. Abby, please go ahead.

Thank you. Good morning. Thank you for joining our call today to discuss Landmark's earnings and operating results for the second quarter of 2024. As you just heard from the operator, my name is Abby Wendell, President and CEO of Landmark Bancorp. Joining the call with me to discuss various aspects of our second quarter performance is Mark Herpich, Chief Financial Officer of the company, and Raymond McClanahan, Chief Credit Officer. As we start, I would like to remind 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 if any statements made during this presentation that discuss our hopes, beliefs, expectations, or predictions of the future are forward-looking statements, then 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 reported net earnings of $3 million during the second quarter of 2024. Earnings per share on a fully diluted basis for the first quarter were $0.55. The return on average assets was 0.78%, and the return on average equity was 9.72%. Our efficiency ratio in the second quarter was 67.9%. Our second quarter results reflected continued solid earnings driven by continued solid growth in loans, along with higher net interest income and non-interest income. As mentioned in our press release, this quarter we recorded a pre-tax valuation adjustment of $979,000 on a former branch, which is under a sales contract. This adjustment resulted in a reduction of earnings per share of 13 cents. Excluding this item, non-interest expenses declined from the prior quarter on lower compensation, occupancy, and mortgage amortization expense. Total gross loans increased this quarter by $16.5 million, and average interest-bearing deposits also increased by $820,000. Compared to the first quarter of 2024, net interest income grew 2.1%, and our net interest margin expanded to 3.21%. Non-interest income also increased as both fees and gains on mortgage loan sales were higher than in the prior quarter. Core non-interest expense was well controlled this quarter as we continue to focus on operational efficiencies. Credit quality has remained strong as net loan charge-offs, non-accrual loans, and delinquencies remain at relatively low levels this quarter. The allowance for credit losses remains robust, totaling almost $11 million at June 30, 2024. Landmark's capital and liquidity measures are strong, and we have a stable, conservative deposit portfolio with most of our deposits being retail-based and FDIC-insured. We remain risk-averse, both in monitoring our interest rate and concentration risk, and in maintaining a strong credit discipline. Further, we employ a relationship-based banking model, which offers stability and consistency to all our customers. I am pleased to report that our board of directors had declared a cash dividend of 21 cents per quarter to be paid September 4th, 2024 to shareholders of record as of August 21st, 2024. This represents the 92nd consecutive quarterly cash dividend since the company's formation in 2001. I will now turn the call over to Mark Herpich, our CFO, who will review the financial results in detail with you.

Thanks, Abby, and good morning to everyone. While Abby has just provided a highlight of our overall financial performance in the second quarter of 2024, I'll provide some further details on those results. As Abby mentioned, net income in the second quarter of 2024 totaled 3.0 million compared to 2.8 million in the prior quarter and 3.4 million in the first quarter of 2023. Net income this quarter increased in comparison with the prior quarter, mainly due to improvements in net interest income and non-interest income. Also, we did not make a provision for credit losses this quarter. Core non-interest expense also declined nicely, exclusive of the branch valuation adjustments that Abby mentioned earlier. In fact, excluding those adjustments, our non-interest expenses would have declined by $306,000 or 2.9%. In the second quarter of 2024, net interest income totaled $11.0 million, an increase of $227,000 compared to the first quarter of 2024, due primarily to increased interest income on loans, which more than offset our increase in interest expense on deposits. Total interest income on loans increased $532,000 this quarter, and the tax equivalent yield on the loan portfolio increased 17 basis points to 6.33%. Average loans also increased by $9.4 million during the second quarter, adding to our loan interest income. Interest income on investment securities decreased $74,000 to $3.1 million this quarter due to a decline in average investment securities balances of $19.8 million, but offset by higher yields earned on our investment securities balances. The yield on investment securities totaled 3.04 percent in the current quarter compared to 2.96 percent in the prior quarter, and 2.7% in the second quarter of 2023. Interest expense on deposits in the second quarter of 2024 increased 216,000, mainly due to higher rates. The average rate on our interest-bearing deposits increased this quarter to 2.44% compared to 2.35% last quarter, while the average balance of interest-bearing deposits increased 820,000. Interest expense on borrowed funds decreased slightly this quarter despite slightly higher rates as average borrowed fund balances declined 2.6 million during the second quarter. Landmarks net interest margin on a tax equivalent basis increased to 3.21% in the second quarter of 2024 as compared to 3.12% in the first quarter of 2024. This quarter, no provision for credit losses was made after our credit models considered the economic environment and recognized a large part of our loan growth. This quarter was in the one to four family residential mortgage category, where we continue to experience strong credit results. At June 30, 2024, our allowance for credit losses totaled $10.9 million, which remains strong and represents 1.11% of gross loans. Non-interest income totaled $3.7 million this quarter, increasing $320,000 as compared to the first quarter while decreasing $109,000 compared to the second quarter of 2023. The increase from the first quarter was primarily the result of an increase in fees and service charges of $230,000 along with growth in gains of $136,000 on sales of residential mortgages. Compared to the second quarter last year, gains on sales of fixed-rate residential mortgages declined by 182,000. While fees from sales of fixed-rate mortgages have declined somewhat over the last year, growth in adjustable-rate mortgages, which are kept on our balance sheet, has been strong. Non-interest expense. for the second quarter of 2024 totaled $11.1 million, an increase of $544,000 compared to the prior quarter. But as discussed earlier, this increase was entirely driven by the $979,000 valuation adjustment on a former branch building that is under contract for sale. Absent the valuation adjustments in the first and second quarters, non-interest expense would have been $306,000 lower than the prior quarter. Compensation and benefits, occupancy and equipment, and mortgage servicing amortization were all lower this quarter. This quarter, we recorded tax expense of $587,000, resulting in an effective tax rate of 16.3% as compared to tax expense of $518,000 in the first quarter of this year, for an effective tax rate of 15.7%. Gross loans increased $16.5 million, or 6.9% annualized during the second quarter and totaled $980.6 million. We saw good growth in our adjustable rate residential mortgage and commercial construction loan portfolios. Our investment securities portfolio decreased $16.8 million on a period-end basis as we utilized maturing investments to fund our loan growth. Our investment portfolio has an average life of 4.3 years with a projected cash flow of $69.7 million coming due in the next 12 months. Period end deposits totaled $1.3 billion at June 30, 2024, and decreased by $43 million this quarter. Interest checking and money market deposits and non-interest checking accounts declined by $36.9 million and $3.8 million, respectively, this quarter. The decline in money market and checking accounts was mainly driven by a decline in broker deposits on the last day of the second quarter, leading to a corresponding increase in overnight borrowings from the Federal Home Loan Bank at quarter end. Average interest earning deposits actually increased slightly in the second quarter of 2024, while our average borrowings declined by 2.6 million during the quarter. Our loan to deposit ratio totaled 77.5% at June 30th, which remains low, giving us sufficient liquidity to fund loan growth. Stockholders' equity increased to $128.3 million at June 30th, 2024, and our book value totaled $23.45 per share at June 30th, compared to $23.14 at March 31st. Our consolidated and bank regulatory capital ratios as of June 30th, 2024, are strong and exceed the regulatory levels considered well capitalized. The bank's leverage ratio was 8.9% at June 30, 2024, 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.