Landmark Bancorp Inc.

Hello, everyone, and welcome to today's landmark Bancorp third quarter earnings call. My name is Seb, and I'll be the operator for your call today. If you would like to submit a question during the Q&A session, please press star one on your telephone keypad, or if you'd like to withdraw your question, please press star two. I will now hand the floor over to Abby Wendell, President and CEO, to begin the call. Please go ahead.

Good morning. Thank you for joining our call today to discuss Landmark's earnings and operating results for the third quarter of 2024. As you just heard from the operator, my name is Abby Wendell, President and CEO of Landmark Bancorp. Joining me on the call to discuss various aspects of our third quarter performance is Mark Herpich, Chief Financial Officer, and Raymond McClanahan, Chief Credit Officer. As we start, 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. Landmark reported net earnings of $3.9 million during the third quarter of 2024. Earnings per share on a fully diluted basis for the third quarter was 72 cents. The return on average assets was 1.0%, and the return on average equity was 11.82%. Our efficiency ratio for the third quarter of 2024 was 66.5%. Our third quarter results reflected continued solid earnings driven by strong growth in loans, along with higher net interest income and non-interest income. Net income grew by 30.5% over the prior quarter, and 36.6% over the same period in 2023, while our earnings per share increased by 36.5% over the third quarter of last year. Total gross loans increased this quarter by 21.3 million, and deposit balances also increased 8.0%. I'm pleased to share, for the first time in company history, our total gross loan balances reached $1 billion this quarter. This is a significant milestone for Landmark. As a result of this growth, net interest income grew 5.7% and our net interest margin increased nine basis points to 3.30% compared to the second quarter of 2024. Non-interest income increased 533,000 over the prior quarter, mainly due to an increase in fee-based revenue, residential mortgage revenue, and a gain on the sale of a former branch facility. Credit quality has remained strong with low net credit losses and a robust allowance for credit losses which totaled $11.5 million at September 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 risks and in maintaining a strong credit discipline. Further, we employ a relationship-based banking model which offers stability and consistency to all our customers across our footprint. I'm pleased to report that our board of directors has declared a cash dividend of 21 cents per share to be paid November 27th, 2024 to shareholders of record as of November 13th, 2024. This represents the 93rd consecutive quarterly cash dividend since the company's formation in 2001. The board also declared a 5% stock dividend to be issued December 16, 2024, to shareholders of record on December 2, 2024. This represents the 24th 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. With that, 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 third quarter of 2024, I'll provide some further details on these results. As mentioned, net income in the third quarter of 2024 totaled $3.9 million compared to $3.0 million in the prior quarter and $2.9 million in the third 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. Loans also increased 21.3 million, which helped to increase our net interest margin, while non-interest expense declined. During the current quarter, the Federal Reserve began to reduce short-term rates, and while the future rate path is somewhat uncertain, we believe our balance sheet is well-positioned for this future interest rate environment. In the third quarter of 2024, net interest income totaled $11.6 million, an increase of $630,000 compared to the second quarter of 2024 due primarily to increased interest income on loans, which more than offset our increase in interest expense on deposits and borrowings. Total interest income on loans increased $911,000 this quarter, and the tax equivalent yield on the loan portfolio increased 10 basis points to 6.43%. Average loans also increased by $30.6 million during the third quarter, adding to loan interest income. Interest income on investment securities decreased $70,000 to $3.0 million this quarter due to a decline in average investment securities balances of $8.8 million, but offset by higher yields on our investment securities balances. The yield on investment securities totaled 2.99% in the current quarter compared to 2.77% in the third quarter of 23. Interest expense on deposits in the third quarter of 2024 increased $157,000, mainly due to increased balances in higher yielding deposit accounts. The average rate on our interest-bearing deposits increased this quarter to 2.48% compared to 2.44% last quarter, while the average balance of interest-bearing deposits remained unchanged as compared to the prior quarter. Interest expense on borrowed funds increased slightly this quarter despite slightly lower rates as average borrowed fund balances increased 4.3 million during the third quarter. Landmarks net interest margin on a tax equivalent basis increased to 3.30 percent in the third quarter of 2024 as compared to 3.21 percent in the second quarter of 2024. This quarter, a provision for credit losses of $500,000 was recorded, while no provision was made in the prior quarter. Net charge-offs totaled $9,000 in the third quarter of 2024, compared to net loan recoveries of $52,000 in the prior quarter. At September 30, 2024, our allowance for credit losses of $11.5 million remains strong and represents 1.15% of gross loans. Non-interest income totaled $4.3 million this quarter, increasing $533,000 as compared to the prior quarter, while increasing $601,000 compared to the third quarter of 2023. The increase from the second quarter of 2024 resulted from growth in other non-interest income of $282,000 and an increase in fees and service charges of $189,000. along with higher gains on sales of residential mortgages. The increase in other non-interest income was primarily due to a $273,000 gain on the sale of a former branch. Compared to the third quarter last year, fees and service charge income grew by $262,000, while gains on sales of fixed-rate residential mortgages improved by $213,000. Non-interest expense for the third quarter of 2024 totaled $10.6 million, a decrease of $536,000 compared to the prior quarter. As a reminder, the prior quarter included a $979,000 expense representing a valuation adjustment on the branch building that was sold during the current quarter. Compensation and benefits increased by 5.4% due to staffing levels and healthcare costs, while occupancy and equipment expense increased due to higher utilities and repair costs. This quarter, we recorded tax expense of $867,000, resulting in an effective tax rate of 18.1%, as compared to tax expense of $587,000 in the second quarter of this year, or an effective tax rate of 16.3%. Gross loans increased $21.3 million, or 8.6% annualized, during the third quarter until it was $1.0 billion. As Abby mentioned, this is a first in Landmark's history. We saw solid loan growth from our adjustable rate residential mortgage loan portfolio, which grew by $12.3 million. Our agriculture portfolio also increased by $7.5 million, while our commercial real estate portfolio increased $5.2 million during the third quarter. Our investment securities portfolio decreased $9.4 million on a period-end basis as we utilized maturing investments to fund loan growth. Our investment portfolio has an average life of 3.9 years with a projected cash flow of $91.1 million coming due in the next 12 months. Deposits totaled $1.3 billion at September 30, 2024 and increased by $25 million this quarter. Interest checking and money market deposits, along with Certificates of deposits grew by $19.2 million and $11.4 million, respectively, this quarter, while non-interest checking and savings accounts declined by $5.6 million. Average interest-bearing deposits decreased slightly in the third quarter of 2024, and average borrowings increased by $4.3 million during the quarter. However, period end balances declined $33.6 million. Our loan-to-deposit ratio totaled 77.6% at September 30th, which remains low, giving us sufficient liquidity to fund loan growth. Our stockholders' equity increased $11.4 million to $139.7 million at September 30th, 2024, and our book value increased to $25.39 per share at September 30th, compared to $23.45 at June 30th. The increase in stockholders' equity this quarter mainly resulted from a decline in other comprehensive losses, which were aided by lower rates during the quarter. Our consolidated and bank regulatory capital ratios as of September 30, 2024, are strong and exceed the regulatory levels considered to be well capitalized. The bank's leverage ratio was 9.0% at September 30, 2024, while the total risk-based capital ratio with 13.8%. Now let me turn the call over to Raymond to review highlights of our loan portfolio and credit risk outlook.