LARK - NASDAQ

Hello, everyone, and a warm welcome to today's Landmark Bancorp Inc. Fourth Quarter Earnings Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions]. I will now hand the floor to Abby Wendel, President and Chief Executive Officer. Please go ahead.

Thank you, Seb. Good morning, and thank you for joining our call today to discuss Landmark's earnings and operating results for the fourth quarter and full year 2024. As you just heard from the operator, my name is Abby Wendel, President and CEO of Landmark Bancorp. On the call with me to discuss various aspects of our fourth quarter performance is Mark Herpich, Chief Financial Officer of the company; and Raymond McLanahan, 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. By now, I hope you have had a chance to read our press release announcing results for the fourth quarter and full year 2024. If not, you can find it on our website at www.banklandmark.com in the Investors section. Landmark's results in 2024 were strong with net income for the 12 months ending December 31 totaling $13 million or an increase of 6.3% from the prior year. We added $103.7 million in new loans this year and net interest income increased 6% to $45.7 million. Non-interest income also grew this year by $1.5 million or approximately 13%. Expenses were well controlled and our efficiency ratio improved. Credit quality remained solid all year. Our fourth quarter results reflect continued solid earnings of $3.3 million also driven by strong growth in loans and higher net interest income. Diluted earnings per share this quarter totaled $0.57 an increase of 25% over the same quarter last year. The return on average assets was 0.83% and the return on average equity was 9.54%. Our efficiency ratio in the fourth quarter 2024 was 70%. I'm especially pleased with these results because they demonstrate balanced growth across our footprint over the past year. As competitors in the Kansas City metropolitan region have moved upstream, we have found opportunities to capitalize on a relationship-based banking model, particularly in banking owner-operated businesses. We achieved growth in our rural markets as well, where our teams of excellent bankers serve our customers and communities equally well. Total gross loans increased this quarter by $50.5 million or 20% on an annualized basis with strong growth in virtually all loan categories, and brings our total loan balances to nearly $1.1 billion. Deposit balances also increased $53 million this quarter. And combined with sales and maturities of investment securities, we were able to fund both loan growth and reduce more expensive short-term borrowings. As a result, net interest income grew by 6.9% compared to the third quarter of 2024, and our net interest margin increased 21 basis points to 3.51%. While our overall credit quality remained solid, we provided $1.5 million to the allowance for credit losses based on the strong loan growth and one loan on non-accrual status. We continue to experience low net credit losses and maintain a robust allowance for credit losses, which totaled $12.8 million at December 31, 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 in FCIC insured. Thanks to our network of community-based banking centers. We remain risk averse in 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 our customers across the footprint. During the fourth quarter, our company distributed a 5% stock dividend representing the 24th consecutive year we've done this, and we also paid a cash dividend of $0.20 per share. I'm also pleased to report that our Board of Directors have declared a cash dividend of $0.21 per share to be paid March 5th, 2025 to shareholders of record as of February 19th, 2025. This represents the 94th 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. Mark?

Thanks Abby, and good morning to everyone. While Abby has just provided a highlight of our overall financial performance in the fourth quarter 2024, I'll provide some further details on these results. As mentioned, net income in the fourth quarter of 2024 totaled $3.3 million compared to $3.9 million in the prior quarter, and $2.6 million in the fourth quarter of 2023. Compared to the prior quarter net interest or net income in the fourth quarter 2024, decreased slightly because of a decline in non-interest income, higher non-interest expense, and an increase in the provision for credit losses. Included in non-interest income was a securities loss of $1.0 million related to the sales of low yielding U.S. treasury securities. Offsetting these declines was growth in net interest income this quarter plus an income tax benefit of $886,000 that was also recorded this quarter. In the fourth quarter 2024, net interest income totaled $12.4 million, an increase of $795,000 compared to the third quarter of 2024 due primarily to lower interest expense on deposits and borrowings. The increase in net interest income was due mainly to lower interest expense on deposits and other borrowed funds and impacted by the federal reserve's cuts to short term rates in both the third and fourth quarters. Total interest income on loans increased $22,000 this quarter and the tax equivalent yield on the loan portfolio decreased 15 basis points to 6.28%. Average loans increased by $24.5 million during the fourth quarter. The effects of which more than offset the decline in the average yield. Interest income on investment securities decreased slightly to $2.9 million this quarter due to a decline in the average investment securities balances of $18.7 million, but offset by higher yields on our investment securities balances. The yield on investment securities totaled 3.03% in the quarter compared to 2.86% in the fourth quarter of 2023. Interest expense on deposits in the fourth quarter 2024 decreased $480,000 mainly due to lower rates, while interest on other borrowed funds declined by $363,000, due to lower rates and balances. The average rate on interest-bearing deposits decreased 23 basis points to 2.25%, while the average rate on other borrowed funds declined 51 basis points to 5.1% in the fourth quarter. Landmark’s net interest margin on a tax equivalent basis increased to 3.51% in the fourth quarter of ‘24, as compared to 3.3% in the third quarter of 2024. This quarter, a provision for credit losses of $1.5 million was recorded, while a provision of $500,000 was made in the prior quarter. The increased provision relates to both an increase in loans and additional reserves placed on one loan on non-accrual status. Net charge offs totaled $219,000 in the fourth quarter of 2024 compared to net loan charge offs of $9,000 in the prior quarter. At December 31st, 2024, our allowance for credit losses of $12.8 million remains strong and represents 1.22% of gross loans. Non-interest income totaled $3.4 million this quarter decreasing $882,000 as compared to the prior quarter, while increasing $1.1 million compared to the fourth quarter of 2023. The decrease from third quarter 2024 was primarily the result of a loss of $1 million on the sale of lower yielding investments mentioned above. Additionally, lower sales of residential mortgages this quarter resulted in a decline of $182,000 in gains on sales of these mortgages. The decline in other non-interest income of $221,000 this quarter compared to the prior quarter resulted from the sales of premises equipment and foreclosed assets in the third quarter of 2024 that did not reoccur in the current quarter. Partially offsetting those declines was an increase of $722,000 in bank-owned life insurance income. Non-interest expense for the fourth quarter of 2024 totaled $11.9 million an increase of $1.3 million compared to the prior quarter. This increase related primarily to increases of $470,000 in professional fees and $461,000 in compensation and benefits. The increase in professional fees this quarter was primarily due to consulting costs on several initiatives, while the increase in compensation and benefits was attributable to an increase in full-time equivalent employees and higher incentive compensation costs. This quarter, we recorded a tax benefit of $886,000 compared to a tax expense of $867,000 in the third quarter of this year. The fourth quarter 2024 tax benefit included previously unrecognized tax benefits of $1 million. Gross loans increased $50.5 million or 20.1% annualized during the fourth quarter and totaled nearly $1.1 billion, a new record high. During the quarter, loan growth was primarily comprised of increases in commercial real estate and commercial loans of $21.1 million and $10.7 million respectively. We also saw good growth in both our agricultural and residential mortgage loan portfolios. Investment securities decreased $38.5 million during the fourth quarter of 2024 and included $36 million of low-rate U.S. Treasury securities offset by purchases of $18 million in market rate U.S. Treasury securities. Our investment portfolio has an average life of 4.6 years with a projected cash flow of $60.4 million coming due in the next 12 months. Deposits totaled $1.3 billion at December 31, 2024 and increased by $53.3 million this quarter. Interest checking and money market deposits grew by $71.3 million this quarter, while non-interest checking and certificates of deposit declined by $17.8 million. Growth in interest checking and money market deposits was driven by seasonal growth in public fund deposit accounts. Average interest-bearing deposits increased by $8.7 million during the fourth quarter of 2024 and average borrowings decreased by $19 million during the quarter. However, period-end balances declined $34.7 million. Our loan-to-deposit ratio totaled 78.2% at December 31, which remains low giving us sufficient liquidity to fund loan growth. Stockholders' equity decreased $3.5 million to $136.2 million at December 31, 2024, and our book value decreased to $23.59 per share at December 31 compared to $24.18 at September 30. The decrease in stockholders' equity this quarter mainly resulted from an increase in other comprehensive losses as the net unrealized losses on investment securities driven by higher long-term rates increased. Our consolidated and bank capital ratios as of December 31, 2024, continue to be strong and exceed the regulatory levels considered well capitalized. The bank's leverage ratio was 9.1% at December 31, 2024, while the total risk-based capital ratio was 13.5%. Now let me turn the call over to Raymond to review highlights of our loan portfolio and credit risk outlook.

Thank you, Mark, and good morning to everyone. As mentioned earlier, we enjoyed continued loan growth throughout the quarter mainly due to increases in our residential mortgage, agriculture, commercial, and commercial real estate portfolios. Gross loans outstanding at the end of the year totaled $1.052 billion and increase of $50.5 million or 20% on an annualized basis from the previous quarter. We experienced solid growth across virtually all of our portfolios. Our commercial real estate portfolio increased $21.1 million and our commercial portfolio increased $10.7 million. Agricultural loans increased $8.6 million from the prior quarter, as our Ag producers increased their line of credit usage at the end of the quarter. Our residential mortgage loan portfolio increased $7.8 million this quarter due to continued demand for our adjustable rate loan products that we retain in our portfolio. As you heard in Abby's comments earlier, our sweet spot has been serving business owners across the state of Kansas in both our rural and metro markets. A good indication of our commitment to those business owners is seen in our loan mix. Over half of our agricultural portfolio loans are to finance ag production and over half of our CRE portfolio is secured by owner occupied properties. Turning to credit quality at December 31st, 2024, non-performing loans consisting mainly of non-accrual loans were relatively unchanged from the prior quarter and total $13.1 million. Total foreclosed real estate into the quarter at $167,000, a decline of $261,000 from the prior quarter. The balance of past due loans between 30 and 89 days still accruing interest, decreased $1.1 million this quarter and totaled $6.2 million or 0.59% of gross loans. We recorded net loan charge-offs of $219,000 during the fourth quarter of 2024 compared to net loan charge-offs of $362,000 during the fourth quarter of 2023. Our allowance for credit losses totaled $12.8 million and ended the quarter at 1.22% of gross loans. As mentioned before, a provision for credit losses of $1.5 million was taken this quarter mainly due to continued loan growth that we have experienced in the quarter and additional reserves related to one loan that's on non-accrual status. The current economic landscape in Kansas remains healthy. The preliminary seasonally adjusted unemployment rate for Kansas as of December 31st was 3.6% according to the Bureau of Labor Statistics. In terms of housing, the Kansas Association of Realtors president recently reported quote, strong sales in December meant that home sales activity for 2024 was up 0.3% compared to 2023. For all of 2024, medium sale prices were up 6.1% and total sales volumes was up 5.6% compared to the prior quarter end quote. Home prices in December increased 10.2% in Kansas compared to the same time last year, while prices in the Midwest increased 9% compared to last year and home sales in Kansas increased 10.2% in December compared to the same period last year, we believe that the rate environment and the overall economy will continue to evolve. Thinking about rates, if you exclude the mortgage portfolio, roughly 30% of our portfolio will reprice in 2025. We believe we are well-positioned to withstand potential changes in the rate environment. Thinking about the overall economy, we will continue to maintain our credit disciplines in terms of pricing and underwriting that have served us well. And with that, I thank you, and now I'll turn the call back over to Abby.

Thanks, Raymond. Before we go to questions, I want to summarize by saying we were pleased with our results in the fourth quarter and in 2024 overall. We are continuing to see solid growth in our loan portfolio along with an expanding margin. With the operating successes we've had over the past few years and the high-quality banking products and services we offer, we are well positioned to further grow our business and add to our customer base. We continue to work on strengthening our existing customer relationships and we are focusing on growing our lending and fee businesses all across our markets. Finally, I'd like to thank all the associates at Landmark National Bank. Their daily focus on executing our strategies, delivering extraordinary service to our customers and communities is the key to our success. With that, I'll open up the call to questions that anyone might have.

Thank you, Abby. [Operator Instructions]. Our first question comes from Ross Haberman at RLH Investments. Please go ahead.

Just had a couple of brief questions. Abby, could you, you touched upon 30% of your loans are repricing. I'm assuming they're, assuming rates stay the same for the argument's sake that they're going to reprice up. Is that correct? And I guess a more basic question, if rates stay the same throughout the year for argument's sake, could we expect a progressively better margin throughout the year? Thank you.

I'm going to actually turn it over to Raymond for some specifics on your question. But when we think about expanding our margin, we have a couple of other levers as well on the deposit side. So, we're going to be looking at all of those things. I think you have heard me say before, our objective is to be prepared for any kind of environment that might come our way. And I think we can all admit we're in a, things are changing around us and we want to be prepared no matter what to deliver on our results. But specifically, to your question about variable rates on loans, I'm going to let Raymond give a little bit more color.

Yes, Ross, I appreciate that. It's hard to say exactly what will, how the rates will behave because you do have a diverse mix within both the Ag portfolio and our CRE portfolio. So, depending on how treasuries perform over the year, what the Federal Reserve decides to do with the prime interest rate, that's a little bit hard for me to answer that with any level of affinity. But generally, yes, if rates continue to elevate, the portfolio should follow how rates are trending.

And let's assume rates stay the same and they don't elevate, but they just stay the same. Would you say that the margin should get better too?

Yes. So, I think that you also are looking at the deposit side of the relationship there too. And while we want to have a fair and balanced approach on interest expense, there are some levers within that and we look at competitive forces too. So yes, theoretically and, what I would like to see us do is to see greater margin expansion over the course of 2025 even in a stable rate environment.

And to add on to Abby. Sorry, go on.

Hey, Ross. I think Mark is adding in with the expanded answer. Go ahead, Mark.

Yes. Rob, I was just going to add on to Abby's good comment there. But I think we would see a little expansion. We just had the restructuring of a small portion of our investment portfolio, but I think you'll see our investments trickle up higher as we just pulled that trigger right before Christmas.So, I see that and I think we'll still continue to monitor, maintain improvement on our deposit and funding costs.So, we're hopeful and optimistic to stay where they're at, see those go up.

A follow-up question. You had terrific loan growth last quarter. How repeatable is that over the next couple of quarters? Or was that just you just had a bunch of stuff that closed at year end? And was that $50 million some odd reflected? Did we see the benefit of that? Or will we really see the benefit of that income in this March? Thank you.

Yes, great question. So, you're asking us to comment on the status of the pipeline, which is a commercial banker's nightmare when you ask them to comment on their pipeline. But I will tell you this, the benefit financially, average loan balances is what pays the bills. So, by booking those in December, it certainly sets up 2025 well from an interest income perspective. Speaking about the repeatable nature, our commercial bankers are amazing and they are out there every day engaging with their clients and finding new opportunities. I'm incredibly impressed with the crew of bankers that we have across our footprint from Garden City all the way over here in Kansas City. So, I'm confident that they are not resting on their laurels. Our pipeline remains strong $50 million in a quarter is a lot. I'm not sure that we really need 20% linked annualized growth in loans, but we certainly are happy for them. And yes, there were several things that closed maybe even a little bit early in the fourth quarter compared to when we were projecting for first quarter 2025, but we're real happy with those results.

And just one final question. If I may, and then I'll step back. Are you actively looking for more lenders today and have you brought on more lenders within the last quarter or two?

Yes, so in the last quarter or two, we have hired one new lender in southwest Kansas. And we are -- here's the thing about commercial banking is you always are having conversations about what are the opportunities, and if you're able to bring, somebody over, hire somebody new into the developmental program, I would say we have hired in the last year a handful of folks in Topeka Manhattan who are in what I would call kind of the developmental phase of their commercial banking career. Really kind of focusing on the nuts and bolts of basic blocking and tackling of the business right now. We have opportunity, we think in certain of our markets to continue to add on, but that's really gonna be a case by case basis. We don't have any specific, like we are looking to expand in certain markets right now. It's just a constant recruiting effort.

Thank you for all your help. Best of luck in ‘25.

Thanks Ross. Appreciate your attendance today.

Our next question is from John Rodis at Janney.

Good morning. Hi, Abby, I guess a big picture question for you. You've been at Landmark now almost a year. Other than for this year, for 2025, other than sort of normal banking activities, what is sort of the big picture focus for you and for the company?

Yes, thank you John. I love this question of course, because I spent a lot of time thinking about it. We are really focused on investing in the infrastructure of the company. And I'll probably talk about this a little bit more in our annual report, but just to give you a flavor of it, when we have a great associate experience, our associates will take care of our customers and that will lead to a great customer experience. So that is where we're having a lot of focus in the near term, particularly in 2025. And then John, it's all about information and how we harness our information, how we serve our communities, opportunities we have to expand our base. And so, finding those partners and tools that we can deliver to our associates just frankly makes us all smarter at what we do, it's sort of like lifting a haze away from how are you successful and making sure that our teams really understand what makes them successful. What's most profitable to the company, and then just executing on the basic blocking and tackling of banking in our markets. I'll just tell you, you're right, it's been about 10 months for me, and I'm very impressed with the associate base, with our markets, with our penetration in markets. Sure, we have some opportunities to potentially grab some additional market share, but honestly, it's really just about having a great associate experience and turning that into a great customer experience.

Does M&A play any role going forward for you guys in the near term?

I would hope so, for sure. I mean, part of being an employer of choice is being a bank of choice, and whether that's a bank of choice for customers who are looking for a relationship based banking model and having, who value that. Also, being a bank of choice could be to be the partner for someone who is looking for a succession plan or for future growth. We are unique in that, we do have a currency and there I think are some fundamentals in our metrics that I'd like for us to improve upon. For example, a 70% efficiency ratio is a bit high, but as we execute on these basic blocking and tackling and infrastructure changes, I certainly hope that we can potentially be a home to folks who are otherwise ready to find a partner. And John, I'll also tell you, we have a lot of opportunity across Kansas. We are in 24 communities in Kansas. That's a lot of in 30 banking centers. That's actually a lot for a bank our size. And I have traveled extensively throughout the state now, and I think what we have to offer communities or bankers is terrific. And so, I'd love to see us gain a little bit further density in Kansas and to continue to build out our footprint within the state. Obviously, I live in Kansas City, Missouri, so I'm a big fan of the metro and I will do whatever I can to help support the team here too. And we do have a phenomenal team of bankers here in Kansas City, also building on the platform from the acquisition we did two years ago. But I think we have a long runway, and there are just some fundamental things about the bank's performance that I think if we can get adjusted a little bit, we will have the currency to use as well.

Okay. Makes sense. And then just one small question maybe for you, Mark. Just on the BOLI, looks like there was probably a sizable benefit in the quarter. How much was that?

We got an increase of a little over $700,000 that we had an individual pass away, a former President, Chairman of our Landmark Federal Savings Days, but at the end of the year. So, we're able to accelerate that based on the death right at the December, which bumped up into the upper $700,000 range for the quarter.

We have a follow-up question from Ross Haberman at RLH Investments. Please go ahead.

Thanks for taking the follow-up call. Could you talk about the mortgage business, taking into account all of the related expenses? Was it profitable on at the quarter and at the yearly level?

Great question. We don't disclose yes, no, great question. We don't do segment reporting, and certainly though all of our businesses are things that we're taking a look at in terms of profitability and so forth. I'll tell you that shop I mean just kind of from a color commentary, that shop runs very lean and they have made adjustments to be able to withstand this environment currently. But I think our mortgage lenders do a terrific job and the leaders in that group are constantly looking at our capabilities. So, it's a great question. At some point, we may share a little bit further detail. We do a lot of mortgage production. There is no question. And right now, most of that is going on to our balance sheet in the form of a 7/1 ARM, but it also gives us a robust cross-sell opportunity, which is something we're really looking to capitalize on in 2025.

What's your prognosis or expectation again if rates stay the same to the type of volume you're going to do in 2025 compared to 2024?

Yes. So, sweet spot really is around people who live and work in the communities where we have banking, banking centers. And I would say I mean, again, I don't have guidance to give you, and I wish I had a crystal ball around rates. But I would say that a lot of the housing market right now dynamics are driven by the fact that you have a lot of people who are living in homes with a rate that starts with a two, three or a four, and the impetus to move unless there's a relocation is pretty slim. So, you have lower generally speaking, you have lower supply, folks aren't entirely motivated to move. But again, I go back to, it's more about how that team is managing their expenses and resources and then using what we do have to find opportunities for cross-sell and strengthening relationships with those individual consumers. So, I know not a direct answer, but I think that's probably where I'll have to leave it.

Given the volume you saw in 2024, is there opportunity to take cost out of that operation today?

Just like all of our business operations, we will be continuously evaluating the profitability of all of our areas of the bank. As I mentioned, with the 70% efficiency ratio, we probably have some opportunity in pockets.

I was just asking the question to see if that was a drag on your bottom line. If you're losing a little money there for argument's sake, which a lot of banks are still. I was just wondering, does that shield or camouflage even better results from the bank, you might say. That was the reason for my question. But anyway, thank you for the help. I do appreciate it. Best of luck.

You bet. Thanks, Ross.

Thank you. At this time, we have no further questions on the call, so I'll hand the floor back to Abby for any closing remarks.

Thanks so much, Seb, and I want to thank everyone for participating in today's call. I appreciate your continued support and confidence in the company, and I look forward to sharing news relating to our first quarter 2025 results at our next earnings conference call. Hope you all have a fantastic day.