LARK - NASDAQ

Hello, everyone, and welcome to the Landmark Bancorp, Inc. Q1 Earnings Call. My name is Nadia, and I will be coordinating the call today. [Operator Instructions] I will now hand over to your host, Abby Wendel, President and Chief Executive Officer, to begin. Abby, please go ahead.

Thank you. Good morning, and thank you for joining our call today to discuss Landmark's earnings and operating results for the first quarter of 2025 and as you just heard from the operator, my name is Abby Wendel, President and CEO of Landmark Bancorp and Landmark National Bank. On the call with me to discuss various aspects of our first 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've had a chance to read our press release announcing results for the First Quarter of 2025. If not, you can find it on our website at www.banklandmark.com in the Investors section. We are pleased to report strong growth in net income this quarter, driven by increased net interest income, lower expenses and excellent credit quality. Net income in the first quarter totaled $4.7 million compared to $2.8 million in the same period last year. Also, diluted earnings per share this quarter totaled $0.81 and an increase of 69% over the same quarter last year. The return on average assets was 1.21% and the return on average equity was 13.71%. Our efficiency ratio in the first quarter of 2025 was 64.1%. I am especially pleased with these results because we continue to recognize balanced growth across all of our markets. Our sweet spot remains in serving business owners across the state of Kansas, from family farms in rural markets to small and midsized business owners in metro markets. Our loan mix reflects this commitment and our continued approach to relationship banking has helped us find success across all of our markets. Compared to the fourth quarter 2024, total gross loans increased by $22.6 million or 8.7% 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 $7.1 million this quarter and combined with 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 5.8% compared to the fourth quarter of '24, and our net interest margin increased 25 basis points to 3.6%. Overall, credit quality remains solid as we continue to experience low net credit losses and maintain a robust allowance for credit losses, which totaled $12.8 million at March 31, 2025. Landmark's capital and liquidity measures are strong as well, and we have a stable, conservative deposit portfolio with most of our deposits being retail based and FDIC insured, thanks to our network of community-based banking centers. We remain risk-averse in both monitoring our interest rate and concentration risk and maintaining a strong credit discipline. I'm also pleased to report that our Board of Directors has declared a cash dividend of $0.21 per share to be paid June 4, 2025, to shareholders of record as of May 21, 2025. This represents the 95th 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 first quarter 2025, I'll provide some further details on those results. As mentioned, net income in the first quarter of 2025 totaled $4.7 million compared to $3.3 million in the prior quarter, and $2.8 million in the first quarter of 2024. Compared to the prior quarter, net income in the first quarter of 2025 had strong growth due to continued increases in net interest income, lower noninterest expense and no provision for credit losses. In the first quarter of 2025, net interest income totaled $13.1 million, an increase of $720,000 compared to the fourth quarter of 2024 due to a combination of higher loan, interest income and lower interest expense on deposits and borrowings. The reduction in interest expense on deposits and other borrowed funds was impacted by the Federal Reserve's cuts to short-term rates in the fourth quarter. Total interest income on loans increased $440,000 this quarter, and the tax equivalent yield on the loan portfolio increased 6 basis points to 6.34%. Average loans increased by $38.4 million during the first quarter, which resulted from loan growth late in the fourth quarter of 2024, which continued into the first quarter of 2025. Interest income on investment securities decreased slightly to $2.9 million this quarter due to a decline in average investment securities balances of $31.8 million but was offset by higher yields earned on our investment securities balances. The yield on our investment securities portfolio totaled 3.29% in the current quarter compared to 2.96% in the first quarter of 2024. Interest expense on deposits in the first quarter of 2025 decreased $114,000 due to lower rates as our average interest-bearing deposits grew $34.8 million. Interest on borrowing funds declined by $216,000 due to lower rates and balances. The average rate on interest-bearing deposits decreased 8 basis points to 2.17% while the average rate on other borrowed funds declined 15 basis points to 5.09% in the first quarter. Landmark's net interest margin on a tax equivalent basis increased to 3.76% in the first quarter of 2025 as compared to 3.51% in the fourth quarter of 2024. This quarter, we did not make a provision to our allowance for credit losses after providing $1.5 million in the prior quarter. Net charge-offs totaled $23,000 in the first quarter of 2025 compared to net loan charge-offs of $219,000 in the prior quarter. At March 31, 2025, our allowance for credit losses of $12.8 million remains strong and represents 1.19% of gross loans. Noninterest income totaled $3.4 million this quarter, a decline of $13,000 compared to the prior quarter, while decreasing $42,000 compared to the first quarter of 2024. The decrease from fourth quarter 2024 was primarily due to a $704,000 decline in bank-owned life insurance related to onetime benefits recorded in the fourth quarter, coupled with a $322,000 decline in fees and service charges, related to lower deposit-related fee income in part due to fewer days in the quarter. Partly offsetting those declines was a $1 million loss on the sale of lower-yielding investment securities in the fourth quarter of 2024 compared to a loss of only $2,000 in the first quarter of 2025. Noninterest expense for the first quarter of 2025 totaled $10.8 million, a decrease of $1.1 million compared to the prior quarter. This decline related primarily to decreases of $350,000 in other noninterest expense, $298,000 in professional fees and $298,000 also in occupancy and equipment. The decreases in other noninterest expenses and occupancy, and equipment were primarily related to branch closures in 2024, and the related cost savings in 2025. The decrease in professional fees this quarter was primarily due to higher consulting costs in the prior quarter on several initiatives. This quarter, we recorded a tax expense of $1 million compared to a tax benefit of $886,000 in the fourth quarter of last year. The fourth quarter 2024 tax benefit included previously unrecognized tax benefits of $1.0 million. Gross loans increased $22.6 million or 8.7% annualized during the first 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 construction and land loans of $14.4 million and $3.3 million, respectively. We also saw good growth of $3.4 million in our residential mortgage loan portfolio. Investment securities decreased $16.5 million during the first quarter of 2025 due primarily to maturities. 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 March 31, 2025, and increased by $7.1 million this quarter. Interest checking and money market deposits declined by $23.5 million this quarter, while noninterest checking increased $16.9 million, and savings and certificates of deposits grew by $13.7 million. The decline in interest checking and money market deposits was driven by seasonal declines in public fund deposit accounts. Average interest-bearing deposits, however, increased by $34.8 million during the first quarter of 2025, while average borrowings decreased by $12.6 million during the quarter. Our loan-to-deposit ratio totaled 79.5% at March 31, which remains low, giving us sufficient liquidity to continue funding loan growth. Stockholders' equity increased $6.4 million to $142.7 million at March 31, 2025, and our book value increased to $24.69 per share at March 31, compared to $23.59 at December 31. The increase in stockholders' equity this quarter mainly resulted from a decline in other comprehensive losses due to lower net unrealized losses on our investment securities along with net earnings from the quarter. Our consolidated and bank regulatory capital ratios as of March 31, 2025, are strong and exceed the regulatory levels considered well capitalized. The bank's leverage ratio was 9.2% at March 31, 2025, while the total risk-based capital ratio was 13.6%. 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 quarter end totaled $1.075 billion, an increase of $23 million or 8.7% on an annualized basis from the previous quarter. We experienced solid growth across virtually all of our portfolios. Our commercial real estate portfolio increased $14 million. Our residential mortgage loan portfolio increased $3.4 million this quarter due to continued demand for our adjustable rate loan products that we retain in our portfolio. Turning to credit quality. At March 31, 2025, nonperforming loans consisting mainly of nonaccrual loans were relatively unchanged from the prior quarter and totaled $13.3 million. Total foreclosed real estate ended the quarter at $167,000. The balance of past due loans between 30 and 89 days still accruing increase -- still accruing interest increased $3.8 million this quarter and totaled $10 million or 0.93% of gross loans. This increase was largely due to $2.2 million SBA guaranteed commercial loans that we've mentioned on previous calls. Compared to a year ago, balances increased $5.9 million. This increase was primarily observed within our commercial real estate portfolio. We do not view this increase as an indicator of a broader weakness within the portfolio. Since quarter end, $1 million relationship has been brought current, and we remain actively engaged on the other credits. We recorded net loan charge-offs of $23,000 during the first quarter of 2025 compared to net loan charge-offs of $7,000 during the first quarter of 2024. Our allowance for credit losses totaled $12.8 million and ended the quarter at 1.19% of gross loans. The current economic landscape in Kansas remains healthy. But preliminary seasonally adjusted unemployment rate for Kansas as of March 31 was 3.8% according to the Bureau of Labor Statistics. The uncertain economic environment, particularly tariffs, are on everyone's mind. Our approach to banking has always been relationship-focused. So it should be no surprise that our banking teams have already been out in the field talking to our customers. What we're hearing from our customers is a general level of uncertainty and cautiousness believing, however, that the uncertainty will resolve over time. While it's still too early to tell what impact, if any, the administration's policies or actions will create for our customers, we continue to stay close to our customers and navigate these uncertain times together. And with that, I thank you, and I'll turn the call back over to Abby.

Thank you, Raymond. Before we go to questions, I want to summarize by saying we were pleased with our results in the first quarter. We continue to see solid growth in our loan portfolio, along with an expanding margin. We remain focused on maintaining solid credit quality, given the uncertainties in the economy, and we continually look for efficiencies in our operations. With the operating success we've had over the past few years and the high-quality banking products and services we offer, our bank is well positioned for future growth. We continue to work on strengthening our existing customer relationships, and we are focused on growing our lending and fee businesses across all our markets. Finally, I'd like to thank all the associates at Landmark, their daily focus on executing our strategies, delivering extraordinary service to our customers and communities is a key to our success. With that, I'll open the call up to questions that anyone might have.

Thank you. I want to thank everyone for attending today's earnings call. I appreciate your continued support and confidence in the company. I look forward to sharing news related to our Second Quarter 2025 results at our next earnings call. Hope everyone has a great day.