Landmark Bancorp, Inc. (LARK) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Landmark Bancorp, Inc. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Abby Wendel, President and Chief Executive Officer of the company. The floor is yours.

Thank you. Good afternoon, ladies and gentlemen. Welcome to the 2024 Annual Meeting of Stockholders of Landmark Bancorp, Inc. My name is Abby Wendel, and I have the pleasure to serve as President and Chief Executive Officer of the company. I am also pleased to serve as Chair of this meeting. Thank you for your time and attendance today. We are holding our Annual Meeting of Stockholders virtually this year because we believe that holding a virtual meeting enables more of our stockholders to attend and participate in the meeting, and it will allow our stockholders to participate from any location around the world with Internet access. Before we move to the business at hand, there are a few housekeeping items I will address related to today's virtual meeting. To vote your shares or submit questions, you will need the control number provided on your proxy card. If you have not yet voted and wish to vote, or if you wish to revoke a previously submitted proxy and change your vote, you may do so by clicking on the Vote icon. Stockholders who have already voted by Internet, telephone or mail need not vote again online at this meeting. Your voting instructions will be carried out at this meeting by Mark Herpich and Michael Scheopner, as your appointed proxies. If you would like to submit a question, please click on the Q&A icon on your screen now or at any time during the meeting. We encourage you to submit any questions as soon as possible to ensure your question is received. We have reserved time after the adjournment of the meeting to address any questions that don't directly relate to today's proposals. At this time, I call the meeting to order. Landmark's executive leadership team and directors are all in attendance at the meeting today. We are very proud of the members of our management team and our Board of Directors, and we are grateful for their dedicated service. Thank you all. I also want to give a special thank you to Director, Rick Ball, who will be retiring from the Board of Directors effective at the end of this meeting. Mr. Ball has served as a director since 1995. And Rick, we thank you for your services and contributions to the company over the years and wish you all the best going forward. Also in attendance is a representative of our independent registered public accounting firm, Crowe LLP. [ Aaron Poslovico ] is here today to represent Crowe and is available to respond to appropriate questions during the general question-and-answer period. We will now conduct the formal part of the annual meeting. Mark Herpich will act as secretary of this meeting. Mark has advised me that a quorum is present at this meeting so I declare this a properly constituted meeting, duly organized and ready for business. Mark has delivered an affidavit from Computershare, which states that mailing of the notice and proxy statement originally commenced on April 18, 2024, and was mailed to all stockholders of record as of the close of business on April 3, 2024, the record date for the annual meeting. Jeremy Hinkle is serving as the Inspector of Election at this meeting. That completes the necessary formalities. The purpose of our meeting is to conduct the following business matters to elect 3 Class II directors who will each serve a 3-year term, to appoint the Landmark Inc. 2024 Stock Incentive Plan and third, to ratify the appointment of Crowe LLP as the company's independent registered public accounting firm for the year ending December 31, 2024. We will now take stockholder questions related to the proposals presented. If you haven't done so already, at this time, please submit any questions you have. If you would like to submit a question, please click on the Q&A icon on your screen. We have not received any questions regarding the business before this meeting. So the question-and-answer session is now closed. If you have not already done so, please submit your vote now on each matter by clicking on the vote icon on your screen. Voting is about to be closed. [Voting]

I now declare that the polls are closed on all matters before the stockholders. That concludes the voting on the proposals considered at this meeting. We will disclose the final voting results in an 8-K filing with the SEC in the next few days. In the meantime, we can report that each of the 3 nominees has been elected as a Class II Director of the company. The Landmark Bancorp, Inc. 2024 stock incentive plan was approved and the appointment of Crowe LLP was ratified. That completes the formal business items on today's agenda, and I declare that this meeting is adjourned. I would now like to ask Mark Herpich, our Chief Financial Officer, to make some comments regarding a brief review of the company's financial performance and Raymond McLanahan, our Chief Credit Officer, to provide a lending division review. I will then provide my comments regarding the company and our strategies for driving value for our stockholders, after which we can then take any stockholder questions. Let me direct your attention to the forward-looking statement slide for today's meeting.

Thank you, Abby, and good afternoon. It is my pleasure to share with you some of the financial information of the company for 2024 and the first quarter of 2024 and the information as of December 31 is obtained from the audited financial statements and the information as of March 31 is unaudited. Let's begin by taking a look at an overview of Landmark Bancorp, which is the holding company for Landmark National Bank. We currently have 30 locations serving 24 communities across Kansas. As of March 31, Landmark's total assets have increased to $1.6 billion, along with $1.3 billion in total deposits. And based on our closing stock price on May 16 of $19.7, our market capitalization approximates $104 million. This next slide presents a variety of Landmark stock performance metrics as of March 31, 2024. As you can see, once again, based on the LARK stock price for May 16, Landmark's price to tangible book value was 114% as our tangible book value was roughly $16.67 at March 31. Another typical industry multiple in comparing stock values is the price to earnings multiple in which banks have historically traded in the 12x to 15x earnings range. Based on our 2023 earnings, we are still only trading at an 8.6x earnings multiple. Each of these valuation metrics are based on our stock price. Hopefully, this means we still have room for improvement in our stock price based on our announcements of continued solid earnings. Lastly, our dividend yield to our shareholders based on our May stock price computes to 4.4%. Over the years, including the recessionary years, the COVID years and the prolonged low interest rate cycle and now with the inflationary inverted yield curve environment with recessionary concerns looming, Landmark has continued to pay cash and stock dividends. As this slide shows, we have paid 91 consecutive quarterly cash dividends and annual 5% stock dividend since we became Landmark in October 2001. This streak would be even longer if we included our former company dating back to the mid-1990s. In fact, Landmark has actually increased our cash dividends by at least 5% each year as a result of the 5% stock dividend impact. Turning to some financial highlights. As we look at our recently announced first quarter of 2024 earnings results and comparable quarters, Landmark's earnings are continuing to show strong consistent results. The fourth quarter of 2023's earnings show a drop but were mostly impacted by a $1.2 million loss on the sale of lower rate investment securities. During the first quarter of 2024, we made a $300,000 provision for credit losses to keep pace with our continued loan growth. This next slide summarizes our financial results for fiscal year 2023 and 2022. Our earnings for fiscal 2023 were $12.2 million and compares to $9.9 million in 2022. 2022's financial results were impacted by the costs associated with our Freedom Bank acquisition on October 1, 2022. Our return on average equity improved to approximately 11% for fiscal 2023. This slide presents some financial ratios for Landmark. Of note, our dividends per share has continued to increase along with our book value and tangible book values per share over the past couple of years. With the continued inverted yield curve, meaning high short-term rates and lower long-term rates, our net interest margin has declined over the past year. Our loan-to-deposit ratio has increased to 74% as of March 31, 2024, as we have continued to originate variable rate one-to-four family residential loans as their interest rates are higher than alternative investment securities. Our loan-to-deposit ratio still remains low, giving us plenty of liquidity to fund new loan growth. While we hadn't acquired another financial institution in recent years until October 2022, this slide shows that we have been able to achieve loan growth organically during 2023 and continuing into 2024, reflecting solid demand for variable rate residential mortgage, construction and commercial loans. We have continued to originate variable rate one-to-four family residential loans as their interest rates are higher than the alternative investment securities. Our net loans have increased by $93.1 million or 10.8% since March 31, 2023, reaching $953 million at March 31, 2024. This next slide shows our net interest margin over the past 5 quarters. As you can see, our net interest margin showed gradual retraction since the first quarter of 2023. This retraction is primarily related to increased funding costs associated with the Federal Reserve Bank's significant increase in short-term interest rates as they continue their attempt to address inflation concerns. However, our first quarter of 2024 actually reflected a 6 basis point increase since the third quarter of 2023, and we believe that our net interest margin is leveling out. This slide provides a snapshot of our balance sheet trends over the past 3 years. We discussed Landmark's continued loan growth on a previous slide, which has driven up our total assets to $1.6 billion Additionally, our lending efforts are focused on relationships instead of individual transactions, which has helped grow our deposit balances to $1.3 billion. Stockholders' equity has decreased related to the impact of the Fed's interest rate increases during 2022 had on the market value of our investment portfolio. As the interest rates have continued to stabilize in 2023 and 2024, we are starting to see the market valuations improve and stockholders' equity increasing. Landmark continues to strive for a diversified noninterest income mix while capitalizing on environments such as the low interest rates during 2020 and 2021, when gains on sales of loans reached record levels. Landmark's first quarter 2024 earnings were impacted by our gains on sales of one-to-four family loans originated, which decreased by $181,000 from the comparable 2023 first quarter. This decrease was driven by the higher interest rate environment mentioned earlier, which began in the beginning of the first quarter of 2022, driving down purchase and refinancing activity in our markets. This drop in gains on sales of loans was offset partially by a $103,000 increase in fees and service charges. One of Landmark's most valuable attributes is our deposit portfolio, of which noninterest-bearing deposits comprise approximately 28%. This is a key driver enabling us to achieve a 2.35% cost of funds which is elevated for Landmark historically, but remains lower than a lot of our peers. Liquidity has been talked about a lot recently in the banking industry, and Landmark is fortunate to operate in stable markets throughout Kansas, which continue to provide access to retail, commercial and municipal deposits. Our uninsured level of deposits is only 14% as compared to other banks who have reported to have in excess of 90% of their deposits uninsured. Our efforts to achieve consistent earnings over the years has resulted in Landmark achieving a strong capital base as exemplified by our risk-based capital ratios exceeding 13% at March 31. Our capital ratios had grown to over 19% a couple of years ago prior to deploying some of our capital with the Freedom Bank acquisition in 2022 for continued growth. Our capital strength and our solid low-cost deposit base continue to position us well to meet the financial needs of families and businesses across Kansas. As I wrap up my comments, I would like to thank my associates in the various departments with whom I work for all their hard work over the past year as they adapted to all the challenges and changes presented during the year. We have a very knowledgeable and professional group of associates who are willing to do whatever is necessary to ensure Landmark's success. We are excited to work with our new President and CEO and continue to improve upon Landmark's history of solid results and about the prospects for future growth in 2024. We will continue to work diligently, navigating Landmark through the inflation and interest rate economic uncertainties facing us currently as we continue our efforts to grow and diversify our company, with shareholder value our foremost goal. Thank you. And now I'd like to turn the virtual podium over to Raymond McLanahan.

Thank you, Mark, and thank you to each of our shareholders joining us today. One of Landmark's key credit disciplines is to maintain geographic and industry diversification within our loan portfolio. Looking at our exposure to credit concentrations, as of the end of the first quarter of 2024, our combined commercial real estate portfolio totaled 33.5% of our total loan portfolio. When you break that down, you can see that our commercial real estate portfolio remains weighted towards owner-occupied commercial real estate, which represents 19.6% of our overall loan portfolio, and nonowner-occupied commercial real estate comprises only 13.9% of our overall loan portfolio. We've continued to see growth in our one-to-four family real estate portfolio. That portfolio represents 32.5% of our overall loan portfolio, while commercial and industrial loans represent 18.9% of our loan portfolio and our ag loan portfolio represents 9%. During 2023 and continuing into 2024, asset quality metrics remained strong. Our allowance for credit losses to gross loans is 1.13% as of quarter end. Net charge-offs continue to be low and classified loans ended the first quarter at 1.46% of gross loans. Nonperforming loans also remained low. Nonperforming loans were 0.38% of gross loans as of the most recent quarter end, and past due and nonaccrual loans were low at 0.80% of gross loans. Overall, we're very pleased with our asset quality trends. Strong metrics like these don't happen by accident. It takes the daily commitment of all of our team members to maintain our credit disciplines, live out our values and strive to benefit our customers, shareholders and the communities that we serve. Thank you once again, and I'll turn the call back to Abby.

Thank you, Raymond, for your comments and also thank you, Mark, for your earlier remarks. Before I begin, I want to take a moment to comment on the current economic environment. Interest rates remained elevated throughout 2023 if the Fed continued its effort to tame inflation. Despite this context, we at Landmark have not wavered in our approach to relationship banking. While funding costs ticked up, our loan production remained strong, and our net interest margin expanded in the last quarter of 2023 and into this year. Landmark also maintained strong capital and liquidity and a stable, conservative deposit portfolio with the majority of our deposits being retail based and FDIC insured. We spend significant time each month monitoring our interest rate and concentration risks through our asset liability management and our lending strategies involved a relationship banking model offering stability and consistency. We will continue to remain disciplined in maintaining the credit standards that have historically served us well. As both Mark and Raymond noted, Landmark's performance in 2023 and through the first quarter of 2024, represents a continued trend of positive operating results for the company. Our results reflect continued solid loan growth and good credit quality, deposit levels have remained relatively stable since year-end 2023. We our deposit composition is diversified and almost exclusively comprised of core deposit funding sources. We are positioned overall for continued growth. In February 2024, we opened a loan production office in Kansas City, Missouri, further expanding our market presence in the Kansas City metro region. This builds on our previous merger with Freedom Bancshares, Inc., which was fully integrated in the fourth quarter last year. Client retention following the merger has been strong, and we are pleased to continue to serve customers in the growing Overland Park market. The merger also afforded us the opportunity to consolidate 2 branches into the former Freedom Bank location, strengthening the level of collaboration amongst our teams in this market. We continued to see success across all of our production lines of business and in every landmark geographic area during 2023. Our commercial banking team generated loan production during 2023, which represented a 5.2% increase in loan totals during 2023. Our retail banking team continued to focus on solving client needs. We believe our strategy to drive growth in lower-cost nonpublic fund checking, money and savings accounts ultimately results in increased share of wallet from our deposit customers. We continue to invest in a platform of products and services to meet the financial needs of our client base with a focus on digital services and solutions that are simple, intuitive, integrated and relevant. Turning to mortgage banking. Our production volume in 2022 and 2023 declined and returned mainly to financing for new home loans. One-to-four family residential real estate loan production in 2023 totaled $165 million, representing 89% new home financing within that total. As interest rates increased in 2022 or '23, so has the popularity of our 7/1 adjustable-rate mortgage product offering. These ARM loans were underwritten to secondary market investment standards but retained in our loan portfolio as part of our overall asset liability management strategies. Our residential mortgage banking business continues to be pressured by tight housing supplies across our franchise footprint. As of the first quarter of 2024, our $1.5 billion in total assets places us as the ninth largest bank headquartered in the state of Kansas. There are currently 196 banks chartered in the state. In addition to our organic growth efforts, we will continue to evaluate potential merger and acquisition strategies that provide an appropriate return to our shareholders. Landmark's asset quality and capital strength was previously referenced in this report. And while it was also mentioned earlier, I wanted to again note our history with respect to the payment of dividends to our shareholders. LARK shareholders of record as of last Wednesday will be paid a cash dividend of $0.21 per share next Wednesday. This represents the 91st consecutive quarterly cash dividend since the company's formation in October 2001. I would also like to note that over the past 9 quarters, our ratio of net charge-offs to average loans has been 0% as recoveries of offset charge-offs during this period. We have now shifted our focus to 2024, and my top priority is to ensure a smooth CEO transition as we wish our former CEO, Michael Scheopner, well in his retirement. During this period of change and beyond, we will enhance the associate experience, which, in turn, will drive improvements to the customer experience and deliver for shareholders. Your Landmark team will continue to work at recruiting new business in a conservative and disciplined manner. We are dedicated to prudently underwriting loans and investments, monitoring interest rate risk and maintaining an organizational risk profile to prepare for any unforeseen future events. As a community bank with a strong presence across the state, combined with a growing presence in the state's largest metropolitan area, Landmark is committed to growing our customer relationships and meeting the diverse financial needs of families and businesses. I expect our success in organically growing market share across the Landmark franchise to continue. In closing, I want to acknowledge and express my appreciation to all my fellow Landmark associates. They have been doing great work. Their daily focus on executing our strategies and delivering extraordinary service to our clients and communities leads to our continued success. They are highly talented community bankers, and I'm proud to be associated with this team. I have already had the pleasure of visiting with many of our associates, and I look forward to visiting the rest over the next several weeks. I also want to express my sincere thanks and appreciation to our Board of Directors whose leadership, knowledge of our banking markets and contributions to developing Landmark's strategic plan helped set the stage for continued success. Thank you also to each of our Landmark customers and stockholders. Your support and confidence have made our team's success as possible. We look forward to continuing to contribute to your success in the years to come. We would now like to answer any questions you have. We will do our best to address any relevant questions that have already been submitted. If there are any other questions, please click on the Q&A icon on your screen now. We have not received any relevant questions, so the question-and-answer session is now closed. Thank you very much for attending this year's annual meeting.

This concludes the meeting. You may now disconnect.