Summary of Farmers & Merchants Bancorp Conference Call Company Overview - **Company**: Farmers & Merchants Bancorp (Ticker: FMAO) - **Assets**: Approximately $3.4 billion - **Geographic Operations**: Ohio, Indiana, and Michigan - **Growth**: Asset growth at a CAGR of nearly 16% and net income growth of over 7% over the past ten years [5][6][9] Key Financial Highlights - **Market Share**: In 22 out of 38 locations, the bank ranks as number one or two in market share. Deposits in Ohio grew by 46% and in Indiana by 28% over the last four years [8][9] - **Dividend History**: The bank has raised its dividend for 30 consecutive years, typically yielding around 3% [10] - **Growth Strategy**: The bank has tripled in size over the last seven years, with $1.2 billion growth from organic means and $1.2 billion from acquisitions [11] Strategic Initiatives - **Branch Expansion**: Opened four new branches in Fort Wayne, Birmingham, Toledo, and Oxford, resulting in over $80 million in deposits [14][15] - **Loan Production Offices**: Established loan production offices to penetrate new markets, achieving significant loan growth [16][17] - **Talent Development**: Focused on internal promotions and external hires to enhance skills as the bank expands [18] Revenue Diversification - **Interest Income**: The bank is heavily reliant on interest income but has been diversifying revenue sources, including treasury management products and a growing investment business with approximately $400 million in assets under management [22][23] - **Digital Strategy**: The bank is working with fintech to enhance digital capabilities and streamline account opening processes [57] Asset Quality and Risk Management - **Loan Portfolio**: Over 51% of the loan portfolio is in commercial real estate, with a diversified mix across various sectors [41] - **Fixed vs. Variable Loans**: The bank has adjusted its loan mix to nearly 50% fixed and variable loans to mitigate interest rate risks [44] - **Asset Quality**: The bank boasts a 0% net charge-off rate and a low delinquency rate of around 30 basis points in agriculture loans [46][52] Community Engagement - **Charitable Contributions**: The bank has budgeted over $500,000 for community support, including charitable donations and local events [48] - **Agricultural Support**: The bank actively supports local farmers, particularly during harvest seasons [49] Macroeconomic Considerations - **Interest Rate Environment**: The bank expects net interest margin (NIM) to expand with a potential decrease in interest rates, benefiting from a well-structured loan portfolio [67] - **Agricultural Sector Resilience**: Despite recent challenges in the agricultural sector, the bank's farmers are expected to adapt and remain resilient [68][69] Competitive Advantages - **Niche Market**: The bank has successfully carved out a niche in commercial lending within larger markets, focusing on loans between $5 million and $15 million [79] - **Strong Asset Quality**: The bank ranks in the top five percentile for asset quality among peers, which is a significant competitive advantage [80] - **Experienced Agricultural Lenders**: The bank has a robust agricultural lending business, capitalizing on opportunities as other banks exit this sector [81][82] Future Outlook - **M&A Activity**: The bank is actively looking for acquisition opportunities in targeted markets, with a focus on expanding its footprint in Southern Michigan, Eastern Indiana, and Western Ohio [63][64] - **Next Strategic Plan**: The bank is preparing for its next strategic plan, focusing on organic growth and potential acquisitions [66] This summary encapsulates the key points discussed during the conference call, highlighting the company's performance, strategic initiatives, and outlook for the future.

Core Insights - The company reported a net income of $2.70 million for the second quarter of 2025, an increase from $2.15 million in the same period of 2024, with earnings per share rising to $0.60 from $0.47 [2][9] - Total interest income increased by 6% to $11.64 million in the second quarter of 2025 compared to $10.94 million a year earlier, driven by higher loan yields and growth in commercial real estate [9][12] - The company successfully retired approximately $10 million in capital notes, expected to reduce annual interest expenses by about $327,000, enhancing its financial position [7][9] Financial Performance - Net interest income for the second quarter of 2025 was $8.25 million, up 16% from $7.09 million in the second quarter of 2024 [11][36] - The net interest margin improved to 3.45% in the second quarter of 2025, compared to 3.02% in the same quarter of 2024 [4][16] - Total noninterest income was $4.08 million in the second quarter of 2025, slightly down from $4.19 million in the same period of 2024 [17] Asset Quality and Growth - Loans, net of the allowance for credit losses, increased to $649.09 million at June 30, 2025, from $636.55 million at December 31, 2024 [19][22] - The ratio of nonperforming loans to total loans was 0.28% at June 30, 2025, indicating strong asset quality [23][24] - Total assets reached $1.04 billion at June 30, 2025, up from $979.24 million at December 31, 2024, reflecting growth in both loans and securities [19][26] Shareholder Value - Stockholders' equity rose to $71.67 million at June 30, 2025, from $64.87 million at December 31, 2024, with a book value per share increasing to $15.77 from $14.28 [26][9] - The company declared a quarterly dividend of $0.10 per common share, payable on September 26, 2025 [9][8] Strategic Initiatives - The company emphasized a balanced revenue stream from various sources, including commercial and retail banking, which has provided financial stability amid economic challenges [6][9] - The focus on maintaining high-quality interest-earning assets and diligent credit management has supported sound margins and quality earnings [5][6]

Core Viewpoint - Landmark Bancorp reported a net income of $4.4 million and diluted EPS of $0.75 for Q2 2025, showing strong year-over-year growth but a slight decline from Q1 2025 highs. The bank's loan growth and net interest income remained robust, although deposit trends and asset quality require close monitoring [1][2]. Financial Performance - EPS (GAAP) for Q2 2025 was $0.75, up 44.2% year-over-year from $0.52 in Q2 2024, but down from $0.81 in Q1 2025 [2]. - Net interest income increased to $13.7 million, a 24.7% rise from $10.97 million in Q2 2024 and up from $13.1 million in Q1 2025 [2][5]. - Net earnings were $4.4 million, a 46.1% increase from $3.0 million in Q2 2024, but a slight decrease from $4.7 million in Q1 2025 [2]. - Return on average assets was 1.11%, up 0.33 percentage points year-over-year [2]. Business Overview - Landmark Bancorp operates as a community-oriented bank, providing a range of loan products including residential, commercial real estate, and agricultural loans across Kansas and the Kansas City metro area [3][4]. Loan Portfolio and Growth - The loan portfolio expanded by $42.9 million during the quarter, with significant growth in residential real estate loans ($21.5 million), commercial real estate loans ($10.9 million), and commercial loans ($13.4 million) [6]. - Total gross loans reached $1.12 billion, with strong demand noted in commercial and mortgage segments [6]. Deposit Trends - Deposit balances were $1.27 billion, reflecting a decline of $61.9 million from the previous quarter but an increase of $23.4 million year-over-year [7]. - The loan-to-deposit ratio increased to 86.6%, up from 79.5% in Q1 2025, as total borrowings rose by $105.9 million to support loan growth [7]. Asset Quality - Non-performing loans grew to $17.0 million, or 1.52% of gross loans, up from 1.24% in Q1 2025, although early-stage delinquencies improved [9]. - A provision for credit losses of $1.0 million was recorded, reflecting growth in the loan book and increased reserves for non-accrual loans [9]. Capital Strength - Equity to assets increased to 9.13%, up from 9.04% in the previous quarter, and tangible book value per share improved to $19.66 [10]. - The company declared a quarterly dividend of $0.21 per share, up from $0.20 in Q2 2024, indicating a commitment to shareholder returns [10]. Future Outlook - Management did not provide formal financial guidance but emphasized a focus on growing higher-yielding loans, maintaining expense control, and upholding credit discipline [11]. - Ongoing monitoring of deposit trends, asset quality, and competitive landscape in regional markets is expected [12].

Financial Data and Key Metrics Changes - Q2 net profit reported at KRW 1,738.4 billion, with first half cumulative profit at KRW 3,435.7 billion, representing a 23.8% year-over-year increase [4][9] - ROE for the first half stood at 13.03%, with a CET1 ratio of 13.74% as of June [4][19] - Total shareholder return for 2025 is projected at KRW 3,100 billion, a significant year-over-year increase [6] Business Line Data and Key Metrics Changes - First half net interest income posted KRW 6,368.7 billion, with a 4.8% quarter-over-quarter decrease due to temporary expenses from consolidated fund liquidation [12] - Noninterest income increased by 10.9% year-over-year, driven by improved performance in securities and derivatives [10][15] - Nonbank operations accounted for 39% of the group's first half net profit, indicating a diversified business portfolio [11] Market Data and Key Metrics Changes - Bank loans in won reached KRW 372 trillion, growing 2.4% year-to-date and 1.4% quarter-over-quarter [13] - Q2 bank NIM was reported at 1.73%, reflecting a contraction due to market rate cuts [14] - Group NPL ratio improved to 0.72%, with NPL coverage ratio at 138.5%, indicating strong loss absorption capacity [18] Company Strategy and Development Direction - The company plans to focus on capital discipline, managing risk-weighted assets with greater precision, and balancing ROE and capital ratio [7][8] - Emphasis on expanding shareholder returns and maintaining a commitment to transparency in shareholder return plans [6][7] Management Comments on Operating Environment and Future Outlook - Management expects asset quality conditions to improve in the second half due to government economic stimulus efforts [18] - The company anticipates credit costs to stabilize and potentially decrease, with a guidance of mid-forty basis points for the second half [30] Other Important Information - The company plans to implement interim dividend payouts from subsidiaries to secure distributable income for the upcoming year [26][42] - The group aims to enhance productivity through AI and explore new business opportunities while rationalizing costs [16] Q&A Session Summary Question: Size of second half shareholder return and plans for distributable profit - Management confirmed the second half shareholder return size at KRW 850 billion and discussed options for ensuring ample distributable profit [22][25][26] Question: Provisioning levels despite improved asset quality metrics - Management explained that provisioning levels were increased as a precautionary measure to ensure loss absorption capability [23][28][30] Question: Loan growth guidance in light of government measures - Management indicated that household loan growth is expected to decelerate to about 3%, while corporate loans are targeted for 6% to 7% growth [36][38] Question: Potential interim dividends from subsidiaries - Management clarified that interim dividends from securities and brokerage subsidiaries are being considered, while insurance subsidiaries may not contribute this year [40][42] Question: PBR and dividend policy adjustments - Management stated that adjustments to the cash dividend payout ratio will be considered based on PBR levels, with a range of 0.8x to 1x being discussed [33][43]

Financial Data and Key Metrics Changes - Net income for Q2 2025 was $15.1 million or $0.50 per diluted share, down from $17.7 million and $0.58 in Q1 2025, primarily due to increased credit loss expense [6][7] - Return on average assets was 0.79% and return on average equity was 7.8% [7] - Pre-provision net revenues grew 3.7% or $1 million, indicating strength in core business [7] - Net interest margin increased by five basis points to 3.07%, driven by lower funding costs [7][22] Business Line Data and Key Metrics Changes - Total loans increased by $6.31 billion, or 0.4% on a linked quarter basis, with higher contributions from commercial and industrial (C&I) and residential mortgage loans [8] - C&I production increased by $11 million or 26% to $503 million, while residential mortgage loan production rose by 52% to $84 million [18] - SBA loan production decreased to $47 million but still exceeded the high end of the target range, with year-to-date production up 20% [16][18] Market Data and Key Metrics Changes - Non-interest bearing demand deposits increased by over 7% from 2024, representing 31.3% of total deposits [9] - USKC loan and deposit portfolios remained steady, with USKC loans at $842 million, approximately 13% of total loans [19] Company Strategy and Development Direction - The company aims to drive loan growth in the low to mid single-digit range, focusing on expanding SBA activities and C&I portfolios while reducing exposure to commercial real estate (CRE) [11][28] - The strategy includes strengthening relationships in select deposit-rich markets and driving growth in key regions [28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term growth potential despite current economic conditions, emphasizing proactive portfolio management and strong asset quality [10][11][28] - The company is well-positioned for growth, leveraging strong liquidity and maintaining robust credit metrics [11] Other Important Information - Asset quality improved significantly, with criticized loans decreasing by 72% and non-accruals down 27% [21] - The allowance for credit losses stood at 1.06% of loans at the end of Q2 2025 [26] Q&A Session Summary Question: Loan growth expectations for the second half of the year - Management indicated a strong pipeline for new loans, suggesting potential to reach mid-single-digit growth [31][32] Question: Insights on deposit costs and time deposit repricing - Average interest-bearing deposit costs were 3.64%, with expectations for net interest margin to continue increasing, albeit at a slowing rate [35][37] Question: Credit quality and criticized asset levels - Management noted significant reductions in criticized assets due to proactive management, with confidence in the overall credit quality [39][41] Question: Future C&I production and loan growth - C&I production is expected to drive loan growth in the latter half of the year, supported by a strong pipeline [47][49] Question: Plans for share buybacks and expenses - Management indicated that buyback decisions are made quarterly, with expectations for expenses to remain stable [50][51]