Note: This is an earnings call transcript. Content may contain errors.

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Date

Thursday, Oct. 30, 2025, at 11 a.m. ET

Call participants

  • President & Chief Executive Officer — Abigail M. Wendel
  • Chief Financial Officer — Mark A. Herpich
  • Executive Vice President, Chief Lending Officer — Raymond L. McLanahan

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Takeaways

  • Net income -- Net income totaled $4.9 million for Q3 2025, representing a 24.1% increase in diluted earnings per share.
  • Return on average assets -- 1.21% return on average assets.
  • Return on average equity -- 13% return on average equity for the quarter.
  • Net interest margin -- 3.83% net interest margin (tax-equivalent basis), with margin steady sequentially.
  • Efficiency ratio -- 60.7% efficiency ratio.
  • Tangible book value per share -- $20.96 tangible book value per share as of quarter end.
  • Total loans (period-end) -- Flat compared to the prior quarter; average loans up $26.7 million, or nearly 10% annualized average loan growth.
  • Nonperforming loans -- Declined by nearly $7 million, driven mainly by resolution of a large commercial loan on nonaccrual status.
  • Allowance for credit losses -- $12.3 million allowance for credit losses, or 1.1% of gross loans as of Sept. 30, 2025, maintained after net charge-offs of $2.3 million.
  • Non-interest income -- $4.1 million non-interest income, with notable gains from mortgage loan sales, and fee income.
  • Deposit growth -- Deposits increased $51.6 million on a linked quarter basis, driven mainly by broker deposits, but also rising non-interest-bearing demand deposits.
  • Stockholder returns -- Board declared a $0.21 per share cash dividend and a 5% stock dividend to be issued Dec. 15, 2025, continuing a track record of consecutive annual, and quarterly dividends.
  • Investment securities -- Investment securities portfolio decreased by $2.4 million, with pretax unrealized net losses reduced by $4.7 million to $9.2 million.
  • Liquidity -- Loan-to-deposit ratio was 83.4% as of Sept. 30, 2025, described as "provide us sufficient liquidity to fund future loan growth," according to Chief Financial Officer Mark A. Herpich.
  • Regulatory capital -- Both consolidated and bank regulatory capital ratios exceeded well-capitalized thresholds.
  • Operating expenses -- Non-interest expense increased by $290,000 compared to the prior quarter, mainly due to higher professional fees, occupancy, and compensation, partially offset by data processing cost reductions.
  • Credit quality -- Net loan charge-offs totaled $2.3 million, "mostly driven by the resolution of a large commercial loan relationship."
  • Portfolio changes -- Commercial real estate grew $19 million, residential mortgages increased by $4.5 million, and consumer loans by $1.4 million, offset by $17.6 million decline in commercial loans, and $6.6 million decline in construction and land loans.
  • Average rates -- Interest-bearing deposit rate increased four basis points to 2.18%; investment securities yield climbed to 3.35% from 2.99% in 2024.

Summary

Landmark Bancorp (LARK 0.89%) delivered higher net income, increased profitability ratios, and an improved efficiency ratio, as well as growth in non-interest income, with greater use of broker channels and continued growth in non-interest-bearing demand deposits. Average loan balances saw an almost 10% annualized increase even as period-end loan totals were flat. Declines in nonperforming loans and a reduction in unrealized losses on investment securities strengthened the company’s credit and capital positions, accompanied by a modest rise in non-interest expenses driven by targeted investments in talent, and consulting. The Board sustained its long-standing pattern of shareholder returns with both cash and stock dividends, underpinned by capital ratios above regulatory well-capitalized levels and what management described as a "stable, low-cost core deposit base."

  • Chief Financial Officer Mark A. Herpich specified that "interest income on loans increased $597,000 this quarter to $17.8 million" due to higher average loan balances.
  • Average borrowings declined by $6 million, contributing to reduced interest expense on borrowed funds, while certificates of deposits grew by $22.9 million compared to the prior quarter.
  • Executive Vice President Raymond L. McLanahan noted, "Excluding this commercial loan, net loan losses remained low," referring to net charge-offs dominated by a single resolution, with underlying credit trends stable.
  • The effective tax rate ticked up to 18.7%, with tax expense of $1.1 million, up from $944,000 in Q2 2025.
  • The average duration of the investment securities portfolio stood at 3.7 years, with a projected twelve-month cash flow of $85.8 million for the investment portfolio.

Industry glossary

  • Net interest margin: The ratio of net interest income to average earning assets, indicating the profitability of a bank’s core lending and investment activities.
  • Efficiency ratio: Non-interest expense divided by the sum of net interest income and non-interest income; a lower percentage indicates better cost management relative to revenues.
  • Tangible book value per share: Book value excluding intangible assets, divided by shares outstanding; a measure of shareholder equity per share on a tangible basis.
  • Loan-to-deposit ratio: Total loans divided by total deposits, reflecting usage of deposit funding and bank liquidity position.
  • Allowance for credit losses: Reserve set aside to absorb estimated future loan losses, expressed as a dollar amount and often as a percentage of total loans.
  • Nonperforming loans: Loans that are not generating interest income due to borrower delinquency, including those classified as non-accrual or past due.

Full Conference Call Transcript

Abigail Wendel: Landmark Bancorp, Inc. reported another solid quarter of earnings results, which reflect the hard work and commitment of our associates whose efforts continue to elevate Landmark Bancorp, Inc.'s position in the market. Net income for the third quarter totaled $4.9 million or $0.85 per diluted share compared to $3.9 million or $0.68 per diluted share in the same period last year, an increase of 24.1% in diluted earnings per share. This year-over-year increase in earnings primarily reflects growth in net interest income and prudently managed expenses. Our return on average assets improved to 1.21% for the quarter, and return on average equity improved to 13%.

We maintained a steady net interest margin and improved our efficiency ratio to 60.7% in the third quarter while simultaneously investing in new talent throughout the bank across our footprint. Total loans were flat this quarter based on period-end balances, while average loans grew nearly 10% on an annualized basis compared to the prior quarter. Broker deposits were the primary driver of deposit growth in the third quarter. However, we also saw solid growth in non-interest-bearing demand deposits, and we reduced our reliance on FHLB and other borrowing sources.

I am happy to announce we made significant improvements in our overall credit quality this quarter as nonperforming loans declined by almost $7 million, mostly from the resolution of a large commercial loan on nonaccrual status discussed in previous quarters. Our tangible book value per share increased to $20.96, up 6.6% on a linked quarter basis and 15.7% from the end of 2024, primarily due to solid growth in retained earnings and a reduction in our accumulated other comprehensive loss. I am pleased to report as well that our Board of Directors has declared a cash dividend of $0.21 per share to be paid November 26, 2025, to shareholders of record as of November 12, 2025.

This represents the ninety-seventh consecutive quarterly cash dividend since the company's formation in 2001. The Board also declared a 5% stock dividend to be issued December 15, 2025, to shareholders of record on December 1, 2025. This represents the twenty-fifth consecutive year that the Board has declared a 5% stock dividend, a continued demonstration of our long-term commitment to growth in value and liquidity for our shareholders. Landmark Bancorp, Inc.'s capital and liquidity measures are strong, and we have a stable, low-cost core deposit base, thanks to the network of community-based banking centers we operate and our relationship banking model. We remain risk-averse in both monitoring the company's rate and concentration risk and in maintaining a strong credit discipline.

As we look ahead, we look forward to building on the momentum of the third quarter. We will continue to invest in talented associates and make infrastructure upgrades to support continued customer growth while making Landmark Bancorp, Inc. an exceptional place to work and bank. I will now turn the call over to Mark A. Herpich, our CFO, who will review the financial results in detail with you.

Mark A. Herpich: Thanks, Abby, and good morning to everyone. While Abby has just provided a highlight of our overall strong financial performance in 2025, I will provide some additional details on these results. Net income in 2025 totaled $4.9 million compared to $4.4 million in the prior quarter and $3.9 million in 2024. Compared to the prior quarter, the solid growth in net income this quarter was mainly due to continued increases in net interest income and higher non-interest income. In 2025, net interest income totaled $14.1 million, an increase of $411,000 compared to 2025 due to higher interest income. Total interest income on loans increased $597,000 this quarter to $17.8 million due to higher average loan balances.

Average loans increased by $26.7 million, and while the tax-equivalent yield on the loan portfolio remains steady at 6.37%. Interest income on investment securities increased slightly to $2.9 million this quarter due to a small improvement in our yield earned on our investment securities balances, while our average investment securities balance declined slightly by $1.2 million. The yield on investment securities totaled 3.35% in the current quarter compared to 2.99% in 2024. Interest expense on deposits in 2025 increased $266,000 due to a shift in our interest-bearing deposits, which grew by $19.1 million. Interest expense on borrowed funds decreased by $36,000 due to lower average balances.

The average rate on interest-bearing deposits increased four basis points to 2.18%, mainly due to growth in certificates of deposits, which have higher rates. The average rate on our other borrowed funds increased 11 basis points to 5.09% in the third quarter, as our lower-cost repurchase agreements balances dropped. Total cost of funds was 2.44% for the quarter ended September 30, 2025, a decrease of 38 basis points as compared to 2024. Landmark Bancorp, Inc.'s net interest margin on a tax-equivalent basis held steady at 3.83% in 2025 as compared to 2025. In comparison to the comparable 2024, our net interest margin improved by 53 basis points.

This quarter, we provided $850,000 to our allowance for credit losses after taking a $1 million provision in the prior quarter. Net charge-offs totaled $2.3 million in 2025, which mostly pertains to the resolution of a previously disclosed commercial loan. This compares to net charge-offs of $40,000 in the prior quarter. At September 30, 2025, our allowance for credit losses of $12.3 million remains strong and represents 1.1% of gross loans. Non-interest income totaled $4.1 million this quarter, an increase of $442,000 compared to the prior quarter. The increase was primarily due to growth in gains of $208,000 on sales of mortgage loans, coupled with a $184,000 increase in fees and service charges related to higher deposit-related fee income.

Non-interest expense for 2025 totaled $11.3 million, an increase of $290,000 compared to the prior quarter. This increase related primarily to increases of $206,000 in professional fees, $120,000 in occupancy and equipment expense, and $70,000 in compensation and benefits expense. The increase in professional fees was driven by higher consulting costs during the quarter. Partially offsetting these increases was a decrease in data processing expense this quarter. The combination of growth in non-interest income coupled with control over our expenses has resulted in our efficiency ratio improving to 60.7% for 2025 as compared to 66.5% in 2024.

This quarter, we recorded a tax expense of $1.1 million, resulting in an effective tax rate of 18.7% as compared to a tax expense of $944,000 in the second quarter of this year, an effective tax rate of 17.7%. Gross loans remained relatively flat in comparison to the second quarter at $1.1 billion. However, our average loans grew by $26.7 million or approximately 10% annualized during the third quarter. During the quarter, actual loan growth was primarily comprised of an increase in our commercial and residential real estate loan portfolios but offset by lower commercial and construction loan portfolios. Investment securities decreased $2.4 million during 2025, mainly due to maturities exceeding our level of purchases.

Pretax unrealized net losses on our investment portfolio declined by $4.7 million to $9.2 million this quarter. Our investment portfolio has an average duration of 3.7 years with a projected twelve-month cash flow of $85.8 million. Deposits totaled $1.3 billion at September 30, 2025, and increased by $51.6 million on a linked quarter basis. Compared to the prior quarter, certificates of deposits grew by $22.9 million, interest checking and money market deposits increased by $16.5 million, and non-interest checking grew by $14 million. Average interest-bearing deposits, however, increased by $19.1 million in 2025, while average borrowings declined by $6 million during the quarter.

The loan-to-deposit ratio totaled 83.4% at September 30, continuing to provide us sufficient liquidity to fund future loan growth. Stockholders' equity increased $7.4 million during the third quarter to $155.7 million at September 30, 2025. Our book value increased to $26.92 per share at September 30 compared to $25.66 per share at June 30. The increase in stockholders' equity this quarter mainly resulted from a decline in our other comprehensive losses driven by lower net unrealized losses on our investment securities, along with net earnings from the quarter. Our consolidated and bank regulatory capital ratios as of September 30, 2025, are strong and exceed the regulatory levels considered well-capitalized. Now let me turn the call over to Raymond L.

McLanahan to review highlights of our loan portfolio and credit risk outlook.

Raymond L. McLanahan: Thank you, Mark, and good morning to everyone. As noted earlier, loan growth for the third quarter was relatively flat on a period-end basis, although average loans grew $26.7 million or 9.8% on an annualized basis. We saw increases in our commercial real estate mortgage and consumer portfolios. However, these were offset by reductions in our commercial, construction, and land and agricultural loan portfolios. Our commercial real estate portfolio grew by $19 million this quarter, while our mortgage and consumer portfolios increased $4.5 million and $1.4 million, respectively. However, commercial and construction and land loans declined by $17.6 million and $6.6 million, respectively.

Turning to credit quality, non-accrual loans declined by $7 million this quarter, while net loan charge-offs totaled $2.3 million, mostly driven by the resolution of a large commercial loan relationship we previously disclosed in Q3 of last year and had been on non-accrual. Excluding this commercial loan, net loan losses remained low. Additionally, a $1 million commercial real estate loan that was placed on non-accrual last quarter has now been fully collected. The balance of past due loans between thirty and eighty-nine days still accruing interest increased slightly, totaling $4.9 million or 0.43% of gross loans. Net loan charge-offs for Q3 totaled $2.3 million compared to just $9,000 in 2024. Year-to-date net loan charge-offs represented 0.29% of average loans.

Our allowance for credit losses stood at $12.3 million or 1.1% of gross loans. Our Kansas economy has remained healthy. As of August 31, the seasonally adjusted unemployment rate was 3.8%, according to the Bureau of Labor Statistics. Regarding housing, the Kansas Association of Realtors recently reported that home sales in the state increased 1.2% year-over-year in September. The median sale price rose 5.5% from a year earlier, and the association also reported that homes sold in September were typically on the market for fifteen days and sold for 100% of their list prices. We recognize that investors are closely watching asset quality across the banking sector. We remain vigilant in our underwriting, portfolio monitoring, and recovery efforts.

Our strategy continues to emphasize a resilient, relationship-driven approach. We are confident in the strength of our portfolio and our ability to navigate evolving market dynamics. With that, I thank you. I will turn the call back over to Abigail M. Wendel.

Abigail M. Wendel: Thanks, Raymond. Before we go to questions, I want to summarize by saying we were pleased with our results in the third quarter. Growth in average loan balances, a steady margin, and higher non-interest income all contributed to solid revenue growth this quarter. We are 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 have had over the past few years and the high-quality banking products and services we offer, our bank is well-positioned to further grow our business and add to our customer base.

We continue to work on strengthening our existing customer relationships and are focused on growing lending and fee businesses across all our markets. Finally, I would like to thank all the associates at Landmark National Bank. Their daily focus on executing our strategies and delivering extraordinary service to our customers and communities is key to our success. And with that, I will open up the call to questions that anyone might have.

Lucy: Thank you. When preparing to ask your question, please ensure your device is unmuted locally. We will pause for any questions to come through. We currently have no questions submitted, so I would like to hand back to Abigail M. Wendel for closing remarks.

Abigail M. Wendel: Thank you. I want to thank everyone for participating in today's earnings call. I appreciate your continued support and confidence in the company, and I look forward to sharing news related to our fourth quarter 2025 results at our next earnings conference call. I hope everyone has a great day.

Lucy: This concludes today's call. Thank you all for joining. You may now disconnect your lines.