Landmark Bancorp (LARK) Q3 2026 Earnings Call Transcript

DATE

Oct. 29, 2026

CALL PARTICIPANTS

• Head of Corporate Strategy and Development and Head of Investor Relations - Shelley Reed
• President and Chief Executive Officer - Abigail Wendel
• Chief Financial Officer - Mark Herpich

TAKEAWAYS

• Net Earnings -- $5.5 million, representing a 1.5% increase from the prior quarter driven primarily by higher net interest income.
• Diluted EPS -- $0.89, compared to $0.88 in the previous quarter and $0.81 in the third quarter of 2025.
• Net Interest Margin -- 4.35%, reflecting an expansion of 13 basis points from the prior quarter due to higher earning asset yields.
• Total Gross Loans -- $1.1 billion, representing a decrease of $22.2 million from the prior quarter primarily driven by lower commercial real estate and residential real estate balances.
• Commercial Real Estate Portfolio -- $395.3 million, reflecting a decline of $12.5 million from the prior quarter.
• Residential Real Estate Portfolio -- $353.7 million, representing a decrease of $10.6 million from the prior quarter.
• Construction and Land Development -- $32.6 million, reflecting an increase of $9.3 million from the prior quarter.
• Total Deposits -- $1.2 billion, representing a decrease of $59.0 million from the prior quarter.
• Public Fund Deposits -- $61.7 million decline, due to seasonal outflows that management expects to reverse in the fourth quarter.
• Noninterest Deposits -- 29.3% of total deposits, providing a low-cost funding advantage despite the seasonal decline in overall balances.
• Total Deposit Costs -- 1.29%, reflecting a decrease of 1 basis point from the prior quarter due to disciplined pricing.
• Yield on Average Loans -- 6.46%, representing an increase of 15 basis points from the prior quarter.
• Noninterest Income -- $3.6 million, representing a decrease of $493,000 from the prior quarter due primarily to lower gains on the sale of mortgage loans.
• Gains on Sales of Loans -- $648,000, representing a decrease of $593,000 from the prior quarter due to lower loan volume in the secondary market.
• Noninterest Expense -- $12.3 million, an increase of $292,000 from the prior quarter driven by technology and talent investments.
• Compensation and Benefits Expense -- $6.8 million, an increase of $238,000 from the prior quarter attributable to strengthening the associate base and benefits programs.
• Net Loan Charge-offs -- 0.01% of average loans, reflecting stable credit quality with only $14,000 in total net charge-offs during the quarter.
• Nonperforming Loans -- $12.5 million, representing 1.16% of total gross loans as the company continues to manage specific borrower situations.
• Loans 30 to 89 Days Delinquent -- $8.3 million, an increase from $6.3 million in the prior quarter primarily driven by one borrower in the commercial real estate portfolio.
• Allowance for Credit Losses -- $12.9 million, or 1.19% of total gross loans, as the company recorded a $250,000 provision during the quarter.
• Total Borrowings -- $133.4 million, representing an increase of $49.5 million from the prior quarter as the company utilized Federal Home Loan Bank funding.
• Cash Dividend -- $0.21 per share, marking the company's 101st consecutive quarterly cash dividend since 2001.
• Stock Dividend -- 5%, representing the 26th consecutive year the company has declared a stock dividend.
• Investment Securities Yield -- 3.80%, an increase from 3.66% in the prior quarter as maturing securities were reinvested at higher rates.
• Book Value per Share -- $26.24, compared to $27.35 in the prior quarter due to higher unrealized net losses on investment securities.

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RISKS

• Wendel stated, "But we still have work to do on our loan portfolio and overall credit approach as we elevate expectations and strengthen our credit culture," regarding the ongoing management of the company's lending standards.
• Herpich reported that the "increase in delinquent loans was primarily driven by one borrower in the commercial real estate portfolio," noting that the company continues to monitor this specific credit closely.

SUMMARY

Landmark Bancorp, Inc. (NASDAQ:LARK) management reported third quarter results that focused on margin expansion and liquidity management. The company reported that growth in net interest income was supported by disciplined loan and deposit pricing despite a seasonal decline in public fund balances. Management indicated it utilized Federal Home Loan Bank borrowings to replace certain funding sources based on market pricing dynamics. Landmark continues to invest in its associate base and technology infrastructure to support long-term operational efficiency. Executives also noted that while the loan portfolio experienced seasonal payoffs, core customer deposits remained stable.

• Wendel stated, "In the third quarter, specifically, we had some payoffs that -- there's kind of lumpy," noting that one specific relationship could return to the bank in the future.
• Herpich indicated that the bank is slightly asset sensitive and situated to take advantage of potential margin increases over the next year.
• Wendel noted that the bank recently added experienced executives to its leadership team to strengthen credit and risk management capabilities.
• Herpich reported that occupancy and equipment expenses rose $178,000 due to technology-related upgrades recorded during the third quarter.
• Wendel indicated she expects the seasonal outflow of public fund deposits to reverse in the fourth quarter.

INDUSTRY GLOSSARY

• Net Interest Margin (NIM): A measure of the difference between the interest income generated by a bank and the amount of interest paid out to its lenders.
• FHLB: Federal Home Loan Bank, a system of regional banks that provides liquidity to financial institutions to support housing finance and community investment.
• Allowance for Credit Losses (ACL): A reserve established by a bank to cover estimated losses from loans that are not expected to be repaid.
• Nonperforming Loans (NPLs): Loans that are in default or close to being in default because the borrower has not made scheduled payments for a specified period.
• Tangible Book Value per Share: A financial measure representing the value of a company's physical assets per share of common stock, excluding intangible assets like goodwill.
• Efficiency Ratio: A measure used to evaluate a bank's profitability and overhead costs, calculated by dividing noninterest expenses by total revenue.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the Landmark Bancorp Q3 Earnings Call. [Operator Instructions] I will now hand the conference over to Shelley Reed, Head of Corporate Strategy and Development and Head of Investor Relations. Shelley, please go ahead.

Shelley Reed: Thanks, Trevor. Good morning, everyone, and welcome to Landmark Bancorp's Third Quarter Earnings Conference Call. Joining me today is our President and CEO, Abby Wendel; and our Chief Financial Officer, Mark Herpich. During today's call, we may make statements that constitute projections, plans, objectives, future performance, beliefs, expectations or similar forward-looking statements. These statements involve risks and uncertainties, which should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. We caution that such statements are predictions only and that actual results may differ materially.

We include more information on these factors in our earnings release furnished with our Form 8-K yesterday as well as our Form 10-K and Form 10-Q filings and subsequent filings with the SEC. Additionally, all statements, including forward-looking statements, speak only as of the date they're made, and Landmark undertakes no obligation to update any statement in light of new information or future events. Also, our remarks may reference certain non-GAAP financial metrics, which we believe provide useful information to investors.

Additional disclosures regarding non-GAAP metrics, including the reconciliation of those non-GAAP metrics to GAAP, are contained in our earnings release, which we filed yesterday with the SEC and are also available in our Investors section of our website at banklandmark.com. We caution that these non-GAAP financial metrics should not be viewed as a substitute for operating results determined in accordance with GAAP as contained in our earnings release and other filings with the SEC. A replay of this call will be available through November 5, 2026. Access information can be found in our earnings release. I will now turn the conference call over to our President and Chief Executive Officer, Abby Wendel.

Abigail Wendel: Thanks, Shelley. Good morning, everyone, and thank you for joining us today. Landmark delivered solid third quarter results driven by net interest margin expansion, stable credit quality and a strong balance sheet, reflective of our relationship-driven approach to banking, serving our communities and our core customer base. Net income increased to $5.5 million for the third quarter and diluted earnings per share increased to $0.89. Year-to-date net income increased to $15.9 million and diluted earnings per share increased to $2.59 compared to net income of $14 million or $2.29 per diluted share for the 9 months ended September 30, 2025.

Return on assets increased to an attractive 1.36% quarter-over-quarter and has increased significantly from 1.21% for the third quarter of 2025. Revenues totaled a record $19.2 million, driven by an increase in net interest income, demonstrating our disciplined approach to loan and deposit pricing. Although loan payoffs outpaced new loan production this quarter, we successfully grew interest income by maintaining pricing and underwriting practices reflective of the current market environment. New loan originations were at yields exceeding those of maturing and paid off loans, which contributed to improved earning asset performance. Yield on average loans for the quarter increased to 6.46%.

The decrease in loan balances was driven in part by continued declines in 1-4 family residential and consumer loan portfolios, which accounted for more than half of the overall decline. On the funding side, the decrease in deposits reported for the third quarter was due in part to a seasonal outflow of public fund deposits. We would expect this trend to reverse in the fourth quarter. We also made the decision in the quarter to replace this funding primarily with FHLB borrowings based on market dynamics and favorable pricing. Our disciplined approach to deposit pricing enabled us to further reduce our cost of deposits to 1.29%.

Noninterest-bearing deposits remained approximately 29% of total deposits, underscoring the quality of our deposit base and providing a meaningful competitive advantage as we navigate the current economic environment. Our core retail and commercial customer base continues to grow, which positions us favorably to support future balance sheet and revenue growth. Turning to fee income. We recorded noninterest income of $3.6 million during the third quarter of 2026, which was down compared to the second quarter of 2026 and the third quarter of 2025 due primarily to a decrease in gain on sale of mortgage loans. The increase in interest rates during the third quarter slowed mortgage production.

Expenses increased in the third quarter, driven by increases in compensation and benefits expense as well as continued technology investments. Investing in talent and talent development remains a key component of our strategy, helping us build a deep and sustainable pipeline of leadership and client-focused expertise. We are encouraged by our recent success in attracting and promoting emerging talent and remain committed to cultivating the next generation of bankers and leaders. At the same time, we continue to selectively add experienced professionals across our footprint who share our commitment to relationship banking and can contribute to the ongoing expansion to our full-service banking model.

This includes the recent addition of a couple of experienced executives to our leadership team as we further strengthen our credit and risk management capabilities and continue to scale in a prudent and profitable manner. Before I turn the call over to Mark to discuss our results in more detail, I wanted to quickly touch on our asset quality. I'm pleased with our stable asset quality trends this quarter, including a slight decrease in nonaccrual loans and excellent charge-off levels of 0.01% of average loans. Our provision decreased in the third quarter versus the second quarter of 2026, while increasing our coverage of total loans and nonperforming loans.

But we still have work to do on our loan portfolio and overall credit approach as we elevate expectations and strengthen our credit culture. We are committed to building a bank with sound underwriting and a credit-first mindset. Lastly, I'm pleased to report that our Board of Directors declared a cash dividend of $0.21 per share payable on November 27, 2026, to shareholders of record as of November 12, 2026. This dividend marks the company's 101st consecutive quarterly cash dividend since the formation of the holding company in 2001, underscoring our long-standing commitment to delivering value to shareholders.

The Board of Directors also declared a 5% stock dividend to be issued on December 16, 2026, to shareholders of record on December 2, 2026. This is the 26th consecutive year that Landmark has declared a 5% stock dividend. I will now turn the call over to Mark Herpich, our Chief Financial Officer, who will discuss our financial results in greater detail.

Mark Herpich: Thanks, Abby, and good morning to everyone. While Abby has just provided a highlight of our overall strong financial performance this year, I'll provide some further details on our third quarter results. Net income in the third quarter of 2026 increased to $5.5 million compared to $5.4 million in the second quarter of 2026 and $4.9 million in the third quarter of 2025, mainly due to continued growth in net interest income. In the third quarter of 2026, net interest income totaled $15.6 million, an increase of $562,000 compared to the second quarter of 2026, driven by increased earning asset yields, partially offset by higher funding costs.

Net interest income also grew $1.5 million compared to the same period of the prior year due primarily to lower deposit costs. Total interest income on loans increased to $17.5 million in the third quarter, while interest income on investments increased to $3.3 million. Average loans decreased by $12.3 million in the third quarter of 2026, while tax equivalent yield on the loan portfolio increased to 6.46% and the average yield on the securities portfolio increased to 3.80% from 3.66% in the second quarter of 2026. Interest expense on deposits in the third quarter of 2026 decreased $62,000 from the prior quarter due to lower cost of deposits, while average deposit balances decreased to $1.3 billion in the third quarter.

The decline in deposits relates to a seasonal decline in public fund deposits. The average rate on interest-bearing deposits decreased slightly to 1.81%, down 1 basis point from the prior quarter, reflecting lower deposit costs. Additionally, we strategically elected to utilize our Federal Home Loan Bank borrowing line more heavily during the third quarter. Interest expense on borrowed funds increased by $100,000 compared to the prior quarter due to higher average balances and consistent borrowing rates. Landmark's net interest margin on a tax equivalent basis increased 13 basis points to 4.35% in the third quarter of 2026 as compared to the second quarter of 2026 and improved 52 basis points as compared to the third quarter of 2025.

Noninterest income totaled $3.6 million this quarter, a decrease of $493,000 compared to the prior quarter and a decrease of $466,000 compared to the third quarter of 2025. The decrease in comparison to the prior quarter resulted primarily from a $593,000 decrease in gains on the sale of loans due to a decrease in the volume of loans sold in the secondary market during the third quarter of 2026. Noninterest expense for the third quarter of 2026 totaled $12.3 million, an increase of $292,000 compared to the prior quarter. This increase related primarily to increases of $238,000 in compensation and benefits expense, $178,000 in occupancy and equipment expense and $148,000 in other expense.

Partially offsetting these increases was a decrease of $313,000 in professional fees. This quarter, we recorded tax expense of $1.3 million, resulting in an effective tax rate of 19.3% as compared to tax expense of $1.3 million in the second quarter of 2026 as well for an effective tax rate of 19.7%. Gross loans decreased $22.2 million in the current quarter compared to the previous quarter and totaled $1.1 billion at quarter end. Average loans declined by $12.3 million in the current quarter as compared to the prior quarter.

As of September 30, 2026, we experienced decreases in our commercial real estate portfolio of $12.5 million, our residential real estate portfolio of $10.6 million and commercial loan portfolio of $6.4 million, which were partially offset by increases in our construction and land development portfolio of $9.3 million. Investment securities increased $2.5 million during the third quarter of 2026, mainly due to the reinvestment of maturities and cash flow from the portfolio. Our investment portfolio has an average duration of 4.8 years with projected 12-month cash flow of $60.4 million and a roll-off yield of less than 3% at September 30, 2026, which is lower than the current yields available on new investments purchased.

Unrealized net losses on our investment portfolio increased by $10.9 million during the quarter to $18.5 million net of tax as a result of higher interest rates. Deposits totaled $1.2 billion at September 30, 2026, a decrease of $59.0 million in the third quarter compared to the prior quarter. This quarter, public funds deposits declined by $61.7 million related to seasonal declines. The public fund deposit decreases were offset by growth in core customer deposits. Excluding the decline in public fund deposits and broker deposits, core customer deposits actually increased $4.9 million during the quarter.

Our total borrowings increased by $49.5 million during the quarter as we continue to lever lower cost funding from other borrowing sources like the Federal Home Loan Bank. Our balance sheet continues to provide sufficient liquidity and flexibility to fund future growth as our loan-to-deposit ratio totaled 85.6% and securities were 21.8% of total assets at September 30. Stockholders' equity decreased $6.6 million during the third quarter to $160.3 million at September 30, driven by higher other comprehensive losses due to the increase in interest rates, offset by retained earnings net of common stock cash dividends. Our book value was $26.24 per share at September 30, 2026, compared to $27.35 at June 30.

Our tangible book value per share ended the quarter at $20.68, a decrease from June 30, 2026, but an increase of 3.6% compared to a year ago September 30, 2025. Our consolidated and bank regulatory capital ratios as of September 30, 2026, are strong and continue to exceed the regulatory levels required to be considered well capitalized. Turning to credit quality. Nonperforming loans decreased $572,000 during the quarter to $12.5 million or 1.16% of gross loans compared to $13.1 million or 1.18% of gross loans at June 30, 2026. Loans delinquent 30 to 89 days and still accruing interest totaled $8.3 million or 0.77% of gross loans at September 30 compared to $6.3 million or 0.57% at June 30.

The increase in delinquent loans was primarily driven by one borrower in the commercial real estate portfolio, which we continue to monitor closely. Net loan charge-offs during the third quarter totaled $14,000 compared to $452,000 during the second quarter. On an annualized basis, net charge-offs represented approximately 0.01% of average loans compared to 0.17% of average loans in the prior quarter. Overall, we are pleased with our low net charge-off rates, which remain manageable relative to the size of the portfolio. The allowance for credit losses totaled $12.9 million or 1.19% of total gross loans at September 30.

We recorded a $250,000 provision for credit losses for portfolio loans and reversed $45,000 of provision related to loan commitments during the quarter. We believe the allowance remains appropriate based on the composition of the portfolio, identified credit trends and our ongoing review process. Overall, nonperforming loans decreased during the quarter, reflecting progress made on the borrower-specific situations that we have been actively monitoring and managing. Our focus remains on the timely identification of emerging issues, proactive portfolio management and working towards the resolution of challenged credits. I will now turn the call back over to Abby.

Abigail Wendel: Thank you, Mark. I think we are now in a position to take questions.

Operator: [Operator Instructions] Your first question comes from the line of John Rodis with Brean Capital.

John Rodis: Abby, maybe a question for you. If not, I guess it's for Mark. But just on the loan performance during the quarter, you mentioned higher payoffs. Just your thoughts as you look out to the fourth quarter into early next year. Do you think -- I know payoffs are obviously hard to predict, but your thoughts on showing some net loan growth going forward?

Abigail Wendel: Yes. Thanks for the question. Your thinking is where we're aligned with those thoughts as well. And I guess a couple of things I'd say is when you look at the long-run performance of what we're doing here and where we think we're going, we're still optimistic. You know me, I'm always a little bit cautiously optimistic. But in the third quarter, specifically, we had some payoffs that -- there's kind of lumpy. There's not anything that indicates a trend. One of those was related to one specific relationship where some of that may be coming back.

And then in another case, we did have some turnover in one of our markets, and I think that has precipitated some payoff, but it's not anything that has me nervous about the future. And I do think we're on still the same trajectory to be able to deliver organic growth.

John Rodis: Okay. That makes sense. And just given the higher level of payoffs in the quarter, were there any, I guess, payoff fees or anything like that, that went through spread income and benefited the margin this quarter?

Mark Herpich: There were not. These were more payoffs when they hit maturity or in the one case that Abby alluded to a participation that was purchased that got consolidated a larger bank. We think we have an opportunity to get back in as a participant with the new bank. But during the quarter, we experienced a payoff of that individual credit.

John Rodis: Okay. So Mark, I guess, said another way, the margin expansion this quarter was all core, I guess. There was nothing unusual or anything.

Mark Herpich: Yes. We didn't have any early termination penalties or anything going through the margin. It was core regular routine earnings net of costs.

John Rodis: Okay. And can you just remind us as far as the bank's impact from a rising rate environment given the Fed's move, I guess, a few weeks ago and potentially moving later this year?

Mark Herpich: Yes. We're slightly asset sensitive at this point over the next year, John. I think we -- it's not a strong asset position, but we feel like we're well situated to take advantage and have some margin increase over the upcoming year.

Operator: We have reached the end of our Q&A session. I will now pass the call back to Abby Wendel for closing remarks.

Abigail Wendel: Thank you, Trevor. To recap, we are pleased with our profitability in the first 9 months of 2026, which reflects continued earnings growth, strong profitability and disciplined loan and deposit pricing. We remain focused on driving long-term growth through attracting, training and retaining talented bankers, making continued investments in process improvements and operational efficiency and upgrading our digital capabilities. As we continue to position the bank for the future, we are thoughtfully reevaluating long-standing practices and identifying opportunities to enhance how we serve our customers and communities. Our objective is to build scalable, responsive operating models that improve the client experience while strengthening credit administration, risk oversight and overall execution.

These efforts reinforce our commitment to profitable relationship-based banking and further support our ability to deliver sustainable growth and shareholder value over the long term. I want to thank our Landmark associates for their dedication and commitment. It's because of them that Landmark continues to deliver high-quality banking solutions to our customers and communities. If you have additional follow-up questions regarding today's call, please refer to our earnings release for Investor Relations and CFO contact information. Thank you for joining us today and for your continued interest in Landmark. We look forward to updating you on our progress next quarter.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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