Landmark Bancorp - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 diluted EPS was $0.75, down from $0.81 in Q1 2025 and up from $0.52 in Q2 2024; net income was $4.4M, with ROAA 1.11%, ROAE 12.25%, and efficiency ratio 62.8%.
• Strong loan growth (+$42.9M; +16.0% annualized) and net interest margin expansion (+7 bps to 3.83%) drove revenue; non-interest income rose sequentially, while deposits fell $61.9M largely on a quarter-end brokered deposit decline offset by increased borrowings.
• Credit quality was stable overall, but non-performing loans increased to $17.0M (1.52% of loans); management recorded a $1.0M provision and noted one ~$2.6M office CRE loan placed on nonaccrual was brought current just after quarter end.
• Board declared a $0.21 per-share dividend (96th consecutive quarterly cash dividend), reinforcing capital return amid operating momentum; near-term stock catalysts include sustained margin expansion vs. deposit gathering progress and NPL trajectory.

What Went Well and What Went Wrong

What Went Well

• Loan demand remained strong across residential mortgage (+$21.5M), commercial (+$13.4M), and CRE (+$10.9M); total gross loans exceeded $1.1B.
• Net interest margin expanded 7 bps Q/Q to 3.83% and 62 bps Y/Y; net interest income rose 4.3% Q/Q and 24.7% Y/Y on higher loan balances and lower deposit costs.
• Non-interest income increased $268K Q/Q, driven by higher gains on mortgage sales (+$178K) and higher fees (+$88K); expenses remained well controlled with lower professional fees.
• Management tone: “continued strong net earnings…growth in loans and net interest income…credit quality remained solid overall” — Abby Wendel, CEO.

What Went Wrong

• Period-end deposits declined $61.9M (driven by money market/checking and non-interest-bearing demand) due to brokered deposit reduction; borrowings increased $105.9M to fund assets.
• Non-performing loans rose to $17.0M (1.52% of loans) from $13.3M (1.24%) in Q1; provision for credit losses of $1.0M recorded to reflect loan growth and reserves on individually evaluated loans.
• Data processing expense increased $233K Q/Q due to added services and account growth; captive insurance subsidiary losses contributed to higher “other” non-interest expense.

Transcript

Speaker 2

The one I'll mark you to be Landmark Bancorp Inc. Q2 earnings call. My name is Nadia, and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. I will now hand over to our host, Abby Wendel, President and Chief Executive Officer, to begin. Abby, please go ahead.

Speaker 4

Thanks so much, Nadia. Good morning, and thank you for joining our call today to discuss Landmark Bancorp Inc.'s earnings and operating results for the second quarter of 2025. As you just heard from the operator, my name is Abby Wendel, President and CEO of Landmark Bancorp Inc. On the call with me to discuss various aspects of our second quarter performance is Mark Herpich, Chief Financial Officer, and Raymond McClanahan, 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 filing, 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 second quarter of 2025. If not, you can find it on our website at www.banklandmark.com in the Investors section. Landmark Bancorp Inc.'s second quarter results were strong. Net income in the second quarter totaled $4.4 million compared to $3 million in the same period last year, reflecting increased net interest income and controlled expenses. Diluted earnings per share this quarter totaled $0.75 and increased 56% over the same quarter last year. The return on average assets was 1.11%, and the return on average equity was 12.25%. Our efficiency ratio in the second quarter of 2025 was 62.8%.

I am especially pleased with these results, as our strong performance is a direct result of the daily commitment and effort our associates put into making Landmark an exceptional place to work and build. Total gross growth increased this quarter by $42.9 million, or 16% on an annualized basis, with strong growth in several loan categories, and our total loan balances now are in excess of $1.1 billion. As a result, this loan growth enabled our net interest income to grow by 4.3% compared to the first quarter of 2025, and our net interest margin increased seven basis points to 3.83%. Our loan growth has increased our focus on gathering deposits from our network of community branches across our franchise. Our overall credit quality remains solid as we continue to experience low net credit losses.

The allowance for credit losses on our balance sheet at June 30, 2025, was $13.8 million, or 1.23% of total loans. As our loan balances grow and as we evaluate individual non-accrual credit, we increase our allowance accordingly. For the second quarter, we increased the allowance for credit losses by $1 million. Landmark's capital and liquidity measures are strong, and we have a stable, conservative deposit portfolio, with most of our deposits being retail-based and FDIC insured, thanks to the network of community-based banking centers we operate. We remain risk-averse in both monitoring our interest rate and concentration risk, and we're maintaining a strong credit discipline. I am pleased to report that our Board of Directors has declared a cash dividend of $0.21 per share to be paid August 27, 2025, to shareholders of record as of August 13, 2025.

This represents the 96th 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.

Speaker 3

Thanks, Abby, and good morning to everyone. While Abby has just provided a highlight of our overall financial performance in the second quarter of 2025, I'll provide some further detail on these results. Net income in the second quarter of 2025 totaled $4.4 million compared to $4.7 million in the prior quarter and $3.0 million in the second quarter of 2024. Compared to the prior quarter, the strong growth in net income this quarter was mainly due to continued increases in net interest income and higher non-interest income, offset by a $1 million provision for credit losses. In the second quarter of 2025, net interest income totaled $14.7 million and increased $564,000 compared to the first quarter of 2025 due to continued strong loan growth and higher interest income.

Total interest income on loans increased $791,000 this quarter to $17.2 million due to higher average balances and higher yields on loans. Average loans increased by $33.3 million, and the tax equivalent yield on the loan portfolio increased three basis points to 6.37%. Interest income on investment securities decreased slightly to $2.9 million this quarter due to a decline in average investment securities balances of $14 million, offset by higher yields on our investment securities balances. The yield on investment securities totaled 3.34% in the current quarter compared to 3.04% in the second quarter of 2024. Interest expense on deposits in the second quarter of 2025 increased $92,000 due to lower rates and lower average interest-bearing deposits, which declined by $14.6 million. Interest on borrowed funds increased by $284,000 due to higher average balances.

The average rate on interest-bearing deposits decreased three basis points to 2.14%, while the average rate on other borrowed funds declined 11 basis points to 4.98% in the second quarter. Total cost of funds was 2.41% for the quarter ended June 30, 2025. Landmark's net interest margin on a tax equivalent basis increased to 3.83% in the second quarter of 2025 as compared to 3.76% in the first quarter of 2025. This quarter, we provided $1 million to our allowance for credit losses after taking no provision in the prior quarter. Net charge-off totaled $40,000 in the second quarter of 2025 compared to net loan charge-off of $23,000 in the prior quarter. At June 30, 2025, our allowance for credit losses of $13.8 million remains strong and represents 1.23% of gross loans.

Non-interest income totaled $3.6 million this quarter, an increase of $268,000 compared to the prior quarter, while decreasing $94,000 compared to the second quarter of 2024. The increase from the first quarter of 2025 was primarily due to growth in gains of $178,000 on sales of mortgage loans, coupled with an $88,000 increase in fees and service charges related to higher deposits related to income. Non-interest expense for the second quarter of 2025 totaled $11.0 million, an increase of $200,000 compared to the prior quarter. This increase related primarily to increases of $233,000 in data processing and $101,000 in other non-interest expense. The increase in data processing costs resulted from additional services added and account growth, while growth in other non-interest expense was primarily due to increased losses at our captive insurance subsidiary.

Partially offsetting these increases was a decrease in professional fees this quarter, primarily due to lower consulting and legal costs. Non-interest expense for the second quarter of 2025 decreased by $134,000 as compared to the second quarter of 2024. The decrease relates to a $979,000 valuation adjustment taken in the second quarter of 2024 on a former branch building, which was offset by a $730,000 increase in compensation and benefits as we implement our plan to enhance the associate experience. Even with these fluctuations, our efficiency ratio improved to 62.8% for the second quarter of 2025 as compared to 67.9% in the second quarter of 2024. This quarter, we recorded a tax expense of $944,000, resulting in an effective tax rate of 17.7% as compared to tax expense of $1.0 million in the first quarter of this year for an effective tax rate of 17.8%.

Gross loans increased $42.9 million, or 16% annualized during the second quarter, and totaled over $1.1 billion, a new record high. During the quarter, loan growth was primarily comprised of an increase in our residential mortgage loan portfolio of $21.5 million, growth in our commercial portfolio of $13.4 million, and commercial real estate growth of $10.9 million. Investment securities decreased $3.6 million during the second quarter of 2025, mainly due to maturities. Pre-tax unrealized net losses on our investment portfolio declined $3.2 million to $13.9 million this quarter, and our investment portfolio has an average life of 4.6 years with projected 12-month cash flow of $62.4 million. Deposits totaled $1.3 billion at June 30, 2025, and decreased by $61.9 million on a quarter-over-quarter basis. Compared to the same period a year ago, however, total deposits are up $23.4 million, or 1.9%.

Compared to the prior quarter, interest checking and money market deposits declined by $50.5 million this quarter, while non-interest checking decreased $16.5 million. Partially offsetting the decline, certificates of deposit grew by $6.2 million. The decline in money market and checking accounts was mainly driven by a decline in brokered deposits on the last day of the second quarter, leading to a corresponding increase in overnight borrowings from the Federal Home Loan Bank at quarter end. Average interest-bearing deposits, however, decreased by $14.6 million in the second quarter of 2025, while average borrowings increased by $23.6 million during the quarter. Our loan-to-deposit ratio totaled 86.7% at June 30 and continues to provide us sufficient liquidity to fund future loan growth.

Stockholders' equity increased $5.7 million to $148.4 million at June 30, 2025, and our book value increased to $25.66 per share at June 30 compared to $23.59 per share 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 June 30, 2025, are strong and exceed the regulatory levels considered well-capitalized. The bank leverage ratio was 9.2% at June 30, 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.

Speaker 0

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, agricultural, commercial, and commercial real estate portfolios. Gross loans outstanding at quarter end totaled $1.1 billion, an increase of $42.9 million, or 16% on an annualized basis from the previous quarter. We experienced growth across most of our portfolios. Our residential mortgage loan portfolio increased $21.5 million this quarter due to continued demand for our deductible rate loan products that we retain in our portfolio. Our commercial portfolio increased $13.4 million, and our commercial real estate portfolio increased $10.8 million. Turning to credit quality at June 30, 2025, non-performing loans consisting mainly of non-accrual loans increased $3.7 million from the prior quarter and totaled $17.17 million. The increase was primarily related to two commercial real estate credits placed on non-accrual during this quarter.

One such loan, approximately $1 million, is an owner-occupied facility secured by a building and conservatively margined. A second such loan of approximately $2.6 million was placed on non-accrual this quarter and is secured by an office building and again conservatively margined. This loan was brought current just after quarter end. Total foreclosed real estate ended the quarter at $167,000. The balance of past due loans between 30 and 89 days still accruing interest decreased $5.6 million this quarter and totaled $4.3 million, or 0.39% of gross loans. We recorded net loan charge-off of $40,000 during the second quarter of 2025 compared to net loan recoveries of $52,000 during the second quarter of 2024. Our allowance for credit losses totaled $13.7 million and ended the quarter at 1.23% of gross loans.

As Abby mentioned, as our loan balances grow and as we continually evaluate our individually analyzed non-accrual credits, we adjust our allowance accordingly. Turning to the economy in Kansas, the current economic landscape in Kansas is healthy. The preliminary seasonally adjusted unemployment rate for Kansas as of June 30 was stable at 3.8% according to the Bureau of Labor Statistics. In terms of housing, the Kansas Association of Realtors recently reported total home sales in Kansas fell 2.5% last month compared to June of 2024. The median sale price in June was up 5.6% from a year earlier. The association also reported that homes sold in June were typically on the market for eight days and sold for 100% of their list prices. With that, I thank you, and I'll turn the call back over to Abby.

Speaker 4

Thanks, Raymond. Before we go to questions, I want to summarize by saying we were pleased with our results in the second quarter. Growth in loans, margin expansion, and higher non-interest income all contributed to solid revenue growth. We are focused on maintaining solid credit quality given the uncertainties in the economy, and we continually look for efficiencies in our operation. With the operating successes we had over the past few years and the high-quality banking products and services we offer, our bank is positioned to further grow our business and to add to our customer base. We continue to work on strengthening our existing customer relationships, and we are focused on growing our lending and fee businesses across our market. Finally, I'd like to thank all the associates at Landmark National Bank.

Their daily focus on executing our strategies, delivering extraordinary service to our customers and communities is the key to our success. With that, I'll open the call to questions that anyone might have.

Speaker 2

Thank you. If you would like to ask a question, please press star followed by one on the telephone keypad. If you would like to move your question, please press star followed by two. When preparing to ask your question, please answer your phone to move it locally. We'll pause for just a moment. We have a question from Grant Langcamp of Gordon Spencer Capital Management. Grant, please go ahead. Grant, your line is open.

Good morning, everybody, and congrats on the quarter, and thanks for letting me ask a question. I wanted to start on the loan side of the book. You've provisioned roughly $1 million this quarter, and you gave a lot of commentary in the prepared remarks on what's going on behind the non-accruals. I just wondered if you could provide any further commentary there. Do you feel like you're adequately reserved at this point, and how should we expect non-performing loans to kind of trend over the course of the next 6 to 12 months? Any color you could provide there would be great. Thanks.

Speaker 4

Sure. Hi, Grant. This is Abby. I'll provide some initial commentary, and then, of course, Raymond can jump in if we need to. First of all, taking kind of the last point about being adequately provisioned, as you know, we go through a robust program to determine that level, and I do think that we are adequately provisioned, and the $1 million primarily being added to the provision due to the loan growth that we experienced in the quarter. We look at especially the non-accrual loans on an individual basis and have an in-depth process. As Raymond mentioned, the big driver in the jump, if you will, from the last quarter to this quarter was that $2.6 million credit that has since been brought current. Our numbers are already headed in the right direction for the third quarter, and honestly, I expect that probably that trend to continue.

There are a couple of things we've talked about this in prior quarters related to a large loan that's on non-accrual, but beyond that, that's probably the amount of detail that we can share on the call.

Okay. That's great. Thanks, Abby. I guess maybe switching back over to the liability side of the book, deposits kind of ticked down in the quarter, and I would guess there's a lot of just seasonality to that. Anything outside of its normal seasonality that you'd call out there? It looks like that filled the deposits with some Federal Home Loan Bank borrowings, which is pretty typical, but any thoughts behind your strategy you might have on the Home Loan Bank borrowings? Thanks.

I think, actually, I'm not going to comment on the Federal Home Loan Bank borrowings. Of course, Mark can add some color on that, but let me address kind of a broader strategic question. We have 29 bank locations across the state of Kansas, and we are looking at those deposit delivery channels in terms of how we're serving members of our community. What is the customer expansion opportunity? We have some new ways to take a look at our opportunities to better serve customers and to serve customers that maybe occupy only one side of the balance sheet and deepen those relationships. That's a giant opportunity for us. I would say second half of the year, we have some big initiatives to gather more deposits and primarily through the branch network.

We have a great opportunity to do that, and we fully plan to engage our teams in that work.

Yeah. Grant, I might supplement Abby's comments by addressing the Federal Home Loan Bank. We still have, I think, between the Federal Home Loan Bank and the Federal Reserve Bank, about $150 million of capacity, a little higher at quarter end than we usually have, as we noted in the prepared remarks. We also participate in an ICF promontory network of using some brokered funding as well at lower costs than the Federal Home Loan Bank. On that one day, we were unsuccessful in our bids, so we had a one-day lift that flipped the numbers by about $40 million right on June 30th. The deposit levels, historically, I don't see any concerns on the deposit mix that we have.

The Federal Home Loan Bank rate lines in the borrowing funds are a little higher than they would see, but we think just the cash flows coming off of the investment portfolio that we'll continue to see those levels diminish and pay down the borrowings over the next year as well.

All of that to be said, I would just summarize by saying we feel really fortunate that we're having high-quality, strong loan demand, and we want to continue to support that growth with high-quality deposit base as well.

That's great. Thanks for the questions, guys.

Sure thing.

Speaker 2

As a reminder, if you would like to ask a question, please press star followed by one on the telephone keypad. We'll pause for just a moment. It appears we have no further questions. I'll hand back to you, Abby, for any closing comments.

Speaker 4

Great. Thank you so much. I want to thank everyone for participating in today's earnings call. I appreciate your continued support and confidence in the company. I look forward to sharing news related to our third quarter 2025 results at our next earnings conference call. Have a great day, everyone.

Speaker 2

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