Landmark Bancorp 2026 Q2 Earnings Call

You may begin. Thanks, Carly.

Good morning, everyone, welcome to Landmark Bancorp second quarter earnings conference call. My name is Shelley Reed. I'm the Head of Corporate Strategy and Development and Investor Relations. Joining me today are several members of our executive leadership team, including our President and CEO, Abigail Wendel, Chief Financial Officer, Mark Herpich, and Chief Credit Officer, Raymond McLanahan. 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, 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, 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 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 on the investor 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 August 6, 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, Abigail Wendel.

Thanks, Shelley. Good morning, everyone, and thank you for joining us today. I am pleased to report that Landmark delivered strong second quarter 2026 financial results. Highlights from these results included record revenue and increased profitability, driven by continued execution of our disciplined growth strategy. Second quarter revenue increased to a record $19.2 million, driven by higher net interest income and increased gain on sale revenue. Earnings per share increased to $0.88, return on average assets improved to 1.35%, and return on average equity increased to 13.23%. I'm pleased with these results, which reflect the strength of our relationship-based banking model, disciplined pricing strategies, and prudent balance sheet management. Landmark's commercial lending teams found opportunities to win new and expand existing customer relationships within markets we serve in the second quarter.

Their efforts resulted in positive loan growth in commercial and agricultural related portfolios. Compared to the first quarter of 2026, commercial loan payoffs moderated during the second quarter, also contributing to the quarter-over-quarter growth in these portfolios. We remain cautiously optimistic, however, about our growth outlook for the second half of the year. Competition remains strong across the markets we serve, not only for customer relationships, but also for talent. As part of our growth initiative, we are investing in practices to acquire, develop, and retain exceptional talent to strengthen our portfolio management capabilities and drive future relationship-based growth. During the quarter, for example, we elevated an internal candidate to lead commercial banking in our Central, Western, and Southeastern Kansas regions, who's reporting directly to me. These regions represent important markets for Landmark, and this investment reinforces our long-term commitment to the customers and communities we serve.

These investments in leadership and talent are supporting growth across our footprint, including in larger metro areas like the Kansas City metropolitan market, where we continue to successfully expand our customer base. Moving to deposits, total deposits declined $17.7 million from the end of the first quarter, primarily due to a $28.7 million reduction in broker deposits. Core deposits, which represents total deposits excluding broker deposits, increased $11.0 million during the quarter, representing an annualized linked quarter growth rate of 3.4%. Non-interest bearing deposits represented 29.2% of total deposits at June 30, while our total cost of deposits improved to 1.3%, reflecting the benefits of our disciplined adjustments to our funding strategy.

Growing our core deposit franchise remains a strategic priority, and we are focused on acquiring new customers and expanding full service banking relationships across all business lines. Turning to asset quality, which Mark and Raymond will discuss in greater detail later in the call, non-performing loans increased by $2.7 million during the second quarter to $13.1 million, yet net charge-offs remains low at 0.17% of average loans compared to 0.13% of average loans in the first quarter of 2026. As we monitor our loan portfolio, we are doing so with a bias toward action and proactively addressing security and credit. As we elevate expectations across the board, we are strengthening our credit culture simultaneously. We are proactively addressing credits that no longer meet our credit risk profile and strengthening the overall quality of the loan portfolio.

Before turning the call over to Mark, I would also like to highlight the continued strength of our balance sheet and the growth in our tangible equity. During the quarter, tangible book value per share increased to $21.76, representing annualized linked quarter growth of 16.8%. Tangible common equity to assets increased to 8.44%. The board of directors declared a cash dividend of $0.21 per share, payable on August 27th, 2026 to shareholders of record as of August 13th, 2026. This dividend marks the company's 100th consecutive quarterly cash dividend since the formation of the holding company in 2001, underscoring our longstanding commitment to delivering value to shareholders. I will now turn the call over to Mark Herpich, our Chief Financial Officer, who will discuss our financial results in greater detail.

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 detail on our second quarter results. Net income in the second quarter of 2026 totaled $5.4 million, compared to $5.1 million in the first quarter of 2026, mainly due to continued growth in net interest income and gain on sale of loans income. In the second quarter of 2026, net interest income totaled $15.1 million, an increase of $57,000 compared to the first quarter of 2026, driven by increased investment portfolio yields and lower funding costs. Net interest income also grew $1.4 million compared to the same period of the prior year. Total interest income on investments increased $124,000 as compared to the prior quarter to $3.1 million due to higher yields on investments, improving from 3.55% to 3.66%.

Average loans decreased by $3.2 million in the second quarter of 2026, while tax equivalent yields on the loan portfolio declined slightly to 6.31%, due in part to the $2.7 million increase in nonaccrual loans. Interest expense on deposits in the second quarter of 2026 decreased $262,000 from the prior quarter due to lower cost of deposits, while average deposit balances decreased to $1.3 billion in the second quarter. The decline in deposits relates to a reduction in the level of broker deposits as we strategically elected to utilize our Federal Home Loan Bank borrowing line more heavily during the second quarter. Excluding these broker deposits, our core deposits actually grew by $11.0 million. The average rate on interest-bearing deposits decreased eight basis points to 1.82% compared to the prior quarter, mainly due to lower rates on deposits.

Interest expense on borrowed funds increased by $208,000 compared to the prior quarter due to higher average balances, which were partially offset by lower borrowing rates. The average rate on other borrowed funds decreased 31 basis points to 4.54% in the second quarter as a result of the lower short-term rates. Landmark's net interest margin on a tax equivalent basis declined two basis points to 4.22% in the second quarter of 2026 as compared to the first quarter of 2026, and improved 39 basis points as compared to the second quarter of 2025. Non-interest income totaled $4.1 million this quarter, an increase of $331,000 compared to the prior quarter, and an increase of $469,000 compared to the second quarter of 2025.

The increase in comparison to the prior quarter resulted primarily from a $356,000 increase in gains on sale of loans due to an increase in the volume of loans sold in the secondary market during the second quarter of 2026. Non-interest expense for the second quarter of 2026 totaled $12.0 million, an increase of $63,000 compared to the prior quarter. This increase related primarily to increases of $487,000 in professional fees and $246,000 in compensation and benefits expense, which were partially offset by decreases of $364,000 in other expense and $243,000 in occupancy and equipment expense. The increase in professional fees related primarily to forensic accounting and one-time legal costs associated with previously disclosed fraudulent activity by a non-executive officer, along with an increase in talent recruitment and development costs.