Landmark Bancorp Inc 2026 Q3 Earnings Call

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 are 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 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 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.

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 nine 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 one to four 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 borrowing 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%. Non-interest-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 non-interest 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 non-accrual 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 non-performing loans. 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 longstanding 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.

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 yields 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 costs 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 one 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. Non-interest 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. Non-interest 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%.