(LARK)
Q1 2026 Earnings-Transcript
Operator: Hello, everyone, and thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Landmark Bancorp, Inc. Q1 Earnings Call. [Operator Instructions] I would like to now turn the call over to Shelley Reed. Please go ahead.
Shelley Reed: Thanks, Ian. Good morning, everyone, and welcome to Landmark Bancorp’s First Quarter Earnings Conference Call. My name is Shelley Reed, and I’m the Head of Corporate Strategy and Development and Head of Investor Relations. Joining me today are several members of our executive leadership team, including our President and CEO, Abby 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 and 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 and 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 on the 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 May 7, 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: Thank you, Shelley. Good morning, everyone, and thank you for joining us today as we discuss Landmark’s earnings and operating results for the first quarter of 2026. Landmark is off to a strong start this year, reflected in solid performance across several key areas that position us favorably for the remainder of the year. Total revenue reached a record $18.8 million for the quarter. Earnings per share increased to $0.83, an increase of 6.7% over the fourth quarter of 2025 and 7.2% compared to the first quarter of 2025. Our return on assets rose to 1.29%, which is an increase of 12 basis points on a linked-quarter basis and an increase of 7 basis points year-over-year. I am very pleased with the bank’s performance and improved profitability levels, which are a direct reflection of our associates’ hard work and advancement of our strategic initiatives.
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Our market positioning is strengthening as well, and we look forward to the months and years ahead. Net interest income increased 1.6% on a linked-quarter basis to $15 million, while our net interest margin expanded to 4.24%, up 21 basis points versus the fourth quarter of 2025. Our favorable net interest margin is supported by our solid core customer base and disciplined pricing approach, enabling us to sustain a healthy core revenue base. Loans ended the quarter at $1.1 billion, down slightly $13.5 million from year-end 2025, but up $23.3 million from a year ago. We are seeing strong growth in our commercial real estate portfolio, which offset reductions in our agriculture portfolio. Our residential mortgage portfolio was also down as more of our originations were sold into the secondary market versus retention on our balance sheet.
The impact of selling more originations, coupled with payoffs and paydowns during the quarter accounted for slightly more than $7 million of the $13.5 million decrease in loan balances this quarter. Mortgage originations, however, were up 9% over the first quarter of 2025, driving an increase in gain on sale income as we sold more loans into the secondary market. On the deposit side, the reduction in balances for the quarter was largely driven by seasonal outflows of public fund deposits, coupled with the strategic decision to replace some brokered funding with FHLB borrowings. What I’m most excited about is the continued growth in our core customer deposits, which increased 1.6% on a linked-quarter basis, reinforcing the value our customers place in our relationship-based banking approach.
We remain focused on growing our core customer accounts in our local communities to strengthen our presence and deepen our relationships within the communities we serve. Later in the call, Mark Herpich, our CFO, will provide additional details on our financial results. Net charge-offs were 13 basis points of average loans during the quarter, while nonperforming loans increased $384,000. Raymond will provide more details on our asset quality later in this call as well, but I want to highlight that credit risk management remains a top priority as we work to further enhance the stability and quality of our portfolio. Additionally, we remain focused on strengthening overall risk oversight and thoughtfully reinforcing our balance sheet and capital position.
These priorities ensure we are well positioned to remain resilient and adaptable across all economic environments. Tangible common equity to assets increased 8.11%, while tangible book value per share ended the quarter at $20.89. I am pleased to report that our Board of Directors has declared a cash dividend of $0.21 per share to be paid May 28 to shareholders of record as of May 14, 2026. This represents the 99th consecutive quarterly cash dividend since the parent company’s formation in 2001. Looking ahead, we will continue making targeted investments in revenue-generating activities to better meet evolving customer needs. At the same time, we are actively evaluating opportunities to improve efficiency and modernize how we deliver banking services across our footprint.
I will now turn the call over to Mark Herpich, our CFO, who will review the financial results in more detail with you.
Mark Herpich: Thanks, Abby, and good morning to everyone. While Abby has just provided a highlight of our overall strong financial performance for this year, I’ll provide some further details on our first quarter results. Net income in the first quarter of 2026 totaled $5.1 million compared to $4.7 million in the first quarter of 2025, mainly due to continued growth in net interest income. In the first quarter of 2026, net interest income totaled $15.0 million, an increase of $234,000 compared to the fourth quarter of 2025, driven by increased investment portfolio yields and lower funding costs. Net interest income also grew $1.9 million compared to the same period last year. Total interest income on investments increased $21,000 as compared to the prior quarter to $2.9 million due to higher yields on investments improving from 3.39% to 3.55%.
Average loans decreased by $12.8 million and while the tax equivalent yield on the loan portfolio remained flat at 6.4%. Interest expense on deposits in the first quarter of 2026 decreased $527,000 from the prior quarter, resulting from lower cost of deposits, while average deposit balances decreased slightly but remained steady at $1.4 billion in the first quarter. Interest expense on borrowed funds also decreased by $296,000 due to lower average balances and lower borrowing rates. The average rate on interest-bearing deposits decreased 16 basis points to 1.90%, mainly due to lower rates on deposits. The average rate on other borrowed funds decreased 8 basis points to 4.85% in the first quarter as a result of the lower short-term Fed funds rate.
Landmark’s net interest margin on a tax equivalent basis improved 21 basis points to 4.24% in the first quarter of 2026 as compared to the fourth quarter of 2025 and has improved 48 basis points compared to the first quarter of 2025. Noninterest income totaled $3.8 million this quarter, a decrease of $135,000 compared to the prior quarter, but an increase of $406,000 as compared to the first quarter of 2025. The decrease in comparison to the prior quarter resulted primarily from a $308,000 decline in fees and service charges, driven by a seasonal decrease in interchange income and lower overdraft income during the first quarter of 2026. This decrease was partially offset by an increase in gains on sales of investment securities, driven by $101,000 of losses recognized during the fourth quarter as part of our strategy to reposition our investment securities portfolio to improve future income and an increase of $87,000 in bank-owned life insurance income.
Noninterest expense for the first quarter of 2026 totaled $11.9 million, a decrease of $362,000 compared to the prior quarter. This decrease related primarily to decreases of $492,000 in compensation and benefits expense and an impairment loss taken on repossessed assets held for sale of $356,000 in the prior quarter. These decreases were partially offset by an increase of $472,000 in other expense. The decrease in compensation and benefits resulted from lower incentive compensation in the first quarter of 2026 as compared to the fourth quarter of 2025. The increase in other expense was primarily related to $433,000 of fraud losses recognized during the quarter related to previously disclosed fraudulent activity by a nonexecutive officer of the bank, coupled with higher insurance loss reserves at our captive insurance subsidiary.
The recorded fraud loss excludes any potential insurance recoveries we may receive. This quarter, we recorded tax expense of $1.3 million, resulting in an effective tax rate of 19.8% as compared to tax expense of $1.2 million in the fourth quarter of 2025 for an effective tax rate of 20.0%. Gross loans decreased $13.5 million in the current quarter compared to the previous quarter and totaled $1.1 billion at quarter end. Average loans also declined by $12.8 million in the current quarter as compared to the prior quarter. As of March 31, we experienced decreases in our agricultural portfolio of $16.2 million and our residential real estate loan portfolio of $7.0 million, which were partially offset by a $13.6 million increase in our commercial real estate portfolio.
Investment securities decreased $6.1 million during the first quarter of 2026, mainly due to maturities exceeding our levels of purchases. Our investment portfolio has an average duration of 4.3 years with a projected 12-month cash flow of $68.7 million. Pretax unrealized net losses on our investment portfolio increased by $3.8 million to $11.3 million this quarter due to rising interest rates. Deposits totaled $1.3 billion at March 31, 2025, and decreased by $66.2 million in the first quarter compared to the prior quarter. This quarter, interest checking and money market deposits decreased by $61.6 million, while certificates of deposits declined by $10.8 million. The quarterly decrease in deposits was driven primarily by seasonal outflows in public fund deposit account balances, along with a decline in broker deposits as we were able to leverage slightly lower cost of funding from other borrowing sources like the Federal Home Loan Bank.
These decreases were offset by growth in core customer deposits. Our total borrowings increased by $57.3 million during the quarter as deposit growth allowed us to reduce more expensive short-term borrowings. Our loan-to-deposit ratio totaled $82.1 million at March 31 and continues to provide sufficient liquidity to fund future loan growth. Stockholders’ equity increased $980,000 during the first quarter to $161.6 million at March 31, 2026, and our book value increased to $26.50 per share at March 31 compared to $26.44 at December 31. The increase in stockholders’ equity this quarter mainly resulted from net earnings from the quarter, partially offset by an increase in other comprehensive losses. Our consolidated and bank regulatory capital ratios as of March 31, 2026, are strong and continue to exceed the regulatory levels considered well capitalized.
Now let me turn the call over to Raymond to review highlights of our loan portfolio and the credit risk outlook.
Raymond McLanahan: Thank you, Mark, and good morning to everyone. As discussed earlier, overall loan balances declined modestly during the first quarter, reflecting our continued focus on disciplined growth and active balance sheet management. While total gross loans ended the quarter at $1.1 billion, down approximately $13.5 million from year-end, we continue to see targeted growth in our commercial real estate portfolio, which increased by $13.6 million during the quarter. This growth was offset primarily by seasonal paydowns and planned reductions in agricultural loans which declined $16.2 million, along with modest decreases in the one-to-four family residential, commercial and commercial construction and land portfolios.
Consistent with our long-standing credit philosophy, we remain selective in new originations and proactive in managing exposures that no longer align with our risk appetite. While strategic exits were more limited this quarter compared to the fourth quarter of 2025, we continue to actively work down select relationships where credit fundamentals or longer-term outlooks warrant a reduction in exposure. Turning to credit quality. As of March 31, 2026, nonperforming loans totaled $10.4 million or 0.94% of gross loans, reflecting a slight increase from 0.90% at year-end. The increase was primarily attributed to a single $1.3 million commercial relationship that ceased operations shortly after quarter end. While no specific impairment had been identified at quarter end, we prudently moved the relationship to nonaccrual following the change in operating status.
The borrower is working cooperatively with the bank to self-liquidate and subsequent to quarter end, the outstanding balance was reduced by approximately $500,000. We continue to closely monitor this situation and believe it is being addressed appropriately. Loans delinquent 30 to 89 days and still accruing interest totaled $7.4 million or 0.68% of gross loans compared to $4.3 million or 0.38% at December 31. The increase in past due balances was primarily attributed to a $2.2 million agricultural relationship and a $1.8 million loan secured by several 1-to-4 family residential properties. While this represents a quarter-over-quarter increase, the underlying drivers are borrower-specific, and we believe these metrics remain manageable as we work through resolution and expect improvement over time.
We continue to benefit from a well-diverse loan portfolio and consistent underwriting standards, which have helped limit broader adverse credit migration. Net loan charge-offs during the first quarter totaled $349,000, consistent with the $341,000 recorded in the fourth quarter of 2025. On an annualized basis, net charge-offs represented approximately 0.13% of average loans, which we continue to view as manageable and reflective of the underlying strength of our portfolio. The allowance for credit losses increased slightly to $12.6 million, representing 1.15% of gross loans compared to 1.12% at year-end. We recorded a $500,000 provision for credit losses during the quarter, reflecting portfolio mix changes, updated economic assumptions and continued prudence in reserving practices.
We believe the allowance for credit losses remains appropriately — appropriate relative to the current portfolio risk and identified credit trends. From an economic standpoint, conditions across Kansas remains generally stable. Employment levels continue to support borrower cash flows. And while certain sectors are experiencing pressure from higher operating costs and interest rates, we have not observed systemic stress within the portfolio. Overall, certain credit metrics remain modestly elevated. We believe these trends are manageable and should improve over time as we work through a small number of borrower-specific situations. Our focus remains on disciplined underwriting and proactive risk management. Thank you, and I’ll turn the call back over to Abby.
Abigail Wendel: Thank you, Raymond. As 2026 continues, we will continue investing in our associates and making thoughtful strategic decisions that enhance our customers’ experience and position us to grow in the markets we serve. I am sincerely grateful to our associates for their continued dedication to putting people first and for fostering the meaningful connections that support our customers and strengthen the communities we proudly serve. If there are any follow-up questions to today’s call, please see our earnings release for our CFOs and our Investor Relations contact information. We appreciate everyone being on today’s call, and we look forward to talking with you again in July.
Operator: Ladies and gentlemen, that concludes today’s conference call. Thank you for joining. You may now disconnect.
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