Executive Summary / Key Takeaways
- Landmark Bancorp ($LARK) delivered strong first-quarter 2025 results, with net income increasing 69.2% year-over-year to $4.7 million, driven by robust net interest income growth and controlled expenses. Diluted EPS rose to $0.81.
- The company achieved significant loan growth, reaching nearly $1.1 billion in gross loans by Q1 2025, fueled by increases across commercial real estate, construction, residential mortgage, and agriculture portfolios, demonstrating effective execution of its relationship-based banking strategy.
- Net interest margin expanded significantly to 3.76% in Q1 2025, benefiting from higher loan yields and lower funding costs on deposits and borrowings, positioning the bank favorably in the current interest rate environment.
- Credit quality remains solid with low net charge-offs ($23k in Q1 2025) and a robust allowance for credit losses (1.19% of gross loans), although management is actively monitoring a recent increase in 30-89 day past due loans and specific non-accrual relationships.
- With strong capital ratios, ample liquidity, and a stable, retail-focused deposit base (93.1% core deposits), LARK is well-positioned to fund continued loan growth and manage potential economic uncertainties.
A Community Banking Story: Relationships, Growth, and the Kansas Heartland
Landmark Bancorp, Inc. ($LARK) is more than just a financial institution; it's a community banking story deeply rooted in the Kansas heartland. As a financial holding company, LARK operates primarily through its wholly owned subsidiary, Landmark National Bank, complemented by a captive insurance arm, Landmark Risk Management, Inc. Since its formation in 2001, the company's strategy has centered on cultivating deep, relationship-based connections with its customers, particularly business owners ranging from family farms in rural Kansas to small and midsized enterprises in the Kansas City metropolitan area. This approach, reinforced by the strategic acquisition of Freedom Bancshares in 2022, has built a network spanning 29 locations across Kansas and a loan production office in Missouri, providing a stable foundation of retail deposits and a diverse loan portfolio encompassing residential real estate, construction, commercial, agriculture, and municipal lending.
This relationship-centric model serves as a crucial differentiator in a competitive landscape dominated by larger regional players like KeyCorp (KEY) and other community banks such as Franklin Financial Services (FRAF) and NB Bancorp (NBBK). While larger institutions like KEY possess significant scale advantages and invest heavily in advanced digital technologies, potentially offering faster processing speeds and lower operating costs per unit, LARK's strength lies in its local brand equity and personalized service. This allows LARK to maintain strong customer loyalty and pricing power in its core markets and niche segments like agricultural lending, where its deep understanding of local dynamics provides a competitive edge. Compared to peers like FRAF and NBBK, LARK demonstrates solid operational stability and a healthy financial profile, although NBBK, for instance, has shown stronger recent revenue growth and profitability margins. LARK's competitive analysis highlights that it faces vulnerabilities related to limited technological investment compared to these rivals, potentially leading to higher operating costs and slower digital adoption, an area management is addressing through strategic investments in infrastructure.
While specific details on proprietary technological differentiators are not extensively disclosed, management has articulated a strategic focus for 2025 on "investing in the infrastructure of the company" and "harnessing information." This initiative aims to enhance the associate and customer experience and improve operational efficiency. In a banking environment where technological capabilities increasingly influence efficiency and customer engagement, this focus is a critical response to competitive pressures, particularly from larger, more tech-enabled institutions. The goal is to make teams "smarter" and improve understanding of profitability drivers, suggesting an effort to leverage data and systems to optimize operations and execution, thereby potentially mitigating some of the efficiency gaps identified in the competitive analysis.
This strategic emphasis on relationships, local market penetration, and operational enhancement is translating into tangible financial results.
Performance Momentum and Margin Expansion
Landmark Bancorp's recent financial performance underscores the effectiveness of its strategy, particularly in navigating the current interest rate environment. The first quarter of 2025 saw net earnings climb to $4.7 million, a significant jump from $2.8 million in the same period last year and $3.3 million in the prior quarter. This robust growth was primarily fueled by a substantial increase in net interest income and well-controlled non-interest expenses.
Net interest income rose to $13.1 million in Q1 2025, up from $10.7 million in Q1 2024 and $12.4 million in Q4 2024. This expansion was a direct result of both higher interest income on loans and lower interest expense on funding sources. Interest income on loans increased by $1.9 million, or 13.1%, year-over-year, driven by a combination of higher average loan balances (up from $945.7 million in Q1 2024 to $1.0 billion in Q1 2025) and improved yields (rising from 6.16% to 6.34%). Simultaneously, interest expense decreased by $775,000 compared to Q1 2024, as the cost of interest-bearing deposits declined (from 2.35% to 2.17%) and borrowing costs fell (from 5.77% to 5.09%), despite increases in average interest-bearing deposit balances.
This dynamic led to a notable expansion in the net interest margin, which, on a tax-equivalent basis, increased to 3.76% in Q1 2025, up from 3.12% in Q1 2024 and 3.51% in Q4 2024. Management commentary suggests this positive trend in margin expansion is expected to continue in the near term, particularly given the bank's liability-sensitive balance sheet structure, which stands to benefit from potential future decreases in short-term interest rates.
Loan growth has been a consistent highlight, reaching a record high of nearly $1.1 billion in gross loans by March 31, 2025. This represents an annualized growth rate of 8.7% in Q1 2025, following strong growth of 20% annualized in Q4 2024 and 8.6% annualized in Q3 2024 (when the bank first crossed the $1 billion mark). This growth has been broad-based, with significant increases in commercial real estate ($14.4 million in Q1 2025), construction and land ($3.3 million), residential mortgage ($3.4 million), and agriculture portfolios. The focus on owner-occupied CRE and agricultural production loans underscores the bank's commitment to its core business owner clientele.
Non-interest income experienced some fluctuation. In Q1 2025, it totaled $3.4 million, a slight decrease from $3.4 million in Q1 2024 and Q4 2024. The year-over-year decrease was primarily due to lower fees and service charges (specifically deposit-related) and reduced rent income from a property sold in 2024. The sequential decrease from Q4 2024 was influenced by a significant one-time benefit from bank-owned life insurance in the prior quarter, partially offset by lower losses on investment security sales in Q1 2025 ($2k vs. $1.0 million in Q4 2024). Gains on sales of residential real estate loans saw a slight increase in Q1 2025 due to higher volume.
Non-interest expense totaled $10.8 million in Q1 2025, a 2.0% increase from $10.5 million in Q1 2024, mainly due to higher compensation costs related to additional staffing and benefits. However, compared to Q4 2024 ($11.9 million), expenses decreased by $1.1 million, reflecting lower other noninterest expenses, professional fees, and occupancy/equipment costs, partly attributable to cost savings from branch closures in 2024 and reduced consulting expenses. The efficiency ratio stood at 64.1% in Q1 2025, an improvement from 70.0% in Q4 2024 and 66.5% in Q3 2024, indicating progress in operational efficiency efforts.
Asset Quality, Liquidity, and Capital Strength
Maintaining sound asset quality is paramount, especially amidst economic uncertainties. LARK's credit quality remains solid, characterized by low net loan charge-offs of $23,000 in Q1 2025, following $219,000 in Q4 2024 and $7,000 in Q1 2024. The allowance for credit losses totaled $12.8 million at March 31, 2025, representing a robust 1.19% of gross loans. No provision for credit losses was recorded in Q1 2025, compared to $1.5 million in Q4 2024 and $300,000 in Q1 2024, reflecting management's assessment of current conditions.
While overall credit metrics are strong, management is actively monitoring certain areas. Non-performing loans totaled $13.3 million at March 31, 2025, relatively unchanged from $13.1 million at December 31, 2024. A notable increase in non-performing loans in Q3 2024 was attributed primarily to a single secured commercial loan relationship, which management is working to resolve. Loans past due 30-89 days and still accruing increased to $10.0 million (0.93% of gross loans) at March 31, 2025, up from $6.2 million (0.59%) at December 31, 2024. This increase was mainly in commercial and CRE portfolios, including a $2.2 million SBA guaranteed commercial loan relationship. Management does not view this as indicative of broader portfolio weakness and is actively engaged with these borrowers.
Liquidity and capital positions are strong, providing a buffer against potential risks and supporting future growth. Total deposits increased by $7.1 million in Q1 2025 to $1.3 billion, primarily due to seasonal increases in public funds and growth in certificates of deposit (including brokered CDs, which rose to $51.2 million). Non-interest-bearing deposits constitute a healthy 27.6% of the total. Critically, over 93.1% of total deposits are considered core deposits, reflecting the stability of the retail and commercial customer base. Total borrowings decreased by $11.8 million to $76.7 million in Q1 2025, mainly due to a reduction in FHLB line of credit borrowings.
LARK maintains ample access to contingent funding. Liquid assets (cash, cash equivalents, available-for-sale securities) totaled $381.8 million at March 31, 2025. The bank had $203.2 million in available borrowing capacity with the FHLB and $46.9 million with the Federal Reserve discount window. The loan-to-deposit ratio stood at a low 79.5%, indicating significant capacity to fund future loan growth internally.
Capital ratios remain robust and comfortably exceed regulatory requirements. At March 31, 2025, the Bank's leverage ratio was 9.24%, and its total risk-based capital ratio was 13.56%. Both the company and the bank were categorized as "well capitalized" and met the capital conservation buffer requirements, allowing for continued capital distributions, including the recently declared $0.21 per share quarterly cash dividend (the 95th consecutive).
Outlook and Strategic Execution
Looking ahead, Landmark Bancorp is focused on leveraging its strengths to drive continued performance improvement. Management is optimistic about further net interest margin expansion, anticipating benefits from the liability-sensitive balance sheet in a potentially declining rate environment and ongoing efforts to manage funding costs. The strategic initiative to invest in company infrastructure and harness information is a key focus for 2025, aimed at enhancing efficiency and the customer experience, which are crucial for long-term competitiveness against rivals with greater technological scale.
Loan and fee income growth across all markets, particularly in the Kansas City metro area where the bank is still building density following the Freedom Bank acquisition, remains a priority. The robust loan pipeline and the relationship-based model are expected to support continued asset growth, funded by stable deposits and available borrowing capacity.
While the economic environment presents ongoing uncertainties, including potential impacts from factors like tariffs, management's approach of maintaining strong credit discipline, staying close to customers, and actively managing problem credits is expected to support solid asset quality. The company's strong capital and liquidity positions provide resilience against potential economic headwinds.
Management also views M&A as a potential avenue for future growth and density building within Kansas, positioning the company as a potential "bank of choice" for partners seeking a succession plan or future growth, contingent on continued strong performance and the development of its "currency."
Conclusion
Landmark Bancorp is executing a focused strategy centered on relationship banking and local market strength in Kansas. The company's recent financial performance, particularly the significant net interest income growth and margin expansion in Q1 2025, demonstrates positive momentum despite a challenging economic backdrop and competitive pressures from larger, more technologically advanced institutions. While facing vulnerabilities in technological investment compared to peers, LARK is strategically addressing this through planned infrastructure improvements aimed at enhancing efficiency and customer experience.
With a robust loan pipeline, a stable deposit base, strong capital and liquidity, and a disciplined approach to credit risk, LARK appears well-positioned to continue generating solid earnings and funding future growth. The investment thesis hinges on the company's ability to successfully leverage its core relationship model, execute on efficiency initiatives, and capitalize on its market position to drive sustainable profitability and shareholder value in the dynamic regional banking landscape. Investors should monitor the trajectory of net interest margin, the effectiveness of efficiency improvements, trends in asset quality, and the pace of loan and fee income growth as key indicators of the company's continued success.