Executive Summary / Key Takeaways

• Robust Financial Performance: Landmark Bancorp delivered strong Q2 2025 net earnings of $4.4 million, a 46.2% increase year-over-year, driven by significant net interest income growth and improved efficiency. The net interest margin expanded to 3.83%, reflecting effective asset-liability management and a favorable rate environment.
• Strategic Loan Growth & Deposit Focus: The company achieved record gross loan balances exceeding $1.1 billion, fueled by a 16% annualized growth in Q2 2025 across diverse portfolios. Management is prioritizing aggressive deposit gathering initiatives in H2 2025 through its extensive branch network to fund future loan demand and reduce reliance on higher-cost borrowings.
• Disciplined Credit Quality: Despite loan portfolio expansion, credit quality remains solid, with the allowance for credit losses at 1.23% of gross loans. Proactive management of non-accrual credits, including a significant commercial real estate loan brought current post-quarter, signals continued credit discipline.
• Operational Efficiency & Infrastructure Investment: Landmark is investing in its internal infrastructure and tools to enhance both associate and customer experiences, aiming to further improve its efficiency ratio (currently 62.8%). This strategic focus is foundational to long-term profitability and potential M&A opportunities within Kansas.
• Consistent Shareholder Returns: With its 96th consecutive quarterly cash dividend and a history of annual stock dividends, Landmark demonstrates a sustained commitment to shareholder value, underpinned by strong capital and liquidity.

The Kansas Catalyst: A Relationship-Driven Banking Model

Landmark Bancorp, Inc. (NASDAQ:LARK) operates as a financial holding company, primarily through its wholly-owned subsidiary, Landmark National Bank, complemented by Landmark Risk Management, Inc., a captive insurance provider. Established in 1885, the company has cultivated a deep-rooted presence across Kansas, evolving into a community-focused institution with 30 banking centers in 24 communities, alongside a loan production office in Kansas City, Missouri. This extensive local network underpins a core strategy centered on relationship-based banking, particularly serving owner-operated businesses, family farms, and small to mid-sized enterprises.

The company's strategic approach emphasizes holding and acquiring quality assets while actively growing its commercial, commercial real estate (CRE), and agriculture loan portfolios. This focus is clearly reflected in its loan mix, where over half of the agricultural portfolio finances ag production and more than 50% of the CRE portfolio is secured by owner-occupied properties. This specialized lending expertise, combined with a commitment to "total banking service," differentiates Landmark in its local markets.

In the broader financial services landscape, Landmark operates amidst formidable regional competitors such as Commerce Bancshares (CBSH), UMB Financial Corporation (UMBF), Great Southern Bancorp (GSBC), and BOK Financial Corporation (BOKF). While these larger rivals often boast broader geographic footprints and more advanced digital capabilities, Landmark's competitive advantage lies in its strong community brand and established local network. This fosters deep customer loyalty and allows for efficient, personalized service delivery, particularly in niche local lending segments where larger banks may lack the same intimate understanding.

However, Landmark's smaller scale presents vulnerabilities, potentially leading to lower margins and efficiency compared to its larger, more diversified peers. Technological gaps, particularly in the speed of innovation, could also affect operational execution and market share against competitors with more advanced digital offerings. To address this, Landmark is strategically investing in its internal infrastructure and tools. This technological focus is not on developing proprietary, breakthrough products, but rather on enhancing the "associate experience" and "customer experience" by making teams "smarter at what we do" through better information harnessing and operational tools. This approach aims to fortify its relationship-based model and improve internal efficiencies, thereby strengthening its competitive moat.

The economic backdrop for Landmark's operations has been characterized by a sluggish U.S. economy in the first half of 2025, marked by elevated inflation and high interest rates. These conditions have generally impacted financial institutions through higher funding costs and lower fair values for investment securities. However, the Kansas economic landscape remains healthy, with a stable unemployment rate of 3.8% as of June 30, 2025. The housing market in Kansas, while experiencing a slight dip in sales volume, saw median sale prices rise by 5.6% year-over-year in June 2025, with homes selling quickly at full list prices. This robust local economy provides a favorable environment for Landmark's targeted lending activities.

Financial Performance: A Story of Strategic Execution

Landmark Bancorp's recent financial results underscore the effectiveness of its strategic focus and operational discipline. The company reported strong net earnings of $4.4 million for the second quarter of 2025, marking a significant 46.2% increase compared to $3.0 million in the same period last year. For the first six months of 2025, net earnings climbed to $9.1 million, a substantial 57.3% rise from $5.8 million in the prior year, primarily driven by robust net interest income growth and controlled expenses.

Net interest income, the company's primary revenue driver, surged by 24.7% to $13.7 million in Q2 2025, compared to Q2 2024. This impressive growth was a direct result of strong loan expansion and a reduction in interest expense on deposits and borrowings, influenced by Federal Reserve rate cuts in late 2024. Consequently, the net interest margin (on a tax-equivalent basis) expanded notably to 3.83% in Q2 2025, up from 3.21% in Q2 2024 and 3.76% in Q1 2025, demonstrating effective asset-liability management.

Loan growth has been a cornerstone of this performance. Total gross loans reached a new record high, exceeding $1.1 billion at June 30, 2025, following a 16% annualized increase of $42.9 million in Q2 2025. This growth was broad-based, with significant contributions from residential mortgage loans (up $21.5 million), commercial loans (up $13.4 million), and commercial real estate loans (up $10.9 million). The yield on the loan portfolio also improved to 6.37% in Q2 2025 from 6.33% in Q2 2024.

Non-interest income, while a smaller component, saw some fluctuations. Total non-interest income decreased slightly by 2.5% to $3.6 million in Q2 2025 compared to Q2 2024, mainly due to lower fees and service charges from deposit accounts. However, this was partially offset by increased gains on sales of residential real estate loans and a rise in bank-owned life insurance income. The efficiency ratio improved to 62.8% in Q2 2025 from 67.9% in Q2 2024, reflecting disciplined expense management. Non-interest expense decreased year-over-year, largely due to the non-recurrence of a $979,000 valuation allowance on real estate in Q2 2024, despite increases in compensation and benefits due to additional staffing and higher data processing costs related to new services and account growth.

Capital, Liquidity, and Prudent Risk Management

Landmark Bancorp maintains a robust financial foundation, characterized by strong capital and liquidity measures. Total assets remained stable at $1.60 billion at June 30, 2025. The company's deposit base, predominantly retail-based and FDIC-insured, is considered stable and conservative. While total deposits saw a seasonal decline of $54.9 million in the first six months of 2025 to $1.30 billion, primarily due to public fund seasonality and a temporary reduction in brokered deposits at quarter-end, management views this as a short-term fluctuation. Brokered deposits in money market and checking accounts decreased significantly from $39.5 million at December 31, 2024, to $95,000 at June 30, 2025, while brokered certificates of deposit increased from $41 million to $53.4 million. Approximately 94.9% of total deposits are considered core deposits, highlighting the strength of its customer relationships.

To offset deposit fluctuations and fund loan growth, total borrowings increased by $94.1 million to $182.6 million at June 30, 2025, primarily through the Federal Home Loan Bank (FHLB) line of credit.

The company boasts substantial available borrowing capacity, with $304.5 million from the FHLB and $44.5 million from the Federal Reserve discount window, ensuring ample liquidity. Liquid assets, comprising cash and cash equivalents and available-for-sale securities, totaled $380.9 million at June 30, 2025.

Credit quality remains a paramount focus. The allowance for credit losses (ACL) on loans increased to $13.8 million, representing 1.23% of gross loans at June 30, 2025, up from 1.22% at December 31, 2024. This increase was primarily a proactive measure to account for strong loan growth and higher reserves against individually evaluated non-accrual loans. While non-accrual loans increased to $17 million (1.52% of gross loans) in Q2 2025, a significant commercial real estate credit of $2.6 million, which contributed to this rise, was successfully brought current shortly after quarter-end. This demonstrates management's active credit risk management and commitment to resolving problem assets. The bank's capital ratios are robust, with a leverage ratio of 9.2% and a total risk-based capital ratio of 13.6% at June 30, 2025, comfortably exceeding "well capitalized" regulatory thresholds.

Strategic Outlook: Deepening Roots and Expanding Horizons

Landmark Bancorp's forward strategy is firmly rooted in its successful relationship-based banking model, with clear initiatives to drive continued growth and profitability. A key focus for the second half of 2025 is an aggressive push to gather more deposits, primarily leveraging its extensive community branch network. This initiative aims to strengthen the company's funding base, support ongoing loan demand, and reduce reliance on external borrowings, with cash flows from the investment portfolio also expected to contribute to paying down debt over the next year.

Management is optimistic about further net interest margin expansion throughout 2025, even in a stable rate environment. This outlook is supported by the anticipated full impact of recent Federal Reserve rate cuts, which are expected to be accretive to the margin by lowering funding costs. Additionally, the company's investment portfolio restructuring and continuous efforts to optimize deposit pricing are projected to contribute to margin improvement. With approximately 30% of the loan portfolio (excluding mortgages) repricing in 2025, the company is well-positioned to benefit from favorable rate trends.

Beyond financial metrics, Landmark is making significant investments in its internal infrastructure. This strategic initiative is designed to enhance the "associate experience," which management believes is directly correlated with a superior "customer experience." By harnessing information more effectively and providing advanced tools to its teams, Landmark aims to improve operational efficiency and profitability. This internal strengthening is also viewed as a way to enhance the company's "currency" for potential mergers and acquisitions, with a strategic desire to increase market density within Kansas. The company actively seeks M&A opportunities to further expand its footprint and solidify its position as a "bank of choice" for other institutions seeking succession plans or growth partners.

In the mortgage sector, while the current market is influenced by homeowners holding low-rate mortgages, Landmark's mortgage operation is lean and adaptable. The company anticipates a shift towards fixed-rate mortgage demand if interest rates continue to decline, and its robust pipeline is ready to capitalize on these opportunities. The mortgage business also serves as a crucial channel for cross-selling other banking products, further deepening customer relationships.

Conclusion

Landmark Bancorp stands as a compelling investment thesis, demonstrating consistent profitability and strategic growth within its community-focused banking model. The company's recent financial performance, marked by strong earnings, expanding net interest margins, and record loan growth, reflects effective execution of its relationship-based strategy and disciplined risk management. Its commitment to investing in internal infrastructure and leveraging technology to enhance customer and associate experiences positions it for sustained operational efficiency and competitive relevance.

While facing competition from larger regional banks and evolving market dynamics, Landmark's deep local ties and specialized lending expertise provide a durable competitive advantage. The company's proactive approach to deposit gathering, prudent credit management, and strong capital base underscore its resilience. With a clear strategic roadmap for continued loan and deposit growth, coupled with a long-standing commitment to shareholder returns through consistent dividends, Landmark Bancorp is well-positioned to cultivate further value for investors in the dynamic financial services landscape.