Landmark Bancorp, Inc. (LARK) Q3 2026 earnings review
Landmark Bancorp's lending spreads widen, but its deposits shrink
Landmark Bancorp, a Kansas community bank, widened its lending margin while both its loan book and customer deposits shrank. Net interest margin rose to 4.35%, beating the 4.20% level finance chief Mark Herpich aimed to hold on last quarter's call, as maturing bonds rolled into higher rates. Chief executive Abby Wendel praised the low-cost deposit base, but total deposits fell $59 million and the bank plugged the gap with higher-cost wholesale borrowings.
| Net interest margin | 4.35% +0.13 percentage points from last quarter |
|---|---|
| Total revenue | $19.2M +6% from a year ago by our math |
| Total deposits | $1.25B -$59.0M from last quarter |
| Margin outlook (from Q2 call) | Beat 4.35% actual vs ~4.20% target |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because wider lending spreads were offset by shrinking balances, weaker mortgage sales, and rising early delinquencies. Beating the margin target shows last quarter's plan was cautious, not that funding pressure is gone, since wholesale borrowings jumped by $50 million. The bad news: mortgage sale gains fell by nearly half and loans 30 to 89 days past due climbed by a third.
The question now is whether reinvesting old bonds at higher rates can keep lifting interest income while loans and deposits contract. Optimists point to maturing bonds and new commercial bankers; skeptics note that shrinking earning assets and 4% wholesale debt leave little room for profit growth. Fourth-quarter deposit flows and loan balances will settle it.
🐂 Bull Case
Higher Loan and Bond Yields Lifted the Margin
Landmark's main profit engine is its net interest margin (NIM), the gap between what the bank earns on loans and bonds and what it pays on deposits and borrowings. Last quarter, finance chief Mark Herpich aimed to hold that margin near 4.20% for the rest of the year. Instead, it expanded in the third quarter.
- Net interest margin: 4.35%, up 0.13 percentage points from last quarter and 0.52 points from a year ago
- Bond portfolio yield: 3.80%, up 0.14 percentage points from last quarter as "lower-rate securities maturing during the quarter were re-invested at higher rates"
- Loan portfolio yield: 6.46%, up 0.15 percentage points from last quarter
Because both loan and bond yields climbed, tax-equivalent net interest income reached $15.8 million, beating what the bank's earlier margin plan implied by 4% by our math. However, under Rule 6, a beat against a cautious plan does not mean the pressure from shrinking loans and rising wholesale debt has disappeared.
What to watch: fourth-quarter net interest margin on the upcoming call. Another reading above 4.30% would show that bond reinvestment is strong enough to offset higher borrowing balances.
Lower Deposit Rates Kept Funding Costs Down
Chief executive Abby Wendel said the margin rose to 4.35%, "reflecting the effectiveness of our disciplined loan and deposit pricing strategies, as well as prudent funding management." The Kansas lender has steadily lowered the rates it pays on customer accounts over the past year while keeping a large share of accounts that pay no interest at all.
Average total deposit costs edged down 0.01 percentage points from last quarter to 1.29%, and sit 0.30 percentage points lower than a year ago. Accounts that pay no interest rose to 29.3% of total deposits, up from 29.2% in the second quarter, while interest-bearing deposit rates fell to 1.81% on cheaper certificates of deposit.
What to watch: the average rate paid on interest-bearing deposits in the fourth quarter. A further drop below 1.80% would confirm the bank can still cut certificate of deposit pricing without losing retail accounts.
🐻 Bear Case
Shrinking Deposits Forced More Wholesale Borrowing
"Our core commercial and retail customer deposits remain strong, including our non-interest-bearing balances, sustaining our attractive low-cost deposit base," chief executive Abby Wendel said. Yet the balance sheet shows total deposits fell by $59.0 million in the quarter to $1.25 billion, an annualized drop of 17.9%, and are down $142.9 million since December by our math.
Landmark said public fund balances dropped $61.7 million, but non-interest-bearing checking accounts also fell $15.8 million and money market and checking accounts dropped $27.1 million. Unlike the prior two quarters, the release did not disclose the growth rate of core deposits excluding brokered accounts. To plug the funding gap, the bank added $49.5 million in borrowings.
Replacing customer deposits with Federal Home Loan Bank (FHLB) advances hurts profitability because FHLB borrowings cost an average of 4.00% this quarter, more than triple the 1.29% average cost of deposits. That pushed the loan-to-deposit ratio up to 85.6% from 83.5% last quarter.
What to watch: the core deposit growth rate on Thursday's conference call and in the quarterly filing. If customer deposits excluding public and brokered funds shrank, the bank will have to keep relying on 4% wholesale debt.
Mortgage Sales Slowed and Operating Costs Rose
Over the past year, Landmark boosted its fee income by selling more newly originated home mortgages into the secondary market rather than keeping them on its balance sheet. In the third quarter, gains on loan sales dropped 47.8% from last quarter and 31.6% from a year ago to $648,000 "due to a decrease in the volume of loans sold in the secondary market".
At the same time, operating expenses rose 2.4% from last quarter to $12.3 million, or 4.8% by our math after stripping $270,000 of one-off legal and forensic fees out of the second quarter. Salaries and benefits climbed to 35.4% of total revenue, up 1.1 percentage points from last quarter on hiring for "strengthening our associate base and related benefits programs", pushing the efficiency ratio (operating expenses as a share of revenue, excluding one-offs) up to 63.0% from 61.7%.
What to watch: fourth-quarter gains on loan sales and compensation expense. A second quarter of loan-sale gains below $700,000 while new commercial hires add salary cost would keep the efficiency ratio above 63%.
Early Loan Delinquencies Rose as Credit Mixed
Landmark has focused on tightening its lending standards after troubled loans climbed in the first half of the year. This quarter showed a split reading across the stages of loan trouble: older problem loans stabilized, but early-stage late payments jumped to their highest level of the year.
- Loans 30 to 89 days past due: $8.3 million (0.77% of gross loans), up 32.5% from $6.3 million last quarter
- Non-accrual loans (loans no longer paying interest): $12.5 million, down 4.4% from $13.1 million last quarter
- Foreclosed real estate owned: $441,000, up from zero in each of the prior four quarters
- Allowance for credit losses: 1.19% of gross loans, up from 1.15% in June
The $572,000 drop in non-accrual loans came alongside a $441,000 addition to foreclosed real estate, so total non-performing assets barely moved at $12.9 million. Because early delinquencies feed non-accrual balances in later quarters, credit stress has not yet cleared.
What to watch: loans 30 to 89 days delinquent and non-accrual balances at year-end. A move in non-accrual loans back above $13.1 million would show the third-quarter delinquency jump turning into defaults.
Risks this quarter didn't answer
Three standing concerns from prior quarters received limited or no new detail in the earnings release, leaving their resolution to the conference call or the quarterly filing.
- Fraud controls and recoveries: professional fees fell after $270,000 of "one-time forensic accounting and legal costs related to previously disclosed fraudulent activity by a non-executive officer of the bank" in Q2, but other expenses rose on "higher deposit fraud losses, captive insurance losses and director compensation"; any insurance recovery or control update will appear in the 10-Q filing.
- Agricultural loan contraction: farm loans held flat from last quarter at $88.3 million, still down 11.6% from a year ago; the 10-Q credit tables will show whether agricultural non-accruals worsened.
- Mortgage banking profitability: the release gave no segment profit numbers even as loan-sale gains fell by nearly half; only management commentary on the call can clarify mortgage margins.
👓 Other Themes
Bond Portfolio Losses Reduced Book Value
Market interest rates moved against Landmark's $343.3 million available-for-sale bond portfolio during the third quarter. Unrealized bond losses in stockholders' equity widened by $10.9 million to $18.5 million, pulling tangible book value per share (net worth excluding goodwill and intangibles) down 5.0% from last quarter to $20.68 and lowering tangible common equity to 8.09% of tangible assets from 8.44%.
💲 Other KPIs
Total loans shrank by $22.2 million from last quarter and sit 3.5% below a year ago, the third quarterly drop in the past four quarters. Commercial real estate loans fell $12.5 million, residential mortgages dropped $10.6 million, and commercial loans declined $6.4 million, while construction and land loans rose $9.3 million.
Reported net earnings rose 11.0% from a year ago to $5.47 million, but most of that gain came from a lower provision for credit losses ($205,000 vs $850,000 a year ago, when the bank wrote off a single large commercial loan). Before credit provisions and taxes, operating profit rose 1.2% from a year ago and declined 3.1% from last quarter by our math.
Weighted average diluted shares rose 0.9% from a year ago and 0.2% from last quarter, adjusted for December's 5% stock dividend. The Kansas bank has not repurchased shares over the past two years, returning cash through its $0.21 quarterly dividend instead.
🔮 Guidance
Unchanged. Landmark paid $0.21 per share in the third quarter, matching the prior three quarters and up 5% from a year ago after adjusting for December's stock dividend. The company does not publish revenue, margin, or earnings forecasts in its earnings releases.
❓ Key Questions
How much did core customer deposits grow or shrink?
Total deposits fell $59.0 million, partly on a $61.7 million drop in public funds, and the release omitted the core deposit growth rate management highlighted in the prior two quarters.
What drove the 32% jump in early loan delinquencies?
Loans 30 to 89 days past due rose from $6.3 million to $8.3 million (0.77% of gross loans) even as non-accrual loans edged down, raising the risk of new defaults next quarter.
What caused the new deposit fraud losses in Q3?
Other operating expenses rose in part on higher deposit fraud losses just one quarter after the bank booked $270,000 in forensic fees for an internal employee fraud.
When will the loan portfolio stop shrinking?
Period-end gross loans fell $22.2 million in the quarter and are down $32.4 million since December, with commercial real estate, commercial, and residential balances all declining in Q3.