Landmark Bancorp (LARK) Q4 2025: Net Interest Margin Expands 58 bps as Deposit Costs Decline
Landmark Bancorp’s fourth quarter capped a year of double-digit revenue growth, margin expansion, and improved credit quality, driven by disciplined deposit pricing and a resilient Kansas economy. Strategic deposit management and proactive credit actions positioned the bank for continued growth and capital strength into 2026. Management signals ongoing investment in talent and technology, with a focus on sustaining positive operating leverage in a competitive regional banking landscape.
Summary
- Margin Expansion Outpaces Costs: Net interest margin improvement drove positive operating leverage and supported earnings growth.
- Credit Quality Strengthens: Non-performing loans declined as proactive risk management mitigated portfolio stress.
- Deposit Discipline Sets 2026 Foundation: Stable core funding and capital ratios enable continued investment and growth.
Performance Analysis
Landmark Bancorp delivered a robust Q4, with net income rising on the back of higher net interest income and controlled funding costs. Revenue growth was fueled by a 17% YoY increase, with net interest income expanding each quarter throughout 2025. The bank’s net interest margin (NIM, a key profitability measure for banks, representing the difference between interest income and interest expense as a percentage of earning assets) improved 58 basis points year-over-year to 3.86% for the full year, and 20 basis points sequentially to 4.03% in Q4, reflecting effective deposit pricing discipline and a favorable loan mix.
Loan growth for the year averaged 11.5%, ending at $1.1 billion, though balances dipped slightly in Q4 due to seasonal and portfolio mix shifts. Commercial real estate and agriculture lending remained growth pillars, offsetting softness in commercial and residential real estate. Deposit growth was notable, with balances up $63.4 million quarter-over-quarter, driven by core and public funds accounts, enabling a reduction in higher-cost borrowings and supporting liquidity. Non-interest expense rose due to compensation, professional fees, and asset impairments, but the efficiency ratio improved to 62.7%, underscoring the bank’s ability to generate revenue faster than expense growth.
- Deposit Cost Control: Average cost of deposits fell to 1.50% in Q4, underpinning margin gains.
- Credit Risk Moderates: Net charge-offs dropped sharply from Q3, and the allowance for credit losses remains robust at 1.12% of gross loans.
- Capital Strength: Tangible common equity to assets exceeded 8%, with book value per share up $4.09 YoY, reinforcing balance sheet resilience.
Strategic repositioning of the investment portfolio and strong capital ratios position Landmark to pursue further growth opportunities in 2026.
Executive Commentary
"Landmark's strong fourth quarter results capped off a year of outstanding revenue growth, increased profitability, pricing discipline, and per share increases in earnings and tangible book value."
Abby Wendell, President and Chief Executive Officer
"Net interest income totaled $14.8 million, an increase of $695,000 compared to the third quarter of 2025, driven by increased asset yields and lower funding costs."
Mark Herpich, Chief Financial Officer
Strategic Positioning
1. Deposit Franchise Strength and Pricing Discipline
Landmark’s core deposit base, characterized by a low average cost and a high proportion of non-interest-bearing accounts (26.3% of total deposits), provided a durable funding advantage. The bank’s ability to lower deposit costs while growing balances is central to its margin expansion story and supports both growth and risk management objectives.
2. Loan Portfolio Optimization and Credit Vigilance
Proactive management of credit risk, including the resolution of problem loans and targeted growth in commercial real estate and agriculture, has improved portfolio quality. Non-performing loans fell to 0.90% of gross loans, a 24% improvement YoY, and the allowance for credit losses is conservatively maintained. This positions Landmark to weather potential credit headwinds while supporting prudent loan growth.
3. Operating Leverage and Efficiency Gains
The bank’s 62.7% efficiency ratio improvement reflects management’s focus on scaling revenue faster than expenses, even as headcount and incentive compensation rose. Investments in technology and talent are being balanced with cost control, enabling margin improvement and supporting future scalability.
4. Balance Sheet and Capital Management
Deposit growth allowed Landmark to reduce $79.8 million in higher-cost borrowings, improving liquidity and lowering funding costs. Tangible common equity to assets above 8% and a 24% YoY increase in tangible book value per share highlight capital strength, supporting both dividend continuity and future growth investments.
Key Considerations
This quarter’s results reinforce Landmark’s core strengths in disciplined deposit management, credit risk mitigation, and operating leverage, but also spotlight areas for ongoing vigilance as the regional banking landscape evolves.
Key Considerations:
- Funding Cost Leadership: Sustaining low deposit costs will be critical as competition for core deposits intensifies in 2026.
- Credit Quality Watch: Continued reduction in non-performing loans and net charge-offs is positive, but sectoral risks in commercial real estate and agriculture require ongoing oversight.
- Expense Management vs. Growth: Rising compensation and professional fees reflect investment in capability, but maintaining efficiency gains will be key as the bank scales.
- Capital Deployment: Strong capital ratios provide flexibility for further loan growth, technology upgrades, or potential M&A, but prudent allocation remains essential amid market uncertainty.
Risks
Landmark faces risks from potential credit deterioration in commercial real estate and agriculture, especially if the regional economy weakens or asset values decline. Competition for core deposits could pressure funding costs, while higher professional and compensation expenses may challenge efficiency if not matched by continued revenue growth. Interest rate volatility and regulatory scrutiny remain ongoing external risks.
Forward Outlook
For Q1 2026, Landmark expects:
- Continued focus on disciplined deposit pricing and core funding growth
- Prudent loan growth in commercial real estate and agriculture, balanced with credit risk oversight
For full-year 2026, management maintained a cautious but constructive outlook:
- Emphasis on sustaining positive operating leverage and capital strength
Management highlighted several factors that will shape results:
- Market competition for deposits likely to remain intense
- Credit quality and sector exposures will be managed proactively
Takeaways
Landmark’s Q4 results underscore the value of a disciplined deposit franchise and proactive credit risk management, setting the stage for continued growth and capital strength in 2026.
- Margin and Efficiency Gains: Margin expansion and improved efficiency ratio are sustainable differentiators, provided cost discipline and deposit pricing leadership continue.
- Credit Risk Remains Central: While credit quality has improved, vigilance is warranted given sector concentrations and macro uncertainty.
- Growth and Capital Flexibility: Strong capital ratios and core funding provide optionality for growth investments or defensive actions as industry conditions evolve.
Conclusion
Landmark Bancorp’s 2025 close reflects a well-executed strategy of margin expansion, deposit discipline, and credit risk management. The bank enters 2026 with strong capital, a stable funding base, and clear priorities around growth, efficiency, and risk oversight.
Industry Read-Through
Landmark’s results highlight the strategic value of core deposit franchises for regional banks, as funding cost pressures and loan growth challenges remain central industry themes. Proactive credit risk management and efficiency improvements are increasingly vital as sectoral risks in commercial real estate and agriculture rise. Regional banks with capital strength and disciplined cost control are best positioned to navigate macro uncertainty and competitive funding dynamics in 2026.