LANDMARK BANCORP INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _ to _

Commission File Number 0-33203

LANDMARK BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware	43-1930755
(State
or other jurisdiction of incorporation
or organization)	(I.R.S.
Employer Identification
Number)

701 Poyntz Avenue , Manhattan , Kansas 66502

(Address of principal executive offices) (Zip code)

(785) 565-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

| Title
of each class: | Trading
Symbol(s) | Name
of exchange on which registered: |
| --- | --- | --- |
| Common
Stock, par value $0.01 per share | LARK | Nasdaq Global Market |

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: as August 12, 2024, the issuer had outstanding 5,502,408 shares of its common stock, $ 0.01 par value per share.

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LANDMARK BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

| | | Page
Number |
| --- | --- | --- |
| | PART I | |
| Item
1. | Financial Statements | 2
- 25 |
| Item
2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
| Item
3. | Quantitative and Qualitative Disclosures about Market Risk | 35
- 36 |
| Item
4. | Controls and Procedures | 36 |
| | PART II | |
| Item
1. | Legal Proceedings | 37 |
| Item
1A. | Risk Factors | 37 |
| Item
2. | Unregistered Sales of Equity Securities and Use of Proceeds | 37 |
| Item
3. | Defaults Upon Senior Securities | 37 |
| Item
4. | Mine Safety Disclosures | 37 |
| Item
5. | Other Information | 37 |
| Item
6. | Exhibits | 38 |
| | Signature Page | 39 |

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

| (Dollars
in thousands, except per share amounts) | June
30, — 2024 | 2023 | | |
| --- | --- | --- | --- | --- |
| | (Unaudited) | | | |
| Assets | | | | |
| Cash
and cash equivalents | $ 23,889 | $ | 27,101 | |
| Interest-bearing
deposits at other banks | 4,881 | | 4,918 | |
| Investment
securities available-for-sale, at fair value | 420,459 | | 452,769 | |
| Investment
securities, held-to-maturity, net of allowance for credit losses of $ 91 and $ 91 , fair value of $ 3,128 and $ 3,049 | 3,613 | | 3,555 | |
| Bank
stocks, at cost | 9,647 | | 8,123 | |
| Loans,
net of allowance for credit losses of $ 10,903 and $ 10,608 | 969,089 | | 937,619 | |
| Loans
held for sale, at fair value | 2,513 | | 853 | |
| Bank
owned life insurance | 38,826 | | 38,333 | |
| Premises
and equipment, net | 20,986 | | 19,709 | |
| Goodwill | 32,377 | | 32,377 | |
| Other
intangible assets, net | 2,900 | | 3,241 | |
| Mortgage
servicing rights | 2,997 | | 3,158 | |
| Real
estate owned, net | 428 | | 928 | |
| Accrued
interest and other assets | 28,149 | | 28,988 | |
| Total
assets | $ 1,560,754 | $ | 1,561,672 | |
| Liabilities
and Stockholders’ Equity | | | | |
| Liabilities: | | | | |
| Deposits: | | | | |
| Non-interest-bearing
demand | $ 360,631 | $ | 367,103 | |
| Money
market and checking | 546,385 | | 613,613 | |
| Savings | 150,996 | | 152,381 | |
| Certificates
of deposit | 192,470 | | 183,154 | |
| Total
deposits | 1,250,482 | | 1,316,251 | |
| Federal
Home Loan Bank and other borrowings | 131,330 | | 64,662 | |
| Subordinated
debentures | 21,651 | | 21,651 | |
| Repurchase
agreements | 8,745 | | 12,714 | |
| Accrued
interest and other liabilities | 20,292 | | 19,480 | |
| Total
liabilities | 1,432,500 | | 1,434,758 | |
| Commitments
and contingencies | - | | - | |
| Stockholders’
equity: | | | | |
| Preferred
stock, $ 0.01 par value per share, 200,000 shares authorized; none issued | - | | - | |
| Common
stock, $ 0.01 par value per share, 7,500,000 shares authorized; 5,486,407 and 5,481,407 shares issued at June 30, 2024 and December
31, 2023, respectively | 55 | | 55 | |
| Additional
paid-in capital | 89,469 | | 89,208 | |
| Retained
earnings | 57,774 | | 54,282 | |
| Treasury
stock, at cost; 16,841 and 3,812 shares at June 30, 2024 and December 31, 2023, respectively | ( 330 | ) | ( 75 | ) |
| Accumulated
other comprehensive loss | ( 18,714 | ) | ( 16,556 | ) |
| Total
stockholders’ equity | 128,254 | | 126,914 | |
| Total
liabilities and stockholders’ equity | $ 1,560,754 | $ | 1,561,672 | |

See accompanying notes to consolidated financial statements.

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LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

	2024	2023	2024	2023
	Three
months ended		Six
months ended
(Dollars
in thousands, except per share amounts)	June
30,		June
30,
	2024	2023	2024	2023
Interest
income:
Loans	$ 15,022	$ 12,623	$ 29,512	$ 23,999
Investment
securities:
Taxable	2,359	2,379	4,787	4,696
Tax-exempt	759	775	1,523	1,561
Interest-bearing
deposits at banks	40	49	103	147
Total
interest income	18,180	15,826	35,925	30,403
Interest
expense:
Deposits	5,673	3,452	11,130	5,991
Federal
Home Loan Bank and other borrowings	1,027	1,027	2,049	1,594
Subordinated
debentures	418	387	830	751
Repurchase
agreements	88	127	195	287
Total
interest expense	7,206	4,993	14,204	8,623
Net
interest income	10,974	10,833	21,721	21,780
Provision
for credit losses	-	250	300	299
Net
interest income after provision for credit losses	10,974	10,583	21,421	21,481
Non-interest
income:
Fees
and service charges	2,691	2,481	5,152	4,839
Gains
on sales of loans, net	648	830	1,160	1,523
Increase
in cash surrender value of bank owned life insurance	248	223	493	441
Other	133	295	315	521
Total
non-interest income	3,720	3,829	7,120	7,324
Non-interest
expense:
Compensation
and benefits	5,504	5,572	11,036	11,114
Occupancy
and equipment	1,294	1,394	2,684	2,763
Data
processing	492	431	973	1,020
Amortization
of mortgage servicing rights and other intangibles	256	472	668	933
Professional
fees	649	607	1,296	1,098
Other	2,900	1,873	4,989	3,764
Total
non-interest expense	11,095	10,349	21,646	20,692
Earnings
before income taxes	3,599	4,063	6,895	8,113
Income
tax expense	587	701	1,105	1,394
Net
earnings	$ 3,012	$ 3,362	$ 5,790	$ 6,719
Earnings
per share:
Basic
(1)	$ 0.55	$ 0.61	$ 1.06	$ 1.23
Diluted
(1)	$ 0.55	$ 0.61	$ 1.06	$ 1.23
Dividends
per share (1)	$ 0.21	$ 0.20	$ 0.42	$ 0.40

(1) Per share amounts for the periods ended June 30, 2023 have been adjusted to give effect to the 5 % stock dividend paid during 2023.

See accompanying notes to consolidated financial statements.

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LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	2024
	Three
months ended			Six
months ended
(Dollars
in thousands)	June
30,			June
30,
	2024	2023		2024		2023
Net
earnings	$ 3,012	$	3,362	$	5,790	$	6,719
Other
comprehensive income:
Net
unrealized holding (losses) gains on available-for-sale securities	( 402	)	( 3,568	)	( 2,859	)	3,171
Income
tax effect on net losses included in earnings	-		-		-		-
Income
tax effect on net unrealized holding losses (gains)	99		874		701		( 777	)
Other
comprehensive (loss) gains	( 303	)	( 2,694	)	( 2,158	)	2,394
Total
comprehensive income	$ 2,709	$	668	$	3,632	$	9,113

See accompanying notes to consolidated financial statements.

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LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

| (Dollars
in thousands, except per share amounts) — Balance
at April 1, 2023 | Common
stock — $ 52 | Additional
paid-in capital — $ 84,413 | Retained
earnings — $ 53,231 | $ | - | | Accumulated
other comprehensive income (loss) — $ ( 19,978 | ) | Total — $ 117,718 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Net
earnings | - | - | 3,362 | | - | | - | | 3,362 | |
| Other
comprehensive income (loss) | - | - | - | | - | | ( 2,694 | ) | ( 2,694 | ) |
| Dividends
paid ($ 0.20 per
share) (1) | - | - | ( 1,095 | ) | - | | - | | ( 1,095 | ) |
| Stock-based
compensation | - | 62 | - | | - | | - | | 62 | |
| Balance
at June 30, 2023 | $ 52 | $ 84,475 | $ 55,498 | $ | - | | $ ( 22,672 | ) | $ 117,353 | |
| Balance
at April 1, 2024 | $ 55 | $ 89,364 | $ 55,912 | $ | ( 249 | ) | $ ( 18,411 | ) | $ 126,671 | |
| Net
earnings | - | - | 3,012 | | - | | - | | 3,012 | |
| Other
comprehensive income (loss) | - | - | - | | - | | ( 303 | ) | ( 303 | ) |
| Dividends
paid ($ 0.21 per share) | - | - | ( 1,150 | ) | - | | - | | ( 1,150 | ) |
| Issuance
of restricted common stock, 5,000 shares | - | - | - | | - | | - | | - | |
| Stock-based
compensation | - | 105 | - | | - | | - | | 105 | |
| Purchase
of 4,301 shares treasury stock | - | - | - | | ( 81 | ) | - | | ( 81 | ) |
| Balance
at June 30, 2024 | $ 55 | $ 89,469 | $ 57,774 | $ | ( 330 | ) | $ ( 18,714 | ) | $ 128,254 | |

(1) Dividends per share have been adjusted to give effect to the 5 % stock dividend paid during December 2023.

| (Dollars
in thousands, except per share amounts) — Balance
at December 31, 2022 | Common
stock — $ 52 | Additional
paid-in capital — $ 84,273 | Retained
earnings — $ 52,174 | $ | - | | Accumulated
other comprehensive income (loss) — $ ( 25,066 | ) | Total — $ 111,433 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Cumulative
effect of change in accounting | | | | | | | | | | |
| principle
from implementation of ASU 2016-3 | - | - | ( 1,204 | ) | - | | - | | ( 1,204 | ) |
| Cumulative effect of change in accounting principle from implementation of ASU 2016-3 | - | - | ( 1,204 | ) | - | | - | | ( 1,204 | ) |
| Balance
at January 1, 2023 | $ 52 | $ 84,273 | $ 50,970 | $ | - | | $ ( 25,066 | ) | $ 110,229 | |
| Net
earnings | - | - | 6,719 | | - | | - | | 6,719 | |
| Other
comprehensive income (loss) | - | - | - | | - | | 2,394 | | 2,394 | |
| Dividends
paid ($ 0.40 per share) (1) | - | - | ( 2,191 | ) | - | | - | | ( 2,191 | ) |
| Stock-based
compensation | - | 150 | - | | - | | - | | 150 | |
| Exercise
of stock options, 2,693 shares | - | 52 | - | | - | | - | | 52 | |
| Balance
at June 30, 2023 | $ 52 | $ 84,475 | $ 55,498 | $ | - | | $ ( 22,672 | ) | $ 117,353 | |
| Balance
at January 1, 2024 | $ 55 | $ 89,208 | $ 54,282 | $ | ( 75 | ) | $ ( 16,556 | ) | $ 126,914 | |
| Net
earnings | - | - | 5,790 | | - | | - | | 5,790 | |
| Other
comprehensive income (loss) | - | - | - | | - | | ( 2,158 | ) | ( 2,158 | ) |
| Dividends
paid ($ 0.42 per share) | - | - | ( 2,298 | ) | - | | - | | ( 2,298 | ) |
| Dividends
paid | - | - | ( 2,298 | ) | | | - | | ( 2,298 | ) |
| Issuance
of restricted common stock, 5,000 shares | - | - | - | | - | | - | | - | |
| Issuance
of restricted common stock, shares | - | | - | | - | | - | | - | |
| Stock-based
compensation | - | 261 | - | | - | | - | | 261 | |
| Purchase
of 13,029 shares treasury stock | - | - | - | | ( 255 | ) | - | | ( 255 | ) |
| Purchase
of shares treasury stock | - | - | - | | ( 255 | ) | - | | ( 255 | ) |
| Balance
at June 30, 2024 | $ 55 | $ 89,469 | $ 57,774 | $ | ( 330 | ) | $ ( 18,714 | ) | $ 128,254 | |

(1) Dividends per share have been adjusted to give effect to the 5 % stock dividend paid during December 2023.

See Notes to Consolidate Financial Statements

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LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

| Cash
flows from operating activities: | 2024 | | | |
| --- | --- | --- | --- | --- |
| | Six
months ended | | | |
| (Dollars
in thousands) | June
30, | | | |
| Cash
flows from operating activities: | 2024 | 2023 | | |
| Net
earnings | $ 5,790 | $ | 6,719 | |
| Adjustments
to reconcile net earnings to net cash provided by operating activities: | | | | |
| Provision
for credit losses | 300 | | 299 | |
| Valuation
allowance on real estate owned | 1,081 | | - | |
| Amortization
of investment security premiums, net | 51 | | 171 | |
| Accretion
of purchase accounting adjustments | ( 483 | ) | ( 439 | ) |
| Amortization
of mortgage servicing rights and other intangibles | 668 | | 933 | |
| Depreciation | 647 | | 617 | |
| Increase
in cash surrender value of bank owned life insurance | ( 493 | ) | ( 441 | ) |
| Stock-based
compensation | 261 | | 150 | |
| Deferred
income taxes | ( 377 | ) | 384 | |
| Net
loss on sales of premises and equipment and foreclosed assets | 9 | | - | |
| Net
gains on sales of loans | ( 1,160 | ) | ( 1,523 | ) |
| Proceeds
from sales of loans | 43,443 | | 44,686 | |
| Origination
of loans held for sale | ( 44,109 | ) | ( 44,815 | ) |
| Changes
in assets and liabilities: | | | | |
| Accrued
interest and other assets | 836 | | 170 | |
| Accrued
expenses, taxes, and other liabilities | 762 | | ( 1,675 | ) |
| Net
cash provided by operating activities | 7,226 | | 5,236 | |
| Cash
flows from investing activities: | | | | |
| Net
increase in loans | ( 31,295 | ) | ( 42,786 | ) |
| Net
change in interest-bearing deposits at banks | 37 | | 738 | |
| Maturities
and prepayments of investment securities | 32,058 | | 26,110 | |
| Purchases
of investment securities | ( 2,658 | ) | ( 18,172 | ) |
| Redemption
of bank stocks | 8,390 | | 4,008 | |
| Purchase
of bank stocks | ( 9,914 | ) | ( 7,983 | ) |
| Proceeds
from sales of premises and equipment and foreclosed assets | 491 | | - | |
| Purchases
of premises and equipment, net | ( 1,924 | ) | ( 317 | ) |
| Net
cash used in investing activities | ( 4,815 | ) | ( 38,402 | ) |
| Cash
flows from financing activities: | | | | |
| Net
decrease in deposits | ( 65,769 | ) | ( 19,689 | ) |
| Federal
Home Loan Bank advance borrowings | 430,305 | | 392,214 | |
| Federal
Home Loan Bank advance repayments | ( 362,972 | ) | ( 324,229 | ) |
| Proceeds
from other borrowings | 360 | | - | |
| Repayments
on other borrowings | ( 1,025 | ) | ( 666 | ) |
| Change
in repurchase agreements | ( 3,969 | ) | ( 15,443 | ) |
| Proceeds
from exercise of stock options | - | | 52 | |
| Payment
of dividends | ( 2,298 | ) | ( 2,191 | ) |
| Purchase
of treasury stock | ( 255 | ) | - | |
| Net
cash (used in) provided by financing activities | ( 5,623 | ) | 30,048 | |
| Net
(decrease) increase in cash and cash equivalents | ( 3,212 | ) | ( 3,118 | ) |
| Cash
and cash equivalents at beginning of period | 27,101 | | 23,156 | |
| Cash
and cash equivalents at end of period | $ 23,889 | $ | 20,038 | |

(Continued)

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LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(Unaudited)

| (Dollars
in thousands) | Six
months ended — June
30, | |
| --- | --- | --- |
| | 2024 | 2023 |
| Supplemental
disclosure of cash flow information: | | |
| Cash
paid for interest | 13,953 | 7,849 |
| Cash
paid for operating leases | 86 | 85 |

See accompanying notes to consolidated financial statements.

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LANDMARK BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Interim Financial Statements

The unaudited consolidated financial statements of Landmark Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, Landmark National Bank (the “Bank”) and Landmark Risk Management Inc., have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 27, 2024, containing the latest audited consolidated financial statements and notes thereto. The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of financial statements have been reflected herein. The results of the three and six month interim period ended June 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024 or any other future time period. The Company has evaluated subsequent events for recognition and disclosure up to the date the financial statements were issued.

2. Investments

A summary of the Company’s investment securities classified as available-for-sale and held-to-maturity as of June 30, 2024 and December 31, 2023 is as follows:

| (Dollars
in thousands) | As
of June 30, 2024 | | | | |
| --- | --- | --- | --- | --- | --- |
| | | Gross | Gross | | |
| | Amortized | unrealized | unrealized | | Estimated |
| | cost | gains | losses | | fair
value |
| Available-for-sale: | | | | | |
| U.
S. treasury securities | $ 92,783 | $ - | $ ( 3,458 | ) | $ 89,325 |
| Municipal
obligations, tax exempt | 118,678 | 41 | ( 4,672 | ) | 114,047 |
| Municipal
obligations, taxable | 78,557 | 198 | ( 4,167 | ) | 74,588 |
| Agency
mortgage-backed securities | 155,228 | 48 | ( 12,777 | ) | 142,499 |
| Total
available-for-sale | $ 445,246 | $ 287 | $ ( 25,074 | ) | $ 420,459 |
| Held-to-maturity: | | | | | |
| Other | $ 3,613 | $ - | $ ( 485 | ) | $ 3,128 |
| Total
held-to-maturity | $ 3,613 | $ - | $ ( 485 | ) | $ 3,128 |

| | As
of December 31, 2023 | | | | |
| --- | --- | --- | --- | --- | --- |
| | | Gross | Gross | | |
| | Amortized | unrealized | unrealized | | Estimated |
| | cost | gains | losses | | fair
value |
| Available-for-sale: | | | | | |
| U.
S. treasury securities | $ 99,340 | $ - | $ ( 3,673 | ) | $ 95,667 |
| Municipal
obligations, tax exempt | 122,775 | 186 | ( 2,338 | ) | 120,623 |
| Municipal
obligations, taxable | 82,926 | 225 | ( 4,068 | ) | 79,083 |
| Agency
mortgage-backed securities | 169,656 | 247 | ( 12,507 | ) | 157,396 |
| Total
available-for-sale | $ 474,697 | $ 658 | $ ( 22,586 | ) | $ 452,769 |
| Held-to-maturity: | | | | | |
| Other | $ 3,555 | $ - | $ ( 506 | ) | $ 3,049 |
| Total
held-to-maturity | $ 3,555 | $ - | $ ( 506 | ) | $ 3,049 |

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The amortized cost of the above held-to-maturity investment securities has been further reduced by the allowance for credit losses of $ 91,000 at June 30, 2024 and December 31, 2023.

The tables above show that some of the securities in the Company’s available-for-sale and held-to-maturity investment portfolios had unrealized losses, or were temporarily impaired, as of both June 30, 2024 and December 31, 2023. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date.

The following table summarizes available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded at June 30, 2024 and December 31, 2023 along with the length of time in a continuous loss position:

| | | As
of June 30, 2024 | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Dollars
in thousands) | | Less
than 12 months | | | 12
months or longer | | | Total | | |
| No.
of | | Fair | Unrealized | | Fair | Unrealized | | Fair | Unrealized | |
| securities | | value | losses | | value | losses | | value | losses | |
| Available-for-sale: | | | | | | | | | | |
| U.S.
treasury securities | 48 | $ 2,806 | $ ( 13 | ) | $ 84,219 | $ ( 3,445 | ) | $ 87,025 | $ ( 3,458 | ) |
| Municipal
obligations, tax exempt | 272 | 23,719 | ( 524 | ) | 87,853 | ( 4,148 | ) | 111,572 | ( 4,672 | ) |
| Municipal
obligations, taxable | 107 | 3,489 | ( 31 | ) | 62,549 | ( 4,136 | ) | 66,038 | ( 4,167 | ) |
| Agency
mortgage-backed securities | 103 | 12,124 | ( 43 | ) | 122,213 | ( 12,734 | ) | 134,337 | ( 12,777 | ) |
| Total
for available-for-sale | 530 | $ 42,138 | $ ( 611 | ) | $ 356,834 | $ ( 24,463 | ) | $ 398,972 | $ ( 25,074 | ) |

| | | As
of December 31, 2023 | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | Less
than 12 months | | | 12
months or longer | | | Total | | |
| No.
of | | Fair | Unrealized | | Fair | Unrealized | | Fair | Unrealized | |
| securities | | value | losses | | value | losses | | value | losses | |
| Available-for-sale: | | | | | | | | | | |
| U.S.
treasury securities | 47 | $ 1,129 | $ ( 7 | ) | $ 93,833 | $ ( 3,666 | ) | $ 94,962 | $ ( 3,673 | ) |
| Municipal
obligations, tax exempt | 229 | 31,468 | ( 337 | ) | 64,962 | ( 2,001 | ) | 96,430 | ( 2,338 | ) |
| Municipal
obligations, taxable | 110 | 17,278 | ( 151 | ) | 52,212 | ( 3,917 | ) | 69,490 | ( 4,068 | ) |
| Agency
mortgage-backed securities | 100 | 6,480 | ( 68 | ) | 128,512 | ( 12,439 | ) | 134,992 | ( 12,507 | ) |
| Total
for available-for-sale | 486 | 56,355 | ( 563 | ) | 339,519 | ( 22,023 | ) | 395,874 | ( 22,586 | ) |

The Company’s U.S. treasury portfolio consists of securities issued by the United States Department of the Treasury (“U.S. treasury”). The receipt of principal and interest on U.S. treasury securities is guaranteed by the full faith and credit of the U.S. government. Based on these factors, along with the Company’s intent to not sell the securities and its belief that it was more likely than not that the Company will not be required to sell the securities before recovery of its cost basis, the Company believed that the U.S. treasury securities identified in the table above were temporarily impaired as of June 30, 2024 and December 31, 2023.

The Company’s portfolio of municipal obligations consists of both tax-exempt and taxable general obligations securities issued by various municipalities. As of June 30, 2024, the Company did not intend to sell and it was more likely than not that the Company would not be required to sell its municipal obligations in an unrealized loss position until the recovery of its cost basis. Due to the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms and the expectation that they will continue to do so, the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, the Company believed that the municipal obligations identified in the tables above were temporarily impaired as of June 30, 2024 and December 31, 2023.

The Company’s agency mortgage-backed securities portfolio consists of securities underwritten to the standards of and guaranteed by the government-sponsored agencies of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and the Government National Mortgage Association. The receipt of principal, at par, and interest on agency mortgage-backed securities is guaranteed by the respective government-sponsored agency guarantor, such that the Company believed that its agency mortgage-backed securities did not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and the Company’s belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the agency mortgage-backed securities identified in the table above were temporarily impaired as of June 30, 2024 and December 31, 2023.

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The Company’s other investment securities portfolio consists of seven subordinated debentures issued by financial institutions. These investment securities were acquired in the Freedom Bank acquisition in 2022 and classified as held-to-maturity. The securities were issued in 2021 and 2022 with a 10 year maturity and a fixed rate for five years. The securities are callable after the end of the fixed rate term. The following table provides information regarding the Company’s allowance for credit losses related to held-to-maturity investment securities:

| (Dollars
in thousands) | 2024 | 2023 |
| --- | --- | --- |
| | Six months ended | |
| | June
30, | |
| (Dollars
in thousands) | 2024 | 2023 |
| Balance at
January 1, | $ 91 | $ - |
| Balance | $ 91 | $ - |
| Impact
of adopting ASC 326 | - | 72 |
| Provision
for credit losses | - | 19 |
| Balance
at June 30, | $ 91 | $ 91 |
| Balance | $ 91 | $ 91 |

The table below sets forth the amortized cost and fair value of investment securities at June 30, 2024. The table includes scheduled principal payments and estimated prepayments, based on observable market inputs, for agency mortgage-backed securities. Actual maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

| (Dollars
in thousands) | Amortized | Estimated |
| --- | --- | --- |
| | cost | fair
value |
| Available-for-sale: | | |
| Due
in less than one year | $ 47,090 | $ 46,396 |
| Due
after one year but within five years | 237,018 | 223,301 |
| Due
after five years but within ten years | 117,862 | 109,476 |
| Due
after ten years | 43,276 | 41,286 |
| Total
available-for-sale | $ 445,246 | $ 420,459 |
| Held-to-maturity: | | |
| Due
after one year but within five years | 3,613 | 3,128 |
| Total
held-to-maturity | $ 3,613 | $ 3,128 |

The Company did not record any sales of available-for-sale securities during the six months ended June 30, 2024 or 2023.

Securities with carrying values of $ 354.8 million and $ 380.4 million were pledged to secure public funds on deposit, repurchase agreements and as collateral for borrowings at June 30, 2024 and December 31, 2023, respectively. Except for U.S. federal agency obligations, no investment in a single issuer exceeded 10 % of consolidated stockholders’ equity.

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3. Loans and Allowance for Credit Losses

Loans consisted of the following as of the dates indicated below:

| (Dollars
in thousands) | June 30, — 2024 | 2023 | | |
| --- | --- | --- | --- | --- |
| One-to-four
family residential real estate loans | $ 332,090 | $ | 302,544 | |
| Construction
and land loans | 30,480 | | 21,090 | |
| Commercial
real estate loans | 318,850 | | 320,962 | |
| Commercial
loans | 178,876 | | 180,942 | |
| Agriculture
loans | 84,523 | | 89,680 | |
| Municipal
loans | 6,556 | | 4,507 | |
| Consumer
loans | 29,200 | | 28,931 | |
| Total
gross loans | 980,575 | | 948,656 | |
| Net deferred
loan fees and loans in process | ( 583 | ) | ( 429 | ) |
| Allowance
for credit losses | ( 10,903 | ) | ( 10,608 | ) |
| Loans,
net | $ 969,089 | $ | 937,619 | |

The following tables provide information on the Company’s allowance for credit losses by loan class and allowance methodology:

| (Dollars in thousands) | One-to-four
family residential real estate loans | | | | | | | | | | | Consumer
loans | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Three
and six months and six months ended June 30, 2024 | | | | | | | | | | | | | | |
| (Dollars in thousands) | One-to-four
family residential real estate loans | Construction
and land loans | | Commercial
real estate loans | | Commercial
loans | | Agriculture
loans | | Municipal
loans | | Consumer
loans | Total | | |
| Allowance for credit losses: | | | | | | | | | | | | | | | |
| Balance at April
1, 2024 | $ 2,086 | $ | 174 | $ | 4,530 | $ | 2,651 | $ | 1,144 | $ | 50 | $ 216 | $ | 10,851 | |
| Impact
of adopting ASC 326 | | | | | | | | | | | | | | | |
| Charge-offs | - | | - | | - | | ( 13 | ) | - | | - | ( 106 | ) | ( 119 | ) |
| Recoveries | - | | 120 | | - | | 9 | | - | | 5 | 37 | | 171 | |
| Provision
for credit losses | ( 66 | ) | ( 74 | ) | ( 15 | ) | 131 | | ( 26 | ) | - | 50 | | - | |
| Balance at June 30, 2024 | $ 2,020 | $ | 220 | $ | 4,515 | $ | 2,778 | $ | 1,118 | $ | 55 | $ 197 | $ | 10,903 | |
| Allowance for credit losses: | | | | | | | | | | | | | | | |
| Balance at January 1, 2024 | $ 2,035 | $ | 150 | $ | 4,518 | $ | 2,486 | $ | 1,190 | $ | 15 | $ 214 | $ | 10,608 | |
| Charge-offs | - | | - | | - | | ( 83 | ) | - | | - | ( 177 | ) | ( 260 | ) |
| Recoveries | - | | 200 | | - | | 20 | | - | | 12 | 73 | | 305 | |
| Provision
for credit losses | ( 15 | ) | ( 130 | ) | ( 3 | ) | 355 | | ( 72 | ) | 28 | 87 | | 250 | |
| Balance at June 30, 2024 | $ 2,020 | $ | 220 | $ | 4,515 | $ | 2,778 | $ | 1,118 | $ | 55 | $ 197 | $ | 10,903 | |

| (Dollars in thousands) | One-to-four
family residential real estate loans | Construction
and land loans | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Three
and six months ended June 30, 2023 | | | | | | | | | | | | | | |
| (Dollars in thousands) | One-to-four
family residential real estate loans | Construction
and land loans | Commercial
real estate loans | | Commercial
loans | | Agriculture
loans | | Municipal
loans | | Consumer
loans | | Total | | |
| Allowance for credit losses: | | | | | | | | | | | | | | | |
| Balance at April
1, 2023 | $ 1,757 | $ 170 | $ | 4,438 | $ | 2,614 | $ | 1,059 | $ | 17 | $ | 212 | $ | 10,267 | |
| Charge-offs | - | - | | - | | ( 90 | ) | - | | - | | ( 68 | ) | ( 158 | ) |
| Recoveries | - | - | | - | | 10 | | 57 | | - | | 23 | | 90 | |
| Provision
for credit losses | 95 | ( 9 | ) | ( 65 | ) | 176 | | 18 | | ( 1 | ) | 36 | | 250 | |
| Balance at June 30, 2023 | $ 1,852 | $ 161 | $ | 4,373 | $ | 2,710 | $ | 1,134 | $ | 16 | $ | 203 | $ | 10,449 | |
| Allowance for credit losses: | | | | | | | | | | | | | | | |
| Balance at January 1, 2023 | $ 655 | $ 117 | $ | 3,158 | $ | 2,753 | $ | 1,966 | $ | 5 | $ | 137 | $ | 8,791 | |
| Balance | $ 655 | $ 117 | $ | 3,158 | $ | 2,753 | $ | 1,966 | $ | 5 | $ | 137 | $ | 8,791 | |
| Impact
of adopting ASC 326 | 1,022 | 49 | | 1,063 | | 145 | | ( 824 | ) | 11 | | 57 | | 1,523 | |
| Charge-offs | - | - | | - | | ( 107 | ) | - | | - | | ( 159 | ) | ( 266 | ) |
| Recoveries | - | - | | - | | 19 | | 73 | | - | | 59 | | 151 | |
| Provision
for credit losses | 175 | ( 5 | ) | 152 | | ( 100 | ) | ( 81 | ) | - | | 109 | | 250 | |
| Balance at June 30, 2023 | $ 1,852 | $ 161 | $ | 4,373 | $ | 2,710 | $ | 1,134 | $ | 16 | $ | 203 | $ | 10,449 | |
| Balance | $ 1,852 | $ 161 | $ | 4,373 | $ | 2,710 | $ | 1,134 | $ | 16 | $ | 203 | $ | 10,449 | |

The Company recorded net loan recoveries of $ 52,000 during the second quarter of 2024, compared to net loan charge-offs of $ 68,000 during the second quarter of 2023. The Company recorded net loan recoveries of $ 45,000 during the six months ended June 30, 2024, compared to net loan charge-offs of $ 115,000 during the six months ended June 30, 2023.

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The following table presents information regarding non-accrual and loans past due over 89 days and still accruing as of the dates indicated:

| | Non-accrual
with no allowance for credit loss | Non-accrual
with allowance for credit losses | Loans
past due over 89 days still accruing |
| --- | --- | --- | --- |
| (Dollars in thousands) | As
of June 30, 2024 | | |
| | Non-accrual
with no allowance for credit loss | Non-accrual
with allowance for credit losses | Loans
past due over 89 days still accruing |
| Commercial real
estate loans | $ 701 | $ - | $ - |
| Commercial loans | 339 | 2,919 | - |
| Agriculture loans | 1,023 | - | - |
| Consumer loans | 25 | - | - |
| Total
loans | $ 2,088 | $ 2,919 | $ - |

| | Non-accrual
with no allowance for credit loss | Non-accrual
with allowance for credit losses | Loans
past due over 89 days still accruing |
| --- | --- | --- | --- |
| (Dollars
in thousands) | As
of December 31, 2023 | | |
| | Non-accrual
with no allowance for credit loss | Non-accrual
with allowance for credit losses | Loans
past due over 89 days still accruing |
| One-to-four family
residential real estate loans | $ 161 | $ 31 | $ - |
| Commercial loans | 363 | 1,517 | - |
| Agriculture loans | 295 | - | - |
| Consumer loans | 24 | - | - |
| Total loans | $ 843 | $ 1,548 | $ - |

The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following table presents information regarding the amortized cost basis and collateral type of collateral-dependent loans as of the dates indicated:

| (Dollars
in thousands) | As
of June 30, 2024 | |
| --- | --- | --- |
| | Loan
balance | Collateral
Type |
| One-to-four family residential
real estate loans | $ - | First mortgage on residential
real estate |
| Construction and
land loans | $ 190 | First mortgage
on residential or commercial real estate |
| Commercial real estate loans | 1,893 | First mortgage on commercial
real estate |
| Commercial loans | 3,424 | Accounts receivable, equipment
and real estate |
| Agriculture loans | 1,468 | Crops, livestock, machinery
and real estate |
| Consumer loans | 25 | Personal property or second
mortgages on real estate |
| Total
loans | $ 7,000 | |

| (Dollars
in thousands) | As
of December 31, 2023 | |
| --- | --- | --- |
| | Loan
balance | Collateral
Type |
| One-to-four family
residential real estate loans | $ 192 | First mortgage
on residential real estate |
| Construction and land loans | 192 | First mortgage on residential
or commercial real estate |
| Commercial real estate loans | 1,205 | First mortgage on commercial
real estate |
| Commercial loans | 2,054 | Accounts receivable, equipment
and real estate |
| Agriculture loans | 682 | Crops, livestock, machinery
and real estate |
| Consumer loans | 24 | Personal property or second
mortgages on real estate |
| Total
loans | $ 4,349 | |

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The Company’s key credit quality indicator is a loan’s performance status, defined as accruing or non-accruing. Performing loans are considered to have a lower risk of loss. Non-accrual loans are those which the Company believes have a higher risk of loss. The accrual of interest on non-performing loans is discontinued at the time the loan is 90 days delinquent, unless the credit is well secured and in process of collection. Loans are placed on non-accrual or are charged off at an earlier date if collection of principal or interest is considered doubtful. There were no loans 90 days or more delinquent and accruing interest at either June 30, 2024 or December 31, 2023.

The following tables present information regarding the Company’s past due and non-accrual loans by loan class, as of the dates indicated:

| | 30-59
days delinquent and accruing | 60-89
days delinquent and accruing | 90
days or more delinquent and accruing | Total
past due loans accruing | Non-accrual
loans | Total
past due and non-accrual loans | Total
loans not past due |
| --- | --- | --- | --- | --- | --- | --- | --- |
| (Dollars
in thousands) | As
of June 30, 2024 | | | | | | |
| | 30-59
days delinquent and accruing | 60-89
days delinquent and accruing | 90
days or more delinquent and accruing | Total
past due loans accruing | Non-accrual
loans | Total
past due and non-accrual loans | Total
loans not past due |
| One-to-four family
residential real estate loans | $ 19 | $ 162 | $ - | $ 181 | $ - | $ 181 | $ 331,909 |
| Construction and land loans | - | - | - | - | - | - | 30,480 |
| Commercial real estate loans | 34 | 671 | - | 705 | 701 | 1,406 | 317,444 |
| Commercial loans | 58 | 58 | - | 116 | 3,258 | 3,374 | 175,502 |
| Agriculture loans | 535 | 234 | - | 769 | 1,023 | 1,792 | 82,731 |
| Municipal loans | - | - | - | - | - | - | 6,556 |
| Consumer loans | 52 | 49 | - | 101 | 25 | 126 | 29,074 |
| Total | $ 698 | $ 1,174 | $ - | $ 1,872 | $ 5,007 | $ 6,879 | $ 973,696 |
| Percent of gross loans | 0.07 % | 0.12 % | 0.00 % | 0.19 % | 0.51 % | 0.70 % | 99.30 % |

| (Dollars
in thousands) | As
of December 31, 2023 — 30-59
days delinquent and accruing | 60-89
days delinquent and accruing | 90
days or more delinquent and accruing | Total
past due loans accruing | Non-accrual
loans | Total
past due and non-accrual loans | Total
loans not past due |
| --- | --- | --- | --- | --- | --- | --- | --- |
| One-to-four family
residential real estate loans | $ 85 | $ 247 | $ - | $ 332 | $ 192 | $ 524 | $ 302,020 |
| Construction and land loans | - | - | - | - | - | - | 21,090 |
| Commercial real estate loans | 153 | - | - | 153 | - | 153 | 320,809 |
| Commercial loans | 399 | 332 | - | 731 | 1,880 | 2,611 | 178,331 |
| Agriculture loans | 256 | - | - | 256 | 295 | 551 | 89,129 |
| Municipal loans | - | - | - | - | - | - | 4,507 |
| Consumer loans | 110 | - | - | 110 | 24 | 134 | 28,797 |
| Total | $ 1,003 | $ 579 | $ - | $ 1,582 | $ 2,391 | $ 3,973 | $ 944,683 |
| Percent of gross loans | 0.11 % | 0.06 % | 0.00 % | 0.17 % | 0.25 % | 0.42 % | 99.58 % |

Under the original terms of the Company’s non-accrual loans, interest earned on such loans for the six months ended June 30, 2024 and 2023 would have increased interest income by $ 138,000 and $ 280,000 , respectively. No interest income related to non-accrual loans was included in interest income for the three and six months ended June 30, 2024 and 2023.

The Company also categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loan terms. Classified loans are those that are assigned a special mention, substandard or doubtful risk rating using the following definitions:

Special Mention: Loans are currently protected by the current net worth and paying capacity of the obligor or of the collateral pledged but such protection is potentially weak. These loans constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. The credit risk may be relatively minor, yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.

Substandard: Loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. Loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

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Doubtful: Loans classified doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

The following table presents information regarding the Company’s risk category of loans by type and year of origination, as of the dates indicated:

| | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving
loans amortized cost | Revolving
loans converted to term | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Dollars
in thousands) | As
of June 30, 2024 | | | | | | | | |
| | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving
loans amortized cost | Revolving
loans converted to term | Total |
| One-to-four family residential
real estate loans | | | | | | | | | |
| Nonclassified | $ 47,236 | $ 89,970 | $ 80,182 | $ 40,064 | $ 29,627 | $ 39,266 | $ 5,602 | $ 143 | $ 332,090 |
| Classified | - | - | - | - | - | - | - | - | - |
| Total | $ 47,236 | $ 89,970 | $ 80,182 | $ 40,064 | $ 29,627 | $ 39,266 | $ 5,602 | $ 143 | $ 332,090 |
| Gross
charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Construction and land loans | | | | | | | | | |
| Nonclassified | $ 12,602 | $ 9,773 | $ 2,242 | $ 1,745 | $ 2,618 | $ 1,400 | $ 100 | $ - | $ 30,480 |
| Classified | - | - | - | - | - | - | - | - | - |
| Total | $ 12,602 | $ 9,773 | $ 2,242 | $ 1,745 | $ 2,618 | $ 1,400 | $ 100 | $ - | $ 30,480 |
| Gross
charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Commercial real estate loans | | | | | | | | | |
| Nonclassified | $ 27,113 | $ 42,071 | $ 70,258 | $ 56,516 | $ 43,607 | $ 74,593 | $ 2,633 | $ 40 | 316,831 |
| Classified | - | - | - | 477 | - | 1,542 | - | - | 2,019 |
| Total | $ 27,113 | $ 42,071 | $ 70,258 | $ 56,993 | $ 43,607 | $ 76,135 | $ 2,633 | $ 40 | $ 318,850 |
| Gross
charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Commercial loans | | | | | | | | | |
| Nonclassified | $ 16,575 | $ 35,138 | $ 27,053 | $ 11,805 | $ 9,440 | $ 3,465 | $ 60,720 | $ 111 | $ 164,307 |
| Classified | 2,226 | 2,406 | 1,944 | 209 | 4,067 | 29 | 2,260 | 1,428 | 14,569 |
| Total | $ 18,801 | $ 37,544 | $ 28,997 | $ 12,014 | $ 13,507 | $ 3,494 | $ 62,980 | $ 1,539 | $ 178,876 |
| Gross
charge-offs | $ - | $ - | $ 16 | $ 67 | $ - | $ - | $ - | $ - | $ 83 |
| Agriculture loans | | | | | | | | | |
| Nonclassified | $ 6,835 | $ 4,022 | $ 9,301 | $ 3,989 | $ 3,671 | $ 14,775 | $ 40,705 | $ 193 | $ 83,491 |
| Classified | - | 70 | 241 | 402 | 9 | 95 | 215 | - | 1,032 |
| Total | $ 6,835 | $ 4,092 | $ 9,542 | $ 4,391 | $ 3,680 | $ 14,870 | $ 40,920 | $ 193 | $ 84,523 |
| Gross
charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Municipal loans | | | | | | | | | |
| Nonclassified | $ - | $ 4,958 | $ 109 | $ - | $ - | $ 1,489 | $ - | $ - | $ 6,556 |
| Classified | - | - | - | - | - | - | - | - | - |
| Total | $ - | $ 4,958 | $ 109 | $ - | $ - | $ 1,489 | $ - | $ - | $ 6,556 |
| Gross
charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Consumer loans | | | | | | | | | |
| Nonclassified | $ 2,810 | $ 3,694 | $ 827 | $ 1,205 | $ 769 | $ 3,348 | $ 16,503 | $ 19 | $ 29,175 |
| Classified | - | - | - | - | - | - | 25 | - | 25 |
| Total | $ 2,810 | $ 3,694 | $ 827 | $ 1,205 | $ 769 | $ 3,348 | $ 16,528 | $ 19 | $ 29,200 |
| Gross
charge-offs | $ 176 | $ - | $ 1 | | $ - | $ - | $ - | $ - | $ 177 |
| Total loans | | | | | | | | | |
| Nonclassified | $ 113,171 | $ 189,626 | $ 189,972 | $ 115,324 | $ 89,732 | $ 138,336 | $ 126,263 | $ 506 | $ 962,930 |
| Classified | 2,226 | 2,476 | 2,185 | 1,088 | 4,076 | 1,666 | 2,500 | 1,428 | 17,645 |
| Total | $ 115,397 | $ 192,102 | $ 192,157 | $ 116,412 | $ 93,808 | $ 140,002 | $ 128,763 | $ 1,934 | $ 980,575 |
| Gross charge-offs for the
six month ending 6-30-2024 | $ 176 | $ - | $ 17 | $ 67 | $ - | $ - | $ - | $ - | $ 260 |

Field: Page; Sequence: 15; Value: 1

Field: /Page

| | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving
loans amortized cost | Revolving
loans converted to term | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Dollars in thousands) | As
of December 31, 2023 | | | | | | | | |
| | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving
loans amortized cost | Revolving
loans converted to term | Total |
| One-to-four
family residential real estate loans | | | | | | | | | |
| Nonclassified | $ 95,290 | $ 84,718 | $ 42,533 | $ 32,081 | $ 12,776 | $ 29,694 | $ 5,097 | $ 163 | $ 302,352 |
| Classified | $ - | $ - | $ - | $ - | $ - | $ 192 | $ - | $ - | $ 192 |
| Total | $ 95,290 | $ 84,718 | $ 42,533 | $ 32,081 | $ 12,776 | $ 29,886 | $ 5,097 | $ 163 | $ 302,544 |
| Gross
charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Construction
and land loans | | | | | | | | | |
| Nonclassified | $ 6,283 | $ 5,267 | $ 5,367 | $ 2,665 | $ 916 | $ 492 | $ 100 | $ - | $ 21,090 |
| Classified | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Total | $ 6,283 | $ 5,267 | $ 5,367 | $ 2,665 | $ 916 | $ 492 | $ 100 | $ - | $ 21,090 |
| Gross
charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Commercial
real estate loans | | | | | | | | | |
| Nonclassified | $ 41,644 | $ 77,427 | $ 58,327 | $ 50,744 | $ 30,551 | $ 57,502 | $ 3,017 | $ 92 | $ 319,304 |
| Classified | $ - | $ - | $ 481 | $ 22 | $ 180 | $ 975 | $ - | $ - | $ 1,658 |
| Total | $ 41,644 | $ 77,427 | $ 58,808 | $ 50,766 | $ 30,731 | $ 58,477 | $ 3,017 | $ 92 | $ 320,962 |
| Gross
charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Commercial
loans | | | | | | | | | |
| Nonclassified | $ 38,818 | $ 32,764 | $ 16,747 | $ 15,511 | $ 2,514 | $ 4,386 | $ 61,046 | $ 4,121 | $ 175,907 |
| Classified | $ 226 | $ 2,000 | $ 158 | $ 460 | $ 57 | $ - | $ 1,952 | $ 182 | $ 5,035 |
| Total | $ 39,044 | $ 34,764 | $ 16,905 | $ 15,971 | $ 2,571 | $ 4,386 | $ 62,998 | $ 4,303 | $ 180,942 |
| Gross
charge-offs | $ - | $ 28 | $ 407 | $ 44 | $ - | $ - | $ - | $ - | $ 479 |
| Agriculture
loans | | | | | | | | | |
| Nonclassified | $ 7,862 | $ 11,718 | $ 4,864 | $ 4,092 | $ 3,902 | $ 12,114 | $ 44,352 | $ 214 | $ 89,118 |
| Classified | $ - | $ 16 | $ 171 | $ - | $ 131 | $ 113 | $ 131 | $ - | $ 562 |
| Total | $ 7,862 | $ 11,734 | $ 5,035 | $ 4,092 | $ 4,033 | $ 12,227 | $ 44,483 | $ 214 | $ 89,680 |
| Gross
charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Municipal
loans | | | | | | | | | |
| Nonclassified | $ 2,774 | $ 128 | $ - | $ - | $ - | $ 1,605 | $ - | $ - | $ 4,507 |
| Classified | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Total | $ 2,774 | $ 128 | $ - | $ - | $ - | $ 1,605 | $ - | $ - | $ 4,507 |
| Gross
charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| Consumer
loans | | | | | | | | | |
| Nonclassified | $ 4,705 | $ 1,332 | $ 1,340 | $ 1,380 | $ 1 | $ 4,906 | $ 15,221 | $ 21 | $ 28,906 |
| Classified | $ - | $ - | $ - | $ - | $ - | $ - | $ 25 | $ - | $ 25 |
| Total | $ 4,705 | $ 1,332 | $ 1,340 | $ 1,380 | $ 1 | $ 4,906 | $ 15,246 | $ 21 | $ 28,931 |
| Gross
charge-offs | $ - | $ - | $ 3 | $ - | $ - | $ - | $ 368 | $ - | $ 371 |
| Total loans | | | | | | | | | |
| Nonclassified | $ 197,376 | $ 213,354 | $ 129,178 | $ 106,473 | $ 50,660 | $ 110,699 | $ 128,833 | $ 4,611 | $ 941,184 |
| Classified | $ 226 | $ 2,016 | $ 810 | $ 482 | $ 368 | $ 1,280 | $ 2,108 | $ 182 | $ 7,472 |
| Total | $ 197,602 | $ 215,370 | $ 129,988 | $ 106,955 | $ 51,028 | $ 111,979 | $ 130,941 | $ 4,793 | $ 948,656 |
| Gross charge-offs for the
year ending December 31,2023 | $ - | $ 28 | $ 410 | $ 44 | $ - | $ - | $ 368 | $ - | $ 850 |
| Gross charge-offs | $ - | $ 28 | $ 410 | $ 44 | $ - | $ - | $ 368 | $ - | $ 850 |

Field: Page; Sequence: 16; Value: 1

Field: /Page

The following table provides information regarding the Company’s allowance for credit losses related to unfunded loan commitments for the periods indicated:

	2024	2023	2024	2023
	Three months
ended		Six months ended
(dollars in thousands)	June
30,		June
30,
	2024	2023	2024	2023
Balance at beginning of period	$ 300	200	$ 250	170
Provision
for credit losses	-	-	50	30
Balance at end of period	$ 300	$ 200	$ 300	$ 200

The Company did not make any loan modifications to borrowers experiencing financial difficulty during the three or six months ended June 30, 2024. The Company did not make any loan modifications to borrowers experiencing financial difficulty during the three months ended June 30, 2023. The following table presents the amortized cost basis of loans at June 30, 2023 that were both experiencing financial difficulty and modified during the six months ended June 30, 2023 by class, type of modification and includes the financial effect of the modification.

Field: Split-Segment; Name: 002

(Dollars in thousands)	As of June 30, 2023 — Amortized cost basis	% of loan class total	Financial effect
Term extension:
Commercial	$ 151	0.1 %	90 day payment deferral

4. Goodwill and Other Intangible Assets

The Company tests goodwill for impairment annually or more frequently if circumstances warrant. The Company’s annual impairment test as of December 31, 2023 concluded that its goodwill was not impaired. Based on that test and current conditions, as of June 30, 2024, the Company concluded it was more likely than not that its goodwill was not impaired.

Core deposit intangible assets are amortized over the estimated useful life of ten years on an accelerated basis. A summary of the other intangible assets that continue to be subject to amortization as of the dates indicated is presented in the following table:

| (Dollars in thousands) | As
of June 30, 2024 — Gross
carrying amount | Accumulated
amortization | | Net
carrying amount |
| --- | --- | --- | --- | --- |
| Core deposit intangible
assets | $ 4,170 | $ ( 1,270 | ) | $ 2,900 |

| (Dollars in thousands) | As
of December 31, 2023 — Gross
carrying amount | Accumulated
amortization | | Net
carrying amount |
| --- | --- | --- | --- | --- |
| Core deposit intangible
assets | $ 4,170 | $ ( 929 | ) | $ 3,241 |

The following sets forth estimated amortization expense for core deposit and intangible assets for the remainder of 2024 and in successive years ending December 31:

| (Dollars
in thousands) | Amortization |
| --- | --- |
| | expense |
| Remainder of 2024 | $ 322 |
| 2025 | 588 |
| 2026 | 512 |
| 2027 | 436 |
| 2028 | 360 |
| 2029 | 284 |
| Thereafter | 398 |
| Total | $ 2,900 |

Field: Page; Sequence: 17; Value: 1

Field: /Page

5. Mortgage Loan Servicing

Mortgage loans serviced for others are not reported as assets. The following table provides information on the principal balances of mortgage loans serviced for others:

(Dollars in thousands)	June 30,	December 31,
	2024	2023
FHLMC	$ 641,480	$ 659,488
FHLB	28,249	28,621
Total	$ 669,729	$ 688,109

Custodial escrow balances maintained in connection with serviced loans were $ 5.9 million and $ 5.0 million at June 30, 2024 and December 31, 2023, respectively. Custodial escrow balances are included in the deposit balances on the balance sheet. Gross service fee income related to such loans was $ 432,000 and $ 441,000 for the three months ended June 30, 2024 and 2023, respectively, and is included in fees and service charges in the consolidated statements of earnings. Gross service fee income related to such loans was $ 868,000 and $ 894,000 for the six months ended June 30, 2024 and 2023, respectively, and is included in fees and service charges in the consolidated statements of earnings.

Activity for mortgage servicing rights for the periods indicated was as follows:

	2024
	Three months
ended			Six months ended
(Dollars
in thousands)	June
30,			June
30,
	2024	2023		2024		2023
Mortgage
servicing rights:
Balance at
beginning of period	$ 2,977	$	3,652	$	3,158	$	3,813
Additions	105		137		166		240
Amortization	( 85	)	( 275	)	( 327	)	( 539	)
Balance
at end of period	$ 2,997	$	3,514	$	2,997	$	3,514

The fair value of mortgage servicing rights was $ 9.8 million and $ 9.5 million at June 30, 2024 and December 31, 2023, respectively. Fair value at June 30, 2024 was determined using discount rate of 10.0 %; prepayment speeds ranging from 6.00 % to 22.14 %, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.78 %. Fair value at December 31, 2023 was determined using discount rates at 10.0 %; prepayment speeds ranging from 6.00 % to 26.87 %, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.65 %.

The Company had a mortgage repurchase reserve of $ 157,000 at June 30, 2024 and a mortgage repurchase reserve of $ 159,000 at December 31, 2023, which represented the Company’s best estimate at those dates of probable losses that the Company will incur related to the repurchase of one-to-four family residential real estate loans previously sold or to reimburse investors for credit losses incurred on loans previously sold where a breach of the contractual representations and warranties occurred. The Company did not incur any losses charged against the reserve or make any provisions to the reserve during the three months ended June 30, 2024. The Company charged a $ 2,000 loss against the reserve during the six months ended June 30, 2024. The Company charged a $ 6,000 loss against the reserve during the three months ended June 30, 2023 and a loss of a $ 21,000 against the reserve during the six months ended June 30, 2023. The Company charged a $ 15,000 loss against the reserve during the three months ending March 31, 2023. As of June 30, 2024, the Company had no outstanding mortgage repurchase requests.

Field: Page; Sequence: 18; Value: 1

Field: /Page

6. Earnings per Share

Basic earnings per share have been computed based upon the weighted average number of common shares outstanding during each period. Diluted earnings per share included the effect of all potential common shares outstanding during each period. The diluted earnings per share computation for both the three and six months ended June 30, 2024, excluded 206,561 of unexercised stock options, because their inclusion would have been anti-dilutive during such periods. The diluted earnings per share computation for both the three and six months ended June 30, 2023, excluded 81,387 of unexercised stock options because their inclusion would have been anti-dilutive during such periods. The Company’s Board of Directors declared a cash dividend of $ 0.21 per share to be paid September 4, 2024 , to common stockholders of record as of the close of business on August 21, 2024. The shares used in the calculation of basic and diluted earnings per share for the periods indicated are shown below:

	2024	2023	2024	2023
	Three months
ended		Six months ended
(Dollars in thousands, except
per share amounts)	June
30,		June
30,
	2024	2023	2024	2023
Net earnings	$ 3,012	$ 3,362	$ 5,790	$ 6,719
Weighted
average common shares outstanding - basic (1)	5,471,724	5,476,354	5,470,839	5,475,075
Assumed
exercise of stock options (1)	2,612	4,174	3,763	5,673
Weighted
average common shares outstanding - diluted (1)	5,474,336	5,480,528	5,474,602	5,480,748
Earnings
per share (1) :
Basic (1)	$ 0.55	$ 0.61	$ 1.06	$ 1.23
Diluted (1)	$ 0.55	$ 0.61	$ 1.06	$ 1.23

(1) Share and per share values for the periods ended June 30, 2023 have been adjusted to give effect to the 5 % stock dividend paid during December 2023.

7. Federal Home Loan Bank Borrowings and Other Borrowings

The Bank has a line of credit, renewable annually each September, with the Federal Home Loan Bank (“FHLB’) under which there were $ 125.3 million of borrowings at June 30, 2024 and $ 58.0 million at December 31, 2023. Interest on any outstanding balance on the line of credit accrues at the federal funds rate plus 0.15 % ( 5.54 % at June 30, 2024). The Company had no letters of credit issued through the FHLB at June 30, 2024 compared to $ 20.0 million letters of credit December 31, 2023 to secure municipal deposits. The Company did not have any term advances from FHLB at June 30, 2024 or December 31, 2023.

Although no loans are specifically pledged, the FHLB requires the Bank to maintain eligible collateral (qualifying loans and investment securities) that has a lending value at least equal to its required collateral. At June 30, 2024 and December 31, 2023, there were blanket pledges of loans and securities to the FHLB totaling $ 365.9 million and $ 328.7 million, respectively. At June 30, 2024 and December 31, 2023, the Bank’s total borrowing capacity with the FHLB was approximately $ 256.9 million and $ 232.3 million, respectively. At June 30, 2024 and December 31, 2023, the Bank’s available borrowing capacity was $ 130.2 million and $ 153.1 million, respectively. The difference between the Bank’s total borrowing capacity and available borrowing capacity is related to the amount of borrowings outstanding and letters of credit. The available borrowing capacity with the FHLB is collateral based, and the Bank’s ability to borrow is subject to maintaining collateral that meets the eligibility requirements. The borrowing capacity is not committed and is subject to FHLB credit requirements and policies. In addition, the Bank must maintain a restricted investment in FHLB stock to maintain access to borrowings.

At June 30, 2024, the Bank had no borrowings through the Federal Reserve discount window, while its borrowing capacity with the Federal Reserve was $ 52.6 million.

The Company has a $ 5.0 million line of credit from an unrelated financial institution maturing on November 1, 2024 , with an interest rate that adjusts daily based on the prime rate less 0.50%. This line of credit has covenants specific to capital and other financial ratios, which the Company was in compliance with at June 30, 2024 and December 31, 2023. As of June 30, 2024 and December 31, 2023, the Company did no t have an outstanding balance on the line of credit.

On September 29, 2022, the Company borrowed $ 10.0 million from the same unrelated financial institution at a fixed rate of 6.15 %. This borrowing has covenants specific to capital and other financial ratios, which the Company believes it was in compliance with at June 30, 2024 and December 31, 2023. This borrowing matures on September 1, 2027 and requires quarterly principal and interest payments. Early principal payments are allowed and the balance was $ 6.0 million and $ 6.6 million at June 30, 2024 and December 31, 2023, respectively.

Field: Page; Sequence: 19; Value: 1

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8. Repurchase Agreements

The Company has overnight repurchase agreements with certain deposit customers whereby the Company uses investment securities as collateral for non-insured funds. These balances are accounted for as collateralized financing and included in other borrowings on the balance sheet.

Repurchase agreements are comprised of non-insured customer funds, totaling $ 8.7 million at June 30, 2024 and $ 12.7 million at December 31, 2023, which were secured by $ 13.5 million and $ 23.7 million of the Company’s investment portfolio at the same dates, respectively.

The following is a summary of the balances and collateral of the Company’s repurchase agreements as of the dates indicated:

| | Continuous | Up
to 30 days | 30-90
days | than
90 days | Total |
| --- | --- | --- | --- | --- | --- |
| | As
of June 30, 2024 | | | | |
| (dollars in thousands) | Overnight and | | | Greater | |
| | Continuous | Up
to 30 days | 30-90
days | than
90 days | Total |
| Repurchase agreements: | | | | | |
| U.S.
federal treasury obligations | $ 8,745 | $ - | $ - | $ - | $ 8,745 |
| Total | $ 8,745 | $ - | $ - | $ - | $ 8,745 |

| | Continuous | 30
days | 30-90
days | than
90 days | Total |
| --- | --- | --- | --- | --- | --- |
| | As
of December 31, 2023 | | | | |
| (dollars in thousands) | Overnight and | Up to | | Greater | |
| | Continuous | 30
days | 30-90
days | than
90 days | Total |
| Repurchase agreements: | | | | | |
| U.S.
federal treasury obligations | $ 12,714 | $ - | $ - | $ - | $ 12,714 |
| Total | $ 12,714 | $ - | $ - | $ - | $ 12,714 |

The investment securities are held by a third party financial institution in the customer’s custodial account. The Company is required to maintain adequate collateral for each repurchase agreement. Changes in the fair value of the investment securities impact the amount of collateral required. If the Company were to default, the investment securities would be used to settle the repurchase agreement with the deposit customer.

9. Revenue from Contracts with Customers

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. Items outside the scope of ASC 606 are noted as such.

	2024	2023	2024
	Three months
ended		Six months ended
(Dollars
in thousands)	June
30,		June
30,
	2024	2023	2024	2023
Non-interest
income:
Service
charges on deposit accounts
Overdraft
fees	$ 992	$ 954	$ 1,953	$	1,829
Other	431	242	707		474
Interchange
income	777	805	1,461		1,542
Loan
servicing fees (1)	432	441	868		894
Office
lease income (1)	24	148	88		218
Gains
on sales of loans (1)	648	830	1,160		1,523
Bank
owned life insurance income (1)	248	223	493		441
Losses
on sales of real estate owned	-	-	( 9	)	-
Other	168	186	399		403
Total
non-interest income	$ 3,720	$ 3,829	$ 7,120	$	7,324

(1) Not within the scope of ASC 606.

Field: Page; Sequence: 20; Value: 1

Field: /Page

A description of the Company’s revenue streams under ASC 606 follows:

Service Charges on Deposit Accounts

The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM usage fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period during which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Interchange Income

The Company earns interchange fees from debit cardholder transactions conducted through the interchange payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Gains (Losses) on Sales of Real Estate Owned

The Company records a gain or loss from the sale of real estate owned when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of real estate owned to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the real estate owned asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. There were no sales of real estate owned that were financed by the Company during the first six months of 2024 or 2023.

10. Fair Value of Financial Instruments and Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Field: Page; Sequence: 21; Value: 1

Field: /Page

Fair value estimates of the Company’s financial instruments as of June 30, 2024 and December 31, 2023, including methods and assumptions utilized, are set forth below:

| | As
of June 30, 2024 | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Carrying | | | | | | | | |
| | amount | | Level
1 | | Level
2 | Level
3 | | Total | |
| Financial
assets: | | | | | | | | | |
| Cash
and cash equivalents | $ 23,889 | | $ 23,889 | | $ - | $ | - | $ 23,889 | |
| Interest-bearing
deposits at other banks | 4,881 | | - | | 4,881 | | - | 4,881 | |
| Investment
securities available-for-sale | 420,459 | | 89,325 | | 331,134 | | - | 420,459 | |
| Investment
securities held-to-maturity | 3,613 | | - | | 3,128 | | - | 3,128 | |
| Bank stocks,
at cost | 9,647 | | n/a | | n/a | | n/a | n/a | |
| Loans,
net | 969,089 | | - | | - | | 950,520 | 950,520 | |
| Loans
held for sale | 2,513 | | - | | 2,513 | | - | 2,513 | |
| Mortgage
servicing rights | 2,997 | | - | | 9,774 | | - | 9,774 | |
| Accrued
interest receivable | 7,150 | | 284 | | 2,128 | | 4,738 | 7,150 | |
| Derivative
financial instruments | 315 | | - | | 315 | | - | 315 | |
| Financial
liabilities: | | | | | | | | | |
| Non-maturity
deposits | $ ( 1,058,012 | ) | $ ( 1,058,012 | ) | $ - | $ | - | $ ( 1,058,012 | ) |
| Certificates of deposit | ( 192,470 | ) | - | | ( 191,115 | ) | - | ( 191,115 | ) |
| FHLB and
other borrowings | ( 131,330 | ) | - | | ( 131,129 | ) | - | ( 131,129 | ) |
| Subordinated
debentures | ( 21,651 | ) | - | | ( 18,474 | ) | - | ( 18,474 | ) |
| Repurchase
agreements | ( 8,745 | ) | - | | ( 8,745 | ) | - | ( 8,745 | ) |
| Accrued
interest payable | ( 2,230 | ) | - | | ( 2,230 | ) | - | ( 2,230 | ) |

| | As
of December 31, 2023 | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Carrying | | | | | | | | |
| | amount | | Level
1 | | Level
2 | Level
3 | | Total | |
| Financial
assets: | | | | | | | | | |
| Cash
and cash equivalents | $ 27,101 | | $ 27,101 | | $ - | $ | - | $ 27,101 | |
| Interest-bearing
deposits at other banks | 4,918 | | - | | 4,918 | | - | 4,918 | |
| Investment
securities available-for-sale | 452,769 | | 95,667 | | 357,102 | | - | 452,769 | |
| Investment
securities held-to-maturity | 3,555 | | - | | 3,049 | | - | 3,049 | |
| Bank stocks,
at cost | 8,123 | | n/a | | n/a | | n/a | n/a | |
| Loans,
net | 937,619 | | - | | - | | 920,984 | 920,984 | |
| Loans
held for sale | 853 | | - | | 853 | | - | 853 | |
| Mortgage
servicing rights | 3,158 | | - | | 9,498 | | - | 9,498 | |
| Accrued
interest receivable | 7,341 | | 327 | | 2,280 | | 4,734 | 7,341 | |
| Derivative
financial instruments | 114 | | - | | 114 | | - | 114 | |
| Financial
liabilities: | | | | | | | | | |
| Non-maturity
deposits | $ ( 1,133,097 | ) | $ ( 1,133,097 | ) | $ - | $ | - | $ ( 1,133,097 | ) |
| Certificates of deposit | ( 183,154 | ) | - | | ( 181,655 | ) | - | ( 181,655 | ) |
| FHLB and
other borrowings | ( 64,662 | ) | - | | ( 65,478 | ) | - | ( 65,478 | ) |
| Subordinated
debentures | ( 21,651 | ) | - | | ( 18,906 | ) | - | ( 18,906 | ) |
| Repurchase
agreements | ( 12,714 | ) | - | | ( 12,714 | ) | - | ( 12,714 | ) |
| Accrued
interest payable | ( 1,979 | ) | - | | ( 1,979 | ) | - | ( 1,979 | ) |
| Derivative
financial instruments | ( 14 | ) | - | | ( 14 | ) | - | ( 14 | ) |

Field: Page; Sequence: 22; Value: 1

Field: /Page

Transfers

The Company did not transfer any assets or liabilities among levels during the six months ended June 30, 2024 or during the year ended December 31, 2023.

Valuation Methods for Instruments Measured at Fair Value on a Recurring Basis

The following tables represent the Company’s financial instruments that are measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023, allocated to the appropriate fair value hierarchy:

| (Dollars in thousands) | | As
of June 30, 2024 | | |
| --- | --- | --- | --- | --- |
| | | Fair
value hierarchy | | |
| | Total | Level
1 | Level
2 | Level
3 |
| Assets: | | | | |
| Available-for-sale
investment securities: | | | | |
| U.
S. treasury securities | $ 89,325 | $ 89,325 | $ - | $ - |
| Municipal
obligations, tax exempt | 114,047 | - | 114,047 | - |
| Municipal
obligations, taxable | 74,588 | - | 74,588 | - |
| Agency
mortgage-backed securities | 142,499 | - | 142,499 | - |
| Loans
held for sale | 2,513 | - | 2,513 | - |
| Derivative
financial instruments | 315 | - | 315 | - |


		Fair
value hierarchy
	Total	Level
1		Level
2	Level
3
Assets:
Available-for-sale
investment securities:
U.
S. treasury securities	$ 95,667	$	95,667	$ -	$	-
Municipal
obligations, tax exempt	120,623		-	120,623		-
Municipal
obligations, taxable	79,083		-	79,083		-
Agency
mortgage-backed securities	157,396		-	157,396		-
Loans
held for sale	853		-	853		-
Derivative
financial instruments	114		-	114		-
Liability:
Derivative
financial instruments	( 14	)	-	( 14	)	-

The Company’s investment securities classified as available-for-sale include U.S. treasury securities, municipal obligations, and agency mortgage-backed securities. Quoted exchange prices are available for the Company’s U.S. treasury securities, which are classified as Level 1. U.S. federal agency mortgage-backed securities are priced utilizing industry-standard models that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. These measurements are classified as Level 2. Municipal obligations are valued using a type of matrix, or grid, pricing in which securities are benchmarked against U.S. treasury rates based on credit rating. These model and matrix measurements are classified as Level 2 in the fair value hierarchy.

Changes in the fair value of available-for-sale securities are included in other comprehensive income to the extent the changes are not considered other-than-temporary impairments. Other-than-temporary impairment tests are performed on a quarterly basis and any decline in the fair value of an individual security below its cost that is deemed to be other-than-temporary results in a write-down of that security’s cost basis.

Mortgage loans originated and intended for sale in the secondary market are carried at fair value. The mortgage loan valuations are based on quoted secondary market prices for similar loans and are classified as Level 2. Changes in the fair value of mortgage loans originated and intended for sale in the secondary market and derivative financial instruments are included in gains on sales of loans.

Field: Page; Sequence: 23; Value: 1

Field: /Page

The aggregate fair value, contractual balance (including accrued interest), and gains on loans held for sale as of June 30, 2024 and December 31, 2023 were as follows:

	As of	As of
	June 30,	December 31,
(Dollars in thousands)	2024	2023
Aggregate fair value	$ 2,513	$ 853
Contractual balance	2,481	848
Gain	$ 32	$ 5

The Company’s derivative financial instruments consist of interest rate lock commitments and corresponding forward sales contracts on mortgage loans held for sale. The fair values of these derivatives are based on quoted prices for similar loans in the secondary market. The market prices are adjusted by a factor, based on the Company’s historical data and its judgment about future economic trends, which considers the likelihood that a commitment will ultimately result in a closed loan. These instruments are classified as Level 2. The amounts are included in other assets or other liabilities on the consolidated balance sheets and gains on sales of loans, net in the consolidated statements of earnings. The total amount of gains from changes in fair value of derivative financial instruments included in earnings for the periods indicated were as follows:

| | Three months
ended — June
30, | | Six months ended — June
30, | |
| --- | --- | --- | --- | --- |
| (Dollars in thousands) | 2024 | 2023 | 2024 | 2023 |
| Total
change in fair value | $ 70 | $ 45 | $ 215 | $ 156 |

Valuation Methods for Instruments Measured at Fair Value on a Nonrecurring Basis

The Company does not record its loan portfolio at fair value. Collateral-dependent loans are generally carried at the lower of cost or fair value of the collateral, less estimated selling costs. Collateral values are determined based on appraisals performed by qualified licensed appraisers hired by the Company and then further adjusted if warranted based on relevant facts and circumstances. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Individually evaluated loans are reviewed at least quarterly for additional allowance and adjusted accordingly, based on the same factors identified above. The carrying value of the Company’s individually evaluated loans was $ 7.0 million at June 30, 2024 and $ 4.3 million at December 31, 2023, respectively. The Company’s individually evaluated loans with an allowance for credit losses was $ 3.0 million and $ 1.7 million, with an allocated allowance of $ 664,000 and $ 311,000 , at June 30, 2024 and December 31, 2023, respectively.

Real estate held-for-sale includes premises and equipment that were previously used as a bank branch facility and is included in other assets on the balance sheet. Real estate held-for-sale is initially recorded at the fair value of the collateral less estimated selling costs. Subsequent valuations are updated periodically and are based upon independent appraisals, third party price opinions or internal pricing models. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Real estate held-for-sale is reviewed and evaluated at least annually for additional allowance and adjusted accordingly, based on the same factors identified above.

Real estate owned includes assets acquired through, or in lieu of, foreclosure and land previously acquired for expansion. Real estate owned is initially recorded at the fair value of the collateral less estimated selling costs. Subsequent valuations are updated periodically and are based upon independent appraisals, third party price opinions or internal pricing models. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Real estate owned is reviewed and evaluated at least annually for additional allowance and adjusted accordingly, based on the same factors identified above.

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The following table presents quantitative information about Level 3 fair value measurements measured at fair value on a nonrecurring basis as of June 30, 2024 and December 31, 2023:

| (Dollars
in thousands) | Fair
value | Valuation
technique | Unobservable
inputs | Range |
| --- | --- | --- | --- | --- |
| As
of June 30, 2024 | | | | |
| Individual
evaluated loans: | | | | |
| Commercial | $ 2,351 | Sales
comparison | Adjustment
to comparable value | 0 %- 75 % |
| Real
estate held-for-sale: | | | | |
| Commercial
real estate | 3,216 | Sales
comparison | Adjustment
to comparable value | 32 % |
| As
of December 31, 2023 | | | | |
| Individual
evaluated loans: | | | | |
| One-to-four
family residential real estate | $ 31 | Sales
comparison | Adjustment
to appraised value | 7 % |
| Commercial | 1,386 | Sales
comparison | Adjustment
to comparable value | 0 %- 50 % |
| Real
estate owned: | | | | |
| One-to-four
family residential real estate | 266 | Sales
comparison | Adjustment
to appraised value | 10 % |

11. Regulatory Capital Requirements

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believed that as of June 30, 2024, the Company and the Bank met all capital adequacy requirements to which they were subject at that time.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. The Company and the Bank are subject to the Basel III Rule, which is applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets of less than $ 3.0 billion).

The Basel III Rule includes a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5 %, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0 %, a minimum ratio of Total Capital to risk-weighted assets of 8.0 %, and a minimum Tier 1 leverage ratio of 4.0 %. A capital conservation buffer, equal to 2.5 % of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements for the common equity Tier 1 capital ratio, and Tier 1 capital and total risk based capital ratios.

As of June 30, 2024 and December 31, 2023, the most recent regulatory notifications categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action then in effect. There are no conditions or events since that notification that management believes have changed the institution’s category.

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The following is a comparison of the Company’s regulatory capital to minimum capital requirements as of June 30, 2024 and December 31, 2023.

(Dollars in thousands)
			For capital
	Actual		adequacy
purposes
	Amount	Ratio	Amount	Ratio
(1)
As of June 30, 2024
Leverage	$ 134,212	8.75 %	$ 61,332	4.0 %
Common
Equity Tier 1 Capital	113,212	10.56 %	75,013	7.0 %
Tier 1
Capital	134,212	12.52 %	91,087	8.5 %
Total
Risk Based Capital	144,904	13.52 %	112,519	10.5 %
As of December 31,
2023
Leverage	$ 130,625	8.14 %	$ 62,116	4.0 %
Common
Equity Tier 1 Capital	109,625	10.39 %	73,854	7.0 %
Tier 1
Capital	130,625	12.38 %	89,680	8.5 %
Total
Risk Based Capital	140,671	13.33 %	110,781	10.5 %

(1) The required ratios for capital adequacy purposes include a capital conservation buffer of 2.5 %.

The following is a comparison of the Bank’s regulatory capital to minimum capital requirements as of June 30, 2024 and December 31, 2023:

					To be well-capitalized
					under prompt
(Dollars in thousands)			For capital		corrective
	Actual		adequacy
purposes		action
provisions
	Amount	Ratio	Amount	Ratio
(1)	Amount	Ratio
As of June 30, 2024
Leverage	$ 136,263	8.91 %	$ 61,153	4.0 %	$ 76,442	5.0 %
Common
Equity Tier 1 Capital	136,263	12.72 %	74,964	7.0 %	69,609	6.5 %
Tier 1
Capital	136,263	12.72 %	91,027	8.5 %	85,673	8.0 %
Total
Risk Based Capital	146,955	13.72 %	112,446	10.5 %	107,091	10.0 %
As of December 31,
2023
Leverage	$ 134,422	8.68 %	$ 61,951	4.0 %	$ 77,439	5.0 %
Common
Equity Tier 1 Capital	134,422	12.74 %	73,833	7.0 %	68,560	6.5 %
Tier 1
Capital	134,422	12.74 %	89,655	8.5 %	84,381	8.0 %
Total
Risk Based Capital	144,468	13.70 %	110,750	10.5 %	105,476	10.0 %

(1) The required ratios for capital adequacy purposes include a capital conservation buffer of 2.5 %.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview . Landmark Bancorp, Inc. is a financial holding company incorporated under the laws of the State of Delaware and is engaged in the banking business through its wholly owned subsidiary, Landmark National Bank, and in the insurance business through its wholly owned subsidiary, Landmark Risk Management, Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Landmark Bancorp, Inc., Landmark National Bank and Landmark Risk Management, Inc. The Company is listed on the Nasdaq Global Market under the symbol “LARK.” The Bank is dedicated to providing quality financial and banking services to its local communities. Our strategy includes continuing a tradition of holding and acquiring quality assets while growing our commercial, commercial real estate (“CRE”) and agriculture loan portfolios. We are committed to developing relationships with our borrowers and providing a total banking service.

The Bank is principally engaged in the business of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to originate one-to-four family residential real estate, construction and land, CRE, commercial, agriculture, municipal and consumer loans. Although not our primary business function, we invest in certain investment and mortgage-related securities using deposits and other borrowings as funding sources.

Landmark Risk Management, Inc., which was formed and began operations in 2017, is a Nevada-based captive insurance company which provides property and casualty insurance coverage to the Company and the Bank for which insurance may not be currently available or economically feasible in the current insurance marketplace. Landmark Risk Management, Inc. is subject to the regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance.

Our results of operations depend generally on net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Net interest income is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, we are subject to interest rate risk to the degree that our interest-earning assets mature or reprice at different times, or at different speeds, than our interest-bearing liabilities. Our results of operations are also affected by non-interest income, such as service charges, loan fees, gains from the sale of newly originated loans, gains or losses on investments and certain other non-interest related items. Our principal operating expenses, aside from interest expense, consist of compensation and employee benefits, occupancy costs, professional fees, data processing expenses and provision for credit losses.

We are significantly impacted by prevailing economic conditions, including federal monetary and fiscal policies, and federal regulations of financial institutions. Deposit balances are influenced by numerous factors such as competing investments, the level of income and the personal rate of savings within our market areas. Factors influencing lending activities include the demand for housing and the interest rate pricing competition from other lending institutions.

Currently, our business consists of ownership of the Bank, with its main office in Manhattan, Kansas and thirty additional branch offices in central, eastern, southeast and southwest Kansas, one loan production office in Kansas City, Missouri and our ownership of Landmark Risk Management, Inc. On October 1, 2022, the Company completed its acquisition of Freedom Bancshares, Inc., the holding company of Freedom Bank. Freedom Bank was founded in 2006 and operated out of a single location in Overland Park, Kansas.

In August 2024, we declared our 92 nd consecutive quarterly dividend, and we currently have no plans to change our dividend strategy given our current capital and liquidity position. However, while we have achieved a strong capital base and expect to continue operating profitably, our future dividend practice is dependent upon the performance of the economy and the Company’s overall performance. In addition, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, we will not be permitted to make capital distributions (including for dividends and repurchases of stock) or pay discretionary bonuses to executive officers without restriction if we do not maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer, a standard we exceeded at June 30, 2024.

Critical Accounting Policies . Critical accounting policies are those which are both most important to the portrayal of our financial condition and results of operations and require our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to the allowance for credit losses and the accounting for business combinations, each of which involve significant judgment by our management. There have been no material changes to the critical accounting policies included under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 27, 2024.

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Summary of Results . During the second quarter of 2024, we recorded net earnings of $3.0 million, which was a decrease of $350,000, or 10.4%, from the $3.4 million of net earnings in the second quarter of 2023. During the first six months of 2024, we recorded net earnings of $5.8 million, which was a decrease of $929,000, or 13.8%, from the $6.7 million of net earnings in the first six months of 2023. The decrease in net earnings during 2024 was primarily related to an increase in non-interest expense as we recorded a valuation allowance of $979,000 against real estate held for sale in the second quarter of 2024 and $1.1 million during the first six months of 2024.

The following table summarizes earnings and key performance measures as of or for the periods presented:

| (Dollars
in thousands, except per share amounts) | As of or for
the — three
months ended June 30, | | As of or for
the — six
months ended June 30, | |
| --- | --- | --- | --- | --- |
| | 2024 | 2023 | 2024 | 2023 |
| Net earnings: | | | | |
| Net
earnings | $ 3,012 | $ 3,362 | $ 5,790 | $ 6,719 |
| Basic earnings per share
(1) | $ 0.55 | $ 0.61 | $ 1.06 | $ 1.23 |
| Diluted earnings per share
(1) | $ 0.55 | $ 0.61 | $ 1.06 | $ 1.23 |
| Earnings
ratios: | | | | |
| Return
on average assets (2) | 0.78 % | 0.88 % | 0.75 % | 0.89 % |
| Return
on average equity (2) | 9.72 % | 11.52 % | 9.30 % | 11.77 % |
| Equity
to total assets | 8.22 % | 7.62 % | 8.22 % | 7.62 % |
| Net interest
margin (2) (3) | 3.21 % | 3.21 % | 3.16 % | 3.26 % |
| Dividend
payout ratio | 38.18 % | 32.31 % | 39.62 % | 32.56 % |

| (1) | Per share values for the
periods ended June 30, 2023 have been adjusted to give effect to the 5% dividend paid during 2023. |
| --- | --- |
| (2) | Ratios have been annualized and are not necessarily
indicative of the results for the entire year. |
| (3) | Net interest margin is presented on a fully tax equivalent
basis, using a 21% federal tax rate. |

Interest Income. Interest income of $18.2 million for the quarter ended June 30, 2024 increased $2.4 million, or 14.9%, compared to the same period of 2023. Interest income on loans increased $2.4 million, or 19.0%, to $15.0 million for the quarter ended June 30, 2024, compared to the same period of 2023 due to higher yields and average balances. Our yields increased from 5.80% in the second quarter of 2023 to 6.33% in the second quarter of 2024. The increase in interest income on loans was also driven by an increase in average loan balances which increased from $873.9 million in the second quarter of 2023 to $955.1 million in the second quarter of 2024. Interest income on investment securities decreased $36,000, or 1.1%, to $3.1 million for the second quarter of 2024, as compared to $3.2 million in the same period of 2023. The decrease in interest income on investment securities was primarily the result of a decrease in the average balances of investment securities which decreased from $495.5 million in the second quarter of 2023 to $437.1 million in the second quarter of 2024.

Interest income of $35.9 million for the six months ended June 30, 2024 increased $5.5 million, or 18.2%, as compared to the same period of 2023. Interest income on loans increased $5.5 million, or 23.0%, to $29.5 million for the six months ended June 30, 2024, compared to the same period of 2023 due to an increase in our average loan balances, which increased from $862.2 million during the first six months of 2023 to $950.4 million during the first six months of 2024. Also contributing to higher interest income were higher yields on loans, which increased from 5.62% in the six months ended June 30, 2023 to 6.25% during the six months ended June 30, 2024. Interest income on investment securities increased $53,000, or 0.8%, to $6.3 million for the first six months of 2024, as compared to $6.3 million in the same period of 2023. The increase in interest income on investment securities was the result of higher yields, which increased from 2.69% in the first six months of 2023 to 2.99% in the first six months of 2024. Partially offsetting the higher yields on investment securities was a decrease in the average balances of investment securities which decreased from $497.5 million in the first half of 2023 to $447.0 million in the first half of 2024.

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Interest Expense . Interest expense during the quarter ended June 30, 2024 increased $2.2 million to $7.2 million, as compared to the same period of 2023. Interest expense on interest-bearing deposits increased $2.2 million to $5.7 million for the quarter ended June 30, 2024 as compared to the same period of 2023. Our total cost of interest-bearing deposits increased from 1.57% in the second quarter of 2023 to 2.44% in the second quarter of 2024 as a result of higher rates and increased competition for deposits. Also contributing to higher interest expense was an increase in average interest-bearing deposit balances, which increased from $882.7 million in the second quarter of 2023 to $936.2 million in the second quarter of 2024. For the second quarter of 2024, interest expense on borrowings decreased $8,000, to $1.5 million as compared to the same period of 2023 due to a decrease in our average borrowings and repurchase agreements which decreased $9.7 million from the second quarter of 2023 to the second quarter of 2024. Partially offsetting the decrease in average borrowing was an increase in rates, which increased from 5.34% in the second quarter of 2023 to 5.81% in the same period of 2024.

Interest expense during the six months ended June 30, 2024 increased $5.6 million to $14.2 million, as compared to the same period of 2023. Interest expense on interest-bearing deposits increased $5.1 million to $11.1 million for the six months ended June 30, 2024 compared to the same period of 2023. The increase in interest expense on interest-bearing deposits was the result of higher rates as our cost of interest-bearing deposits increased from 1.38% in the first six months of 2023 to 2.39% in the same period of 2024. The increase in interest expense on deposits was also due to an increase in average interest-bearing deposit balances, which increased from $877.8 million in the first six months of 2023 to $935.8 million in the same period of 2024. For the first six months of 2024, interest expense on borrowings increased $442,000, to $3.1 million as compared to the same period of 2023, due primarily to an increase in our average outstanding borrowings which increased from $105.1 million in the first six months of 2023 to $107.3 million in the first six months of 2024. Also contributing to the higher interest expense on borrowings were higher average rates on our borrowings, which increased to 5.76% for the first six months of 2024 compared to 5.05% for the same period of 2023.

Net Interest Income . Net interest income increased $141,000, or 1.3%, to $11.0 million for the second quarter of 2024 compared to the same period of 2023. The increase in net interest income was primarily a result of an increase in interest on loans and investments, partially offset by higher interest expense. The accretion of purchase accounting adjustments increased net interest income by $263,000 in the second quarter of 2023 compared to an increase of $274,000 in the second quarter of 2024 and was primarily related to fair value adjustments on loans acquired in the Freedom Bank transaction. Compared to the same period last year, the increase in interest rates raised the yields on our interest-earning assets and the cost of our interest-bearing liabilities. Net interest margin, on a tax-equivalent basis, was 3.21% in the second quarter of 2023 and 2024. Continued increases in interest rates may not result in a higher net interest margin as a result of increased competition for loans and deposits.

Net interest income decreased $59,000, or 0.3%, to $21.7 million for the first six months of 2024 compared to the same period of 2023. The decrease in net interest income was primarily a result of higher interest expense offsetting the increase in our interest income. The accretion of purchase accounting adjustments increased net interest income by $439,000 in the first six months of 2023 compared to an increase of $483,000 in the first six months of 2024 and was primarily related to fair value adjustments on loans acquired in the Freedom Bank transaction. Net interest margin, on a tax-equivalent basis, decreased from 3.26% in the first six months of 2023 to 3.16% in the same period of 2024.

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Average Assets/Liabilities . The following table reflects the tax-equivalent yields earned on average interest-earning assets and costs of average interest-bearing liabilities (derived by dividing income or expense by the monthly average balance of assets or liabilities, respectively) as well as “net interest margin” (which reflects the effect of the net earnings balance) for the periods shown:

| | Three months
ended | | | Three months
ended | | |
| --- | --- | --- | --- | --- | --- | --- |
| | June
30, 2024 | | | June
30, 2023 | | |
| | Average
balance | Income/
expense | Average
yield/cost | Average
balance | Income/
expense | Average
yield/cost |
| (Dollars in thousands) | | | | | | |
| Assets | | | | | | |
| Interest-earning
assets: | | | | | | |
| Interest-bearing
deposits at banks | $ 5,700 | $ 40 | 2.82 % | $ 9,600 | $ 49 | 2.05 % |
| Investment
securities (1) | 437,136 | 3,307 | 3.04 % | 495,456 | 3,338 | 2.70 % |
| Loans
receivable, net (2) | 955,104 | 15,026 | 6.33 % | 873,910 | 12,627 | 5.80 % |
| Total
interest-earning assets | 1,397,940 | 18,373 | 5.29 % | 1,378,966 | 16,014 | 4.66 % |
| Non-interest-earning
assets | 147,876 | | | 146,623 | | |
| Total | $ 1,545,816 | | | $ 1,525,589 | | |
| Liabilities
and Stockholders’ Equity | | | | | | |
| Interest-bearing
liabilities: | | | | | | |
| Money
market and checking | $ 585,300 | $ 3,477 | 2.39 % | $ 591,498 | $ 2,587 | 1.75 % |
| Savings
accounts | 151,696 | 48 | 0.13 % | 163,876 | 25 | 0.06 % |
| Certificates of deposit | 199,241 | 2,148 | 4.34 % | 127,352 | 840 | 2.65 % |
| Total
interest-bearing deposits | 936,237 | 5,673 | 2.44 % | 882,726 | 3,452 | 1.57 % |
| FHLB advances
and other borrowings | 72,875 | 1,027 | 5.67 % | 77,176 | 1,027 | 5.34 % |
| Subordinated
debentures | 21,651 | 418 | 7.76 % | 21,651 | 387 | 7.17 % |
| Repurchase
agreements | 11,524 | 88 | 3.07 % | 16,909 | 127 | 3.01 % |
| Total
borrowings | 106,050 | 1,533 | 5.81 % | 115,736 | 1,541 | 5.34 % |
| Total
interest-bearing liabilities | 1,042,287 | 7,206 | 2.78 % | 998,462 | 4,993 | 2.01 % |
| Non-interest-bearing
liabilities | 378,905 | | | 410,089 | | |
| Stockholders’
equity | 124,624 | | | 117,038 | | |
| Total | $ 1,545,816 | | | $ 1,525,589 | | |
| Interest rate spread (3) | | | 2.51 % | | | 2.65 % |
| Net interest margin (4) | | $ 11,167 | 3.21 % | | $ 11,021 | 3.21 % |
| Tax-equivalent interest -
imputed | | 193 | | | 188 | |
| Net interest income | | $ 10,974 | | | $ 10,833 | |
| Ratio of average interest-earning
assets to average interest-bearing liabilities | | | 134.1 % | | | 138.1 % |

| (1) | Income
on tax exempt securities is presented on a fully tax-equivalent basis, using a 21% federal
tax rate. |
| --- | --- |
| (2) | Includes
loans classified as non-accrual. Income on tax-exempt loans is presented on a fully tax-equivalent
basis, using a 21% federal tax rate. |
| (3) | Interest
rate spread represents the difference between the average yield earned on interest-earning
assets and the average rate paid on interest-bearing liabilities. |
| (4) | Net
interest margin represents annualized, tax-equivalent net interest income divided by average
interest-earning assets. |

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| | Six months
ended | | | Six months
ended | | |
| --- | --- | --- | --- | --- | --- | --- |
| | June
30, 2024 | | | June
30, 2023 | | |
| | Average
balance | Income/
expense | Average
yield/cost | Average
balance | Income/
expense | Average
yield/cost |
| (Dollars in thousands) | | | | | | |
| Assets | | | | | | |
| Interest-earning
assets: | | | | | | |
| Interest-bearing
deposits at banks | $ 6,607 | $ 103 | 3.14 % | $ 12,112 | $ 147 | 2.45 % |
| Investment
securities (1) | 447,034 | 6,657 | 2.99 % | 497,486 | 6,633 | 2.69 % |
| Loans
receivable, net (2) | 950,420 | 29,519 | 6.25 % | 862,186 | 24,008 | 5.62 % |
| Total
interest-earning assets | 1,404,061 | 36,279 | 5.20 % | 1,371,784 | 30,788 | 4.53 % |
| Non-interest-earning
assets | 146,678 | | | 146,589 | | |
| Total | $ 1,550,739 | | | $ 1,518,373 | | |
| Liabilities
and Stockholders’ Equity | | | | | | |
| Interest-bearing
liabilities: | | | | | | |
| Money
market and checking | $ 590,372 | $ 6,930 | 2.36 % | $ 595,780 | $ 4,694 | 1.59 % |
| Savings
accounts | 152,020 | 91 | 0.12 % | 166,721 | 61 | 0.07 % |
| Certificates of deposit | 193,435 | 4,109 | 4.27 % | 115,340 | 1,236 | 2.16 % |
| Total
interest-bearing deposits | 935,827 | 11,130 | 2.39 % | 877,841 | 5,991 | 1.38 % |
| FHLB advances
and other borrowings | 72,747 | 2,049 | 5.66 % | 61,285 | 1,594 | 5.25 % |
| Subordinated
debentures | 21,651 | 830 | 7.71 % | 21,651 | 751 | 6.99 % |
| Repurchase
agreements | 12,947 | 195 | 3.03 % | 22,199 | 287 | 2.61 % |
| Total
borrowings | 107,345 | 3,074 | 5.76 % | 105,135 | 2,632 | 5.05 % |
| Total
interest-bearing liabilities | 1,043,172 | 14,204 | 2.74 % | 982,976 | 8,623 | 1.77 % |
| Non-interest-bearing
liabilities | 382,332 | | | 420,310 | | |
| Stockholders’
equity | 125,235 | | | 115,087 | | |
| Total | $ 1,550,739 | | | $ 1,518,373 | | |
| Interest rate spread (3) | | | 2.46 % | | | 2.76 % |
| Net interest margin (4) | | $ 22,075 | 3.16 % | | $ 22,165 | 3.26 % |
| Tax-equivalent interest -
imputed | | 354 | | | 385 | |
| Net interest income | | $ 21,721 | | | $ 21,780 | |
| Ratio of average interest-earning
assets to average interest-bearing liabilities | | | 134.6 % | | | 139.6 % |

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Rate/Volume Table . The following table describes the extent to which changes in tax-equivalent interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities affected the Company’s interest income and expense for the periods indicated. The table distinguishes between (i) changes attributable to rate (changes in rate multiplied by prior volume), (ii) changes attributable to volume (changes in volume multiplied by prior rate), and (iii) net change (the sum of (i) and (ii)). The net changes attributable to the combined effect of volume and rate that cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

| | Three
months ended June 30, | | | | | | Six
months ended June 30, | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | 2024
vs 2023 | | | | | | 2024
vs 2023 | | | | | |
| | Increase/(decrease)
attributable to | | | | | | Increase/(decrease)
attributable to | | | | | |
| | Volume | | Rate | | Net | | Volume | | Rate | | Net | |
| | (Dollars in
thousands) | | | | | | (Dollars in
thousands) | | | | | |
| Interest income: | | | | | | | | | | | | |
| Interest-bearing
deposits at banks | $ (119 | ) | $ 110 | | $ (9 | ) | $ (116 | ) | $ 72 | | $ (44 | ) |
| Investment
securities | (141 | ) | 111 | | (30 | ) | (235 | ) | 259 | | 24 | |
| Loans | 1,209 | | 1,189 | | 2,398 | | 2,630 | | 2,881 | | 5,511 | |
| Total | 949 | | 1,410 | | 2,359 | | 2,279 | | 3,212 | | 5,491 | |
| Interest expense: | | | | | | | | | | | | |
| Deposits | 219 | | 2,002 | | 2,221 | | 425 | | 4,714 | | 5,139 | |
| FHLB advances
and other borrowings | - | | - | | - | | 321 | | 134 | | 455 | |
| Subordinated
debentures and other borrowings | - | | 31 | | 31 | | - | | 79 | | 79 | |
| Repurchase
agreements | (42 | ) | 3 | | (39 | ) | (150 | ) | 58 | | (92 | ) |
| Total | 177 | | 2,036 | | 2,213 | | 596 | | 4,985 | | 5,581 | |
| Net interest income | $ 772 | | $ (626 | ) | $ 146 | | $ 1,683 | | $ (1,773 | ) | $ (90 | ) |

Provision for Credit Losses . During the second quarter of 2024, no provision for credit losses was recorded, compared to a $250,000 provision for credit losses recorded in the same period of 2023. As of June 30, 2024, our analysis of our allowance for credit losses indicated no provision was required based on current and projected economic conditions and other qualitative factors. We recorded net loan recoveries of $52,000 during the second quarter of 2024 compared to net loan charge-offs of $68,000 during the second quarter of 2023.

During the first six months of 2024, we recorded a $300,000 provision for credit losses compared to a $299,000 provision for credit losses in the first six months of 2023. The provision for credit losses during the first six months of 2024 consisted of a $250,000 provision to allowance for credit losses on loans and a $50,000 provision to the allowance for unfunded loan commitments, both recorded in the first quarter of 2024. The $299,000 provision for credit losses during the first six months of 2023 consisted of a $250,000 provision to the allowance for credit losses on loans, a $30,000 provision to the allowance for unfunded loan commitments and a $19,000 provision to the allowance for credit losses on held-to-maturity investment securities. We recorded net loan recoveries of $45,000 during the first six months of 2024 compared to net loan charge-offs of $115,000 during the first six months of 2023.

For further discussion of the allowance for credit losses, refer to the “Asset Quality and Distribution” section below.

Non-interest Income . Total non-interest income was $3.7 million in the second quarter of 2024, a decrease of $109,000, or 2.9%, from the same period in 2023. The decrease in non-interest income during the second quarter of 2024 compared to the same period last year was primarily due to a decrease of $182,000 in gains on sales of one-to-four family residential real estate loans as higher interest rates and low housing inventories reduced originations of these loans, which are typically sold in the secondary market. Higher mortgage rates however did result in increased originations of adjustable-rate loans this quarter which are maintained in our one-to-four family residential loan portfolio. Other non-interest income also decreased by $162,000 which was primarily due to a decrease in lease income associated with the rental income from a branch facility. Partially offsetting this decrease was an increase of $210,000 in fees and service charges primarily due to higher fees related to deposit accounts.

Total non-interest income was $7.1 million in the first half of 2024, a decrease of $204,000, or 2.8%, from the first half of 2023, primarily as a result of a decrease of $363,000 in gains on sales of loans. Our gains on sales of loans decreased as our originations of secondary market one-to-four family residential real estate loans slowed high mortgage interest rates and decreased inventory in the housing market in our market areas. Other non-interest income also decreased by $206,000 which was primarily due to a decrease in lease income associated with the rental income from a branch facility. Offsetting the decrease in non-interest income was an increase of $313,000 in fees and services charges due primarily to higher fees related to deposits accounts.

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Non-interest Expense . Non-interest expense totaled $11.1 million for the second quarter of 2024, an increase of $746,000, or 7.2%, over the same quarter of 2023. The increase in non-interest expense in the second quarter of 2024 compared to the same period last year was mainly due to an increase in other non-interest expense associated with a valuation allowance recorded against real estate held for sale. Also contributing to the increase in non-interest expense were increases of $61,000 in data processing and $42,000 in professional fees. Partially offsetting the increase in non-interest expense was a decrease amortization of intangibles, occupancy and equipment and compensation and benefits.

Non-interest expense totaled $21.6 million for the first six months of 2024, an increase of $954,000, or 4.6%, from $20.7 million for the first six months of 2023. The increase in non-interest expense in the first half of 2024 compared to the same period last year was mainly due to an increase in other non-interest expense associated with a valuation allowance recorded against real estate held for sale. Also contributing to the increase in non-interest expense was an increase in professional fees associated with increased legal costs associated with revisions to our benefit plans. Partially offsetting the increase in non-interest expense was a decrease amortization of intangibles, data processing occupancy and equipment and compensation and benefits.

Income Tax Expense . During the second quarter of 2024, we recorded income tax expense of $587,000, compared to income tax expense of $701,000 during the same period of 2023. Our effective tax rate decreased from 17.3% in the second quarter of 2023 to 16.3% in the second quarter of 2024.

We recorded income tax expense of $1.1 million for the first six months of 2024 compared to income tax expense of $1.4 million in the same period of 2023. Our effective tax rate was 17.2% in the first half of 2023 compared to 16.0% in the first half of 2024. The decrease in the effective tax rate was primarily due to lower earnings before taxes while tax-exempt was consistent.

Financial Condition. Economic conditions in the United States remained sluggish during the first six months of 2024 as elevated inflation levels and higher interest rates continued to impact the economy. The sustained high interest rates has impacted financial institutions resulting in continued higher costs of funding and lower fair values for investment securities. We maintain strong capital and liquidity, and a stable, conservative deposit portfolio with a significant majority of our deposits being retail-based and insured by the Federal Deposit Insurance Corporation (“FDIC”) insured. We spend significant time each month monitoring our interest rate and concentration risks through our asset/liability management and lending strategies that involve a relationship-based banking model offering stability and consistency. The State of Kansas and the geographic markets in which the Company operates were also impacted by economic headwinds. Supply chain constraints, labor shortages and geopolitical events have contributed to the rising inflation levels which are impacting all areas of the economy both nationally and locally. The Company’s allowance for credit losses continues to factor in estimates of the economic impact of these conditions and other qualitative factors on our loan portfolio. However, our loan portfolio is diversified across various types of loans and collateral throughout the markets in which we operate. Aside from a few problem loans that management is working to resolve, our asset quality has remained strong over the past few years. While further increases in problem assets may arise, management believes its efforts to run a high quality financial institution with a sound asset base will continue to create a strong foundation for continued growth and profitability in the future.

Asset Quality and Distribution . Our primary investing activities are the origination of one-to-four family residential real estate, construction and land, CRE, commercial, agriculture, municipal and consumer loans and the purchase of investment securities. Total assets decreased $ 918,000, or 0.1%, from December 31, 2023 to $1.6 billion at June 30, 2024.

The allowance for credit losses is established through a provision for credit losses based on our economic projections. At June 30, 2024, our allowance for credit losses on loans totaled $10.9 million, or 1.11% of gross loans outstanding, compared to $10.6 million, or 1.12% of gross loans outstanding, at December 31, 2023. The decrease in our allowance for credit losses on loans as a percentage of gross loans outstanding was primarily due to growth in loan balances of one-to-four family residential real estate loans during the first six months of 2024. One-to-four family residential real estate loans have a lower historical loss rate than other types of loans in our portfolio.

As of June 30, 2024 and December 31, 2023, approximately $17.6 million and $7.5 million, respectively, of loans were considered classified and assigned a risk rating of special mention, substandard or doubtful. These ratings indicate that these loans were identified as potential problem loans having more than normal risk and raised doubts as to the ability of the borrowers to comply with present loan repayment terms. Even though borrowers were experiencing moderate cash flow problems as well as some deterioration in collateral value, management believed the allowance for credit losses was sufficient to cover expected losses related to such loans at June 30, 2024 and December 31, 2023, respectively.

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Loans past due 30-89 days and still accruing interest totaled $1.9 million, or 0.19% of gross loans, at June 30, 2024, compared to $1.6 million, or 0.17% of gross loans, at December 31, 2023. At June 30, 2024, $5.01 million in loans were on non-accrual status, or 0.51% of gross loans, compared to $2.4 million, or 0.25% of gross loans, at December 31, 2023. Non-accrual loans consist of loans 90 or more days past due and certain individually evaluated loans. There were no loans 90 days delinquent and accruing interest at either June 30, 2024 or December 31, 2023.

As part of our credit risk management, we continue to manage the loan portfolio to identify problem loans and have placed additional emphasis on CRE and construction and land relationships. We are working to resolve the remaining problem credits or move the non-performing credits out of the loan portfolio. At June 30, 2024 we had $428,000 of real estate owned compared to $928,000 of real estate owned at December 31, 2023. As of June 30, 2024, real estate owned primarily consisted undeveloped land and residential real estate properties. The Company is currently marketing all of the remaining properties in real estate owned.

Liability Distribution . Our primary ongoing sources of funds are deposits, FHLB borrowings, proceeds from principal and interest payments on loans and investment securities and proceeds from the sale of mortgage loans and investment securities. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates and economic conditions. We experienced a decrease of $65.8 million, or 5.0% in total deposits during the first six months of 2024, to $1.3 billion at June 30, 2024. The decrease in deposits was primarily due to a seasonal decrease in our deposit accounts due to public funds and a decrease in brokered deposits.

Non-interest-bearing deposits at June 30, 2024, were $360.6 million, or 28.8% of deposits, compared to $367.1 million, or 27.9% of deposits, at December 31, 2023. Money market and checking deposit accounts were 43.7% of our deposit portfolio and totaled $546.4 million at June 30, 2024, compared to $613.6 million, or 46.6% of deposits, at December 31, 2023. Savings accounts decreased to $151.0 million, or 12.1% of deposits, at June 30, 2024, from $152.4 million, or 11.6% of deposits, at December 31, 2023. Certificates of deposit totaled $192.5 million, or 15.4% of deposits, at June 30, 2024, compared to $183.2 million, or 13.9% of deposits, at December 31, 2023. The increase in certificates of deposit was primarily related to higher brokered certificates of deposits, which increased from $83.2 million at December 31, 2023 to $43.9 million at June 30, 2024.

Overdraft deposits consist of non-interest-bearing deposits, money market and checking deposit accounts with negative balances. These overdraft balances totaled $354,000 at June 30, 2024 and $318,000 as of December 31, 2024 and were presented as loans on the balance sheet.

Total deposits include estimated uninsured deposits of $389.7 million and $197.2 million as of June 30, 2024 and December 31, 2023, respectively. This represents approximately 31.2% of our total deposits at June 30, 2024 and compares favorably with other similar community banking organizations. Over 95% of the Company’s total deposits were considered core deposits at June 30, 2024. These deposit balances are from retail, commercial and public fund customers located in the markets where the Company has bank branch locations.

Certificates of deposit at June 30, 2024, scheduled to mature in one year or less totaled $125.8 million. Historically, maturing deposits have generally remained with the Bank, and we believe that a significant portion of the deposits maturing in one year or less will remain with us upon maturity in some type of deposit account.

Total borrowings increased $62.7 million to $161.7 million at June 30, 2024, from $99.0 million at December 31, 2023. The increase in total borrowings was due to an increase in FHLB borrowings. The increase in FHLB borrowings was to fund loan growth and to offset the decline in deposits.

Cash Flows. During the six months ended June 30, 2024, our cash and cash equivalents decreased by $3.2 million. Our operating activities provided net cash of $7.2 million during the first six months of 2024 primarily as a result of net earnings. Our investing activities used net cash of $4.8 million during the first six months of 2024, primarily due to loan growth. Financing activities used net cash of $5.6 million during the first six months of 2024, primarily as a result of a decrease in deposits.

Liquidity . Our most liquid assets are cash and cash equivalents and investment securities available-for-sale. The levels of these assets are dependent on the operating, financing, lending and investing activities during any given year. These liquid assets totaled $449.2 million at June 30, 2024 and $484.8 million at December 31, 2023. During periods in which we are not able to originate a sufficient amount of loans and/or periods of high principal prepayments, we generally increase our liquid assets by investing in short-term, high-grade investments or holding higher balances of cash and cash equivalents.

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Liquidity management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. Excess funds are typically generated as a result of increased deposit balances, while uses of excess funds are generally deposit withdrawals and loan advances. In the event we require funds beyond our ability to generate them internally, additional funds are generally available through the use of FHLB advances, a line of credit with the FHLB, other borrowings or through pledging or sales of investment securities. While the sale of available-for-sale investment securities would result in losses due to the current interest environment, pledging these securities as collateral would not result in a loss. At June 30, 2024, we had $125.3 million borrowed on our line of credit with the FHLB. At June 30, 2024, we had collateral pledged to the FHLB that would allow us to borrow $256.9 million, subject to FHLB credit requirements and policies. At June 30, 2024, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $52.6 million. We also have various other federal funds agreements, both secured and unsecured, with correspondent banks totaling approximately $30.0 million in available credit under which we had no outstanding borrowings at June 30, 2024. At June 30, 2024, we had subordinated debentures totaling $21.7 million and $8.7 million of repurchase agreements. At June 30, 2024, the Company had no borrowings against a $5.0 million line of credit from an unrelated financial institution maturing on November 1, 2024, with an interest rate that adjusts daily based on the prime rate less 0.50%. This line of credit has covenants specific to capital and other financial ratios, which the Company was in compliance with at June 30, 2024. The Company also borrowed $6.0 million from the same unrelated financial institution at a fixed rate of 6.15%. This borrowing matures on September 1, 2027 and requires quarterly principal and interest payments. The original $10.0 million of borrowings was used to fund part of the acquisition of Freedom Bancshares, Inc.

Off Balance Sheet Arrangements. As a provider of financial services, we routinely issue financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by us generally to guarantee the payment or performance obligation of a customer to a third party. While these standby letters of credit represent a potential outlay by us, a significant amount of the commitments may expire without being drawn upon. We have recourse against the customer for any amount the customer is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by us. Most of the standby letters of credit are secured, and in the event of nonperformance by the customers, we have the right to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The contract amount of these standby letters of credit, which represents the maximum potential future payments guaranteed by us, was $1.6 million at June 30, 2024.

At June 30, 2024, we had outstanding loan commitments, excluding standby letters of credit, of $211.1 million. We anticipate that sufficient funds will be available to meet current loan commitments. These commitments consist of unfunded lines of credit and commitments to finance real estate loans.

Capital . Current regulatory capital regulations require financial institutions (including banks and bank holding companies) to meet certain regulatory capital requirements. The Bank is subject to the Basel III Rules that implemented the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Basel III Rules are applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets of less than $3.0 billion). The Company is considered a “small bank holding company” and is not directly subject to these minimum capital requirements.

The Basel III Rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a Tier 1 capital to risk-weighted assets minimum ratio of 6.0%, a Total Capital to risk-weighted assets minimum ratio of 8.0%, and a Tier 1 leverage minimum ratio of 4.0%. A capital conservation buffer, equal to 2.5% common equity Tier 1 capital, is also established above the regulatory minimum capital requirements (other than the Tier 1 leverage ratio). As of June 30, 2024 and December 31, 2023, the Bank met the requirements to be “well capitalized,” which is the highest rating available under the regulatory capital regulations framework for prompt corrective action. Management believed that as of June 30, 2024, the Company and the Bank met all capital adequacy requirements to which we are subject.

Dividends . During the quarter ended June 30, 2024, we paid a quarterly cash dividend of $0.21 per share to our stockholders.

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The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations. In addition, under the Basel III Rules, financial institutions have to maintain 2.5% in common equity Tier 1 capital attributable to the capital conservation buffer in order to pay dividends and make other capital distributions. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of June 30, 2024. The National Bank Act imposes limitations on the amount of dividends that a national bank may pay without prior regulatory approval. Generally, the amount is limited to the bank’s current year’s net earnings plus the adjusted retained earnings for the three preceding years. As of June 30, 2024, approximately $1.3 million was available to be paid as dividends to the Company by the Bank without prior regulatory approval.

Additionally, our ability to pay dividends is limited by the subordinated debentures that are held by three business trusts that we control. Interest payments on the debentures must be paid before we pay dividends on our capital stock, including our common stock. We have the right to defer interest payments on the debentures for up to 20 consecutive quarters. However, if we elect to defer interest payments, all deferred interest must be paid before we may pay dividends on our capital stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our assets and liabilities are principally financial in nature, and the resulting net interest income thereon is subject to changes in market interest rates and the mix of various assets and liabilities. Interest rates in the financial markets affect our decisions relating to pricing our assets and liabilities, which impact net interest income, a significant cash flow source for us. As a result, a substantial portion of our risk management activities relates to managing interest rate risk.

Our Asset/Liability Management Committee monitors the interest rate sensitivity of our balance sheet using earnings simulation models. We have set policy limits of interest rate risk to be assumed in the normal course of business and monitor such limits through our simulation process.

We have been successful in meeting the interest rate sensitivity objectives set forth in our policy. Simulation models are prepared to determine the impact on net interest income for the coming twelve months, including one using interest rates as of the forecast date, and forecasting volumes for the twelve-month projection. This position is then subjected to a shift in interest rates of 100, 200 and 300 basis points with an impact to our net interest income on a one-year horizon as follows:

| Scenario | As
of June 30, 2024 — Dollar
change in net interest income ($000’s) | | Percent
change in net interest income | | | As
of December 31, 2023 — Dollar
change in net interest income ($000’s) | | Percent
change in net interest income | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 300 basis point
rising | ($ | 6,656 | ) | (15.0 | %) | ($ | 5,924 | ) | (13.8 | %) |
| 200 basis point rising | ($ | 4,490 | ) | (10.1 | %) | ($ | 4,012 | ) | (9.3 | %) |
| 100 basis point rising | ($ | 2,338 | ) | (5.3 | %) | ($ | 2,122 | ) | (4.9 | %) |
| 100 basis point falling | $ | 552 | | 1.2 | % | $ | 17 | | 0.0 | % |
| 200 basis point falling | $ | 135 | | 0.3 | % | ($ | 909 | ) | (2.1 | %) |
| 300 basis point falling | ($ | 649 | ) | (1.5 | %) | ($ | 2,037 | ) | (4.7 | %) |

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

Forward-Looking Statements

This document (including information incorporated by reference) contains, and future oral and written statements by us and our management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to our financial condition, results of operations, plans, objectives, future performance and business. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of our management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and we undertake no obligation to update any statement in light of new information or future events.

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Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on operations and future prospects of us and our subsidiaries include, but are not limited to, the following:

| ● | The
effects of changes in interest rates (including the effects of changes in the rate of prepayments of our assets) and the policies
of the Federal Reserve (including potential decreases in rates by the Federal Reserve) including on our
net interest income and the value of our security portfolio. |
| --- | --- |
| ● | The
strength of the United States economy in general and the strength of the local economies in which we conduct our operations,
including the effects of continued inflationary pressures and supply chain constraints on such economies, which may be less
favorable than expected and may result in, among other things, a deterioration in the credit quality and value of our
assets. |
| ● | The
economic impact of past and any future terrorist attacks, acts of war, including the ongoing Israeli-Palestinian conflict and Russian invasion of Ukraine, or threats thereof, and the response of the United States to any such threats and attacks. |
| ● | The
effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, consumer
protection, insurance, tax, trade and monetary and financial matters, including any changes in response to the recent failures of
other banks and including and any other changes as a result of the upcoming 2024 presidential election or any changes in response
to failures of other banks. |
| ● | Our
ability to compete with other financial institutions due to increases in competitive pressures in the financial services sector,
including from non-bank competitors such as credit unions and “fintech” companies. |
| ● | Our
inability to obtain new customers and to retain existing customers. |
| ● | The
timely development and acceptance of products and services. |
| ● | Technological
changes implemented by us and by other parties, including third-party vendors, which may be more difficult to implement or more expensive
than anticipated or which may have unforeseen consequences to us and our customers. |
| ● | Our
ability to develop and maintain secure and reliable electronic systems. |
| ● | The
effectiveness of our risk management framework. |
| ● | The
occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents and
our ability to identify and address such incidents. |
| ● | Interruptions
involving our information technology and telecommunications systems or third-party servicers. |
| ● | The
effects of severe weather, natural disasters, widespread disease or pandemics and other external
events. |
| ● | Our
ability to retain key executives and employees and the difficulty that we may experience in replacing key executives and employees
in an effective manner. |
| ● | Consumer
spending and saving habits which may change in a manner that affects our business adversely. |
| ● | Our
ability to successfully integrate acquired businesses and future growth. |
| ● | The
costs, effects and outcomes of existing or future litigation. |
| ● | Changes
in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board, such as the implementation
of the Current Expected Credit Loss methodology. |
| ● | Our
ability to effectively manage our credit risk. |
| ● | Our
ability to forecast probable credit losses and maintain an adequate allowance for credit losses. |
| ● | Fluctuations
in the value of securities held in our securities portfolio. |
| ● | Concentrations
within our loan portfolio (including CRE loans), large loans to certain borrowers, and large deposits from certain
clients. |
| ● | The
concentration of large deposits from certain clients who have balances above current FDIC insurance limits and may withdraw deposits
to diversify their exposure. |
| ● | The
level of non-performing assets on our balance sheets. |
| ● | Our
ability to raise additional capital if needed. |
| ● | The
effects of declines in real estate markets. |
| ● | The
effects of fraudulent activity on the part of our employees, customers, vendors, or counterparties. |

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including other factors that could materially affect our financial results, is included in our filings with the Securities and Exchange Commission, including the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2023 filed on March 27, 2024.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2024. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2024 to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2024 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company or its subsidiaries is a party or which any of their property is subject, other than ordinary routine litigation incidental to their respective businesses.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about purchases by the Company during the quarter ended June 30, 2024, of the Company’s equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

| Period — April 1-30, 2024 | 506 | Average
price paid per share — $ 19.05 | 506 | 159,311 |
| --- | --- | --- | --- | --- |
| May 1-31, 2024 | 3,795 | 18.82 | 3,795 | 155,516 |
| June 1-30, 2024 | - | - | - | 155,516 |
| Total | 4,301 | $ 18.83 | 4,301 | 155,516 |

(1) In March 2020, our Board of Directors approved a stock repurchase plan, permitting us to repurchase up to 225,890 shares. Unless terminated earlier by resolution of the Board of Directors, the stock repurchase plan will expire when we have repurchased all shares authorized for repurchase thereunder. As of June 30, 2023, there were 155,516 shares remaining to purchase under the March 2020 repurchase Program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Rule 10b5-1 Trading Plans

During the quarter ended June 30, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule10b5-1(c) or any non-Rule 10b5-1 trading arrangement.

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ITEM 6. EXHIBITS

| Exhibit
3.1 | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s transition report on Form 10-K filed with the SEC on March 29, 2002 (SEC file no. 000-33203)) |
| --- | --- |
| Exhibit
3.2 | Certificate of Amendment of the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Company’s report on Form 10-K filed with the SEC on March 29, 2013 (SEC file no. 000-33203)) |
| Exhibit
3.3 | Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Form S-4 filed with the SEC on June 7, 2001 (SEC file no. 333-62466)) |
| Exhibit
10.1 | Landmark Bancorp, Inc. 2024 Stock Incentive Plan (incorporated by reference to Exhibit 4.4 to the Company’s Form S-8 filed with the SEC on July 25, 2024 (SEC file no. 333-281020)) |
| Exhibit
10.2 | Form of Landmark Bancorp, Inc. 2024 Stock Incentive Plan Nonqualified Stock Option Award Agreement (incorporated by reference to Exhibit 4.5 to the Company’s Form S-8 filed with the SEC on July 25, 2024 (SEC file no. 333-281020)) |
| Exhibit
10.3 | Form of Landmark Bancorp, Inc. 2024 Stock Incentive Plan Incentive Stock Option Award Agreement (incorporated by reference to Exhibit 4.6 to the Company’s Form S-8 filed with the SEC on July 25, 2024 (SEC file no. 333-281020)) |
| Exhibit
10.4 | Form of Landmark, Inc. 2024 Stock Incentive Plan Restricted Stock Award Agreement (incorporated by reference to Exhibit 4.7 to the Company’s Form S-8 filed with the SEC on July 25, 2024 (SEC file no. 333-281020)) |
| Exhibit
10.5 | Form of Landmark Bancorp, Inc. 2024 Stock Incentive Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 4.8 to the Company’s Form S-8 filed with the SEC on July 25, 2024 (SEC file no. 333-281020)) |
| Exhibit
31.1 | Certificate of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
| Exhibit
31.2 | Certificate of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
| Exhibit
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| Exhibit
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| Exhibit
101 | Interactive data files
pursuant to Rule 405 of Regulation S-T formatted in Inline XBRL: (i) Consolidated Balance Sheets as of June 30, 2024 and December
31, 2023; (ii) Consolidated Statements of Earnings for three and six months ended June 30, 2024 and June 30, 2023; (iii) Consolidated
Statements of Comprehensive Income for the three and six months ended June 30, 2024 and June 30, 2023; (iv) Consolidated Statements
of Stockholders’ Equity for the three and six months ended June 30, 2024 and June 30, 2023; (v) Consolidated Statements of
Cash Flows for the six months ended June 30, 2024 and June 30 2023; and (vi) Notes to Consolidated Financial Statements |
| Exhibit
104 | Cover Page Interactive
Data File (formatted as Inline XBRL and contained in Exhibit 101) |

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| | LANDMARK
BANCORP, INC. |
| --- | --- |
| Date:
August 13, 2024 | /s/
Abigail M. Wendel |
| | Abigail
M. Wendel |
| | President
and Chief Executive Officer |
| | (Principal
Executive Officer) |
| Date:
August 13, 2024 | /s/
Mark A. Herpich |
| | Mark
A. Herpich |
| | Vice
President, Secretary, Treasurer |
| | and
Chief Financial Officer |
| | (Principal
Financial and Accounting Officer) |

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Field: /Page

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