LANDMARK BANCORP INC

Previous wording

**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 and agriculture loan portfolios. We are committed to developing relationships with our borrowers and providing a total banking service.

Current wording

**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.

Previous wording

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, commercial real estate, 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.

Current wording

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.

Previous wording

In April 2024, we declared our 91 st 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 March 31, 2024.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Interest Income. Interest income of $17.7 million for the quarter ended March 31, 2024 increased $3.2 million, or 21.7%, as compared to the same period of 2023. Interest income on loans increased $3.1 million, or 27.4%, to $14.5 million for the quarter ended March 31, 2024, compared to the same period of 2023 due to higher yields and average balances. Our yields increased from 5.43% in the first quarter of 2023 to 6.16% in the first quarter of 2024. The increase in interest income on loans was also driven by an increase in average loan balances which increased from $850.3 million in the first quarter of 2023 to $945.7 million in the first quarter of 2024. Interest income on investment securities increased $89,000, or 2.9%, to $3.2 million for the first quarter of 2024, as compared to $3.1 million in the same period of 2023. The increase in interest income on investment securities was the result of increased yields on investment securities, which increased from 2.68% in the first quarter of 2023 to 2.96% in the first quarter of 2024.

Current wording

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.

Previous wording

Interest Expense. Interest expense during the quarter ended March 31, 2024 increased $3.4 million, to $7.0 million, as compared to the same period of 2023. Interest expense on interest-bearing deposits increased $2.9 million, to $5.5 million for the quarter ended March 31, 2024 as compared to the same period of 2023. Our total cost of interest-bearing deposits increased from 1.18% in the first quarter of 2023 to 2.35% in the first quarter of 2024 as a result of a higher interest rate environment and increased competition for deposits. Also contributing to higher interest expense was an increase in average interest-bearing deposit balances, which increased from $872.9 million in the first quarter of 2023 to $935.4 million in the first quarter of 2024. For the first quarter of 2024, interest expense on borrowings increased $450,000, to $1.5 million as compared to the same period of 2023 due to an increase in our average borrowings which increased from $94.4 million in the first quarter of 2023 to $108.6 million in the same period of 2024. Also contributing to the increase in interest expense on borrowings were higher rates, which increased from 4.63% in the first quarter of 2023 to 5.69% in the same period of 2024.

Current wording

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.

Previous wording

Net Interest Income. Net interest income decreased $200,000, or 1.8%, to $10.7 million for the first quarter of 2024 compared to the same period of 2023. The decrease in net interest income was primarily a result of an increase in interest expense on deposits and borrowings which was partially offset by higher interest income on loans and investments. The accretion of purchase accounting adjustments increased net interest income by $209,000 in the first quarter of 2024 compared to an increase of $176,000 in the first quarter of 2023 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, decreased from 3.31% in the first quarter of 2023 to 3.12% in the same period of 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.

Current wording

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.

Previous wording

Average Assets/Liabilities. The following table reflects the tax-equivalent yields earned on average interest-earning assets and costs of average interest-bearing liabilities for the periods indicated (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:

Current wording

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:

Previous wording

Provision for Credit Losses. During the first quarter of 2024, we recorded a $300,000 provision for credit losses as compared to a $49,000 provision for credit losses recorded in the same period of 2023. The increase was the result of an increase in our overall loan portfolio over the quarter. The provision for credit losses in the first quarter of 2024 consisted of $250,000 to allowance for credit losses on loans and $50,000 to the allowance for unfunded loan commitments. The provision for credit losses in the first quarter of 2023 consisted of $30,000 to the allowance for unfunded loan commitments and $19,000 to the allowance for credit losses on held-to-maturity investment securities. We recorded net loan charge-offs of $7,000 during the first quarter of 2024 compared to net loan charge-offs of $47,000 during the first quarter of 2023.

Current wording

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.

Previous wording

Non-interest Income. Total non-interest income was $3.4 million in the first quarter of 2024, a decrease of $95,000, or 2.7%, from the same period in 2023. The decrease in non-interest income during the first quarter of 2024 compared to the same period last year was primarily due to the decrease 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. However, higher mortgage rates did result in increased originations of adjustable-rate loans this quarter which are maintained in our one-to-four family residential loan portfolio.

Current wording

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.

Previous wording

Non-interest Expense. Non-interest expense totaled $10.6 million for the first quarter of 2024, an increase of $208,000, or 2.0%, over the same quarter of 2023. The increase in non-interest expense in the first 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 and an increase in operating losses. 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 in data processing due to the Freedom core conversion occurring at the end of the first quarter of 2023.

Current wording

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.

Previous wording

Income Tax Expense. During the first quarter of 2024, we recorded income tax expense of $518,000, compared to $693,000 during the same period of 2023. Our effective tax rate decreased from 17.1% in the first quarter of 2023 to 15.7% in the first quarter of 2024. The decrease in the effective tax rate was primarily related to lower earnings before income taxes.

Current wording

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.

Previous wording

***Financial Condition.***Economic conditions in the United States remained sluggish during the first three months of 2024 as elevated inflation levels and higher interest rates continued to impact the economy. The increase in interest rates has impacted financial institutions resulting in 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 majority of our deposits being retail-based and 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 included 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.

Current wording

***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.

Previous wording

Asset Quality and Distribution. Our primary investing activities are the origination of one-to-four family residential real estate, construction and land, commercial real estate, commercial, agriculture, municipal and consumer loans and the purchase of investment securities. Total assets decreased $8.5 million, or 0.5%, from December 31, 2023 to $1.6 billion at March 31, 2024.

Current wording

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.

Previous wording

The allowance for credit losses is established through a provision for credit losses based on our economic projections. At March 31, 2024, our allowance for credit losses on loans totaled $10.9 million, or 1.13% of gross loans outstanding, compared to $10.6 million, or 1.12% of gross loans outstanding, at December 31, 2023. The increase in our allowance for credit losses on loans as a percentage of gross loans outstanding was primarily due to growth in loan balances during the first quarter of 2024.

Current wording

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.

Previous wording

As of March 31, 2024 and December 31, 2023, approximately $14.1 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 ACL was sufficient to cover expected losses related to such loans at March 31, 2024 and December 31, 2023, respectively.

Current wording

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.

Previous wording

Loans past due 30-89 days and still accruing interest totaled $4.1 million, or 0.42% of gross loans, at March 31, 2024, compared to $1.6 million, or 0.17% of gross loans, at December 31, 2023. At March 31, 2024, $3.6 million in loans were on non-accrual status, or 0.38% 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 March 31, 2024 or December 31, 2023.

Current wording

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.

Previous wording

As part of our credit risk management, we continue to manage the loan portfolio to identify problem loans and have placed additional emphasis on commercial real estate 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 March 31, 2024 we had $428,000 of real estate owned compared to $928,000 of real estate owned at December 31, 2023,. As of March 31, 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.

Current wording

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.

Previous wording

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 an decrease of $22.7 million, or 1.7% in total deposits during the first three months of 2024, to $1.3 billion at March 31, 2024. The decrease in deposits was primarily due to a seasonal decrease in our deposit accounts due to public funds.

Current wording

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.

Previous wording

Non-interest-bearing deposits at March 31, 2024, were $364.4 million, or 28.2% of deposits, compared to $367.1 million, or 27.9% of deposits, at December 31, 2023. Money market and checking deposit accounts were 45.1% of our deposit portfolio and totaled $583.3 million at March 31, 2024, compared to $613.6 million, or 46.6% of deposits, at December 31, 2023. Savings accounts increased to $154.0 million, or 11.9% of deposits, at March 31, 2024, from $152.4 million, or 11.6% of deposits, at December 31, 2023. Certificates of deposit totaled $191.8 million, or 14.8% of deposits, at March 31, 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 $42.8 million at December 31, 2023 to $45.1 million at March 31, 2024.

Current wording

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.

Previous wording

Total deposits include estimated uninsured deposits of $406.9 million and $430.0 million as of March 31, 2024 and December 31, 2023, respectively. This represents approximately 31.5% of our total deposits at March 31, 2024 and compares favorably with other similar community banking organizations. Over 92% of the Company’s total deposits were considered core deposits at March 31, 2024. These deposit balances are from retail, commercial and public fund customers located in the markets where the Company has bank branch locations.

Current wording

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.

Previous wording

Certificates of deposit at March 31, 2024, scheduled to mature in one year or less totaled $164.5 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.

Current wording

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.

Previous wording

Total borrowings increased $13.2 million to $112.3 million at March 31, 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 non-brokered deposits.

Current wording

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.

Previous wording

Cash Flows. During the three months ended March 31, 2024, our cash and cash equivalents decreased by $10.6 million. Our operating activities provided net cash of $2.9 million during the first three months of 2024 primarily as a result of net earnings. Our investing activities used net cash of $2.7 million during the first three months of 2024, primarily due to loan growth. Financing activities used net cash of $10.8 million during the first three months of 2024, primarily as a result of a decrease in deposits.

Current wording

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.

Previous wording

**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 $458.7 million at March 31, 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.

Current wording

**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.

Previous wording

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 March 31, 2024, we had $68.4 million borrowed on our line of credit with the FHLB. At March 31, 2024, we had collateral pledged to the FHLB that would allow us to borrow $235.0 million, subject to FHLB credit requirements and policies. At March 31, 2024, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $56.9 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 March 31, 2024. At March 31, 2024, we had subordinated debentures totaling $21.7 million and $15.9 million of repurchase agreements. At March 31, 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 March 31, 2024. The Company also borrowed $6.3 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.

Current wording

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.

Previous wording

At March 31, 2024, we had outstanding loan commitments, excluding standby letters of credit, of $195.3 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.

Current wording

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.

Previous wording

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 March 31, 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 March 31, 2024, approximately $574,000 was available to be paid as dividends to the Company by the Bank without prior regulatory approval.

Current wording

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.