LANDMARK BANCORP INC

Previous wording

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.

Current wording

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, including the negatives of such 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.

Previous wording

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 “Item 1A. Risk Factors.”

Current wording

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 “Item 1A. Risk Factors” of this Annual Report on Form 10-K.

Previous wording

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. 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 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

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. 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 growing our commercial, CRE and agriculture loan portfolios, while continuing to emphasize and maintaining high quality assets. 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 do 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 do invest in certain investment and mortgage-related securities using deposits and other borrowings as funding sources.

Previous wording

We are significantly impacted by prevailing economic conditions including federal monetary and fiscal policies and federal regulations of financial institutions. The Bank’s markets have been impacted by the COVID-19 pandemic, which has had and continues to have a complex and significant impact on the economy. 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.

Current wording

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, the interest rate pricing competition from other lending institutions, and rates of inflation.

Previous wording

Currently, our business consists of ownership of the Bank, with its main office in Manhattan, Kansas and thirty one additional offices in central, eastern, southeast and southwest Kansas and Missouri, and our ownership of Landmark Risk Management, Inc. Landmark Risk Management, Inc. is a Nevada-based captive insurance company.

Current wording

Currently, our business consists of its ownership of the Bank, with its main office in Manhattan, Kansas and thirty additional offices in central, eastern, southeast and southwest Kansas and Missouri, and our ownership of the Captive, a Nevada-based captive insurance company.

Previous wording

Critical accounting policies are those that 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 business combinations, both of which involve significant judgment by our management.

Current wording

Critical accounting policies are those that 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 goodwill, both of which involve significant judgment by our management.

Previous wording

On January 1, 2023, we adopted CECL, which changed our allowance for credit losses from an incurred loss methodology to an expected loss methodology. The CECL model is subject to changes in our economic forecast, which can impact the calculation of our allowance for credit losses substantially. Our most significant critical accounting estimates relate to the allowance for credit losses on loans, which involve significant judgment by our management. The analysis is updated on a quarterly basis based on historical loss information adjusted for current conditions and reasonable and supportable forecasts. Additionally, the Company considers changes in economic and business conditions, changes in policies, procedures and underwriting, changes in management or staff and their related experience, changes in nature and volume of the portfolio, changes in loan review, changes in collateral values, changes in past due and nonaccrual loans, changes in competition, legal and regulatory issues, changes in concentrations and other qualitative factors, which impacts the estimate of future credit losses. These qualitative factors comprise a significant portion of the Company’s allowance for credit losses. Based on a sensitivity analysis of all collectively evaluated loan pools, a five basis point change in the qualitative risk factors across all loan categories would result in an increase or decrease of $474,000 or 4.5% in the allowance for credit losses as of December 31,2023. See Note 1 Summary of Significant Accounting Policies for a more detailed description methodology and impact of adoption.

Current wording

On January 1, 2023, we adopted CECL, which changed our allowance for credit losses from an incurred loss methodology to an expected loss methodology. The CECL model is subject to changes in our economic forecast, which can impact the calculation of our allowance for credit losses substantially. Our most significant critical accounting estimates relate to the allowance for credit losses on loans, which involve significant judgment by our management. The analysis is updated on a quarterly basis based on historical loss information adjusted for current conditions and reasonable and supportable forecasts. Additionally, the Company considers changes in economic and business conditions, changes in policies, procedures and underwriting, changes in management or staff and their related experience, changes in nature and volume of the portfolio, changes in loan review, changes in collateral values, changes in past due and nonaccrual loans, changes in competition, legal and regulatory issues, changes in concentrations and other qualitative factors, which impacts the estimate of future credit losses. These qualitative factors comprise a significant portion of the Company’s allowance for credit losses. Based on a sensitivity analysis of all collectively evaluated loan pools, a five basis point change in the qualitative risk factors across all loan categories would result in an increase or decrease of $520,000, or 4.1%, in the allowance for credit losses as of December 31, 2024. See Note 1 (Summary of Significant Accounting Policies) to the Company’s consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for a more detailed description methodology and impact of adoption.

Previous wording

**SUMMARY OF PERFORMANCE.**Net earnings for 2023 increased $2.4 million, or 23.9%, to $12.2 million as compared to $9.9 million for 2022. The increase in net earnings during 2023 was primarily related to an increase in interest income due to an increase in average interest earning assets and higher yields on those assets. The increase in assets was due primarily to our acquisition of Freedom Bank on October 1, 2022 and organic growth. Higher interest rates and average balances of interest bearing liabilities also increased our interest expense. The acquisition of Freedom Bank also contributed to an increase in non-interest expense in 2023.

Current wording

**SUMMARY OF PERFORMANCE.**Net earnings for 2024 increased $767,000, or 6.3%, to $13.0 million as compared to $12.2 million for 2023. The increase in net earnings during 2024 was primarily related to an increase in net interest income due primarily to an increase in loans and higher yields on interest-earning assets.

Previous wording

We distributed a 5% stock dividend for the 23rd consecutive year in December 2023. All per share and average share data in this section reflect the 2023 and 2022 stock dividends.

Current wording

We distributed a 5% stock dividend for the 24 th consecutive year in December 2024. All per share and average share data in this section reflect the 2024 and 2023 stock dividends.

Previous wording

**Interest Income.**Interest income for 2023 increased $21.5 million to $64.7 million, an increase of 49.6% as compared to 2022. Interest income on loans increased $18.3 million, or 54.6%, to $51.8 million for 2023, as compared to 2022 due to higher yields and average balances. Our yields increased from 4.77% in 2022 to 5.81% in 2023. The increase in interest income on loans was also driven by an increase in average loan balances, which increased from $702.2 million in 2022 to $891.5 million in 2023. Interest income on investment securities increased $3.3 million, or 34.5%, to $12.7 million during 2023, as compared to 2022. The increase in interest income on investment securities was primarily the result of increased yields on investment securities, which increased from 2.15% in 2022 to 2.76% in 2023. Also contributing to the increase in interest income on investment securities was an increase in the average balances of investment securities, which increased from $474.7 million in 2022 to $486.3 million in 2023. Higher market interest rates have positively impacted the yield on our loans and investment securities.

Current wording

**Interest Income.**Interest income for 2024 increased $9.2 million, or 14.2%, to $73.9 million, as compared to 2023. Interest income on loans increased $9.6 million, or 18.6%, to $61.4 million for 2024, as compared to 2023 due to higher yields and average balances. Our yields increased from 5.81% in 2023 to 6.3% in 2024. The increase in interest income on loans was also driven by an increase in average loan balances, which increased from $891.5 million in 2023 to $974.3 million in 2024. Interest income on investment securities decreased $382,000, or 3.1%, to $12.3 million during 2024, as compared to 2023. The decrease in interest income on investment securities was primarily the result of a decrease in the average balances of investment securities in 2024, which decreased from $486.3 million in 2023 to $432.9 million in 2024.

Previous wording

**Interest Expense.**Interest expense during 2023 increased $17.0 million, or 392.2%, to $21.4 million as compared to 2022. Interest expense on interest-bearing deposits increased $12.5 million to $15.3 million for 2023 as compared to $2.8 million in 2022. Our total cost of interest-bearing deposits increased from 0.35% during 2022 to 1.71% during 2023 as a result of higher rates and increased competition for deposits. Also contributing to the increase in interest expense was an increase in average interest-bearing deposit balances, which increased from $804.1 million in 2022 to $892.4 million in 2023, largely resulting from the acquisition of Freedom Bank. Interest expense on borrowings increased $4.6 million to $6.1 million during 2023, as compared to 2022, due to an increase in our average borrowings, which increased from $50.0 million in 2022 to $114.2 million in 2023. Also contributing to the increase in interest expense on borrowings were higher rates, which increased from 3.14% in 2022 to 5.37% in 2023. Higher market interest rates have negatively impacted our cost of interest-bearing deposits and borrowings.

Current wording

**Interest Expense.**Interest expense during 2024 increased $6.8 million, or 31.5%, to $28.2 million as compared to 2023. Interest expense on interest-bearing deposits increased $7.1 million to $22.3 million for 2024 as compared to $15.3 million in 2023. Our total cost of interest-bearing deposits increased from 1.71% during 2023 to 2.38% during 2024 as a result of higher rates and increased competition for deposits. Also contributing to the increase in interest expense was an increase in average interest-bearing deposit balances, which increased from $892.4 million in 2023 to $938.2 million in 2024. Interest expense on borrowings decreased $272,000 to $5.9 million during 2024, as compared to 2023, due to a decrease in our average borrowings, which decreased from $114.2 million in 2023 to $104.1 million in 2024.

Previous wording

During 2023, net interest income increased $4.4 million, or 11.3%, to $43.3 million compared to $38.9 million in 2022. The increase in net interest income was primarily a result of an increase in interest income on loans and investments, partially offset by higher interest expense. The accretion of purchase accounting adjustments increased net interest income by $993,000 in 2023 compared to $460,000 in 2022. The increase 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. Our net interest margin, on a tax-equivalent basis, decreased to 3.17% during 2023 from 3.21% during 2022. Continued increases in interest rates may not result in a higher net interest margin as a result of increased competition for loans and deposits and the impact of a negative sloping yield curve. Additionally, deposit balances may decline resulting in the need for higher cost funding.

Current wording

During 2024, net interest income increased $2.4 million, or 5.6%, to $45.7 million compared to $43.3 million in 2023. The increase in net interest income was primarily a result of an increase in interest income on loans, partially offset by higher interest expense. The accretion of purchase accounting adjustments increased net interest income by $1.0 million in 2024 compared to $993,000 in 2023. Compared to the same period last year, higher interest rates increased the yields on our interest-earning assets and the cost of our interest-bearing liabilities. Our net interest margin, on a tax-equivalent basis, increased to 3.28% during 2024 from 3.17% during 2023. Lower interest rates may not result in a higher net interest margin as a result of increased competition for loans and deposits and the slope of the yield curve also impacts our net interest margin. Additionally, deposit balances may decline resulting in the need for higher cost funding.

Previous wording

**Provision for credit Losses.**On January 1, 2023, we adopted CECL and established an allowance for credit losses (“ACL”) based on this framework. The ACL is based on the historical loss rates and the weighted average remaining maturity for financial assets measured at amortized costs including loans, investment securities and unfunded loan commitments. The historical loss rates are adjusted to reflect reasonable and supportable forecasts to estimate expected credit losses over the life of the financial asset.

Current wording

**Provision for credit Losses.**On January 1, 2023, we adopted CECL and established an ACL based on this framework. The ACL is based on the historical loss rates and the weighted average remaining maturity for financial assets measured at amortized costs including loans, investment securities and unfunded loan commitments. The historical loss rates are adjusted to reflect reasonable and supportable forecasts to estimate expected credit losses over the life of the financial asset.

Previous wording

During 2023, we recorded a $349,000 provision for credit losses compared to no provision for credit losses in 2022. The $349,000 provision for credit losses during 2023 consisted of a $250,000 provision to the allowance for credit losses on loans, $80,000 to unfunded loan commitments and $19,000 to the allowance for credit losses on held-to-maturity investment securities. We recorded net loan recoveries of $44,000 during 2023 compared to net loan recoveries of $16,000 during 2022.

Current wording

During 2024, we recorded a $2.3 million provision for credit losses compared to a $349,000 provision for credit losses in 2023. The $2.3 million provision for credit losses during 2024 consisted of a $2.4 million provision to the allowance for credit losses on loans and a credit provision of $100,000 to unfunded loan commitments. We recorded net loan charge-offs of $183,000 during 2024 compared to net loan recoveries of $44,000 during 2023.

Previous wording

INCOME TAXES. We recorded income tax expense of $2.0 million in 2023 compared to $1.4 million in 2022. The effective tax rate increased from 12.7% in 2022 to 13.8% in 2023, primarily due to higher earnings before income taxes. During 2023, we recognized $517,000 of previously unrecognized tax benefits compared to $465,000 during 2022, which reduced the effective tax rates in both years.

Current wording

INCOME TAXES. We recorded income tax expense of $1.1 million in 2024 compared to $2.0 million in 2023. The effective tax rate decreased from 13.8% in 2023 to 7.7% in 2024, primarily due to higher tax-exempt income and the recognition of previously unrecognized tax benefits. During 2024, we recognized $1.0 million of previously unrecognized tax benefits compared to $517,000 during 2023, which reduced the effective tax rates in both years.

Previous wording

FINANCIAL CONDITION. Economic conditions in the United States continue to be stagnant during 2023 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. Three large regional banks have been closed by the Federal Deposit Insurance Corporation (FDIC) mainly due to liquidity concerns, resulting from interest rate risk issues and large concentrations of uninsured corporate deposits. The liquidity issues faced by these banks related to their operations and business strategies which were different than our business model. 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 these 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. While nationally commercial real estate has been negatively impacted by higher interest rates and vacancies, the Company’s markets have not been impacted as much as other areas of the United States. Our 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 U.S. remained sluggish during 2024 as elevated inflation levels and higher interest rates continued to impact the economy. Elevated interest rates and a flat or negative sloping yield curve have impacted financial institutions generally, resulting in continued higher costs of funding and lower fair values for investment securities. The Federal Reserve lowered interest rates by 1.00% in the second half of 2024 due to improvements in the inflation outlook, however, additional rate cuts are dependent upon further reductions in the inflation rate and other economic factors. 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 FDIC. 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 have also been 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 increased $58.8 million, or 3.9%, to $1.6 billion at December 31, 2023, compared to $1.5 billion at December 31, 2022. Net loans, excluding loans held for sale, increased $96.5 million, or 11.5%, to $937.6 million at December 31, 2023, compared to $841.1 million at December 31, 2022. Investment securities available-for-sale decreased $36.5 million, or 7.5%, from $489.3 million at December 31, 2022 to $452.8 million at December 31, 2023.

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 were $1.6 billion at both December 31, 2024 and December 31, 2023. Net loans, excluding loans held for sale, increased $101.6 million, 10.8%, to $1.0 billion at December 31, 2024, compared to $937.6 million at December 31, 2023. Investment securities available-for-sale decreased $80.3 million, or 17.7%, from $452.8 million at December 31, 2023 to $372.5 million at December 31, 2024.

Previous wording

The allowance for credit losses is established through a provision for credit losses based on our economic projections. At December 31, 2023, our allowance for credit losses on loans totaled $10.6 million, or 1.12% of gross loans outstanding, compared to $8.8 million, or 1.03% of gross loans outstanding, at December 31, 2022. The increase in our allowance for credit losses on loans as a percentage of gross loans outstanding was primarily due to the adoption of CECL on January 1, 2023.

Current wording

The allowance for credit losses is established through a provision for credit losses based on our economic projections. At December 31, 2024, our allowance for credit losses on loans totaled $12.8 million, or 1.22% 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 an increase in the reserves on individually evaluated loans.

Previous wording

As of December 31, 2023 and 2022, approximately $7.5 million and $13.0 million, respectively, of loans were considered classified and assigned a risk rating of special mention, substandard or doubtful. These ratings indicate that the loans identified as potential problem loans have more than normal risk which raised doubts as to the ability of the borrower to comply with present loan repayment terms. Even though these borrowers were experiencing moderate cash flow problems as well as some deterioration in collateral value, management believed the general allowance was sufficient to cover all expected future losses expected in the loan portfolio at the balance sheet date.

Current wording

As of December 31, 2024 and 2023, approximately $26.1 million and $7.5 million, respectively, of loans were considered classified and assigned a risk rating of special mention, substandard or doubtful. The increase in classified loans was primarily due to commercial loan relationships that moved to classified status during 2024. These ratings indicate that the loans identified as potential problem loans have more than normal risk which raised doubts as to the ability of the borrower to comply with present loan repayment terms. Even though these borrowers were experiencing moderate cash flow problems as well as some deterioration in collateral value, management believed the general allowance was sufficient to cover all expected future losses expected in the loan portfolio at the balance sheet date.

Previous wording

Loans past due 30-89 days and still accruing interest totaled $1.6 million, or 0.17% of gross loans, at December 31, 2023, compared to $738,000, or 0.09% of gross loans, at December 31, 2022. At December 31, 2023, $2.4 million of loans were on non-accrual status, or 0.25% of gross loans, compared to $3.3 million, or 0.39% of gross loans, at December 31, 2022. Non-accrual loans consist of loans 90 or more days past due and certain impaired loans. There were no loans 90 days delinquent and accruing interest at December 31, 2023 and 2022.

Current wording

Loans past due 30-89 days and still accruing interest totaled $6.2 million, or 0.59% of gross loans, at December 31, 2024, compared to $1.6 million, or 0.17% of gross loans, at December 31, 2023. At December 31, 2024, $13.1 million of loans were on non-accrual status, or 1.25% of gross loans, compared to $2.4 million, or 0.25% of gross loans, at December 31, 2023. Past due loans are determined in accordance with the contractual repayment terms. 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 December 31, 2024 and 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 December 31, 2023, we had $928,000 of real estate owned compared to $934,000 at December 31, 2022. The decrease in real estate owned as of December 31, 2023 compared to December 31, 2022 was primarily due to a valuation allowance recorded against a residential real estate property. As of December 31, 2023, real estate owned consisted of a commercial building, undeveloped land and three 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 commercial 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 December 31, 2024, we had $167,000 of real estate owned compared to $928,000 at December 31, 2023. The decrease in real estate owned as of December 31, 2024 compared to December 31, 2023 was primarily due to the sale of properties. As of December 31, 2024, real estate owned consisted of a single parcel of undeveloped land. The Company is currently marketing the property.

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 increase of $15.6 million, or 1.2% in total deposits during 2023, to $1.3 billion at December 31, 2023, from $1.1 billion at December 31, 2022. The increase in deposits was primarily due to higher balances of brokered deposits.

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 had a balance of $1.3 billion in deposits at December 31, 2024 and December 31, 2023.

Previous wording

Total borrowings increased $30.8 million, or 45.1%, to $99.0 million at December 31, 2023, from $68.3 million at December 31, 2022. The increase in borrowings was primarily due to funding loan growth.

Current wording

Total borrowings decreased $10.5 million, or 10.6%, to $88.5 million at December 31, 2024, from $99.0 million at December 31, 2023. The decrease in borrowings was primarily due to deposit growth and the sale of investment securities.

Previous wording

Non-interest-bearing deposits at December 31, 2023, were $367.1 million, or 27.9% of deposits, compared to $410.1 million, or 31.5% of deposits, at December 31, 2022. Money market and checking accounts were 46.6% of our deposit portfolio and totaled $613.6 million at December 31, 2023, compared to $626.7 million, or 48.2% of deposits, at December 31, 2022. Savings accounts decreased to $152.4 million, or 11.6% of deposits, at December 31, 2023, from $170.6 million, or 13.1% of deposits, at December 31, 2022. Certificates of deposit totaled $183.2 million, or 13.9% of deposits, at December 31, 2023, compared to $93.3 million, or 7.2% of deposits, at December 31, 2022. Competition for deposits may affect our ability to continue to increase deposit balances and could result in a decrease in our deposit balances in future periods.

Current wording

Non-interest-bearing deposits at December 31, 2024 were $351.6 million, or 26.5% of deposits, compared to $367.1 million, or 27.9% of deposits, at December 31, 2023. Money market and checking accounts were 47.9% of our deposit portfolio and totaled $637.0 million at December 31, 2024, compared to 46.6% of our deposit portfolio totaling $613.6 million, at December 31, 2023. Savings accounts decreased to $145.5 million, or 10.9% of deposits, at December 31, 2024, from $152.4 million, or 11.6% of deposits, at December 31, 2023. Certificates of deposit totaled $194.7 million, or 14.7% of deposits, at December 31, 2024, compared to $183.2 million, or 13.9% of deposits, at December 31, 2023. Competition for deposits may affect our ability to continue to increase deposit balances and could result in a decrease in our deposit balances in future periods.

Previous wording

Certificates of deposit at December 31, 2023, scheduled to mature in one year or less totaled $163.4 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 December 31, 2024, scheduled to mature in one year or less totaled $181.0 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

CASH FLOWS. During 2023, our cash and cash equivalents increased by $3.9 million. Our operating activities provided net cash of $12.6 million in 2023, which is primarily the result of net earnings and sales of one-to-four family residential mortgage loans. Our investing activities used net cash of $50.6 million during 2023, primarily to fund loan growth. Our financing activities provided net cash of $42.0 million during 2023, primarily as a result of an increase in borrowings.

Current wording

CASH FLOWS. During 2024, our cash and cash equivalents decreased by $6.8 million as compared to 2023. Our operating activities provided net cash of $14.2 million in 2024, compared to $12.6 million in 2023, which is primarily the result of net earnings and sales of one-to-four family residential mortgage loans. Our investing activities used net cash of $18.1 million during 2024, compared to $50.6 million in 2023, primarily to fund loan growth. Our financing activities used net cash of $2.9 million during 2024, compared to providing $42.0 million in 2023, primarily as a result of funding dividend payments.

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 $484.8 million at December 31, 2023 and $521.5 million at December 31, 2022. 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.

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 $396.9 million at December 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.

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 brokered deposits, FHLB advances, a line of credit with the FHLB, other borrowings or through sales of investment securities. At December 31, 2023, we had an outstanding balance of $58.0 million against our line of credit with the FHLB. At December 31, 2023, we had collateral pledged to the FHLB that would allow us to borrow $153.1 million, subject to FHLB credit requirements and policies. At December 31, 2023, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $60.7 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 December 31, 2023. At December 31, 2023, we had subordinated debentures totaling $21.7 million and $12.7 million of repurchase agreements. At December 31, 2023, 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 December 31, 2023. The Company also borrowed $6.6 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 balance of this borrowing was $10.0 million and was used to fund part of the acquisition of Freedom.

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 brokered deposits, FHLB advances, a line of credit with the FHLB, other borrowings or through sales of investment securities. At December 31, 2024, we had an outstanding balance of $48.8 million against our line of credit with the FHLB. At December 31, 2024, we had collateral pledged to the FHLB that would allow us to borrow $171.0 million, subject to FHLB credit requirements and policies. At December 31, 2024, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $50.5 million. We also have various other federal funds agreements, both secured and unsecured, with correspondent banks totaling approximately $35.0 million in available credit under which we had no outstanding borrowings at December 31, 2024. At December 31, 2024, we had subordinated debentures totaling $21.7 million and $13.8 million of repurchase agreements. At December 31, 2024, the Company had no borrowings against a $5.0 million line of credit from an unrelated financial institution maturing on November 1, 2025, 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. At December 31, 2024, the Company’s tier 1 capital ratio of 12.43% was below the minimum required under such covenants of 12.50%. The Company requested from the lender a waiver of the default, which was granted by the lender. On March 14, 2025, the Company and the lender entered into a Change in Terms Agreement, reducing the minimum risk-based capital ratio required under such covenants to 12.00% going forward. The Company also borrowed $4.2 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 balance of this borrowing was $10.0 million and was used to fund part of the acquisition of Freedom.

Previous wording

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 December 31, 2023.

Current wording

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 CRE, 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 $1.9 million at December 31, 2024 as compared to $1.6 million at December 31, 2023.

Previous wording

At December 31, 2023, we had outstanding loan commitments, excluding standby letters of credit, of $211.8 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 December 31, 2024, we had outstanding loan commitments, excluding standby letters of credit, of $201.2 million, as compared to $211.8 million at December 31, 2023. 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

**CAPITAL.**Current regulatory capital regulations require financial institutions (including banks and bank holding companies) to meet certain regulatory capital requirements. The Company and the Bank are subject to the Basel III Rule that implemented the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. The Basel III Rule 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).

Current wording

**CAPITAL.**As discussed in more detail in the “Supervision and Regulation” section of “Item 1. Business” of this Annual Report on Form 10-K, current regulatory capital regulations require financial institutions (including banks and bank holding companies) to meet certain regulatory capital requirements. The Company and the Bank are subject to the Basel III Rule that implemented the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. The Basel III Rule 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).

Previous wording

The Basel III Rule requires 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). At December 31, 2023, the Bank maintained a leverage ratio of 8.7% and a total risk-based capital ratio of 13.7%. As shown by the following table, the Bank’s capital exceeded the minimum capital requirements in effect at December 31, 2023, including the capital conservation buffers.

Current wording

At December 31, 2024, the Bank maintained a leverage ratio of 9.10% and a total risk-based capital ratio of 13.5%. As shown by the following table, the Bank’s capital exceeded the minimum capital requirements in effect at December 31, 2024, including the capital conservation buffers.

Previous wording

During the year ended December 31, 2023, we paid quarterly cash dividends of $0.20 per share to our stockholders, as adjusted to give effect to 5% stock dividends, which we distributed for the 23th consecutive year in December 2023. The 2022 quarterly cash dividends were $0.19 per share as adjusted to give effect to 5% stock dividends.

Current wording

During the year ended December 31, 2024, we paid quarterly cash dividends of $0.20 per share to our stockholders, as adjusted to give effect to 5% stock dividends, which we distributed for the 24th consecutive year in December 2024. The 2023 quarterly cash dividends were $0.19 per share as adjusted to give effect to 5% stock dividends.

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. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 2023. 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 December 31, 2023, $12.9 million 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. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 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 December 31, 2024, $4.9 million was available to be paid as dividends to the Company by the Bank without prior regulatory approval.

Previous wording

Our consolidated financial statements and accompanying footnotes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which generally require the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation can be found in the increased cost of our operations because our assets and liabilities are primarily monetary, and interest rates have a greater impact on our performance than do the effects of inflation.

Current wording

Our consolidated financial statements and accompanying footnotes have been prepared in accordance with GAAP, which generally require the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation can be found in the increased cost of our operations because our assets and liabilities are primarily monetary, and interest rates have a greater impact on our performance than do the effects of inflation.