LANDMARK BANCORP INC

Previous wording

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

Current wording

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

Previous wording

In October 2024, we declared our 93 rd 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 September 30, 2024. In October 2024, we also declared a 5% stock dividend. The stock dividend will be issued on December 16, 2024. This is the 24 th consecutive year that the Company has issued a 5% stock dividend.

Current wording

In April 2025, we declared our 95 th 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, 2024, 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, 2025.

Previous wording

Summary of Results. During the third quarter of 2024, we recorded net earnings of $3.9 million, which was an increase of $1.1 million, or 36.6%, from net earnings of $2.9 million in the third quarter of 2023. During the first nine months of 2024, we recorded net earnings of $9.7 million, which was an increase of $124,000, or 1.3%, from net earnings of $9.6 million during the first nine months of 2023. The increase in net earnings during 2024 was primarily related to an increase in net interest income and non-interest income.

Current wording

Summary of Results. During the first quarter of 2025, we recorded net earnings of $4.7 million, which was an increase of $1.9 million, or 69.2%, from net earnings of $2.8 million in the first quarter of 2024.The increase in net earnings during 2025 was primarily related to an increase in net interest income and non-interest income.

Previous wording

Interest Income. Interest income of $19.0 million for the quarter ended September 30, 2024 represented an increase of $2.2 million, or 13.3%, compared to the same period of 2023. Interest income on loans increased $2.4 million, or 17.8%, to $15.9 million for the quarter ended September 30, 2024, compared to the same period of 2023 due to higher yields and average balances. Our yields increased from 5.93% in the third quarter of 2023 to 6.43% in the third quarter of 2024. The increase in interest income on loans was also driven by an increase in average loan balances which increased from $906.3 million in the third quarter of 2023 to $985.7 million in the third quarter of 2024. Interest income on investment securities decreased $169,000, or 5.3%, to $3.0 million for the third 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 $486.7 million in the third quarter of 2023 to $428.3 million in the third quarter of 2024. Partially offsetting the lower average balances was in increase in yields, which increased from 2.77% in the third quarter of 2024 to 2.99% in the third quarter of 2024.

Current wording

Interest Income. Interest income of $19.3 million for the quarter ended March 31, 2025 represented an increase of $1.6 million, or 9.0%, compared to the same period of 2024. Interest income on loans increased $1.9 million, or 13.1%, to $16.4 million for the quarter ended March 31, 2025, compared to the same period of 2024 due to higher yields and average balances. Our yields increased from 6.16% in the first quarter of 2024 to 6.34% in the first quarter of 2025. The increase in interest income on loans was also driven by an increase in average loan balances, which increased from $945.7 million in the first quarter of 2024 to $1.0 billion in the first quarter of 2025. Interest income on investment securities decreased $293,000, or 9.2%, to $2.9 million for the first quarter of 2025, as compared to $3.2 million in the same period of 2024. 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 $456.9 million in the first quarter of 2024 to $377.8 million in the first quarter of 2025. Partially offsetting the lower average balances was an increase in yields, which increased from 2.96% in the first quarter of 2024 to 3.29% in the first quarter of 2025.

Previous wording

Interest Expense. Interest expense during the quarter ended September 30, 2024 increased $1.3 million to $7.4 million, as compared to the same period of 2023. Interest expense on interest-bearing deposits increased $1.4 million to $5.8 million for the quarter ended September 30, 2024, as compared to the same period of 2023. Our total cost of interest-bearing deposits increased from 1.93% in the third quarter of 2023 to 2.48% in the third 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 $902.7 million in the third quarter of 2023 to $936.2 million in the third quarter of 2024. For the third quarter of 2024, interest expense on borrowings decreased $196,000 to $1.6 million, as compared to the same period of 2023 due to a decrease in our average borrowings and repurchase agreements which decreased $16.1 million from the third quarter of 2023 to the third quarter of 2024. Partially offsetting the decrease in average borrowing was an increase in rates, which increased from 5.60% in the third quarter of 2023 to 5.72% in the same period of 2024.

Current wording

Interest Expense. Interest expense during the quarter ended March 31, 2025 decreased $775,000 to $6.2 million, as compared to the same period of 2024. Interest expense on interest-bearing deposits decreased $221,000 to $5.2 million for the quarter ended March 31, 2025, as compared to the same period of 2024. Our total cost of interest-bearing deposits decreased from 2.35% in the first quarter of 2024 to 2.17% in the first quarter of 2025 as a result of lower rates on our deposits. Partially offsetting the lower rates was an increase in average interest-bearing deposit balances, which increased from $935.4 million in the first quarter of 2024 to $979.8 million in the first quarter of 2025. For the first quarter of 2025, interest expense on borrowings decreased $554,000 to $987,000, as compared to the same period of 2024 due to a decrease in our average borrowings and repurchase agreements which decreased $29.9 million from the first quarter of 2024 to the first quarter of 2025. Also contributing to lower interest expense was a decrease in rates, which decreased from 5.77% in the first quarter of 2024 to 5.09% in the same period of 2025.

Previous wording

Net interest income increased $919,000, or 2.8%, to $33.3 million for the first nine months of 2024 compared to the same period of 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 and a decrease in interest income on investment securities. The accretion of purchase accounting adjustments increased net interest income by $750,000 in the first nine months of 2023 compared to an increase of $850,000, in the first nine months of 2024 and was primarily related to fair value adjustments on loans acquired in the Freedom Bank transaction. Net interest margin, on a tax-equivalent basis, increased from 3.19% in the first nine months of 2023 to 3.21% in the same period of 2024.

Current wording

Net Interest Income. Net interest income increased $2.4 million, or 22.1%, to $13.1 million for the first quarter of 2025, as compared to the first quarter of 2024. The increase in net interest income was primarily a result of an increase in interest income on loans and lower interest expense. The accretion of purchase accounting adjustments increased net interest income by $209,000 in the first quarter of 2024 compared to an increase of $184,000 in the first quarter of 2025, and was primarily related to fair value adjustments on loans acquired in the Freedom Bank transaction. Compared to the same period last year, growth in average loans increased interest income while lower rates decreased interest expense. Net interest margin, on a tax-equivalent basis, was 3.12% in the first quarter of 2024, compared to 3.76% in the first quarter of 2025.

Previous wording

Provision for Credit Losses. During the third quarter of 2024, a $500,000 provision for credit losses was recorded, compared to no provision for credit losses recorded in the same period of 2023. As of September 30, 2024, our analysis of our allowance for credit losses indicated a provision was required based on loan growth, current and projected economic conditions and other qualitative factors. We recorded net loan charge-offs of $9,000 during the third quarter of 2024, compared to net loan recoveries of $521,000 during the third quarter of 2023.

Current wording

Provision for Credit Losses. During the first quarter of 2025, no provision for credit losses was recorded, compared to a $300,000 provision for credit losses recorded in the same period of 2024. As of March 31, 2025, our analysis of our allowance for credit losses indicated no provision was required based on current and projected economic conditions and other qualitative factors. We recorded net loan charge-offs of $23,000 during the first quarter of 2025, compared to net loan charge-offs of $7,000 during the first quarter of 2024.

Previous wording

Non-interest Income. Total non-interest income was $4.3 million in the third quarter of 2024, an increase of $601,000, or 16.5%, from the same period in 2023. The increase in non-interest income during the third quarter of 2024 compared to the same period in the prior year was primarily due to an increase in fees and service charges of $262,000 primarily due to higher fees related to deposit accounts. Gains on sales of one-to-four family residential real estate loans increased $213,000 due to lower interest rates. Other non-interest income also increased by $102,000, which was primarily due to a $273,000 gain on sale during the quarter of a former branch facility located in Overland Park, Kansas.

Current wording

Non-interest Income. Total non-interest income was $3.4 million in the first quarter of 2025, a decrease of $42,000, or 1.2%, from the same period in 2024. The decrease in non-interest income during the first quarter of 2025 compared to the same period in the prior year was primarily due to a decrease in fees and service charges of $73,000 primarily due to lower fees related to deposit accounts. Other non-interest income also decreased by $44,000 during the first quarter of 2025 compared to the same period in the prior year, primarily due to lower rent income from an office building that was sold in 2024. Partially offsetting those decreases in non-interest income was an increase in gain on sales of one-to-four family residential real estate loans which increased $50,000 due to a slight increase in volume.

Previous wording

Non-interest Expense. Non-interest expense totaled $10.6 million for the third quarter of 2024, a decrease of $170,000, or 1.6%, over the same quarter of 2023. The decrease in non-interest expense in the third quarter of 2024 compared to the same period in the prior year was mainly due to a decrease in amortization of mortgage servicing rights, other intangibles, and professional fees. Partially offsetting the decrease in non-interest expense was an increase in occupancy and equipment and other non-interest expense.

Current wording

Non-interest Expense. Non-interest expense totaled $10.8 million for the first quarter of 2025, an increase of $210,000, or 2.0%, over the same quarter of 2024. The increase in non-interest expense in the first quarter of 2025 compared to the same period in the prior year was mainly due to an increase in compensation due to additional staffing and higher benefit costs. Partially offsetting that increase in non-interest expense were decreases in occupancy and equipment, valuation allowance on real estate held for sale, data processing and amortization of intangibles.

Previous wording

Income Tax Expense. During the third quarter of 2024, we recorded income tax expense of $867,000, compared to income tax expense of $671,000 during the same period of 2023. Our effective tax rate decreased from 18.9% in the third quarter of 2023 to 18.1% in the third quarter of 2024. The decrease in the effective tax rate was due to increases in tax credits and tax exempt income.

Current wording

Income Tax Expense. During the first quarter of 2025, we recorded income tax expense of $1.1 million, compared to income tax expense of $518,000 during the same period of 2024. Our effective tax rate increased from 15.7% in the first quarter of 2024 to 17.8% in the first quarter of 2025. The increase in the effective tax rate was due to higher earnings before taxes while tax exempt income was consistent.

Previous wording

***Financial Condition.***Economic conditions in the United States remained sluggish during the first nine months of 2024 as elevated inflation levels and high interest rates continued to impact the economy. The sustained high interest rates have impacted financial institutions generally, 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 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.

Current wording

***Financial Condition.***Economic conditions in the United States remained sluggish during the first three months of 2025 as elevated inflation levels and high interest rates continued to impact the economy. Although interest rates decreased slightly in the second half of 2024, sustained high interest rates have impacted financial institutions generally, 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 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

The allowance for credit losses is established through a provision for credit losses based on our economic projections. At September 30, 2024, our allowance for credit losses on loans totaled $11.5 million, or 1.15% 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 current and projected economic conditions and other qualitative factors.

Current wording

The allowance for credit losses is established through a provision for credit losses based on our economic projections. At March 31, 2025, our allowance for credit losses on loans totaled $12.8 million, or 1.19% of gross loans outstanding, compared to $12.8 million, or 1.22% of gross loans outstanding, at December 31, 2024. The decrease in our allowance for credit losses on loans as a percentage of gross loans outstanding was primarily due to loan growth and current and projected economic conditions and other qualitative factors.

Previous wording

As of September 30, 2024 and December 31, 2023, approximately $26.9 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 September 30, 2024 and December 31, 2023, respectively.

Current wording

As of March 31, 2025 and December 31, 2024, approximately $27.9 million and $26.1 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 March 31, 2025 and December 31, 2024, respectively.

Previous wording

Loans past due 30-89 days and still accruing interest totaled $7.3 million, or 0.73% of gross loans, at September 30, 2024, compared to $1.6 million, or 0.17% of gross loans, at December 31, 2023. The increase in past due loans was primarily related to a single commercial loan and an agriculture loan. At September 30, 2024, $13.4 million in loans were on non-accrual status, or 1.34% of gross loans, compared to $2.4 million, or 0.25% of gross loans, at December 31, 2023. The increase in non-accrual status loans was primarily related to one commercial loan which was put on non-accrual status in the third quarter of 2024. 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 September 30, 2024 or December 31, 2023.

Current wording

Loans past due 30-89 days and still accruing interest totaled $10.0 million, or 0.93% of gross loans, at March 31, 2025, compared to $6.2 million, or 0.59% of gross loans, at December 31, 2024. The increase in such past due loans was primarily related to loans in our commercial and CRE portfolios. We are currently working with a small number of delinquent borrowers, and do not believe the increase in delinquent loans is an indicator of broader weakness in the commercial or CRE portfolios. At March 31, 2025, $13.3 million in loans were on non-accrual status, or 1.24% of gross loans, compared to $13.1 million, or 1.25% of gross loans, at December 31, 2024. 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 March 31, 2025 or December 31, 2024.

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 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 September 30, 2024 we had $428,000 of real estate owned compared to $928,000 of real estate owned at December 31, 2023. As of September 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.

Current wording

As part of our credit risk management strategy, we continue to manage the loan portfolio to identify problem loans and have placed additional emphasis on CRE and commercial loan relationships. We are working to resolve the remaining problem credits or move the non-performing credits out of the loan portfolio. At both March 31, 2025 and December 31, 2024, we had $167,000 of real estate owned. As of March 31, 2025, real estate owned primarily 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 a decrease of $40.7 million, or 3.1% in total deposits during the first nine months of 2024, to $1.3 billion at September 30, 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 an increase of $7.0 million, or 0.53% in total deposits during the first three months of 2025, to $1.3 billion at March 31, 2025. The increase in deposits was primarily due to a seasonal increase in our deposit accounts due to public funds.

Previous wording

Non-interest-bearing deposits at September 30, 2024 were $360.2 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 44.4% of our deposit portfolio and totaled $565.6 million at September 30, 2024, compared to $613.6 million, or 46.6% of deposits, at December 31, 2023. Savings accounts decreased to $145.8 million, or 11.4% of deposits, at September 30, 2024, from $152.4 million, or 11.6% of deposits, at December 31, 2023. Certificates of deposit totaled $203.9 million, or 16.0% of deposits, at September 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 $42.8 million at December 31, 2023 to $49.8 million at September 30, 2024.

Current wording

Non-interest-bearing deposits at March 31, 2025 were $368.5 million, or 27.6% of deposits, compared to $351.6 million, or 26.5% of deposits, at December 31, 2024. Money market and checking deposit accounts were 45.9% of our deposit portfolio and totaled $613.5 million at March 31, 2025, compared to $637.0 million, or 47.9% of deposits, at December 31, 2024. Savings accounts increased to $149.2 million, or 11.2% of deposits, at March 31, 2025, from $145.5 million, or 11.0% of deposits, at December 31, 2024. Certificates of deposit totaled $204.7 million, or 15.3% of deposits, at March 31, 2025, compared to $194.7 million, or 14.7% of deposits, at December 31, 2024. The increase in certificates of deposit was primarily related to higher brokered certificates of deposits, which increased from $41.0 million at December 31, 2024 to $51.2 million at March 31, 2025.

Previous wording

Overdraft deposits consist of non-interest-bearing deposits, money market and checking deposit accounts with negative balances. These overdraft balances totaled $383,000 at September 30, 2024 and $318,000 as of December 31, 2023 and were presented as loans on the balance sheet.

Current wording

Overdraft deposits consist of non-interest-bearing deposits, money market and checking deposit accounts with negative balances. These overdraft balances totaled $350,000 as of March 31, 2025 and $316,000 as of December 31, 2024 and were presented as loans on the balance sheet.

Previous wording

Total deposits include estimated uninsured deposits of $388.0 million and $430.0 million as of September 30, 2024 and December 31, 2023, respectively. This represented approximately 30.4% of our total deposits at September 30, 2024 and compares favorably with other similar community banking organizations. Over 95% of the Company’s total deposits were considered core deposits at September 30, 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 $441.2 million and $444.1 million as of March 31, 2025 and December 31, 2024, respectively. This represented approximately 33.0% of our total deposits at March 31, 2025 and 33.4% of our deposits at December 31, 2024. Over 93.1% of the Company’s total deposits were considered core deposits at March 31, 2025. 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 September 30, 2024, scheduled to mature in one year or less totaled $130.6 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 March 31, 2025 scheduled to mature in one year or less totaled $191.4 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.

Previous wording

Cash Flows. During the nine months ended September 30, 2024, our cash and cash equivalents decreased by $5.9 million. Our operating activities provided net cash of $15.3 million during the first nine months of 2024 primarily as a result of net earnings. Our investing activities used net cash of $869,000 during the first nine months of 2024, primarily due to loan growth. Financing activities used net cash of $20.3 million during the first nine months of 2024, primarily as a result of a decrease in deposits.

Current wording

Cash Flows. During the three months ended March 31, 2025, our cash and cash equivalents increased by $1.6 million. Our operating activities provided net cash of $8.0 million during the first three months of 2025 primarily as a result of net earnings. Our investing activities used net cash of $424,000 during the first three months of 2025, primarily due to loan growth which was partially offset by maturities of investment securities. Financing activities used net cash of $6.0 million during the first three months of 2025, primarily as a result of a decrease in borrowings which was partially offset by deposit growth.

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 $436.6 million at September 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.

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 $381.8 million at March 31, 2025 and $396.9 million at December 31, 2024. 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 September 30, 2024, we had $86.4 million borrowed on our line of credit with the FHLB. At September 30, 2024, we had collateral pledged to the FHLB that would allow us to borrow $272.2 million, subject to FHLB credit requirements and policies. At September 30, 2024, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $54.0 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 September 30, 2024. At September 30, 2024, we had subordinated debentures totaling $21.7 million and $9.5 million of repurchase agreements. At September 30, 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, which the Company was in compliance with at September 30, 2024. The Company also borrowed $5.7 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 March 31, 2025, we had $44.9 million borrowed on our line of credit with the FHLB. At March 31, 2025, we had collateral pledged to the FHLB that would allow us to borrow $289.4 million, subject to FHLB credit requirements and policies. At March 31, 2025, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $46.9 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, 2025. At March 31, 2025, we had subordinated debentures totaling $21.7 million and $6.3 million of repurchase agreements. At March 31, 2025, 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, which the Company was in compliance with at March 31, 2025. The Company also has outstanding borrowings of $3.9 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

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 $1.5 million at September 30, 2024.

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 March 31, 2025.

Previous wording

At September 30, 2024, we had outstanding loan commitments, excluding standby letters of credit, of $194.0 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 March 31, 2025, we had outstanding loan commitments, excluding standby letters of credit, of $202.7 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 September 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 September 30, 2024, approximately $3.3 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 discussed above, banking organizations must maintain a capital conservation buffer of 2.5% that is added to certain regulatory minimum requirements for capital adequacy purposes 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, 2025. The National Bank Act also 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 net earnings plus the adjusted retained earnings for the three preceding years. As of March 31, 2025, approximately $13.1 million was available to be paid as dividends to the Company by the Bank without prior regulatory approval.