Equibles

10-Q

LANDMARK BANCORP INC (LARK)

10-Q 2022-11-10 For: 2022-09-30
View Original
Added on April 07, 2026

UNITED

STATES

SECURITIES

AND EXCHANGE COMMISSION

Washington,

D.C. 20549

FORM

10-Q

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

For the quarterly period ended

September 30, 2022

OR

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

For

the transition period from ________ to ________

Commission

File Number 0-33203

LANDMARK BANCORP, INC.

(Exact name of registrant as specified in its charter)

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

701Poyntz Avenue, Manhattan, Kansas 66502

(Address of principal executive offices) (Zip code)

(785)565-2000

(Registrant’s telephone number, including area code)

Securities

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

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

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

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

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

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

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

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

Indicate

the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: as of November 09, 2022, the issuer had outstanding 4,966,884 shares of its common stock, $0.01 par value per share.

LANDMARK

BANCORP, INC.

Form

10-Q Quarterly Report

Table

of Contents

Page<br> <br><br> Number
PART I
Item<br> 1. Financial<br> Statements 2<br> - 25
Item<br> 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
Item<br> 3. Quantitative and Qualitative Disclosures about Market Risk 35
Item<br> 4. Controls and Procedures 37
PART II
Item<br> 1. Legal Proceedings 38
Item<br> 1A. Risk Factors 38
Item<br> 2. Unregistered Sales of Equity Securities and Use of Proceeds 38
Item<br> 3. Defaults Upon Senior Securities 38
Item<br> 4. Mine Safety Disclosures 38
Item<br> 5. Other Information 38
Item<br> 6. Exhibits 39
Signature Page 40 
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PART

I – FINANCIAL INFORMATION

ITEM

  1. FINANCIAL STATEMENTS

LANDMARK

BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED

BALANCE SHEETS

(Dollars<br> in thousands, except per share amounts) December<br> 31,
2021
Assets
Cash<br> and cash equivalents 49,234 $ 189,213
Interest-bearing<br> deposits at other banks 8,844 7,378
Investment<br> securities available-for-sale, at fair value 484,106 380,717
Bank<br> stocks, at cost 6,641 2,905
Loans,<br> net of allowance for loans losses of 8,858 and 8,775 702,138 653,233
Loans<br> held for sale, at fair value 2,741 4,795
Bank<br> owned life insurance 32,672 32,106
Premises<br> and equipment, net 20,628 20,803
Goodwill 17,532 17,532
Other<br> intangible assets, net 36 84
Mortgage<br> servicing rights 3,980 4,193
Real<br> estate owned, net 1,288 2,551
Accrued<br> interest and other assets 25,456 13,458
Total<br> assets 1,355,296 $ 1,328,968
Liabilities<br> and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing<br> demand 347,942 $ 350,005
Money<br> market and checking 504,973 536,868
Savings 170,988 155,501
Certificates<br> of deposit 93,234 106,107
Total<br> deposits 1,117,137 1,148,481
Federal<br> Home Loan Bank borrowings 74,900 -
Subordinated<br> debentures 21,651 21,651
Other<br> borrowings 16,349 7,403
Accrued<br> interest and other liabilities 19,775 15,790
Total<br> liabilities 1,249,812 1,193,325
Commitments<br> and contingencies - -
Stockholders’<br> equity:
Preferred<br> stock, 0.01 par value per share, 200,000 shares authorized; none issued - -
Common<br> stock, 0.01 par value per share, 7,500,000 shares authorized; 5,015,122 and 4,997,459 shares issued at September 30, 2022 and December<br> 31, 2021, respectively 50 50
Additional<br> paid-in capital 79,329 79,120
Retained<br> earnings 58,114 52,593
Treasury<br> stock, at cost; 41,821 and 0 shares at September 30, 2022 and December 31, 2021, respectively (1,040 ) -
Accumulated<br> other comprehensive (loss) income (30,969 ) 3,880
Total<br> stockholders’ equity 105,484 135,643
Total<br> liabilities and stockholders’ equity 1,355,296 $ 1,328,968

All values are in US Dollars.

See accompanying notes to consolidated financial statements.

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LANDMARK

BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED

STATEMENTS OF EARNINGS

(Unaudited)

2022 2021 2022 2021
Three<br> months ended Nine<br> months ended
(Dollars<br> in thousands, except per share amounts) September<br> 30, September<br> 30,
2022 2021 2022 2021
Interest<br> income:
Loans $ 8,025 $ 8,461 $ 22,372 $ 25,705
Investment<br> securities:
Taxable 1,783 782 4,379 2,356
Tax-exempt 780 748 2,232 2,285
Total<br> interest income 10,588 9,991 28,983 30,346
Interest<br> expense:
Deposits 771 258 1,324 800
Borrowings 366 120 665 362
Total<br> interest expense 1,137 378 1,989 1,162
Net<br> interest income 9,451 9,613 26,994 29,184
Provision<br> for loan losses 500 - - 500
Net<br> interest income after provision for loan losses 8,951 9,613 26,994 28,684
Non-interest<br> income:
Fees<br> and service charges 2,511 2,268 7,079 6,454
Gains<br> on sales of loans, net 1,049 2,660 3,027 8,664
Bank<br> owned life insurance 189 193 566 494
(Losses)<br> gains on sales of investment securities, net (353 ) 30 (353 ) 1,138
Other 133 314 569 913
Total<br> non-interest income 3,529 5,465 10,888 17,663
Non-interest<br> expense:
Compensation<br> and benefits 5,051 5,132 14,779 15,096
Occupancy<br> and equipment 1,335 1,101 3,745 3,268
Data<br> processing 383 498 1,085 1,491
Amortization<br> of mortgage servicing rights and other intangibles 314 376 965 1,225
Professional<br> fees 472 413 1,338 1,236
Acquisition<br> costs 134 - 355 -
Other 1,769 1,923 5,051 5,390
Total<br> non-interest expense 9,458 9,443 27,318 27,706
Earnings<br> before income taxes 3,022 5,635 10,564 18,641
Income<br> tax expense 522 1,118 1,898 3,777
Net<br> earnings $ 2,500 $ 4,517 $ 8,666 $ 14,864
Earnings per share:
Basic (1) $ 0.50 $ 0.90 $ 1.74 $ 2.98
Diluted (1) $ 0.50 $ 0.90 $ 1.73 $ 2.97
Dividends per share (1) $ 0.21 $ 0.19 $ 0.63 $ 0.57
(1) Per<br> share amounts for the periods ended September 30, 2021 have been adjusted to give effect<br> to the 5% stock dividend<br> paid during December 2021.
--- ---

See accompanying notes to consolidated financial statements.

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LANDMARK

BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

2022 2021 2022 2021
Three<br> months ended Nine<br> months ended
(Dollars<br> in thousands) September<br> 30, September<br> 30,
2022 2021 2022 2021
Net<br> earnings $ 2,500 $ 4,517 $ 8,666 $ 14,864
Net<br> unrealized holding losses on available-for-sale securities (17,324 ) (754 ) (46,510 ) (3,544 )
Reclassification<br> adjustment for net losses (gains) included in earnings 353 (30 ) 353 (1,138 )
Net<br> unrealized losses (16,971 ) (784 ) (46,157 ) (4,682 )
Income<br> tax effect on net (losses) gains included in earnings (86 ) 8 (87 ) 279
Income<br> tax effect on net unrealized holding losses 4,244 184 11,395 868
Other<br> comprehensive loss (12,813 ) (592 ) (34,849 ) (3,535 )
Total<br> comprehensive (loss) income $ (10,313 ) $ 3,925 $ (26,183 ) $ 11,329

See accompanying notes to consolidated financial statements.

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LANDMARK

BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED

STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars<br> in thousands, except per share amounts) Additional<br><br> paid-in<br><br> capital Retained<br><br> earnings Treasury<br><br> stock Accumulated<br><br> other<br><br> comprehensive<br><br> income (loss) Total
Balance<br> at July 1, 2021 48 $ 72,413 $ 53,391 $ - $ 6,504 $ 132,356
Net<br> earnings - - 4,517 - - 4,517
Other<br> comprehensive loss - - - - (592 ) (592 )
Dividends paid (0.19<br> per share) - - (951 ) - - (951 )
Issuance<br> of Restricted common stock, 2,880 shares - - - - - -
Stock-based<br> compensation - 76 - - - 76
Exercise<br> of stock options, 152 shares - - - - - -
Balance<br> at September 30, 2021 48 $ 72,489 $ 56,957 $ - $ 5,912 $ 135,406
Balance at July 1,<br> 2022 50 $ 79,284 $ 56,662 $ (538 ) $ (18,156 ) $ 117,302
Net<br> earnings - - 2,500 - 2,500
Other<br> comprehensive loss - - - (12,813 ) (12,813 )
Dividends paid (0.21<br> per share) - - (1,048 ) - (1,048 )
Issuance<br> of Restricted common stock, 17,551 shares - - - - - -
Stock-based<br> compensation - 45 - - - 45
Exercise of stock<br> options, 112 shares - - - - - -
Purchase<br> of 19,691 treasury shares - - - (502 ) - (502 )
Balance<br> at September 30, 2022 50 $ 79,329 $ 58,114 $ (1,040 ) $ (30,969 ) $ 105,484

All values are in US Dollars.

See accompanying notes to consolidated financial statements.

(Dollars<br> in thousands, except per share amounts) Additional<br><br> paid-in<br><br> capital Retained<br><br> earnings Treasury<br><br> stock Accumulated<br><br> other<br><br> comprehensive<br><br> income (loss) Total
Balance<br> at January 1, 2021 48 $ 72,230 $ 44,947 $ - $ 9,447 $ 126,672
Net<br> earnings - - 14,864 - - 14,864
Other<br> comprehensive loss - - - - (3,535 ) (3,535 )
Dividends paid (0.57<br> per share) - - (2,854 ) - - (2,854 )
Issuance<br> of Restricted common stock, 2,880 shares - - - - - -
Stock-based<br> compensation - 237 - - - 237
Exercise<br> of stock options, 5,918 shares - 22 - - - 22
Balance<br> at September 30, 2021 48 $ 72,489 $ 56,957 $ - $ 5,912 $ 135,406
Balance at January<br> 1, 2022 50 $ 79,120 $ 52,593 $ - $ 3,880 $ 135,643
Net<br> earnings - - 8,666 - - 8,666
Other<br> comprehensive loss - - - - (34,849 ) (34,849 )
Dividends paid (0.63<br> per share) - - (3,145 ) - - (3,145 )
Issuance of Restricted<br> common stock,17,551 shares - - - - - -
Stock-based<br> compensation - 209 - - - 209
Exercise of stock<br> options, 112 shares - - - - - -
Purchase<br> of 40,806 treasury shares - - - (1,040 ) - (1,040 )
Balance<br> at September 30, 2022 50 $ 79,329 $ 58,114 $ (1,040 ) $ (30,969 ) $ 105,484

All values are in US Dollars.

See accompanying notes to consolidated financial statements.

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LANDMARK

BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED

STATEMENTS OF CASH FLOWS

(Unaudited)

2022 2021
Nine<br> months ended
(Dollars<br> in thousands) September<br> 30,
2022 2021
Cash<br> flows from operating activities:
Net<br> earnings $ 8,666 $ 14,864
Adjustments<br> to reconcile net earnings to net cash provided by operating activities:
Provision<br> for loan losses - 500
Valuation<br> allowance on real estate owned - 48
Amortization<br> of investment security premiums, net 1,272 1,481
Amortization<br> of purchase accounting adjustment on loans (22 ) (43 )
Amortization<br> of mortgage servicing rights and other intangibles 965 1,225
Depreciation 836 742
Increase<br> in cash surrender value of bank owned life insurance (566 ) (494 )
Stock-based<br> compensation 209 237
Deferred<br> income taxes 139 105
Net<br> losses (gains) on sales of investment securities 353 (1,138 )
Net<br> gains on sales of premises and equipment and foreclosed assets (114 ) (24 )
Net<br> gains on sales of loans (3,027 ) (8,664 )
Proceeds<br> from sales of loans 124,886 277,635
Origination<br> of loans held for sale (120,509 ) (263,965 )
Changes<br> in assets and liabilities:
Accrued<br> interest and other assets (828 ) 906
Accrued<br> expenses, taxes, and other liabilities 2,243 2,560
Net<br> cash provided by operating activities 14,503 25,975
Cash<br> flows from investing activities:
Net<br> (increase) decrease in loans (48,883 ) 44,224
Net<br> change in interest-bearing deposits at banks (1,482 ) (2,185 )
Maturities<br> and prepayments of investment securities 40,885 36,949
Purchases<br> of investment securities (201,511 ) (132,132 )
Proceeds<br> from sales of investment securities 11,210 16,623
Redemption<br> of bank stocks 185 2,277
Purchase<br> of bank stocks (3,921 ) (789 )
Purchase<br> bank owned life insurance - (6,000 )
Proceeds<br> from sales of premises and equipment and foreclosed assets 1,379 488
Purchases<br> of premises and equipment, net (661 ) (610 )
Net<br> cash used in investing activities (202,799 ) (41,155 )
Cash<br> flows from financing activities:
Net<br> (decrease) increase in deposits (31,344 ) 50,660
Federal<br> Home Loan Bank advance borrowings 178,139 -
Federal<br> Home Loan Bank advance repayments (103,239 ) -
Proceeds<br> from other borrowings 10,000 -
Repayments<br> on other borrowings (1,054 ) (152 )
Proceeds<br> from exercise of stock options - 22
Payment<br> of dividends (3,145 ) (2,854 )
Purchase<br> of treasury stock (1,040 ) -
Net<br> cash provided by financing activities 48,317 47,676
Net<br> (decrease) increase in cash and cash equivalents (139,979 ) 32,496
Cash<br> and cash equivalents at beginning of period 189,213 84,818
Cash<br> and cash equivalents at end of period $ 49,234 $ 117,314

(Continued)

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LANDMARK

BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED

STATEMENTS OF CASH FLOWS, CONTINUED

(Unaudited)

Nine<br> months ended
(Dollars<br> in thousands) September<br> 30,
2022 2021
Supplemental disclosure<br> of cash flow information:
Cash<br> payments for income taxes $ 320 $ 4,390
Cash<br> paid for interest 1,866 1,195
Cash<br> paid for operating leases 128 108
Supplemental<br> schedule of noncash investing and financing activities:
Transfer<br> of loans to real estate owned - 1,193
Investment<br> securities purchases not yet settled 1,740 5,528
Operating<br> lease asset and related lease liability recorded - 219

See accompanying notes to consolidated financial statements.

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LANDMARK

BANCORP, INC. AND SUBSIDIARIES

NOTES

TO CONSOLIDATED FINANCIAL STATEMENTS

1.Interim Financial Statements

The unaudited consolidated financial statements of Landmark Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, Landmark National Bank (the “Bank”) and Landmark Risk Management Inc., have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 22, 2022, containing the latest audited consolidated financial statements and notes thereto. The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of financial statements have been reflected herein. The results of the nine-month interim period ended September 30, 2022 are not necessarily indicative of the results expected for the year ending December 31, 2022 or any other future time period. The Company has evaluated subsequent events for recognition and disclosure up to the date the financial statements were issued.

2.Acquisition

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 operates out of a single location in Overland Park, Kansas. As of September 30, 2022, Freedom Bank reported total assets of $201.9 million, gross loans of $118.0 million, and total deposits of $150.4 million. The acquisition will be accounted for as a business combination under ASC 805.

3.Investments

A summary of investment securities available-for-sale is as follows:

Schedule of Available-for-sale Securities

As<br> of September 30, 2022
Gross Gross
Amortized unrealized unrealized Estimated
(Dollars<br> in thousands) cost gains losses fair<br> value
U.<br> S. treasury securities $ 136,007 $ - $ (8,562 ) $ 127,445
U.<br> S. federal agency obligations 5,013 - (34 ) 4,979
Municipal<br> obligations, tax exempt 136,969 1 (8,578 ) 128,392
Municipal<br> obligations, taxable 68,007 3 (6,051 ) 61,959
Agency<br> mortgage-backed securities 179,129 - (17,798 ) 161,331
Total<br> available-for-sale $ 525,125 $ 4 $ (41,023 ) $ 484,106
As<br> of December 31, 2021
--- --- --- --- --- --- --- --- --- ---
Gross Gross
Amortized unrealized unrealized Estimated
(Dollars<br> in thousands) cost gains losses fair<br> value
U.<br> S. treasury securities $ 43,098 $ - $ (423 ) $ 42,675
U.<br> S. federal agency obligations 17,165 67 (37 ) 17,195
Municipal<br> obligations, tax exempt 133,558 4,488 (62 ) 137,984
Municipal<br> obligations, taxable 39,011 1,171 (136 ) 40,046
Agency<br> mortgage-backed securities 142,747 1,339 (1,269 ) 142,817
Total<br> available-for-sale $ 375,579 $ 7,065 $ (1,927 ) $ 380,717 
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The tables above show that some of the securities in the available-for-sale investment portfolio had unrealized losses, or were temporarily impaired, as of September 30, 2022 and December 31, 2021. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date. Securities which were temporarily impaired are shown below, along with the length of time in a continuous unrealized loss position.

Schedule of Available for Sale Securities Continuous Unrealized Loss Position Fair Value

As<br> of September 30, 2022
(Dollars in thousands) Less<br> than 12 months 12<br> months or longer Total
No.<br> of Fair Unrealized Fair Unrealized Fair Unrealized
securities value losses value losses value losses
U.S.<br> treasury securities 69 $ 102,410 $ (6,212 ) $ 25,035 $ (2,350 ) $ 127,445 $ (8,562 )
U.S.<br> federal agency obligations 2 1,987 (16 ) 2,992 (18 ) 4,979 (34 )
Municipal<br> obligations, tax exempt 313 114,043 (7,697 ) 10,652 (881 ) 124,695 (8,578 )
Municipal<br> obligations, taxable 106 54,065 (5,436 ) 4,615 (615 ) 58,680 (6,051 )
Agency<br> mortgage-backed securities 99 98,434 (8,648 ) 62,898 (9,150 ) 161,332 (17,798 )
Total 589 $ 370,939 $ (28,009 ) $ 106,192 $ (13,014 ) $ 477,131 $ (41,023 )
As<br> of December 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollars in thousands) Less<br> than 12 months 12<br> months or longer Total
No.<br> of Fair Unrealized Fair Unrealized Fair Unrealized
securities value losses value losses value losses
U.S.<br> treasury securities 28 $ 42,675 $ (423 ) $ - $ - $ 42,675 $ (423 )
U.S.<br> federal agency obligations 6 12,073 (30 ) 3,048 (7 ) 15,121 (37 )
Municipal<br> obligations, tax exempt 37 12,411 (46 ) 1,879 (16 ) 14,290 (62 )
Municipal<br> obligations, taxable 13 8,802 (136 ) - - 8,802 (136 )
Agency<br> mortgage-backed securities 28 95,028 (1,269 ) - - 95,028 (1,269 )
Total 112 170,989 (1,904 ) 4,927 (23 ) 175,916 (1,927 )

The Company’s U.S. treasury portfolio consists of securities issued by the United States Department of the Treasury. The receipt of principal and interest on U.S. treasury securities is guaranteed by the full faith and credit of the U.S. government. Based on these factors, along with the Company’s intent to not sell the securities and its belief that it was more likely than not that the Company will not be required to sell the securities before recovery of its cost basis, the Company believed that the U.S. treasury securities identified in the table above were temporarily impaired as of September 30, 2022 and December 31, 2021.

The Company’s U.S. federal agency portfolio consists of securities issued by the government-sponsored agencies of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Bank (“FHLB”). The receipt of principal and interest on U.S. federal agency obligations is guaranteed by the respective government-sponsored agency guarantor, such that the Company believes that its U.S. federal agency obligations do not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and its belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the U.S. federal agency obligations identified in the tables above were temporarily impaired as of September 30, 2022 and December 31, 2021.

The Company’s portfolio of municipal obligations consists of both tax-exempt and taxable general obligations securities issued by various municipalities. As of September 30, 2022, the Company did not intend to sell and it was more likely than not that the Company will not be required to sell its municipal obligations in an unrealized loss position until the recovery of its cost. Due to the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms and the expectation that they will continue to do so, the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, the Company believed that the municipal obligations identified in the tables above were temporarily impaired as of September 30, 2022 and December 31, 2021.

The Company’s agency mortgage-backed securities portfolio consists of securities underwritten to the standards of and guaranteed by the government-sponsored agencies of FHLMC, FNMA and the Government National Mortgage Association. The receipt of principal, at par, and interest on agency mortgage-backed securities is guaranteed by the respective government-sponsored agency guarantor, such that the Company believed that its agency mortgage-backed securities did not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and the Company’s belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the agency mortgage-backed securities identified in the table above were temporarily impaired as of September 30, 2022 and December 31, 2021.

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The table below sets forth amortized cost and fair value of investment securities at September 30, 2022. The table includes scheduled principal payments and estimated prepayments, based on observable market inputs, for agency mortgage-backed securities. Actual maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

Schedule of Investments Classified by Contractual Maturity Date

(Dollars<br> in thousands) Amortized Estimated
cost fair<br> value
Due<br> in less than one year $ 21,372 $ 21,137
Due<br> after one year but within five years 314,893 291,955
Due<br> after five years but within ten years 137,350 124,921
Due<br> after ten years 51,510 46,093
Total $ 525,125 $ 484,106

Sales proceeds and gross realized gains and losses on sales of available-for-sale securities were as follows for the periods indicated:

Schedule of Realized Gain (loss)

2022 2021 2022 2021
(Dollars<br> in thousands) Three<br> months ended<br><br> September 30, Nine<br> months ended <br><br> September 30,
2022 2021 2022 2021
Sales<br> proceeds $ 11,210 $ 1,400 $ 11,210 $ 16,623
Realized<br> gains $ - $ 30 $ - $ 1,138
Realized<br> losses (353 ) - (353 ) -
Net<br> realized (losses) gains $ (353 ) $ 30 $ (353 ) $ 1,138

Securities

with carrying values of $329.6 million and $331.7 million were pledged to secure public funds on deposit, repurchase agreements and as collateral for borrowings at September 30, 2022 and December 31, 2021, respectively. Except for U.S. federal agency obligations, no investment in a single issuer exceeded 10% of consolidated stockholders’ equity.

4.Loans and Allowance for Loan Losses

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

Schedule of Loans

September<br> 30, December<br> 31,
(Dollars<br> in thousands) 2022 2021
One-to-four<br> family residential real estate loans $ 205,466 $ 166,081
Construction<br> and land loans 18,119 27,644
Commercial<br> real estate loans 228,669 198,472
Commercial<br> loans 144,582 132,154
Paycheck<br> protection program loans 410 17,179
Agriculture<br> loans 86,114 94,267
Municipal<br> loans 2,036 2,050
Consumer<br> loans 25,911 24,541
Total<br> gross loans 711,307 662,388
Net<br> deferred loan costs (fees) and loans in process (311 ) (380 )
Allowance<br> for loan losses (8,858 ) (8,775 )
Loans,<br> net $ 702,138 $ 653,233 
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The following tables provide information on the Company’s allowance for loan losses by loan class and allowance methodology:

Schedule of Allowance for Credit Losses on Financing Receivables

(Dollars<br> in thousands) One-to-four<br><br> family<br><br> residential<br><br> real estate<br><br> loans Construction<br><br> and land<br><br> loans Commercial<br><br> real estate<br><br> loans Commercial<br><br> loans Paycheck<br><br> protection<br><br> program<br><br> loans Agriculture<br><br> loans Municipal<br><br> loans Consumer<br><br> loans Total
Three<br> and nine months ended September 30, 2022
(Dollars<br> in thousands) One-to-four<br><br> family<br><br> residential<br><br> real estate<br><br> loans Construction<br><br> and land<br><br> loans Commercial<br><br> real estate<br><br> loans Commercial<br><br> loans Paycheck<br><br> protection<br><br> program<br><br> loans Agriculture<br><br> loans Municipal<br><br> loans Consumer<br><br> loans Total
Allowance<br> for loan losses:
Balance<br> at July 1, 2022 $ 580 $ 133 $ 2,982 $ 2,651 $ - $ 1,820 $ 6 $ 143 $ 8,315
Charge-offs - - - - - - - (106 ) (106 )
Recoveries - 65 - 5 - 56 - 23 149
Provision<br> for loan losses 25 (92 ) 216 146 - 130 (1 ) 76 500
Balance<br> at September 30, 2022 $ 605 $ 106 $ 3,198 $ 2,802 $ - $ 2,006 $ 5 $ 136 $ 8,858
Balance<br> at January 1, 2022 $ 623 $ 138 $ 3,051 $ 2,613 $ - $ 2,221 $ 6 $ 123 $ 8,775
Charge-offs - - - - - - - (235 ) (235 )
Recoveries - 165 - 28 - 59 6 60 318
Provision<br> for loan losses (18 ) (197 ) 147 161 - (274 ) (7 ) 188 -
Balance<br> at September 30, 2022 $ 605 $ 106 $ 3,198 $ 2,802 $ - $ 2,006 $ 5 $ 136 $ 8,858
Three<br> and nine months ended September 30, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollars<br> in thousands) One-to-four<br><br> family<br><br> <br>residential<br><br> real estate<br><br> loans Construction<br><br> and land<br><br> loans Commercial<br><br> real estate<br><br> loans Commercial<br><br> loans Paycheck<br><br> protection<br><br> program<br><br> loans Agriculture<br><br> loans Municipal<br><br> loans Consumer<br><br> loans Total
Allowance<br> for loan losses:
Balance<br> at June 30, 2021 $ 725 $ 131 $ 3,412 $ 2,588 $ - $ 2,156 $ 5 $ 146 $ 9,163
Charge-offs - - (540 ) - - - - (75 ) (615 )
Recoveries 8 120 - 11 - 50 - 29 218
Provision<br> for loan losses (89 ) (117 ) 25 18 - 117 - 46 -
Balance<br> at September 30, 2021 $ 644 $ 134 $ 2,897 $ 2,617 $ - $ 2,323 $ 5 $ 146 $ 8,766
Allowance<br> for loan losses:
Balance<br> at January 1, 2021 $ 859 $ 181 $ 2,482 $ 2,388 $ - $ 2,690 $ 6 $ 169 $ 8,775
Charge-offs (81 ) - (540 ) (72 ) - (50 ) - (164 ) (907 )
Recoveries 10 221 - 13 - 50 6 98 398
Provision<br> for loan losses (144 ) (268 ) 955 288 - (367 ) (7 ) 43 500
Balance<br> at September 30, 2021 $ 644 $ 134 $ 2,897 $ 2,617 $ - $ 2,323 $ 5 $ 146 $ 8,766 
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| --- | | | As<br> of September 30, 2022 | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | (Dollars<br> in thousands) | One-to-four<br><br> family<br><br> residential<br><br> real estate<br><br> loans | | Construction<br><br> and land<br><br> loans | | Commercial<br><br> real estate<br><br> loans | | Commercial<br><br> loans | | Paycheck<br><br> protection<br><br> program<br><br> loans | | Agriculture<br><br> loans | | Municipal<br><br> loans | | Consumer<br><br> loans | | Total | | | Allowance<br> for loan losses: | | | | | | | | | | | | | | | | | | | | Individually<br> evaluated for loss | $ | - | $ | - | $ | - | $ | 663 | $ | - | $ | 30 | $ | - | $ | - | $ | 693 | | Collectively<br> evaluated for loss | | 605 | | 106 | | 3,198 | | 2,139 | | - | | 1,976 | | 5 | | 136 | | 8,165 | | Total | $ | 605 | $ | 106 | $ | 3,198 | $ | 2,802 | $ | - | $ | 2,006 | $ | 5 | $ | 136 | $ | 8,858 | | Loan<br> balances: | | | | | | | | | | | | | | | | | | | | Individually<br> evaluated for loss | $ | 352 | $ | 195 | $ | 2,124 | $ | 1,105 | $ | - | $ | 1,877 | $ | 36 | $ | 19 | $ | 5,708 | | Collectively<br> evaluated for loss | | 205,114 | | 17,924 | | 226,545 | | 143,477 | | 410 | | 84,237 | | 2,000 | | 25,892 | | 705,599 | | Total | $ | 205,466 | $ | 18,119 | $ | 228,669 | $ | 144,582 | $ | 410 | $ | 86,114 | $ | 2,036 | $ | 25,911 | $ | 711,307 | | | As<br> of December 31, 2021 | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | (Dollars<br> in thousands) | One-to-four<br><br> family<br><br> residential<br><br> real estate<br><br> loan | | Construction<br><br> and land<br><br> loans | | Commercial<br><br> real estate<br><br> loans | | Commercial<br><br> loans | | Paycheck<br><br> protection<br><br> program<br><br> loans | | Agriculture<br><br> loans | | Municipal<br><br> loans | | Consumer<br><br> loans | | Total | | | Allowance<br> for loan losses: | | | | | | | | | | | | | | | | | | | | Individually<br> evaluated for loss | $ | - | $ | - | $ | - | $ | 504 | $ | - | $ | - | $ | - | $ | - | $ | 504 | | Collectively<br> evaluated for loss | | 623 | | 138 | | 3,051 | | 2,109 | | - | | 2,221 | | 6 | | 123 | | 8,271 | | Total | $ | 623 | $ | 138 | $ | 3,051 | $ | 2,613 | $ | - | $ | 2,221 | $ | 6 | $ | 123 | $ | 8,775 | | Loan<br> balances: | | | | | | | | | | | | | | | | | | | | Individually<br> evaluated for loss | $ | 578 | $ | 794 | $ | 2,214 | $ | 1,029 | $ | - | $ | 2,067 | $ | 36 | $ | - | $ | 6,718 | | Collectively<br> evaluated for loss | | 165,503 | | 26,850 | | 196,258 | | 131,125 | | 17,179 | | 92,200 | | 2,014 | | 24,541 | | 655,670 | | Total | $ | 166,081 | $ | 27,644 | $ | 198,472 | $ | 132,154 | $ | 17,179 | $ | 94,267 | $ | 2,050 | $ | 24,541 | $ | 662,388 |

The

Company recorded net loan recoveries of $43,000 during the third quarter of 2022 compared to net loan charge-offs of $397,000 during the third quarter of 2021. The Company recorded net loan recoveries of $83,000 during the nine months ended September 30, 2022 compared to net loan charge-offs of $509,000 during the nine months ended September 30, 2021.

The

Company’s impaired loans decreased $1.0 million from $6.7 million at December 31, 2021 to $5.7 million at September 30, 2022. The difference between the unpaid contractual principal and the impaired loan balance is a result of charge-offs recorded against impaired loans. The difference in the Company’s non-accrual loan balances and impaired loan balances at September 30, 2022 and December 31, 2021, was related to troubled debt restructurings (“TDR”) that are current and accruing interest, but still classified as impaired. Interest income recognized on a cash basis was immaterial during the three and nine months ended September 30, 2022 and 2021.

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The following tables present information on impaired loans:

Schedule of Impaired Financing Receivables

Unpaid<br><br> contractual<br><br> principal Impaired<br><br> loan<br><br> balance Impaired<br><br> loans<br><br> without<br><br> an<br><br> allowance Impaired<br><br> loans<br><br> with <br><br> an<br><br> allowance Related<br><br> allowance<br><br> recorded Year-to-date<br><br> average<br><br> loan<br><br> balance Year-to-date<br><br> interest<br><br> income<br><br> recognized
(Dollars<br> in thousands) As<br> of September 30, 2022
Unpaid<br><br> contractual<br><br> principal Impaired<br><br> loan<br><br> balance Impaired<br><br> loans<br><br> without<br><br> an<br><br> allowance Impaired<br><br> loans<br><br> with <br><br> an<br><br> allowance Related<br><br> allowance<br><br> recorded Year-to-date<br><br> average<br><br> loan<br><br> balance Year-to-date<br><br> interest<br><br> income<br><br> recognized
One-to-four<br> family residential real estate $ 352 $ 352 $ 352 $ - $ - $ 390 $ 6
Construction<br> and land 195 195 195 - - 195 6
Commercial<br> real estate 2,124 2,124 2,124 - - 2,173 40
Commercial 1,356 1,105 324 781 663 1,186 12
Agriculture 1,960 1,877 1,847 30 30 1,932 48
Municipal 36 36 36 - - 36 1
Consumer 19 19 19 - - 19 -
Total<br> impaired loans $ 6,042 $ 5,708 $ 4,897 $ 811 $ 693 $ 5,931 $ 113
(Dollars<br> in thousands) As<br> of December 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Unpaid<br><br> contractual<br><br> principal Impaired<br><br> loan<br><br> balance Impaired<br><br> loans<br><br> without<br><br> an<br><br> allowance Impaired<br><br> loans<br><br> with <br><br> an<br><br> allowance Related<br><br> allowance<br><br> recorded Year-to-date<br><br> average<br><br> loan<br><br> balance Year-to-date<br><br> interest<br><br> income<br><br> recognized
One-to-four<br> family residential real estate $ 578 $ 578 $ 578 $ - $ - $ 590 $ 8
Construction<br> and land 2,401 794 794 - - 895 16
Commercial<br> real estate 2,214 2,214 2,214 - - 2,388 37
Commercial 1,380 1,029 520 509 504 1,096 38
Agriculture 2,235 2,067 2,067 - - 2,420 67
Municipal 36 36 36 - - 36 1
Total<br> impaired loans $ 8,844 $ 6,718 $ 6,209 $ 509 $ 504 $ 7,425 $ 167

The Company’s key credit quality indicator is a loan’s performance status, defined as accruing or non-accruing. Performing loans are considered to have a lower risk of loss. Non-accrual loans are those which the Company believes have a higher risk of loss. The accrual of interest on non-performing loans is discontinued at the time the loan is 90 days delinquent, unless the credit is well secured and in process of collection. Loans are placed on non-accrual or are charged off at an earlier date if collection of principal or interest is considered doubtful. There were no loans 90 days or more delinquent and accruing interest at September 30, 2022 or December 31, 2021.

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The following tables present information on the Company’s past due and non-accrual loans by loan class:

Schedule of Past Due Financing Receivables

(Dollars<br> in thousands) As<br> of September 30, 2022
30-59<br> days<br><br> delinquent<br><br> and<br><br> accruing 60-89<br> days<br><br> delinquent<br><br> and<br><br> accruing 90<br> days or<br><br> more<br><br> delinquent and<br><br> accruing Total<br><br> past<br><br> due<br><br> loans<br><br> accruing Non-accrual<br><br> loans Total<br> <br><br> past due<br><br> and<br><br> non-accrual<br><br> loans Total<br><br> loans<br><br> not past<br><br> due
One-to-four<br> family residential real estate loans $ 15 $ 114 $ - $ 129 $ 195 $ 324 $ 205,142
Construction<br> and land loans - - - - 195 195 17,924
Commercial<br> real estate loans 65 - - 65 2,124 2,189 226,480
Commercial<br> loans 4 - - 4 860 864 143,718
Paycheck<br> protection program loans - 389 - 389 - 389 21
Agriculture<br> loans 20 - - 20 1,430 1,450 84,664
Municipal<br> loans - - - - - - 2,036
Consumer<br> loans 1 49 - 50 19 69 25,842
Total $ 105 $ 552 $ - $ 657 $ 4,823 $ 5,480 $ 705,827
Percent<br> of gross loans 0.01 % 0.08 % 0.00 % 0.09 % 0.68 % 0.77 % 99.23 %
(Dollars<br> in thousands) As<br> of December 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
30-59<br> days<br><br> delinquent<br><br> and<br><br> accruing 60-89<br> days<br><br> delinquent<br><br> and<br><br> accruing 90<br> days or<br><br> more<br><br> delinquent<br><br> and<br><br> accruing Total<br><br> past due<br><br> loans<br><br> accruing Non-accrual<br><br> loans Total<br> past<br><br> due and<br><br> non-accrual<br><br> loans Total<br><br> loans<br><br> not past<br><br> due
One-to-four<br> family residential real estate loans $ 20 $ 125 $ - $ 145 $ 417 $ 562 $ 165,519
Construction<br> and land loans - - - - 681 681 26,963
Commercial<br> real estate loans - - - - 2,214 2,214 196,258
Commercial<br> loans 289 340 - 629 593 1,222 130,932
Paycheck<br> protection program loans - - - - - - 17,179
Agriculture<br> loans 1,189 - - 1,189 1,325 2,514 91,753
Municipal<br> loans - - - - - - 2,050
Consumer<br> loans 18 9 - 27 - 27 24,514
Total $ 1,516 $ 474 $ - $ 1,990 $ 5,230 $ 7,220 $ 655,168
Percent<br> of gross loans 0.23 % 0.07 % 0.00 % 0.30 % 0.79 % 1.09 % 98.91 %

Under

the original terms of the Company’s non-accrual loans, interest earned on such loans for the nine months ended September 30, 2022 and 2021 would have increased interest income by $155,000 and $635,000, respectively. No interest income related to non-accrual loans was included in interest income for the nine months ended September 30, 2022 and 2021.

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

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

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

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

The following table provides information on the Company’s risk categories by loan class:

Schedule of Troubled Debt Restructurings on Financing Receivables

(Dollars<br> in thousands) Nonclassified Classified Nonclassified Classified
As<br> of September 30, 2022 As<br> of December 31, 2021
(Dollars<br> in thousands) Nonclassified Classified Nonclassified Classified
One-to-four<br> family residential real estate loans $ 205,122 $ 344 $ 165,299 $ 782
Construction<br> and land loans 17,924 195 26,963 681
Commercial<br> real estate loans 223,334 5,335 193,669 4,803
Commercial<br> loans 135,739 8,843 123,609 8,545
Paycheck<br> protection program loans 410 - 17,179 -
Agriculture<br> loans 84,684 1,430 91,036 3,231
Municipal<br> loan 2,036 - 2,050 -
Consumer<br> loans 25,892 19 24,541 -
Total $ 695,141 $ 16,166 $ 644,346 $ 18,042

At

September 30, 2022, the Company had seven loan relationships consisting of 11 outstanding loans that were previously classified as TDRs. No loans were classified as TDRs during the three or nine months ending September 30, 2022. During the second quarter of 2022, a $7,000 commercial loan paid off after being classified as a TDR in 2018. During the first quarter of 2022, two construction and land loans totaling $599,000 were paid off. These loans were originally classified as TDRs in 2012. A commercial loan totaling $32,000 was paid off in the first quarter of 2022 after being classified as a TDR in the first quarter of 2021. An agriculture loan totaling $250,000 was also paid off in the first quarter of 2022 after being classified as a TDR in the third quarter of 2021. During the three and nine months ended September 30, 2021, an agriculture loan paid off that was previously classified as a TDR in 2016. During the nine months ended September 30, 2021, a commercial loan relationship consisting of five loans was modified after originally being classified as a TDR in 2020. The borrower liquidated some of the collateral securing the loans and refinanced the remaining balance of $479,000 into one loan which retained a TDR classification.

The

Company evaluates each TDR individually and returns the loan to accrual status when a payment history is established after the restructuring and future payments are reasonably assured. There were no loans modified as TDRs for which there was a payment default within 12 months of modification as of September 30, 2022 and 2021. The Company did not record any charge-offs against loans classified as TDRs in the first nine months of 2022 or 2021. No provision was recorded against TDRs in the three months ended September 30, 2022 as compared to a credit provision of $2,000 during the same period of 2021. A credit provision for loan losses of $2,000 and $7,000 was recorded against TDRs in the nine months ended September 30, 2022 and 2021, respectively. The Company had no allowance for loan losses recorded against loans classified as TDRs at September 30, 2022 compared to $2,000 at December 31, 2021.

The following table presents information on loans that are classified as TDRs:

Schedule of Troubled Debt Restructurings on Financing Receivables

(Dollars<br> in thousands)
As<br> of September 30, 2022 As<br> of December 31, 2021
Number<br> of loans Non-accrual<br> balance Accruing<br> balance Number<br> of loans Non-accrual<br> balance Accruing<br> balance
One-to-four<br> family residential real estate loans 2 $ - $ 157 2 $ - $ 161
Construction<br> and land loans 1 195 - 3 681 113
Commercial<br> real estate loans 2 1,224 - 2 1,224 -
Commercial<br> loans 2 33 245 4 33 436
Agriculture<br> loans 3 - 447 4 - 742
Municipal<br> loan 1 - 36 1 - 36
Total 11 $ 1,452 $ 885 16 $ 1,938 $ 1,488 
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5.Goodwill and Other Intangible Assets

The Company tests goodwill for impairment annually or more frequently if circumstances warrant. The Company’s annual impairment test as of December 31, 2021 concluded that its goodwill was not impaired. The Company concluded there were no triggering events during the first nine months of 2022 that required an interim goodwill impairment test.

Core deposit intangible assets are amortized over the estimated useful life of ten years on an accelerated basis. A summary of the other intangible assets that continue to be subject to amortization was as follows:

Schedule of Other Intangible Assets and Goodwill

(Dollars<br> in thousands) As<br> of September 30, 2022
Gross<br> carrying<br><br> amount Accumulated<br><br> amortization Net<br> carrying<br><br> amount
Core<br> deposit intangible assets $ 1,710 $ (1,674 ) $ 36
(Dollars<br> in thousands) As<br> of December 31, 2021
--- --- --- --- --- --- --- ---
Gross<br> carrying<br><br> amount Accumulated<br><br> amortization Net<br> carrying<br><br> amount
Core<br> deposit intangible assets $ 2,018 $ (1,934 ) $ 84

The following sets forth estimated amortization expense for core deposit and lease intangible assets for the remainder of 2022 and in successive years ending December 31:

Schedule of Finite-lived Intangible Assets, Future Amortization Expense

(Dollars<br> in thousands) Amortization
expense
Remainder<br> of 2022 $ 10
2023 26
Total $ 36

6.Mortgage Loan Servicing

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

Schedule of Participating Mortgage Loans ****

(Dollars<br> in thousands) September<br> 30, December<br> 31,
2022 2021
FHLMC $ 691,659 $ 697,484
FHLB 27,135 18,218
Total $ 718,794 $ 715,702

Custodial

escrow balances maintained in connection with serviced loans were $10.2 million and $5.8 million at September 30, 2022 and December 31, 2021, respectively. Gross service fee income related to such loans was $456,000 and $452,000 for the three months ended September 30, 2022 and 2021, respectively, and is included in fees and service charges in the consolidated statements of earnings. Gross service fee income related to such loans was $1.4 and $1.3 million for the nine months ended September 30, 2022 and 2021, respectively.

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Activity for mortgage servicing rights was as follows:

Schedule of Servicing Asset at Amortized Cost

2022 2021 2022 2021
Three<br> months ended Nine<br> months ended
(Dollars<br> in thousands) September<br> 30, September<br> 30,
2022 2021 2022 2021
Mortgage<br> servicing rights:
Balance<br> at beginning of period $ 4,025 $ 4,143 $ 4,193 $ 3,726
Additions 253 406 704 1,598
Amortization (298 ) (348 ) (917 ) (1,123 )
Balance<br> at end of period $ 3,980 $ 4,201 $ 3,980 $ 4,201

The

fair value of mortgage servicing rights was $10.4 million and $6.7 million at September 30, 2022 and December 31, 2021, respectively. Fair value at September 30, 2022 was determined using discount rate of 9.50%; prepayment speeds ranging from 6.00% to 13.70%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.44%. Fair value at December 31, 2021 was determined using discount rates ranging from 9.00% to 12.00%; prepayment speeds ranging from 6.02% to 23.70%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.34%.

The

Company had a mortgage repurchase reserve of $225,000 at September 30, 2022 and $226,000 at December 31, 2021, which represents the Company’s best estimate of probable losses that the Company will incur related to the repurchase of one-to-four family residential real estate loans previously sold or to reimburse investors for credit losses incurred on loans previously sold where a breach of the contractual representations and warranties occurred. The Company charged a $1,000 loss against the reserve during the first nine months ended September 30, 2022. The Company charged a $9,000 loss against the reserve during the first nine months ended September 30, 2021. As of September 30, 2022, the Company did not have any outstanding mortgage repurchase requests.

7.Earnings per Share

Basic earnings per share have been computed based upon the weighted average number of common shares outstanding during each period. Diluted earnings per share include the effect of all potential common shares outstanding during each period. The diluted earnings per share computation for the three and nine months ended September 30, 2022 excluded

48,302

of unexercised stock options because their inclusion would have been anti-dilutive during such period. The diluted earnings per share computation for the three and nine months ended September 30, 2021 excluded 33,320 of unexercised stock options because their inclusion would have been anti-dilutive during such period. The Company’s Board of Directors declared a cash dividend of $0.21 per share to be paid November 30, 2022, to common stockholders of record as of the close of business on November 16, 2022. The Board of Directors also declared a 5% stock dividend issuable December 16, 2022 to common stockholders of record on December 2, 2022. The shares used in the calculation of basic and diluted earnings per share are shown below:

Schedule of Earnings Per Share, Basic and Diluted

share<br> amounts) 2022 2021 2022 2021
Three<br> months ended Nine<br> months ended
(Dollars<br> in thousands, except per September<br> 30, September<br> 30,
share<br> amounts) 2022 2021 2022 2021
Net<br> earnings $ 2,500 $ 4,517 $ 8,666 $ 14,864
Weighted average<br> common shares outstanding - basic (1) (1) 4,979,305 4,996,419 4,988,327 4,993,808
Assumed<br> exercise of stock options (1) (1) 13,145 14,554 14,831 9,807
Weighted<br> average common shares outstanding - diluted (1) (1) 4,992,450 5,010,973 5,003,158 5,003,615
Earnings per share<br> (1):
Basic^(1)^ $ 0.50 $ 0.90 $ 1.74 $ 2.98
Diluted^(1)^ $ 0.50 $ 0.90 $ 1.73 $ 2.97
(1) Share and per share<br>values for the periods ended September 30, 2021 have been adjusted to give effect to the 5% stock dividend paid during December 2021.
--- --- 
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8. Other Borrowings

On September 29, 2022, the Company borrowed $10.0 million from an 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 borrowing is secured with the stock of the Bank and the proceeds were used to fund part of the acquisition of Freedom Bancshares, Inc.

9.Repurchase Agreements

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

Repurchase

agreements are comprised of non-insured customer funds, totaling $6.3 million at September 30, 2022 and $7.4 million at December 31, 2021, which were secured by $10.7 million and $9.2 million of the Company’s investment portfolio at the same dates, respectively.

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

Schedule of Repurchase Agreements

As<br> of September 30, 2022
(dollars<br> in thousands) Overnight<br> and Up<br> to 30 Greater
Continuous days 30-90<br> days than<br> 90 days Total
Repurchase<br> agreements:
U.S.<br> federal treasury obligations $ 1,806 $ - $ - $ - $ 1,806
U.S.<br> federal agency obligations 1,515 - - - 1,515
Agency<br> mortgage-backed securities 3,028 - - - 3,028
Total $ 6,349 $ - $ - $ - $ 6,349
As<br> of December 31, 2021
--- --- --- --- --- --- --- --- --- --- ---
(dollars<br> in thousands) Overnight<br> and Up<br> to Greater
Continuous 30<br> days 30-90<br> days than<br> 90 days Total
Repurchase<br> agreements:
U.S.<br> federal treasury obligations $ 325 $ - $ - $ - $ 325
U.S.<br> federal agency obligations 3,008 - - - 3,008
Agency<br> mortgage-backed securities 4,070 - - - 4,070
Total $ 7,403 $ - $ - $ - $ 7,403

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

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10.Revenue from Contracts with Customers

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

Schedule of Revenue from Contracts with Customers Within Non-interest Income

Three<br> months ended Nine<br> months ended
(Dollars<br> in thousands) September<br> 30, September<br> 30,
2022 2021 2022 2021
Non-interest<br> income:
Service<br> charges on deposit accounts
Overdraft<br> fees $ 1,058 $ 835 $ 2,788 $ 2,160
Other 242 168 566 514
Interchange<br> income 704 778 2,196 2,347
Loan<br> servicing fees (1) 456 452 1,363 1,325
Office<br> lease income (1) 30 165 96 496
Gains<br> on sales of loans (1) 1,049 2,660 3,027 8,664
Bank<br> owned life insurance income (1) 189 193 566 494
(Losses)<br> gains on sales of investment securities (1) (353 ) 30 (353 ) 1,138
Gains<br> on sales of real estate owned - 13 114 18
Other 154 171 525 507
Total<br> non-interest income $ 3,529 $ 5,465 $ 10,888 $ 17,663
(1) Not<br> within the scope of ASC 606.
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A description of the Company’s revenue streams under ASC 606 follows:

ServiceCharges on Deposit Accounts

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

InterchangeIncome

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

Gains(Losses) on Sales of Real Estate Owned

The Company records a gain or loss from the sale of real estate owned when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of real estate owned to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the real estate owned asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. There were no sales of real estate owned that were financed by the Company during the first nine months of 2022 or 2021.

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11.Fair Value of Financial Instruments and Fair Value Measurements

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

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

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

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

Fair value estimates of the Company’s financial instruments as of September 30, 2022 and December 31, 2021, including methods and assumptions utilized, are set forth below:

Schedule of Fair Value, by Balance Sheet Grouping

As<br> of September 30, 2022
Carrying
amount Level<br> 1 Level<br> 2 Level<br> 3 Total
Financial<br> assets:
Cash<br> and cash equivalents $ 49,234 $ 49,234 $ - $ - $ 49,234
Interest-bearing<br> deposits at other banks 8,844 - 8,844 - 8,844
Investment<br> securities available-for-sale 484,106 127,445 356,661 - 484,106
Bank<br> stocks, at cost 6,641 n/a n/a n/a n/a
Loans,<br> net 702,138 - - 688,972 688,972
Loans<br> held for sale 2,741 - 2,741 - 2,741
Mortgage<br> servicing rights 3,980 - 10,425 - 10,425
Accrued<br> interest receivable 4,726 357 1,890 2,479 4,726
Derivative<br> financial instruments 366 - 366 - 366
Financial<br> liabilities:
Non-maturity<br> deposits $ (1,023,903 ) $ (1,023,903 ) $ - $ - $ (1,023,903 )
Certificates<br> of deposit (93,234 ) - (90,912 ) - (90,912 )
FHLB<br> borrowings (74,900 ) - (74,900 ) - (74,900 )
Subordinated<br> debentures (21,651 ) - (17,733 ) - (17,733 )
Other<br> borrowings (16,349 ) - (16,502 ) - (16,502 )
Accrued<br> interest payable (248 ) - (248 ) - (248 )
As<br> of December 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Carrying
amount Level<br> 1 Level<br> 2 Level<br> 3 Total
Financial<br> assets:
Cash<br> and cash equivalents $ 189,213 $ 189,213 $ - $ - $ 189,213
Interest-bearing<br> deposits at other banks 7,378 - 7,378 - 7,378
Investment<br> securities available-for-sale 380,717 42,675 338,042 - 380,717
Bank<br> stocks, at cost 2,905 n/a n/a n/a n/a
Loans,<br> net 653,233 - - 663,625 663,625
Loans<br> held for sale 4,795 - 4,795 - 4,795
Mortgage<br> servicing rights 4,193 - 6,722 - 6,722
Accrued<br> interest receivable 4,405 107 1,666 2,632 4,405
Derivative<br> financial instruments 494 - 494 - 494
Financial<br> liabilities:
Non-maturity<br> deposits $ (1,042,374 ) $ (1,042,374 ) $ - $ - $ (1,042,374 )
Certificates<br> of deposit (106,107 ) - (105,935 ) - (105,935 )
Subordinated<br> debentures (21,651 ) - (16,375 ) - (16,375 )
Other<br> borrowings (7,403 ) - (7,403 ) - (7,403 )
Accrued<br> interest payable (125 ) - (125 ) - (125 )

Transfers

The Company did not transfer any assets or liabilities among levels during the nine months ended September 30, 2022 or during the year ended December 31, 2021.

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ValuationMethods for Instruments Measured at Fair Value on a Recurring Basis

The following tables represent the Company’s financial instruments that are measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021, allocated to the appropriate fair value hierarchy:

Schedule of Fair Value, Assets Measured On Recurring Basis

(Dollars<br> in thousands) As<br> of September 30, 2022
Fair<br> value hierarchy
Total Level<br> 1 Level<br> 2 Level<br> 3
Assets:
Available-for-sale<br> investment securities:
U.<br> S. treasury securities $ 127,445 $ 127,445 $ - $ -
U.<br> S. federal agency obligations 4,979 - 4,979 -
Municipal<br> obligations, tax exempt 128,392 - 128,392 -
Municipal<br> obligations, taxable 61,959 - 61,959 -
Agency<br> mortgage-backed securities 161,331 - 161,331 -
Loans<br> held for sale 2,741 - 2,741 -
Derivative<br> financial instruments 366 - 366 -
As<br> of December 31, 2021
--- --- --- --- --- --- --- --- ---
Fair<br> value hierarchy
Total Level<br> 1 Level<br> 2 Level<br> 3
Assets:
Available-for-sale<br> investment securities:
U.<br> S. treasury securities $ 42,675 $ 42,675 $ - $ -
U.<br> S. federal agency obligations 17,195 - 17,195 -
Municipal<br> obligations, tax exempt 137,984 - 137,984 -
Municipal<br> obligations, taxable 40,046 - 40,046 -
Agency<br> mortgage-backed securities 142,817 - 142,817 -
Loans<br> held for sale 4,795 - 4,795 -
Derivative<br> financial instruments 494 - 494 -

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

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

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

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The aggregate fair value, contractual balance (including accrued interest), and gain on loans held for sale were as follows:

Schedule of Fair Value Contractual Balance and Gain Loss On Loans Held for Sale

As<br> of As<br> of
September<br> 30, December<br> 31,
(Dollars<br> in thousands) 2022 2021
Aggregate<br> fair value $ 2,741 $ 4,795
Contractual<br> balance 2,740 4,651
Gain $ 1 $ 144

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

Schedule of Gains and Losses from Changes in Fair Value of Loans Held for Sale

Three<br> months ended Nine<br> months ended
September<br> 30, September<br> 30,
(Dollars<br> in thousands) 2022 2021 2022 2021
Total<br> change in fair value $ (100 ) $ (279 ) $ (128 ) $ (506 )

ValuationMethods for Instruments Measured at Fair Value on a Nonrecurring Basis

The

Company does not record its loan portfolio at fair value. Collateral-dependent impaired loans are generally carried at the lower of cost or fair value of the collateral, less estimated selling costs. Collateral values are determined based on appraisals performed by qualified licensed appraisers hired by the Company and then further adjusted if warranted based on relevant facts and circumstances. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Impaired loans are reviewed and evaluated at least quarterly for additional impairment and adjusted accordingly, based on the same factors identified above. The carrying value of the Company’s impaired loans was $5.7 million and $6.7 million at September 30, 2022 and December 31, 2021, respectively. The Company’s impaired loans with an allowance for loan losses was $811,000 and $509,000, with an allocated allowance of $693,000 and $504,000, at September 30, 2022 and December 31, 2021, respectively.

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

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The following table presents quantitative information about Level 3 fair value measurements measured at fair value on a nonrecurring basis as of September 30, 2022 and December 31, 2021.

Schedule of Fair Value Measurements On Nonrecurring, Valuation Techniques

(Dollars<br> in thousands)
Fair<br> value Valuation<br> technique Unobservable<br> inputs Range
As of September 30,<br> 2022
Impaired<br> loans:
Commercial $ 118 Sales<br> comparison Adjustment<br> to comparable value 0%-25 %
As of December 31,<br> 2021
Impaired<br> loans:
Commercial $ 5 Sales<br> comparison Adjustment<br> to comparable value 0 %

12.Regulatory Capital Requirements

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believed that as of September 30, 2022, the Company and the Bank met all capital adequacy requirements to which they were subject at that time.

Prompt

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

The

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

As of September 30, 2022 and December 31, 2021, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action then in effect. There are no conditions or events since that notification that management believes have changed the institution’s category.

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The following is a comparison of the Company’s regulatory capital to minimum capital requirements at September 30, 2022 and December 31, 2021.

Schedule of Compliance with Regulatory Capital Requirements for Mortgage Companies

(Dollars in thousands) For capital
Actual adequacy purposes
Amount Ratio Amount Ratio (1)
As of September 30, 2022
Leverage $ 140,635 10.75 % $ 52,309 4.0 %
Common Equity Tier 1 Capital 119,635 14.20 % 58,973 7.0 %
Tier 1 Capital 140,635 16.69 % 71,610 8.5 %
Total Risk Based Capital 149,633 17.76 % 88,459 10.5 %
As of December 31, 2021
Leverage $ 135,824 10.83 % $ 50,181 4.0 %
Common Equity Tier 1 Capital 114,824 15.00 % 53,592 7.0 %
Tier 1 Capital 135,824 17.74 % 65,077 8.5 %
Total Risk Based Capital 144,739 18.91 % 80,389 10.5 %
(1) The required ratios<br>for capital adequacy purposes include a capital conservation buffer of 2.5%.
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The following is a comparison of the Bank’s regulatory capital to minimum capital requirements at September 30, 2022 and December 31, 2021:

Schedule of Compliance with Regulatory Capital Requirements Under Banking Regulations

To be well-capitalized
under prompt
(Dollars in thousands) For capital corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio (1) Amount Ratio
As of September 30, 2022
Leverage $ 114,430 8.78 % $ 52,141 4.0 % $ 65,176 5.0 %
Common Equity Tier 1 Capital 114,430 13.71 % 58,436 7.0 % 54,262 6.5 %
Tier 1 Capital 114,430 13.71 % 70,958 8.5 % 66,784 8.0 %
Total Risk Based Capital 123,428 14.79 % 87,654 10.5 % 83,480 10.0 %
As of December 31, 2021
Leverage $ 132,313 10.58 % $ 50,040 4.0 % $ 62,550 5.0 %
Common Equity Tier 1 Capital 132,313 17.29 % 53,563 7.0 % 49,737 6.5 %
Tier 1 Capital 132,313 17.29 % 65,041 8.5 % 61,215 8.0 %
Total Risk Based Capital 141,228 18.46 % 80,345 10.5 % 76,519 10.0 %
(1) The required ratios<br>for capital adequacy purposes include a capital conservation buffer of 2.5%.
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13. Impact of Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), commonly referred to as “CECL.” The provisions of the update eliminate the probable initial recognition threshold under current GAAP which requires reserves to be based on an incurred loss methodology. Under CECL, reserves required for financial assets measured at amortized cost will reflect an organization’s estimate of all expected credit losses over the expected term of the financial asset and thereby require the use of reasonable and supportable forecasts to estimate future credit losses. Because CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity debt securities. Under the provisions of the update, credit losses recognized on available for sale debt securities will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for only purchased credit impaired loans. Under prior GAAP, a purchased loan’s contractual balance was adjusted to fair value through a credit discount, and no reserve was recorded on the purchased loan upon acquisition. Since under CECL reserves will be established for purchased loans at the time of acquisition, the accounting for purchased loans is made more comparable to the accounting for originated loans. Finally, increased disclosure requirements under CECL oblige organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. The FASB expects that the evaluation of underwriting standards and credit quality trends by financial statement users will be enhanced with the additional vintage disclosures. In October 2019, the FASB approved a change in the effective dates for CECL which delayed the effective date to fiscal years beginning after December 15, 2022 for smaller reporting companies. Because the Company is a smaller reporting company, the proposed delay is applicable to the Company, and the Company plans to delay the implementation of CECL until January 1, 2023. Management has initiated an implementation committee that has implemented a process to collect the data and is utilizing a vendor solution for the new standard. Initial calculations estimate the effect will be an increase to the allowance for loan losses upon adoption. However, the size of the overall increase is uncertain at this time. Management is utilizing the delay to continue to refine and back test the CECL calculation. The internal controls over financial reporting specifically related to CECL are in the final design stage.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this update simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this ASU are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. In October 2019, the FASB approved a change in the effective dates for ASU 2017-04 which delayed the effective date to fiscal years beginning after December 15, 2022 for smaller reporting companies. Because the Company is a smaller reporting company, the proposed delay is applicable to the Company, and the Company plans to delay the implementation of ASU 2017-04 until January 1, 2023. Early adoption of the amendments of this ASU is permitted. The adoption of ASU 2017-04 is not expected to have a material effect on the Company’s operating results or financial condition.

In May 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Reference rate reform relates to the effects undertaken to eliminate certain reference rates such as the London Interbank Offered Rate (“LIBOR”) and introduce new reference rates that may be based on larger or more liquid observations and transactions. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other contracts. Generally, ASU 2020-04 would allow entities to consider contract modifications due to reference rate reform to be a continuation of an existing contract; thus, the Company would not have to determine if the modification is considered insignificant. The Company is in the process of reviewing loan documentation, along with the transition procedures it will need in order to implement reference rate reform. While the Company has yet to adopt ASU 2020-04, the standard was effective upon issuance and terminates December 31, 2022 such that changes made to contracts beginning on or after January 1, 2023 would not apply. The adoption of ASU 2020-04 is not expected to have a material effect on the Company’s operating results or financial condition.

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ITEM

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

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

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

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

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

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

Currently, our business consists of ownership of the Bank, with its main office in Manhattan, Kansas and twenty- nine additional branch offices in central, eastern, southeast and southwest Kansas, 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 operates out of a single location in Overland Park, Kansas. As of September 30, 2022, Freedom Bank reported total assets of $201.9 million, gross loans of $118.0 million, and total deposits of $150.4 million.

In October 2022, we declared our 85^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, this is dependent upon the performance of the economy. In addition, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, 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, 2022.

CriticalAccounting Policies*.* Critical accounting policies are those which are both most important to the portrayal of our financial condition and results of operations and require our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to the allowance for loan losses and the accounting for income taxes, each of which involve significant judgment by our management. There have been no material changes to the critical accounting policies included under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 22, 2022.

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Summaryof Results. During the third quarter of 2022, we recorded net earnings of $2.5 million, which was a decrease of $2.0 million, or 44.7%, from the $4.5 million of net earnings in the third quarter of 2021. During the first nine months of 2022, we recorded net earnings of $8.7 million, which was a decrease of $6.2 million, or 41.7%, from the $14.9 million of net earnings in the first nine months of 2021. The decrease in net earnings during 2022 was primarily due to lower interest income on PPP loans and a decrease in gains on sales of mortgage loans. Interest income on PPP loans declined as our balances decreased as a result of the forgiveness of these loans. Gains on sales of mortgage loans decreased as originations of residential real estate loans declined. Decreased loan originations mainly resulted from low housing inventories coupled with increasing mortgage interest rates during 2022, which reduced refinancing activity.

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

As of or for the As of or for the
(Dollars in thousands, except per share amounts) three months ended September 30, nine months ended September 30,
2022 2021 2022 2021
Net earnings:
Net earnings $ 2,500 $ 4,517 $ 8,666 $ 14,864
Basic earnings per share (1) $ 0.50 $ 0.90 $ 1.74 $ 2.98
Diluted earnings per share (1) $ 0.50 $ 0.90 $ 1.73 $ 2.97
Earnings ratios:
Return on average assets (2) 0.76 % 1.42 % 0.89 % 1.59 %
Return on average equity (2) 8.33 % 13.36 % 9.33 % 15.23 %
Equity to total assets 7.78 % 10.79 % 7.78 % 10.79 %
Net interest margin (2) (3) 3.21 % 3.36 % 3.08 % 3.47 %
Dividend payout ratio 42.00 % 21.05 % 36.42 % 19.23 %

(1) Per share values for the periods ended September 30, 2021 have been adjusted to give effect to the 5% dividend paid during December 2021.

(2) Ratios have been annualized and are not necessarily indicative of the results for the entire year.

(3) Net interest margin is presented on a fully tax equivalent basis, using a 21% federal tax rate.

InterestIncome. Interest income of $10.6 million for the quarter ended September 30, 2022 increased $597,000, or 6.0%, as compared to the same period of 2021. Interest income on loans decreased $436,000, or 5.2%, to $8.0 million for the quarter ended September 30, 2022, compared to the same period of 2021 due to lower yields . Our yields decreased from 5.03% in the third quarter of 2021 to 4.63% in the third quarter of 2022. The decrease in yields on loans was driven by a decrease in interest income on PPP loans, which decreased from $1.6 million in the third quarter of 2021 to $13,000 in the third quarter of 2022. The increase in market interest rates has offset some of the decline in PPP loan income as loans reprice or are originated. Partially offsetting the lower yields was an increase in our average loan balances, which increased from $668.0 million in the third quarter of 2021 to $687.7 million in the third quarter of 2022. Our average loan balances included average PPP loans of $491,000 in the third quarter of 2022 and $40.4 million in the third quarter of 2021. Interest income on investment securities increased $1.0 million, or 67.5%, to $2.6 million for the third quarter of 2022, as compared to $1.5 million in the same period of 2021. The increase in interest income on investment securities was primarily the result of an increase in the average balances of investment securities which increased from $351.2 million in the third quarter of 2021 to $494.3 million in the third quarter of 2022. Also contributing to the average balances was increased yields on investment securities, which increased from 1.88% in the third quarter of 2021 to 2.18% in the third quarter of 2022.

Interest income of $29.0 million for the nine months ended September 30, 2022 decreased $1.4 million, or 4.5%, as compared to the same period of 2021. Interest income on loans decreased $3.3 million, or 13.0%, to $22.4 million for the nine months ended September 30, 2022, compared to the same period of 2021 due to a decrease in our average loan balances, which decreased from $702.5 million during the first nine months of 2021 to $659.1 million during the first nine months of 2022. Also contributing to lower interest income were lower yields on loans, which decreased from 4.90% in the nine months ended September 30, 2021 to 4.54% during the nine months ended September 30, 2022. Our average loan balances included average PPP loans of $5.3 million in the nine months ended September 30, 2022 compared to $82.7 million the same period of 2021. Interest income on PPP loans decreased from $4.9 million in the first nine months of 2021 to $671,000 in the first nine months of 2022. The yield on PPP loans increased from 7.85% in the first nine months of 2021 to 16.87% in the first nine months of 2022. The increase in market interest rates has offset some of the decline in PPP loan income as loans reprice or are originated. Interest income on investment securities increased $2.0 million, or 42.4%, to $6.6 million for the first nine months of 2022, as compared to $4.6 million in the same period of 2021. The increase in interest income on investment securities was the result of higher average balances, which increased from $329.4 million in the first nine months of 2021 compared to $464.7 million in the first nine months of 2022. Partially offsetting the higher average balances of investment securities were lower yields, which decreased from 2.08% in the first nine months of 2021 to 2.00% in the first nine months of 2022.

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InterestExpense. Interest expense during the quarter ended September 30, 2022 increased $759,000, or 200.8%, to $1.1 million, as compared to the same period of 2021. Interest expense on interest-bearing deposits increased $513,000, or 198.8%, to $771,000 for the quarter ended September 30, 2022 as compared to the same period of 2021. Our total cost of interest-bearing deposits increased from 0.13% in the third quarter of 2021 to 0.39% in the third quarter of 2022 as a result of higher rates paid on money market and checking accounts, primarily due to public fund deposit accounts with rates that are repriced based on market indexes. Also contributing to higher interest expense was an increase in average interest-bearing deposit balances, which increased from $769.7 million in the third quarter of 2021 to $782.6 million in the third quarter of 2022. For the third quarter of 2022, interest expense on borrowings increased $246,000, or 205.0%, to $366,000 as compared to the same period of 2021 due to an increase in our average borrowings, which increased from $21.7 million in the third quarter of 2021 to $37.5 million in the same period of 2022. Also contributing to the increase in interest expense on borrowings were higher rates, which increased from 2.14% in the third quarter of 2021 to 3.58% in the same period of 2022.

Interest expense during the nine months ended September 30, 2022 increased $827,000, or 71.2%, to $2.0 million as compared to the same period of 2021. Interest expense on interest-bearing deposits increased $524,000, or 65.5%, to $1.3 million for the nine months ended September 30, 2022 as compared to the same period of 2021. The increase in interest expense on interest-bearing deposits was the result of higher rates paid on money market and checking accounts, primarily due to public fund deposit accounts with rates that are repriced based on market indexes. The increase in interest expense on deposits was also due to an increase in average interest-bearing deposit balances, which increased from $768.1 million in the first nine months of 2021 to $788.7 million in the same period of 2022. For the first nine months of 2022, interest expense on borrowings increased $303,000, or 83.7%, to $665,000 as compared to the same period of 2021, due to an increase in our average outstanding borrowings, which increased from $21.7 million in the first nine months of 2021 to $27.0 million in the first nine months of 2022. Also contributing to the higher interest expense on borrowings were higher average rates on our borrowings, which increased to 3.10% for the first nine months of 2022 compared to 2.19% for the same period of 2021.

NetInterest Income. Net interest income decreased $162,000, or 1.7%, to $9.5 million for the third quarter of 2022 compared to the same period of 2021. The decrease in net interest income was primarily a result of a decrease in interest on loans, and higher interest expense. Compared to the same period last year, the decrease in loan interest income was primarily due to lower interest and fees earned on PPP loans as most of these loans were forgiven by the SBA. The increase in market interest rates has offset some of the decline in PPP loan income as loans reprice or are originated. Interest and fees on PPP loans in the third quarter of 2022 totaled $13,000 compared to $1.6 million in the same period last year. Higher market interest rates also drove the increase in interest expense as our public fund deposits and borrowings repriced higher. Net interest margin, on a tax-equivalent basis, decreased from 3.36% in the third quarter of 2021 to 3.21% in the same period of 2022.

Net interest income decreased $2.2 million, or 7.5%, to $27.0 million for the first nine months of 2022 compared to the same period of 2021. The decrease was primarily due to lower interest and fees earned on PPP loans, which decreased from $4.9 million in the first nine months of 2021 to $671,000 in the same period of 2022. Net interest margin, on a tax-equivalent basis, decreased from 3.47% in the first nine months of 2021 to 3.08% in the same period of 2022.

The increase in market interest rate should continue to increase our net interest margin as a result of higher yields on loans and investment securities exceeding the increase in our cost of funds. Our net interest margin increased from 2.99% in the first quarter of 2022 to 3.05% in the second quarter of 2022 and 3.21% in the third quarter of 2022 as our assets began to reprice faster than our cost of funds. Our net interest margin has been positively impacted by PPP loans over the past couple of years, however, the impact of these loans on net interest margin going forward is expected to be minimal. While the rise in interest rates should result in increased net interest income and net interest margin, these improvements could be offset by increased competition for loans and deposits. Additionally, the deposit balance increases we have seen over the past two years may reverse resulting in the need for higher cost funding.

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

Three months ended Three months ended
September 30, 2022 September 30, 2021
Average balance Income/ expense Average yield/cost Average balance Income/ expense Average yield/cost
(Dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits at banks $ 12,266 $ 44 1.42 % $ 138,047 $ 63 0.18 %
Investment securities (1) 494,283 2,720 2.18 % 351,215 1,664 1.88 %
Loans receivable, net (2) 687,716 8,030 4.63 % 667,952 8,466 5.03 %
Total interest-earning assets 1,194,265 10,794 3.59 % 1,157,214 10,193 3.49 %
Non-interest-earning assets 113,601 104,740
Total $ 1,307,866 $ 1,261,954
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market and checking $ 516,141 $ 684 0.53 % $ 508,405 $ 137 0.11 %
Savings accounts 171,645 11 0.03 % 149,491 12 0.03 %
Certificates of deposit 94,767 76 0.32 % 111,762 109 0.39 %
Total interest-bearing deposits 782,553 771 0.39 % 769,658 258 0.13 %
Subordinate debentures and other borrowings 37,532 339 3.58 % 21,655 117 2.14 %
Repurchase agreements 7,411 27 1.45 % 5,348 3 0.22 %
Total interest-bearing liabilities 827,496 1,137 0.55 % 796,661 378 0.19 %
Non-interest-bearing liabilities 361,290 331,126
Stockholders’ equity 119,100 134,167
Total $ 1,307,886 $ 1,261,954
Interest rate spread (3) 3.04 % 3.30 %
Net interest margin (4) $ 9,657 3.21 % $ 9,815 3.36 %
Tax-equivalent interest - imputed 206 202
Net interest income $ 9,451 $ 9,613
Ratio of average interest-earning assets to average interest-bearing<br> liabilities 144.3 % 145.3 %
(1) Income<br> on tax exempt securities is presented on a fully tax-equivalent basis, using a 21% federal<br> tax rate.
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(2) Includes<br> loans classified as non-accrual. Income on tax-exempt loans is presented on a fully tax-equivalent<br> basis, using a 21% federal tax rate.
(3) Interest<br> rate spread represents the difference between the average yield earned on interest-earning<br> assets and the average rate paid on interest-bearing liabilities.
(4) Net<br> interest margin represents annualized, tax-equivalent net interest income divided by average<br> interest-earning assets. 
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| --- | | **** | Nine months ended | | | | | | **** | Nine months ended | | | | | | **** | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **** | September 30, 2022 | | | | | | **** | September 30, 2021 | | | | | | **** | | **** | Average balance | | Income/ expense | | Average yield/cost | | **** | Average balance | | Income/ expense | | Average yield/cost | | **** | | (Dollars<br> in thousands) | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | Interest-earning<br> assets: | | | | | | | | | | | | | | | | Interest-bearing<br> deposits at banks | $ | 72,631 | $ | 232 | | 0.43 | % | $ | 116,047 | $ | 127 | | 0.15 | % | | Investment<br> securities (1) | | 464,702 | | 6,961 | | 2.00 | % | | 329,427 | | 5,114 | | 2.08 | % | | Loans<br> receivable, net (2) | | 659,109 | | 22,387 | | 4.54 | % | | 702,450 | | 25,721 | | 4.90 | % | | Total<br> interest-earning assets | | 1,196,442 | | 29,580 | | 3.31 | % | | 1,147,924 | | 30,962 | | 3.61 | % | | Non-interest-earning<br> assets | | 110,496 | | | | | | | 100,903 | | | | | | | Total | $ | 1,306,938 | | | | | | $ | 1,248,827 | | | | | | | Liabilities<br> and Stockholders’ Equity | | | | | | | | | | | | | | | | Interest-bearing<br> liabilities: | | | | | | | | | | | | | | | | Money<br> market and checking | $ | 520,746 | $ | 1,058 | | 0.27 | % | $ | 505,355 | $ | 388 | | 0.10 | % | | Savings<br> accounts | | 167,927 | | 31 | | 0.02 | % | | 142,659 | | 36 | | 0.03 | % | | Certificates<br> of deposit | | 100,005 | | 235 | | 0.31 | % | | 120,043 | | 376 | | 0.42 | % | | Total<br> interest-bearing deposits | | 788,678 | | 1,324 | | 0.22 | % | | 768,057 | | 800 | | 0.14 | % | | Subordinate<br> debentures and other borrowings | | 27,003 | | 627 | | 3.10 | % | | 21,654 | | 355 | | 2.19 | % | | Repurchase<br> agreements | | 7,074 | | 38 | | 0.72 | % | | 5,218 | | 7 | | 0.18 | % | | Total<br> interest-bearing liabilities | | 822,755 | | 1,989 | | 0.32 | % | | 794,929 | | 1,162 | | 0.20 | % | | Non-interest-bearing<br> liabilities | | 360,006 | | | | | | | 323,377 | | | | | | | Stockholders’<br> equity | | 124,177 | | | | | | | 130,521 | | | | | | | Total | $ | 1,306,938 | | | | | | $ | 1,248,827 | | | | | | | Interest<br> rate spread (3) | | | | | | 2.99 | % | | | | | | 3.41 | % | | Net<br> interest margin (4) | | | $ | 27,591 | | 3.08 | % | | | $ | 29,800 | | 3.47 | % | | Tax-equivalent<br> interest - imputed | | | | 597 | | | | | | | 616 | | | | | Net<br> interest income | | | $ | 26,994 | | | | | | $ | 29,184 | | | | | Ratio of average interest-earning assets  to average interest-bearing liabilities | | | | | | 145.4 | % | | | | | | 144.4 | % | | (1) | Income<br> on tax exempt securities is presented on a fully tax-equivalent basis, using a 21% federal<br> tax rate. | | --- | --- | | (2) | Includes<br> loans classified as non-accrual. Income on tax-exempt loans is presented on a fully tax-equivalent<br> basis, using a 21% federal tax rate. | | (3) | Interest<br> rate spread represents the difference between the average yield earned on interest-earning<br> assets and the average rate paid on interest-bearing liabilities. | | (4) | Net<br> interest margin represents annualized, tax-equivalent net interest income divided by average<br> interest-earning assets. |

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

Three months ended September 30, Nine months ended September 30,
2022 vs 2021 2022 vs 2021
Increase/(decrease) attributable to Increase/(decrease) attributable to
Volume Rate Net Volume Rate Net
(Dollars in thousands) (Dollars in thousands)
Interest income:
Interest-bearing deposits at banks $ 3 $ (22 ) $ (19 ) $ (26 ) $ 131 $ 105
Investment securities 759 297 1,056 2,038 (191 ) 1,847
Loans 258 (694 ) (436 ) (1,522 ) (1,812 ) (3,334 )
Total 1,020 (419 ) 601 490 (1,872 ) (1,382 )
Interest expense:
Deposits 4 509 513 24 500 524
Subordinated debentures and other borrowings 116 106 222 101 171 272
Repurchase agreements 2 22 24 3 28 31
Total 122 637 759 128 699 827
Net interest income $ 898 $ (1,056 ) $ (158 ) $ 362 $ (2,571 ) $ (2,209 )

Provisionfor Loan Losses. We maintain, and our Board of Directors monitors, an allowance for losses on loans. The allowance is established based upon management’s periodic evaluation of known and inherent risks in the loan portfolio, review of significant individual loans and collateral, review of delinquent loans, past loss experience, adverse situations that may affect the borrowers’ ability to repay, current and expected market conditions, and other factors management deems important. Determining the appropriate level of reserves involves a high degree of management judgment and is based upon historical and projected losses in the loan portfolio and the collateral value or discounted cash flows of specifically identified impaired loans. Additionally, allowance policies are subject to periodic review and revision in response to a number of factors, including current market conditions, actual loss experience and management’s expectations.

During the third quarter of 2022 we recorded a $500,000 provision for loan losses as compared to no provision recorded in the same period of 2021. The $500,000 provision for loan losses recorded in the third quarter of 2022 was primarily related to an increase in loan balances. We recorded net loan recoveries of $43,000 during the third quarter of 2022 compared to net loan charge-offs of $397,000 during the third quarter of 2021.

During the first nine months of 2022, we had no provision for loan losses as the $500,000 provision in the third quarter of 2022 was offset by a credit of $500,000 during the first quarter of 2022. This compared to a provision for loan losses of $500,000 in the first nine months of 2021. We recorded net loan recoveries of $83,000 during the nine months ended September 30, 2022 compared to net loan charge-offs of $509,000 during the nine months ended September 30, 2021.

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

Non-interestIncome. Total non-interest income was $3.5 million in the third quarter of 2022, a decrease of $1.9 million, or 35.4%, from the same period in 2021. The decrease in non-interest income during the third quarter of 2022 compared to the same period last year was primarily due to a decrease of $1.6 million in gains on sales of one-to-four family residential real estate loans as higher interest rates and low housing inventories reduced originations of these loans, which are typically sold in the secondary market. Higher mortgage rates however did result in increased originations of adjustable-rate loans this quarter which are maintained in our one-to-four family residential loan portfolio. A loss of $353,000 was recorded in the third quarter of 2022 on the sale of investment securities due to the sale of the lowest yielding securities in our portfolio. Partially offsetting this decrease was an increase of $243,000 in fees and services charges primarily due to higher overdraft charges and other fees on deposit accounts.

Total non-interest income was $10.9 million in the first nine months of 2022, a decrease of $6.8 million, or 38.4%, from the first nine months of 2021, primarily as a result of a decrease of $5.6 million in gains on sales of loans. Our gains on sales of loans decreased as our originations of secondary market one-to-four family residential real estate loans slowed due to the increase in mortgage interest rates and decreased inventory in the housing market in our market areas. Also contributing to the decrease in non-interest income was a decrease of $1.5 million gains on sales of investment securities. We recorded a loss of $353,000 on sales of investment securities during the first nine months of 2022 compared to net gains of $1.1 million in the same period of 2021. Partially offsetting the decrease in gains on sales of loans and investment securities was a $625,000 increase in fees and services charges due primarily to higher overdraft charges and other fees on deposit accounts.

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Non-interestExpense. Non-interest expense totaled $9.5 million for the third quarter of 2022, a slight increase of $15,000, or 0.2%, over the same quarter of 2021. The increase in non-interest expense in the third quarter of 2022 compared to the same period last year was mainly due to higher occupancy and equipment costs as well as acquisition costs. Partially offsetting those increases were lower data processing fees, reduced mortgage servicing rights amortization and a decline in compensation and benefits and other non-interest expense. The decline in data processing fees was due to a new contract with our main technology vendor in effect this year, while lower mortgage banking activity this quarter resulted in lower costs for compensation, amortization and other non-interest expense.

Non-interest expense totaled $27.3 million for the first nine months of 2022, a decrease of $388,000 or 1.4%, from $27.7 million for the first nine months of 2021. The decrease in non-interest expense in the first nine months of 2022 compared to the same period last year was mainly due to lower data processing fees, reduced mortgage servicing rights amortization and a decline in compensation and benefits and other non-interest expense. The decline in data processing fees was due to a new contract with our main technology vendor in effect this year, while lower mortgage banking activity this quarter resulted in lower costs for compensation, amortization and other non-interest expense. Partially offsetting the decreases in non-interest expense were costs of $355,000 during the first nine months of 2022 related to the recently announced acquisition of Freedom Bancshares, Inc. and its wholly owned subsidiary Freedom Bank.

IncomeTax Expense. During the third quarter of 2022, we recorded income tax expense of $522,000, compared to $1.1 million during the same period of 2021. Our effective tax rate decreased from 19.8% in the third quarter of 2021 to 17.3% in the third quarter of 2022. The decrease in the effective tax rate was due to lower earnings before income taxes while tax-exempt income was similar between the periods.

We recorded income tax expense of $1.9 million for the first nine months of 2022 compared to $3.8 million in the same period of 2021. Our effective tax rate was 20.3% in the first nine months of 2021 compared to 18.0% in the first nine months of 2022. The decrease in the effective tax rate was due to lower earnings before income taxes while tax-exempt income was similar between the periods.

FinancialCondition. Economic conditions in the United States slowed during the first nine months of 2022 as elevated inflation levels and higher interest rates impacted the economy. The State of Kansas and the geographic markets in which the Company operates was also impacted by these economic headwinds. The supply chain constraints, labor shortages and geopolitical events have all contributed to the rising inflation levels which are impacting all areas of the economy both nationally and locally. The Company’s allowance for loan 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.

AssetQuality 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 $26.3 million, or 2.0%, from December 31, 2021 to $1.4 billion at September 30, 2022.

The allowance for loan losses is established through a provision for loan losses based on our evaluation of the risk inherent in the loan portfolio and changes in the nature and volume of our loan activity. This evaluation, which includes a review of all loans with respect to which full collectability may not be reasonably assured, considers the fair value of the underlying collateral, economic conditions, historical loan loss experience, level of classified loans and other factors that warrant recognition in providing for an appropriate allowance for loan losses. At September 30, 2022, our allowance for loan losses totaled $8.9 million, or 1.25% of gross loans outstanding, compared to $8.8 million, or 1.32% of gross loans outstanding, at December 31, 2021. Our allowance for loan losses as a percentage of gross loans outstanding, excluding PPP loans of $410,000 at September 30, 2022 and $17.2 million at December 31, 2021, was 1.25% at September 30, 2022 compared to 1.36% at December 31, 2021. This reflects a more comparable ratio to periods prior to PPP, as no allowance for loan losses has been allocated to PPP loans since they are guaranteed by the Small Business Administration. The decline in our allowance for loan losses as a percentage of gross loans outstanding was primarily due to improving economic conditions and a decrease in our classified loan totals.

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As of September 30, 2022 and December 31, 2021, approximately $16.2 million and $18.0 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 was sufficient to cover the risks and probable incurred losses related to such loans at September 30, 2022 and December 31, 2021, respectively.

Loans past due 30-89 days and still accruing interest totaled $657,000, or 0.09% of gross loans, at September 30, 2022, compared to $2.0 million, or 0.30% of gross loans, at December 31, 2021. At September 30, 2022, $4.8 million in loans were on non-accrual status, or 0.68% of gross loans, compared to $5.2 million, or 0.79% of gross loans, at December 31, 2021. 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 September 30, 2022 or December 31, 2021. Our impaired loans totaled $5.7 million at September 30, 2022 compared to $6.7 million at December 31, 2021. The difference in the Company’s non-accrual loan balances and impaired loan balances at September 30, 2022 and December 31, 2021 was related to TDRs that were accruing interest but still classified as impaired.

At September 30, 2022, the Company had seven loan relationships consisting of 11 outstanding loans that were previously classified as TDRs. No loans were classified as TDRs during the three or nine months ending September 30, 2022. During the second quarter of 2022, a $7,000 commercial loan paid off after being classified as a TDR in 2018. During the first quarter of 2022, two construction and land loans totaling $599,000 were paid off. These loans were originally classified as TDRs in 2012. A commercial loan totaling $32,000 was paid off in the first quarter of 2022 after being classified as a TDR in the first quarter of 2021. An agriculture loan totaling $250,000 was also paid off in the first quarter of 2022 after being classified as a TDR in the third quarter of 2021. During the three and nine months ended September 30, 2021, an agriculture loan paid off that was previously classified as a TDR in 2016. During the nine months ended September 30, 2021, a commercial loan relationship consisting of five loans was modified after originally being classified as a TDR in 2020. The borrower liquidated some of the collateral securing the loans and refinanced the remaining balance of $479,000 into one loan which retained a TDR classification.

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. During the first nine months of 2022, two commercial real estate properties were sold resulting in a gain of $114,000. At September 30, 2022, we had $1.3 million of real estate owned compared to $2.6 million at December 31, 2021. As of September 30, 2022, real estate owned primarily consisted of commercial buildings, undeveloped land and residential real estate properties. The Company is currently marketing all of the remaining properties in real estate owned.

LiabilityDistribution. 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 $31.3 million in total deposits during the first nine months of 2022, to $1.1 billion at September 30, 2022. The decrease in deposits was primarily due to a seasonal decline in public funds accounts.

Non-interest-bearing deposits at September 30, 2022, were $347.9 million, or 31.1% of deposits, compared to $350.0 million, or 30.5% of deposits, at December 31, 2021. Money market and checking deposit accounts were 45.2% of our deposit portfolio and totaled $505.0 million at September 30, 2022, compared to $536.9 million, or 46.8% of deposits, at December 31, 2021. Savings accounts increased to $171.0 million, or 15.3% of deposits, at September 30, 2022, from $155.5 million, or 13.5% of deposits, at December 31, 2021. Certificates of deposit totaled $93.2 million, or 8.4% of deposits, at September 30, 2022, compared to $106.1 million, or 9.2% of deposits, at December 31, 2021.

Certificates of deposit at September 30, 2022, scheduled to mature in one year or less totaled $77.6 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.

Total borrowings increased $83.8 million to $112.9 million at September 30, 2022, from $29.1 million at December 31, 2021. The increase in total borrowings was due to an increase in Federal Home Loan Bank borrowings and other borrowings. The increase in borrowings was due to funding the acquisition of Freedom Bancshares, Inc. and to offset the decline in deposits.

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CashFlows. During the nine months ended September 30, 2022, our cash and cash equivalents decreased by $140.0 million. Our operating activities provided net cash of $14.5 million during the first nine months of 2022 primarily as a result of net earnings. Our investing activities used net cash of $202.8 million during the first nine months of 2022, primarily due to loan growth and the purchase of investment securities. Financing activities provided net cash of $48.3 million during the first nine months of 2022, primarily as a result of an increase in borrowings.

**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 $542.2 million at September 30, 2022 and $577.3 million at December 31, 2021. 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. The higher balances of cash and cash equivalents are primarily held in our Federal Reserve account.

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 sales of investment securities. At September 30, 2022, we had $74.9 million against our line of credit with the FHLB. At September 30, 2022, we had collateral pledged to the FHLB that would allow us to borrow $45.9 million, subject to FHLB credit requirements and policies. At September 30, 2022, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $64.6 million. We also have various other federal funds agreements, both secured and unsecured, with correspondent banks totaling approximately $30.0 million in available credit under which we had no outstanding borrowings at September 30, 2022. At September 30, 2022, we had subordinated debentures totaling $21.7 million and $6.3 million of repurchase agreements. At September 30, 2022, the Company had no borrowings against a $5.0 million line of credit from an unrelated financial institution maturing on November 1, 2023, 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, 2022. The Company also borrowed $10.0 million from the same unrelated financial institution at a fixed rate of 6.15%. This borrowing matures on September 1, 2027 and requires quarterly principal and interest payments. The $10.0 million borrowings was used to fund part of the acquisition of Freedom Bancshares, Inc.

OffBalance 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 $2.2 million at September 30, 2022.

At September 30, 2022, we had outstanding loan commitments, excluding standby letters of credit, of $142.0 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.

**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 Rules that implemented the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Basel III Rules are applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets of less than $3.0 billion).

The Basel III Rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a Tier 1 capital to risk-weighted assets minimum ratio of 6.0%, a Total Capital to risk-weighted assets minimum ratio of 8.0%, and a Tier 1 leverage minimum ratio of 4.0%. A capital conservation buffer, equal to 2.5% common equity Tier 1 capital, is also established above the regulatory minimum capital requirements (other than the Tier 1 leverage ratio). As of September 30, 2022 and December 31, 2021, the Bank met the requirements to be “well capitalized,” which is the highest rating available under the regulatory capital regulations framework for prompt corrective action. Management believed that as of September 30, 2022, the Company and the Bank met all capital adequacy requirements to which we are subject.

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Dividends. During the quarter ended September 30, 2022, we paid a quarterly cash dividend of $0.21 per share to our stockholders.

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, 2022. 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 two preceding years. As of September 30, 2022, approximately $8.5 million was available to be paid as dividends to the Company by the Bank without prior regulatory approval.

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

ITEM

  1. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

As of September 30, 2022 As of December 31, 2021
Scenario Dollar change in net interest income (000’s) Percent change in net interest income Dollar change in net interest income (000’s) Percent change in net interest income
300 basis point rising ) (6.0 %) 9.9 %
200 basis point rising ) (4.1 %) 6.6 %
100 basis point rising ) (2.2 %) 3.4 %
100 basis point falling 0.4 % ) (2.5 %)
200 basis point falling ) (2.3 %) NM
300 basis point falling ) (2.4 %) NM

All values are in US Dollars.

The 200 basis point falling scenario was considered to be not meaningful (“NM”) as of December 31, 2021.

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SafeHarbor Statement Under the Private Securities Litigation Reform Act of 1995

Forward-Looking Statements

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

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

● The<br> effects of changes in interest rates (including the effects of changes in the rate of prepayments of our assets) and the policies<br> of the Federal Reserve including on our net interest income and the value of our security portfolio.
● The<br> strength of the United States economy in general and the strength of the local economies in which we conduct our operations, including<br> the effects of inflationary pressures and supply chain constraints on such economies, which may be less favorable than expected and<br> may result in, among other things, a deterioration in the credit quality and value of our assets.
● The<br> economic impact of past and any future terrorist attacks, acts of war, including the current conflict in Ukraine, or threats thereof,<br> and the response of the United States to any such threats and attacks.
● The<br> effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, consumer protection,<br> insurance, tax, trade and monetary and financial matters.
● Our<br> ability to compete with other financial institutions due to increases in competitive pressures in the financial services sector.
● Our<br> inability to obtain new customers and to retain existing customers.
● The<br> timely development and acceptance of products and services.
● Technological<br> changes implemented by us and by other parties, including third-party vendors, which may be more difficult to implement or more expensive<br> than anticipated or which may have unforeseen consequences to us and our customers.
● Our<br> ability to develop and maintain secure and reliable electronic systems.
● The<br> effectiveness of our risk management framework.
● The<br> occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents and<br> our ability to identify and address such incidents.
● Interruptions<br> involving our information technology and telecommunications systems or third-party servicers.
● Changes<br> in and uncertainty related to the availability of benchmark interest rates used to price our loans and deposits, including the expected<br> elimination of LIBOR and the development of a substitute.
● The<br> effects of severe weather, natural disasters, widespread disease or pandemics (including the COVID-19 pandemic), and other external<br> events.
● Our<br> ability to retain key executives and employees and the difficulty that we may experience in replacing key executives and employees<br> in an effective manner.
● Consumer<br> spending and saving habits which may change in a manner that affects our business adversely.
● Our<br> ability to successfully integrate acquired businesses and future growth.
● The<br> costs, effects and outcomes of existing or future litigation.
● Changes<br> in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the FASB, such as the implementation<br> of CECL.
● Our<br> ability to effectively manage our credit risk.
● Our<br> ability to forecast probable loan losses and maintain an adequate allowance for loan losses.
● The<br> effects of declines in the value of our investment portfolio.
● Our<br> ability to raise additional capital if needed.
● The<br> effects of declines in real estate markets.
● The<br> effects of fraudulent activity on the part of our employees, customers, vendors, or counterparties. 
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These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including other factors that could materially affect our financial results, is included in our filings with the Securities and Exchange Commission, including the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 22, 2022.

ITEM

  1. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2022. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022 to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2022 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART

II – OTHER INFORMATION

ITEM

  1. LEGAL PROCEEDINGS

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

ITEM

1A. RISK FACTORS

There have been no material changes in the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

ITEM

  1. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about purchases by the Company during the quarter ended September 30, 2022, of the Company’s equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans (1) Maximum number of shares that may yet be purchased under the plans (1)
July 1-31, 2022 5,931 $ 25.08 5,931 199,956
August 1-31, 2022 4,527 25.61 4,527 195,429
September 1-30, 2022 9,233 25.66 9,233 186,196
Total 19,691 $ 25.47 19,691 186,196

(1) In March 2020, our Board of Directors approved a stock repurchase plan, permitting us to repurchase up to 225,890 shares. Unless terminated earlier by resolution of the Board of Directors, the stock repurchase plan will expire when we have repurchased all shares authorized for repurchase thereunder. As of September 30, 2022, there were 186,196 shares remaining to repurchase under the March 2020 Repurchase Program.

ITEM

  1. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM

  1. MINE SAFETY DISCLOSURES

Not applicable.

ITEM

  1. OTHER INFORMATION

None.

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ITEM

  1. EXHIBITS
Exhibit<br> 2.1 Agreement and Plan of Merger, dated as of June 28, 2022, by and among Landmark Bancorp, Inc., LARK Investment Corporation and Freedom Bancshares, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s report on Form 8-K filed with the SEC on June 28, 2022 (SEC file no. 000-33203))
Exhibit<br> 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s transition report on Form 10-K filed with the SEC on March 29, 2002 (SEC file no. 000-33203))
Exhibit<br> 3.2 Certificate of Amendment of the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Company’s report on Form 10-K filed with the SEC on March 29, 2013 (SEC file no. 000-33203))
Exhibit<br> 3.3 Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Form S-4 filed with the SEC on June 7, 2001 (SEC file no. 333-62466))
Exhibit<br> 10.1 Change in Terms Agreement and Promissory Note, dated September 29, 2022, between Landmark Bancorp, Inc. and First National Bank of Omaha
Exhibit<br> 31.1 Certificate of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
Exhibit<br> 31.2 Certificate of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
Exhibit<br> 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit<br> 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit<br> 101 Interactive<br> data files pursuant to Rule 405 of Regulation S-T formatted in Inline XBRL: (i) Consolidated Balance Sheets as of September 30, 2022<br> and December 31, 2021; (ii) Consolidated Statements of Earnings for the three and nine months ended September 30, 2022 and September<br> 30, 2021; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and September<br> 30, 2021; (iv) Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and September<br> 30, 2021; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and September 30, 2021; and (vi)<br> Notes to Consolidated Financial Statements
Exhibit<br> 104 Cover<br> Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 
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SIGNATURES

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

LANDMARK<br> BANCORP, INC.
Date:<br> November 10, 2022 /s/ Michael E. Scheopner
Michael<br> E. Scheopner
President<br> and Chief Executive Officer
(Principal<br> Executive Officer)
Date:<br> November 10, 2022 /s/ Mark A. Herpich
Mark<br> A. Herpich
Vice<br> President, Secretary, Treasurer
and<br>Chief Financial Officer
(Principal<br> Financial and Accounting Officer) 
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Exhibit 10.1

CHANGE IN TERMS AGREEMENT

Principal Loan Date Maturity Loan No Call/Coll Account Officer Initials
$5,000,000.00 9-29-2022 11-01-2023 xxxxxxx ***
Borrower: Landmark Bancorp, Inc. Lender: First National Bank of Omaha
701 Poyntz Ave Downtown-Corporate Banking Group
Manhattan KS 66502-6055 1620 Dodge St SC 3206
Omaha, NE 68197
Principal Amount: $5,000,000.00 Date of Agreement: September 29, 2022
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DESCRIPTION OF EXISTING INDEBTEDNESS. This Changein Terms Agreement is an amendment and/or modification of the terms and conditions of indebtedness of Borrower as set forth in a PromissoryNote dated November 1, 2016, in the amount of $7,500,000.00, and most recently documented in a Change in Terms Agreement dated November1, 2021, and shall include all renewals, modifications and extensions of such documents.

DESCRIPTION OF CHANGE IN TERMS. As fully set forthherein below, this Change in Terms Agreement generally modifies the terms applicable to the existing indebtedness by decreasing the commitmentand extending the maturity date. Any sums due and owing hereunder shall take into account any principal and interest payments made bythe Borrower in accordance with regular established billing cycles.

PROMISE TO PAY. Landmark Bancorp, Inc. (“Borrower”)promises to pay to First National Bank of Omaha (“Lender”), or order, in lawful money of the United States of America, theprincipal amount of Five Million & 00/100 Dollars ($5,000,000.00) or so much as may be outstanding, together with interest on theunpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of eachadvance.

PAYMENT. Borrower will pay this loan in one paymentof all outstanding principal plus all accrued unpaid interest on November 1, 2023. In addition, Borrower will pay regular quarterly paymentsof all accrued unpaid interest due as of each payment date, beginning December 1, 2022, with all subsequent interest payments to be dueon the same day of each quarter after that. Unless otherwise agreed or required by applicable law, payments will be applied to interest,principal, and expenses owing under the Note in an order determined by Lender. Borrower will pay Lender at Lender’s address shownabove or at such other place as Lender may designate in writing.

VARIABLE INTEREST RATE. The interest rate on this loan is subject to change from time to time based on changes in an independent index which is the U.S. Prime Rate as published by the Wall Street Journal and currently is determined by the base rate on corporate loans posted by at least seventy percent (70%) of the nations ten (10) largest banks (the “Index”). The Index is not necessarily the lowest rate charged by Lender on its loans. Lender will tell Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur more often than each day during the term of the loan. If at any time the Index is less than zero, then it shall be deemed to be zero for the purpose of calculating the interest rate on the Note. Borrower understands that Lender may make loans based on other rates as well. The Indexcurrently is 6.250% per annum. Interest on the unpaid principal balance of this loan will be calculated as described in the “INTEREST CALCULATION METHOD” paragraph using a rate of 0.500 percentage points under the Index (the “Margin”), adjusted if necessary for any minimum and maximum rate limitations described below, resulting in an initial rate of 5.750% per annum based on a year of 360 days. If Lender determines, in its sole discretion, that the Index has become unavailable or unreliable, either temporarily, indefinitely, or permanently, during the term of this loan, Lender may amend this loan by designating a substantially similar substitute index. Lender may also amend and adjust the Margin to accompany the substitute index. The change to the Margin may be a positive or negative value, or zero. In making these amendments, Lender may take into consideration any then-prevailing market convention for selecting a substitute index and margin for the specific Index that is unavailable or unreliable. Such an amendment to the terms of this loan will become effective and bind Borrower 10 business days after Lender gives written notice to Borrower without any action or consent of the Borrower. NOTICE: Under no circumstances will the interest rate on this loan be less than 3.000% per annum or more than the maximum rate allowed by applicable law.

INTEREST CALCULATION METHOD. Interest on this loanis computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstandingprincipal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this loanis computed using this method.

PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Agreement, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or deliveredto: First National Bank of Omaha, Downtown- Corporate Banking Group, 1620 Dodge St SC 3206, Omaha, NE 68197.

LATE CHARGE. If a payment is 1 O days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $25.00, whichever is greater.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this loan shall be increased by adding an additional 6.000 percentage point margin (“Default Rate Margin”). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

Payment Default. Borrower fails to make any payment when due under the Indebtedness.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or ability to perform Borrower’s obligations under this Agreement or any of the Related Documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf, or made by Guarantor, or any other guarantor, endorser, surety, or accommodation party, under this Agreement or the Related Documents in connection with the obtaining of the Indebtedness evidenced by this Agreement or any security document directly or indirectly securing repayment of this Agreement is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Execution; Attachment. Any execution or attachment is levied against the Collateral, and such execution or attachment is not set aside, discharged or stayed within thirty (30) days after the same is levied.

Change in Zoning or Public Restriction. Any change in any zoning ordinance or regulation or any other public restriction is enacted, adopted or implemented, that limits or defines the uses which may be made of the Collateral such that the present or intended use of the Collateral, as specified in the Related Documents, would be in violation of such zoning ordinance or regulation or public restriction, as changed.

Default Under Other Lien Documents. A default occurs under any other mortgage, deed of trust or security agreement covering all or any portion of the Collateral.

Judgment. Unless adequately covered by insurance in the opinion of Lender, the entry of a final judgment for the payment of money involving more than ten thousand dollars ($10,000.00) against Borrower and the failure by Borrower to discharge the same, or cause it to be discharged, or bonded off to Lender’s satisfaction, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor, or any other guarantor, endorser, surety, or accommodation party of any of the Indebtedness or any Guarantor, or any other guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness evidenced by this Note.

Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired.

Insecurity. Lender in good faith believes itself insecure.

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Agreement and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Agreement if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including attorneys’ fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

JURY WAIVER. Lender and Borrower hereby waive theright to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

GOVERNING LAW. This Agreement will be governedby federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Nebraska without regardto its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Nebraska.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of Douglas County, State of Nebraska.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $30.00 if Borrower makes a payment on Borrower’s loan and the check or preauthorized charge with which Borrower pays is later dishonored.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

COLLATERAL. Borrower acknowledges this Agreement is secured by a Commercial Pledge Agreement dated November 1, 2021, and any and all other security agreements or documents and any and all other collateral agreements or documents associated with this Loan or Note whether now existing or hereafter arising.

LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances under this Agreement may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender’s office shown above. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Agreement at any time may be evidenced by endorsements on this Agreement or by Lender’s internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Agreement if; (A) Borrower or any guarantor is in default under the terms of this Agreement or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Agreement; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor’s guarantee of this Agreement or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Agreement for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure.

CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. Consent by Lender to this Agreement does not waive Lender’s right to strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms. Nothing in this Agreement will constitute a satisfaction of the obligation(s). It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing. Any maker or endorser, including accommodation makers, will not be released by virtue of this Agreement. If any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally, based on the representation to Lender that the non-signing party consents to the changes and provisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also to all such subsequent actions.

U.S.A. PATRIOT ACT. To help the government fight the funding of terrorism and money laundering activities, the USA PATRIOT Act requires all banks to obtain and verify the identity of each person or business that opens an account. When Borrower opens an account Lender will ask Borrower for information that will allow Lender to properly identify Borrower and Lender will verify that information. If Lender cannot properly verify identity within 30 calendar days, Lender reserves the right to deem all of the balance and accrued interest due and payable immediately.

ELECTRONIC COPIES. Lender may copy, electronically or otherwise, and thereafter destroy, the originals of this Agreement and/or Related Documents in the regular course of Lender’s business. All such copies produced from an electronic form or by any other reliable means (i.e., photographic image or facsimile) shall in all respects be considered equivalent to an original, and Borrower hereby waives any rights or objections to the use of such copies.

CHANGE IN MEMBERSHIP. If Borrower or Guarantor is a limited liability company, any change in ownership of twenty-five percent (25%) or more of the membership interest of Borrower or Guarantor is an Event of Default.

CROSS DEFAULT. An Event of Default, beyond the applicable cure period, if any, or an Event of Default under any other Loan or any Related Document will constitute an Event of Default under this Agreement and a default and an Event of Default under any other agreement by Borrower or any affiliate or subsidiary of Borrower with or in favor of Lender and under any evidence of any Loan or Indebtedness held by Lender, whether or not such is specified therein. Borrower acknowledges that some Loan Documents will e preprinted forms and that it is the intent of Borrower and Lender that all Loans and Guaranties by Borrower or any affiliate or subsidiary of Borrower with or in favor of Lender be cross-defaulted with each other.

SUCCESSORS AND ASSIGNS. Subject to any limitations stated in this Agreement on transfer of Borrower’s interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Borrower, Lender, without notice to Borrower, may deal with Borrower’s successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Borrower from the obligations of this Agreement or liability under the Indebtedness.

MISCELLANEOUS PROVISIONS. If any part of this Agreement cannot be enforced, this fact will not affect the rest of the Agreement. Lender may delay or forgo enforcing any of its rights or remedies under this Agreement without losing them. Borrower and any other person who signs, guarantees or endorses this Agreement, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Agreement, and unless otherwise expressly stated in writing, no party who signs this Agreement, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may mod’1fy this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Agreement are joint and several.

PRIOR TO SIGNING THIS AGREEMENT, BORROWER READAND UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OFTHE AGREEMENT.

BORROWER:

LANDMARK BANCORP, INC
/s/ Mark A Herpich
Mark A Herpich, Chief Fin. Officer/Secretary of
Landmark Bancorp, Inc.

PROMISSORY NOTE

Principal Loan Date Maturity Loan No Call/Coll Account Officer Initials
$10,000,000.00 09-29-2022 09-01-2027 xxxxxxx ***
Borrower: Landmark Bancorp, Inc. Lender: First National Bank of Omaha
701 Poyntz Ave Downtown-Corporate Banking Group
Manhattan KS 66502-6055 1620 Dodge St SC 3206
Omaha, NE 68197
Principal Amount: $10,000,000.00 Date of Note: September 29, 2022
--- ---

PROMISE TO PAY. Landmark Bancorp, Inc. (“Borrower”)promises to pay to First National Bank of Omaha (“Lender”), or order, in lawful money of the United States of America,the principal amount of Ten Million & 00/100 Dollars ($10,000,000.00), together with Interest on the unpaid principal balancefrom September 29, 2022, calculated as described in the “INTEREST CALCULATION METHOD” paragraph using an interest rate of6.150% per annum based on a year of 360 days, until paid in full. The Interest rate may change under the terms andconditions of the “INTEREST AFTER DEFAULT” section.

PAYMENT. Borrower will pay this loan in 19principal payments of $332,777.24 each and one final principal and interest payment of $3,735,026.28. Borrower’s first principalpayment is due December 1, 2022, and all subsequent principal payments are due on the same day of each quarter after that. In addition,Borrower will pay regular quarterly payments of all accrued unpaid interest due as of each payment date, beginning December 1, 2022, withall subsequent interest payments to be due on the same day of each quarter after that. Borrower’s final payment due September 1,2027, will be for all principal and all accrued interest not yet paid. Unless otherwise agreed or required by applicable law, paymentswill be applied to interest, principal, and expenses owing under the Note in an order determined by Lender. Borrower will pay Lender atLender’s address shown above or at such other place as Lender may designate in writing.

INTEREST CALCULATION METHOD. Interest on this Noteis computed on a 365/360 basis; that Is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstandingprincipal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Noteis computed using this method.

PREPAYMENT. Borrower may pay without penalty ailor a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrowerof Borrower’s obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principalbalance due and may result in Borrower’s making fewer payments. Borrower agrees not to send Lender payments marked “paid infull”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losingany of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All writtencommunications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes“payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfactionof a disputed amount must be mailed or delivered to: First National Bank of Omaha, Downtown- Corporate Banking Group, 1620 Dodge St SC3206, Omaha, NE 68197.

LATE CHARGE. If a payment is 10 days or more late,Borrower will be charged 5.000% of the regularly scheduled payment or $25.00, whichever is greater.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased by 6.000 percentage points. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Granter defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf, or made by Guarantor, or any other guarantor, endorser, surety, or accommodation party, under this Note or the related documents in connection with the obtaining of the loan evidenced by this Note or any security document directly or indirectly securing repayment of this Note is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Execution; Attachment. Any execution or attachment is levied against the Collateral, and such execution or attachment is not set aside, discharged or stayed within thirty (30) days after the same is levied.

Change in Zoning or Public Restriction. Any change in any zoning ordinance or regulation or any other public restriction is enacted, adopted or implemented, that limits or defines the uses which may be made of the Collateral such that the present or intended use of the Collateral, as specified in the related documents, would be in violation of such zoning ordinance or regulation or public restriction, as changed.

Default Under Other Lien Documents. A default occurs under any other mortgage, deed of trust or security agreement covering ail or any portion of the Collateral.

Judgment. Unless adequately covered by insurance in the opinion of Lender, the entry of a final judgment for the payment of money involving more than ten thousand dollars ($10,000.00) against Borrower and the failure by Borrower to discharge the same, or cause it to be discharged, or bonded off to Lender’s satisfaction, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor, or any other guarantor, endorser, surety, or accommodation party of any of the indebtedness or any Guarantor, or any other guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

Change In Ownership. Any change in ownership of twenty-five percent(25%)or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

Insecurity. Lender in good faith believes itself insecure.

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including attorneys’ fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

JURY WAIVER. Lender and Borrower hereby waive theright to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

GOVERNING LAW. This Note will be governed by federallaw applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Nebraska without regard to its conflictsof law provisions. This Note has been accepted by Lender in the State of Nebraska.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of Douglas County, State of Nebraska.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $30.00 if Borrower makes a payment on Borrower’s loan and the check or preauthorized charge with which Borrower pays is later dishonored.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

COLLATERAL. Borrower acknowledges this Note is secured by a Commercial Pledge Agreement dated November 1, 2021, and any and all other security agreements or documents and any and all other collateral agreements or documents associated with this Loan or Note whether now existing or hereafter arising.

FINANCIAL STATEMENTS. Borrower agrees to provide Lender with such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request.

ERRORS AND OMISSIONS. Borrower agrees, if requested by Lender, to fully cooperate in the correction, if necessary, in the reasonable discretion of Lender of any and all loan closing documents so that all documents accurately describe the loan between Lender and Borrower. Borrower agrees to assume all costs including by way of illustration and not limitation, actual expenses, legal fees and marketing losses for failing to reasonably comply with Lender requests within thirty (30) days.

U.S.A. PATRIOT ACT. To help the government fight the funding of terrorism and money laundering activities, the USA PATRIOT Act requires all banks to obtain and verify the identity of each person or business that opens an account. When Borrower opens an account Lender will ask Borrower for information that will allow Lender to properly identify Borrower and Lender will verify that information. If Lender cannot properly verify identity within 30 calendar days, Lender reserves the right to deem all of the balance and accrued interest due and payable immediately.

CONSENT TO PARTICIPATION. Borrower agrees and consents to Lender’s sale or transfer, whether now or later, or one or more participation interest in this loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interest, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interest will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower’s obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interest irrespective of any personal claims or defenses that Borrower may have against Lender.

ELECTRONIC COPIES. Lender may copy, electronically or otherwise, and thereafter destroy, the originals of this Agreement and/or Related Documents in the regular course of Lender’s business. All such copies produced from an electronic form or by any other reliable means (i.e., photographic image or facsimile) shall in all respects be considered equivalent to an original, and Borrower hereby waives any rights or objections to the use of such copies.

CROSS DEFAULT. An Event of Default, beyond the applicable cure period, if any, or an Event of Default under any other Loan or any Related Document will constitute an Event of Default under this Agreement and a default and an Event of Default under any other agreement by Borrower or any affiliate or subsidiary of Borrower with or in favor of Lender and under any evidence of any Loan or Indebtedness held by Lender, whether or not such is specified therein. Borrower acknowledges that some Loan Documents will be preprinted forms and that it is the intent of Borrower and Lender that all Loans and Guaranties by Borrower or any affiliate or subsidiary of Borrower with or in favor of Lender be cross-defaulted with each other.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOODALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPYOF THIS PROMISSORY NOTE.

BORROWER:
LANDMARK BANCORP, INC
/s/ Mark A Herpich
Mark A Herpich, Chief Fin. Officer/Secretary of
Landmark Bancorp, Inc.

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a)/15d-14(a)

I, Michael E. Scheopner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Landmark Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
--- ---
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
--- ---
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 10, 2022 /s/ Michael E. Scheopner
--- ---
Michael E. Scheopner
Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a)/15d-14(a)

I, Mark A. Herpich, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Landmark Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
--- ---
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
--- ---
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 10, 2022 /s/ Mark A. Herpich
--- ---
Mark A. Herpich
Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Landmark Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael E. Scheopner, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael E. Scheopner
Michael E. Scheopner
Chief Executive Officer
November 10, 2022

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Landmark Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark A. Herpich, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mark A. Herpich
Mark A. Herpich
Chief Financial Officer
November 10, 2022

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