false Q3 --12-31 0001141688 0001141688 2023-01-01 2023-09-30 0001141688 2023-11-10 0001141688 2023-09-30 0001141688 2022-12-31 0001141688 2023-07-01 2023-09-30 0001141688 2022-07-01 2022-09-30 0001141688 2022-01-01 2022-09-30 0001141688 us-gaap:CommonStockMember 2022-06-30 0001141688 us-gaap:AdditionalPaidInCapitalMember 2022-06-30 0001141688 us-gaap:RetainedEarningsMember 2022-06-30 0001141688 us-gaap:TreasuryStockCommonMember 2022-06-30 0001141688 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-06-30 0001141688 2022-06-30 0001141688 us-gaap:CommonStockMember 2023-06-30 0001141688 us-gaap:AdditionalPaidInCapitalMember 2023-06-30 0001141688 us-gaap:RetainedEarningsMember 2023-06-30 0001141688 us-gaap:TreasuryStockCommonMember 2023-06-30 0001141688 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-06-30 0001141688 2023-06-30 0001141688 us-gaap:CommonStockMember 2021-12-31 0001141688 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001141688 us-gaap:RetainedEarningsMember 2021-12-31 0001141688 us-gaap:TreasuryStockCommonMember 2021-12-31 0001141688 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31 0001141688 2021-12-31 0001141688 us-gaap:CommonStockMember 2022-12-31 0001141688 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001141688 us-gaap:RetainedEarningsMember 2022-12-31 0001141688 us-gaap:TreasuryStockCommonMember 2022-12-31 0001141688 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001141688 us-gaap:CommonStockMember 2022-07-01 2022-09-30 0001141688 us-gaap:AdditionalPaidInCapitalMember 2022-07-01 2022-09-30 0001141688 us-gaap:RetainedEarningsMember 2022-07-01 2022-09-30 0001141688 us-gaap:TreasuryStockCommonMember 2022-07-01 2022-09-30 0001141688 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-07-01 2022-09-30 0001141688 us-gaap:CommonStockMember 2023-07-01 2023-09-30 0001141688 us-gaap:AdditionalPaidInCapitalMember 2023-07-01 2023-09-30 0001141688 us-gaap:RetainedEarningsMember 2023-07-01 2023-09-30 0001141688 us-gaap:TreasuryStockCommonMember 2023-07-01 2023-09-30 0001141688 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-07-01 2023-09-30 0001141688 us-gaap:CommonStockMember 2022-01-01 2022-09-30 0001141688 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-09-30 0001141688 us-gaap:RetainedEarningsMember 2022-01-01 2022-09-30 0001141688 us-gaap:TreasuryStockCommonMember 2022-01-01 2022-09-30 0001141688 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-01 2022-09-30 0001141688 us-gaap:CommonStockMember 2023-01-01 2023-09-30 0001141688 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-09-30 0001141688 us-gaap:RetainedEarningsMember 2023-01-01 2023-09-30 0001141688 us-gaap:TreasuryStockCommonMember 2023-01-01 2023-09-30 0001141688 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-09-30 0001141688 us-gaap:CommonStockMember 2022-09-30 0001141688 us-gaap:AdditionalPaidInCapitalMember 2022-09-30 0001141688 us-gaap:RetainedEarningsMember 2022-09-30 0001141688 us-gaap:TreasuryStockCommonMember 2022-09-30 0001141688 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-09-30 0001141688 2022-09-30 0001141688 us-gaap:CommonStockMember 2023-09-30 0001141688 us-gaap:AdditionalPaidInCapitalMember 2023-09-30 0001141688 us-gaap:RetainedEarningsMember 2023-09-30 0001141688 us-gaap:TreasuryStockCommonMember 2023-09-30 0001141688 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-09-30 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember 2023-09-30 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember 2023-01-01 0001141688 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember LARK:RealEstatePortfolioSegmentMember LARK:OneToFourFamilyResidentialRealEstateLoansMember 2023-01-01 0001141688 LARK:RealEstatePortfolioSegmentMember LARK:OneToFourFamilyResidentialRealEstateLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember LARK:RealEstatePortfolioSegmentMember LARK:OneToFourFamilyResidentialRealEstateLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember LARK:RealEstatePortfolioSegmentMember LARK:ConstructionAndLandLoanMember 2023-01-01 0001141688 LARK:RealEstatePortfolioSegmentMember LARK:ConstructionAndLandLoanMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember LARK:RealEstatePortfolioSegmentMember LARK:ConstructionAndLandLoanMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember LARK:RealEstatePortfolioSegmentMember LARK:CommercialRealEstateLoansMember 2023-01-01 0001141688 LARK:RealEstatePortfolioSegmentMember LARK:CommercialRealEstateLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember LARK:RealEstatePortfolioSegmentMember LARK:CommercialRealEstateLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember LARK:RealEstatePortfolioSegmentMember LARK:CommercialLoansMember 2023-01-01 0001141688 LARK:RealEstatePortfolioSegmentMember LARK:CommercialLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember LARK:RealEstatePortfolioSegmentMember LARK:CommercialLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember LARK:RealEstatePortfolioSegmentMember LARK:PaycheckProtectionProgramLoansMember 2023-01-01 0001141688 LARK:RealEstatePortfolioSegmentMember LARK:PaycheckProtectionProgramLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember LARK:RealEstatePortfolioSegmentMember LARK:PaycheckProtectionProgramLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember LARK:RealEstatePortfolioSegmentMember LARK:AgricultureLoansMember 2023-01-01 0001141688 LARK:RealEstatePortfolioSegmentMember LARK:AgricultureLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember LARK:RealEstatePortfolioSegmentMember LARK:AgricultureLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember LARK:RealEstatePortfolioSegmentMember LARK:MunicipalLoansMember 2023-01-01 0001141688 LARK:RealEstatePortfolioSegmentMember LARK:MunicipalLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember LARK:RealEstatePortfolioSegmentMember LARK:MunicipalLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember LARK:RealEstatePortfolioSegmentMember LARK:ConsumerLoansMember 2023-01-01 0001141688 LARK:RealEstatePortfolioSegmentMember LARK:ConsumerLoansMember 2023-01-01 0001141688 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember LARK:RealEstatePortfolioSegmentMember LARK:ConsumerLoansMember 2023-01-01 0001141688 us-gaap:USTreasurySecuritiesMember 2023-09-30 0001141688 us-gaap:USTreasurySecuritiesMember 2023-01-01 2023-09-30 0001141688 LARK:MunicipalObligationsTaxExemptMember 2023-09-30 0001141688 LARK:MunicipalObligationsTaxExemptMember 2023-01-01 2023-09-30 0001141688 LARK:MunicipalObligationsTaxableMember 2023-09-30 0001141688 LARK:MunicipalObligationsTaxableMember 2023-01-01 2023-09-30 0001141688 LARK:AgencyMortgageBackedSecuritiesMember 2023-09-30 0001141688 LARK:AgencyMortgageBackedSecuritiesMember 2023-01-01 2023-09-30 0001141688 LARK:OtherMember 2023-09-30 0001141688 us-gaap:USTreasurySecuritiesMember 2022-12-31 0001141688 us-gaap:USTreasurySecuritiesMember 2022-01-01 2022-12-31 0001141688 LARK:USFederalAgencyObligationsMember 2022-12-31 0001141688 LARK:USFederalAgencyObligationsMember 2022-01-01 2022-12-31 0001141688 LARK:MunicipalObligationsTaxExemptMember 2022-12-31 0001141688 LARK:MunicipalObligationsTaxExemptMember 2022-01-01 2022-12-31 0001141688 LARK:MunicipalObligationsTaxableMember 2022-12-31 0001141688 LARK:MunicipalObligationsTaxableMember 2022-01-01 2022-12-31 0001141688 LARK:AgencyMortgageBackedSecuritiesMember 2022-12-31 0001141688 LARK:AgencyMortgageBackedSecuritiesMember 2022-01-01 2022-12-31 0001141688 2022-01-01 2022-12-31 0001141688 LARK:OtherMember 2022-12-31 0001141688 LARK:InvestmentMember 2023-09-30 0001141688 us-gaap:USTreasurySecuritiesMember 2023-09-30 0001141688 LARK:MunicipalObligationsTaxExemptMember 2023-09-30 0001141688 LARK:MunicipalObligationsTaxableMember 2023-09-30 0001141688 LARK:AgencyMortgageBackedSecuritiesMember 2023-09-30 0001141688 LARK:OtherMember 2023-09-30 0001141688 us-gaap:USTreasurySecuritiesMember 2022-12-31 0001141688 LARK:USFederalAgencyObligationsMember 2022-12-31 0001141688 LARK:MunicipalObligationsTaxExemptMember 2022-12-31 0001141688 LARK:MunicipalObligationsTaxableMember 2022-12-31 0001141688 LARK:AgencyMortgageBackedSecuritiesMember 2022-12-31 0001141688 LARK:OtherMember 2022-12-31 0001141688 LARK:OneToFourFamilyResidentialRealEstateMember 2023-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateMember 2022-12-31 0001141688 LARK:ConstructionAndLandLoansMember 2023-09-30 0001141688 LARK:ConstructionAndLandLoansMember 2022-12-31 0001141688 LARK:CommercialRealEstateLoansMember 2023-09-30 0001141688 LARK:CommercialRealEstateLoansMember 2022-12-31 0001141688 us-gaap:CommercialLoanMember 2023-09-30 0001141688 us-gaap:CommercialLoanMember 2022-12-31 0001141688 LARK:PaycheckProtectionProgramLoansMember 2023-09-30 0001141688 LARK:PaycheckProtectionProgramLoansMember 2022-12-31 0001141688 LARK:AgricultureLoansMember 2023-09-30 0001141688 LARK:AgricultureLoansMember 2022-12-31 0001141688 LARK:MunicipalLoansMember 2023-09-30 0001141688 LARK:MunicipalLoansMember 2022-12-31 0001141688 us-gaap:ConsumerLoanMember 2023-09-30 0001141688 us-gaap:ConsumerLoanMember 2022-12-31 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember 2023-06-30 0001141688 LARK:ConstructionAndLandLoansMember 2023-06-30 0001141688 LARK:CommercialRealEstateLoansMember 2023-06-30 0001141688 us-gaap:CommercialLoanMember 2023-06-30 0001141688 LARK:PaycheckProtectionProgramLoansMember 2023-06-30 0001141688 LARK:AgricultureLoansMember 2023-06-30 0001141688 LARK:MunicipalLoansMember 2023-06-30 0001141688 LARK:ConsumerLoansMember 2023-06-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember 2023-07-01 2023-09-30 0001141688 LARK:ConstructionAndLandLoansMember 2023-07-01 2023-09-30 0001141688 LARK:CommercialRealEstateLoansMember 2023-07-01 2023-09-30 0001141688 us-gaap:CommercialLoanMember 2023-07-01 2023-09-30 0001141688 LARK:PaycheckProtectionProgramLoansMember 2023-07-01 2023-09-30 0001141688 LARK:AgricultureLoansMember 2023-07-01 2023-09-30 0001141688 LARK:MunicipalLoansMember 2023-07-01 2023-09-30 0001141688 LARK:ConsumerLoansMember 2023-07-01 2023-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember 2023-09-30 0001141688 LARK:ConsumerLoansMember 2023-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember 2022-12-31 0001141688 LARK:ConsumerLoansMember 2022-12-31 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember 2023-01-01 2023-09-30 0001141688 LARK:ConstructionAndLandLoansMember 2023-01-01 2023-09-30 0001141688 LARK:CommercialRealEstateLoansMember 2023-01-01 2023-09-30 0001141688 us-gaap:CommercialLoanMember 2023-01-01 2023-09-30 0001141688 LARK:PaycheckProtectionProgramLoansMember 2023-01-01 2023-09-30 0001141688 LARK:AgricultureLoansMember 2023-01-01 2023-09-30 0001141688 LARK:MunicipalLoansMember 2023-01-01 2023-09-30 0001141688 LARK:ConsumerLoansMember 2023-01-01 2023-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember 2022-06-30 0001141688 LARK:ConstructionAndLandLoansMember 2022-06-30 0001141688 LARK:CommercialRealEstateLoansMember 2022-06-30 0001141688 us-gaap:CommercialLoanMember 2022-06-30 0001141688 LARK:PaycheckProtectionProgramLoansMember 2022-06-30 0001141688 LARK:AgricultureLoansMember 2022-06-30 0001141688 LARK:MunicipalLoansMember 2022-06-30 0001141688 LARK:ConsumerLoansMember 2022-06-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember 2022-07-01 2022-09-30 0001141688 LARK:ConstructionAndLandLoansMember 2022-07-01 2022-09-30 0001141688 LARK:CommercialRealEstateLoansMember 2022-07-01 2022-09-30 0001141688 us-gaap:CommercialLoanMember 2022-07-01 2022-09-30 0001141688 LARK:PaycheckProtectionProgramLoansMember 2022-07-01 2022-09-30 0001141688 LARK:AgricultureLoansMember 2022-07-01 2022-09-30 0001141688 LARK:MunicipalLoansMember 2022-07-01 2022-09-30 0001141688 LARK:ConsumerLoansMember 2022-07-01 2022-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember 2022-09-30 0001141688 LARK:ConstructionAndLandLoansMember 2022-09-30 0001141688 LARK:CommercialRealEstateLoansMember 2022-09-30 0001141688 us-gaap:CommercialLoanMember 2022-09-30 0001141688 LARK:PaycheckProtectionProgramLoansMember 2022-09-30 0001141688 LARK:AgricultureLoansMember 2022-09-30 0001141688 LARK:MunicipalLoansMember 2022-09-30 0001141688 LARK:ConsumerLoansMember 2022-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember 2021-12-31 0001141688 LARK:ConstructionAndLandLoansMember 2021-12-31 0001141688 LARK:CommercialRealEstateLoansMember 2021-12-31 0001141688 us-gaap:CommercialLoanMember 2021-12-31 0001141688 LARK:PaycheckProtectionProgramLoansMember 2021-12-31 0001141688 LARK:AgricultureLoansMember 2021-12-31 0001141688 LARK:MunicipalLoansMember 2021-12-31 0001141688 LARK:ConsumerLoansMember 2021-12-31 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember 2022-01-01 2022-09-30 0001141688 LARK:ConstructionAndLandLoansMember 2022-01-01 2022-09-30 0001141688 LARK:CommercialRealEstateLoansMember 2022-01-01 2022-09-30 0001141688 us-gaap:CommercialLoanMember 2022-01-01 2022-09-30 0001141688 LARK:PaycheckProtectionProgramLoansMember 2022-01-01 2022-09-30 0001141688 LARK:AgricultureLoansMember 2022-01-01 2022-09-30 0001141688 LARK:MunicipalLoansMember 2022-01-01 2022-09-30 0001141688 LARK:ConsumerLoansMember 2022-01-01 2022-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:ConstructionAndLandLoanMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:CommercialRealEstateLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:CommercialLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:PaycheckProtectionProgramLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:AgricultureLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:MunicipalLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:ConsumerLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember 2022-01-01 2022-12-31 0001141688 LARK:ConstructionAndLandLoansMember 2022-01-01 2022-12-31 0001141688 LARK:CommercialRealEstateLoansMember 2022-01-01 2022-12-31 0001141688 us-gaap:CommercialLoanMember 2022-01-01 2022-12-31 0001141688 LARK:AgricultureLoansMember 2022-01-01 2022-12-31 0001141688 LARK:MunicipalLoansMember 2022-01-01 2022-12-31 0001141688 LARK:ConsumerLoansMember 2022-01-01 2022-12-31 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2023-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2023-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember us-gaap:FinancialAssetNotPastDueMember 2023-09-30 0001141688 LARK:ConstructionAndLandLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2023-09-30 0001141688 LARK:ConstructionAndLandLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2023-09-30 0001141688 LARK:ConstructionAndLandLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:ConstructionAndLandLoansMember us-gaap:FinancialAssetNotPastDueMember 2023-09-30 0001141688 LARK:CommercialRealEstateLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2023-09-30 0001141688 LARK:CommercialRealEstateLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2023-09-30 0001141688 LARK:CommercialRealEstateLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:CommercialRealEstateLoansMember us-gaap:FinancialAssetNotPastDueMember 2023-09-30 0001141688 us-gaap:CommercialLoanMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2023-09-30 0001141688 us-gaap:CommercialLoanMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2023-09-30 0001141688 us-gaap:CommercialLoanMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 us-gaap:CommercialLoanMember us-gaap:FinancialAssetNotPastDueMember 2023-09-30 0001141688 LARK:PaycheckProtectionLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2023-09-30 0001141688 LARK:PaycheckProtectionLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2023-09-30 0001141688 LARK:PaycheckProtectionLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:PaycheckProtectionLoansMember 2023-09-30 0001141688 LARK:PaycheckProtectionLoansMember us-gaap:FinancialAssetNotPastDueMember 2023-09-30 0001141688 LARK:AgricultureLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2023-09-30 0001141688 LARK:AgricultureLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2023-09-30 0001141688 LARK:AgricultureLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:AgricultureLoansMember us-gaap:FinancialAssetNotPastDueMember 2023-09-30 0001141688 LARK:MunicipalLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2023-09-30 0001141688 LARK:MunicipalLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2023-09-30 0001141688 LARK:MunicipalLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:MunicipalLoansMember us-gaap:FinancialAssetNotPastDueMember 2023-09-30 0001141688 LARK:ConsumerLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2023-09-30 0001141688 LARK:ConsumerLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2023-09-30 0001141688 LARK:ConsumerLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2023-09-30 0001141688 LARK:ConsumerLoansMember us-gaap:FinancialAssetNotPastDueMember 2023-09-30 0001141688 us-gaap:FinancingReceivables30To59DaysPastDueMember 2023-09-30 0001141688 us-gaap:FinancingReceivables60To89DaysPastDueMember 2023-09-30 0001141688 us-gaap:FinancialAssetNotPastDueMember 2023-09-30 0001141688 us-gaap:FinancialAssetPastDueMember 2023-09-30 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2022-12-31 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2022-12-31 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2022-12-31 0001141688 LARK:OneToFourFamilyResidentialRealEstateLoansMember us-gaap:FinancialAssetNotPastDueMember 2022-12-31 0001141688 LARK:ConstructionAndLandLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2022-12-31 0001141688 LARK:ConstructionAndLandLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2022-12-31 0001141688 LARK:ConstructionAndLandLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2022-12-31 0001141688 LARK:ConstructionAndLandLoansMember us-gaap:FinancialAssetNotPastDueMember 2022-12-31 0001141688 LARK:CommercialRealEstateLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2022-12-31 0001141688 LARK:CommercialRealEstateLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2022-12-31 0001141688 LARK:CommercialRealEstateLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2022-12-31 0001141688 LARK:CommercialRealEstateLoansMember us-gaap:FinancialAssetNotPastDueMember 2022-12-31 0001141688 us-gaap:CommercialLoanMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2022-12-31 0001141688 us-gaap:CommercialLoanMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2022-12-31 0001141688 us-gaap:CommercialLoanMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2022-12-31 0001141688 us-gaap:CommercialLoanMember us-gaap:FinancialAssetNotPastDueMember 2022-12-31 0001141688 LARK:PaycheckProtectionLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2022-12-31 0001141688 LARK:PaycheckProtectionLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2022-12-31 0001141688 LARK:PaycheckProtectionLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2022-12-31 0001141688 LARK:PaycheckProtectionLoansMember 2022-12-31 0001141688 LARK:PaycheckProtectionLoansMember us-gaap:FinancialAssetNotPastDueMember 2022-12-31 0001141688 LARK:AgricultureLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2022-12-31 0001141688 LARK:AgricultureLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2022-12-31 0001141688 LARK:AgricultureLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2022-12-31 0001141688 LARK:AgricultureLoansMember us-gaap:FinancialAssetNotPastDueMember 2022-12-31 0001141688 LARK:MunicipalLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2022-12-31 0001141688 LARK:MunicipalLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2022-12-31 0001141688 LARK:MunicipalLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2022-12-31 0001141688 LARK:MunicipalLoansMember us-gaap:FinancialAssetNotPastDueMember 2022-12-31 0001141688 LARK:ConsumerLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2022-12-31 0001141688 LARK:ConsumerLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2022-12-31 0001141688 LARK:ConsumerLoansMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2022-12-31 0001141688 LARK:ConsumerLoansMember us-gaap:FinancialAssetNotPastDueMember 2022-12-31 0001141688 us-gaap:FinancingReceivables30To59DaysPastDueMember 2022-12-31 0001141688 us-gaap:FinancingReceivables60To89DaysPastDueMember 2022-12-31 0001141688 us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2022-12-31 0001141688 us-gaap:FinancialAssetNotPastDueMember 2022-12-31 0001141688 us-gaap:FinancialAssetPastDueMember 2022-12-31 0001141688 LARK:TwoThousandTwentyThreeMember LARK:OneToFourFamilyResidentialRealEstateMember 2023-09-30 0001141688 LARK:TwoThousandTwentyTwoMember LARK:OneToFourFamilyResidentialRealEstateMember 2023-09-30 0001141688 LARK:TwoThousandTwentyOneMember LARK:OneToFourFamilyResidentialRealEstateMember 2023-09-30 0001141688 LARK:TwoThousandAndTwentyMember LARK:OneToFourFamilyResidentialRealEstateMember 2023-09-30 0001141688 LARK:TwoThousandAndNinentyMember LARK:OneToFourFamilyResidentialRealEstateMember 2023-09-30 0001141688 LARK:PriorMember LARK:OneToFourFamilyResidentialRealEstateMember 2023-09-30 0001141688 LARK:RevolvingLoansAmortizedCostMember LARK:OneToFourFamilyResidentialRealEstateMember 2023-09-30 0001141688 LARK:RevolvingLoansConvertedToTermMember LARK:OneToFourFamilyResidentialRealEstateMember 2023-09-30 0001141688 LARK:TwoThousandTwentyThreeMember LARK:ConstructionAndLandLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyTwoMember LARK:ConstructionAndLandLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyOneMember LARK:ConstructionAndLandLoansMember 2023-09-30 0001141688 LARK:TwoThousandAndTwentyMember LARK:ConstructionAndLandLoansMember 2023-09-30 0001141688 LARK:TwoThousandAndNinentyMember LARK:ConstructionAndLandLoansMember 2023-09-30 0001141688 LARK:PriorMember LARK:ConstructionAndLandLoansMember 2023-09-30 0001141688 LARK:RevolvingLoansAmortizedCostMember LARK:ConstructionAndLandLoansMember 2023-09-30 0001141688 LARK:RevolvingLoansConvertedToTermMember LARK:ConstructionAndLandLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyThreeMember us-gaap:CommercialRealEstateMember 2023-09-30 0001141688 LARK:TwoThousandTwentyTwoMember us-gaap:CommercialRealEstateMember 2023-09-30 0001141688 LARK:TwoThousandTwentyOneMember us-gaap:CommercialRealEstateMember 2023-09-30 0001141688 LARK:TwoThousandAndTwentyMember us-gaap:CommercialRealEstateMember 2023-09-30 0001141688 LARK:TwoThousandAndNinentyMember us-gaap:CommercialRealEstateMember 2023-09-30 0001141688 LARK:PriorMember us-gaap:CommercialRealEstateMember 2023-09-30 0001141688 LARK:RevolvingLoansAmortizedCostMember us-gaap:CommercialRealEstateMember 2023-09-30 0001141688 LARK:RevolvingLoansConvertedToTermMember us-gaap:CommercialRealEstateMember 2023-09-30 0001141688 us-gaap:CommercialRealEstateMember 2023-09-30 0001141688 LARK:TwoThousandTwentyThreeMember LARK:CommercialLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyTwoMember LARK:CommercialLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyOneMember LARK:CommercialLoansMember 2023-09-30 0001141688 LARK:TwoThousandAndTwentyMember LARK:CommercialLoansMember 2023-09-30 0001141688 LARK:TwoThousandAndNinentyMember LARK:CommercialLoansMember 2023-09-30 0001141688 LARK:PriorMember LARK:CommercialLoansMember 2023-09-30 0001141688 LARK:RevolvingLoansAmortizedCostMember LARK:CommercialLoansMember 2023-09-30 0001141688 LARK:RevolvingLoansConvertedToTermMember LARK:CommercialLoansMember 2023-09-30 0001141688 LARK:CommercialLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyThreeMember LARK:AgricultureLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyTwoMember LARK:AgricultureLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyOneMember LARK:AgricultureLoansMember 2023-09-30 0001141688 LARK:TwoThousandAndTwentyMember LARK:AgricultureLoansMember 2023-09-30 0001141688 LARK:TwoThousandAndNinentyMember LARK:AgricultureLoansMember 2023-09-30 0001141688 LARK:PriorMember LARK:AgricultureLoansMember 2023-09-30 0001141688 LARK:RevolvingLoansAmortizedCostMember LARK:AgricultureLoansMember 2023-09-30 0001141688 LARK:RevolvingLoansConvertedToTermMember LARK:AgricultureLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyThreeMember LARK:MunicipalLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyTwoMember LARK:MunicipalLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyOneMember LARK:MunicipalLoansMember 2023-09-30 0001141688 LARK:TwoThousandAndTwentyMember LARK:MunicipalLoansMember 2023-09-30 0001141688 LARK:TwoThousandAndNinentyMember LARK:MunicipalLoansMember 2023-09-30 0001141688 LARK:PriorMember LARK:MunicipalLoansMember 2023-09-30 0001141688 LARK:RevolvingLoansAmortizedCostMember LARK:MunicipalLoansMember 2023-09-30 0001141688 LARK:RevolvingLoansConvertedToTermMember LARK:MunicipalLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyThreeMember LARK:ConsumerLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyTwoMember LARK:ConsumerLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyOneMember LARK:ConsumerLoansMember 2023-09-30 0001141688 LARK:TwoThousandAndTwentyMember LARK:ConsumerLoansMember 2023-09-30 0001141688 LARK:TwoThousandAndNinentyMember LARK:ConsumerLoansMember 2023-09-30 0001141688 LARK:PriorMember LARK:ConsumerLoansMember 2023-09-30 0001141688 LARK:RevolvingLoansAmortizedCostMember LARK:ConsumerLoansMember 2023-09-30 0001141688 LARK:RevolvingLoansConvertedToTermMember LARK:ConsumerLoansMember 2023-09-30 0001141688 LARK:TwoThousandTwentyThreeMember 2023-09-30 0001141688 LARK:TwoThousandTwentyTwoMember 2023-09-30 0001141688 LARK:TwoThousandTwentyOneMember 2023-09-30 0001141688 LARK:TwoThousandAndTwentyMember 2023-09-30 0001141688 LARK:TwoThousandAndNinentyMember 2023-09-30 0001141688 LARK:PriorMember 2023-09-30 0001141688 LARK:RevolvingLoansAmortizedCostMember 2023-09-30 0001141688 LARK:RevolvingLoansConvertedToTermMember 2023-09-30 0001141688 LARK:LoansReceivablesNonClassifiedMember LARK:OneToFourFamilyResidentialRealEstateMember 2022-12-31 0001141688 LARK:LoansReceivablesClassifiedMember LARK:OneToFourFamilyResidentialRealEstateMember 2022-12-31 0001141688 LARK:LoansReceivablesNonClassifiedMember LARK:ConstructionAndLandLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesClassifiedMember LARK:ConstructionAndLandLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesNonClassifiedMember us-gaap:CommercialRealEstateMember 2022-12-31 0001141688 LARK:LoansReceivablesClassifiedMember us-gaap:CommercialRealEstateMember 2022-12-31 0001141688 LARK:LoansReceivablesNonClassifiedMember LARK:CommercialLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesClassifiedMember LARK:CommercialLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesNonClassifiedMember LARK:PaycheckProtectionLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesClassifiedMember LARK:PaycheckProtectionLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesNonClassifiedMember LARK:AgricultureLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesClassifiedMember LARK:AgricultureLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesNonClassifiedMember LARK:MunicipalLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesClassifiedMember LARK:MunicipalLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesNonClassifiedMember LARK:ConsumerLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesClassifiedMember LARK:ConsumerLoansMember 2022-12-31 0001141688 LARK:LoansReceivablesNonClassifiedMember 2022-12-31 0001141688 LARK:LoansReceivablesClassifiedMember 2022-12-31 0001141688 us-gaap:UnfundedLoanCommitmentMember 2022-12-31 0001141688 us-gaap:UnfundedLoanCommitmentMember 2023-01-01 2023-09-30 0001141688 us-gaap:UnfundedLoanCommitmentMember 2023-09-30 0001141688 LARK:CommercialLoansMember 2023-01-01 2023-09-30 0001141688 us-gaap:CoreDepositsMember 2023-09-30 0001141688 us-gaap:CoreDepositsMember 2022-12-31 0001141688 us-gaap:FederalHomeLoanMortgageCorporationCertificatesAndObligationsFHLMCMember 2023-09-30 0001141688 us-gaap:FederalHomeLoanMortgageCorporationCertificatesAndObligationsFHLMCMember 2022-12-31 0001141688 us-gaap:FederalHomeLoanBankCertificatesAndObligationsFHLBMember 2023-09-30 0001141688 us-gaap:FederalHomeLoanBankCertificatesAndObligationsFHLBMember 2022-12-31 0001141688 LARK:MortgageLoansServicedMember 2023-09-30 0001141688 LARK:MortgageLoansServicedMember 2022-12-31 0001141688 LARK:MortgageLoansServicedMember 2023-07-01 2023-09-30 0001141688 LARK:MortgageLoansServicedMember 2022-07-01 2022-09-30 0001141688 LARK:MortgageLoansServicedMember 2023-01-01 2023-09-30 0001141688 LARK:MortgageLoansServicedMember 2022-01-01 2022-09-30 0001141688 LARK:MortgageLoansServicedMember srt:MinimumMember 2023-01-01 2023-09-30 0001141688 LARK:MortgageLoansServicedMember srt:MaximumMember 2023-01-01 2023-09-30 0001141688 srt:WeightedAverageMember 2023-01-01 2023-09-30 0001141688 LARK:MortgageLoansServicedMember 2022-01-01 2022-12-31 0001141688 LARK:MortgageLoansServicedMember srt:MinimumMember 2022-01-01 2022-12-31 0001141688 LARK:MortgageLoansServicedMember srt:MaximumMember 2022-01-01 2022-12-31 0001141688 srt:WeightedAverageMember 2022-01-01 2022-12-31 0001141688 srt:WeightedAverageMember 2023-09-30 0001141688 srt:WeightedAverageMember 2022-12-31 0001141688 us-gaap:FederalHomeLoanBankAdvancesMember 2023-09-30 0001141688 us-gaap:FederalHomeLoanBankAdvancesMember 2022-12-31 0001141688 us-gaap:FederalHomeLoanBankAdvancesMember us-gaap:FederalFundsEffectiveSwapRateMember 2023-01-01 2023-09-30 0001141688 us-gaap:FederalHomeLoanBankAdvancesMember 2023-01-01 2023-09-30 0001141688 LARK:UnrelatedFinancialInstitutionMember 2023-09-30 0001141688 LARK:UnrelatedFinancialInstitutionMember 2023-01-01 2023-09-30 0001141688 us-gaap:LineOfCreditMember 2023-09-30 0001141688 us-gaap:LineOfCreditMember 2022-12-31 0001141688 LARK:UnrelatedFinancialInstitutionMember 2022-09-29 0001141688 LARK:UnrelatedFinancialInstitutionMember 2022-09-29 2022-09-29 0001141688 LARK:OvernightAndContinuousMember LARK:USFederalTreasuryObligationsMember 2023-09-30 0001141688 LARK:UptoThirtyDaysMember LARK:USFederalTreasuryObligationsMember 2023-09-30 0001141688 LARK:ThirtyToNinetyDaysMember LARK:USFederalTreasuryObligationsMember 2023-09-30 0001141688 LARK:GreaterThanNinetyDaysMember LARK:USFederalTreasuryObligationsMember 2023-09-30 0001141688 LARK:USFederalTreasuryObligationsMember 2023-09-30 0001141688 LARK:OvernightAndContinuousMember LARK:AgencyMortgageBackedMember 2023-09-30 0001141688 LARK:UptoThirtyDaysMember LARK:AgencyMortgageBackedMember 2023-09-30 0001141688 LARK:ThirtyToNinetyDaysMember LARK:AgencyMortgageBackedMember 2023-09-30 0001141688 LARK:GreaterThanNinetyDaysMember LARK:AgencyMortgageBackedMember 2023-09-30 0001141688 LARK:AgencyMortgageBackedMember 2023-09-30 0001141688 LARK:OvernightAndContinuousMember 2023-09-30 0001141688 LARK:UptoThirtyDaysMember 2023-09-30 0001141688 LARK:ThirtyToNinetyDaysMember 2023-09-30 0001141688 LARK:GreaterThanNinetyDaysMember 2023-09-30 0001141688 LARK:OvernightAndContinuousMember LARK:USFederalTreasuryObligationsMember 2022-12-31 0001141688 LARK:UptoThirtyDaysMember LARK:USFederalTreasuryObligationsMember 2022-12-31 0001141688 LARK:ThirtyToNinetyDaysMember LARK:USFederalTreasuryObligationsMember 2022-12-31 0001141688 LARK:GreaterThanNinetyDaysMember LARK:USFederalTreasuryObligationsMember 2022-12-31 0001141688 LARK:USFederalTreasuryObligationsMember 2022-12-31 0001141688 LARK:OvernightAndContinuousMember LARK:USFederalAgencyObligationsMember 2022-12-31 0001141688 LARK:UptoThirtyDaysMember LARK:USFederalAgencyObligationsMember 2022-12-31 0001141688 LARK:ThirtyToNinetyDaysMember LARK:USFederalAgencyObligationsMember 2022-12-31 0001141688 LARK:GreaterThanNinetyDaysMember LARK:USFederalAgencyObligationsMember 2022-12-31 0001141688 LARK:USFederalAgencyObligationsMember 2022-12-31 0001141688 LARK:OvernightAndContinuousMember LARK:AgencyMortgageBackedMember 2022-12-31 0001141688 LARK:UptoThirtyDaysMember LARK:AgencyMortgageBackedMember 2022-12-31 0001141688 LARK:ThirtyToNinetyDaysMember LARK:AgencyMortgageBackedMember 2022-12-31 0001141688 LARK:GreaterThanNinetyDaysMember LARK:AgencyMortgageBackedMember 2022-12-31 0001141688 LARK:AgencyMortgageBackedMember 2022-12-31 0001141688 LARK:OvernightAndContinuousMember 2022-12-31 0001141688 LARK:UptoThirtyDaysMember 2022-12-31 0001141688 LARK:ThirtyToNinetyDaysMember 2022-12-31 0001141688 LARK:GreaterThanNinetyDaysMember 2022-12-31 0001141688 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2023-09-30 0001141688 us-gaap:FairValueInputsLevel1Member 2023-09-30 0001141688 us-gaap:FairValueInputsLevel2Member 2023-09-30 0001141688 us-gaap:FairValueInputsLevel3Member 2023-09-30 0001141688 us-gaap:FairValueMeasuredAtNetAssetValuePerShareMember 2023-09-30 0001141688 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2022-12-31 0001141688 us-gaap:FairValueInputsLevel1Member 2022-12-31 0001141688 us-gaap:FairValueInputsLevel2Member 2022-12-31 0001141688 us-gaap:FairValueInputsLevel3Member 2022-12-31 0001141688 us-gaap:FairValueMeasuredAtNetAssetValuePerShareMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasurySecuritiesMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member us-gaap:USTreasurySecuritiesMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member us-gaap:USTreasurySecuritiesMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member us-gaap:USTreasurySecuritiesMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember LARK:MunicipalObligationsTaxExemptMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member LARK:MunicipalObligationsTaxExemptMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member LARK:MunicipalObligationsTaxExemptMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member LARK:MunicipalObligationsTaxExemptMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember LARK:MunicipalObligationsTaxableMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member LARK:MunicipalObligationsTaxableMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member LARK:MunicipalObligationsTaxableMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member LARK:MunicipalObligationsTaxableMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember LARK:AgencyMortgageBackedSecuritiesMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member LARK:AgencyMortgageBackedSecuritiesMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member LARK:AgencyMortgageBackedSecuritiesMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member LARK:AgencyMortgageBackedSecuritiesMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsRecurringMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasurySecuritiesMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member us-gaap:USTreasurySecuritiesMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member us-gaap:USTreasurySecuritiesMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member us-gaap:USTreasurySecuritiesMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember LARK:USFederalAgencyObligationsMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member LARK:USFederalAgencyObligationsMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member LARK:USFederalAgencyObligationsMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member LARK:USFederalAgencyObligationsMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember LARK:MunicipalObligationsTaxExemptMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member LARK:MunicipalObligationsTaxExemptMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member LARK:MunicipalObligationsTaxExemptMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member LARK:MunicipalObligationsTaxExemptMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember LARK:MunicipalObligationsTaxableMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member LARK:MunicipalObligationsTaxableMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member LARK:MunicipalObligationsTaxableMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member LARK:MunicipalObligationsTaxableMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember LARK:AgencyMortgageBackedSecuritiesMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member LARK:AgencyMortgageBackedSecuritiesMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member LARK:AgencyMortgageBackedSecuritiesMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member LARK:AgencyMortgageBackedSecuritiesMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:CommercialLoanMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:CommercialLoanMember 2023-01-01 2023-09-30 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:CommercialLoanMember srt:MinimumMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:CommercialLoanMember srt:MaximumMember 2023-09-30 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:CommercialLoanMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:CommercialLoanMember 2022-01-01 2022-12-31 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:CommercialLoanMember srt:MinimumMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:CommercialLoanMember srt:MaximumMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember LARK:OneToFourFamilyResidentialRealEstateMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember LARK:OneToFourFamilyResidentialRealEstateMember 2022-01-01 2022-12-31 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember LARK:CommercialRealEstateLoansMember 2022-12-31 0001141688 us-gaap:FairValueMeasurementsNonrecurringMember LARK:CommercialRealEstateLoansMember 2022-01-01 2022-12-31 0001141688 LARK:SmallBankHoldingCompaniesMember 2023-09-30 0001141688 LARK:CapitalConservationBufferMember 2023-01-01 2023-09-30 0001141688 LARK:CompanysRegulatoryCapitalRequirementsMember 2023-09-30 0001141688 LARK:CompanysRegulatoryCapitalRequirementsMember 2022-12-31 0001141688 LARK:CompanysRegulatoryCapitalRequirementsMember 2023-01-01 2023-09-30 0001141688 LARK:BanksRegulatoryCapitalRequirementsMember 2023-09-30 0001141688 LARK:BanksRegulatoryCapitalRequirementsMember 2022-12-31 0001141688 LARK:BanksRegulatoryCapitalRequirementsMember 2023-01-01 2023-09-30 iso4217:USD xbrli:shares iso4217:USD xbrli:shares LARK:Number xbrli:pure

 

 

 

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, 2023

 

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 or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

701 Poyntz Avenue, Manhattan, Kansas 66502

(Address of principal executive offices) (Zip code)

 

(785) 565-2000

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: as of November 10, 2023, the issuer had outstanding 5,220,767 shares of its common stock, $0.01 par value per share.

 

 

 

 

 

 

LANDMARK BANCORP, INC.

Form 10-Q Quarterly Report

 

Table of Contents

 

    Page Number
  PART I  
     
Item 1. Financial Statements 2 - 30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31 – 39
Item 3. Quantitative and Qualitative Disclosures about Market Risk 40 – 41
Item 4. Controls and Procedures 42
     
  PART II  
     
Item 1. Legal Proceedings 42
Item 1A. Risk Factors 42
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities 42
Item 3. Defaults Upon Senior Securities 42
Item 4. Mine Safety Disclosures 42
Item 5. Other Information 42
Item 6. Exhibits 43
     
  Signature Page 44

 

1
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

(Dollars in thousands, except per share amounts)  September 30,   December 31, 
   2023   2022 
   (Unaudited)     
Assets          
Cash and cash equivalents  $23,821   $23,156 
Interest-bearing deposits at other banks   5,904    9,084 
Investment securities available-for-sale, at fair value   456,857    489,306 
Investment securities, held-to-maturity, net of allowance for credit losses of $91 and $0, fair value of $3,225 and $3,452   3,525    3,524 
Bank stocks, at cost   8,009    5,470 
Loans, net of allowance for credit losses of $10,970 and $8,791   926,060    841,149 
Loans held for sale, at fair value   1,857    2,488 
Bank owned life insurance   38,090    37,323 
Premises and equipment, net   23,911    24,327 
Goodwill   32,377    32,199 
Other intangible assets, net   3,414    4,006 
Mortgage servicing rights   3,368    3,813 
Real estate owned, net   934    934 
Accrued interest and other assets   29,459    26,088 
Total assets  $1,557,586   $1,502,867 
           
Liabilities and Stockholders’ Equity          
Liabilities:          
Deposits:          
Non-interest-bearing demand  $395,046   $410,142 
Money market and checking   586,651    626,659 
Savings   157,112    170,570 
Certificates of deposit   169,225    93,278 
Total deposits   1,308,034    1,300,649 
           
Federal Home Loan Bank and other borrowings   82,569    17,200 
Subordinated debentures   21,651    21,651 
Repurchase agreements   12,590    29,402 
Accrued interest and other liabilities   23,185    22,532 
Total liabilities   1,448,029    1,391,434 
           
Commitments and contingencies          
           
Stockholders’ equity:          
Preferred stock, $0.01 par value per share, 200,000 shares authorized; none issued   -    - 
Common stock, $0.01 par value per share, 7,500,000 shares authorized; 5,221,117 and 5,213,232 shares issued at September 30, 2023 and December 31, 2022, respectively   52    52 
Additional paid-in capital   84,568    84,273 
Retained earnings   57,280    52,174 
Accumulated other comprehensive loss   (32,343)   (25,066)
Total stockholders’ equity   109,557    111,433 
Total liabilities and stockholders’ equity  $1,557,586   $1,502,867 

 

See accompanying notes to consolidated financial statements.

 

2
 

 

LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

   2023   2022   2023   2022 
   Three months ended   Nine months ended 
(Dollars in thousands, except per share amounts)  September 30,   September 30, 
   2023   2022   2023   2022 
Interest income:                    
Loans  $13,531   $8,025   $37,530   $22,372 
Investment securities:                    
Taxable   2,445    1,739    7,141    4,147 
Tax-exempt   772    780    2,333    2,232 
Interest-bearing deposits at banks   46    44    193    232 
Total interest income   16,794    10,588    47,197    28,983 
Interest expense:                    
Deposits   4,384    771    10,375    1,324 
Federal Home Loan Bank and other borrowings   1,251    106    2,845    106 
Subordinated debentures   417    234    1,168    522 
Repurchase agreements   116    26    403    37 
Total interest expense   6,168    1,137    14,791    1,989 
Net interest income   10,626    9,451    32,406    26,994 
Provision for credit losses   -    500    299    - 
Net interest income after provision for credit losses   10,626    8,951    32,107    26,994 
Non-interest income:                    
Fees and service charges   2,618    2,511    7,457    7,079 
Gains on sales of loans, net   491    1,049    2,014    3,027 
Increase in cash surrender value of bank owned life insurance   230    189    671    566 
Losses on sales of investment securities, net   -    (353)   -    (353)
Other   313    133    834    569 
Total non-interest income   3,652    3,529    10,976    10,888 
                     
Non-interest expense:                    
Compensation and benefits   5,811    5,051    16,925    14,779 
Occupancy and equipment   1,373    1,335    4,136    3,745 
Data processing   458    383    1,478    1,085 
Amortization of mortgage servicing rights and other intangibles   474    314    1,407    965 
Professional fees   624    472    1,722    1,338 
Acquisition costs   -    134    -    355 
Other   1,989    1,769    5,753    5,051 
Total non-interest expense   10,729    9,458    31,421    27,318 
Earnings before income taxes   3,549    3,022    11,662    10,564 
Income tax expense   671    522    2,065    1,898 
Net earnings  $2,878   $2,500   $9,597   $8,666 
Earnings per share:                    
Basic (1)  $0.55   $0.48   $1.84   $1.65 
Diluted (1)  $0.55   $0.48   $1.84   $1.65 
Dividends per share (1)  $0.21   $0.20   $0.63   $0.60 

 

(1)Per share amounts for the periods ended September 30, 2022 have been adjusted to give effect to the 5% stock dividend paid during December 2022.

 

See accompanying notes to consolidated financial statements.

 

3
 

 

LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

                 
   Three months ended   Nine months ended 
(Dollars in thousands)  September 30,   September 30, 
   2023   2022   2023   2022 
                 
Net earnings  $2,878   $2,500   $9,597   $8,666 
                     
Net unrealized holding losses on available-for-sale securities   (12,810)   (17,324)   (9,639)   (46,510)
Reclassification adjustment for net losses included in earnings   -    353    -    353 
Net unrealized losses   (12,810)   (16,971)   (9,639)   (46,157)
Income tax effect on net losses included in earnings   -    (86)   -    (87)
Income tax effect on net unrealized holding losses   3,139    4,244    2,362    11,395 
Other comprehensive loss   (9,671)   (12,813)   (7,277)   (34,849)
                     
Total comprehensive (loss) income  $(6,793)  $(10,313)  $2,320   $(26,183)

 

See accompanying notes to consolidated financial statements.

 

4
 

 

LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

(Dollars in thousands, except per share amounts)  Common stock   Additional paid-in capital   Retained earnings   Treasury stock   Accumulated other comprehensive income (loss)   Total 
                         
Balance at July 1, 2022  $50   $79,284   $56,662   $(538)  $(18,156)  $117,302 
Net earnings   -    -    2,500    -    -    2,500 
Other comprehensive loss   -    -    -    -    (12,813)   (12,813)
Dividends paid ($0.20 per share)   -    -    (1,048)   -    -    (1,048)
Issue of restricted common stock, 17,551 shares   -    -    -    -    -    - 
Stock-based compensation   -    45    -    -    -    45 
Purchase of 19,691 treasury shares   -    -    -    (502)   -    (502)
Balance at September 30, 2022  $50   $79,329   $58,114   $(1,040)  $(30,969)  $105,484 
                               
Balance at July 1, 2023  $52   $84,475   $55,498   $-   $(22,672)  $117,353 
Net earnings   -    -    2,878    -    -    2,878 
Other comprehensive loss   -    -    -    -    (9,671)   (9,671)
Dividends paid ($0.21 per share)   -    -    (1,096)   -    -    (1,096)
Issuance of restricted common stock, 5,192 shares   -    -    -    -    -    - 
Stock-based compensation   -    93    -    -    -    93 
Balance at September 30, 2023  $52   $84,568   $57,280   $-   $(32,343)  $109,557 

 

(Dollars in thousands, except per share amounts)  Common stock   Additional paid-in capital   Retained earnings   Treasury stock   Accumulated other comprehensive income (loss)   Total 
Balance at January 1, 2022  $50   $79,120   $52,593   $-   $3,880   $135,643 
Net earnings   -    -    8,666         -    8,666 
Other comprehensive loss   -    -    -    -    (34,849)   (34,849)
Dividends paid ($0.60 per share)   -    -    (3,145)   -    -    (3,145)
Issuance of restricted common stock, 17,551 shares   -    -    -    -    -    - 
Stock-based compensation   -    209    -    -    -    209 
Purchase of 40,806 treasury shares   -    -    -    (1,040)   -    (1,040)
Balance at September 30, 2022  $50   $79,329   $58,114   $(1,040)  $(30,969)  $105,484 
                               
Balance at January 1, 2023  $52   $84,273   $52,174   $-   $(25,066)  $111,433 
Net earnings   -    -    9,597         -    9,597 
Other comprehensive loss   -    -    -    -    (7,277)   (7,277)
Dividends paid ($0.63 per share)   -    -    (3,287)   -    -    (3,287)
Cumulative effect of change in accounting  principle from implementation of ASU 2016-13   -    -    (1,204)   -    -    (1,204)
Forfeiture of restricted common stock, 350 shares   -    -    -    -    -    - 
Issuance of restricted common stock, 5,192 shares   -    -    -    -    -    - 
Stock-based compensation   -    243    -    -    -    243 
Exercise of stock options, 2,693 shares   -    52    -    -    -    52 
Balance at September 30, 2023  $52   $84,568   $57,280   $-   $(32,343)  $109,557 

 

See accompanying notes to consolidated financial statements.

 

5
 

 

LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Cash flows from operating activities:  2023   2022 
   Nine months ended 
(Dollars in thousands)  September 30 
Cash flows from operating activities:  2023   2022 
Net earnings  $9,597   $8,666 
Adjustments to reconcile net earnings to net cash provided by operating activities:          
Provision for credit losses   299    - 
Amortization of investment security premiums, net   221    1,272 
Accretion of purchase accounting adjustments   (750)   (22)
Amortization of mortgage servicing rights and other intangibles   1,407    965 
Depreciation   936    836 
Increase in cash surrender value of bank owned life insurance   (671)   (566)
Stock-based compensation   243    209 
Deferred income taxes   7    139 
Net losses on sales of investment securities   -    353 
Net gains on sales of premises and equipment and foreclosed assets   -    (114)
Net gains on sales of loans   (2,014)   (3,027)
Proceeds from sales of loans   69,747    124,886 
Origination of loans held for sale   (67,472)   (120,509)
Changes in assets and liabilities:          
Accrued interest and other assets   (625)   (828)
Accrued expenses, taxes, and other liabilities   445    2,243 
Net cash provided by operating activities   11,370    14,503 
Cash flows from investing activities:          
Net increase in loans   (86,015)   (48,883)
Net change in interest-bearing deposits at banks   3,166    (1,482)
Maturities and prepayments of investment securities   41,250    40,885 
Purchases of investment securities   (18,647)   (201,511)
Proceeds from sales of available-for-sale securities   -    11,210 
Redemption of bank stocks   8,564    185 
Purchase of bank stocks   (11,103)   (3,921)
Premiums paid on bank owned life insurance   (96)   - 
Proceeds from sales of premises and equipment and foreclosed assets   -    1,379 
Purchases of premises and equipment, net   (520)   (661)
Net cash used in investing activities   (63,401)   (202,799)
Cash flows from financing activities:          
Net increase (decrease) in deposits   7,374    (31,344)
Federal Home Loan Bank advance borrowings   560,546    178,139 
Federal Home Loan Bank advance repayments   (494,179)   (103,239)
Proceeds from other borrowings   -    10,000 
Repayments on other borrowings   (998)   - 
Change in repurchase agreements   (16,812)   (1,054)
Proceeds from exercise of stock options   52    - 
Payment of dividends   (3,287)   (3,145)
Purchase of treasury stock   -    (1,040)
Net cash provided by financing activities   52,696    48,317 
Net decrease in cash and cash equivalents   665    (139,979)
Cash and cash equivalents at beginning of period   23,156    189,213 
Cash and cash equivalents at end of period  $23,821   $49,234 

 

(Continued)

 

6
 

 

LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(Unaudited)

 

   Nine months ended 
(Dollars in thousands)  September 30, 
   2023   2022 
Supplemental disclosure of cash flow information:          
Cash payments for income taxes  $-   $320 
Cash paid for interest   13,641    1,866 
Cash paid for operating leases   118    128 
           
Supplemental schedule of noncash investing and financing activities:          
Investment securities purchases not yet settled   -    1,740 

 

See accompanying notes to consolidated financial statements.

 

7
 

 

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 30, 2023, containing the latest audited consolidated financial statements and notes thereto. The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of financial statements have been reflected herein. The results of the three and nine-month interim period ended September 30, 2023 are not necessarily indicative of the results expected for the year ending December 31, 2023 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. Summary of Significant Accounting Policies

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), commonly referred to as “CECL.” The provisions of the update eliminated the probable initial recognition threshold under previous 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 purchased 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. Under CECL loans determined to be purchased credit deteriorated will have an allowance for credit losses established through purchase accounting. Finally, increased disclosure requirements under CECL oblige organizations to present credit quality disclosures disaggregated by the year of origination or vintage. 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.

 

On January 1, 2023, the Company adopted CECL. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity investment securities. It also applies to off-balance credit exposures not accounted for as insurance (loan commitments and standby letters of credit). In addition, ASC 326 made changes to the accounting for available-for-sale investment securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

 

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP requirements. The adoption of CECL resulted in an increase in the allowance for credit losses on loans of $1.5 million, an initial allowance for credit losses on held-to-maturity investment securities of $72,000, an increase in deferred tax assets of $391,000 and a decrease in retained earnings of $1.2 million. The increases in allowance for credit losses is primarily due to moving to a weighted average remaining maturity allowance methodology and the transition of purchase accounting discounts on loans from an adjustment to amortized cost in the allowance calculation.

 

8
 

 

The following table illustrates the impact of ASC 326:

 

             
   January 1, 2023     
(Dollars in thousands)  As reported under ASC 326   Pre-ASC 326 adoption   Impact of ASC 326 adoption 
             
Allowance for credit losses:               
Held-to-maturity investment securities  $72   $-   $72 
                
One-to-four family residential real estate loans  $1,677   $655   $1,022 
Construction and land loans   166    117    49 
Commercial real estate loans   4,221    3,158    1,063 
Commercial loans   2,898    2,753    145 
Paycheck protection program loans   -    -    - 
Agriculture loans   1,142    1,966    (824)
Municipal loans   16    5    11 
Consumer loans   194    137    57 
Total allowance for credit losses for loans  $10,314   $8,791   $1,523 
                
Unfunded loan commitments  $170   $170   $- 

 

Investment Securities. Investment securities are classified as held-to-maturity when management has the positive intent and ability to hold them to maturity. Securities are classified as available-for-sale when they might be sold before maturity. Held-to-maturity securities are carried at amortized cost while available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

 

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Realized gains and losses on sales of available-for-sale securities are recorded on a trade date basis and are calculated using the specific identification method.

 

Allowance for Credit Losses – Held-to-Maturity Investment Securities. Management measures expected credit losses on held-to-maturity investment securities on a collective basis by major security type. Accrued interest is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical loss information adjusted for current conditions and reasonable and supportable forecasts.

 

Allowance for Credit Losses – Available-for-Sale Investment Securities. For available-for-sale investment securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more likely than not will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, the current interest rate environment, changes to rating of the security or security issuer, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected was less than the amortized cost basis, a credit loss existed and an allowance for credit losses would be recorded for the credit loss, which is limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for or reversal of credit loss expense. Losses are charged against the allowance for credit losses when the Company determines the available-for-sale security is uncollectible or when either of the criteria regarding intent or requirement to sell is met. The Company does not estimate credit losses on available-for-sale security accrued interest receivable.

 

9
 

 

Loans. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. The amortized cost is the principal balance outstanding net of previous charge-offs, and for purchased loans, net of unamortized purchase premiums and discounts. Interest income is accrued on the unpaid principal balance. Origination fees received on loans held in portfolio and the estimated direct costs of origination are deferred and amortized to interest income using the level yield method without anticipating prepayments.

 

The accrual of interest on non-performing loans is discontinued at the time the loan is ninety 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 the principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on non-accrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are evaluated individually and are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

Allowance for Credit Losses - Loans. The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on loans. The analysis is updated on a quarterly basis based on historical loss information adjusted for current conditions and reasonable and supportable forecasts. Additionally, the Company considers asset quality trends, composition and trends in the loan portfolio, underlying collateral values, industry trends and other pertinent factors, including regulatory recommendations. The level of the allowance for credit losses maintained by management is believed adequate to absorb all expected future losses expected in the loan portfolio at the balance sheet date. The allowance is adjusted through provision for credit losses and charge-offs, net of recoveries of amounts previously charged off.

 

The allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics. The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses.

 

One-to-Four Family Residential Real Estate. One-to-four family residential real estate loans consists primarily of loans secured by 1-4 family residential properties. Repayment is primarily dependent on the personal cash flow of the borrower.

 

Construction and Land. Construction and land loans consist primarily of loans to facilitate the development of both residential and commercial real estate. Repayment is primarily dependent on the completion of the development and refinancing to longer term financing.

 

Commercial Real Estate. Commercial real estate loans consist primarily of loans secured by office buildings, industrial buildings, warehouses, retail buildings and multi-family housing and are primarily owner-occupied. For such loans, repayment is largely dependent upon the operation of the borrower’s business.

 

Commercial. Commercial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes. These loans are generally secured by equipment, inventory and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.

 

Agriculture. Agriculture loans include operating and real estate loans to agriculture enterprises. Generally, the borrower’s ability to repay is based on the cash flows from farming operations.

 

Municipal. Municipal loans are generally related to equipment leasing or general fund loans. Repayment is primarily dependent on the tax revenue of the municipal entity.

 

Consumer. Consumer loans include automobile, boat, home improvement and home equity loans. Repayment is primarily dependent on the personal cash flow of the borrower.

 

The Company utilized a weighted average remaining maturity allowance methodology to calculate the allowance for credit losses. Historical loss rates are adjusted for current conditions and reasonable and supportable forecasts. Following the economic forecast period loss rates revert back to historical loss rates over a reasonable period of time. Additional adjustments for qualitative factors are included to quantify the risks within each of the loan categories that are not included in the historical loss rates or economic projections. The data for the allowance calculation may be obtained from internal or external sources.

 

10
 

 

Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated loan pools. Such loans are evaluated for credit losses based on either discounted cash flows or the fair value of collateral.

 

The Company estimates expected credit losses over the contractual term of obligations to extend credit, unless the obligation is unconditionally cancellable. The allowance for off-balance-sheet exposures is adjusted through the provision for credit losses. The estimates are determined based on the likelihood of funding during the contractual term and an estimate of credit losses subsequent to funding. Estimated credit losses on subsequently funded balances are based on the same assumptions used to estimated credit losses on loans.

 

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures which eliminated the recognition and measurement guidance for troubled debt restructurings (“TDRs”) by creditors in ASC 310-40. The update also enhanced disclosure required for loan restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity will apply the loan refinancing and restructuring guidance to determine whether a modification or other form of restructuring results in a new loan or a continuation of an existing loan. Additionally, the amendments to this ASU require a public business entity to disclose current period gross charge-offs by year of origination for loans in the vintage disclosures.

 

On January 1, 2023, the Company adopted ASU 2022-02, electing the prospective approach. The adoption did not have a material effect on the Company’s operating results or financial condition. The disclosures in this document have been updated to reflect the new guidance.

 

Loans Modifications. Loan modifications, including modifications to borrowers experiencing financial difficulty, are treated as a new loan if two conditions are met. The terms of the new loan are at least as favorable to the Company as the terms for comparable loans to other customers with similar collection risks and modifications to the terms of the original loan are more than minor.

 

11
 

 

3. Investments

 

A summary of investment securities available-for-sale and held-to-maturity is as follows:

 

(Dollars in thousands)  As of September 30, 2023         
       Gross   Gross     
   Amortized   unrealized   unrealized   Estimated 
   cost   gains   losses   fair value 
Available-for-sale:                    
U. S. treasury securities  $125,667   $-   $(7,326)  $118,341 
Municipal obligations, tax exempt   124,352    -    (8,646)   115,706 
Municipal obligations, taxable   81,834    -    (7,841)   73,993 
Agency mortgage-backed securities   167,842    -    (19,025)   148,817 
Total available-for-sale  $499,695   $     -   $(42,838)  $456,857 

 

   As of September 30, 2023     
       Gross   Gross     
   Amortized   unrealized   unrealized   Estimated 
   cost   gains   losses   fair value 
Held-to-maturity:                    
Other  $3,525   $         -   $(300)  $3,225 
Total held-to-maturity  $3,525   $-   $(300)  $3,225 

 

   As of December 31, 2022     
       Gross   Gross     
   Amortized   unrealized   unrealized   Estimated 
   cost   gains   losses   fair value 
Available-for-sale:                    
U. S. treasury securities  $130,684   $-   $(7,573)  $123,111 
U. S. federal agency obligations   2,002    -    (14)   1,988 
Municipal obligations, tax exempt   130,848    59    (3,645)   127,262 
Municipal obligations, taxable   73,520    14    (6,290)   67,244 
Agency mortgage-backed securities   185,451    172    (15,922)   169,701 
Total available-for-sale  $522,505   $245   $(33,444)  $489,306 

 

   As of December 31, 2022     
       Gross   Gross     
   Amortized   unrealized   unrealized   Estimated 
   cost   gains   losses   fair value 
Held-to-maturity:                    
Other  $3,524   $5   $(77)  $3,452 
Total held-to-maturity  $3,524   $5   $(77)  $3,452 

 

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

 

12
 

 

The tables above show that some of the securities in the available-for-sale and held-to-maturity investment portfolios had unrealized losses, or were temporarily impaired, as of September 30, 2023 and December 31, 2022. 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.

 

       As of September 30, 2023 
(Dollars in thousands)      Less than 12 months   12 months or longer   Total 
   No. of   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
Available-for-sale:  securities   value   losses   value   losses   value   losses 
U.S. treasury securities   66   $909   $(10)  $117,432   $(7,316)  $118,341   $(7,326)
Municipal obligations, tax exempt   290    50,036    (3,126)   65,225    (5,520)   115,261    (8,646)
Municipal obligations, taxable   126    23,773    (1,519)   50,220    (6,322)   73,993    (7,841)
Agency mortgage-backed securities   103    20,263    (629)   128,554    (18,396)   148,817    (19,025)
Total for available-for-sale   585   $94,981   $(5,284)  $361,431   $(37,554)  $456,412   $(42,838)
                                    
Held-to-maturity:                                   
Other   7   $3,225   $300   $-   $-   $3,225   $300 
Total held-to-maturity   7    3,225    300    -    -    3,225    300 

 

       As of December 31, 2022 
       Less than 12 months   12 months or longer   Total 
   No. of   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
Available-for-sale:  securities   value   losses   value   losses   value   losses 
U.S. treasury securities   67   $85,988   $(4,591)  $37,123   $(2,982)  $123,111   $(7,573)
U.S. federal agency obligations   1    1,988    (14)   -    -    1,988    (14)
Municipal obligations, tax exempt   274    107,262    (3,020)   8,495    (625)   115,757    (3,645)
Municipal obligations, taxable   108    54,746    (5,006)   7,571    (1,284)   62,317    (6,290)
Agency mortgage-backed securities   100    78,971    (4,550)   79,882    (11,372)   158,853    (15,922)
Total for available-for-sale   550    328,955    (17,181)   133,071    (16,263)   462,026    (33,444)
                                    
Held-to-maturity:                                   
Other   6   $3,009   $(77)  $-   $-   $3,009   $(77)
Total held-to-maturity   6    3,009    (77)   -    -    3,009    (77)

 

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, 2023 and December 31, 2022.

 

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, 2023, 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, 2023 and December 31, 2022.

 

The Company’s agency mortgage-backed securities portfolio consists of securities underwritten to the standards of and guaranteed by the government-sponsored agencies of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and the Government National Mortgage Association. The receipt of principal, at par, and interest on agency mortgage-backed securities is guaranteed by the respective government-sponsored agency guarantor, such that the Company believed that its agency mortgage-backed securities did not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and the Company’s belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the agency mortgage-backed securities identified in the table above were temporarily impaired as of September 30, 2023 and December 31, 2022.

 

13
 

 

The Company’s other investment securities portfolio consists of seven subordinated debentures issued by financial institutions. These investment securities were acquired in the Freedom Bank acquisition and classified as held-to-maturity. The securities were issued in 2021 and 2022 with a 10 year maturity and a fixed rate for five years. The securities are callable after the end of the fixed rate term. 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 other securities identified in the tables above were temporarily impaired as of September 30, 2023 and December 31, 2022.

 

The following table provides information on the Company’s allowance for credit losses related to held-to-maturity investment securities.

 

(Dollars in thousands)    
Balance at January 1, 2023  $- 
Impact of adopting ASC 326   72 
Provision for credit losses   19 
Balance at September 30, 2023  $91 

 

The table below sets forth amortized cost and fair value of investment securities at September 30, 2023. The table includes scheduled principal payments and estimated prepayments, based on observable market inputs, for agency mortgage-backed securities. Actual maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

 

(Dollars in thousands)  Amortized   Estimated 
Available-for-sale:  cost   fair value 
Due in less than one year  $37,975   $37,272 
Due after one year but within five years   265,924    244,855 
Due after five years but within ten years   142,733    127,386 
Due after ten years   53,063    47,344 
Total available-for-sale  $499,695   $456,857 
           
Held-to-maturity:          
Due after five years but within ten years   3,525    3,225 
Total held-to-maturity  $3,525   $3,225 

 

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

 

   2023   2022   2023   2022 
(Dollars in thousands)  Three months ended September 30,   Nine months ended September 30, 
   2023   2022   2023   2022 
                 
Sales proceeds  $-   $11,210   $-   $11,210 
                     
Realized gains  $-   $-   $-   $- 
Realized losses   -    (353)   -    (353)
Net realized losses  $-   $(353)  $-   $(353)

 

Securities with carrying values of $398.2 million and $420.8 million were pledged to secure public funds on deposit, repurchase agreements and as collateral for borrowings at September 30, 2023 and December 31, 2022, respectively. Except for U.S. federal agency obligations, no investment in a single issuer exceeded 10% of consolidated stockholders’ equity.

 

14
 

 

4. Loans and Allowance for Credit Losses

 

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

 

   September 30,   December 31, 
(Dollars in thousands)  2023   2022 
         
One-to-four family residential real estate loans  $289,571   $236,982 
Construction and land loans   21,657    22,725 
Commercial real estate loans   323,427    304,074 
Commercial loans   185,831    173,415 
Paycheck protection program loans   -    21 
Agriculture loans   84,560    84,283 
Municipal loans   3,200    2,026 
Consumer loans   29,180    26,664 
Total gross loans   937,426    850,190 
Net deferred loan fees and loans in process   (396)   (250)
Allowance for credit losses   (10,970)   (8,791)
Loans, net  $926,060   $841,149 

 

15
 

 

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

 

                                                                     
   Three and nine months ended September 30, 2023 
(Dollars in thousands)  One-to-four family residential real estate loans   Construction and land loans   Commercial real estate loans   Commercial loans   Paycheck protection program loans   Agriculture loans   Municipal loans   Consumer loans   Total 
                                     
Allowance for credit losses:                                             
Balance at July 1, 2023  $1,852   $161   $4,373   $2,710   $      -   $1,134   $16   $203   $10,449 
Charge-offs   -    -    -    (44)   -    -    -    (98)   (142)
Recoveries   -    626    -    9    -    1    -    27    663 
Provision for credit losses   38    (641)   81    469    -    (45)   (1)   99    - 
Balance at September 30, 2023  $1,890   $146   $4,454   $3,144   $-   $1,090   $15   $231   $10,970 
                                              
Allowance for credit losses:                                             
Balance at January 1, 2023  $655   $117   $3,158   $2,753   $-   $1,966   $5   $137   $8,791 
Impact of adopting ASC 326   1,022    49    1,063    145    -    (824)   11    57    1,523 
Charge-offs   -    -    -    (151)   -    -    -    (257)   (408)
Recoveries   -    626    -    28    -    74    -    86    814 
Provision for credit losses   213    (646)   233    369    -    (126)   (1)   208    250 
Balance at September 30, 2023  $1,890   $146   $4,454   $3,144   $-   $1,090   $15   $231   $10,970 

 

   Three and nine months ended September 30, 2022 
(Dollars in thousands)  One-to-four family residential real estate loans   Construction and land loans   Commercial real estate loans   Commercial loans   Paycheck protection program loans   Agriculture loans   Municipal loans   Consumer loans   Total 
                                     
Allowance for credit losses:                                             
Balance 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 for credit losses   25    (92)   216    146    -    130    (1)   76    500 
Balance at September 30, 2022  $605   $106   $3,198   $2,802   $-   $2,006   $5   $136   $8,858 
                                              
Allowance for credit losses:                                             
Balance 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 for credit losses   (18)   (197)   147    161    -    (274)   (7)   188    - 
Balance at September 30, 2022  $605   $106   $3,198   $2,802   $-   $2,006   $5   $136   $8,858 

 

   As of December 31, 2022 
(Dollars in thousands)  One-to-four family residential real estate loan   Construction and land loans   Commercial real estate loans   Commercial loans   Paycheck protection program loans   Agriculture loans   Municipal loans   Consumer loans   Total 
                                     
Allowance for credit losses:                                             
Individually evaluated for loss  $-   $-   $-   $636   $-   $18   $-   $-   $654 
Collectively evaluated for loss   655    117    3,158    2,117    -    1,948    5    137    8,137 
Total  $655   $117   $3,158   $2,753   $-   $1,966   $5   $137   $8,791 
                                              
Loan balances:                                             
Individually evaluated for loss  $326   $412   $1,224   $812   $-   $1,319   $36   $-   $4,129 
Collectively evaluated for loss   236,656    22,313    302,850    172,603    21    82,964    1,990    26,664    846,061 
Total  $236,982   $22,725   $304,074   $173,415   $21   $84,283   $2,026   $26,664   $850,190 

 

16
 

 

The Company recorded net loan recoveries of $521,000 during the third quarter of 2023 compared to net loan recoveries of $43,000 during the third quarter of 2022. The Company recorded net loan recoveries of $406,000 during the nine months ended September 30, 2023 compared to net loan recoveries of $83,000 during the nine months ended September 30, 2022.

 

The following table presents information on non-accrual and loans past due over 89 days and still accruing:

 

                       
(Dollars in thousands)  As of September 30, 2023 
   Non-accrual with no allowance for credit loss   Non-accrual with allowance for credit losses   Loans past due over 89 days still accruing 
             
One-to-four family residential real estate loans  $31   $-   $       - 
Construction and land loans   193    -    - 
Commercial real estate loans   1,211    -    - 
Commercial loans   208    2,551    - 
Paycheck protection program loans   -    -    - 
Agriculture loans   214    4    - 
Municipal loans   -    -    - 
Consumer loans   28    -    - 
Total loans  $1,885   $2,555   $- 

 

The following table presents information on impaired loans:

 

                                                       
(Dollars in thousands)  As of December 31, 2022 
   Unpaid contractual principal   Impaired loan balance   Impaired loans without an allowance   Impaired loans with an allowance   Related allowance recorded   Year-to-date average loan balance   Year-to-date interest income recognized 
                             
One-to-four family residential real estate  $326   $326   $326   $-   $-   $357   $9 
Construction and land   843    412    412    -    -    243    10 
Commercial real estate   1,224    1,224    1,224    -    -    1,224    47 
Commercial   1,063    812    75    737    636    865    5 
Agriculture   1,402    1,319    1,301    18    18    1,433    64 
Municipal   36    36    36    -    -    36    1 
Consumer   -    -    -    -    -    -    - 
Total impaired loans  $4,894   $4,129   $3,374   $755   $654   $4,158   $136 

 

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, 2023 or December 31, 2022.

 

17
 

 

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

 

                                                       
(Dollars in thousands)  As of September 30, 2023 
   30-59 days delinquent and accruing   60-89 days delinquent and accruing   90 days or more delinquent and accruing   Total past due loans accruing   Non-accrual loans   Total past due and non-accrual loans   Total loans not past due 
                             
One-to-four family residential real estate loans  $-   $141   $-   $141   $31   $172   $289,399 
Construction and land loans   -     -    -    -    193    193    21,464 
Commercial real estate loans   1,280    -    -    1,280    1,211    2,491    320,936 
Commercial loans   4,389    10    -    4,399    2,759    7,158    178,673 
Paycheck protection program loans   -    -    -    -    -    -    - 
Agriculture loans   22    236    -    258    218    476    84,084 
Municipal loans   -    -    -    -    -    -    3,200 
Consumer loans   95    -    -    95    28    123    29,057 
Total  $5,786   $387   $-   $6,173   $4,440   $10,613   $926,813 
                                    
Percent of gross loans   0.62%   0.04%   0.00%   0.66%   0.47%   1.13%   98.87%

 

(Dollars in thousands)  As of December 31, 2022 
   30-59 days delinquent and accruing   60-89 days delinquent and accruing   90 days or more delinquent and accruing   Total past due loans accruing   Non-accrual loans   Total past due and non-accrual loans   Total loans not past due 
                             
One-to-four family residential real estate loans  $8   $72   $-   $80   $170   $250   $236,732 
Construction and land loans   -    -    -    -    195    195    22,530 
Commercial real estate loans   -    -    -    -    1,224    1,224    302,850 
Commercial loans   -    411    -    411    812    1,223    172,192 
Paycheck protection program loans   -    -    -    -    -    -    21 
Agriculture loans   -    180    -    180    925    1,105    83,178 
Municipal loans   -    -    -    -    -    -    2,026 
Consumer loans   67    -    -    67    -    67    26,597 
Total  $75   $663   $-   $738   $3,326   $4,064   $846,126 
                                    
Percent of gross loans   0.01%   0.08%   0.00%   0.09%   0.39%   0.48%   99.52%

 

Under the original terms of the Company’s non-accrual loans, interest earned on such loans for the nine months ended September 30, 2023 and 2022 would have increased interest income by $75,000 and $155,000, respectively. No interest income related to non-accrual loans was included in interest income for the three and nine months ended September 30, 2023 and 2022.

 

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.

 

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.

 

18
 

 

The following table presents information on the Company’s risk category of loans by type and year of origination:

 

                                                                         
(Dollars in thousands)  As of September 30, 2023 
   2023   2022   2021   2020   2019   Prior   Revolving loans amortized cost   Revolving loans converted to term   Total 
                                     
One-to-four family residential real estate loans                                             
Nonclassified  $76,711   $86,384   $43,601   $34,007   $13,013   $31,361   $4,052   $411   $289,540 
Classified   -    -    -    -    -    31    -    -    31 
Total  $76,711   $86,384   $43,601   $34,007   $13,013   $31,392   $4,052   $411   $289,571 
Charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 
Construction and land loans                                             
Nonclassified  $5,531   $5,731   $5,390   $2,688   $924   $341   $530   $329   $21,464 
Classified   -    -    -    -    -    193    -    -    193 
Total  $5,531   $5,731   $5,390   $2,688   $924   $534   $530   $329   $21,657 
Charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 
Commercial real estate loans                                             
Nonclassified  $32,881   $77,872   $59,680   $54,139   $31,836   $60,917   $2,751   $389   $320,465 
Classified   -    -    484    25    181    2,272    -    -    2,962 
Total  $32,881   $77,872   $60,164   $54,164   $32,017   $63,189   $2,751   $389   $323,427 
Charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 
Commercial loans                                             
Nonclassified  $33,938   $35,464   $18,840   $17,282   $2,990   $4,991   $61,285   $4,579   $179,369 
Classified   220    2,037    641    488    535    37    2,305    199    6,462 
Total  $34,158   $37,501   $19,481   $17,770   $3,525   $5,028   $63,590   $4,778   $185,831 
Charge-offs  $-   $(17)  $(90)  $(44)  $-   $-   $-   $-   $(151)
Agriculture loans                                             
Nonclassified  $4,597   $12,195   $5,361   $4,250   $4,225   $12,643   $40,920   $151   $84,342 
Classified   -    -    -    -    50    114    54    -    218 
Total  $4,597   $12,195   $5,361   $4,250   $4,275   $12,757   $40,974   $151   $84,560 
Charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 
Municipal loans                                             
Nonclassified  $1,452   $135   $-   $-   $-   $1,613   $-   $-   $3,200 
Classified   -    -    -    -    -    -    -    -    - 
Total  $1,452   $135   $-   $-   $-   $1,613   $-   $-   $3,200 
Charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 
Consumer loans                                             
Nonclassified  $4,282   $1,493   $1,477   $1,398   $2   $5,177   $15,302   $21   $29,152 
Classified   -    -    1    -    -    -    25    2    28 
Total  $4,282   $1,493   $1,478   $1,398   $2   $5,177   $15,327   $23   $29,180 
Charge-offs  $-   $-   $-   $-   $-   $-   $(257)  $-   $(257)
Total loans                                             
Nonclassified  $159,392   $219,274   $134,349   $113,764   $52,990   $117,043   $124,840   $5,880   $927,532 
Classified   220    2,037    1,126    513    766    2,647    2,384    201    9,894 
Total  $159,612   $221,311   $135,475   $114,277   $53,756   $119,690   $127,224   $6,081   $937,426 
Charge-offs  $-   $(17)  $(90)  $(44)  $-   $-   $(257)  $-   $(408)

 

19
 

 

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

 

               
   As of December 31, 2022 
(Dollars in thousands)  Nonclassified   Classified 
         
One-to-four family residential real estate loans  $236,663   $319 
Construction and land loans   22,530    195 
Commercial real estate loans   300,216    3,858 
Commercial loans   165,709    7,706 
Paycheck protection program loans   21    - 
Agriculture loans   83,358    925 
Municipal loan   2,026    - 
Consumer loans   26,664    - 
Total  $837,187   $13,003 

 

The following table provides information on the Company’s allowance for credit losses related to unfunded loan commitments.

 

(dollars in thousands)    
Balance at January 1, 2023  $170 
Impact of adopting ASC 326   - 
Provision for credit losses   30 
Balance at September 30, 2023  $200 

 

The following table presents the amortized cost basis of loans at September 30, 2023 that were both experiencing financial difficulty and modified during the nine months ended September 30, 2023 by class, type of modification and includes the financial effect of the modification.

 

(Dollars in thousands)  As of September 30, 2023    
   Amortized cost basis   % of loan class total   Financial effect
            
Term extension:             
Commercial  $145    0.1%  90 day payment deferral

 

As of September 30, 2023, all loans experiencing both financial difficulty and modified during the three and nine months ended September 30, 2023 were current under the terms of the agreements. There were no commitments to lend additional funds to the borrowers and there were no charge-offs recorded against the loans. The Company had no allowance for credit losses recorded against these loans as of September 30, 2023. The Company did not have any loan modifications that had a payment default during the three and nine months ended September 30, 2023.

 

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, 2022 concluded that its goodwill was not impaired. As of September 30. 2023, the Company concluded it was more likely than not that its goodwill was not impaired.

 

20
 

 

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:

(Dollars in thousands)  As of September 30, 2023 
   Gross carrying amount   Accumulated amortization   Net carrying amount 
Core deposit intangible assets  $5,880   $(2,466)  $3,414 

 

(Dollars in thousands)  As of December 31, 2022 
   Gross carrying amount   Accumulated amortization   Net carrying amount 
Core deposit intangible assets  $5,880   $(1,874)  $4,006 

 

The following sets forth estimated amortization expense for core deposit and intangible assets for the remainder of 2023 and in successive years ending December 31:

(Dollars in thousands)  Amortization 
   expense 
Remainder of 2023  $173 
2024   663 
2025   588 
2026   512 
2027   436 
2028   360 
Thereafter   682 
Total  $3,414 

 

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:

(Dollars in thousands)  September 30,   December 31, 
   2023   2022 
FHLMC  $672,397   $685,859 
FHLB   27,788    27,285 
Total  $700,185   $713,144 

 

Custodial escrow balances maintained in connection with serviced loans were $10.1 million and $5.3 million at September 30, 2023 and December 31, 2022, respectively. Custodial escrow balances are included in the deposit balances on the balance sheet. Gross service fee income related to such loans was $450,000 and $456,000 for the three months ended September 30, 2023 and 2022, respectively, and is included in fees and service charges in the consolidated statements of earnings. Gross service fee income related to such loans was $1.3 and $1.4 million for the nine months ended September 30, 2023 and 2022, respectively.

 

21
 

 

Activity for mortgage servicing rights was as follows:

   2023   2022   2023   2022 
   Three months ended   Nine months ended 
(Dollars in thousands)  September 30,   September 30, 
   2023   2022   2023   2022 
Mortgage servicing rights:                    
Balance at beginning of period  $3,514   $4,025   $3,813   $4,193 
Additions   130    253    370    704 
Amortization   (276)   (298)   (815)   (917)
Balance at end of period  $3,368   $3,980   $3,368   $3,980 

 

The fair value of mortgage servicing rights was $10.8 million and $10.3 million at September 30, 2023 and December 31, 2022, respectively. Fair value at September 30, 2023 was determined using discount rate of 9.50%; prepayment speeds ranging from 6.00% to 17.05%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.61%. Fair value at December 31, 2022 was determined using discount rates at 9.50%; prepayment speeds ranging from 6.00% to 21.34%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.47%.

 

The Company had a mortgage repurchase reserve of $170,000 at September 30, 2023 and $225,000 at December 31, 2022, 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 $84,000 loss against the reserve during the three months ended September 30, 2023 and losses of $105,000 against the reserve during the nine months ended September 30, 2023. The Company charged a $1,000 loss against the reserve during the first three and nine months ended September 30, 2022. The Company recorded a $50,000 provision to the mortgage repurchase reserve during the three and nine months ended September 30, 2023. As of September 30, 2023, the Company had no 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, 2023 excluded 130,409 of unexercised stock options because their inclusion would have been anti-dilutive during such periods. The diluted earnings per share computation for the three and nine months ended September 30, 2022 excluded 34,986 of unexercised stock options because their inclusion would have been anti-dilutive during such periods. The Company’s Board of Directors declared a cash dividend of $0.21 per share to be paid November 29, 2023, to common stockholders of record as of the close of business on November 15, 2023. The Board of Directors also declared a 5% stock dividend issuable December 15, 2023 to common stockholders of record on December 1, 2023. The shares used in the calculation of basic and diluted earnings per share are shown below:

 

   2023   2022   2023   2022 
(Dollars in thousands, except per share amounts) 

Three months ended

September 30,

  

Nine months ended

September 30,

 
   2023   2022   2023   2022 
Net earnings  $2,878   $2,500   $9,597   $8,666 
                     
Weighted average common shares outstanding - basic (1)   5,218,961    5,228,270    5,215,908    5,237,743 
Assumed exercise of stock options (1)   2,594    13,802    4,349    15,573 
Weighted average common shares outstanding - diluted (1)   5,221,555    5,242,072    5,220,257    5,253,316 
Earnings per share (1):                    
Basic $0.55   $0.48   $1.84   $1.65 
Diluted $0.55   $0.48   $1.84   $1.65 

 

(1)Share and per share values for the periods ended September 30, 2022 have been adjusted to give effect to the 5% stock dividend paid during December 2022.

 

22
 

 

8. Federal Home Loan Bank Borrowings and Other Borrowings

 

The Bank has a line of credit, renewable annually each September, with the Federal Home Loan Bank (“FHLB’) under which there were $74.6 million of borrowings at September 30, 2023 and $8.2 million at December 31, 2022. Interest on any outstanding balance on the line of credit accrues at the federal funds rate plus 0.15% (5.49% at September 30, 2023). The Company had no letters of credit issued through the FHLB at September 30, 2023 or December 31, 2022 to secure municipal deposits. The Company did not have any term advances from FHLB at September 30, 2023 or December 31, 2022.

 

Although no loans are specifically pledged, the FHLB requires the Bank to maintain eligible collateral (qualifying loans and investment securities) that has a lending value at least equal to its required collateral. At September 30, 2023 and December 31, 2022, there was a blanket pledge of loans and securities totaling $285.1 million and $139.0 million, respectively. At September 30, 2023 and December 31, 2022, the Bank’s total borrowing capacity with the FHLB was approximately $204.1 million and $111.0 million, respectively. At September 30, 2023 and December 31, 2022, the Bank’s available borrowing capacity was $128.4 million and $101.8 million, respectively. The difference between the Bank’s total borrowing capacity and available borrowing capacity is related to the amount of borrowings outstanding. The available borrowing capacity with the FHLB is collateral based, and the Bank’s ability to borrow is subject to maintaining collateral that meets the eligibility requirements. The borrowing capacity is not committed and is subject to FHLB credit requirements and policies. In addition, the Bank must maintain a restricted investment in FHLB stock to maintain access to borrowings.

 

At September 30, 2023, the Bank had no borrowings through the Federal Reserve discount window, while the borrowing capacity with the Federal Reserve was $57.2 million.

 

The Company has a $5.0 million line of credit from an unrelated financial institution maturing on November 1, 2024, with an interest rate that adjusts daily based on the prime rate less 0.50%. This line of credit has covenants specific to capital and other financial ratios, which the Company was in compliance with at September 30, 2023 and December 31, 2022. As of September 30, 2023 and December 31, 2022, the Company did not have an outstanding balance on the line of credit.

 

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. Early principal payments are allowed and the balance was $8.0 million and $9.0 million at September 30, 2023 and December 31, 2022, respectively.

 

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 $12.6 million at September 30, 2023 and $29.4 million at December 31, 2022, which were secured by $30.0 million and $38.4 million of the Company’s investment portfolio at the same dates, respectively.

 

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

 

                     
   As of September 30, 2023 
(dollars in thousands)  Overnight and
Continuous
   Up to 30 days   30-90 days   Greater
than 90 days
   Total 
Repurchase agreements:                         
U.S. federal treasury obligations  $12,339   $-   $      -   $        -   $12,339 
Agency mortgage-backed securities   251    -    -    -    251 
Total  $12,590   $-   $-   $-   $12,590 

 

                     
   As of December 31, 2022 
(dollars in thousands)  Overnight and
Continuous
   Up to
30 days
   30-90 days   Greater
than 90 days
   Total 
Repurchase agreements:                         
U.S. federal treasury obligations  $25,973   $-   $      -   $      -   $25,973 
U.S. federal agency obligations   1,236    -    -    -    1,236 
Agency mortgage-backed securities   2,193    -    -    -    2,193 
Total  $29,402   $-   $-   $-   $29,402 

 

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.

 

23
 

 

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.

   2023   2022   2023   2022 
   Three months ended   Nine months ended 
(Dollars in thousands)  September 30,   September 30, 
   2023   2022   2023   2022 
Non-interest income:                    
Service charges on deposit accounts                    
Overdraft fees  $1,021   $1,058   $2,850   $2,788 
Other   318    242    792    566 
Interchange income   756    704    2,298    2,196 
Loan servicing fees (1)   450    456    1,344    1,363 
Office lease income (1)   147    30    365    96 
Gains on sales of loans (1)   491    1,049    2,014    3,027 
Bank owned life insurance income (1)   230    189    671    566 
Losses on sales of investment securities (1)   -    (353)   -    (353)
Gains on sales of real estate owned   -    -    -    114 
Other   239    154    642    525 
Total non-interest income  $3,652   $3,529   $10,976   $10,888 

 

(1)  Not within the scope of ASC 606.

 

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

 

Service Charges on Deposit Accounts

 

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

 

Interchange Income

 

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

 

Gains (Losses) on Sales of Real Estate Owned

 

The Company records a gain or loss from the sale of real estate owned when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of real estate owned to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the real estate owned asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. There were no sales of real estate owned that were financed by the Company during the first nine months of 2023 or 2022.

 

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.

 

24
 

 

Fair value estimates of the Company’s financial instruments as of September 30, 2023 and December 31, 2022, including methods and assumptions utilized, are set forth below:

 

                     
   As of September 30, 2023 
   Carrying                 
   amount   Level 1   Level 2   Level 3   Total 
Financial assets:                         
Cash and cash equivalents  $23,821   $23,821   $-   $-   $23,821 
Interest-bearing deposits at other banks   5,904    -    5,904    -    5,904 
Investment securities available-for-sale   456,857    118,341    338,516    -    456,857 
Investment securities held-to-maturity   3,525    -    3,225    -    3,225 
Bank stocks, at cost   8,009     n/a      n/a      n/a      n/a  
Loans, net   926,060    -    -    904,001    904,001 
Loans held for sale   1,857    -    1,857    -    1,857 
Mortgage servicing rights   3,368    -    10,763    -    10,763 
Accrued interest receivable   7,178    403    2,098    4,677    7,178 
Derivative financial instruments   139    -    139    -    139 
                          
Financial liabilities:                         
Non-maturity deposits  $(1,138,809)  $(1,138,809)  $-   $-   $(1,138,809)
Certificates of deposit   (169,225)   -    (167,274)   -    (167,274)
FHLB and other borrowings   (82,569)   -    (82,255)   -    (82,255)
Subordinated debentures   (21,651)   -    (16,999)   -    (16,999)
Repurchase agreements   (12,590)   -    (12,590)   -    (12,590)
Accrued interest payable   (1,589)   -    (1,589)   -    (1,589)

 

                     
   As of December 31, 2022 
   Carrying                 
   amount   Level 1   Level 2   Level 3   Total 
Financial assets:                         
Cash and cash equivalents  $23,156   $23,156   $-   $-   $23,156 
Interest-bearing deposits at other banks   9,084    -    9,084    -    9,084 
Investment securities available-for-sale   489,306    123,111    366,195    -    489,306 
Investment securities held-to-maturity   3,524    -    3,452    -    3,452 
Bank stocks, at cost   5,470     n/a      n/a      n/a      n/a  
Loans, net   841,149    -    -    828,726    828,726 
Loans held for sale   2,488    -    2,488    -    2,488 
Mortgage servicing rights   3,813    -    10,282    -    10,282 
Accrued interest receivable   5,879    426    2,150    3,303    5,879 
Derivative financial instruments   126    -    126    -    126 
                          
Financial liabilities:                         
Non-maturity deposits  $(1,207,371)  $(1,207,371)  $-   $-   $(1,207,371)
Certificates of deposit   (93,278)   -    (90,760)   -    (90,760)
FHLB and other borrowings   (17,200)   -    (14,981)   -    (14,981)
Subordinated debentures   (21,651)   -    (18,189)   -    (18,189)
Repurchase agreements   (29,402)   -    (29,402)   -    (29,402)
Accrued interest payable   (439)   -    (439)   -    (439)

 

Transfers

 

The Company did not transfer any assets or liabilities among levels during the nine months ended September 30, 2023 or during the year ended December 31, 2022.

 

25
 

 

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

 

The following tables represent the Company’s financial instruments that are measured at fair value on a recurring basis at September 30, 2023 and December 31, 2022, allocated to the appropriate fair value hierarchy:

                 
(Dollars in thousands)      As of September 30, 2023 
       Fair value hierarchy 
   Total   Level 1   Level 2   Level 3 
Assets:                    
Available-for-sale investment securities:                    
U. S. treasury securities  $118,341   $118,341   $-   $     - 
Municipal obligations, tax exempt   115,706    -    115,706    - 
Municipal obligations, taxable   73,993    -    73,993    - 
Agency mortgage-backed securities   148,817    -    148,817    - 
Loans held for sale   1,857    -    1,857    - 
Derivative financial instruments   139    -    139    - 

 

                 
       As of December 31, 2022 
       Fair value hierarchy 
   Total   Level 1   Level 2   Level 3 
Assets:                    
Available-for-sale investment securities:                    
U. S. treasury securities  $123,111   $123,111   $-   $     - 
U. S. federal agency obligations   1,988    -    1,988    - 
Municipal obligations, tax exempt   127,262    -    127,262    - 
Municipal obligations, taxable   67,244    -    67,244    - 
Agency mortgage-backed securities   169,701    -    169,701    - 
Loans held for sale   2,488    -    2,488    - 
Derivative financial instruments   126    -    126    - 

 

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

 

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

 

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

 

26
 

 

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

   As of   As of 
   September 30,   December 31, 
(Dollars in thousands)  2023   2022 
Aggregate fair value  $1,857   $2,488 
Contractual balance   1,846    2,468 
Gain  $11   $20 

 

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:

                 
   Three months ended   Nine months ended 
   September 30,   September 30, 
(Dollars in thousands)  2023   2022   2023   2022 
Total change in fair value  $(143)  $(100)  $13   $(128)

 

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

 

The Company does not record its loan portfolio at fair value. Collateral-dependent loans are generally carried at the lower of cost or fair value of the collateral, less estimated selling costs. Collateral values are determined based on appraisals performed by qualified licensed appraisers hired by the Company and then further adjusted if warranted based on relevant facts and circumstances. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Individually evaluated loans are reviewed at least quarterly for additional impairment and adjusted accordingly, based on the same factors identified above. The carrying value of the Company’s individually evaluated loans was $5.0 million at September 30, 2023 and $4.1 million at December 31, 2022, respectively. The Company’s individually evaluated loans with an allowance for credit losses was $2.6 million and $755,000, with an allocated allowance of $1.0 million and $654,000, at September 30, 2023 and December 31, 2022, 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.

 

27
 

 

The following table presents quantitative information about Level 3 fair value measurements measured at fair value on a nonrecurring basis as of September 30, 2023 and December 31, 2022.

 

(Dollars in thousands)              
   Fair value   Valuation technique  Unobservable inputs  Range 
As of September 30, 2023                
Impaired loans:                
Commercial  $1,567   Sales comparison  Adjustment to comparable value   0%-30%
                 
As of December 31, 2022                
Impaired loans:                
Commercial  $101   Sales comparison  Adjustment to comparable value   0%-25%
Real estate owned:                
One-to-four family residential real estate   272   Sales comparison  Adjustment to appraised value   15%
Commercial real estate   234   Sales comparison  Adjustment to appraised value   15%

 

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, 2023, 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, 2023 and December 31, 2022, 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.

 

28
 

 

The following is a comparison of the Company’s regulatory capital to minimum capital requirements at September 30, 2023 and December 31, 2022.

 

(Dollars in thousands)            
           For capital 
   Actual   adequacy purposes 
   Amount   Ratio   Amount   Ratio (1) 
As of September 30, 2023                    
Leverage  $128,858    8.36%  $61,631    4.0%
Common Equity Tier 1 Capital   107,858    10.26%   73,596    7.0%
Tier 1 Capital   128,858    12.26%   89,366    8.5%
Total Risk Based Capital   139,216    13.24%   110,394    10.5%
                     
As of December 31, 2022                    
Leverage  $122,275    8.14%  $60,100    4.0%
Common Equity Tier 1 Capital   101,275    10.37%   68,352    7.0%
Tier 1 Capital   122,275    12.52%   82,999    8.5%
Total Risk Based Capital   131,236    13.44%   102,528    10.5%

 

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

 

The following is a comparison of the Bank’s regulatory capital to minimum capital requirements at September 30, 2023 and December 31, 2022:

                   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, 2023                              
Leverage  $133,192    8.67%  $61,456    4.0%  $76,820    5.0%
Common Equity Tier 1 Capital   133,192    12.68%   73,524    7.0%   68,272    6.5%
Tier 1 Capital   133,192    12.68%   89,279    8.5%   84,028    8.0%
Total Risk Based Capital   143,550    13.67%   110,286    10.5%   105,035    10.0%
                               
As of December 31, 2022                              
Leverage  $128,643    8.59%  $59,933    4.0%  $74,917    5.0%
Common Equity Tier 1 Capital   128,643    13.18%   68,309    7.0%   63,430    6.5%
Tier 1 Capital   128,643    13.18%   82,947    8.5%   78,068    8.0%
Total Risk Based Capital   137,604    14.10%   102,464    10.5%   97,585    10.0%

 

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

 

29
 

 

13. Impact of Recent Accounting Pronouncements

 

On January 1, 2023, the Company adopted ASU 2016-13 and ASU 2022-02 which is described in note 3.

 

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. The Company adopted ASU 2017-04 effective January 1, 2023. The adoption of ASU 2017-04 did not 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 standard was effective upon issuance and the amendments may be applied prospectively through December 31, 2022 such that changes made to contracts beginning on or after January 1, 2023 would not apply. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date, which extended the sunset date from December 31, 2022 to December 31, 2024. LIBOR continued to be published until September 30, 2023.

 

30
 

 

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

 

Overview. Landmark Bancorp, Inc. is a financial holding company incorporated under the laws of the State of Delaware and is engaged in the banking business through its wholly owned subsidiary, Landmark National Bank, and in the insurance business through its wholly owned subsidiary, Landmark Risk Management, Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Landmark Bancorp, Inc., Landmark National Bank and Landmark Risk Management, Inc. The Company is listed on the Nasdaq Global Market under the symbol “LARK.” The Bank is dedicated to providing quality financial and banking services to its local communities. Our strategy includes continuing a tradition of holding and acquiring quality assets while growing our commercial, commercial real estate 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 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. On April 10, 2023, the IRS issued IR-2023-74 proposing regulations that classify 831(b) captives with less than a 65% claims loss ratio as a “listed transaction”. We are currently reviewing the proposed regulations and consulting with tax advisors to understand the impact on Landmark Risk Management if the final regulations are substantially similar to the proposed regulations. The ultimate impact of the proposal and the impact on the Company is uncertain.

 

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

 

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

 

Currently, our business consists of ownership of the Bank, with its main office in Manhattan, Kansas and thirty additional branch offices in central, eastern, southeast and southwest Kansas, 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.

 

In October 2023, we declared our 89th consecutive quarterly dividend, and we currently have no plans to change our dividend strategy given our current capital and liquidity position. However, while we have achieved a strong capital base and expect to continue operating profitably, our future dividend practice is dependent upon the performance of the economy and the Company’s overall performance. In addition, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, 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, 2023.

 

31
 

 

Critical Accounting Policies. Critical accounting policies are those which are both most important to the portrayal of our financial condition and results of operations and require our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to the allowance for credit losses and the accounting for business combinations, each of which involve significant judgment by our management. On January 1, 2023, we adopted CECL which changed our allowance for credit losses from an incurred loss methodology to an expected loss methodology. The CECL model is subject to changes in our economic forecast, which can impact the calculation of our allowance for credit losses substantially. The impact of the adoption and more information on our allowance for credit losses is included in Notes 2 and 4 of the consolidated financial statements. Our most significant critical accounting estimates relate to the allowance for credit losses on loans, which involve significant judgment by our management. The analysis is updated on a quarterly basis based on historical loss information adjusted for current conditions and reasonable and supportable forecasts. Additionally, the Company considers asset quality trends, composition and trends in the loan portfolio, underlying collateral values, industry trends and other pertinent factors, including regulatory recommendations, which impacts the estimate of future credit losses. Other than CECL, 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, 2022, filed with the Securities and Exchange Commission on March 30, 2023.

 

Summary of Results. During the third quarter of 2023, we recorded net earnings of $2.9 million, which was an increase of $378,000, or 15.1%, from the $2.5 million of net earnings in the third quarter of 2022. During the first nine months of 2023, we recorded net earnings of $9.6 million, which was an increase of $931,000, or 10.7%, from the $8.7 million of net earnings in the first nine months of 2022. The increase in net earnings during 2023 was primarily related to an increase in interest income due to an increase in average interest earning assets and higher yields on those assets. The increase in assets was due to our acquisition of Freedom Bank and organic growth. Higher interest rates and average balances of interest bearing liabilities also increased our interest expense. The acquisition of Freedom Bank also contributed to an increase in non-interest expense in 2023.

 

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,
 
   2023   2022   2023   2022 
Net earnings:                    
Net earnings  $2,878   $2,500   $9,597   $8,666 
Basic earnings per share (1)  $0.55   $0.48   $1.84   $1.65 
Diluted earnings per share (1)  $0.55   $0.48   $1.84   $1.65 
Earnings ratios:                    
Return on average assets (2)   0.74%   0.76%   0.84%   0.89%
Return on average equity (2)   9.87%   8.33%   11.13%   9.33%
Equity to total assets   7.03%   7.78%   7.03%   7.78%
Net interest margin (2) (3)   3.06%   3.21%   3.19%   3.08%
Dividend payout ratio   38.08%   42.00%   34.24%   36.42%

 

  (1) Per share values for the periods ended September 30, 2022 have been adjusted to give effect to the 5% dividend paid during December 2022.
  (2) Ratios have been annualized and are not necessarily indicative of the results for the entire year.
  (3) Net interest margin is presented on a fully tax equivalent basis, using a 21% federal tax rate.

 

Interest Income. Interest income of $16.8 million for the quarter ended September 30, 2023 increased $6.2 million, or 58.6%, as compared to the same period of 2022. Interest income on loans increased $5.5 million, or 68.6%, to $13.5 million for the quarter ended September 30, 2023, compared to the same period of 2022 due to higher yields and average balances. Our yields increased from 4.63% in the third quarter of 2022 to 5.93% in the third quarter of 2023. The increase in interest income on loans was also driven by an increase in average loan balances which increased from $687.7 million in the third quarter of 2022 to $906.3 million in the third quarter of 2023. Interest income on investment securities increased $698,000, or 27.7%, to $3.2 million for the third quarter of 2023, as compared to $2.5 million in the same period of 2022. The increase in interest income on investment securities was primarily the result of increased yields on investment securities, which increased from 2.18% in the third quarter of 2022 to 2.77% in the third quarter of 2023. Offsetting the higher investment securities income was a decrease in the average balances of investment securities which decreased from $494.3 million in the third quarter of 2022 to $486.7 million in the third quarter of 2023.

 

Interest income of $47.2 million for the nine months ended September 30, 2023 increased $18.2 million, or 62.8%, as compared to the same period of 2022. Interest income on loans increased $15.2 million, or 67.8%, to $37.5 million for the nine months ended September 30, 2023, compared to the same period of 2022 due to an increase in our average loan balances, which increased from $659.1 million during the first nine months of 2022 to $877.0 million during the first nine months of 2023. Also contributing to higher interest income was higher yields on loans, which increased from 4.54% in the nine months ended September 30, 2022 to 5.72% during the nine months ended September 30, 2023. Interest income on investment securities increased $3.1 million, or 48.5%, to $9.5 million for the first nine months of 2023, as compared to $6.4 million in the same period of 2022. The increase in interest income on investment securities was primarily the result of increased yields, which increased from 2.00% in the first nine months of 2022 to 2.72% in the first nine months of 2023. Also contributing to the higher yields on investment securities were higher average balances on investment securities, which increased from $464.7 million in the first nine months of 2022 compared to $493.9 million in the first nine months of 2023.

 

32
 

 

Interest Expense. Interest expense during the quarter ended September 30, 2023 increased $5.0 million, to $6.2 million, as compared to the same period of 2022. Interest expense on interest-bearing deposits increased $3.6 million, to $4.4 million for the quarter ended September 30, 2023 as compared to the same period of 2022. Our total cost of interest-bearing deposits increased from 0.39% in the third quarter of 2022 to 1.93% in the third quarter of 2023 as a result of higher rates and increased competition for deposits. Also contributing to higher interest expense was an increase in average interest-bearing deposit balances, which increased from $782.5 million in the third quarter of 2022 to $902.7 million in the third quarter of 2023. For the third quarter of 2023, interest expense on borrowings increased $1.4 million, to $1.8 million as compared to the same period of 2022 due to an increase in our average borrowings which increased from $44.9 million in the third quarter of 2022 to $126.5 million in the same period of 2023. Also contributing to the increase in interest expense on borrowings were higher rates, which increased from 2.18% in the third quarter of 2022 to 5.60% in the same period of 2023.

 

Interest expense during the nine months ended September 30, 2023 increased $12.8 million, to $14.8 million, as compared to the same period of 2022. Interest expense on interest-bearing deposits increased $9.1 million, to $10.4 million for the nine months ended September 30, 2023 as compared to the same period of 2022. The increase in interest expense on interest-bearing deposits was the result of higher rates as our cost of interest-bearing deposits increased from 0.22% in the first nine months of 2022 to 1.57% in the first nine months of 2023. The increase in interest expense on deposits was due to an increase in average interest-bearing deposit balances, which increased from $788.7 million in the first nine months of 2022 to $886.2 million in the same period of 2023. For the first nine months of 2023, interest expense on borrowings increased $3.8 million, to $4.4 million as compared to the same period of 2022, due primarily to an increase in our average outstanding borrowings which increased from $34.1 million in the first nine months of 2022 to $112.3 million in the first nine months of 2023. Also contributing to the higher interest expense on borrowings were higher average rates on our borrowings, which increased to 5.26% for the first nine months of 2023 compared to 1.60% for the same period of 2022.

 

Net Interest Income. Net interest income increased $1.2 million, or 12.4%, to $10.6 million for the third quarter of 2023 compared to the same period of 2022. The increase in net interest income was primarily a result of an increase in interest income on loans and investments, partially offset by higher interest expense. The accretion of purchase accounting adjustments increased net interest income by $282,000 in the third quarter of 2023 compared to an increase of $13,000 in the third quarter of 2022 and was primarily related to fair value adjustments on loans acquired in the Freedom Bank transaction. Compared to the same period last year, the increase in interest rates raised the yields on our interest-earning assets and the cost of our interest-bearing liabilities. Net interest margin, on a tax-equivalent basis, decreased from 3.21% in the third quarter of 2022 to 3.06% in the same period of 2023. Continued increases in interest rates may not result in a higher net interest margin as a result of increased competition for loans and deposits. Additionally, the deposit balance increases we have seen over the past few years may reverse resulting in the need for higher cost funding.

 

Net interest income increased $5.4 million, or 20.0%, to $32.4 million for the first nine months of 2023 compared to the same period of 2022. The increase in net interest income was primarily a result of an increase in interest income on loans and investments, partially offset by higher interest expense. The accretion of purchase accounting adjustments increased net interest income by $750,000 in the first nine months of 2023 compared to an increase of $22,000 in the first nine months of 2022 and was primarily related to fair value adjustments on loans acquired in the Freedom Bank transaction. Compared to the same period last year, the increase in interest rates raised the yields on our interest-earning assets and the cost of our interest-bearing liabilities. Net interest margin, on a tax-equivalent basis, increased from 3.08% in the first nine months of 2022 to 3.19% in the same period of 2023.

 

33
 

 

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

 

   Three months ended       Three months ended     
   September 30, 2023       September 30, 2022     
   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  $8,733   $46    2.09%  $12,266   $44    1.42%
Investment securities (1)   486,706    3,396    2.77%   494,283    2,720    2.18%
Loans receivable, net (2)   906,289    13,535    5.93%   687,716    8,030    4.63%
Total interest-earning assets   1,401,728    16,977    4.81%   1,194,265    10,794    3.59%
Non-interest-earning assets   147,996              113,601           
Total  $1,549,724             $1,307,866           
                               
Liabilities and Stockholders’ Equity                              
Interest-bearing liabilities:                              
Money market and checking  $596,405   $3,065    2.04%  $516,141   $684    0.53%
Savings accounts   157,157    31    0.08%   171,645    11    0.03%
Certificates of deposit   149,165    1,288    3.43%   94,747    76    0.32%
Total interest-bearing deposits   902,727    4,384    1.93%   782,533    771    0.39%
                               
FHLB advances and other borrowings   89,441    1,251    5.55%   15,881    105    1.11%
Subordinated debentures   21,651    417    7.64%   21,651    234    4.29%
Repurchase agreements   15,387    116    2.99%   7,411    27    1.45%
Total borrowings   126,479    1,784    5.60%   44,943    366    2.18%
                               
Total interest-bearing liabilities   1,029,206    6,168    2.38%   827,476    1,137    0.53%
Non-interest-bearing liabilities   404,874              361,290           
Stockholders’ equity   115,644              119,100           
Total  $1,549,724             $1,307,866           
                               
Interest rate spread (3)             2.43%             3.06%
Net interest margin (4)       $10,809    3.06%       $9,657    3.21%
Tax-equivalent interest - imputed        183              206      
Net interest income       $10,626             $9,451      
                               
Ratio of average interest-earning assets to average interest-bearing liabilities             136.2%             140.6%

 

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

 

34
 

 

   Nine months ended       Nine months ended     
   September 30, 2023       September 30, 2022     
   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  $10,973   $193    2.35%  $72,631   $232    0.43%
Investment securities (1)   493,853    10,029    2.72%   464,702    6,961    2.00%
Loans receivable, net (2)   877,048    37,543    5.72%   659,109    22,387    4.54%
Total interest-earning assets   1,381,874    47,765    4.62%   1,196,442    29,580    3.31%
Non-interest-earning assets   147,064              110,496           
Total  $1,528,938             $1,306,938           
                               
Liabilities and Stockholders’ Equity                              
Interest-bearing liabilities:                              
Money market and checking  $595,990   $7,759    1.74%  $520,746   $1,058    0.27%
Savings accounts   163,498    92    0.08%   167,927    31    0.02%
Certificates of deposit   126,739    2,524    2.66%   100,005    235    0.31%
Total interest-bearing deposits   886,227    10,375    1.57%   788,678    1,324    0.22%
                               
FHLB advances and other borrowings   70,774    2,845    5.37%   5,352    105    0.52%
Subordinated debentures   21,651    1,168    7.21%   21,651    522    3.22%
Repurchase agreements   19,903    403    2.71%   7,074    38    0.72%
Total borrowings   112,328    4,416    5.26%   34,077    665    1.60%
                               
Total interest-bearing liabilities   998,555    14,791    1.98%   822,755    1,989    0.31%
Non-interest-bearing liabilities   415,108              360,006           
Stockholders’ equity   115,275              124,177           
Total  $1,528,938             $1,306,938           
                               
Interest rate spread (3)             2.64%             3.00%
Net interest margin (4)       $32,974    3.19%       $27,591    3.08%
Tax-equivalent interest - imputed        568              597      
Net interest income       $32,406             $26,994      
                               
Ratio of average interest-earning assets to average interest-bearing liabilities             138.4%             141.7%

 

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

 

35
 

 

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

 

  

Three months ended

September 30,

  

Nine months ended

September 30,

 
   2023 vs 2022   2023 vs 2022 
  

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)  $5   $2   $9   $(48)  $(39)
Investment securities   (41)   717    676    455    2,613    3,068 
Loans   2,923    2,582    5,505    8,486    6,670    15,156 
Total   2,879    3,304    6,183    8,950    9,235    18,185 
Interest expense:                              
Deposits   135    3,478    3,613    179    8,872    9,051 
FHLB advances and other borrowings   294    852    1,146    406    2,334    2,740 
Subordinated debentures and other borrowings   47    136    183    96    550    646 
Repurchase agreements   45    44    89    145    220    365 
Total   521    4,510    5,031    826    11,976    12,802 
Net interest income  $2,358   $(1,206)  $1,152   $8,124   $(2,741)  $5,383 

 

Provision for Credit Losses. On January 1, 2023, the Company adopted CECL and has established an allowance for credit losses (“ACL”) based on this framework. The ACL is based on the historical loss rates and the weighted average remaining maturity for financial assets measured at amortized costs including loans, investment securities and unfunded loan commitments. The historical loss rates are adjusted to reflect reasonable and supportable forecasts to estimate expected credit losses over the life of the financial asset. Upon adoption, the ACL on loans increased by $1.5 million and the ACL on held-to-maturity investment securities of $72,000 was recorded.

 

During the third quarter of 2023, we recorded no provision for credit losses as compared to a $500,000 provision for credit losses recorded in the same period of 2022. We recorded net loan recoveries of $521,000 during the third quarter of 2023 compared to net loan recoveries of $43,000 during the third quarter of 2022.

 

During the first nine months of 2023, we recorded a $299,000 provision for credit losses compared to no provision for credit losses in the first nine months of 2022. The $299,000 provision for credit losses during the first nine months of 2023 consisted of a $250,000 provision to the allowance for credit losses on loans, $30,000 to unfunded loan commitments and $19,000 to the allowance for credit losses on held-to-maturity investment securities. We recorded net loan recoveries of $406,000 during the nine months ended September 30, 2023 compared to net loan recoveries of $83,000 during the nine months ended September 30, 2022.

 

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

 

Non-interest Income. Total non-interest income was $3.7 million in the third quarter of 2023, an increase of $123,000, or 3.5%, from the same period in 2022. The increase in non-interest income during the third quarter of 2023 compared to the same period last year was primarily due to recording a $353,000 loss on the sale of lower yielding investment securities in the third quarter of 2022 as well as an increase of $107,000 in fees and service charges primarily due to higher fees related to deposit accounts. Other non-interest income also increased by $180,000 which was primarily due to an increase in lease income associated with part of a branch facility that was vacant in the prior year. Partially offsetting this increase was a decrease of $558,000 in gains on sales of one-to-four family residential real estate loans as higher interest rates and low housing inventories reduced originations of these loans, which are typically sold in the secondary market. However, higher mortgage rates did result in increased originations of adjustable-rate loans this quarter which are maintained in our one-to-four family residential loan portfolio.

 

36
 

 

Total non-interest income was $11.0 million in the first nine months of 2023, a increase of $88,000, or 0.8%, from the first nine months of 2022, primarily as a result of recording of a $353,000 loss on the sale of lower yielding investment securities in the third quarter of 2022 as well as an increase of $378,000 in fees and services charges due primarily to higher overdraft charges and servicing fees. Offsetting the increase in non-interest income was a decrease of $1.0 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.

 

Non-interest Expense. Non-interest expense totaled $10.7 million for the third quarter of 2023, an increase of $1.3 million, or 13.4%, over the same quarter of 2022. The increase in non-interest expense in the third quarter of 2023 compared to the same period last year was mainly due to higher compensation and benefits, occupancy and equipment, data processing and other non-interest expense due to the acquisition of Freedom Bank. Also contributing to the increases were higher amortization costs associated with the purchase accounting entries related to the acquisition. Offsetting the increase was a decrease in acquisition costs from the third quarter of 2022 associated with the acquisition of Freedom Bank.

 

Non-interest expense totaled $31.4 million for the first nine months of 2023, an increase of $4.1 million or 15.0%, from $27.3 million for the first nine months of 2022. The increase in non-interest expense in the nine months of 2023 compared to the same period last year was mainly due to higher compensation and benefits, occupancy and equipment, data processing, and other non-interest expense due to the acquisition of Freedom Bank. Partially offsetting the increases in non-interest expense were acquisition costs of $355,000 during the first nine months of 2022 related to the acquisition of Freedom Bank.

 

Income Tax Expense. During the third quarter of 2023, we recorded income tax expense of $671,000, compared to $522,000 during the same period of 2022. Our effective tax rate increased from 17.3% in the third quarter of 2022 to 18.9% in the third quarter of 2023. The increase in the effective tax rate was primarily related to losses of our captive insurance subsidiary which are not deductible for income taxes.

 

We recorded income tax expense of $2.1 million for the first nine months of 2023 compared to $1.9 million in the same period of 2022. Our effective tax rate was 18.0% in the first nine months of 2022 compared to 17.7% in the first nine months of 2023.

 

Financial Condition. Economic conditions in the United States slowed during the first nine months of 2023 as elevated inflation levels and higher interest rates impacted the economy. The increase in interest rates has impacted financial institutions resulting in higher costs of funding and lower fair values for investment securities. Three large regional banks have been closed by the Federal Deposit Insurance Corporation (FDIC) mainly due to liquidity concerns, resulting from interest rate risk issues and large concentrations of uninsured corporate deposits. The liquidity issues faced by these banks related to their operations and business strategies and the Company does not have these same concerns. We maintain strong capital and liquidity, and a stable, conservative deposit portfolio with a majority of our deposits being retail-based and FDIC insured. We spend significant time each month monitoring our interest rate and concentration risks through our asset/liability management and lending strategies that involve a relationship-based banking model offering stability and consistency. The State of Kansas and the geographic markets in which the Company operates were also impacted by these economic headwinds. Supply chain constraints, labor shortages and geopolitical events have contributed to the rising inflation levels which are impacting all areas of the economy both nationally and locally. The Company’s allowance for credit losses included estimates of the economic impact of these conditions and other qualitative factors on our loan portfolio. However, our loan portfolio is diversified across various types of loans and collateral throughout the markets in which we operate. Aside from a few problem loans that management is working to resolve, our asset quality has remained strong over the past few years. While further increases in problem assets may arise, management believes its efforts to run a high quality financial institution with a sound asset base will continue to create a strong foundation for continued growth and profitability in the future.

 

Asset Quality and Distribution. Our primary investing activities are the origination of one-to-four family residential real estate, construction and land, commercial real estate, commercial, agriculture, municipal and consumer loans and the purchase of investment securities. Total assets increased $54.7 million, or 3.5%, from December 31, 2022 to $1.6 billion at September 30, 2023.

 

The allowance for credit losses is established through a provision for credit losses based on our economic projections. At September 30, 2023, our allowance for credit losses on loans totaled $11.0 million, or 1.17% of gross loans outstanding, compared to $8.8 million, or 1.03% of gross loans outstanding, at December 31, 2022. The increase in our allowance for credit losses on loans as a percentage of gross loans outstanding was primarily due to the adoption of CECL on January 1, 2023.

 

37
 

 

As of September 30, 2023 and December 31, 2022, approximately $9.9 million and $13.0 million, respectively, of loans were considered classified and assigned a risk rating of special mention, substandard or doubtful. These ratings indicate that these loans were identified as potential problem loans having more than normal risk and raised doubts as to the ability of the borrowers to comply with present loan repayment terms. Even though borrowers were experiencing moderate cash flow problems as well as some deterioration in collateral value, management believed the ACL was sufficient to cover expected losses related to such loans at September 30, 2023 and December 31, 2022, respectively.

 

Loans past due 30-89 days and still accruing interest totaled $6.2 million, or 0.66% of gross loans, at September 30, 2023, compared to $738,000, or 0.09% of gross loans, at December 31, 2022. The increase in delinquent loans was primarily due to two relationships which have returned to performing status subsequent to September 30, 2023. At September 30, 2023, $4.4 million in loans were on non-accrual status, or 0.47% of gross loans, compared to $3.3 million, or 0.39% of gross loans, at December 31, 2022. Non-accrual loans consist of loans 90 or more days past due and certain impaired loans. The increase in non-accrual loans during the third quarter of 2023 was principally associated with one commercial lending relationship which was classified as non-accrual as of September 30, 2023. There were no loans 90 days delinquent and accruing interest at September 30, 2023 or December 31, 2022.

 

As part of our credit risk management, we continue to manage the loan portfolio to identify problem loans and have placed additional emphasis on commercial real estate and construction and land relationships. We are working to resolve the remaining problem credits or move the non-performing credits out of the loan portfolio. At September 30, 2023 and December 31, 2022, we had $934,000 of real estate owned. As of September 30, 2023, 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.

 

Liability Distribution. Our primary ongoing sources of funds are deposits, FHLB borrowings, proceeds from principal and interest payments on loans and investment securities and proceeds from the sale of mortgage loans and investment securities. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates and economic conditions. We experienced an increase of $7.4 million, or 0.6% in total deposits during the first nine months of 2023, to $1.3 billion at September 30, 2023. The increase in deposits was primarily due to an increase in our brokered deposit balances, which increased from $10.3 million at December 31, 2022 to $72.4 million at September 30, 2023.

 

Non-interest-bearing deposits at September 30, 2023, were $395.0 million, or 30.20% of deposits, compared to $410.1 million, or 31.5% of deposits, at December 31, 2022. Money market and checking deposit accounts were 44.8% of our deposit portfolio and totaled $586.7 million at September 30, 2023, compared to $626.7 million, or 48.2% of deposits, at December 31, 2022. Savings accounts decreased to $157.1 million, or 12.0% of deposits, at September 30, 2023, from $170.6 million, or 13.1% of deposits, at December 31, 2022. Certificates of deposit totaled $169.2 million, or 12.9% of deposits, at September 30, 2023, compared to $93.3 million, or 7.2% of deposits, at December 31, 2022. The increase in certificates of deposit was primarily related to higher public fund balances, customers seeking higher interest rates and brokered certificates of deposits, which increased from $1.0 million at December 31, 2022 to $32.2 million at September 30, 2023.

 

Total deposits include estimated uninsured deposits of $202.8 million and $192.9 million as of September 30, 2023 and December 31, 2022, respectively. This represents approximately 15.5% of our total deposits at September 30, 2023 and compares favorably with other similar community banking organizations. Over 95.3% of the Company’s total deposits were considered core deposits at September 30, 2023. These deposit balances are from retail, commercial and public fund customers located in the markets where the Company has bank branch locations.

 

Certificates of deposit at September 30, 2023, scheduled to mature in one year or less totaled $104.8 million. Historically, maturing deposits have generally remained with the Bank, and we believe that a significant portion of the deposits maturing in one year or less will remain with us upon maturity in some type of deposit account.

 

Total borrowings increased $48.6 million to $116.8 million at September 30, 2023, from $68.3 million at December 31, 2022. The increase in total borrowings was due to an increase in FHLB borrowings. The increase in FHLB borrowings was to fund loan growth and to offset the decline in non-brokered deposits.

 

Cash Flows. During the nine months ended September 30, 2023, our cash and cash equivalents decreased by $665,000. Our operating activities provided net cash of $11.4 million during the first nine months of 2023 primarily as a result of net earnings. Our investing activities used net cash of $63.4 million during the first nine months of 2023, primarily due to loan growth. Financing activities provided net cash of $52.7 million during the first nine months of 2023, primarily as a result of an increase in FHLB borrowings.

 

38
 

 

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 $486.6 million at September 30, 2023 and $521.5 million at December 31, 2022. During periods in which we are not able to originate a sufficient amount of loans and/or periods of high principal prepayments, we generally increase our liquid assets by investing in short-term, high-grade investments or holding higher balances of cash and cash equivalents.

 

Liquidity management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. Excess funds are typically generated as a result of increased deposit balances, while uses of excess funds are generally deposit withdrawals and loan advances. In the event we require funds beyond our ability to generate them internally, additional funds are generally available through the use of FHLB advances, a line of credit with the FHLB, other borrowings or through pledging or sales of investment securities. While the sale of available-for-sale investment securities would result in losses due to the current interest environment, pledging these securities as collateral would not result in a loss. At September 30, 2023, we had $74.6 million borrowed on our line of credit with the FHLB. At September 30, 2023, we had collateral pledged to the FHLB that would allow us to borrow $204.1 million, subject to FHLB credit requirements and policies. At September 30, 2023, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $57.2 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, 2023. At September 30, 2023, we had subordinated debentures totaling $21.7 million and $12.6 million of repurchase agreements. At September 30, 2023, the Company had no borrowings against a $5.0 million line of credit from an unrelated financial institution maturing on November 1, 2024, with an interest rate that adjusts daily based on the prime rate less 0.50%. This line of credit has covenants specific to capital and other financial ratios, which the Company was in compliance with at September 30, 2023. The Company also borrowed $8.0 million from the same unrelated financial institution at a fixed rate of 6.15%. This borrowing matures on September 1, 2027 and requires quarterly principal and interest payments. The original $10.0 million of borrowings was used to fund part of the acquisition of Freedom Bancshares, Inc.

 

Off Balance Sheet Arrangements. As a provider of financial services, we routinely issue financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by us generally to guarantee the payment or performance obligation of a customer to a third party. While these standby letters of credit represent a potential outlay by us, a significant amount of the commitments may expire without being drawn upon. We have recourse against the customer for any amount the customer is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by us. Most of the standby letters of credit are secured, and in the event of nonperformance by the customers, we have the right to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The contract amount of these standby letters of credit, which represents the maximum potential future payments guaranteed by us, was $2.4 million at September 30, 2023.

 

At September 30, 2023, we had outstanding loan commitments, excluding standby letters of credit, of $199.8 million. We anticipate that sufficient funds will be available to meet current loan commitments. These commitments consist of unfunded lines of credit and commitments to finance real estate loans.

 

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, 2023 and December 31, 2022, 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, 2023, the Company and the Bank met all capital adequacy requirements to which we are subject.

 

39
 

 

Dividends. During the quarter ended September 30, 2023, 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, 2023. The National Bank Act imposes limitations on the amount of dividends that a national bank may pay without prior regulatory approval. Generally, the amount is limited to the bank’s current year’s net earnings plus the adjusted retained earnings for the three preceding years. As of September 30, 2023, approximately $12.0 million was available to be paid as dividends to the Company by the Bank without prior regulatory approval.

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

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

 

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

 

   As of September 30, 2023   As of December 31, 2022 
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  $(5,434)   (12.0)%  $(3,245)   (6.6)%
200 basis point rising  $(3,689)   (8.2)%  $(2,218)   (4.5)%
100 basis point rising  $(1,961)   (4.3)%  $(1,215)   (2.5)%
100 basis point falling  $306    0.7%  $747    1.5%
200 basis point falling  $(372)   (0.8)%  $434    0.9%
300 basis point falling  $(1,410)   (3.1)%  $(67)   (0.1)%

 

40
 

 

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

 

Forward-Looking Statements

 

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

 

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

 

  The effects of changes in interest rates (including the effects of changes in the rate of prepayments of our assets) and the policies of the Federal Reserve (including and the recent and potential additional rate increases by the Federal Reserve) including on our net interest income and the value of our security portfolio.
  The strength of the United States economy in general and the strength of the local economies in which we conduct our operations, including the effects of inflationary pressures and supply chain constraints on such economies, which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of our assets.
  The economic impact of past and any future terrorist attacks, acts of war, including the current Israeli-Palestinian conflict and the conflict in Ukraine, or threats thereof, and the response of the United States to any such threats and attacks.
  The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, consumer protection, insurance, tax, trade and monetary and financial matters, including any changes in response to the recent failures of other banks.
  Our ability to compete with other financial institutions due to increases in competitive pressures in the financial services sector, including from non-bank competitors such as credit unions and “fintech” companies.
  Our inability to obtain new customers and to retain existing customers.
  The timely development and acceptance of products and services.
  Technological changes implemented by us and by other parties, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequences to us and our customers.
  Our ability to develop and maintain secure and reliable electronic systems.
  The effectiveness of our risk management framework.
  The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents and our ability to identify and address such incidents.
  Interruptions involving our information technology and telecommunications systems or third-party servicers.
  The effects of severe weather, natural disasters, widespread disease or pandemics (including the COVID-19 pandemic), and other external events.
  Our ability to retain key executives and employees and the difficulty that we may experience in replacing key executives and employees in an effective manner.
  Consumer spending and saving habits which may change in a manner that affects our business adversely.
  Our ability to successfully integrate acquired businesses and future growth.
  The costs, effects and outcomes of existing or future litigation.
  Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the FASB, such as the implementation of CECL.
  Our ability to effectively manage our credit risk.
  Our ability to forecast probable credit losses and maintain an adequate allowance for credit losses.
  Fluctuations in the value of securities held in our securities portfolio.
  Concentrations within our loan portfolio, large loans to certain borrowers, and large deposits from certain clients.
  The concentration of large deposits from certain clients who have balances above current FDIC insurance limits and may withdraw deposits to diversify their exposure.
  The level of non-performing assets on our balance sheets.
  Our ability to raise additional capital if needed.
  The effects of declines in real estate markets.
  The effects of fraudulent activity on the part of our employees, customers, vendors, or counterparties.

 

41
 

 

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, 2022 filed on March 30, 2023.

 

ITEM 4. CONTROLS AND PROCEDURES

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2023. 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, 2023 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, 2023 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

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, 2022.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

42
 

 

ITEM 6. EXHIBITS

 

  Exhibit 3.1  Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s transition report on Form 10-K filed with the SEC on March 29, 2002 (SEC file no. 000-33203))
  Exhibit 3.2  Certificate of Amendment of the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Company’s report on Form 10-K filed with the SEC on March 29, 2013 (SEC file no. 000-33203))
  Exhibit 3.3  Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Form S-4 filed with the SEC on June 7, 2001 (SEC file no. 333-62466))
  Exhibit 10.1  Change in Terms Agreement, dated November 3, 2023, between Landmark Bancorp, Inc. and First National Bank of Omaha
  Exhibit 31.1  Certificate of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
  Exhibit 31.2  Certificate of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
  Exhibit 32.1  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  Exhibit 32.2  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  Exhibit 101  Interactive data files pursuant to Rule 405 of Regulation S-T formatted in Inline XBRL: (i) Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022; (ii) Consolidated Statements of Earnings for three and nine months ended September 30, 2023 and September 30, 2022; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and September 30, 2022; (iv) Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and September 30, 2022; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and September 30 2022; and (vi) Notes to Consolidated Financial Statements
  Exhibit 104  Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

43
 

 

SIGNATURES

 

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

 

  LANDMARK BANCORP, INC.
   
Date: November 13, 2023 /s/ Michael E. Scheopner
  Michael E. Scheopner
  President and Chief Executive Officer
  (Principal Executive Officer)
   
Date: November 13, 2023 /s/ Mark A. Herpich
  Mark A. Herpich
  Vice President, Secretary, Treasurer
  and Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

44