LANDMARK BANCORP INC (LARK)

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

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, including the negatives of such expressions. Additionally, all statements in this document, including forward-looking
statements, speak only as of the date they are made, and we undertake no obligation to update any statement in light of new information
or future events.

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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 by us and our subsidiaries include, but are not limited to, the following:

These
risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such
statements. Additional information concerning us and our business, including other factors that could materially affect our financial
results, is included in “Item 1A. Risk Factors” of this Annual Report on Form 10-K.

CORPORATE
PROFILE AND 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. The Company is listed on the Nasdaq Global Market under the symbol “LARK.” The Bank is dedicated to
providing quality financial and banking services to its local communities. Our strategy includes growing our commercial, CRE and agriculture
loan portfolios, while continuing to emphasize and maintaining high quality assets. We are committed to developing relationships with
our borrowers and providing a total banking service.

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

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 and gains or losses on investments, and certain other non-interest related items. Our principal operating expenses,
aside from interest expense, consist of, among others, compensation and employee benefits, occupancy costs, professional fees, amortization
of intangibles expense, federal deposit insurance costs, 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, the interest
rate pricing competition from other lending institutions, and rates of inflation.

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

CRITICAL
ACCOUNTING POLICIES

Critical
accounting policies are those that are both most important to the portrayal of our financial condition and results of operations, and
require our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain. Our critical accounting policies relate to the allowance for credit losses and goodwill,
both of which involve significant judgment by our management.

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

We
have completed several business and asset acquisitions since 2002, which have generated significant amounts of goodwill. The initial
value assigned to goodwill is the residual of the purchase price over the fair value of all identifiable tangible and intangible assets
acquired and liabilities assumed. Goodwill is not amortized; however, it is tested for impairment at each calendar year end or more frequently
when events or circumstances dictate. The Company performed a qualitative assessment of factors to determine if it is more likely than
not that the fair value of a reporting unit is less than its carrying amount as of December 31, 2024. This assessment included a review
of macroeconomic conditions, industry and market specific considerations and other relevant factors including the Company’s market
capitalization, with control premiums and valuation multiples, compared to recent financial industry acquisition multiples for similar
institutions to estimate the fair value of the Company’s single reporting unit. The Company’s qualitative impairment test
indicated that its goodwill was not impaired. The Company can make no assurances that future impairment tests will not result in goodwill
impairments.

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COMPARISON
OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND DECEMBER 31, 2023

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

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

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

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

Net
Interest Income. Net interest income represents
the difference between income derived from interest-earning assets and the expense incurred on interest-bearing liabilities. Net interest
income is affected by both the difference between the rates of interest earned on interest-earnings assets and the rates paid on interest-bearing
liabilities (“interest rate spread”) as well as the relative amounts of interest-earning assets and interest-bearing liabilities.

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

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

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

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Non-interest
Income. Total non-interest income was $14.7 million
in 2024, an increase of $1.5 million, or 11.4%, compared to 2023. The increase in non-interest income was primarily the result of an
increase of $810,000 in bank owned life insurance due to the accrual of death benefits in 2024. Also contributing to the increase in
non-interest income was an increase of $522,000 in fees and service charges primarily due to higher fees to deposit accounts. A loss
of $1.0 million was recorded on the sale of investment securities during 2024, a decrease from the $1.2 million loss recorded on the sale
of investment securities in 2023.

Non-interest
Expense. Non-interest expense increased $2.1 million,
or 5.0%, to $44.1 million in 2024 compared to $42.0 million in 2023. The increase in non-interest expense in 2024 was mainly associated
with a $1.1 million valuation allowance recorded against real estate held for sale. Also contributing to the increase in non-interest
expense was a $460,000 increase in professional fees associated with increased legal and consulting costs and a $422,000 increase in
compensation. Partially offsetting the increase in non-interest expense was a $680,000 decrease in amortization of mortgage serving rights
and other intangibles.

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

FINANCIAL
CONDITION. Economic conditions in the U.S. remained sluggish during 2024 as elevated inflation levels and higher interest rates continued
to impact the economy. Elevated interest rates and a flat or negative sloping yield curve have impacted financial institutions generally,
resulting in continued higher costs of funding and lower fair values for investment securities. The Federal Reserve lowered interest
rates by 1.00% in the second half of 2024 due to improvements in the inflation outlook, however, additional rate cuts are dependent upon
further reductions in the inflation rate and other economic factors. We maintain strong capital and liquidity, and a stable, conservative
deposit portfolio with a significant majority of our deposits being retail-based and insured by the FDIC. We spend significant time each
month monitoring our interest rate and concentration risks through our asset/liability management and lending strategies that involve
a relationship-based banking model offering stability and consistency. The State of Kansas and the geographic markets in which the Company
operates have also been impacted by economic headwinds. Supply chain constraints, labor shortages and geopolitical events have contributed
to the rising inflation levels which are impacting all areas of the economy both nationally and locally. The Company’s allowance
for credit losses continues to factor in estimates of the economic impact of these conditions and other qualitative factors on our loan
portfolio. However, our loan portfolio is diversified across various types of loans and collateral throughout the markets in which we
operate. Aside from a few problem loans that management is working to resolve, our asset quality has remained strong over the past few
years. While further increases in problem assets may arise, management believes its efforts to run a high quality financial institution
with a sound asset base will continue to create a strong foundation for continued growth and profitability in the future.

Asset
Quality and Distribution. Our primary investing activities
are the origination of one-to-four family residential real estate, construction and land, CRE, commercial, agriculture, municipal and
consumer loans and the purchase of investment securities. Total assets were $1.6 billion at both December 31, 2024 and December 31, 2023.
Net loans, excluding loans held for sale, increased $101.6 million, 10.8%, to $1.0 billion at December 31, 2024, compared to $937.6 million
at December 31, 2023. Investment securities available-for-sale decreased $80.3 million, or 17.7%, from $452.8 million at December 31,
2023 to $372.5 million at December 31, 2024.

The
allowance for credit losses is established through a provision for credit losses based on our economic projections. At December 31, 2024,
our allowance for credit losses on loans totaled $12.8 million, or 1.22% of gross loans outstanding, compared to $10.6 million, or 1.12%
of gross loans outstanding, at December 31, 2023. The increase in our allowance for credit losses on loans as a percentage of gross loans
outstanding was primarily due to an increase in the reserves on individually evaluated loans.

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

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Loans
past due 30-89 days and still accruing interest totaled $6.2 million, or 0.59% of gross loans, at December 31, 2024, compared to $1.6
million, or 0.17% of gross loans, at December 31, 2023. At December 31, 2024, $13.1 million of loans were on non-accrual status, or 1.25%
of gross loans, compared to $2.4 million, or 0.25% of gross loans, at December 31, 2023. Past due loans are determined in accordance
with the contractual repayment terms. Non-accrual loans consist of loans 90 or more days past due and certain individually evaluated
loans. There were no loans 90 days delinquent and accruing interest at December 31, 2024 and 2023.

As
part of our credit risk management, we continue to manage the loan portfolio to identify problem loans and have placed additional emphasis
on commercial CRE and construction and land relationships. We are working to resolve the remaining problem credits or move the non-performing
credits out of the loan portfolio. At December 31, 2024, we had $167,000 of real estate owned compared to $928,000 at December 31, 2023.
The decrease in real estate owned as of December 31, 2024 compared to December 31, 2023 was primarily due to the sale of properties.
As of December 31, 2024, real estate owned consisted of a single parcel of undeveloped land. The Company is currently marketing the property.

Liability
Distribution. Our primary ongoing sources of funds
are deposits, FHLB borrowings, proceeds from principal and interest payments on loans and investment securities and proceeds from the
sale of mortgage loans and investment securities. While maturities and scheduled amortization of loans are a predictable source of funds,
deposit flows and mortgage prepayments are greatly influenced by general interest rates and economic conditions. We had a balance of
$1.3 billion in deposits at December 31, 2024 and December 31, 2023.

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

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

Certificates
of deposit at December 31, 2024, scheduled to mature in one year or less totaled $181.0 million. Historically, maturing deposits have
generally remained with the Bank, and we believe that a significant portion of the deposits maturing in one year or less will remain
with us upon maturity in some type of deposit account.

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

Liquidity.
Our most liquid assets are cash and cash equivalents
and investment securities available-for-sale. The levels of these assets are dependent on the operating, financing, lending and investing
activities during any given year. These liquid assets totaled $396.9 million at December 31, 2024 and $484.8 million at December 31,
2023. During periods in which we are not able to originate a sufficient amount of loans and/or periods of high principal prepayments,
we generally increase our liquid assets by investing in short-term, high-grade investments.

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Liquidity
management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. Excess
funds are typically generated as a result of increased deposit balances, while uses of excess funds are generally deposit withdrawals
and loan advances. In the event we require funds beyond our ability to generate them internally, additional funds are generally available
through the use of brokered deposits, FHLB advances, a line of credit with the FHLB, other borrowings or through sales of investment
securities. At December 31, 2024, we had an outstanding balance of $48.8 million against our line of credit with the FHLB. At December
31, 2024, we had collateral pledged to the FHLB that would allow us to borrow $171.0 million, subject to FHLB credit requirements and
policies. At December 31, 2024, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the
Federal Reserve was $50.5 million. We also have various other federal funds agreements, both secured and unsecured, with correspondent
banks totaling approximately $35.0 million in available credit under which we had no outstanding borrowings at December 31, 2024. At
December 31, 2024, we had subordinated debentures totaling $21.7 million and $13.8 million of repurchase agreements. At December 31,
2024, the Company had no borrowings against a $5.0 million line of credit from an unrelated financial institution maturing on November
1, 2025, with an interest rate that adjusts daily based on the prime rate less 0.50%. This line of credit has covenants specific to capital
and other financial ratios. At December 31, 2024, the Company’s tier 1 capital ratio of 12.43% was below the minimum required
under such covenants of 12.50%. The Company requested from the lender a waiver of the default, which was granted by the lender. On March
14, 2025, the Company and the lender entered into a Change in Terms Agreement, reducing the minimum risk-based capital ratio required
under such covenants to 12.00% going forward. The Company also borrowed $4.2 million from the same unrelated financial institution at
a fixed rate of 6.15%. This borrowing matures on September 1, 2027 and requires quarterly principal and interest payments. The original
balance of this borrowing was $10.0 million and was used to fund part of the acquisition of Freedom.

OFF-BALANCE
SHEET ARRANGEMENTS. As a provider of financial services, we routinely issue financial guarantees in the form of financial and performance
standby letters of credit. Standby letters of credit are contingent commitments issued by us generally to guarantee the payment or performance
obligation of a customer to a third party. While these standby letters of credit represent a potential outlay by us, a significant amount
of the commitments may expire without being drawn upon. We have recourse against the customer for any amount the customer is required
to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting
standards and approval process as loans made by us. Most of the standby letters of credit are secured, and in the event of nonperformance
by the customers, we have the right to the underlying collateral, which could include CRE, physical plant and property, inventory, receivables,
cash and marketable securities. The contract amount of these standby letters of credit, which represents the maximum potential future
payments guaranteed by us, was $1.9 million at December 31, 2024 as compared to $1.6 million at December 31, 2023.

At
December 31, 2024, we had outstanding loan commitments, excluding standby letters of credit, of $201.2 million, as compared to $211.8
million at December 31, 2023. We anticipate that sufficient funds will be available to meet current loan commitments. These commitments
consist of unfunded lines of credit and commitments to finance real estate loans.

CAPITAL.
As discussed in more detail in the “Supervision and Regulation” section of “Item 1. Business” of this Annual
Report on Form 10-K, current regulatory capital regulations require financial institutions (including banks and bank holding companies)
to meet certain regulatory capital requirements. The Company and the Bank are subject to the Basel III Rule that implemented the Basel
III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. The
Basel III Rule is applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan
holding companies other than “small bank holding companies” (generally, non-public bank holding companies with consolidated
assets of less than $3.0 billion).

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

(1) The minimum required percent includes a capital conservation buffer of 2.5%.

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Banks
and bank holding companies are generally expected to operate at or above the minimum capital requirements. The Company’s and the
Bank’s ratios above are well in excess of regulatory minimums. As of December 31, 2024 and 2023, the Company and the Bank also
exceeded the “well capitalized” thresholds, which is the highest rating available. There are no conditions or events that
management believes have changed the Company’s and the Bank’s category as of the date of this report. We have $21.7 million
in trust preferred securities which, in accordance with current capital guidelines, have been included in total risk-based capital as
of December 31, 2024. Cash distributions on the securities are payable quarterly, are deductible for income tax purposes and are included
in interest expense in the consolidated financial statements.

DIVIDENDS

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

The
payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital
pursuant to applicable capital adequacy guidelines and regulations. As described above, the Bank exceeded its minimum capital requirements
under applicable guidelines as of December 31, 2024. The National Bank Act imposes limitations on the amount of dividends that a national
bank may pay without prior regulatory approval. Generally, the amount is limited to the bank’s current year’s net earnings
plus the adjusted retained earnings for the three preceding years. As of December 31, 2024, $4.9 million was available to be paid as
dividends to the Company by the Bank without prior regulatory approval.

Additionally,
our ability to pay dividends is limited by the subordinated debentures associated with the trust preferred securities 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.

EFFECTS
OF INFLATION

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

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

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 by us and our subsidiaries include, but are not limited to, the following:

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These
risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such
statements. Additional information concerning us and our business, including other factors that could materially affect our financial
results, is included in “Item 1A. Risk Factors.”

CORPORATE
PROFILE AND 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. The Company is listed on the Nasdaq Global Market under the symbol “LARK.” The Bank is dedicated to
providing quality financial and banking services to its local communities. Our strategy includes continuing a tradition of quality assets
while growing our commercial, commercial real estate and agriculture loan portfolios. We are committed to developing relationships with
our borrowers and providing a total banking service.

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

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 and gains or losses on investments, and certain other non-interest related items. Our principal operating expenses,
aside from interest expense, consist of, among others, compensation and employee benefits, occupancy costs, professional fees, amortization
of intangibles expense, federal deposit insurance costs, 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. The Bank’s markets have been impacted by the COVID-19 pandemic, which has had and continues to have a complex
and significant impact on the economy. Deposit balances are influenced by numerous factors such as competing investments, the level of
income and the personal rate of savings within our market areas. Factors influencing lending activities include the demand for housing
and the interest rate pricing competition from other lending institutions.

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

CRITICAL
ACCOUNTING POLICIES

Critical
accounting policies are those that are both most important to the portrayal of our financial condition and results of operations, and
require our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain. Our critical accounting policies relate to the allowance for credit losses and business
combinations, both of which involve significant judgment by our management.

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

We
have completed several business and asset acquisitions since 2002, which have generated significant amounts of goodwill. The initial
value assigned to goodwill is the residual of the purchase price over the fair value of all identifiable tangible and intangible assets
acquired and liabilities assumed. Goodwill is not amortized; however, it is tested for impairment at each calendar year end or more frequently
when events or circumstances dictate. The Company performed a qualitative assessment of factors to determine if it is more likely than
not that the fair value of a reporting unit is less than its carrying amount as of December 31, 2023. This assessment included a review
of macroeconomic conditions, industry and market specific considerations and other relevant factors including the Company’s market
capitalization, with control premiums and valuation multiples, compared to recent financial industry acquisition multiples for similar
institutions to estimate the fair value of the Company’s single reporting unit. The Company’s qualitative impairment test
indicated that its goodwill was not impaired. The Company can make no assurances that future impairment tests will not result in goodwill
impairments.

42

COMPARISON
OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2023 AND DECEMBER 31, 2022

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

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

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

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

Net
Interest Income. Net interest income represents
the difference between income derived from interest-earning assets and the expense incurred on interest-bearing liabilities. Net interest
income is affected by both the difference between the rates of interest earned on interest-earnings assets and the rates paid on interest-bearing
liabilities (“interest rate spread”) as well as the relative amounts of interest-earning assets and interest-bearing liabilities.

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

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

43

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

Non-interest
Income. Total non-interest income was $13.2 million
in 2023, a decrease of $470,000, or 3.4%, compared to 2022. The decrease in non-interest income was primarily the result of a decrease
of $1.2 million in gains on sales of one-to-four family residential real estate loans as higher interest rates and low housing inventories
reduced originations of these loans, which are typically sold in the secondary market. However, higher mortgage rates did result in increased
originations of adjustable-rate loans in 2023, which are maintained in our one-to-four family residential loan portfolio. Also contributing
to the decrease in non-interest income was an increase in losses on sales of investment securities, which increased to $1.2 million in
2023 compared $1.1 million in 2022. Partially offsetting those decreases were increases of $569,000 in fees and service charges and $133,000
in bank owned life insurance. These increases were primarily related to the Freedom Bank acquisition. Additionally, other non-interest
income increased by $146,000 from 2022 to 2023, primarily due to an increase in lease income associated with part of a branch facility
that was vacant in the 2022.

Non-interest
Expense. Non-interest expense increased $713,000,
or 1.7%, to $42.0 million in 2023 compared to $41.3 million in 2022. The increase in non-interest expense in 2023 compared to 2022 was
mainly due to higher compensation and benefits, occupancy and equipment and data processing 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.
Professional fees increased due higher consulting costs and audit fees. Offsetting those increases was a $3.4 million decrease in acquisition
costs associated with the acquisition of Freedom Bank.

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

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

Asset
Quality and Distribution. Our primary investing activities
are the origination of one-to-four family residential real estate, construction and land, commercial real estate, commercial, agriculture,
municipal and consumer loans and the purchase of investment securities. Total assets increased $58.8 million, or 3.9%, to $1.6 billion
at December 31, 2023, compared to $1.5 billion at December 31, 2022. Net loans, excluding loans held for sale, increased $96.5 million,
or 11.5%, to $937.6 million at December 31, 2023, compared to $841.1 million at December 31, 2022. Investment securities available-for-sale
decreased $36.5 million, or 7.5%, from $489.3 million at December 31, 2022 to $452.8 million at December 31, 2023.

44

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

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

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

As
part of our credit risk management, we continue to manage the loan portfolio to identify problem loans and have placed additional emphasis
on commercial real estate and construction and land relationships. We are working to resolve the remaining problem credits or move the
non-performing credits out of the loan portfolio. At December 31, 2023, we had $928,000 of real estate owned compared to $934,000 at
December 31, 2022. The decrease in real estate owned as of December 31, 2023 compared to December 31, 2022 was primarily due to a valuation
allowance recorded against a residential real estate property. As of December 31, 2023, real estate owned consisted of a commercial building,
undeveloped land and three residential real estate properties. The Company is currently marketing all of the remaining properties in
real estate owned.

Liability
Distribution. Our primary ongoing sources of funds
are deposits, FHLB borrowings, proceeds from principal and interest payments on loans and investment securities and proceeds from the
sale of mortgage loans and investment securities. While maturities and scheduled amortization of loans are a predictable source of funds,
deposit flows and mortgage prepayments are greatly influenced by general interest rates and economic conditions. We experienced an increase
of $15.6 million, or 1.2% in total deposits during 2023, to $1.3 billion at December 31, 2023, from $1.1 billion at December 31, 2022.
The increase in deposits was primarily due to higher balances of brokered deposits.

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

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

Certificates
of deposit at December 31, 2023, scheduled to mature in one year or less totaled $163.4 million. Historically, maturing deposits have
generally remained with the Bank, and we believe that a significant portion of the deposits maturing in one year or less will remain
with us upon maturity in some type of deposit account.

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

45

Liquidity.
Our most liquid assets are cash and cash equivalents
and investment securities available-for-sale. The levels of these assets are dependent on the operating, financing, lending and investing
activities during any given year. These liquid assets totaled $484.8 million at December 31, 2023 and $521.5 million at December 31,
2022. During periods in which we are not able to originate a sufficient amount of loans and/or periods of high principal prepayments,
we generally increase our liquid assets by investing in short-term, high-grade investments.

Liquidity
management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. Excess
funds are typically generated as a result of increased deposit balances, while uses of excess funds are generally deposit withdrawals
and loan advances. In the event we require funds beyond our ability to generate them internally, additional funds are generally available
through the use of brokered deposits, FHLB advances, a line of credit with the FHLB, other borrowings or through sales of investment
securities. At December 31, 2023, we had an outstanding balance of $58.0 million against our line of credit with the FHLB. At December
31, 2023, we had collateral pledged to the FHLB that would allow us to borrow $153.1 million, subject to FHLB credit requirements and
policies. At December 31, 2023, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the
Federal Reserve was $60.7 million. We also have various other federal funds agreements, both secured and unsecured, with correspondent
banks totaling approximately $30.0 million in available credit under which we had no outstanding borrowings at December 31, 2023. At
December 31, 2023, we had subordinated debentures totaling $21.7 million and $12.7 million of repurchase agreements. At December 31,
2023, the Company had no borrowings against a $5.0 million line of credit from an unrelated financial institution maturing on November
1, 2024, with an interest rate that adjusts daily based on the prime rate less 0.50%. This line of credit has covenants specific to capital
and other financial ratios, which the Company was in compliance with at December 31, 2023. The Company also borrowed $6.6 million from
the same unrelated financial institution at a fixed rate of 6.15%. This borrowing matures on September 1, 2027 and requires quarterly
principal and interest payments. The original balance of this borrowing was $10.0 million and was used to fund part of the acquisition
of Freedom.

OFF-BALANCE
SHEET ARRANGEMENTS. As a provider of financial services, we routinely issue financial guarantees in the form of financial and performance
standby letters of credit. Standby letters of credit are contingent commitments issued by us generally to guarantee the payment or performance
obligation of a customer to a third party. While these standby letters of credit represent a potential outlay by us, a significant amount
of the commitments may expire without being drawn upon. We have recourse against the customer for any amount the customer is required
to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting
standards and approval process as loans made by us. Most of the standby letters of credit are secured, and in the event of nonperformance
by the customers, we have the right to the underlying collateral, which could include commercial real estate, physical plant and property,
inventory, receivables, cash and marketable securities. The contract amount of these standby letters of credit, which represents the
maximum potential future payments guaranteed by us, was $1.6 million at December 31, 2023.

At
December 31, 2023, we had outstanding loan commitments, excluding standby letters of credit, of $211.8 million. We anticipate that sufficient
funds will be available to meet current loan commitments. These commitments consist of unfunded lines of credit and commitments to finance
real estate loans.

CAPITAL.
Current regulatory capital regulations require financial institutions (including banks and bank holding companies) to meet certain
regulatory capital requirements. The Company and the Bank are subject to the Basel III Rule that implemented the Basel III regulatory
capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. The Basel III Rule
is applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies
other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets of less
than $3.0 billion).

The
Basel III Rule requires a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a Tier 1 capital to risk-weighted
assets minimum ratio of 6.0%, a Total Capital to risk-weighted assets minimum ratio of 8.0%, and a Tier 1 leverage minimum ratio of 4.0%.
A capital conservation buffer, equal to 2.5% common equity Tier 1 capital, is also established above the regulatory minimum capital requirements
(other than the Tier 1 leverage ratio). At December 31, 2023, the Bank maintained a leverage ratio of 8.7% and a total risk-based capital
ratio of 13.7%. As shown by the following table, the Bank’s capital exceeded the minimum capital requirements in effect at December
31, 2023, including the capital conservation buffers.

46

Banks
and bank holding companies are generally expected to operate at or above the minimum capital requirements. The Company’s and the
Bank’s ratios above are well in excess of regulatory minimums. As of December 31, 2023 and 2022, the Company and the Bank also
exceeded the “well capitalized” thresholds, which is the highest rating available. There are no conditions or events that
management believes have changed the Company’s and the Bank’s category as of the date of this report. We have $21.7 million
in trust preferred securities which, in accordance with current capital guidelines, have been included in total risk-based capital as
of December 31, 2023. Cash distributions on the securities are payable quarterly, are deductible for income tax purposes and are included
in interest expense in the consolidated financial statements.

DIVIDENDS

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

The
payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital
pursuant to applicable capital adequacy guidelines and regulations. As described above, the Bank exceeded its minimum capital requirements
under applicable guidelines as of December 31, 2023. The National Bank Act imposes limitations on the amount of dividends that a national
bank may pay without prior regulatory approval. Generally, the amount is limited to the bank’s current year’s net earnings
plus the adjusted retained earnings for the three preceding years. As of December 31, 2023, $12.9 million was available to be paid as
dividends to the Company by the Bank without prior regulatory approval.

Additionally,
our ability to pay dividends is limited by the subordinated debentures associated with the trust preferred securities 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.

EFFECTS
OF INFLATION

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

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

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.

38

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 by us and our subsidiaries include, but are not limited to, the following:

These
risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such
statements. Additional information concerning us and our business, including other factors that could materially affect our financial
results, is included in “Item 1A. Risk Factors.”

39

CORPORATE
PROFILE AND 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. The Company is listed on the Nasdaq Global Market under the symbol “LARK.” The Bank is dedicated to
providing quality financial and banking services to its local communities. Our strategy includes continuing a tradition of quality assets
while growing our commercial, commercial real estate and agriculture loan portfolios. We are committed to developing relationships with
our borrowers and providing a total banking service.

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

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 and gains or losses on investments, and certain other non-interest related items. Our principal operating expenses,
aside from interest expense, consist of, among others, compensation and employee benefits, occupancy costs, professional fees, amortization
of intangibles expense, federal deposit insurance costs, data processing expenses and provision for loan losses.

We
are significantly impacted by prevailing economic conditions including federal monetary and fiscal policies and federal regulations of
financial institutions. The Bank’s markets have been impacted by the COVID-19 pandemic, which has had and continues to have a complex
and significant impact on the economy. Deposit balances are influenced by numerous factors such as competing investments, the level of
income and the personal rate of savings within our market areas. Factors influencing lending activities include the demand for housing
and the interest rate pricing competition from other lending institutions.

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. Landmark Risk Management, Inc.
is a Nevada-based captive insurance company.

CRITICAL
ACCOUNTING POLICIES

Critical
accounting policies are those that are both most important to the portrayal of our financial condition and results of operations,
and require our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. Our critical accounting policies relate to the allowance for loan losses
and business combinations, both of which involve significant judgment by our management.

We
perform periodic and systematic detailed reviews of our lending portfolio to assess overall collectability. The level of the allowance
for loan losses reflects our estimate of the incurred losses in our loan portfolio. While these estimates are based on substantive methods
for determining allowance requirements, actual outcomes may differ significantly from estimated results. Additional explanation of the
methodologies used in establishing this allowance is provided in the “Asset Quality and Distribution” section.

Accounting for business combinations
requires us to make estimates and assumptions to record the net assets acquired and liabilities assumed at fair value. Goodwill is recognized
for the excess purchase price over the estimated fair value of acquired net assets.

40

COMPARISON
OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND DECEMBER 31, 2021

SUMMARY
OF PERFORMANCE. Net earnings for 2022 decreased $8.1 million, or 45.2%, to $9.9 million as compared to $18.0 million for 2021. The
decrease in net earnings was primarily driven by lower gains on sales of loans, costs associated with the acquisition of Freedom and
losses on sales of investment securities. Gains on sales of one-to-four family residential real estate loans declined as a result of
higher interest rates and low housing inventories. During 2022, a loss of $1.1 million was recorded on the sales of investment securities
as the lowest yielding investment securities were strategically sold to reinvest into higher yielding assets.

Net
interest income for 2022 increased $560,000 to $38.9 million, or 1.5% higher than the $38.3 million recorded for 2021. The increase in
net interest income was primarily due higher income on our investment securities which increased as a result of higher yields and average
balances.

We
distributed a 5% stock dividend for the 22nd consecutive year in December 2022. All per share and average share data in this section
reflect the 2022 and 2021 stock dividends.

Interest
Income. Interest income for 2022 increased $3.4
million to $43.2 million, an increase of 8.5% as compared to 2021. Interest income on loans decreased $139,000, or 0.4%, to $33.5
million for 2022 as compared to $33.6 million in 2021, due primarily to a decline of $4.8 million in income on PPP loans. The yield
on PPP loans increased from 8.16% in 2021 to 16.86% in 2022, however, the higher yields were offset by lower average balances which
declined from $67.6 million in 2021 to $4.0 million in 2022. As of December 31, 2022, all but one PPP loan had been forgiven by the
SBA. Our average loan balances increased from $689.9 million in 2021 to $702.2 million in 2022 as growth in other loan types offset
the decline in PPP loans. Additionally, the accretion of purchase accounting on loans , which adjusted acquired loans to market
rates, increased by $435,000 in 2022, as compared to 2021, due to the acquisition of Freedom. Interest income on investment
securities increased $3.4 million, or 56.5%, to $9.4 million during 2022, as compared to $6.0 million in 2021. The increase in
interest income on investment securities was the result of higher yields on investment securities, which increased from 1.99% in
2021 to 2.15% in 2022. Higher market interest rates have positively impacted the yield on our investment securities portfolio as our
purchases yield more than maturities. Also contributing to the increased income was higher average balances, which increased from
$343.1 million in 2021 to $474.7 million in 2022.

Interest
Expense. Interest expense during 2022 increased
$2.8 million, or 188.6%, to $4.3 million as compared to 2021. Interest expense on interest-bearing deposits increased $1.8 million, or
171.4%, to $2.8 million for 2022 as compared to $1.0 million in 2021. Our total cost of interest-bearing deposits increased from 0.13%
during 2021 to 0.35% during 2022 primarily as a result of higher rates paid on money market and checking accounts. Most of the increases
in rates was related to accounts that have rates that reprice based on market indexes. Also contributing to the increase in interest
expense was an increase in average interest-bearing deposit balances, which increased from $765.5 million in 2021 to $804.1 million in
2022. Interest expense on borrowings increased $1.1 million, or 225.0%, to $1.6 million during 2022 as compared to $483,000 in 2021.
Contributing to higher interest expense on borrowings were higher average outstanding borrowings, which increased from $27.6 million
in 2021 to $50.0 million during 2022 and higher rates on those borrowings.

Net
Interest Income. Net interest income represents
the difference between income derived from interest-earning assets and the expense incurred on interest-bearing liabilities. Net interest
income is affected by both the difference between the rates of interest earned on interest-earnings assets and the rates paid on interest-bearing
liabilities (“interest rate spread”) as well as the relative amounts of interest-earning assets and interest-bearing liabilities.

During
2022, net interest income increased $560,000, or 1.5%, to $38.9 million compared to $38.3 million in 2021. Our net interest margin, on
a tax-equivalent basis, decreased to 3.21% during 2022 from 3.39% during 2021. Our net interest margin increased from 2.99% in the first
quarter of 2022 to 3.05% in the second quarter of 2022, 3.21% in the third quarter of 2022, and 3.53% in the fourth quarter of 2022
as our assets began to reprice faster than our cost of funds. Our net interest margin has been positively impacted by PPP loans over
the past three years, however, the impact of these loans on net interest margin going forward will be minimal. While the rise in interest
rates should result in higher yields on our assets, these improvements could be offset by increased competition for loans and deposits.
Additionally, the deposit balance increases we have seen over the past three years may reverse resulting in the need for higher cost
funding.

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

During
2022, we did not recorded a provision for loan losses compared to a provision of $500,000 in 2021. We recorded net loan recoveries of
$16,000 during 2022 compared to net loan charge-offs of $500,000 during 2021.

Non-interest
Income. Total non-interest income was $13.7 million
in 2022, a decrease of $8.6 million, or 38.5%, compared to 2021. The decrease in non-interest income was primarily the result of decreases
of $7.0 million in gains on sales of loans, as originations of one-to-four family residential real estate loans declined due to lower
housing inventories and higher mortgage rates, which reduced refinancing activity. Also contributing to the decrease in non-interest
income was lower gains on sales of investment securities, which decreased to a loss of $1.1 million in 2022 from a gain of $1.1 million
in 2021. Partially offsetting those decreases was an increase of $794,000 in fees and service charges. The increase in fees and service
charges was primarily due to growth in deposit and loan servicing fees.

Non-interest
Expense. Non-interest expense increased $4.0 million,
or 10.8%, to $41.3 million in 2022 compared to $37.3 million in 2021. The increase was primarily due to $3.4 million in acquisition costs
related to the Freedom acquisition. Also contributing to the increase in non-interest expense were increases of $636,000 in occupancy
and equipment, an increase of $248,000 in compensation and benefits and $262,000 in other non-interest expense. These increases were
primarily due to the costs associated with operating a new branch facility acquired in the Freedom acquisition during the fourth quarter
of 2022. Offsetting those increases was a decrease of $436,000 in data processing expenses which was due to a new contract with our main
technology provider during 2022.

INCOME
TAXES. We recorded income tax expense of $1.4 million in 2022 compared to $4.8 million in 2021. The effective tax rate decreased
from 21.1% in 2021 to 12.7% in 2022, primarily due to lower earnings before income taxes. Also contributing to a decline in our effective
tax rate was the recognition of $465,000 of previously unrecognized tax benefits during 2022, which compared to an expense of $162,000
in 2021 related to an increase in accrued interest and penalties on unrecognized tax benefits.

FINANCIAL
CONDITION. Economic conditions in the United States slowed during 2022 as elevated inflation levels and higher interest rates impacted
the economy. The State of Kansas and the geographic markets in which the Company operates 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 loan losses included estimates of the economic
impact of these conditions and other qualitative factors on our loan portfolio. However, our loan portfolio is diversified across various
types of loans and collateral throughout the markets in which we operate. Aside from a few problem loans that management is working to
resolve, our asset quality has remained strong over the past few years. While further increases in problem assets may arise, management
believes its efforts to run a high quality financial institution with a sound asset base will continue to create a strong foundation
for continued growth and profitability in the future.

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 $173.9 million or 13.1%, to $1.5 billion
at December 31, 2022, compared to $1.3 billion at December 31, 2021. The increase in our total assets was primarily the result of the
acquisition of Freedom. Investment securities available-for-sale increased $108.6 million, or 28.5%, from $380.7 million at December
31, 2021 to $489.3 million at December 31, 2022. Net loans, excluding loans held for sale, increased $187.9 million, or 28.8%, to $841.1
million at December 31, 2022, compared to $653.2 million at December 31, 2021. Partially offsetting those increases was a decrease of
$166.1 million, or 87.8%, in cash and cash equivalents, which decreased to $23.2 million at December 31, 2022 from $189.2 million at
December 31, 2021.

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The
allowance for loan losses is established through a provision for loan losses based on our evaluation of the incurred losses in the loan
portfolio and changes in the nature and volume of our loan activity. This evaluation, which includes a review of all loans with respect
to which full collectability may not be reasonably assured, considers the fair value of the underlying collateral, economic conditions,
historical loan loss experience, level of classified loans and other factors that warrant recognition in providing for an appropriate
allowance for loan losses. At December 31, 2022, our allowance for loan losses totaled $8.8 million, or 1.03% of gross loans outstanding,
compared to $8.8 million, or 1.25% of gross loans outstanding, at December 31, 2021. The decline in our allowance for loan losses as
a percentage of gross loans outstanding was primarily due to a decline in non-accrual and classified loans, as well as acquired loans
which were recorded at fair value on the acquisition date of October 1, 2022.

As
of December 31, 2022 and 2021, approximately $13.0 million and $18.0 million, respectively, of loans were considered classified and assigned
a risk rating of special mention, substandard or doubtful. The decrease in classified loans was primarily due to improvements in the
agriculture industry. These ratings indicate that the loans identified as potential problem loans have more than normal risk which raised
doubts as to the ability of the borrower to comply with present loan repayment terms. Even though these borrowers were experiencing moderate
cash flow problems as well as some deterioration in collateral value, management believed the general allowance was sufficient to cover
the risks and probable incurred losses related to such loans at December 31, 2022 and 2021, respectively.

Loans
past due 30-89 days and still accruing interest totaled $738,000, or 0.09% of gross loans, at December 31, 2022, compared to $2.0 million,
or 0.30% of gross loans, at December 31, 2021. At December 31, 2022, $3.3 million of loans were on non-accrual status, or 0.39% of gross
loans, compared to $5.2 million, or 0.79% of gross loans, at December 31, 2021. Non-accrual loans consist of loans 90 or more days past
due and certain impaired loans. There were no loans 90 days delinquent and accruing interest at December 31, 2022 and 2021. Our impaired
loans totaled $4.1 million December 31, 2022 compared to $6.7 million at December 31, 2021. The difference in the Company’s non-accrual
loan balances and impaired loan balances at December 31, 2022 and December 31, 2021 was related to TDRs that were accruing interest but
still classified as impaired.

At
December 31, 2022, the Company had 8 loan relationships consisting of 12 outstanding loans totaling $2.5 million that were classified
as TDRs compared to 11 loan relationships consisting of 16 outstanding loans totaling $3.4 million that were classified as TDRs at December
31, 2021.

During
2022, a $231,000 commercial loan was classified as a TDR after the loan was renewed with payments restructured to match the borrower’s
cash flows. During 2022, commercial loans totaling $479,000, $32,000 and $7,000 paid off after being classified as TDRs in 2022, 2021
and 2020, respectively. Also during 2022, two construction and land loans totaling $599,000 were paid off. These loans were originally
classified as TDRs in 2012. Additionally, the Company advanced funds on a construction and land loan which was originally classified
as a TDR in 2012. The customer had paid off the balances on the construction loan during 2021, before borrowing again in 2022. The loan
is still classified as a TDR with $431,000 of charged off principal remaining from the original amount of $708,000. An agriculture loan
totaling $250,000 was also paid off in 2022 after being classified as a TDR in 2021.

As
part of our credit risk management, we continue to manage the loan portfolio to identify problem loans and have placed additional
emphasis on commercial real estate and construction and land relationships. We are working to resolve the remaining problem credits
or move the non-performing credits out of the loan portfolio. At December 31, 2022, we had $934,000 of real estate owned compared to
$2.6 million at December 31, 2021. The decrease in real estate owned as of December 31, 2022 compared to December 31, 2021 was
primarily due to sale of commercial real estate and a valuation allowance recorded against another commercial real estate property.
As of December 31, 2022, real estate owned consisted of a commercial building, undeveloped land and three residential real estate
properties. The Company is currently marketing all of the remaining properties in real estate owned.

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 $152.2 million, or 13.2% in total deposits during 2022, to $1.3 billion at December 31, 2022, from $1.1 billion at December 31, 2021.
The increase in deposits was primarily due to the Freedom acquisition.

43

Total
borrowings increased $39.2 million, or 134.9%, to $68.3 million at December 31, 2022, from $29.1 million at December 31, 2021. The increase
in borrowings was primarily due to $22.2 million of repurchase agreements assumed in the Freedom acquisition and borrowings used to finance
the purchase.

Non-interest-bearing
deposits at December 31, 2022, were $410.1 million, or 31.5% of deposits, compared to $350.0 million, or 30.5% of deposits, at December
31, 2021. Money market and checking accounts were 48.2% of our deposit portfolio and totaled $626.7 million at December 31, 2022, compared
to $536.9 million, or 46.8% of deposits, at December 31, 2021. Savings accounts increased to $170.6 million, or 13.1% of deposits, at
December 31, 2022, from $155.5 million, or 13.5% of deposits, at December 31, 2021. Certificates of deposit totaled $93.3 million, or
7.2% of deposits, at December 31, 2022, compared to $106.1 million, or 9.2% of deposits, at December 31, 2021. Competition for deposits
may affect our ability to continue to increase deposit balances and could result in a decrease in our deposit balances in future periods.

Certificates
of deposit at December 31, 2022, scheduled to mature in one year or less totaled $78.4 million. Historically, maturing deposits have
generally remained with the Bank, and we believe that a significant portion of the deposits maturing in one year or less will remain
with us upon maturity in some type of deposit account.

CASH
FLOWS. During 2022, our cash and cash equivalents decreased by $166.1 million. Our operating activities provided net cash of $24.8
million in 2022, which is primarily the result of net earnings and sales of one-to-four family residential mortgage loans. Our investing
activities used net cash of $197.2 million during 2022, primarily for the purchase of investment securities. Our financing activities
provided net cash of $6.3 million during 2022, primarily as a result of an increase in borrowings.

Liquidity.
Our most liquid assets are cash and cash equivalents
and investment securities available-for-sale. The levels of these assets are dependent on the operating, financing, lending and investing
activities during any given year. These liquid assets totaled $521.5 million at December 31, 2022 and $577.3 million at December 31,
2021. During periods in which we are not able to originate a sufficient amount of loans and/or periods of high principal prepayments,
we generally increase our liquid assets by investing in short-term, high-grade investments.

Liquidity
management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. Excess
funds are typically generated as a result of increased deposit balances, while uses of excess funds are generally deposit withdrawals
and loan advances. In the event we require funds beyond our ability to generate them internally, additional funds are generally available
through the use of brokered deposits, FHLB advances, a line of credit with the FHLB, other borrowings or through sales of investment
securities. At December 31, 2022, we had an outstanding balance of $8.2 million against our line of credit with the FHLB. At December
31, 2022, we had collateral pledged to the FHLB that would allow us to borrow $101.8 million, subject to FHLB credit requirements and
policies. At December 31, 2022, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the
Federal Reserve was $65.4 million. We also have various other federal funds agreements, both secured and unsecured, with correspondent
banks totaling approximately $30.0 million in available credit under which we had no outstanding borrowings at December 31, 2022. At
December 31, 2022, we had subordinated debentures totaling $21.7 million and $29.4 million of repurchase agreements. At December 31,
2022, the Company had no borrowings against a $5.0 million line of credit from an unrelated financial institution maturing on November
1, 2023, with an interest rate that adjusts daily based on the prime rate less 0.50%. This line of credit has covenants specific to capital
and other financial ratios, which the Company was in compliance with at December 31, 2022. The Company also borrowed $9.0 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 balance of this borrowing was $10.0 million and was used to fund part of the acquisition
of Freedom.

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 $2.7 million at December 31, 2022.

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At
December 31, 2022, we had outstanding loan commitments, excluding standby letters of credit, of $183.5 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 Rule that implemented the Basel III regulatory
capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. The Basel III Rule
is applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies
other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets of less
than $3.0 billion).

The
Basel III Rule requires a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a Tier 1 capital to risk-weighted
assets minimum ratio of 6.0%, a Total Capital to risk-weighted assets minimum ratio of 8.0%, and a Tier 1 leverage minimum ratio of 4.0%.
A capital conservation buffer, equal to 2.5% common equity Tier 1 capital, is also established above the regulatory minimum capital requirements
(other than the Tier 1 leverage ratio). At December 31, 2022, the Bank maintained a leverage ratio of 8.14% and a total risk-based capital
ratio of 13.44%. As shown by the following table, the Bank’s capital exceeded the minimum capital requirements in effect at December
31, 2022, including the capital conservation buffers.

Banks
and bank holding companies are generally expected to operate at or above the minimum capital requirements. The Company’s and the
Bank’s ratios above are well in excess of regulatory minimums. As of December 31, 2022 and 2021, the Company and the Bank also
exceeded the “well capitalized” thresholds, which is the highest rating available. There are no conditions or events that
management believes have changed the Company’s and the Bank’s category as of the date of this report. We have $21.7 million
in trust preferred securities which, in accordance with current capital guidelines, have been included in total risk-based capital as
of December 31, 2022. Cash distributions on the securities are payable quarterly, are deductible for income tax purposes and are included
in interest expense in the consolidated financial statements.

DIVIDENDS

During
the year ended December 31, 2022, we paid quarterly cash dividends of $0.20 per share to our stockholders, as adjusted to give effect
to 5% stock dividends, which we distributed for the 22nd consecutive year in December 2022. The 2021 quarterly cash dividends were $0.18
per share as adjusted to give effect to 5% stock dividends.

The
payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital
pursuant to applicable capital adequacy guidelines and regulations. As described above, the Bank exceeded its minimum capital requirements
under applicable guidelines as of December 31, 2022. The National Bank Act imposes limitations on the amount of dividends that a national
bank may pay without prior regulatory approval. Generally, the amount is limited to the bank’s current year’s net earnings
plus the adjusted retained earnings for the two preceding years. As of December 31, 2022, $7.7 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 associated with the trust preferred securities 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.

45

EFFECTS
OF INFLATION

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

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

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 by us and our subsidiaries include, but are not limited to, the following:

38

These
risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such
statements. Additional information concerning us and our business, including other factors that could materially affect our financial
results, is included in “Item 1A. Risk Factors.”

CORPORATE
PROFILE AND 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. The Company is listed on the Nasdaq Global Market under the symbol “LARK.” The Bank is dedicated to
providing quality financial and banking services to its local communities. Our strategy includes continuing a tradition of quality assets
while growing our commercial, commercial real estate and agriculture loan portfolios. We are committed to developing relationships with
our borrowers and providing a total banking service.

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

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 and gains or losses on investments, and certain other non-interest related items. Our principal operating expenses,
aside from interest expense, consist of, among others, compensation and employee benefits, occupancy costs, professional fees, amortization
of intangibles expense, federal deposit insurance costs, data processing expenses and provision for loan losses.

39

We
are significantly impacted by prevailing economic conditions including federal monetary and fiscal policies and federal regulations of
financial institutions. The Bank’s markets have been impacted by the COVID-19 pandemic, which has had and continues to have a complex
and significant impact on the economy. Deposit balances are influenced by numerous factors such as competing investments, the level of
income and the personal rate of savings within our market areas. Factors influencing lending activities include the demand for housing
and the interest rate pricing competition from other lending institutions.

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

CRITICAL
ACCOUNTING POLICIES

Critical
accounting policies are those that are both most important to the portrayal of our financial condition and results of operations, and
require our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain. Our critical accounting policies relate to the allowance for loan losses and the
accounting for income taxes, all of which involve significant judgment by our management.

We
perform periodic and systematic detailed reviews of our lending portfolio to assess overall collectability. The level of the allowance
for loan losses reflects our estimate of the incurred losses in our loan portfolio. While these estimates are based on substantive
methods for determining allowance requirements, actual outcomes may differ significantly from estimated results. Additional explanation
of the methodologies used in establishing this allowance is provided in the “Asset Quality and Distribution” section.

The
objective of accounting for income taxes is to recognize the taxes payable or refundable for the current year and deferred tax liabilities
and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns.
Judgment is required in assessing the future tax consequences of events that have been recognized in financial statements or tax returns.
The Company recognizes an income tax position only if it is more likely than not that it will be sustained upon examination by the Internal
Revenue Service (the “IRS”), based upon its technical merits. Once that standard is met, the amount recorded will be the
largest amount of benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The Company recognizes
interest and penalties related to unrecognized tax benefits as a component of income tax expense in our consolidated statements of earnings.
The Company assesses its deferred tax assets to determine if the items are more likely than not to be realized and a valuation allowance
is established for any amounts that are not more likely than not to be realized. Changes in estimates regarding the actual outcome of
these future tax consequences, including the effects of IRS examinations and examinations by other state agencies, could materially impact
our financial position and results of operations.

COMPARISON
OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND DECEMBER 31, 2020

SUMMARY
OF PERFORMANCE. Net earnings for 2021 decreased $1.5 million, or 7.6%, to $18.0 million as compared to $19.5 million for 2020. The
decrease in net earnings was primarily driven by a $4.7 million decrease in gains on sales of loans due to lower housing inventories
coupled with higher mortgage interest rates, which reduced refinancing activity offset by decreased interest expense and provision for
loan losses.

Net
interest income for 2021 increased $1.8 million to $38.3 million, or 5.0% higher than the $36.5 million recorded for 2020. The increase
in net interest income was primarily due to lower interest expense as our deposits repriced lower and higher interest income on loans.
The increase in interest income on loans was driven by higher income on PPP loans. During 2021, our average balance of PPP loans was
$67.6 million, which generated interest income of $5.5 million in 2021. During 2020, our average balance of PPP loans was $88.5 million,
which generated interest income of $3.0 million.

We
distributed a 5% stock dividend for the 21th consecutive year in December 2021. All per share and average share data in this section
reflect the 2021 and 2020 stock dividends.

40

Interest
Income. Interest income for 2021 increased $573,000
to $39.8 million, an increase of 1.5% as compared to 2020. Interest income on loans increased $1.8 million, or 5.7%, to $33.6 million
for 2021 as compared to $31.8 million in 2020, due primarily to the increase in our average loan balances from $668.3 million during
2020 to $689.9 million during 2020. Our average loan balances benefited from the origination of PPP loans in 2021 and 2020. While the
maturities of PPP loans are two or five years, a significant amount were forgiven during 2021, which increased the yield on loans and
reduced average loan balances. In addition to the higher average balances were higher yields on loans, which increased from 4.76% in
2020 to 4.88% in 2021. Interest income on investment securities decreased $1.3 million, or 16.7%, to $6.2 million during 2021, as compared
to $7.5 million in 2020. The decrease in interest income on investment securities was the result of lower yields on investment securities,
which decreased from 2.59% in 2020 to 1.99% in 2021. Low market interest rates have negatively impacted the yield on our investment securities
portfolio as our purchases yield less than maturities. Partially offsetting the lower rates were higher average balances, which increased
from $317.9 million in 2020 to $343.1 million in 2021.

Interest
Expense. Interest expense during 2021 decreased
$1.3 million, or 45.6%, to $1.5 million as compared to 2020. Interest expense on interest-bearing deposits decreased $1.1 million, or
51.4%, to $1.0 million for 2021 as compared to $2.1 million in 2020. Our total cost of interest-bearing deposits decreased from 0.31%
during 2020 to 0.13% during 2021 as a result of lower rates paid on money market and checking accounts that have rates that reprice based
on market indexes and lower rates on our certificates of deposit. Our decline in deposit rates during 2021 reflected the decreased federal
funds interest rate and other market interest rates. As these rates are now near zero, we do not expect significant reductions in our
cost of deposits in future periods. Partially offsetting the lower interest rates was an increase in average interest-bearing deposit
balances, which increased from $673.2 million in 2020 to $765.5 million in 2021. Interest expense on borrowings decreased $181,000, or
27.3%, to $483,000 during 2021 as compared to $664,000 in 2020. Contributing to lower interest expense on borrowings were lower average
outstanding borrowings, which decreased from $38.8 million in 2020 to $27.6 million during 2021. Partially offsetting the lower average
outstanding borrowings were higher rates paid on borrowings, which increased from 1.71% in 2020 to 1.75% in 2021.

Net
Interest Income. Net interest income represents
the difference between income derived from interest-earning assets and the expense incurred on interest-bearing liabilities. Net interest
income is affected by both the difference between the rates of interest earned on interest-earnings assets and the rates paid on interest-bearing
liabilities (“interest rate spread”) as well as the relative amounts of interest-earning assets and interest-bearing liabilities.

As
a result of the COVID-19 pandemic, we originated approximately $186.0 million of PPP loans from April 3, 2020, the first day of the program,
through May 31, 2021, the last day of the program. These loans have an interest rate of 1.00% plus the accretion of the origination fee,
which resulted in a yield of 8.16% on PPP loans in 2021 compared to 3.40% in 2020. The maturity date of these loans is two or five years
unless the borrower’s loan is forgiven, in which case the loan would be repaid sooner. Approximately 91% of our PPP loans have
been forgiven as of December 31, 2021. The balance of PPP loans was $17.2 million at December 31, 2021. The average balance of PPP loans
during 2021 was $67.6 million, which generated interest income of $5.5 million compared to an average balance of $88.5 million in 2020
which generated interest income of $3.0 million. There were $639,000 of origination fees remaining to be accreted into income at December
31, 2021. The COVID-19 pandemic has slowed our origination of new loans, which may lead to lower net interest income and net interest
margin in future periods as a result of lower loan volumes. The decline in market interest rates has adversely impacted our net interest
margin as a result of lower yields on loans and investment securities exceeding the benefit of a lower cost of funds. In addition, the
increase in deposit balances has increased our cash balances, which has negatively impacted our net interest margin.

During
2021, net interest income increased $1.8 million, or 5.0%, to $38.3 million compared to $36.5 million in 2020. Our net interest margin,
on a tax-equivalent basis, decreased to 3.39% during 2021 from 3.72% during 2021. The increase in net interest income was primarily due
to lower interest expenses as our deposits repriced lower and higher interest income on loans, primarily related to the forgiveness of
PPP loans. While higher interest rates should result in increased net interest income and net interest margin, these improvements could
be offset by increased competition for loans and deposits. Additionally, the deposit balance increases we have seen over the past two
years may reverse resulting in the need for higher cost funding.

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

During
2021, we recorded a provision for loan losses of $500,000 compared to $3.3 million in 2020. We recorded net loan charge-offs of $500,000
during 2021 compared to net loan charge-offs of $992,000 during 2020. The increase in our provision for loan losses during 2020 was primarily
due to the estimated economic impact of the COVID-19 pandemic at that time. If the COVID-19 pandemic causes economic declines in excess
of our estimations, or if the pandemic lasts longer than currently projected, our provision for loan losses may increase in future periods.
We may see higher loan delinquencies and defaults in future periods as a result of the COVID-19 pandemic. We will continue to monitor
our allowance for loan losses in light of changing economic conditions, including those related to COVID-19.

Non-interest
Income. Total non-interest income was $22.3 million
in 2021, a decrease of $5.1 million, or 18.6%, compared to 2020. The decrease in non-interest income was primarily the result of decreases
of $4.7 million in gains on sales of loans, as originations of one-to-four family residential real estate loans declined due to lower
housing inventories and higher mortgage rates, which reduced refinancing activity. Also contributing to the decrease in non-interest
income was lower gains on sales of investment securities, which decreased to $1.1 million in 2021 from $2.4 million in 2020. Partially
offsetting those decreases was an increase of $766,000 in fees and service charges. The increase in fees and service charges was primarily
due to growth in deposit and loan servicing fees.

Non-interest
Expense. Non-interest expense increased $1.0 million,
or 2.7%, to $37.3 million in 2021 compared to $36.3 million in 2020. The increase was primarily due to an increase of $1.0 million, or
16.4%, in other expenses as a result of an increase in costs associated with the PPP forgiveness process, loan foreclosure expense
and our captive insurance subsidiary. Also contributing to the increase in non-interest expense was an increase of $247,000 in professional
fees due to higher legal and consulting costs and an increase of $185,000 in data processing charges due to an increased number of accounts
and products offered. Offsetting the increase in non-interest expense was a decrease of $500,000 in compensation and benefits due primarily
to lower commissions paid on one-to-four family residential real estate loan originations.

INCOME
TAXES. We recorded income tax expense of $4.8 million in 2021 and 2020. The effective tax rate increased from 19.7% in 2020 to 21.1%
in 2021, primarily due to incurring tax expense of $162,000 in 2021 to increase our accrued interest and penalties on unrecognized tax
benefits compared to recognizing a tax benefit of $229,000 related to the recognition of previously unrecognized tax benefits in 2020.

FINANCIAL
CONDITION. Economic conditions in the United States improved during 2021 as COVID-19 vaccinations and stimulus programs positively
impacted the economy. The State of Kansas and the geographic markets in which the Company operates also experienced a rebound in economic
condition during 2021. Some of the improvement in economic conditions has been partially offset by supply chain constraints and rising
inflation. The Company’s allowance for loan losses included estimates of the economic impact of COVID-19 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 $140.9 million, or 11.9%, to $1.3 billion
at December 31, 2021, compared to $1.2 billion at December 31, 2020. The increase in our total assets was primarily the result of a $104.4
million, or 123.1%, increase in cash and cash equivalents, which increased to $189.2 million at December 31, 2021 from $84.8 million
at December 31, 2020. Our increase in cash and cash equivalents was due to deposit growth and a decline in loans largely due to the forgiveness
of PPP loans. Investment securities available-for-sale increased $88.9 million from $291.8 million at December 31, 2020 to $380.7 million
at December 31, 2021. Net loans, excluding loans held for sale, decreased $49.6 million, or 7.1%, to $653.2 at December 31, 2021, compared
to $702.8 million at December 31, 2020. The decrease in loans was driven by the forgiveness of PPP loans which declined by $82.9 million
from December 31, 2020 to December 31, 2021.

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The
allowance for loan losses is established through a provision for loan losses based on our evaluation of the risk inherent in the loan
portfolio and changes in the nature and volume of our loan activity. This evaluation, which includes a review of all loans with respect
to which full collectability may not be reasonably assured, considers the fair value of the underlying collateral, economic conditions,
historical loan loss experience, level of classified loans and other factors that warrant recognition in providing for an appropriate
allowance for loan losses. If the COVID-19 pandemic or other factors cause economic declines in excess of our estimations, or if the
pandemic lasts longer than currently projected, our provision for loan losses may remain elevated or increase in future periods. We will
continue to monitor our allowance for loan losses in light of changing economic conditions related to COVID-19. At December 31, 2021,
our allowance for loan losses totaled $8.8 million, or 1.32% of gross loans outstanding, as compared to $8.8 million, or 1.23% of gross
loans outstanding, at December 31, 2020. The allowance for loan losses to gross loans outstanding was impacted by the $17.2 million and
$100.1 million of PPP loans which are guaranteed by the SBA and have no allowance allocated as of December 31, 2021 and December 31,
2020, respectively.

As
of December 31, 2021 and 2020, approximately $18.0 million and $25.2 million, respectively, of loans were considered classified and assigned
a risk rating of special mention, substandard or doubtful. The decrease in classified loans was primarily due to improvements in the
agriculture industry, and two commercial real estate loan relationships totaling $5.5 million which paid off or transferred to other
real estate. These ratings indicate that the loans identified as potential problem loans have more than normal risk which raised doubts
as to the ability of the borrower to comply with present loan repayment terms. Even though these borrowers were experiencing moderate
cash flow problems as well as some deterioration in collateral value, management believed the general allowance was sufficient to cover
the risks and probable incurred losses related to such loans at December 31, 2021 and 2020, respectively.

Loans
past due 30-89 days and still accruing interest totaled $2.0 million, or 0.30% of gross loans, at December 31, 2021, compared to $1.5
million, or 0.22% of gross loans, at December 31, 2020. At December 31, 2021, $5.2 million of loans were on non-accrual status, or 0.79%
of gross loans, compared to $10.5 million, or 1.47% of gross loans, at December 31, 2020. The decrease in non-performing loans primarily
related to two commercial real estate loan relationships totaling $5.5 million, which paid off or transferred to other real estate. Non-accrual
loans consist of loans 90 or more days past due and certain impaired loans. There were no loans 90 days delinquent and accruing interest
at December 31, 2021 and 2020. Our impaired loans totaled $6.7 million December 31, 2021 compared to $12.5 million at December 31, 2020.
The difference in the Company’s non-accrual loan balances and impaired loan balances at December 31, 2021 and December 31, 2020
was related to TDRs that were accruing interest but still classified as impaired.

At
December 31, 2021, the Company had 11 loan relationships consisting of 16 outstanding loans totaling $3.4 million that were classified
as TDRs compared to nine loan relationships consisting of 21 outstanding loans totaling $3.9 million that were classified as TDRs at
December 31, 2020.

During
2021, a commercial loan relationship consisting of five loans was modified after originally being classified as a TDR in 2020. The borrower
liquidated some of the collateral securing the loans and refinanced the remaining balance of $397,000 into one loan, which retained a
TDR classification. A commercial loan totaling $32,000 was classified as a TDR during 2021 after the maturity of the loan was extended.
The restructuring changed the payment terms to match the borrower’s cash flows. The Company had previously charged-off $100,000
of the loan due to a collateral shortfall. An agriculture loan totaling $250,000 was also classified as a TDR during 2021 after a new
loan was originated to an existing classified loan relationship. The additional loan provided funds to stabilize the borrower’s
operations through the fall harvest. All of the loans classified as TDRs were experiencing financial difficulties prior to the COVID-19
pandemic. An agriculture loan and two construction and land loans previously classified as TDRs in 2016 and 2012, respectively, were
paid off during 2021.

During
2020, the Company modified the payment terms on an agriculture loan totaling $156,000 and classified the restructuring as a TDR. The
loans related to a $1.6 million loan relationship, consisting of two one-to-our family loans, one construction and land loan, two commercial
real estate loans and one commercial loan, were classified as TDRs during 2020 after negotiating restructuring agreements with the borrowers.
The restructuring included a charge-off of $50,000. The loans related to one commercial loan relationship, with five loans totaling $742,000,
were classified as TDRs during 2020, after the payments were modified to interest only. All of the loans classified as TDRs were experiencing
financial difficulties prior to the COVID-19 pandemic. An agriculture loan, a commercial real estate loan and a one-to-four family residential
real estate loan previously classified as TDRs in 2017, 2015 and 2016, respectively, paid off during 2020.

43

The
Company did not classify any loans as TDRs during 2019. A commercial real estate loan previously classified as a TDR in 2014 paid off
during 2019.

As
part of our credit risk management, we continue to manage the loan portfolio to identify problem loans and have placed additional emphasis
on commercial real estate and construction and land relationships. We are working to resolve the remaining problem credits or move the
non-performing credits out of the loan portfolio. At December 31, 2021, we had $2.6 million of real estate owned compared to $1.8 million
at December 31, 2020. The increase in real estate owned as of December 31, 2021 compared to December 31, 2020 was primarily due to obtaining
the collateral securing non-performing commercial real estate and one-to-four family residential real estate loans. As of December 31,
2021, real estate owned consisted of commercial buildings, undeveloped land and residential real estate. 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 $132.5 million, or 13.0% in total deposits during 2021, to $1.1 billion at December 31, 2021, from $1.0 billion at December 31, 2020.
The increase in deposits was primarily due to deposit growth in all categories of deposits with the exception of certificates of deposits.
The increase in deposits was related to PPP loan proceeds, government stimulus payments and customers increasing their liquidity positions.
Additionally, money market and checking accounts and savings accounts increased as a result of higher interest rates. The decrease in
certificates of deposit was associated with the lower public funds balances and lower rates offered on certificates of deposit.

Total
borrowings increased $1.0 million, or 3.7%, to $29.0 million at December 31, 2021, from $28.0 million at December 31, 2020. The increase
in borrowings was the result of a $1.0 million increase in repurchase agreement balances.

Non-interest-bearing
deposits at December 31, 2021, were $350.0 million, or 30.5% of deposits, compared to $264.9 million, or 26.1% of deposits, at December
31, 2020. Money market and checking accounts were 46.8% of our deposit portfolio and totaled $536.9 million at December 31, 2021, compared
to $491.3 million, or 48.3% of deposits, at December 31, 2020. Savings accounts increased to $155.5 million, or 13.5% of deposits, at
December 31, 2021, from $126.1 million, or 12.4% of deposits, at December 31, 2020. Certificates of deposit totaled $106.1 million, or
9.2% of deposits, at December 31, 2021, compared to $133.7 million, or 13.2% of deposits, at December 31, 2020. Competition for deposits
may affect our ability to continue to increase deposit balances and could result in a decrease in our deposit balances in future periods.

Certificates
of deposit at December 31, 2021, scheduled to mature in one year or less totaled $90.8 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.

CASH
FLOWS. During 2021, our cash and cash equivalents increased by $104.4 million. Our operating activities provided net cash of $31.2
million in 2021, which is primarily the result of net earnings and sales of one-to-four family residential mortgage loans. Our investing
activities used net cash of $56.5 million during 2021, primarily as a result of the purchase of investment securities. Our financing
activities provided net cash of $129.7 million during 2021, primarily as a result of an increase in deposits.

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 $577.3 million at December 31, 2021 and $382.1 million at December 31,
2020. 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.

Liquidity
management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. Excess
funds are typically generated as a result of increased deposit balances, while uses of excess funds are generally deposit withdrawals
and loan advances. In the event we require funds beyond our ability to generate them internally, additional funds are generally available
through the use of brokered deposits, FHLB advances, a line of credit with the FHLB, other borrowings or through sales of investment
securities. At December 31, 2021, we had no outstanding balance against our line of credit with the FHLB. At December 31, 2021, we had
collateral pledged to the FHLB that would allow us to borrow $67.5 million, subject to FHLB credit requirements and policies. At December
31, 2021, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was
$79.3 million. We also have various other federal funds agreements, both secured and unsecured, with correspondent banks totaling approximately
$30.0 million in available credit under which we had no outstanding borrowings at December 31, 2021. At December 31, 2021, we had subordinated
debentures totaling $21.7 million and other borrowings of $7.4 million, which consisted of repurchase agreements. At December 31, 2021,
the Company had no borrowings against a $7.5 million line of credit from an unrelated financial institution that matures on November
1, 2022, with an interest rate that adjusts daily based on the prime rate less 0.25%. This line of credit has covenants specific to capital
and other financial ratios, which the Company was in compliance with at December 31, 2021. The Company is eligible to pledge PPP loans
to the Federal Reserve’s Paycheck Protection Program Liquidity Facility for additional liquidity, but the Company has not utilized
this facility to date.

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OFF-BALANCE
SHEET ARRANGEMENTS. As a provider of financial services, we routinely issue financial guarantees in the form of financial and performance
standby letters of credit. Standby letters of credit are contingent commitments issued by us generally to guarantee the payment or performance
obligation of a customer to a third party. While these standby letters of credit represent a potential outlay by us, a significant amount
of the commitments may expire without being drawn upon. We have recourse against the customer for any amount the customer is required
to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting
standards and approval process as loans made by us. Most of the standby letters of credit are secured, and in the event of nonperformance
by the customers, we have the right to the underlying collateral, which could include commercial real estate, physical plant and property,
inventory, receivables, cash and marketable securities. The contract amount of these standby letters of credit, which represents the
maximum potential future payments guaranteed by us, was $1.9 million at December 31, 2021.

At
December 31, 2021, we had outstanding loan commitments, excluding standby letters of credit, of $139.5 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 Rule that implemented the Basel III regulatory
capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. The Basel III Rule
is applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies
other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets of less
than $3.0 billion).

The
Basel III Rule requires a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a Tier 1 capital to risk-weighted
assets minimum ratio of 6.0%, a Total Capital to risk-weighted assets minimum ratio of 8.0%, and a Tier 1 leverage minimum ratio of 4.0%.
A capital conservation buffer, equal to 2.5% common equity Tier 1 capital, is also established above the regulatory minimum capital requirements
(other than the Tier 1 leverage ratio). At December 31, 2021, the Bank maintained a leverage ratio of 10.58% and a total risk-based capital
ratio of 18.46%. As shown by the following table, the Bank’s capital exceeded the minimum capital requirements in effect at December
31, 2021, including the capital conservation buffers.

(1)
The minimum required percent includes a capital conservation buffer of 2.5%.

We
believe the Company has adequate capital to withstand the impact of the COVID-19 pandemic and any economic downturn on our asset quality
and net earnings. The Company performs stress tests on the loan portfolio to measure the impact of severe economic recessions on its
capital levels to help it monitor capital levels in connection with the COVID-19 pandemic.

45

Banks
and bank holding companies are generally expected to operate at or above the minimum capital requirements. The Company’s and the
Bank’s ratios above are well in excess of regulatory minimums. As of December 31, 2021 and 2020, the Company and the Bank also
exceeded the “well capitalized” thresholds, which is the highest rating available. There are no conditions or events that
management believes have changed the Company’s and the Bank’s category as of the date of this report. We have $21.7 million
in trust preferred securities which, in accordance with current capital guidelines, have been included in total risk-based capital as
of December 31, 2021. Cash distributions on the securities are payable quarterly, are deductible for income tax purposes and are included
in interest expense in the consolidated financial statements.

DIVIDENDS

During
the year ended December 31, 2021, we paid quarterly cash dividends of $0.19 per share to our stockholders, as adjusted to give effect
to 5% stock dividends, which we distributed for the 21th consecutive year in December 2021. The 2020 quarterly cash dividends were $0.18
per share as adjusted to give effect to 5% stock dividends.

The
payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital
pursuant to applicable capital adequacy guidelines and regulations. As described above, the Bank exceeded its minimum capital requirements
under applicable guidelines as of December 31, 2021. The National Bank Act imposes limitations on the amount of dividends that a national
bank may pay without prior regulatory approval. Generally, the amount is limited to the bank’s current year’s net earnings
plus the adjusted retained earnings for the two preceding years. As of December 31, 2021, $26.7 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 associated with the trust preferred securities 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.

EFFECTS
OF INFLATION

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

46