Landmark Bancorp Inc: Form 10-Q for the period ended Mar 31, 2025

Overview. Landmark Bancorp, Inc. is a financial holding company incorporated under the laws of the State of Delaware and is engaged in the banking business through its wholly owned subsidiary, Landmark National Bank, and in the insurance business through its wholly owned subsidiary, Landmark Risk Management, Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Landmark Bancorp, Inc., Landmark National Bank and Landmark Risk Management, Inc. The Company is listed on the Nasdaq Global Market under the symbol “LARK.” The Bank is dedicated to providing quality financial and banking services to its local communities. Our strategy includes continuing a tradition of holding and acquiring quality assets while growing our commercial, commercial real estate (“CRE”) 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, CRE, commercial, agriculture, municipal and consumer loans. Although not our primary business function, we invest in certain investment and mortgage-related securities using deposits and other borrowings as funding sources.

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

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

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

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

In April 2025, we declared our 95th consecutive quarterly dividend, and we currently have no plans to change our dividend strategy given our current capital and liquidity position. However, while we have achieved a strong capital base and expect to continue operating profitably, our future dividend practice is dependent upon the performance of the economy and the Company’s overall performance. In addition, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, we will not be permitted to make capital distributions (including for dividends and repurchases of stock) or pay discretionary bonuses to executive officers without restriction if we do not maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer, a standard we exceeded at March 31, 2025.

Critical Accounting Policies. Critical accounting policies are those which are both most important to the portrayal of our financial condition and results of operations and require our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to the allowance for credit losses and the accounting for business combinations, each of which involve significant judgment by our management. There have been no material changes to the critical accounting policies included under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission on March 25, 2025.

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

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

(Dollars in thousands, except per share amounts)

(1) Per share values for the periods ended March 31, 2024 have been adjusted to give effect to the 5% dividend paid during 2024.

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

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

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

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

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

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

(Dollars in thousands)

(1) Income on tax exempt securities is presented on a fully tax-equivalent basis, using a 21% federal tax rate.

(2) Includes loans classified as non-accrual. Income on tax-exempt loans is presented on a fully tax-equivalent basis, using a 21% federal tax rate.

(3) Interest rate spread represents the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities.

(4) Net interest margin represents annualized, tax-equivalent net interest income divided by average interest-earning assets.

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

(Dollars in thousands)

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

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

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

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

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

Financial Condition. Economic conditions in the United States remained sluggish during the first three months of 2025 as elevated inflation levels and high interest rates continued to impact the economy. Although interest rates decreased slightly in the second half of 2024, sustained high interest rates have impacted financial institutions generally, resulting in continued higher costs of funding and lower fair values for investment securities. We maintain strong capital and liquidity, and a stable, conservative deposit portfolio with a significant majority of our deposits being retail-based and insured by the Federal Deposit Insurance Corporation (“FDIC”) insured. We spend significant time each month monitoring our interest rate and concentration risks through our asset/liability management and lending strategies that involve a relationship-based banking model offering stability and consistency. The State of Kansas and the geographic markets in which the Company operates have also been impacted by economic headwinds. Supply chain constraints, labor shortages and geopolitical events have contributed to the rising inflation levels which are impacting all areas of the economy both nationally and locally. The Company’s allowance for credit losses continues to factor in estimates of the economic impact of these conditions and other qualitative factors on our loan portfolio. However, our loan portfolio is diversified across various types of loans and collateral throughout the markets in which we operate. Aside from a few problem loans that management is working to resolve, our asset quality has remained strong over the past few years. While further increases in problem assets may arise, management believes its efforts to run a high quality financial institution with a sound asset base will continue to create a strong foundation for continued growth and profitability in the future.

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 March 31, 2025.

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

As of March 31, 2025 and December 31, 2024, approximately $27.9 million and $26.1 million, respectively, of loans were considered classified and assigned a risk rating of special mention, substandard or doubtful. These ratings indicate that these loans were identified as potential problem loans having more than normal risk and raised doubts as to the ability of the borrowers to comply with present loan repayment terms. Even though borrowers were experiencing moderate cash flow problems as well as some deterioration in collateral value, management believed the allowance for credit losses was sufficient to cover expected losses related to such loans at March 31, 2025 and December 31, 2024, respectively.

Loans past due 30-89 days and still accruing interest totaled $10.0 million, or 0.93% of gross loans, at March 31, 2025, compared to $6.2 million, or 0.59% of gross loans, at December 31, 2024. The increase in such past due loans was primarily related to loans in our commercial and CRE portfolios. We are currently working with a small number of delinquent borrowers, and do not believe the increase in delinquent loans is an indicator of broader weakness in the commercial or CRE portfolios. At March 31, 2025, $13.3 million in loans were on non-accrual status, or 1.24% of gross loans, compared to $13.1 million, or 1.25% of gross loans, at December 31, 2024. Non-accrual loans consist of loans 90 or more days past due and certain individually evaluated loans. There were no loans 90 days delinquent and accruing interest at either March 31, 2025 or December 31, 2024.

As part of our credit risk management strategy, we continue to manage the loan portfolio to identify problem loans and have placed additional emphasis on CRE and commercial loan relationships. We are working to resolve the remaining problem credits or move the non-performing credits out of the loan portfolio. At both March 31, 2025 and December 31, 2024, we had $167,000 of real estate owned. As of March 31, 2025, real estate owned primarily consisted of a single parcel of undeveloped land. The Company is currently marketing the property.

Liability Distribution. Our primary ongoing sources of funds are deposits, FHLB borrowings, proceeds from principal and interest payments on loans and investment securities and proceeds from the sale of mortgage loans and investment securities. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates and economic conditions. We experienced an increase of $7.0 million, or 0.53% in total deposits during the first three months of 2025, to $1.3 billion at March 31, 2025. The increase in deposits was primarily due to a seasonal increase in our deposit accounts due to public funds.

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

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

Total deposits include estimated uninsured deposits of $441.2 million and $444.1 million as of March 31, 2025 and December 31, 2024, respectively. This represented approximately 33.0% of our total deposits at March 31, 2025 and 33.4% of our deposits at December 31, 2024. Over 93.1% of the Company’s total deposits were considered core deposits at March 31, 2025. These deposit balances are from retail, commercial and public fund customers located in the markets where the Company has bank branch locations.

Certificates of deposit at March 31, 2025 scheduled to mature in one year or less totaled $191.4 million. Historically, maturing deposits have generally remained with the Bank, and we believe that a significant portion of the deposits maturing in one year or less will remain with us upon maturity in some type of deposit account.

Total borrowings decreased $11.8 million to $76.7 million at March 31, 2025, from $88.5 million at December 31, 2024. The decrease in total borrowings was primarily due to a decrease in FHLB line of credit borrowings.

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

Liquidity. Our most liquid assets are cash and cash equivalents and investment securities available-for-sale. The levels of these assets are dependent on the operating, financing, lending and investing activities during any given year. These liquid assets totaled $381.8 million at March 31, 2025 and $396.9 million at December 31, 2024. During periods in which we are not able to originate a sufficient amount of loans and/or periods of high principal prepayments, we generally increase our liquid assets by investing in short-term, high-grade investments or holding higher balances of cash and cash equivalents.

Liquidity management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. Excess funds are typically generated as a result of increased deposit balances, while uses of excess funds are generally deposit withdrawals and loan advances. In the event we require funds beyond our ability to generate them internally, additional funds are generally available through the use of FHLB advances, a line of credit with the FHLB, other borrowings or through pledging or sales of investment securities. While the sale of available-for-sale investment securities would result in losses due to the current interest environment, pledging these securities as collateral would not result in a loss. At March 31, 2025, we had $44.9 million borrowed on our line of credit with the FHLB. At March 31, 2025, we had collateral pledged to the FHLB that would allow us to borrow $289.4 million, subject to FHLB credit requirements and policies. At March 31, 2025, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $46.9 million. We also have various other federal funds agreements, both secured and unsecured, with correspondent banks totaling approximately $30.0 million in available credit under which we had no outstanding borrowings at March 31, 2025. At March 31, 2025, we had subordinated debentures totaling $21.7 million and $6.3 million of repurchase agreements. At March 31, 2025, the Company had no borrowings against a $5.0 million line of credit from an unrelated financial institution maturing on November 1, 2025, with an interest rate that adjusts daily based on the prime rate less 0.50%. This line of credit has covenants specific to capital and other financial ratios, which the Company was in compliance with at March 31, 2025. The Company also has outstanding borrowings of $3.9 million from the same unrelated financial institution at a fixed rate of 6.15%. This borrowing matures on September 1, 2027 and requires quarterly principal and interest payments. The original $10.0 million of borrowings was used to fund part of the acquisition of Freedom Bancshares, Inc.

Off Balance Sheet Arrangements. As a provider of financial services, we routinely issue financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by us generally to guarantee the payment or performance obligation of a customer to a third party. While these standby letters of credit represent a potential outlay by us, a significant amount of the commitments may expire without being drawn upon. We have recourse against the customer for any amount the customer is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by us. Most of the standby letters of credit are secured, and in the event of nonperformance by the customers, we have the right to the underlying collateral, which could include CRE, physical plant and property, inventory, receivables, cash and marketable securities. The contract amount of these standby letters of credit, which represents the maximum potential future payments guaranteed by us, was $1.9 million at March 31, 2025.

At March 31, 2025, we had outstanding loan commitments, excluding standby letters of credit, of $202.7 million. We anticipate that sufficient funds will be available to meet current loan commitments. These commitments consist of unfunded lines of credit and commitments to finance real estate loans.

Capital. The Company and the Bank are subject to various regulatory capital requirements administered by federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by federal banking regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s business. Banking organizations are required to maintain minimum capital levels as follows: a ratio of common equity Tier 1 capital equal to 4.5% of risk-weighted assets, a ratio of Tier 1 capital equal to 6.0% of risk-weighted assets, a ratio of total capital equal to 8.0% of risk-weighted assets, and a leverage ratio of Tier 1 capital to total quarterly average assets equal to 4.0% in all circumstances. Regulations also include a capital conservation buffer of 2.5% that is added to these minimum requirements for capital adequacy purposes. A banking organization with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including the amount of dividends that it may pay without prior regulatory approval, stock repurchases and certain discretionary bonus payments to executive officers. Management believes that the Company and the Bank met all capital adequacy requirements to which they were subject as of March 31, 2025 and December 31, 2024, as discussed in more detail in Note 11 of the Consolidated Financial Statements.

Dividends. During the quarter ended March 31, 2025, we paid a quarterly cash dividend of $0.21 per share to our stockholders.

The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations. As discussed above, banking organizations must maintain a capital conservation buffer of 2.5% that is added to certain regulatory minimum requirements for capital adequacy purposes in order to pay dividends and make other capital distributions. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of March 31, 2025. The National Bank Act also imposes limitations on the amount of dividends that a national bank may pay without prior regulatory approval. Generally, the amount is limited to the bank’s current year net earnings plus the adjusted retained earnings for the three preceding years. As of March 31, 2025, approximately $13.1 million was available to be paid as dividends to the Company by the Bank without prior regulatory approval.

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

Interest rate risk is defined as the exposure of net interest income and fair value of financial instruments (interest-earning assets, deposits and borrowings) to movements in interest rates. Our results of operations depend to a large degree on our net interest income and ability to manage interest rate risk. Major sources of interest rate risk include timing differences in the maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, changes in customer behavior and changes in relationships between rate indices (basis risk). Our management measures these risks and their impacts in several ways, including through the use of income simulations and valuation analyses. Multiple interest rate scenarios are used in this analysis which include changes in interest rates, spread narrowing and widening, yield curve twists and changes in assumptions about customer behavior in various interest rate scenarios. A mismatch between maturities, interest rate sensitivities and prepayment characteristics of assets and liabilities results in interest-rate risk. Like most financial institutions, we have material interest-rate risk exposure to changes in both short-term and long-term interest rates, as well as variable interest rate indices. Interest rates in the financial markets affect our decisions relating to pricing our assets and liabilities, which impact net interest income, a significant cash flow source for us. As a result, a substantial portion of our risk management activities relates to managing interest rate risk.

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

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

The results of this simulation analysis are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, net interest income might vary significantly. Non-parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads would also cause net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or re-price faster than the Company’s assets. Actual results could differ from those projected if the Company grows assets and liabilities faster or slower than estimated, if the Company experienced a net outflow of deposit liabilities, or if the mix of assets and liabilities otherwise changes. Actual results could also differ from those projected if the Company experienced substantially different repayment speeds in the loan portfolio than those assumed in the simulation model. Finally, these simulation results do not contemplate all the actions that the Company may undertake in response to potential or actual changes in interest rates, such as changes to the Company’s loan, investment, deposit, or funding strategies.

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.

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

• The strength of the local, state, national and international economies, and financial markets, including the effects of inflationary pressures and future monetary policies of the Federal Reserve in response thereto;
• Changes in local, state and federal laws, regulations and governmental policies concerning the Company’s general business, including changes in interpretation or prioritization of such laws, regulations and policies;
• Changes in interest rates and prepayment rates of our assets;
• Increased competition in the financial services sector and the inability to attract new customers, including from non-bank competitors such as credit unions and fintech companies;
• Timely development and acceptance of new products and services;
• Changes in technology and the ability to develop and maintain secure electronic systems;
• Our risk management framework;

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• Interruptions in information technology and telecommunications systems and third-party services;
• Effects on the U.S. economy resulting from the threat or implementation of, or changes to, existing policies and executive orders, including tariffs, immigration policy, regulatory, other governmental agencies, foreign policy, and tax regulations;
• The economic effects of severe weather, natural disasters, widespread disease or pandemics, or other external events;
• The loss of key executives or employees;
• Changes in consumer spending;
• Integration of acquired businesses;
• The commencement, cost and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject;
• Changes in accounting policies and practices, such as the implementation of the current expected credit losses accounting standard;
• The economic impact of past and any future terrorist attacks, acts of war, including ongoing conflicts in the Middle East and the conflict in Ukraine, or threats thereof, and the response of the United States to any such threats and attacks;
• The ability to manage credit risk, forecast loan losses and maintain an adequate allowance for loan losses;
• Fluctuations in the value of securities held in our securities portfolio;
• Concentrations within our loan portfolio (including CRE loans), large loans to certain borrowers, and large deposits from certain clients;
• The concentration of large deposits from certain clients who have balances above current FDIC insurance limits and may withdraw deposits to diversify their exposure;
• The level of non-performing assets on our balance sheets;
• The ability to raise additional capital;
• The extensive regulatory framework that applies to the Company;
• The occurrence of fraudulent activity, breaches or failures of our or our third party vendors’ information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools or as a result of insider fraud; and
• Declines in real estate values.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including other factors that could materially affect our financial results, is included in our filings with the Securities and Exchange Commission, including the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2024 filed on March 25, 2025.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2025. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2025 to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2025 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

There have been no material changes in the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.