LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	2021			2020			2021			2020
	Three months ended						Six months ended
(Dollars in thousands)	June 30,						June 30,
	2021			2020			2021			2020

Net earnings	$	4,980		$	5,100		$	10,347		$	8,463

Net unrealized holding (losses) gains on available-for-sale securities		(7	)		2,904			(2,790	)		7,309
Reclassification adjustment for net gains included in earnings		(33	)		-			(1,108	)		(1,770	)
Net unrealized (losses) gains		(40	)		2,904			(3,898	)		5,539
Income tax effect on net gains included in earnings		8			-			271			434
Income tax effect on net unrealized holding (losses) gains		2			(711	)		684			(1,791	)
Other comprehensive (loss) income		(30	)		2,193			(2,943	)		4,182

Total comprehensive income	$	4,950		$	7,293		$	7,404		$	12,645

See accompanying notes to consolidated financial statements.

LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except per share amounts)	Common stock		Additional paid-in capital		Retained earnings			Treasury stock			Accumulated other comprehensive income			Total

Balance at April 1, 2020	$	46	$	69,147	$	36,736		$	(2,023	)	$	7,228		$	111,134
Net earnings		-		-		5,100			-			-			5,100
Other comprehensive income		-		-		-			-			2,193			2,193
Other comprehensive income (loss)		-		-		-			-			2,193			2,193
Dividends paid ($0.19 per share)		-		-		(898	)		-			-			(898	)
Stock-based compensation		-		77		-			-			-			77
Exercise of stock options
Purchase of 15,757 treasury shares		-		-		-			(326	)		-			(326	)
Balance at June 30, 2020	$	46	$	69,224	$	40,938		$	(2,349	)	$	9,421		$	117,280

Balance at April 1, 2021	$	48	$	72,336	$	49,363		$	-		$	6,534		$	128,281
Net earnings		-		-		4,980			-			-			4,980
Other comprehensive loss		-		-		-			-			(30	)		(30	)
Dividends paid ($0.20 per share)		-		-		(952	)		-			-			(952	)
Stock-based compensation		-		77		-			-			-			77
Balance at June 30, 2021	$	48	$	72,413	$	53,391		$	-		$	6,504		$	132,356

(Dollars in thousands, except per share amounts)	Common stock		Additional paid-in capital		Retained earnings			Treasury stock			Accumulated other comprehensive income			Total

Balance at January 1, 2020	$	46	$	69,029	$	34,293		$	-		$	5,239		$	108,607
Net earnings		-		-		8,463			-			-			8,463
Other comprehensive income		-		-		-			-			4,182			4,182
Dividends paid ($0.38 per share)		-		-		(1,818	)		-			-			(1,818	)
Stock-based compensation		-		162		-			-			-			162
Exercise of stock options, 3,136 shares		-		33		-			-			-			33
Purchase of 106,894 treasury shares		-		-		-			(2,349	)		-			(2,349	)
Purchase of treasury shares		-		-		-			(2,349	)		-			(2,349	)
Balance at June 30, 2020	$	46	$	69,224	$	40,938		$	(2,349	)	$	9,421		$	117,280

Balance at January 1, 2021	$	48	$	72,230	$	44,947		$	-		$	9,447		$	126,672
Net earnings		-		-		10,347			-			-			10,347
Other comprehensive loss		-		-		-			-			(2,943	)		(2,943	)
Dividends paid ($0.40 per share)		-		-		(1,903	)		-			-			(1,903	)
Dividends paid		-		-		(1,903	)		-			-			(1,903	)
Stock-based compensation		-		161		-			-			-			161
Exercise of stock options, 5,766 shares		-		22		-			-			-			22
Exercise of stock options		-		22		-			-			-			22
Balance at June 30, 2021	$	48	$	72,413	$	53,391		$	-		$	6,504		$	132,356

See accompanying notes to consolidated financial statements.

LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	2021			2020			2021			2020
	Three months ended						Six months ended
(Dollars in thousands)	March 31,						June 30,
	2021			2020			2021			2020
Cash flows from operating activities:
Net earnings	$	5,367		$	3,363		$	10,347		$	8,463
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for loan losses		500			1,200			500			1,600
Valuation allowance on real estate owned								48			-
Amortization of investment security premiums, net		397			366			911			628
Amortization of purchase accounting adjustment on loans		(8	)		(5	)		(23	)		(28	)
Amortization of mortgage servicing rights and other intangibles		437			277			849			701
Depreciation		245			250			490			497
Increase in cash surrender value of bank owned life insurance		(148	)		(154	)		(301	)		(308	)
Stock-based compensation		84			85			161			162
Deferred income taxes		628			403			(413	)		1,326
Net gains on sales of investment securities		(1,075	)		(1,770	)		(1,108	)		(1,770	)
Net (gain) losses on sales of foreclosed assets		(5	)		1
Net (gains) losses on sales of foreclosed assets								(5	)		45
Net gains on sales of loans		(3,140	)		(1,193	)		(6,004	)		(6,017	)
Proceeds from sales of loans		100,687			45,830			198,893			150,341
Origination of loans held for sale		(96,648	)		(45,893	)		(189,500	)		(157,269	)
Changes in assets and liabilities:
Accrued interest and other assets		75			(968	)		1,673			(2,495	)
Accrued expenses, taxes, and other liabilities		(484	)		2,948			(2,035	)		1,656
Net cash provided by operating activities		6,912			4,740
Net cash provided by (used in) operating activities								14,483			(2,468	)
Cash flows from investing activities:
Net increase in loans		(15,519	)		(23,065	)
Net decrease (increase) in loans								28,609			(159,019	)
Maturities and prepayments of investment securities		7,720			18,948			22,223			31,210
Purchases of investment securities		(40,854	)		(10,909	)		(87,822	)		(12,204	)
Proceeds from sales of investment securities		13,346			44,508			15,224			44,508
Redemption of bank stocks		1,017			680			1,967			895
Purchase of bank stocks		(606	)		(915	)		(714	)		(1,132	)
Purchase bank owned life insurance								(6,000	)		-
Proceeds from sales of premises and equipment and foreclosed assets		305			45			346			257
Purchases of premises and equipment, net		(72	)		(120	)		(134	)		(220	)
Net cash (used in) provided by investing activities		(34,663	)		29,172
Net cash used in investing activities								(26,301	)		(95,705	)
Cash flows from financing activities:
Net increase (decrease) in deposits		55,219			(4,568	)
Net increase in deposits								61,736			109,156
Federal Home Loan Bank advance borrowings		-			101,768			-			135,843
Federal Home Loan Bank advance repayments		-			(104,768	)		-			(130,843	)
Proceeds from other borrowings		-			1,000			-			1,075
Repayments on other borrowings		(2,206	)		(9,346	)		(1,837	)		(8,431	)
Proceeds from exercise of stock options		22			33			22			33
Payment of dividends		(951	)		(920	)		(1,903	)		(1,818	)
Purchase of treasury stock		-			(2,023	)		-			(2,349	)
Net cash provided by (used in) financing activities		52,084			(18,824	)
Net cash provided by financing activities								58,018			102,666
Net increase in cash and cash equivalents		24,333			15,088			46,200			4,493
Cash and cash equivalents at beginning of period		84,818			13,694			84,818			13,694
Cash and cash equivalents at end of period	$	109,151		$	28,782		$	131,018		$	18,187

(Continued)

(Continued)

LANDMARK BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(Unaudited)

	Six months ended
(Dollars in thousands)	June 30,
		2021		2020
Supplemental disclosure of cash flow information:
Cash payments for income taxes	$	3,958	$	-
Cash paid for interest		804		1,974
Cash paid for operating leases		76		89

Supplemental schedule of noncash investing and financing activities:
Transfer of loans to real estate owned		-		314
Investment securities purchases not yet settled		-		(659	)
Operating lease asset and related lease liability recorded		219		-

See accompanying notes to consolidated financial statements.

LANDMARK BANCORP, INC. AND SUBSIDIARIES

~~CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED~~

~~(Unaudited)~~

Three months ended
(Dollars in thousands) March 31,
2021 2020
Supplemental disclosure of cash flow information:
Cash paid for interest $ 419 $ 1,258
Cash paid for operating leases 32 44

Supplemental schedule of noncash investing and financing activities:
Transfer of loans to real estate owned - 314
Investment securities purchases not yet settled 7,028 -

~~See accompanying notes to consolidated financial statements.~~

~~LANDMARK BANCORP, INC. AND SUBSIDIARIES~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Interim Financial Statements

The unaudited consolidated financial statements of Landmark Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, Landmark National Bank (the “Bank”) and Landmark Risk Management Inc., have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 22, 2021, containing the latest audited consolidated financial statements and notes thereto. The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of financial statements have been reflected herein. The results of the three-month and six-month interim ~~period~~periods ended ~~March 31,~~June 30, 2021 are not necessarily indicative of the results expected for the year ending December 31, 2021 or any other future time period. The Company has evaluated subsequent events for recognition and disclosure up to the date the financial statements were issued.

2. Investments

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

Schedule of Available-for-sale Securities

	As of March 31, 2021									As of June 30, 2021
			Gross		Gross							Gross		Gross
	Amortized		unrealized		unrealized			Estimated		Amortized		unrealized		unrealized			Estimated
(Dollars in thousands)	cost		gains		losses			fair value		cost		gains		losses			fair value

U. S. treasury securities	$	20,330	$	30	$	(1	)	$	20,359	$	36,694	$	21	$	(69	)	$	36,646
U. S. federal agency obligations		18,748		123		(10	)		18,861		22,764		107		(19	)		22,852
Municipal obligations, tax exempt		138,162		4,998		(55	)		143,105		135,332		5,229		(35	)		140,526
Municipal obligations, taxable		39,866		1,376		(104	)		41,138		37,325		1,512		(58	)		38,779
Agency mortgage-backed securities		89,690		2,456		(159	)		91,987		98,010		2,084		(158	)		99,936
Certificates of deposit		5,455		-		-			5,455		5,205		-		-			5,205
Total available-for-sale	$	312,251	$	8,983	$	(329	)	$	320,905	$	335,330	$	8,953	$	(339	)	$	343,944

	As of December 31, 2020
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
(Dollars in thousands)	cost		gains		losses			fair value

U. S. treasury securities	$	2,000	$	37	$	-		$	2,037
U. S. federal agency obligations		18,804		138		(18	)		18,924
Municipal obligations, tax exempt		136,321		6,367		(12	)		142,676
Municipal obligations, taxable		46,643		2,892		-			49,535
Agency mortgage-backed securities		75,530		3,108		-			78,638
Certificates of deposit		5,460		-		-			5,460
Total available-for-sale	$	284,758	$	12,542	$	(30	)	$	297,270

The tables above show that some of the securities in the available-for-sale investment portfolio had unrealized losses, or were temporarily impaired, as of ~~March 31,~~June 30, 2021 and December 31, 2020. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date. Securities which were temporarily impaired are shown below, along with the length of time in a continuous unrealized loss position.

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

			As of June 30, 2021
(Dollars in thousands)			Less than 12 months					12 months or longer				Total
	No. of		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	securities		value		losses			value		losses		value		losses
U.S. treasury securities		11	$	24,141	$	(69	)	$	-	$	-	$	24,141	$	(69	)
U.S. federal agency obligations		5		13,227		(19	)		-		-		13,227		(19	)
Municipal obligations, tax exempt		25		9,478		(35	)		-		-		9,478		(35	)
Municipal obligations, taxable		9		5,513		(58	)		-		-		5,513		(58	)
Agency mortgage-backed securities		10		30,467		(158	)		-		-		30,467		(158	)
Total		60	$	82,826	$	(339	)	$	-	$	-	$	82,826	$	(339	)

As of March 31, 2021
(Dollars in thousands) Less than 12 months 12 months or longer Total
No. of Fair Unrealized Fair Unrealized Fair Unrealized
securities value losses value losses value losses
U.S. treasury securities 2 $ 5,308 $ (1 ) $ - $ - $ 5,308 $ (1 )
U.S. federal agency obligations 3 8,712 (10 ) - - 8,712 (10 )
Municipal obligations, tax exempt 24 9,541 (55 ) - - 9,541 (55 )
Municipal obligations, taxable 8 5,345 (104 ) - - 5,345 (104 )
Agency mortgage-backed securities 7 21,085 (159 )

-
- 21,085 (159 )
Total 44 $ 49,991 $ (329 ) $ - $ - $ 49,991 $ (329 )

			As of December 31, 2020
(Dollars in thousands)			Less than 12 months					12 months or longer				Total
	No. of		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	securities		value		losses			value		losses		value		losses
U.S. federal agency obligations		4	$	11,772	$	(18	)	$	-	$	-	$	11,772	$	(18	)
Municipal obligations, tax exempt		12		4,191		(12	)		-		-		4,191		(12	)
Total		16	$	15,963	$	(30	)	$	-	$	-	$	15,963	$	(30	)

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

The Company’s U.S. federal agency portfolio consists of securities issued by the government-sponsored agencies of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Bank (“FHLB”). The receipt of principal and interest on U.S. federal agency obligations is guaranteed by the respective government-sponsored agency guarantor, such that the Company believes that its U.S. federal agency obligations do not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and its belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the U.S. federal agency obligations identified in the tables above were temporarily impaired as of ~~March 31,~~June 30, 2021 and December 31, 2020.

The Company’s portfolio of municipal obligations consists of both tax-exempt and taxable general obligations securities issued by various municipalities. As of ~~March 31,~~June 30, 2021, the Company did not intend to sell and it is more likely than not that the Company will not be required to sell its municipal obligations in an unrealized loss position until the recovery of its cost. Due to the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms and the expectation that they will continue to do so, the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, the Company believed that the municipal obligations identified in the tables above were temporarily impaired as of ~~March 31,~~June 30, 2021 and December 31, 2020.

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

The table below sets forth amortized cost and fair value of investment securities at ~~March 31,~~June 30, 2021. The table includes scheduled principal payments and estimated prepayments, based on observable market inputs, for agency mortgage-backed securities. Actual maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

Schedule of Investments Classified by Contractual Maturity Date

(Dollars in thousands)	Amortized		Estimated		Amortized		Estimated
	cost		fair value		cost		fair value
Due in less than one year	$	28,023	$	28,100	$	26,973	$	27,036
Due after one year but within five years		167,223		170,860		196,435		199,738
Due after five years but within ten years		58,457		60,891		59,233		61,754
Due after ten years		58,548		61,054		52,689		55,416
Total	$	312,251	$	320,905	$	335,330	$	343,944

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

Schedule of Realized Gain (loss)

	2021		2020			2021		2020		2021		2020
(Dollars in thousands)	Three months ended March 31,					Three months ended June 30,				Six months ended June 30,
	2021		2020			2021		2020		2021		2020

Sales proceeds	$	13,346	$	44,508		$	1,878	$	-	$	15,224	$	44,508

Realized gains	$	1,075	$	1,772		$	33	$	-	$	1,108	$	1,772
Realized losses		0		(2	)		-		-		-		(2	)
Net realized gains	$	1,075	$	1,770		$	33	$	-	$	1,108	$	1,770

Securities with carrying values of $~~285.0~~311.8 million and $282.2 million were pledged to secure public funds on deposit, repurchase agreements and as collateral for borrowings at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Except for U.S. federal agency obligations, no investment in a single issuer exceeded 10% of consolidated stockholders’ equity.

3. Loans and Allowance for Loan Losses

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

Schedule of Loans

	June 30,			December 31,
(Dollars in thousands)	2021			2020

One-to-four family residential real estate loans	$	162,606		$	157,984
Construction and land loans		27,092			26,106
Commercial real estate loans		189,093			172,307
Commercial loans		127,672			134,047
Paycheck protection program loans		61,236			100,084
Agriculture loans		89,667			96,532
Municipal loans		2,178			2,332
Consumer loans		25,676			24,122
Total gross loans		685,220			713,514
Net deferred loan fees and loans in process		(2,361	)		(1,957	)
Allowance for loan losses		(9,163	)		(8,775	)
Loans, net	$	673,696		$	702,782

March 31, December 31,
(Dollars in thousands) 2021 2020

One-to-four family residential real estate loans $ 159,798 $ 157,984
Construction and land loans 26,591 26,106
Commercial real estate loans 179,781 172,307
Commercial loans 126,998 134,047
Paycheck protection program loans 117,297 100,084
Agriculture loans 92,486 96,532
Municipal loans 2,183 2,332
Consumer loans 25,557 24,122
Total gross loans 730,691 713,514
Net deferred loan (fees) costs and loans in process (3,611 ) (1,957 )
Allowance for loan losses (9,271 ) (8,775 )
Loans, net $ 717,809 $ 702,782

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

Schedule of Allowance for Credit Losses on Financing Receivables

	Three and six months ended June 30, 2021
(Dollars in thousands)	One-to-four family residential real estate loans			Construction and land loans			Commercial real estate loans		Commercial loans			Paycheck protection program loans		Agriculture loans			Municipal loans			Consumer loans			Total

Allowance for loan losses:
Balance at April 1, 2021	$	897		$	186		$	3,257	$	2,246		$	-	$	2,503		$	6		$	176		$	9,271
Charge-offs		(58	)		-			-		(72	)		-		(50	)		-			(48	)		(228	)
Recoveries		1			100			-		1			-		-			-			18			120
Provision for loan losses		(115	)		(155	)		155		413			-		(297	)		(1	)		-			-
Balance at June 30, 2021	$	725		$	131		$	3,412	$	2,588		$	-	$	2,156		$	5		$	146		$	9,163

Balance at January 1, 2021	$	859		$	181		$	2,482	$	2,388		$	-	$	2,690		$	6		$	169		$	8,775
Charge-offs		(81	)		-			-		(72	)		-		(50	)		-			(89	)		(292	)
Recoveries		2			101			-		2			-		-			6			69			180
Provision for loan losses		(55	)		(151	)		930		270			-		(484	)		(7	)		(3	)		500
Balance at June 30, 2021	$	725		$	131		$	3,412	$	2,588		$	-	$	2,156		$	5		$	146		$	9,163

	Three months ended March 31, 2021																								Three and six months ended June 30, 2020
(Dollars in thousands)	One-to-four family residential real estate loans			Construction and land loans		Commercial real estate loans		Commercial loans			Paycheck protection program loans		Agriculture loans			Municipal loans			Consumer loans			Total			One-to-four family residential real estate loans			Construction and land loans			Commercial real estate loans			Commercial loans			Paycheck protection program loans		Agriculture loans		Municipal loans			Consumer loans			Total

Allowance for loan losses:
Balance at January 1, 2021	$	859		$	181	$	2,482	$	2,388		$	-	$	2,690		$	6		$	169		$	8,775
Balance at April 1, 2020																									$	653		$	225		$	1,628		$	2,425		$	-	$	2,381	$	7		$	160		$	7,479
Charge-offs		(23	)		-		-		-			-		-			-			(41	)		(64	)		(20	)		-			(120	)		-			-		-		-			(36	)		(176	)
Recoveries		1			1		-		1			-		-			6			51			60			-			-			13			1			-		-		-			30			44
Provision for loan losses		60			4		775		(143	)		-		(187	)		(6	)		(3	)		500			74			48			172			(70	)		-		184		(1	)		(7	)		400
Balance at March 31, 2021	$	897		$	186	$	3,257	$	2,246		$	-	$	2,503		$	6		$	176		$	9,271
Balance at June 30, 2020																									$	707		$	273		$	1,693		$	2,356		$	-	$	2,565	$	6		$	147		$	7,747

Balance at January 1, 2020																									$	501		$	271		$	1,386		$	1,815		$	-	$	2,347	$	7		$	140		$	6,467
Charge-offs																										(20	)		(100	)		(120	)		(33	)		-		-		-			(123	)		(396	)
Recoveries																										-			-			13			2			-		-		6			55			76
Provision for loan losses																										226			102			414			572			-		218		(7	)		75			1,600
Balance at June 30, 2020																									$	707		$	273		$	1,693		$	2,356		$	-	$	2,565	$	6		$	147		$	7,747

Three months ended March 31, 2020
(Dollars in thousands) One-to-four family residential real estate loans Construction and land loans Commercial real estate loans Commercial loans Paycheck protection program loans Agriculture loans Municipal loans Consumer loans Total

Allowance for loan losses:
Balance at January 1, 2020 $ 501 $ 271 $ 1,386 $ 1,815 $ - $ 2,347 $ 7 $ 140 $ 6,467
Charge-offs - (100 ) - (33 ) - - - (87 ) (220 )
Recoveries - - - 1 - - 6 25 32
Provision for loan losses 152 54 242 642 - 34 (6 ) 82 1,200
Balance at March 31, 2020 $ 653 $ 225 $ 1,628 $ 2,425 $ - $ 2,381 $ 7 $ 160 $ 7,479

	As of June 30, 2021
(Dollars in thousands)	One-to-four family residential real estate loans		Construction and land loans		Commercial real estate loans		Commercial loans		Paycheck protection program loans		Agriculture loans		Municipal loans		Consumer loans		Total

Allowance for loan losses:
Individually evaluated for loss	$	-	$	-	$	504	$	512	$	-	$	143	$	-	$	-	$	1,159
Collectively evaluated for loss		725		131		2,908		2,076		-		2,013		5		146		8,004
Total	$	725	$	131	$	3,412	$	2,588	$	-	$	2,156	$	5	$	146	$	9,163

Loan balances:
Individually evaluated for loss	$	767	$	966	$	7,849	$	1,333	$	-	$	3,836	$	36	$	-	$	14,787
Collectively evaluated for loss		161,839		26,126		181,244		126,339		61,236		85,831		2,142		25,676		670,433
Total	$	162,606	$	27,092	$	189,093	$	127,672	$	61,236	$	89,667	$	2,178	$	25,676	$	685,220

As of March 31, 2021
(Dollars in thousands) One-to-four family residential real estate loans Construction and land loans Commercial real estate loans Commercial loans Paycheck protection program loans Agriculture loans Municipal loans Consumer loans Total

Allowance for loan losses:
Individually evaluated for loss $ - $ - $ 424 $ 28 $ - $ 40 $ - $ - $ 492
Collectively evaluated for loss 897 186 2,833 2,218 - 2,463 6 176 8,779
Total $ 897 $ 186 $ 3,257 $ 2,246 $ - $ 2,503 $ 6 $ 176 $ 9,271

Loan balances:
Individually evaluated for loss $ 956 $ 1,027 $ 7,874 $ 1,679 $ - $ 1,182 $ 36 $ 4 $ 12,758
Collectively evaluated for loss 158,842 25,564 171,907 125,319 117,297 91,304 2,147 25,553 717,933
Total $ 159,798 $ 26,591 $ 179,781 $ 126,998 $ 117,297 $ 92,486 $ 2,183 $ 25,557 $ 730,691

	As of December 31, 2020
(Dollars in thousands)	One-to-four family residential real estate loan		Construction and land loans		Commercial real estate loans		Commercial loans		Paycheck protection program loans		Agriculture loans		Municipal loans		Consumer loans		Total

Allowance for loan losses:
Individually evaluated for loss	$	-	$	-	$	177	$	22	$	-	$	67	$	-	$	-	$	266
Collectively evaluated for loss		859		181		2,305		2,366		-		2,623		6		169		8,509
Total	$	859	$	181	$	2,482	$	2,388	$	-	$	2,690	$	6	$	169	$	8,775

Loan balances:
Individually evaluated for loss	$	914	$	1,137	$	8,119	$	1,639	$	-	$	614	$	36	$	3	$	12,462
Collectively evaluated for loss		157,070		24,969		164,188		132,408		100,084		95,918		2,296		24,119		701,052
Total	$	157,984	$	26,106	$	172,307	$	134,047	$	100,084	$	96,532	$	2,332	$	24,122	$	713,514

The Company recorded net loan charge-offs of $~~4,000~~108,000 during the ~~first~~second quarter of 2021 compared to net loan charge-offs of $~~188,000~~132,000 during the ~~first~~second quarter of 2020. The Company recorded net loan charge-offs of $112,000during the six months ended June 30, 2021 compared to net loan charge-offs of $320,000during the six months ended June 30, 2020.

The Company’s impaired loans increased from $12.5 million at December 31, 2020 to $~~12.8~~14.8 million at ~~March 31,~~June 30, 2021. The difference between the unpaid contractual principal and the impaired loan balance is a result of charge-offs recorded against impaired loans. The difference in the Company’s non-accrual loan balances and impaired loan balances at ~~March 31,~~June 30, 2021 and December 31, 2020, was related to troubled debt restructurings (“TDR”) that are current and accruing interest, but still classified as impaired. Interest income recognized on a cash basis was immaterial during the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020.

The following tables present information on impaired loans:

Schedule of Impaired Financing Receivables

															As of June 30, 2021
(Dollars in thousands)	As of March 31, 2021														Unpaid contractual principal		Impaired loan balance		Impaired loans without an allowance		Impaired loans with an allowance		Related allowance recorded		Year-to-date average loan balance		Year-to-date interest income recognized
	Unpaid contractual principal		Impaired loan balance		Impaired loans without an allowance		Impaired loans with an allowance		Related allowance recorded		Year-to-date average loan balance		Year-to-date interest income recognized

One-to-four family residential real estate	$	956	$	956	$	956	$	-	$	-	$	963	$	2	$	767	$	767	$	767	$	-	$	-	$	777	$	4
Construction and land		2,762		1,027		1,027		-		-		1,043		6		2,701		966		966		-		-		1,020		11
Commercial real estate		7,874		7,874		2,404		5,470		424		7,875		9		7,849		7,849		2,394		5,455		504		7,883		19
Commercial		2,030		1,679		1,561		118		28		1,705		10		1,684		1,333		751		582		512		1,349		1
Agriculture		1,397		1,182		1,131		51		40		1,237		16		4,051		3,836		2,257		1,579		143		3,860		32
Municipal		36		36		36		-		-		36		-		36		36		36		-		-		36		-
Consumer		4		4		4		-		-		5		-
Total impaired loans	$	15,059	$	12,758	$	7,119	$	5,639	$	492	$	12,864	$	43	$	17,088	$	14,787	$	7,171	$	7,616	$	1,159	$	14,925	$	67

															As of December 31, 2020
(Dollars in thousands)	As of December 31, 2020														Unpaid contractual principal		Impaired loan balance		Impaired loans without an allowance		Impaired loans with an allowance		Related allowance recorded		Year-to-date average loan balance		Year-to-date interest income recognized
	Unpaid contractual principal		Impaired loan balance		Impaired loans without an allowance		Impaired loans with an allowance		Related allowance recorded		Year-to-date average loan balance		Year-to-date interest income recognized

One-to-four family residential real estate	$	914	$	914	$	914	$	-	$	-	$	925	$	3	$	914	$	914	$	914	$	-	$	-	$	925	$	3
Construction and land		2,872		1,137		1,137		-		-		1,211		26		2,872		1,137		1,137		-		-		1,211		26
Commercial real estate		8,119		8,119		4,302		3,817		177		8,152		8		8,119		8,119		4,302		3,817		177		8,152		8
Commercial		1,990		1,639		1,543		96		22		1,984		43		1,990		1,639		1,543		96		22		1,984		43
Agriculture		829		614		538		76		67		618		67		829		614		538		76		67		618		67
Municipal		36		36		36		-		-		54		1		36		36		36		-		-		54		1
Consumer		3		3		3		-		-		4		-		3		3		3		-		-		4		-
Total impaired loans	$	14,763	$	12,462	$	8,473	$	3,989	$	266	$	12,948	$	148	$	14,763	$	12,462	$	8,473	$	3,989	$	266	$	12,948	$	148

The Company’s key credit quality indicator is a loan’s performance status, defined as accruing or non-accruing. Performing loans are considered to have a lower risk of loss. Non-accrual loans are those which the Company believes have a higher risk of loss. The accrual of interest on non-performing loans is discontinued at the time the loan is 90 days delinquent, unless the credit is well secured and in process of collection. Loans are placed on non-accrual or are charged off at an earlier date if collection of principal or interest is considered doubtful. There were no loans 90 days or more delinquent and accruing interest at ~~March 31,~~June 30, 2021 or December 31, 2020.

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

Schedule of Past Due Financing Receivables

(Dollars in thousands) As of March 31, 2021
30-59 days delinquent and accruing 60-89 days delinquent and accruing 90 days or more delinquent and accruing Total past due loans accruing Non-accrual loans Total past due and non-accrual loans Total loans not past due

One-to-four family residential real estate loans $ 1,268 $ 124 $ - $ 1,392 $ 793 $ 2,185 $ 157,613
Construction and land loans - - - - 691 691 25,900
Commercial real estate loans - - - - 7,874 7,874 171,907
Commercial loans 1,587 - - 1,587 947 2,534 124,464
Paycheck protection program loans - - - - - - 117,297
Agriculture loans 1,583 424 - 2,007 706 2,713 89,773
Municipal loans - - - - - - 2,183
Consumer loans 15 24 - 39 4 43 25,514
Total $ 4,453 $ 572 $ - $ 5,025 $ 11,015 $ 16,040 $ 714,651

Percent of gross loans 0.61 % 0.08 % 0.00 % 0.69 % 1.51 % 2.20 % 97.80 %

(Dollars in thousands)	As of December 31, 2020																					As of June 30, 2021
	30-59 days delinquent and accruing			60-89 days delinquent and accruing			90 days or more delinquent and accruing			Total past due loans accruing			Non-accrual loans			Total past due and non-accrual loans			Total loans not past due				30-59 days delinquent and accruing			60-89 days delinquent and accruing			90 days or more delinquent and accruing			Total past due loans accruing			Non-accrual loans			Total past due and non-accrual loans			Total loans not past due

One-to-four family residential real estate loans	$	262		$	185		$	-		$	447		$	749		$	1,196		$	156,788		$	10		$	173		$	-		$	183		$	605		$	788		$	161,818
Construction and land loans		-			-			-			-			694			694			25,412			-			-			-			-			687			687			26,405
Commercial real estate loans		-			-			-			-			8,119			8,119			164,188			-			-			-			-			7,849			7,849			181,244
Commercial loans		832			-			-			832			874			1,706			132,341			380			650			-			1,030			841			1,871			125,801
Paycheck protection program loans		-			-			-			-			-			-			100,084			-			-			-			-			-			-			61,236
Agriculture loans		206			29			-			235			76			311			96,221			306			338			-			644			3,315			3,959			85,708
Municipal loans		-			-			-			-			-			-			2,332			-			-			-			-			-			-			2,178
Consumer loans		15			1			-			16			3			19			24,103			23			1			-			24			-			24			25,652
Total	$	1,315		$	215		$	-		$	1,530		$	10,515		$	12,045		$	701,469		$	719		$	1,162		$	-		$	1,881		$	13,297		$	15,178		$	670,042

Percent of gross loans		0.19	%		0.03	%		0.00	%		0.22	%		1.47	%		1.69	%		98.31	%		0.10	%		0.17	%		0.00	%		0.27	%		1.94	%		2.21	%		97.79	%

(Dollars in thousands)	As of December 31, 2020
	30-59 days delinquent and accruing			60-89 days delinquent and accruing			90 days or more delinquent and accruing			Total past due loans accruing			Non-accrual loans			Total past due and non-accrual loans			Total loans not past due

One-to-four family residential real estate loans	$	262		$	185		$	-		$	447		$	749		$	1,196		$	156,788
Construction and land loans		-			-			-			-			694			694			25,412
Commercial real estate loans		-			-			-			-			8,119			8,119			164,188
Commercial loans		832			-			-			832			874			1,706			132,341
Paycheck protection program loans		-			-			-			-			-			-			100,084
Agriculture loans		206			29			-			235			76			311			96,221
Municipal loans		-			-			-			-			-			-			2,332
Consumer loans		15			1			-			16			3			19			24,103
Total	$	1,315		$	215		$	-		$	1,530		$	10,515		$	12,045		$	701,469

Percent of gross loans		0.19	%		0.03	%		0.00	%		0.22	%		1.47	%		1.69	%		98.31	%

Under the original terms of the Company’s non-accrual loans, interest earned on such loans for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020 would have increased interest income by $~~186,000~~584,000 and $~~120,000~~239,000, respectively. ~~NaN~~No interest income related to non-accrual loans was included in interest income for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020.

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

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

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

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

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

Schedule of Risk Categories by Loan Class

	As of March 31, 2021				As of December 31, 2020				As of June 30 2021				As of December 31, 2020
(Dollars in thousands)	Nonclassified		Classified		Nonclassified		Classified		Nonclassified		Classified		Nonclassified		Classified

One-to-four family residential real estate loans	$	155,668	$	4,130	$	154,985	$	2,999	$	159,159	$	3,447	$	154,985	$	2,999
Construction and land loans		25,900		691		25,412		694		26,405		687		25,412		694
Commercial real estate loans		168,909		10,872		161,661		10,646		178,308		10,785		161,661		10,646
Commercial loans		125,069		1,929		132,023		2,024		125,697		1,975		132,023		2,024
Paycheck protection program loans		117,297		-		100,084		-		61,236		-		100,084		-
Agriculture loans		85,305		7,181		87,662		8,870		83,487		6,180		87,662		8,870
Municipal loan		2,183		-		2,332		-		2,178		-		2,332		-
Consumer loans		25,554		3		24,119		3		25,676		-		24,119		3
Total	$	705,885	$	24,806	$	688,278	$	25,236	$	662,146	$	23,074	$	688,278	$	25,236

At ~~March 31,~~June 30, 2021, the Company had ten loan relationships consisting of 2117 outstanding loans that were classified as TDRs. During the ~~first quarter~~three and six months ended June 30, 2021, a commercial loan relationship consisting of five loans was modified after the originally being classified as a TDR in 2020. The borrower liquidated some of the collateral securing the loans and refinanced the remaining balance of $479,000 into one loan which retained a TDR classification. During the six months ended June 30, 2021, one commercial loan totaling $47,000 was classified as a TDR after extending the maturity of the loan. 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. A construction and land loan previously classified as TDR in 2012 paid off during the first ~~three~~six months of 2021. There were 0no loans classified as TDRs during the first three months of 2020. One commercial loan relationship with five loans totaling $827,000 were classified as TDRs during the three months and six months ended June 30, 2020. The Company modified the five commercial loans to interest only as a result of the impact of the Coronavirus Disease 2019 (COVID-19) pandemic. Because the borrower was experiencing financial difficulties prior to the pandemic, the loans were classified as TDRs.

The Company evaluates each TDR individually and returns the loan to accrual status when a payment history is established after the restructuring and future payments are reasonably assured. There were no loans modified as TDRs for which there was a payment default within 12 months of modification as of ~~March 31,~~June 30, 2021 and 2020. The Company did not record any charge-offs against loans classified as TDRs in the first ~~quarter~~six months of 2021 or 2020. NoA credit ~~provisions related to~~provision for loan losses of $3,000 was recorded against TDRs ~~were recorded~~ in the three months ended ~~March 31,~~June 30, 2021 as compared to ~~a credit~~0 provision ~~of $1,000~~ ~~recorded~~for loan losses in the three months ended ~~March 31,~~June 30, 2020. A credit provision for loan losses of $6,000 was recorded against TDRs in the six months ended June 30, 2021 as compared to 0 provision for loan losses in the six months ended June 30, 2020. The Company allocated $~~8,000~~3,000 of the allowance for loan losses recorded against loans classified as TDRs at ~~March 31,~~June 30, 2021 ~~and~~compared to $9,000 at December 31, 2020.

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

Schedule of Troubled Debt Restructurings Onon Financing Receivables

													As of June 30, 2021						As of December 31, 2020
(Dollars in thousands)													Number of loans		Non-accrual balance		Accruing balance		Number of loans		Non-accrual balance		Accruing balance
	As of March 31, 2021						As of December 31, 2020
	Number of loans		Non-accrual balance		Accruing balance		Number of loans		Non-accrual balance		Accruing balance

One-to-four family residential real estate loans		2	$	-	$	163		2	$	-	$	165		2	$	-	$	162		2	$	-	$	165
Construction and land loans		4		691		336		5		693		443		4		687		279		5		693		443
Commercial real estate loans		2		1,227		-		2		1,227		-		2		1,227		-		2		1,227		-
Commercial loans		8		80		732		7		33		765		4		73		492		7		33		765
Agriculture loans		4		-		476		4		-		538		4		-		521		4		-		538
Municipal loan		1		-		36		1		-		36		1		-		36		1		-		36
Total		21	$	1,998	$	1,743		21	$	1,953	$	1,947		17	$	1,987	$	1,490		21	$	1,953	$	1,947

As of ~~March 31,~~June 30, 2021, the Company had 4one loan ~~modifications on~~modification with an outstanding loan ~~balances~~balance of $~~6.8~~3.8 million in connection with the ~~Coronavirus Disease 2019 (COVID-19)~~COVID-19 pandemic. ~~These modifications~~This modification consisted of ~~payment deferrals that consisted~~the deferral of ~~either the full loan payment or just the~~ principal ~~component.~~payments. The Company also entered into short-term forbearance plans or short-term repayment plans on ~~two~~one one-to-four family residential mortgage loans totaling $~~250,000~~56,000 as of ~~March 31,~~June 30, 2021. Consistent with the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Joint Interagency Regulatory Guidance, these loan modifications were not classified as TDRs and are excluded from the table above.

4. Goodwill and Other Intangible Assets

The Company tests goodwill for impairment annually or more frequently if circumstances warrant. The Company’s annual step one impairment test as of December 31, 2020 concluded that its goodwill was not impaired. The Company concluded there were no triggering events during the first ~~three~~six months of 2021 that required an interim goodwill impairment test.

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

Schedule of Other Intangible Assets and Goodwill

(Dollars in thousands)	As of March 31, 2021							As of June 30, 2021
	Gross carrying amount		Accumulated amortization			Net carrying amount		Gross carrying amount		Accumulated amortization			Net carrying amount
Core deposit intangible assets	$	2,018	$	(1,865	)	$	153	$	2,018	$	(1,890	)	$	128
Lease intangible asset		350		(335	)		15		350		(346	)		4
Total other intangible assets	$	2,368	$	(2,200	)	$	168	$	2,368	$	(2,236	)	$	132

(Dollars in thousands)	As of December 31, 2020
	Gross carrying amount		Accumulated amortization			Net carrying amount
Core deposit intangible assets	$	2,018	$	(1,838	)	$	180
Lease intangible asset		350		(324	)		26
Total other intangible assets	$	2,368	$	(2,162	)	$	206

The following sets forth estimated amortization expense for core deposit and lease intangible assets for the remainder of 2021 and in successive years ending December 31:

Schedule of Finite-lived Intangible Assets, Future Amortization Expense

(Dollars in thousands)	Amortization
	expense
Remainder of 2021	$	48
2022		58
2023		26
Total	$	132

(Dollars in thousands) Amortization
expense
Remainder of 2021 $ 84
2022 58
2023 26
Total $ 168

5. Mortgage Loan Servicing

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

Schedule of Participating Mortgage Loans

(Dollars in thousands)	June 30, 2021		December 31, 2020
FHLMC	$	685,362	$	639,875
FHLB		21,261		28,157
Total	$	706,623	$	668,032

(Dollars in thousands) March 31, December 31,
2021 2020
FHLMC $ 662,995 $ 639,875
FHLB 24,865 28,157
Total $ 687,860 $ 668,032

Custodial escrow balances maintained in connection with serviced loans were $~~10.0~~7.0 million and $5.8 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Gross service fee income related to such loans was $~~431,000~~442,000 and $~~357,000~~367,000 for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and is included in fees and service charges in the consolidated statements of earnings. Gross service fee income related to such loans was $873,000 and $724,000 for the six months ended June 30, 2021 and 2020, respectively.

Activity for mortgage servicing rights was as follows:

Schedule of Servicing Asset at Amortized Cost

	Three months ended						Three months ended						Six months ended
(Dollars in thousands)	March 31,						June 30,						June 30,
	2021			2020			2021			2020			2021			2020
Mortgage servicing rights:
Balance at beginning of period	$	3,726		$	2,446		$	3,966		$	2,428		$	3,726		$	2,446
Additions		639			212			553			757			1,192			969
Amortization		(399	)		(230	)		(376	)		(379	)		(775	)		(609	)
Balance at end of period	$	3,966		$	2,428		$	4,143		$	2,806		$	4,143		$	2,806

The fair value of mortgage servicing rights was $~~6.0~~5.9 million and $4.4 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Fair value at ~~March 31,~~June 30, 2021 was determined using discount rates ranging from ~~8.65~~8.79%% to ~~12.00~~12.00%%; prepayment speeds ranging from ~~6.00~~6.15%% to ~~27.55~~25.32%%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of ~~1.35~~1.34%%. Fair value at December 31, 2020 was determined using discount rates ranging from ~~8.78~~8.78%% to ~~12.00~~12.00%%; prepayment speeds ranging from ~~7.10~~7.10%% to ~~29.61~~29.61%%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of ~~1.36~~1.36%%.

The Company had a mortgage repurchase reserve of $~~226,000~~226,000 at ~~March 31,~~June 30, 2021 and $~~235,000~~235,000 at December 31, 2020, which represents the Company’s best estimate of probable losses that the Company will incur related to the repurchase of one-to-four family residential real estate loans previously sold or to reimburse investors for credit losses incurred on loans previously sold where a breach of the contractual representations and warranties occurred. The Company charged a $~~9,000~~9,000 loss against the reserve during the first ~~three~~six months ofended June 30, 2021. The Company did not incur any losses charged against the reserve or make any provisions to the reserve during the first ~~three~~six months of 2020. As of ~~March 31,~~June 30, 2021, the Company did not have any outstanding mortgage repurchase requests.

6. Earnings per Share

Basic earnings per share have been computed based upon the weighted average number of common shares outstanding during each period. Diluted earnings per share include the effect of all potential common shares outstanding during each period. The diluted earnings per share computation for the three and six months ended ~~March 31,~~June 30, 2021 included all unexercised stock options because no stock options were anti-dilutive during such period. The diluted earnings per share computation for the three and six months ended ~~March 31,~~June 30, 2020 excluded 105,041 of unexercised stock options because their inclusion would have been anti-dilutive during such period. The shares used in the calculation of basic and diluted earnings per share are shown below:

Schedule of Earnings Per Share, Basic and Diluted

		2021		2020			2021		2020		2021		2020
		Three months ended				Three months ended				Six months ended
(Dollars in thousands, except per share amounts)		March 31,				June 30,				June 30,
		2021		2020			2021		2020		2021		2020
Net earnings		$	5,367	$	3,363	$	4,980	$	5,100	$	10,347	$	8,463

Weighted average common shares outstanding - basic (1)			4,752,864		4,808,572		4,756,604		4,720,800		4,754,744		4,764,686
Assumed exercise of stock options (1)			6,634		19,121		8,200		19,229		7,144		19,175
Weighted average common shares outstanding - diluted (1)			4,759,498		4,827,693		4,764,804		4,740,029		4,761,888		4,783,861
Earnings per share (1):
Basic	(1)	$	1.13	$	0.70	$	1.05	$	1.08	$	2.18	$	1.78
Diluted	(1)	$	1.13	$	0.70	$	1.04	$	1.08	$	2.17	$	1.77

(1)

Share and per share values for the ~~period~~periods ended ~~March 31,~~June 30, 2020 have been adjusted to give effect to the 55%% stock dividend paid during December 2020.

7. Repurchase Agreements

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

Repurchase agreements are comprised of non-insured customer funds, totaling $~~4.2~~4.5 million at ~~March 31,~~June 30, 2021 and $6.4 million at December 31, 2020, which were secured by $~~7.2~~6.8 million and $8.7 million of the Company’s investment portfolio at the same dates, respectively.

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

Schedule of Repurchase Agreements

	As of March 31, 2021										As of June 30, 2021
(dollars in thousands)	Overnight and Continuous		Up to 30 days		30-90 days		Greater than 90 days		Total		Overnight and		Up to				Greater
											Continuous		30 days		30-90 days		than 90 days		Total
Repurchase agreements:
U.S. federal agency obligations	$	1,989	$	-	$	-	$	-	$	1,989	$	2,150	$	-	$	-	$	-	$	2,150
Agency mortgage-backed securities		2,176		-		-		-		2,176		2,384		-		-		-		2,384
Total	$	4,165	$	-	$	-	$	-	$	4,165	$	4,534	$	-	$	-	$	-	$	4,534

As of December 31, 2020
(dollars in thousands)
Overnight and
Continuous

Up to
30 days
30-90 days
Greater
than 90 days
Total
Repurchase agreements:
U.S. federal agency obligations $ 2,412 $ - $ - $ - $ 2,412
Agency mortgage-backed securities 3,959 - - - 3,959
Total $ 6,371 $ - $ - $ - $ 6,371

	As of December 31, 2020
(dollars in thousands)	Overnight and		Up to				Greater
	Continuous		30 days		30-90 days		than 90 days		Total
Repurchase agreements:
U.S. federal agency obligations	$	2,412	$	-	$	-	$	-	$	2,412
Agency mortgage-backed securities		3,959		-		-		-		3,959
Total	$	6,371	$	-	$	-	$	-	$	6,371

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

8. Revenue from Contracts with Customers

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

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

2021 2020
Three months ended
(Dollars in thousands) March 31,
2021 2020
Non-interest income:
Service charges on deposit accounts
Overdraft fees $ 672 $ 873
Other 163 146
Interchange income 724 535
Loan servicing fees (1) 431 357
Office lease income (1) 166 162
Gains on sales of loans (1) 3,140 1,193
Bank owned life insurance income (1) 148 154
Gains on sales of investment securities (1) 1,075 1,770
Gains (losses) on sales of real estate owned 5 (1 )
Other 201 164
Total non-interest income $ 6,725 $ 5,353

	2021		2020			2021		2020
	Three months ended					Six months ended
(Dollars in thousands)	June 30,					June 30,
	2021		2020			2021		2020
Non-interest income:
Service charges on deposit accounts
Overdraft fees	$	653	$	543		$	1,325	$	1,416
Other		183		164			346		310
Interchange income		845		593			1,569		1,128
Loan servicing fees (1)		442		367			873		724
Office lease income (1)		165		162			331		324
Gains on sales of loans (1)		2,864		4,824			6,004		6,017
Bank owned life insurance income (1)		153		154			301		308
Gains on sales of investment securities (1)		33		-			1,108		1,770
Gains (losses) on sales of real estate owned		-		(44	)		5		(45	)
Other		135		209			336		373
Total non-interest income	$	5,473	$	6,972		$	12,198	$	12,325

(1)

Not within the scope of ASC 606.

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

Service Charges on Deposit Accounts

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

Interchange Income

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

Gains (Losses) on Sales of Real Estate Owned

The Company records a gain or loss from the sale of real estate owned when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of real estate owned to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the real estate owned asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. There were no sales of real estate owned that were financed by the Company during the first ~~three~~six months of 2021 or 2020.

9. Fair Value of Financial Instruments and Fair Value Measurements

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

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

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

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

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

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

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

Fair value estimates of the Company’s financial instruments as of ~~March 31,~~June 30, 2021 and December 31, 2020, including methods and assumptions utilized, are set forth below:

Schedule of Fair Value, by Balance Sheet Grouping

(Dollars in thousands)	As of March 31, 2021														As of June 30, 2021
	Carrying														Carrying
	amount			Level 1			Level 2			Level 3		Total			amount			Level 1			Level 2			Level 3		Total
Financial assets:
Cash and cash equivalents	$	109,151		$	109,151		$	-		$	-	$	109,151		$	131,018		$	131,018		$	-		$	-	$	131,018
Investment securities available-for-sale		320,905			20,359			300,546			-		320,905			343,944			36,646			307,298			-		343,944
Bank stocks, at cost		4,062			n/a			n/a			n/a		n/a			3,220			n/a			n/a			n/a		n/a
Loans, net		717,809			-			-			733,858		733,858			673,696			-			-			685,738		685,738
Loans held for sale		13,995			-			13,995			-		13,995			10,952			-			10,952			-		10,952
Accrued interest receivable		4,655			65			1,537			3,053		4,655			4,351			89			1,644			2,618		4,351
Derivative financial instruments		1,757			-			1,757			-		1,757			1,103			-			1,103			-		1,103

Financial liabilities:
Non-maturity deposits	$	(947,757	)	$	(947,757	)	$	-		$	-	$	(947,757	)	$	(962,024	)	$	(962,024	)	$	-		$	-	$	(962,024	)
Certificates of deposit		(123,489	)		-			(123,670	)		-		(123,670	)		(115,739	)		-			(115,877	)		-		(115,877	)
Subordinated debentures		(21,651	)		-			(16,168	)		-		(16,168	)		(21,651	)		-			(16,208	)		-		(16,208	)
Other borrowings		(4,165	)		-			(4,165	)		-		(4,165	)		(4,534	)		-			(4,534	)		-		(4,534	)
Accrued interest payable		(151	)		-			(151	)		-		(151	)		(148	)		-			(148	)		-		(148	)

	As of December 31, 2020
	Carrying
	amount			Level 1			Level 2			Level 3		Total
Financial assets:
Cash and cash equivalents	$	84,818		$	84,818		$	-		$	-	$	84,818
Investment securities available-for-sale		297,270			2,037			295,233			-		297,270
Bank stocks, at cost		4,473			n/a			n/a			n/a		n/a
Loans, net		702,782			-			-			718,071		718,071
Loans held for sale		15,533			-			15,533			-		15,533
Accrued interest receivable		4,885			-			1,697			3,188		4,885
Derivative financial instruments		1,796			-			1,796			-		1,796

Financial liabilities:
Non-maturity deposits	$	(882,277	)	$	(882,277	)	$	-		$	-	$	(882,277	)
Certificates of deposit		(133,750	)		-			(134,048	)		-		(134,048	)
Subordinated debentures		(21,651	)		-			(15,232	)		-		(15,232	)
Other borrowings		(6,371	)		-			(6,371	)		-		(6,371	)
Accrued interest payable		(168	)		-			(168	)		-		(168	)
Derivative financial instruments		(466	)		-			(466	)		-		(466	)

Transfers

The Company did not transfer any assets or liabilities among levels during the three or six months ended ~~March 31,~~June 30, 2021 or during the year ended December 31, 2020.

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

The following tables represent the Company’s financial instruments that are measured at fair value on a recurring basis at ~~March 31,~~June 30, 2021 and December 31, 2020, allocated to the appropriate fair value hierarchy:

Schedule of Fair Value, Assets Measured on Recurring Basis

(Dollars in thousands)			As of March 31, 2021						(Dollars in thousands)			As of June 30, 2021
			Fair value hierarchy									Fair value hierarchy
	Total		Level 1		Level 2		Level 3			Total		Level 1		Level 2		Level 3
Assets:
Available-for-sale investment securities:
U. S. treasury securities	$	20,359	$	20,359	$	-	$	-		$	36,646	$	36,646	$	-	$	-
U. S. federal agency obligations		18,861		-		18,861		-			22,852		-		22,852		-
Municipal obligations, tax exempt		143,105		-		143,105		-			140,526		-		140,526		-
Municipal obligations, taxable		41,138		-		41,138		-			38,779		-		38,779		-
Agency mortgage-backed securities		91,987		-		91,987		-			99,936		-		99,936		-
Certificates of deposit		5,455		-		5,455		-			5,205		-		5,205		-
Loans held for sale		13,995		-		13,995		-			10,952		-		10,952		-
Derivative financial instruments		1,757		-		1,757		-			1,103		-		1,103		-

				As of December 31, 2020
				Fair value hierarchy
	Total			Level 1		Level 2			Level 3
Assets:
Available-for-sale investment securities:
U. S. treasury securities	$	2,037		$	2,037	$	-		$	-
U. S. federal agency obligations		18,924			-		18,924			-
Municipal obligations, tax exempt		142,676			-		142,676			-
Municipal obligations, taxable		49,535			-		49,535			-
Agency mortgage-backed securities		78,638			-		78,638			-
Certificates of deposit		5,460			-		5,460			-
Loans held for sale		15,533			-		15,533			-
Derivative financial instruments		1,796			-		1,796			-
Liability:
Derivative financial instruments		(466	)		-		(466	)		-

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

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

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

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

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

	As of		As of		As of		As of
	March 31,		December 31,		June 30,		December 31,
(Dollars in thousands)	2021		2020		2021		2020
Aggregate fair value	$	13,995	$	15,533	$	10,952	$	15,533
Contractual balance		13,956		15,151		10,843		15,151
Gain	$	39	$	382	$	109	$	382

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

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

(Dollars in thousands)						2021			2020		2021			2020
	Three months ended					Three months ended					Six months ended
	March 31,					June 30,					June 30,
(Dollars in thousands)	2021		2020			2021			2020		2021			2020
Total change in fair value	$	427	$	(34	)	$	(654	)	$	2,006	$	(227	)	$	1,972

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

The Company does not record its loan portfolio at fair value. Collateral-dependent impaired loans are generally carried at the lower of cost or fair value of the collateral, less estimated selling costs. Collateral values are determined based on appraisals performed by qualified licensed appraisers hired by the Company and then further adjusted if warranted based on relevant facts and circumstances. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Impaired loans are reviewed and evaluated at least quarterly for additional impairment and adjusted accordingly, based on the same factors identified above. The carrying value of the Company’s impaired loans was $~~12.8~~14.8 million and $12.5 million, with an allocated allowance of $~~492,000~~1.2 million and $266,000, at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

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

The following table presents quantitative information about Level 3 fair value measurements measured at fair value on a nonrecurring basis as of ~~March 31,~~June 30, 2021 and December 31, 2020.

Schedule of Fair Value Measurements on Nonrecurring, Valuation Techniques


								Fair value		Valuation technique	Unobservable inputs	Range
(Dollars in thousands)
	Fair value		Valuation technique	Unobservable inputs	Range
As of March 31, 2021
As of June 30, 2021
Impaired loans:
Commercial real estate	$	5,046	Sales comparison	Adjustment to appraised value		15%-20	%	$	4,951	Sales comparison	Adjustment to appraised value		15%-20	%
Commercial		90	Sales comparison	Adjustment to comparable sales		0%-86	%		70	Sales comparison	Adjustment to comparable sales		0%-72	%
Agriculture		11	Sales comparison	Adjustment to appraised value		25	%		1,436	Sales comparison	Adjustment to appraised value		0	%
Real estate owned:
One-to-four family residential real estate									-	Sales comparison	Adjustment to appraised value		100	%

As of December 31, 2020
Impaired loans:
Commercial real estate	$	3,640	Sales comparison	Adjustment to appraised value		20	%	$	3,640	Sales comparison	Adjustment to appraised value		20	%
Commercial		74	Sales comparison	Adjustment to comparable sales		0%-69	%		74	Sales comparison	Adjustment to comparable sales		0%-69	%
Agriculture		9	Sales comparison	Adjustment to appraised value		20	%		9	Sales comparison	Adjustment to appraised value		20	%
Real estate owned:
One-to-four family residential real estate		48	Sales comparison	Adjustment to appraised value		10	%		48	Sales comparison	Adjustment to appraised value		10	%

10. Regulatory Capital Requirements

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believed that as of ~~March 31,~~June 30, 2021, the Company and the Bank met all capital adequacy requirements to which they were subject at that time.

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

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

As of ~~March 31,~~June 30, 2021 and December 31, 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action then in effect. There are no conditions or events since that notification that management believes have changed the institution’s category.

The following is a comparison of the Company’s regulatory capital to minimum capital requirements at ~~March 31,~~June 30, 2021 and December 31, 2020:

Schedule of Compliance with Regulatory Capital Requirements for Mortgage Companies

(Dollars in thousands)											To be well-capitalized
						For capital					under regulatory															To be well-capitalized
	Actual					adequacy purposes					guidelines										For capital					under regulatory
	Amount		Ratio			Amount		Ratio (1)			Amount		Ratio			Actual					adequacy purposes					guidelines
As of March 31, 2021
(Dollars in thousands)																Amount		Ratio			Amount		Ratio (1)			Amount		Ratio
As of June 30, 2021
Leverage	$	125,652		10.43	%	$	48,185		4.0	%	$	60,232		5.0	%	$	129,817		10.55	%	$	49,205		4.0	%	$	61,507		5.0	%
Common Equity Tier 1 Capital		104,652		14.38	%		50,946		7.0	%		47,307		6.5	%		108,817		14.73	%		51,721		7.0	%		48,027		6.5	%
Tier 1 Capital		125,652		17.26	%		61,863		8.5	%		58,224		8.0	%		129,817		17.57	%		62,804		8.5	%		59,110		8.0	%
Total Risk Based Capital		134,752		18.51	%		76,419		10.5	%		72,780		10.0	%		139,091		18.82	%		77,581		10.5	%		73,887		10.0	%

As of December 31, 2020
Leverage	$	121,068		10.70	%	$	45,262		4.0	%	$	56,577		5.0	%	$	121,068		10.70	%	$	45,262		4.0	%	$	56,577		5.0	%
Common Equity Tier 1 Capital		100,068		13.77	%		50,866		7.0	%		47,233		6.5	%		100,068		13.77	%		50,866		7.0	%		47,233		6.5	%
Tier 1 Capital		121,068		16.66	%		61,766		8.5	%		58,133		8.0	%		121,068		16.66	%		61,766		8.5	%		58,133		8.0	%
Total Risk Based Capital		129,983		17.89	%		76,300		10.5	%		72,666		10.0	%		129,983		17.89	%		76,300		10.5	%		72,666		10.0	%

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

The following is a comparison of the Bank’s regulatory capital to minimum capital requirements at ~~March 31,~~June 30, 2021 and December 31, 2020:

Schedule of Compliance with Regulatory Capital Requirements Under Banking Regulation

																										To be well-capitalized
																										under prompt
											To be well-capitalized										For capital					corrective
											under prompt					Actual					adequacy purposes					action provisions
(Dollars in thousands)						For capital					corrective					Amount		Ratio			Amount		Ratio (1)			Amount		Ratio
	Actual					adequacy purposes					action provisions
	Amount		Ratio			Amount		Ratio (1)			Amount		Ratio
As of March 31, 2021
As of June 30, 2021
Leverage	$	122,481		10.19	%	$	48,064		4.0	%	$	60,080		5.0	%	$	126,504		10.31	%	$	49,074		4.0	%	$	61,343		5.0	%
Common Equity Tier 1 Capital		122,481		16.84	%		50,901		7.0	%		47,265		6.5	%		126,504		17.14	%		51,657		7.0	%		47,967		6.5	%
Tier 1 Capital		122,481		16.84	%		61,808		8.5	%		58,173		8.0	%		126,504		17.14	%		62,726		8.5	%		59,036		8.0	%
Total Risk Based Capital		131,574		18.09	%		76,352		10.5	%		72,716		10.0	%		135,729		18.39	%		77,485		10.5	%		73,795		10.0	%

As of December 31, 2020
Leverage	$	118,174		10.47	%	$	45,139		4.0	%	$	56,423		5.0	%	$	118,174		10.47	%	$	45,139		4.0	%	$	56,423		5.0	%
Common Equity Tier 1 Capital		118,174		16.27	%		50,829		7.0	%		47,199		6.5	%		118,174		16.27	%		50,829		7.0	%		47,199		6.5	%
Tier 1 Capital		118,174		16.27	%		61,721		8.5	%		58,091		8.0	%		118,174		16.27	%		61,721		8.5	%		58,091		8.0	%
Total Risk Based Capital		127,089		17.50	%		76,244		10.5	%		72,613		10.0	%		127,089		17.50	%		76,244		10.5	%		72,613		10.0	%

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

11. Impact of Recent Accounting Pronouncements

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

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

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

12. COVID-19 Pandemic

The COVID-19 pandemic in the United States caused a substantial disruption to the economy, employment and financial markets and continues to have a complex and significant adverse impact on the economy, the banking industry and the ~~Company in future fiscal periods, all subject to a high degree of uncertainty.~~Company. Additional federal government stimulus, declining COVID-19 cases and the distribution of vaccines may lead to positive impacts on the economy and employment while new variants of COVID-19 ~~presents~~present risks to the recovery. The Company’s pandemic response plan continues to focus foremost on the safety and well-being of our customers and associates. The COVID-19 pandemic could adversely impact our customers, employees or vendors which may impact our operations and financial results. The COVID-19 pandemic may cause economic declines in excess of current projections, or if the pandemic lasts longer than currently projected, the Company’s provision for loan losses may remain elevated or increase in future periods. The Company may see higher loan delinquencies and defaults in future periods as a result of the COVID-19 pandemic and will continue to monitor our allowance for loan losses in light of changing economic conditions related to COVID-19. The COVID-19 pandemic may also impact the Company’s deposit balances and service charge income. In addition, the fair value of certain assets may be adversely impacted by the pandemic and the economic downturn, including the fair value of goodwill, mortgage servicing rights and other real estate. These declines could result in impairments in future periods. The pandemic has caused a significant decline in market interest rates which may cause our net interest margin to continue to decline. At this time, the full impact of the COVID-19 pandemic on the Company’s financial statements is uncertain.

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

Overview. Landmark Bancorp, Inc. is a financial holding company incorporated under the laws of the State of Delaware and is engaged in the banking business through its wholly owned subsidiary, Landmark National Bank, and in the insurance business through its wholly owned subsidiary, Landmark Risk Management, Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Landmark Bancorp, Inc., Landmark National Bank and Landmark Risk Management, Inc. The Company is listed on the Nasdaq Global Market under the symbol “LARK.”

The Bank is dedicated to providing quality financial and banking services to its local communities. Our strategy includes continuing a tradition of holding and acquiring quality assets while growing our commercial, commercial real estate and agriculture loan portfolios. We are committed to developing relationships with our borrowers and providing a total banking service.

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

Landmark Risk Management, Inc., which was formed and began operations on May 31, 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 ~~today’s~~the current insurance marketplace. Landmark Risk Management, Inc. is subject to the regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance.

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

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

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

Significant Developments – Impact of COVID-19. The COVID-19 pandemic in the United States has had and continues to have a complex and significant adverse impact on the economy, the banking industry and the ~~Company, all subject to a high degree of uncertainty for future periods.~~Company.

~~Effects on Our Market Areas.~~ Our commercial and consumer banking products and services are offered primarily in Kansas, where individual and governmental responses to the COVID-19 pandemic led to a broad curtailment of economic activity beginning in March 2020, as a result of a stay-at-home order, which was lifted on May 3, 2020, with economic and social gatherings reopening in a phased-in approach since then, with restrictions such as social distancing requirements and capacity restrictions on businesses. The Bank and its branches have remained open because banks have been deemed essential businesses. Although the Bank had closed its branch lobbies to walk-in customers as a result of the pandemic, all of the Bank’s branch lobbies are currently open to customers, with services also remaining available through the Bank’s digital banking platforms and drive-thru services. Based on the current environment, it is unclear if the State of Kansas will tighten or relax its stay-at-home and social distancing policies going forward, including as a result of the increased availability of vaccines. The Bank will continue to monitor the situation to protect the safety and well-being of our customers and associates.

Across the United States, as a result of stay-at-home orders and other continuing restrictions, many states have experienced a dramatic increase in unemployment levels as a result of the curtailment of business activities. The unemployment rate in Kansas peaked at 12.6 % in April 2020 as a result of economic impacts of the COVID-19 pandemic but has declined since then, with an unemployment rate in Kansas of 3.2% in February 2021.

~~Policy and Regulatory Developments~~~~. Federal, state and local governments and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic, including the following:~~

	●	~~The Federal Reserve decreased the range for the federal funds target rate by 0.5% on March 3, 2020, and by another 1.0% on March 16, 2020, reaching a current range of 0.0 – 0.25%.~~
	●	On March 27, 2020, President Trump signed the CARES Act, which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the Small Business Administration (“SBA”), referred to as the Paycheck Protection Program (“PPP”). The Bank participates as a lender in the PPP. After the initial $349 billion in funds for the PPP was exhausted, an additional $310 billion in funding for PPP loans was authorized. In addition, on December 27, 2020, President Trump signed the Consolidated Appropriations Act, a $900.0 billion COVID-19 relief package that includes an additional $284.5 billion in PPP funding. On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021, an additional $1.9 trillion federal stimulus bill in response to COVID-19 that includes cash payments to individuals, supplemental unemployment insurance and the modification and expansion of the PPP. In March 2021, President Biden also signed the PPP Extension Act of 2021, which extended the PPP application deadline to May 31, 2021.
	●	The CARES Act, as extended by the Coronavirus Response and Relief Supplemental Appropriations Act (a part of the Consolidated Appropriations Act, 2021), also provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. In addition, on April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs.

Effects on Our Business. The COVID-19 pandemic, federal, state and local government responses to the pandemic, and the ~~specific developments referred to above~~effects of existing and future variants of the disease, such as the Delta variant, have had, and are expected to continue to have, a significant impact on our business. In particular, ~~we anticipate that~~ a significant portion of the Bank’s borrowers in the retail, restaurant and hospitality ~~and agriculture~~ industries ~~will continue to endure significant economic distress,~~were adversely impacted by the COVID-19 pandemic. Future outbreaks may impact these customers, which may cause them to draw on their existing lines of credit and adversely affect their ability to repay existing ~~indebtedness, and~~indebtedness. The decline in interest rates as a result of the COVID-19 pandemic ~~is expected to adversely impact~~has increased our origination of one-to-four family residential mortgage loans, as the ~~value of collateral. These developments, together with~~lower interest rates drove an increase in refinancing and sales. Future outbreaks will not likely cause a similar increase in origination volumes. The economic conditions ~~generally, are also expected to impact~~as a result of COVID-19 has impacted our commercial real estate portfolio, ~~particularly with respect to real estate with exposure to~~as cash flows and collateral values were impacted by the economic downturn. Future outbreaks may negatively impact these ~~industries, our one-to-four family residential real estate loan business and loan portfolio,~~borrowers and the value of ~~certain~~the collateral securing our loans. As a result, we anticipate that our financial condition, capital levels and results of operations ~~will~~may be adversely affected, as described in further detail below.

Our Response. We have taken numerous steps in response to the COVID-19 pandemic, including the following:

	●	We established a pandemic response team, which has been meeting as needed since mid-March 2020 to address changes resulting from the COVID-19 pandemic. Some of our associates are still working from home, and for those that remain in our bank facilities, we have enhanced safety precautions in place for their safety. We have repositioned associates to support our customer care call center to handle increased volumes of customer requests and to support our customers’ access to our digital banking platforms.
	●	As a preferred lender with the SBA, we were able and prepared to immediately respond to help existing and new clients access the PPP authorized by the CARES Act. In addition, we were a participating lender in the second round of PPP lending. From the beginning of the PPP through ~~December 31, 2020,~~June 30, 2021, we funded ~~1,095~~2,195 PPP loans totaling approximately ~~$131.0~~$186.0 million. We are actively working with the PPP loan borrowers through the SBA’s loan forgiveness process. In addition, we are a participating lender in the second round of PPP lending. From January 1, 2021 through April 30, 2021, we funded an additional 1,033 PPP loans totaling approximately $54.1 million. As of ~~March 31,~~June 30, 2021, we had approximately ~~$117.3~~$61.2 million of PPP loans outstanding.

	●	As of ~~March 31,~~June 30, 2021, we had entered into short-term forbearance plans and short-term repayment plans on ~~two~~one one-to-four family residential mortgage ~~loans~~loan totaling ~~$250,000.~~$56,000. We continue to work with our customers by offering loan forbearance and modifications to those borrowers impacted by COVID-19.
	●	As of ~~March 31,~~June 30, 2021, we had 4one loan ~~modifications~~modification on an outstanding loan ~~balances~~balance of ~~$6.8~~$3.8 million in connection with the COVID-19 pandemic that had not yet returned to contractual terms. ~~These modifications~~This modification consisted of ~~payment deferrals that were applied to either~~ the ~~full~~deferral of principal payments. As of December 31, 2020, we had six loan ~~payment or just the principal component.~~modifications on outstanding loan balances of $7.2 million in connection with COVID-19 pandemic.
	●	With the safety and well-being of our customers and associates foremost in mind, we initially limited access to our bank lobbies while keeping our drive-thru lanes open and encouraging our customers to use our online and mobile banking applications or call our customer care call center. Currently our bank lobbies are open to customers, but we continue to evaluate this option as the number of COVID-19 cases fluctuate in our communities.

In ~~May~~July 2021, we declared our 7980^th consecutive quarterly dividend, and we currently have no plans to change our dividend strategy given our current capital and liquidity position. However, while we have achieved a strong capital base and expect to continue operating profitably, this is dependent upon the projected length and depth of any economic recession. In addition, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, 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.

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 loan losses, the valuation of investment securities, accounting for goodwill and the accounting for income taxes, all 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, 2020, filed with the Securities and Exchange Commission on March 22, 2021.

Summary of Results. During the ~~first~~second quarter of 2021, we recorded net earnings of ~~$5.4~~$5.0 million, which was a decrease of $120,000, or 2.4%, from the $5.1 million of net earnings in the second quarter of 2020. During the first six months of 2021, we recorded net earnings of $10.3 million, which was an increase of ~~$2.0~~$1.9 million, or 22.3%, from the ~~$3.4~~$8.5 million of net earnings ~~recorded~~ in the first ~~quarter~~six months of 2020. The increase in net earnings during the first six months of 2021 was primarily ~~due to an~~driven by a $2.5 million increase ~~of $1.9 million of gains on sales of loans, net and an increase of $1.5 million~~ in net interest income and a $1.1 million decrease ~~of $700,000~~ in our provision for loan losses.

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

(Dollars in thousands, except per share amounts) Three months ended March 31,
2021 2020
Net earnings:
Net earnings $ 5,367 $ 3,363
Basic earnings per share (1) $ 1.13 $ 0.70
Diluted earnings per share (1) $ 1.13 $ 0.70
Earnings ratios:
Return on average assets (2) 1.77 % 1.35 %
Return on average equity (2) 17.06 % 12.21 %
Equity to total assets 10.27 % 11.24 %
Net interest margin (2) (3) 3.51 % 3.67 %
Dividend payout ratio 17.73 % 27.40 %

	As of or for the						As of or for the
	three months ended June 30,						six months ended June 30,
(Dollars in thousands, except per share amounts)	2021			2020			2021			2020
Net earnings:
Net earnings	$	4,980		$	5,100		$	10,347		$	8,463
Basic earnings per share (1)	$	1.05		$	1.08		$	2.18		$	1.78
Diluted earnings per share (1)	$	1.04		$	1.08		$	2.17		$	1.77
Earnings ratios:
Return on average assets (2)		1.59	%		1.87	%		1.68	%		1.62	%
Return on average equity (2)		15.40	%		18.08	%		16.22	%		15.18	%
Equity to total assets		10.58	%		10.48	%		10.58	%		10.48	%
Net interest margin (2) (3)		3.54	%		3.72	%		3.53	%		3.69	%
Dividend payout ratio		19.23	%		17.70	%		18.43	%		21.51	%

~~(1)~~	(1)	Per share values for the ~~period~~periods ended ~~March 31,~~June 30, 2020 have been adjusted to give effect to the 5% stock dividend paid during December 2020.
~~(2)~~	(2)	Ratios have been annualized and are not necessarily indicative of the results for the entire year.
~~(3)~~	(3)	Net interest margin is presented on a fully tax equivalent basis, using a 21% federal tax rate.

Interest Income. Interest income ~~was $10.0~~of $10.4 million for the quarter ended ~~March 31,~~June 30, 2021 ~~which was an increase of $675,000~~increased $721,000, or 7.5%, as compared to the same period of 2020. Interest income on loans increased ~~$1.3~~$1.1 million, or ~~17.9%~~13.8%, to ~~$8.4~~$8.8 million for the quarter ended ~~March 31,~~June 30, 2021, compared to the same period of 2020 due ~~primarily~~in part to an increase in our average loan balances, which increased from ~~$546.9~~$674.1 million in the ~~first~~second quarter of 2020 to ~~$730.2~~$709.9 million in the ~~first~~second quarter of ~~2021 due primarily to the origination of PPP loans. The increase in~~2021. Our average loan balances included an average ~~balance~~PPP loans of ~~$111.0~~$97.5 million in the second quarter of 2021 and $130.8 million in the second quarter of 2020. Also contributing to the higher interest income on loans were higher yields on loans, which increased from 4.64% in the second quarter of 2020 to 5.00% in the second quarter of 2021. The increase in yields on loans was driven by an increase in interest income on PPP loans, which ~~generated interest income~~increased from $665,000 in the second quarter of ~~$1.1~~2020 to $2.2 million in the second quarter of 2021. A significant amount of PPP loans were forgiven in the second quarter of 2021 which increased the yields on PPP loans from 2.53% in the second quarter of 2020 to 8.95% in the second quarter of 2021 as the remaining unamortized loan origination fees were recognized. Excluding PPP loans, our loan portfolio generally repriced lower during the second quarter of 2021 in the current low interest rate environment. We anticipate our loan portfolio will continue to reprice lower until market interest rates increase. Interest income on investment securities decreased $353,000, or 18.8%, to $1.5 million for the second quarter of 2021, as compared to $1.9 million in the same period of 2020. The decrease in interest income on investment securities was primarily the result of lower yields on investment securities, which decreased from 2.67% in the second quarter of 2020 to 2.00% in the second quarter of 2021. Partially offsetting the lower yields was an increase in the average balances of investment securities which increased from $313.9 million in the second quarter of 2020 to $340.3 million in the second quarter of 2021.

Interest income of $20.4 million for the six months ended June 30, 2021 increased $1.4 million, or 7.4%, as compared to the same period of 2020. Interest income on loans increased $2.4 million, or 15.8%, to $17.2 million for the six months ended June 30, 2021, compared to the same period of 2020 due mainly to an increase in our average loan balances, which increased from $610.5 million during the first ~~quarter~~six months of 2020 to $720.0 million during the first six months of 2021. Partially offsetting the higher average balances were lower yields on loans, which decreased from ~~5.24%~~4.91% in the six months ended June 30, 2020 to 4.83% during the six months ended June 30, 2021. Our average loan balances included average PPP loans of $104.2 million in the six months ended June 30, 2021 compared to $51.4 million the same period of 2020. Interest income on PPP loans increased from $665,000 in the first ~~quarter~~six months of 2020 to ~~4.67%~~$3.3 million in the first ~~quarter~~six months of 2021. In response to the COVID-19 pandemic, the Federal Reserve decreased the target federal funds interest rate by a total of 150 basis points in March 2020. This decrease impacted yields on loans between 2020 and 2021. We anticipate that ourThe yield on PPP loans ~~will continue~~increased from 2.60% in the first half of 2020 to ~~be adversely affected~~6.37% in ~~future periods as a result~~the first half of ~~the COVID-19 pandemic due to the expected continuation of the low interest rate environment.~~2021. Interest income on investment securities decreased ~~$603,000,~~$956,000, or ~~27.5%~~23.5%, to ~~$1.6~~$3.1 million for the first ~~quarter~~six months of 2021, as compared to ~~$2.2~~$4.1 million in the same period of 2020. The decrease in interest income on investment securities was the result of lower average balances, which decreased from ~~$361.3~~$337.6 million in the first ~~quarter~~six months of 2020 compared to ~~$307.0~~$323.8 million in the first ~~quarter~~six months of 2021, and lower ~~rates,~~yields, which decreased from 2.67% in the first ~~quarter~~six months of 2020 to ~~2.31%~~2.16% in the first ~~quarter~~six months of 2021.

Interest Expense. Interest expense during the quarter ended ~~March 31,~~June 30, 2021 decreased ~~$814,000,~~$244,000, or ~~66.9%~~39.0%, to ~~$402,000~~$382,000 as compared to the same period of 2020. Interest expense on interest-bearing deposits decreased ~~$702,000,~~$200,000, or ~~71.4%~~43.4%, to ~~$281,000~~$261,000 for the quarter ended ~~March 31,~~June 30, 2021 as compared to the ~~quarter ended March 31,~~same period of 2020. Our total cost of interest-bearing deposits decreased from ~~0.61%~~0.28% in the ~~first~~second quarter of 2020 to ~~0.15%~~0.14% in the ~~first~~second quarter of 2021 as a result of lower rates paid on money market and checking accounts, as the rates reprice based on market indexes, and lower rates on our certificates of deposit. ~~Offsetting our~~Partially offsetting the lower interest expense rates was an increase in average interest-bearing deposit balances, which increased from ~~$644.8~~$654.4 million in the ~~first~~second quarter of 2020 to ~~$762.7~~$771.7 million in the ~~first~~second quarter of 2021. For the ~~first~~second quarter of 2021, interest expense on borrowings decreased ~~$112,000,~~$44,000, or ~~48.1%~~26.7%, to $121,000 as compared to the same period of 2020 due to a decrease in our average outstanding borrowings, which decreased from ~~$41.1~~$39.0 million in the ~~first~~second quarter of 2020 to ~~$27.6~~$26.0 million in the same period of ~~2021, and~~2021. Partially offsetting the lower average balance of borrowings were slightly higher rates, which ~~decreased~~increased from ~~2.28%~~1.70% in the ~~first~~second quarter of 2020 to ~~1.78%~~1.86% in the same period of 2021.

Interest expense during the six months ended June 30, 2021 decreased $1.1 million, or 57.4%, to $784,000 as compared to the same period of 2020. Interest expense on interest-bearing deposits decreased $902,000, or 62.5%, to $542,000 for the six months ended June 30, 2021 as compared to the same period of 2020. The decrease in interest expense on interest-bearing deposits was the result of lower rates paid on money market and checking accounts, as the rates reprice based on market indexes, and lower rates on our certificates of deposit. The average ~~borrowings~~rate of interest-bearing deposits decreased 31 basis points to 0.14% for the first six months of 2021 as compared to 0.45% in the same period of 2020. Partially offsetting the lower rates was ~~primarily due to our increased~~an increase in average interest-bearing deposit balances, which ~~generated excess liquidity and~~increased from $649.6 million in the first six months of 2020 to $767.2 million in the same period of 2021. For the first six months of 2020, interest expense on borrowings decreased $156,000, or 39.2%, to $242,000 as ~~customers migrated~~compared to the same period of 2020, due primarily to a decrease in our average outstanding borrowings, which decreased from ~~repurchase agreements~~$40.1 million in the first six months of 2020 to ~~checking account products providing FDIC insurance~~$26.8 million in the first six months of 2021. Also contributing to the lower interest expense on ~~higher balances.~~borrowings were lower average rates on our borrowings, which decreased to 1.82% for the first six months of 2021 compared to 2.00% for the same period of 2020.

Net Interest Income. Net interest income increased ~~$1.5 million,~~$965,000, or ~~18.4%~~10.7%, to ~~$9.6~~$10.0 million for the ~~first~~second quarter of 2021 compared to the same period of 2020. The increase in net interest income was primarily a result of ~~a 24.0%~~higher yields on PPP loans and an increase of 10.9% in average interest-earning assets, from ~~$912.4~~$999.3 million in the ~~first~~second quarter of 2020 to ~~$1.1~~$1.2 billion infor the ~~first quarter~~same period of 2021. The increase in average interest-earning assets was primarily ~~driven by~~due to growth in ~~our loan portfolio. The decline in interest rates and~~ the ~~origination~~average balances of interest-bearing deposits at banks, loans which includes PPP loans, ~~contributed to a decrease in~~and investment securities. The higher balances of cash were the result of deposit growth and negatively impacted our net interest margin. Our net interest margin, on a ~~tax equivalent~~tax-equivalent basis, decreased from ~~3.67% in~~3.72% during the ~~first~~second quarter of 2020 to ~~3.51%~~3.54% in the same period of 2021.

Net interest income increased $2.5 million, or 14.3%, to $19.6 million for the first six months of 2021 compared to the same period of 2020. The increase was primarily due to higher yields on PPP loans and a result of a 19.6% increase in average interest-earning assets, from $955.9 million in the first six months of 2020 to $1.1 billion in the first six months of 2021. The increase average interest-earning assets was primarily due to growth in our average loan balances. Net interest margin, on a tax-equivalent basis, decreased from 3.69% in the first six months of 2020 to 3.53% in the same period of 2021.

As a result of the COVID-19 pandemic, we have originated approximately ~~$185.2~~$186.0 million of PPP loans from April 3, 2020, the first day of the program, through ~~April 30, 2021.~~May 31, 2021, the last day of the program. These loans have an interest rate of 1.00% plus the amortization of the origination ~~fee, which resulted in a yield of 4.08% on PPP loans in the first quarter of 2021.~~fee. The maturity date of these loans is two to five years from the date of borrowing unless the borrower’s loan is forgiven, in which case the loan may be repaid sooner. ~~While the cost of our funds is lower than the~~The yield on ~~these~~PPP loans incorporating the ~~interest rate spread is lower than we generally have received. As a result~~acceleration of the origination fee can vary significantly based on the number of ~~PPP~~ loans forgiven, which may increase or decrease our net interest ~~income has increased, but our net interest margin declined.~~margin. In addition, the economic effects of the COVID-19 pandemic ~~has~~have slowed our origination of new loans, excluding PPP loans, which may lead to lower net interest income and net interest margin in future periods. The continuation of the low market interest rates will also likely adversely impact our net interest income and net interest margin as a result of lower yields on loans and investment securities exceeding the benefit of a lower cost of funds.

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

	Three months ended June 30, 2021							Three months ended June 30, 2020
	Average balance		Income/ expense		Average yield/cost			Average balance		Income/ expense		Average yield/cost
(Dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits at banks	$	104,918	$	24		0.09	%	$	11,299	$	4		0.14	%
Investment securities (1)		340,306		1,697		2.00	%		313,872		2,087		2.67	%
Loans receivable, net (2)		709,872		8,846		5.00	%		674,149		7,772		4.64	%
Total interest-earning assets		1,155,096		10,567		3.67	%		999,320		9,863		3.97	%
Non-interest-earning assets		98,899							98,083
Total	$	1,253,995						$	1,097,403

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market and checking	$	506,479	$	126		0.10	%	$	412,894	$	139		0.14	%
Savings accounts		145,498		13		0.04	%		112,994		10		0.04	%
Certificates of deposit		119,751		122		0.41	%		128,545		312		0.98	%
Total interest-bearing deposits		771,728		261		0.14	%		654,433		461		0.28	%
Subordinate debentures and other borrowings		26,038		121		1.86	%		38,964		165		1.70	%
Total interest-bearing liabilities		797,766		382		0.19	%		693,397		626		0.36	%
Non-interest-bearing liabilities		326,485							290,535
Stockholders’ equity		129,744							113,471
Total	$	1,253,995						$	1,097,403

Interest rate spread (3)						3.48	%						3.61	%
Net interest margin (4)			$	10,185		3.54	%			$	9,237		3.72	%
Tax-equivalent interest - imputed				205							222
Net interest income			$	9,980						$	9,015

Ratio of average interest-earning assets to average interest-bearing liabilities						144.8	%						144.1	%

(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.

	Six months ended June 30, 2021							Six months ended June 30, 2020
	Average balance		Interest		Average yield/rate			Average balance		Interest		Average yield/rate
(Dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits at banks	$	99,450	$	46		0.09	%	$	7,765	$	15		0.39	%
Investment securities (1)		323,767		3,469		2.16	%		337,568		4,484		2.67	%
Loans receivable, net (2)		719,985		17,255		4.83	%		610,529		14,904		4.91	%
Total interest-earning assets		1,143,202		20,770		3.66	%		955,862		19,403		4.08	%
Non-interest-earning assets		98,953							95,079
Total	$	1,242,155						$	1,050,941

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market and checking	$	503,805	$	251		0.10	%	$	402,961	$	653		0.33	%
Savings accounts		139,186		24		0.03	%		107,366		19		0.04	%
Time deposit		124,252		267		0.43	%		139,292		772		1.11	%
Total deposits		767,243		542		0.14	%		649,619		1,444		0.45	%
FHLB advances and other borrowings		26,805		242		1.82	%		40,052		398		2.00	%
Total interest-bearing liabilities		794,048		784		0.20	%		689,671		1,842		0.54	%
Non-interest-bearing liabilities		319,439							249,150
Stockholders’ equity		128,668							112,120
Total	$	1,242,155						$	1,050,941

Interest rate spread (3)						3.46	%						3.54	%
Net interest margin (4)			$	19,986		3.53	%			$	17,561		3.69	%
Tax-equivalent interest - imputed				415							444
Net interest income			$	19,571						$	17,117

Ratio of average interest-earning assets to average interest-bearing liabilities						144.0	%						138.6	%

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

Rate/Volume ~~tables at~~Table. The following table describes the ~~end~~extent to which changes in tax-equivalent interest income and interest expense for major components of ~~Item 2 “Management’s Discussion~~interest-earning assets and ~~Analysis~~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 ~~Financial Condition~~(i) and ~~Results~~(ii)). The net changes attributable to the combined effect of ~~Operations” for additional details on asset yields, liability rates~~volume and ~~net interest margin.~~rate that cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

	Three months ended June 30,									Six months ended June 30,
	2021 vs 2020									2021 vs 2020
	Increase/(decrease) attributable to									Increase/(decrease) attributable to
	Volume			Rate			Net			Volume			Rate			Net
	(Dollars in thousands)									(Dollars in thousands)
Interest income:
Interest-bearing deposits at banks	$	21		$	(1	)	$	20		$	33		$	(2	)	$	31
Investment securities		197			(587	)		(390	)		(179	)		(836	)		(1,015	)
Loans		436			638			1,074			2,586			(235	)		2,351
Total		654			50			704			2,440			(1,073	)		1,367
Interest expense:
Deposits		112			(312	)		(200	)		322			(1,224	)		(902	)
Other borrowings		(61	)		17			(44	)		(123	)		(33	)		(156	)
Total		51			(295	)		(244	)		199			(1,257	)		(1,058	)
Net interest income	$	603		$	345		$	948		$	2,241		$	184		$	2,425

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 the second quarter of 2021, we did not record a provision for loan losses compared to a provision of $400,000 in the second quarter of 2020. We recorded net loan charge-offs of $108,000 during the second quarter of 2021 compared to net loan charge-offs of $132,000 during the second quarter of 2020. Improving economic conditions offset an increase in the allowance for loan losses specifically allocated to impaired loans, resulting in no provision for loan losses during the second quarter of 2021.

During the first ~~quarter~~six months of 2021, we recorded a provision for loan losses of $500,000 compared to ~~a provision for loan losses of $1.2~~$1.6 million during the ~~first quarter~~same period of 2020. We recorded net loan charge-offs of ~~$4,000~~$112,000 during the ~~first quarter of~~six months ended June 30, 2021 compared to ~~$188,000~~$320,000 during the ~~first quarter~~same period of 2020. ~~Our~~The increase in our provision for loan losses during 2020 was ~~impacted by~~primarily due to the ~~projected~~estimated economic impact of ~~the COVID-19 pandemic. The provision for loan losses in the first quarter of 2020 was the first quarterly analysis that included qualitative factors related to~~ the COVID-19 pandemic. If the COVID-19 pandemic causes economic declines in excess of our ~~projections,~~estimations, or if the pandemic lasts longer than currently projected, our provision for loan losses may ~~remain elevated or~~ increase in future periods. We ~~expect to~~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 related to COVID-19.

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

Non-interest Income. Total non-interest income was ~~$6.7~~$5.5 million in the ~~first~~second quarter of 2021, ~~compared to $5.4~~a decrease of $1.5 million, inor 21.5%, from the same period in 2020, primarily as a result of ~~2020. The increase~~a decrease of $2.0 million in ~~non-interest income was primarily due to an increase of $1.9 million of~~ gains on sales of loans. Our gains on sales of loans ~~increased~~decreased as our originations of secondary market one-to-four family residential real estate loans ~~increased~~slowed due to the ~~decline~~increase in mortgage interest rates ~~that have fueled a robust~~and decreased inventory in the housing market ~~and refinancing activity. Also contributing to the increase~~ in ~~non-interest income~~Landmark’s market areas. Partially offsetting this decrease was an increase of ~~$71,000~~$399,000 in fees and ~~service~~services charges ~~which were primarily~~ due to higher interchange and servicing fees ~~which were partially~~ offset in part by lower overdraft ~~income.~~fees and a $33,000 in gain on sales of investment securities during the second quarter of 2021.

Total non-interest income was $12.2 million in the first half of 2021, a decrease of $127,000, or 1.0%, from the first half of 2020. The decrease in non-interest income was primarily due to a decrease of $662,000 gains on sales of investment securities as a result of the Company recording $1.8 million in net gains on sales of investment securities during the first six months of 2020 compared to net gains of $1.1 million in the same period of 2021. Partially offsetting ~~those increases was a decline~~the decrease in gains on sales of investment securities ~~which decreased from $1.8 million~~was a $470,000 increase in ~~the first quarter of 2020~~fees and services charges due to ~~$1.1 million~~higher interchange and servicing fees offset in ~~the first quarter of 2021.~~part by lower overdraft fees.

Non-interest Expense. Non-interest expense ~~increased $1.0~~totaled $9.2 million for the second quarter of 2021, an increase of $74,000, or ~~11.9%~~0.8%, tofrom $9.1 million for the ~~first~~second quarter ~~of 2021 compared to the same period~~ of 2020. The increase ~~in non-interest expense~~ was primarily due to an increase of ~~$359,000~~$141,000 in other non-interest expense which was primarily a result of costs associated with the PPP loan forgiveness process. Also contributing to higher expenses were increases of $80,000 in professional fees, $53,000 in data processing fees and $42,000 in occupancy and equipment fees. Partially offsetting these increases was a decrease of $230,000 in compensation and benefits ~~which was driven in part by increases in our~~due to lower one-to-four family residential ~~real estate lending~~mortgage commissions.

Non-interest expense totaled $18.3 million for the first six months of 2021, an increase of $1.0 million or 6.0%, from $17.2 million for the first six months of 2020. The increase was primarily due an increase of $500,000 in other non-interest expense which was primarily related to costs associated with the PPP loan forgiveness process and ~~related commissions as well as general increases in compensation.~~one-to-four family residential mortgage lending. Also contributing to ~~the increase in non-interest expense was an increase~~higher expenses were increases of ~~$160,000~~$148,000 in amortization of mortgage servicing rights and other intangibles ~~due to retaining more~~resulting from accelerated prepayments on mortgage servicing ~~on one-to-four family residential mortgage loans.~~rights, $129,000 in compensation and benefits, $129,000 in data processing fees, and $108,000 in professional fees.

Income Tax Expense. During the ~~first~~second quarter of 2021, we recorded income tax expense of ~~$1.4~~$1.3 million, compared to ~~$785,000~~$1.4 million during the same period of 2020. ~~The~~Our effective tax rate ~~increased~~decreased from ~~18.9%~~21.2% in the second quarter of 2020 to 20.5% in the second quarter of 2021.

We recorded income tax expense of $2.7 million for the first six months of 2021 compared to $2.2 million in the same period of 2020. Our effective tax rate was 20.3% in the first ~~quarter~~half of 2020 compared to 20.4% in the first ~~quarter~~half of ~~2021, primarily due to an increase in earnings before income taxes while our tax-exempt income declined over the comparable periods.~~2021.

Financial Condition. Economic conditions in the United States deteriorated during 2020 as the impact of COVID-19 caused portions of the economy to shut down or be subject to operating restrictions. On March 28, 2020, a stay at home order was issued for the entire state of Kansas, which expanded previously issued local orders. This stay at home order was lifted on May 3, 2020 with a phased approach to reopening the Kansas ~~economy, but the effects of the stay at home order and reopening restrictions continue to have an effect on the economies in our market areas.~~economy. The State of Kansas and the geographic markets in which the Company operates ~~have been~~were significantly impacted by this ~~pandemic.~~pandemic; however, the economic reopening has driven a rebound in the regional economy. The Company’s allowance for loan losses included estimates of the economic impact of COVID-19 on our loan portfolio. COVID-19 ~~will likely~~may continue to cause an increase in our delinquent and non-accrual loans as the economic slowdown ~~impacts~~continues to impact our customers. 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 ~~we anticipate~~ further increases in problem assets may arise as a result of COVID-19, 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 ~~$60.8~~$62.4 million, or ~~5.1%~~5.3%, from December 31, 2020 to ~~$1.2~~$1.3 billion at ~~March 31,~~June 30, 2021.

The allowance for loan losses is established through a provision for loan losses based on our evaluation of the risk inherent in the loan portfolio and changes in the nature and volume of our loan activity. This evaluation, which includes a review of all loans with respect to which full collectability may not be reasonably assured, considers the fair value of the underlying collateral, economic conditions, historical loan loss experience, level of classified loans and other factors that warrant recognition in providing for an appropriate allowance for loan losses. At ~~March 31,~~June 30, 2021, our allowance for loan losses totaled ~~$9.3~~$9.2 million, or ~~1.27%~~1.34% of gross loans outstanding, compared to $8.8 million, or 1.23% of gross loans outstanding, at December 31, 2020. Our allowance for loan losses as a percentage of gross loans outstanding, excluding PPP loans of ~~$117.3~~$61.2 million at ~~March 31,~~June 30, 2021 and $100.1 million at December 31, 2020, was ~~1.51%~~1.47% at ~~March 31,~~June 30, 2021 compared to 1.43% at December 31, 2020. This reflects a more comparable ratio to periods prior to PPP, as no allowance for loan losses has been allocated to PPP loans since they are guaranteed by the Small Business Administration.

As of ~~March 31,~~June 30, 2021 and December 31, 2020, approximately ~~$24.8~~$23.1 million and $25.2 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 which raised doubts as to the ability of the ~~borrower~~borrowers to comply with present loan repayment terms. Even though borrowers were experiencing moderate cash flow problems as well as some deterioration in collateral value, management believed the allowance was sufficient to cover the risks and probable incurred losses related to such loans at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Loans past due 30-89 days and still accruing interest totaled ~~$5.0~~$1.9 million, or ~~0.69%~~0.27% of gross loans, at ~~March 31,~~June 30, 2021, compared to $1.5 million, or 0.22% of gross loans, at December 31, 2020. At ~~March 31,~~June 30, 2021, ~~$11.0~~$13.3 million in loans were on non-accrual status, or ~~1.51%~~1.94% of gross loans, compared to $10.5 million, or 1.47% of gross loans, at December 31, 2020. 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 ~~March 31,~~June 30, 2021 or December 31, 2020. Our impaired loans totaled ~~$12.8~~$14.8 million at ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021 and December 31, 2020 was related to TDRs that were accruing interest but still classified as impaired.

At ~~March 31,~~June 30, 2021, the Company had ten loan relationships consisting of 2117 outstanding loans that were classified as TDRs. During the ~~first quarter~~three and six months ended June 30, 2021, a commercial loan relationship consisting of five loans was modified after the originally being classified as a TDR in 2020. The borrower liquidated some of the collateral securing the loans and refinanced the remaining balance of $479,000 into one loan which retained a TDR classification. During the six months ended June 30, 2021, one commercial loan totaling $47,000 was classified as a TDR after extending the maturity of the loan. 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. A construction and land loan previously classified as a TDR in 2012 paid off during the first ~~three~~six months of 2021. There were no loans classified as TDRs during the first three months of 2020. One commercial loan relationship with five loans totaling $827,000 were classified as TDRs during the three months and six months ended June 30, 2020. The Company modified the five commercial loans to interest only as a result of the impact of COVID-19 pandemic. Because the borrower was experiencing financial difficulties prior to the pandemic the loans were classified as TDRs.

As of ~~March 31,~~June 30, 2021, the Company had 4one loan ~~modifications~~modification on an outstanding loan balances of ~~$6.8~~$3.8 million in connection with the COVID-19 pandemic. ~~These modifications~~This modification consisted of ~~payment deferrals that were less than 180 days and consisted~~the deferral of ~~either the full loan payment or just the~~ principal ~~component.~~payments. The Company also entered into short-term forbearance plans or short-term repayment plans on ~~two~~one one-to-four family residential mortgage loans totaling ~~$250,000~~$56,000 as of ~~March 31,~~June 30, 2021. Consistent with the CARES Act and the Joint Interagency Regulatory Guidance, these loan modifications were not classified as TDRs.

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 ~~March 31,~~June 30, 2021, we had ~~$1.5~~$1.4 million of real estate owned compared to $1.8 million at December 31, 2020. As of ~~March 31,~~June 30, 2021, real estate owned primarily consisted of commercial and residential real estate properties. The Company is currently marketing all of the remaining properties in real estate owned. Subsequent to June 30, 2021, we successfully negotiated a deed in lieu of foreclosure with a $1.7 million impaired commercial real estate loan. This impaired loan had a $421,000 allowance for loan losses recorded against it at June 30, 2021. The Company has started the process of marketing these two commercial real estate properties.

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 ~~$55.2~~$61.7 million in total deposits during the first ~~quarter~~six months of 2021, to $1.1 billion at ~~March 31,~~June 30, 2021. The increase in deposits was primarily due to increases in non-interest-bearing demand accounts, savings accounts, and ~~savings~~money market and checking deposit accounts. The increases in non-interest-bearing demand accounts and ~~savings~~money market and checking deposit accounts were associated with the deposit of stimulus checks and higher consumer savings rates. Offsetting those increases was a decrease in certificates of deposit. The decrease in certificates of deposit was primarily associated with a decline in public funds certificates of deposit accounts.

Non-interest-bearing deposits at ~~March 31,~~June 30, 2021, were ~~$314.6~~$307.1 million, or ~~29.4%~~28.5% of deposits, compared to $264.9 million, or 26.1% of deposits, at December 31, 2020. Money market and checking deposit accounts were ~~45.8%~~46.8% of our deposit portfolio and totaled ~~$490.6~~$504.0 million at ~~March 31,~~June 30, 2021, compared to $491.3 million, or 48.3% of deposits, at December 31, 2020. Savings accounts increased to ~~$142.5~~$150.9 million, or ~~13.3%~~14.0% of deposits, at ~~March 31,~~June 30, 2021, from $126.1 million, or 12.4% of deposits, at December 31, 2020. Certificates of deposit totaled ~~$123.5~~$115.7 million, or ~~11.5%~~10.7% of deposits, at ~~March 31,~~June 30, 2021, compared to $133.8 million, or 13.2% of deposits, at December 31, 2020.

Certificates of deposit at ~~March 31,~~June 30, 2021, scheduled to mature in one year or less, totaled ~~$103.2~~$98.1 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 ~~$2.2~~$1.8 million to ~~$25.8~~$26.2 million at ~~March 31,~~June 30, 2021, from $28.0 million at December 31, 2020. The decrease in total borrowings was due to a decrease in repurchase agreement accounts as customers have migrated to other deposit accounts.

Cash Flows. During the ~~three~~six months ended ~~March 31,~~June 30, 2021, our cash and cash equivalents increased by ~~$24.3~~$46.2 million. Our operating activities provided net cash of ~~$6.9~~$14.5 million during the first ~~three~~six months of 2021 primarily as a result of the proceeds from the sales of loans. Our investing activities used net cash of ~~$34.7~~$26.3 million during the first ~~three~~six months of 2021, primarily due to the purchase of investment securities. Financing activities provided net cash of ~~$52.1~~$58.0 million during the first ~~three~~six months of 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 ~~$430.1~~$475.0 million at ~~March 31,~~June 30, 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 or holding higher balances of cash and cash equivalents. The higher balances of cash and cash equivalents are primarily held in our Federal Reserve account.

Liquidity management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. Excess funds are typically generated as a result of increased deposit balances, while uses of excess funds are generally deposit withdrawals and loan advances. In the event we require funds beyond our ability to generate them internally, additional funds are generally available through the use of FHLB advances, a line of credit with the FHLB, other borrowings or through sales of investment securities. At ~~March 31,~~June 30, 2021, we had no borrowings against our line of credit with the FHLB. At ~~March 31,~~June 30, 2021, we had collateral pledged to the FHLB that would allow us to borrow ~~$99.6~~$102.9 million, subject to FHLB credit requirements and policies. At ~~March 31,~~June 30, 2021, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was ~~$87.1~~$81.8 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,~~June 30, 2021. At ~~March 31,~~June 30, 2021, we had subordinated debentures totaling $21.7 million and ~~$4.2~~$4.5 million of repurchase agreements. At ~~March 31,~~June 30, 2021, the Company had no borrowings against a $7.5 million line of credit from an unrelated financial institution maturing on November 1, 2021, 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 ~~March 31,~~June 30, 2021.

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~~$1.5 million at ~~March 31,~~June 30, 2021.

At ~~March 31,~~June 30, 2021, we had outstanding loan commitments, excluding standby letters of credit, of ~~$142.6~~$138.8 million. We anticipate that sufficient funds will be available to meet current loan commitments. These commitments consist of unfunded lines of credit and commitments to finance real estate loans.

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

The Basel III Rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a Tier 1 capital to risk-weighted assets minimum ratio of 6.0%, a Total Capital to risk-weighted assets minimum ratio of 8.0%, and a Tier 1 leverage minimum ratio of 4.0%. A capital conservation buffer, equal to 2.5% common equity Tier 1 capital, is also established above the regulatory minimum capital requirements (other than the Tier 1 leverage ratio). As of ~~March 31,~~June 30, 2021 and December 31, 2020, the Bank met the requirements to be “well capitalized,” which is the highest rating available under the regulatory capital regulations framework for prompt corrective action. Management believed that as of ~~March 31,~~June 30, 2021, the Company and the Bank met all capital adequacy requirements to which we are subject.

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 ensure we are prepared for events like the COVID-19 pandemic.

Dividends. During the quarter ended ~~March 31,~~June 30, 2021, we paid a quarterly cash dividend of $0.20 per share to our stockholders.

The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations. In addition, under the Basel III Rules, financial institutions have to maintain 2.5% in common equity Tier 1 capital attributable to the capital conservation buffer in order to pay dividends and make other capital distributions. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021, approximately ~~$24.0~~$27.9 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 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.

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

Three months ended Three months ended
March 31, 2021 March 31, 2020
Average balance Income/ expense Average yield/cost Average balance Income/ expense Average yield/cost
(Dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits at banks $ 93,921 $ 22 0.09 % $ 4,232 $ 11 1.05 %
Investment securities (1) 307,045 1,749 2.31 % 361,264 2,397 2.67 %
Loans receivable, net (2) 730,210 8,409 4.67 % 546,910 7,132 5.24 %
Total interest-earning assets 1,131,176 10,180 3.65 % 912,406 9,540 4.21 %
Non-interest-earning assets 99,008 92,076
Total $ 1,230,184 $ 1,004,482

Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Money market and checking $ 501,100 $ 125 0.10 % $ 393,028 $ 514 0.53 %
Savings accounts 132,803 11 0.03 % 101,738 9 0.04 %
Certificates of deposit 128,804 145 0.46 % 150,038 460 1.23 %
Total interest-bearing deposits 762,707 281 0.15 % 644,804 983 0.61 %
Subordinate debentures and other borrowings 27,580 121 1.78 % 41,140 233 2.28 %
Total interest-bearing liabilities 790,287 402 0.21 % 685,944 1,216 0.71 %
Non-interest-bearing liabilities 312,317 207,767
Stockholders' equity 127,580 110,771
Total $ 1,230,184 $ 1,004,482

Interest rate spread (3) 3.44 % 3.50 %
Net interest margin (4) $ 9,778 3.51 % $ 8,324 3.67 %
Tax-equivalent interest - imputed 187 222
Net interest income $ 9,591 $ 8,102

Ratio of average interest-earning assets
to average interest-bearing liabilities 143.1 % 133.0 %

	~~(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.~~

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

Three months ended March 31,
2021 vs 2020
Increase/(decrease) attributable to
Volume Rate Net
(Dollars in thousands)
Interest income:
Interest-bearing deposits at banks $ 11 $ - $ 11
Investment securities (341 ) (307 ) (648 )
Loans 1,905 (628 ) 1,277
Total 1,575 (935 ) 640
Interest expense:
Deposits 225 (927 ) (702 )
Other borrowings (67 ) (45 ) (112 )
Total 158 (972 ) (814 )
Net interest income $ 1,417 $ 37 $ 1,454

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

	As of June 30, 2021						As of December 31, 2020
Scenario	Dollar change in net interest income ($000’s)			Percent change in net interest income			Dollar change in net interest income ($000’s)			Percent change in net interest income
200 basis point rising	$	1,469			4.20	%	$	(99	)		-0.30	%
100 basis point rising	$	767			2.20	%	$	(169	)		-0.50	%
100 basis point falling	$	(1,036	)		-3.00	%	$	(180	)		-0.50	%
200 basis point falling		NM			NM			NM			NM

As of March 31, 2021 As of December 31, 2020
Scenario Dollar change in net interest income ($000’s) Percent change in net interest income Dollar change in net interest income ($000’s) Percent change in net interest income
200 basis point rising $ 1,524 4.20 % ($ 99 ) -0.30 %
100 basis point rising $ 799 2.20 % ($ 169 ) -0.50 %
100 basis point falling ($ 744 ) -2.00 % ($ 180 ) -0.50 %
200 basis point falling NM NM NM NM

The 200 basis point falling scenario is considered to be not meaningful (“NM”) in the current low interest rate environment.

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

Forward-Looking Statements

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

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

	●	The effects of the COVID-19 pandemic, including its ~~potential~~ effects on the economic environment, our customers and our operations as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic.
	●	The impact of the COVID-19 pandemic on our financial results, including possible lost revenue and increased expenses (including the cost of capital), as well as possible goodwill impairment charges.
	●	The strength of the United States economy in general and the strength of the local economies in which we conduct our operations, including the effects of the COVID-19 pandemic on such economies, which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of our assets.
	●	The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, consumer protection, insurance, tax, trade and monetary and financial matters.

	●	The effects of changes in interest rates (including the effects of changes in the rate of prepayments of our assets) and the policies of the Federal Reserve including on our net interest income and the value of our securities portfolio.
	●	Our ability to compete with other financial institutions due to increases in competitive pressures in the financial services sector.
	●	Our inability to obtain new customers and to retain existing customers.
	●	The timely development and acceptance of products and services.
	●	Technological changes implemented by us and by other parties, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequences to us and our customers.
	●	Our ability to develop and maintain secure and reliable electronic systems.
	●	The effectiveness of our risk management framework.
	●	The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents and our ability to identify and address such incidents.
	●	Interruptions involving our information technology and telecommunications systems or third-party servicers.
	●	Changes in and uncertainty related to the availability of benchmark interest rates used to price our loans and deposits, including the expected elimination of LIBOR and the development of a substitute.
	●	The effects of severe weather, natural disasters, widespread disease or pandemics, and other external events.
	●	Our ability to retain key executives and employees and the difficulty that we may experience in replacing key executives and employees in an effective manner.
	●	Consumer spending and saving habits which may change in a manner that affects our business adversely.
	●	Our ability to successfully integrate acquired businesses and future growth.
	●	The costs, effects and outcomes of existing or future litigation.
	●	Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the FASB, such as the implementation of CECL.
	●	The economic impact of past and any future terrorist attacks, acts of war or threats thereof, and the response of the United States to any such threats and attacks.
	●	Our ability to effectively manage our credit risk.
	●	Our ability to forecast probable loan losses and maintain an adequate allowance for loan losses.
	●	The effects of declines in the value of our investment portfolio.
	●	Our ability to raise additional capital if needed.
	●	The effects of declines in real estate markets.
	●	The effects of fraudulent activity on the part of our employees, customers, vendors, or counterparties.

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, 2020 filed on March 22, 2021.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~March 31,~~June 30, 2021. 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,~~June 30, 2021 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,~~June 30, 2021 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

~~None~~None.

ITEM 4. MINE SAFETY DISCLOSURES

Not ~~applicable~~applicable.

ITEM 5. OTHER INFORMATION

~~None~~None.

ITEM 6. EXHIBITS

	Exhibit 3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s transition report on Form 10-K filed with the SEC on March 29, 2002 (SEC file no. 000-33203))
	Exhibit 3.2		Certificate of Amendment of the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Company’s report on Form 10-K filed with the SEC on March 29, 2013 (SEC file no. 000-33203))
	Exhibit 3.3		Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Form S-4 filed with the SEC on June 7, 2001 (SEC file no. 333-62466))
	Exhibit 31.1		Certificate of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
	Exhibit 31.2		Certificate of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
	Exhibit 32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	Exhibit 32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	Exhibit 101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of ~~March 31,~~June 30, 2021 and December 31, 2020; (ii) Consolidated Statements of Earnings for the three and six months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020; (iii) Consolidated Statements of Comprehensive Income for the three and six months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020; (iv) Consolidated Statements of Stockholders’ Equity for the three and six months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020; (v) Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020; and (vi) Notes to Consolidated Financial Statements
	Exhibit 104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

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

	LANDMARK BANCORP, INC.

Date: ~~May 17,~~August 12, 2021	/s/ Michael E. Scheopner
	Michael E. Scheopner
	President and Chief Executive Officer
	(Principal Executive Officer)


Date: ~~May 17,~~August 12, 2021	/s/ Mark A. Herpich
	Mark A. Herpich
	Vice President, Secretary, Treasurer
	and Chief Financial Officer
	(Principal Financial and Accounting Officer)

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

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

		Page Number

	PART I

Item 1.	Financial Statements	2 ~~– 24~~- 26
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~25 – 33~~27 - 37
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~34 – 35~~38
Item 4.	Controls and Procedures	3639

	PART II

Item 1.	Legal Proceedings	3640
Item 1A.	Risk Factors	3640
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4036
Item 3.	Defaults Upon Senior Securities	3640
Item 4.	Mine Safety Disclosures	3640
Item 5.	Other Information	3640
Item 6.	Exhibits	3640

	Signature Page	3741

	701 Poyntz Avenue, Manhattan, Kansas 66502
	(Address of principal executive offices) (Zip code)

	(785) 565-2000
	(~~Registrant's~~Registrant’s telephone number, including area code)

	Three months ended March 31, 2020
(Dollars in thousands)	One-to-four family residential real estate loans		Construction and land loans			Commercial real estate loans		Commercial loans			Paycheck protection program loans		Agriculture loans		Municipal loans			Consumer loans			Total

Allowance for loan losses:
Balance at January 1, 2020	$	501	$	271		$	1,386	$	1,815		$	-	$	2,347	$	7		$	140		$	6,467
Charge-offs		-		(100	)		-		(33	)		-		-		-			(87	)		(220	)
Recoveries		-		-			-		1			-		-		6			25			32
Provision for loan losses		152		54			242		642			-		34		(6	)		82			1,200
Balance at March 31, 2020	$	653	$	225		$	1,628	$	2,425		$	-	$	2,381	$	7		$	160		$	7,479

	Three months ended							Three months ended
	March 31, 2021							March 31, 2020
	Average balance		Income/ expense		Average yield/cost			Average balance		Income/ expense		Average yield/cost
(Dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits at banks	$	93,921	$	22		0.09	%	$	4,232	$	11		1.05	%
Investment securities (1)		307,045		1,749		2.31	%		361,264		2,397		2.67	%
Loans receivable, net (2)		730,210		8,409		4.67	%		546,910		7,132		5.24	%
Total interest-earning assets		1,131,176		10,180		3.65	%		912,406		9,540		4.21	%
Non-interest-earning assets		99,008							92,076
Total	$	1,230,184						$	1,004,482

Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Money market and checking	$	501,100	$	125		0.10	%	$	393,028	$	514		0.53	%
Savings accounts		132,803		11		0.03	%		101,738		9		0.04	%
Certificates of deposit		128,804		145		0.46	%		150,038		460		1.23	%
Total interest-bearing deposits		762,707		281		0.15	%		644,804		983		0.61	%
Subordinate debentures and other borrowings		27,580		121		1.78	%		41,140		233		2.28	%
Total interest-bearing liabilities		790,287		402		0.21	%		685,944		1,216		0.71	%
Non-interest-bearing liabilities		312,317							207,767
Stockholders' equity		127,580							110,771
Total	$	1,230,184						$	1,004,482

Interest rate spread (3)						3.44	%						3.50	%
Net interest margin (4)			$	9,778		3.51	%			$	8,324		3.67	%
Tax-equivalent interest - imputed				187							222
Net interest income			$	9,591						$	8,102

Ratio of average interest-earning assets
to average interest-bearing liabilities						143.1	%						133.0	%