LANDMARK BANCORP INC (LARK) FY 2024 MD&A

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

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

Forward-Looking
Statements

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

42

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

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

CORPORATE
PROFILE AND OVERVIEW

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

43

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

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

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

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

CRITICAL
ACCOUNTING POLICIES

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

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

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

44

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

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

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

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

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

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

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

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

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

45

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

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

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

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

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

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

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

46

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

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

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

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

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

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

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

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

47

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

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

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

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

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

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

48

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

DIVIDENDS

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

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

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

EFFECTS
OF INFLATION

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