Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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.

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:

	●	The strength of the local, state, national and international economies and financial markets, including the effects of inflationary pressures and future monetary policies of the Federal Reserve in response thereto;
	●	Effects on the U.S. economy resulting from actions taken by the federal government, including the threat or implementation of tariffs, immigration enforcement and changes in foreign policy;
	●	Changes in interest rates and prepayment rates of our assets;
	●	Increased competition in the financial services sector and the inability to attract new customers, including from non-bank competitors such as credit unions and "fintech" companies;
	●	Timely development and acceptance of new products and services;
	●	Rapid and expensive technological changes implemented by us and other parties in the financial services industry, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequence to us and our customers, including the development and implementation of tools incorporating artificial intelligence;
	●	Our risk management framework;
	●	Interruptions in information technology and telecommunications systems and third-party services;
	●	The economic effects of severe weather, natural disasters, widespread disease or pandemics, or other external events;
	●	The loss of key executives or employees;
	●	Changes in consumer spending;
	●	Integration of acquired businesses;
	●	The commencement, cost and outcome of litigation and other legal proceedings and regulatory actions against us or to which the Company may become subject;
	●	Changes in accounting policies and practices, such as the implementation of the current expected credit losses accounting standard;
	●	The economic impact of past and any future terrorist attacks, military conflicts, acts of war, including ongoing conflicts in the Middle East, the Russian invasion of Ukraine and other international conflicts, or threats thereof, and the response of the United States to any such threats and attacks;
	●	The ability to manage credit risk, forecast loan losses and maintain an adequate allowance for loan losses;
	●	Fluctuations in the value of securities held in our securities portfolio;
	●	Concentrations within our loan portfolio and large loans to certain borrowers (including commercial real estate loans);
	●	The concentration of large deposits from certain clients who have balances above current FDIC insurance limits and may withdraw deposits to diversify their exposure;
	●	The level of non-performing assets on our balance sheets;
	●	The ability to raise additional capital;
	●	The occurrence of fraudulent activity, breaches or failures of our or our third-party vendors' information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools or as a result of insider fraud;
	●	Declines in real estate values;
	●	The effects of fraud on the part of our employees, customers, vendors or counterparties; and
	●	Our success at managing and responding to the risks involved in the foregoing items.

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 maintain high quality assets. We are committed to developing relationships with our borrowers and providing a total banking service.

The Bank is principally engaged in the business of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to originate one-to-four family residential real estate, construction and land, CRE, commercial, agriculture, municipal and consumer loans. Although not our primary business function, we 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, data processing expenses, professional fees, amortization of intangibles expense, federal deposit insurance costs, 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 28 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 ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), commonly referred to as "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 non-accrual 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 $551,000 in the allowance for credit losses as of December 31, 2025. 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.

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, 2025. 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.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND DECEMBER 31, 2024

SUMMARY OF PERFORMANCE. Net earnings for 2025 increased $5.8 million, or 44.4%, to $18.8 million as compared to $13.0 million for 2024. The increase in net earnings during 2025 was primarily related to an increase in net interest income due primarily to an increase in loan balances and higher yields on interest-earning assets.

We distributed a 5% stock dividend for the 25^th consecutive year in December 2025. All per share and average share data in this section reflect the 2025 and 2024 stock dividends.

Interest Income. Interest income for 2025 increased $7.1 million, or 9.6%, to $81.0 million, as compared to 2024. Interest income on loans increased $7.8 million, or 12.7%, to $69.2 million for 2025, as compared to 2024 due to higher yields and average balances. Our yields increased from 6.30% in 2024 to 6.37% in 2025. The increase in interest income on loans was also driven by an increase in average loan balances, which increased from $974.3 million in 2024 to $1.1 billion in 2025. Interest income on investment securities decreased $737,000, or 6.0%, to $11.6 million during 2025, as compared to 2024. The decrease in interest income on investment securities was primarily the result of a decrease in the average balances of investment securities in 2025, which decreased from $432.9 million in 2024 to $365.8 million in 2025.

Interest Expense. Interest expense during 2025 decreased $2.8 million, or 10.1%, to $25.3 million as compared to 2024. Interest expense on interest-bearing deposits decreased $1.4 million to $20.9 million for 2025 as compared to $22.3 million in 2024. Our total cost of interest-bearing deposits decreased from 2.38% during 2024 to 2.14% during 2025 as a result of lower interest rates. Offsetting the decrease in interest expense due to lower cost of interest-bearing deposits was an increase in average interest-bearing deposit balances, which increased from $938.2 million in 2024 to $979.4 million in 2025. Interest expense on borrowings decreased $1.5 million to $4.4 million during 2025, as compared to 2024, due to a decrease in our average borrowings, which decreased from $104.1 million in 2024 to $87.7 million in 2025.

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 2025, net interest income increased $10.0 million, or 21.8%, to $55.7 million compared to $45.7 million in 2024. The increase in net interest income was primarily a result of an increase in interest income on loans, coupled with lower interest expense, partially offset by lower interest income on investment securities. The accretion of purchase accounting adjustments increased net interest income by $794,000 in 2025 compared to $1.0 million in 2024. Compared to the same period last year, net interest income was benefitted by higher average balances and yields on loans, coupled with lower costs of interest-bearing liabilities. Our net interest margin, on a tax-equivalent basis, increased to 3.86% during 2025 from 3.28% during 2024. Lower interest rates may not result in a higher net interest margin as a result of increased competition for loans and deposits. 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 2025, we recorded a $2.4 million provision for credit losses compared to a $2.3 million provision for credit losses in 2024. We recorded net loan charge-offs of $2.7 million during 2025 compared to net charge-offs of $183,000 during 2024. The increase in net charge-offs during 2025 was primarily due to the charge-off of a single commercial credit during the third quarter.

Non-interest Income. Total non-interest income was $15.0 million in 2025, an increase of $207,000, or 1.4%, compared to 2024. The increase in non-interest income was primarily the result of a decrease in losses on sales of investment securities of $928,000 and an increase of $789,000 in gains on sales of loans. A loss of $103,000 was recorded on the sale of investment securities during 2025, a decrease from the $1.0 million loss recorded on the sale of investment securities in 2024. These increases were partially offset by a decrease of $604,000 in bank owned life insurance due to death benefits recognized in 2024 and a decrease of $547,000 in fees and service charges primarily due to lower fees to deposit accounts.

Non-interest Expense. Non-interest expense increased $1.2 million, or 2.6%, to $45.2 million in 2025 compared to $44.1 million in 2024. The increase in non-interest expense in 2025 was primarily driven by an increase of $2.4 million in compensation and benefits expense due to an increase in the number of employees coupled with higher incentive compensation costs tied to improved Company performance. This increase was partially offset by a decrease of $752,000 in valuation allowances for assets held for sale and a decrease of $510,000 in occupancy and equipment expense.

INCOME TAXES. We recorded income tax expense of $4.3 million in 2025 compared to $1.1 million in 2024. The effective tax rate increased from 7.7% in 2024 to 18.6% in 2025, primarily due to decreased recognition of previously unrecognized tax benefits. During 2025, we recognized $161,000 of previously unrecognized tax benefits compared to $1.0 million during 2024, which reduced the effective tax rates in both years.

FINANCIAL CONDITION. Economic conditions in the U.S. remained resilient during 2025 despite elevated inflation levels and economic uncertainty over tariffs continuing to impact the economy. Rate cuts by the Federal Reserve Bank during 2025 have positively benefitted financial institutions' earnings and net interest margin. The Federal Reserve lowered interest rates by 75 basis points during 2025 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, 2025 and 2024. Net loans, excluding loans held for sale, increased $59.2 million, or 5.7%, to $1.1 billion at December 31, 2025, compared to $1.0 billion at December 31, 2024. Investment securities available-for-sale decreased $24.4 million, or 6.5%, from $372.5 million at December 31, 2024 to $348.2 million at December 31, 2025.

The allowance for credit losses is established through a provision for credit losses based on our economic projections. At December 31, 2025, our allowance for credit losses on loans totaled $12.5 million, or 1.12% of gross loans outstanding, compared to $12.8 million, or 1.22% of gross loans outstanding, at December 31, 2024. The decrease in our allowance for credit losses on loans as a percentage of gross loans outstanding was primarily due to a decrease in the reserves on individually evaluated loans.

As of December 31, 2025 and 2024, approximately $22.9 million and $26.1 million, respectively, of loans were considered classified and assigned a risk rating of special mention, substandard or doubtful. The decrease in classified loans was primarily due to a commercial loan relationship that was charged off during 2025. 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. Management believed the general allowance was sufficient to cover all expected future losses expected in the loan portfolio at the balance sheet date.

Loans past due 30-89 days and still accruing interest totaled $4.3 million, or 0.38% of gross loans, at December 31, 2025, compared to $6.2 million, or 0.59% of gross loans, at December 31, 2024. At December 31, 2025, $10.0 million of loans were on non-accrual status, or 0.90% of gross loans, compared to $13.1 million, or 1.25% of gross loans, at December 31, 2024. 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 either December 31, 2025 or 2024.

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 or remove non-performing credits out of the loan portfolio. At December 31, 2025, we had no real estate owned compared to $167,000 of real estate owned at December 31, 2024. The decrease in real estate owned as of December 31, 2025 compared to December 31, 2024 was due to the sale of properties held as other real estate owned.

Liability Distribution. Our primary ongoing sources of funds are deposits, FHLB borrowings, proceeds from principal and interest payments on loans and investment securities and proceeds from the sale of mortgage loans and investment securities. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates and economic conditions. We had a balance of $1.4 billion in deposits at December 31, 2025 as compared to $1.3 billion at December 31, 2024.

Total borrowings decreased $54.8 million, or 61.9%, to $33.7 million at December 31, 2025, from $88.5 million at December 31, 2024. The decrease in borrowings was primarily due to deposit growth and the sale of investment securities.

Non-interest-bearing deposits at December 31, 2025 were $364.7 million, or 26.3% of deposits, compared to $351.6 million, or 26.5% of deposits, at December 31, 2024. Money market and checking accounts were 46.9% of our deposit portfolio and totaled $651.0 million at December 31, 2025, compared to 47.9% of our deposit portfolio totaling $637.0 million, at December 31, 2024. Savings accounts increased to $151.4 million, or 10.8% of deposits, at December 31, 2025, from $145.5 million, or 10.9% of deposits, at December 31, 2024. Certificates of deposit totaled $221.8 million, or 16.0% of deposits, at December 31, 2025, compared to $194.7 million, or 14.7% of deposits, at December 31, 2024. 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. Such decreases in deposit balances may cause us to secure funding through other borrowings which would likely result in higher interest costs.

Certificates of deposit at December 31, 2025, scheduled to mature in one year or less totaled $213.4 million. Historically, maturing deposits have generally remained with the Bank, and we believe that a significant portion of the deposits maturing in one year or less will remain with us upon maturity in some type of deposit account.

CASH FLOWS. During 2025, our cash and cash equivalents increased by $707,000 as compared to 2024. Our operating activities provided net cash of $21.6 million in 2025, compared to $14.2 million in 2024, which is primarily the result of increased net earnings and sales of one-to-four family residential mortgage loans. Our investing activities used net cash of $21.4 million during 2025, compared to $18.1 million in 2024, primarily to fund loan growth. Our financing activities provided net cash of $441,000 during 2025, compared to using $3.0 million in 2024, 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 $372.4 million at December 31, 2025 and $396.9 million at December 31, 2024. During periods in which we are not able to originate a sufficient amount of loans and/or periods of high principal prepayments, we generally increase our liquid assets by investing in short-term, high-grade investments.

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, 2025, we had an outstanding balance of $8.9 million against our line of credit with the FHLB. At December 31, 2025, we had collateral pledged to the FHLB that would allow us to borrow $239.1 million, subject to FHLB credit requirements and policies. At December 31, 2025, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity with the Federal Reserve was $42.0 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, 2025. At December 31, 2025, we had subordinated debentures totaling $21.7 million and $1.5 million of repurchase agreements. At December 31, 2025, the Company had no borrowings against a $5.0 million line of credit from an unrelated financial institution maturing on November 1, 2026, with an interest rate that adjusts daily based on the prime rate less 0.50%. This line of credit has covenants specific to capital and other financial ratios, which the Company was in compliance with at December 31, 2025. The Company also borrowed $1.7 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 $2.2 million at December 31, 2025 as compared to $1.9 million at December 31, 2024.

At December 31, 2025, we had outstanding loan commitments, excluding standby letters of credit, of $203.5 million, as compared to $201.2 million at December 31, 2024. 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, 2025, the Bank maintained a leverage ratio of 9.67% and a total risk-based capital ratio of 13.96%. As shown by the following table, the Bank's capital exceeded the minimum capital requirements in effect at December 31, 2025, including the capital conservation buffers.

		Actual				Actual				Minimum				Minimum
(dollars in thousands)		amount				percent				amount				percent(1)
Leverage		$	152,915				9.67	%		$	63,223				4.00	%
Common Equity Tier 1 Capital			152,915				12.92	%			82,871				7.00	%
Tier 1 Capital			152,915				12.92	%			100,629				8.50	%
Total Risk-Based Capital			165,313				13.96	%			124,306				10.50	%

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

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, 2025 and 2024, 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, 2025. 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, 2025, 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 25^th consecutive year in December 2025. The 2024 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, 2025. 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, 2025, $3.0 million was available to be paid as dividends to the Company by the Bank without prior regulatory approval.

Additionally, our ability to pay dividends is limited by the subordinated debentures 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.