LANDMARK BANCORP INC Fair Value Disclosure
(19) 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.
Fair value estimates of the Company’s financial instruments as of December 31, 2025 and 2024, including methods and assumptions utilized, are set forth below:
| (Dollars in thousands) | As of December 31, 2025 | |||||||||||||||||||
| Carrying | ||||||||||||||||||||
| amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 20,982 | $ | 20,982 | $ | $ | $ | 20,982 | ||||||||||||
| Interest-bearing deposits at other banks | 3,218 | 3,218 | 3,218 | |||||||||||||||||
| Investment securities available-for-sale | 348,157 | 53,183 | 294,974 | 348,157 | ||||||||||||||||
| Investment securities held-to-maturity | 3,789 | 3,477 | 3,477 | |||||||||||||||||
| Bank stocks, at cost | 5,756 | n/a | n/a | n/a | n/a | |||||||||||||||
| Loans, net | 1,098,393 | 1,103,265 | 1,103,265 | |||||||||||||||||
| Loans held for sale | 5,141 | 5,141 | 5,141 | |||||||||||||||||
| Mortgage servicing rights | 3,189 | 8,586 | 8,586 | |||||||||||||||||
| Accrued interest receivable | 7,076 | 184 | 1,981 | 4,911 | 7,076 | |||||||||||||||
| Derivative financial instruments | 239 | 239 | 239 | |||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Non-maturity deposits | $ | (1,167,088 | ) | $ | (1,167,088 | ) | $ | $ | $ | (1,167,088 | ) | |||||||||
| Certificates of deposit | (221,766 | ) | (221,202 | ) | (221,202 | ) | ||||||||||||||
| FHLB and other borrowings | (10,567 | ) | (10,553 | ) | (10,553 | ) | ||||||||||||||
| Subordinated debentures | (21,651 | ) | (19,311 | ) | (19,311 | ) | ||||||||||||||
| Repurchase agreements | (1,501 | ) | (1,501 | ) | (1,501 | ) | ||||||||||||||
| Accrued interest payable | (1,870 | ) | (1,870 | ) | (1,870 | ) | ||||||||||||||
| Derivative financial instruments | (19 | ) | (19 | ) | (19 | ) | ||||||||||||||
| (Dollars in thousands) | As of December 31, 2024 | |||||||||||||||||||
| Carrying | ||||||||||||||||||||
| amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 20,275 | $ | 20,275 | $ | $ | $ | 20,275 | ||||||||||||
| Interest-bearing deposits at other banks | 4,110 | 4,110 | 4,110 | |||||||||||||||||
| Investment securities available-for-sale | 372,512 | 64,458 | 308,054 | 372,512 | ||||||||||||||||
| Investment securities held-to-maturity | 3,672 | 3,290 | 3,290 | |||||||||||||||||
| Bank stocks, at cost | 6,618 | n/a | n/a | n/a | n/a | |||||||||||||||
| Loans, net | 1,039,221 | 1,027,865 | 1,027,865 | |||||||||||||||||
| Loans held for sale | 3,420 | 3,420 | 3,420 | |||||||||||||||||
| Mortgage servicing rights | 3,061 | 9,615 | 9,615 | |||||||||||||||||
| Accrued interest receivable | 7,132 | 219 | 2,001 | 4,912 | 7,132 | |||||||||||||||
| Derivative financial instruments | 200 | 200 | 200 | |||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Non-maturity deposits | $ | (1,134,072 | ) | $ | (1,134,072 | ) | $ | $ | $ | (1,134,072 | ) | |||||||||
| Certificates of deposit | (194,694 | ) | (193,901 | ) | (193,901 | ) | ||||||||||||||
| FHLB and other borrowings | (53,046 | ) | (48,846 | ) | (48,846 | ) | ||||||||||||||
| Subordinated debentures | (21,651 | ) | (18,556 | ) | (18,556 | ) | ||||||||||||||
| Repurchase agreements | (13,808 | ) | (13,808 | ) | (13,808 | ) | ||||||||||||||
| Accrued interest payable | (1,833 | ) | (1,833 | ) | (1,833 | ) | ||||||||||||||
Transfers
The Company did not transfer any assets or liabilities among levels during the years ended December 31, 2025 and 2024.
Valuation Methods for Instruments Measured at Fair Value on a Recurring Basis
The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis at December 31, 2025 and 2024, allocated to the appropriate fair value hierarchy:
| (Dollars in thousands) | As of December 31, 2025 | |||||||||||||||
| Fair value hierarchy | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Available-for-sale securities | ||||||||||||||||
| U. S. treasury securities | $ | 53,183 | $ | 53,183 | $ | $ | ||||||||||
| Municipal obligations, tax exempt | 87,809 | 87,809 | ||||||||||||||
| Municipal obligations, taxable | 90,603 | 90,603 | ||||||||||||||
| Agency mortgage-backed securities | 116,562 | 116,562 | ||||||||||||||
| Loans held for sale | 5,141 | 5,141 | ||||||||||||||
| Derivative financial instruments | 239 | 239 | ||||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative financial instruments | (19 | ) | (19 | ) | ||||||||||||
| (Dollars in thousands) | As of December 31, 2024 | |||||||||||||||
| Fair value hierarchy | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| U. S. treasury securities | $ | 64,458 | $ | 64,458 | $ | $ | ||||||||||
| Municipal obligations, tax exempt | 107,128 | 107,128 | ||||||||||||||
| Municipal obligations, taxable | 71,715 | 71,715 | ||||||||||||||
| Agency mortgage-backed securities | 129,211 | 129,211 | ||||||||||||||
| Loans held for sale | 3,420 | 3,420 | ||||||||||||||
| Derivative financial instruments | 200 | 200 | ||||||||||||||
The Company’s investment securities classified as available-for-sale include U.S. treasury securities, U.S. federal agency securities, municipal obligations and agency mortgage-backed securities. 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 obligations 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 securities 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 credit-related.
Mortgage loans originated and intended for sale in the secondary market are carried at estimated 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 or loss on loans held for sale were as follows:
| As of December 31, | ||||||||
| (Dollars in thousands) | 2025 | 2024 | ||||||
| Aggregate fair value | $ | 5,141 | $ | 3,420 | ||||
| Contractual balance | 5,033 | 3,376 | ||||||
| Gain | $ | 108 | $ | 44 | ||||
The Company’s derivative financial instruments consist of interest rate lock commitments and forward commitments for the future delivery of these mortgage loans. 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 sale of loans, net in the consolidated statements of earnings. The total amount of gains and losses from changes in fair value of derivative financial instruments included in earnings were as follows:
| As of December 31, | ||||||||||||
| (Dollars in thousands) | 2025 | 2024 | 2023 | |||||||||
| Total change in fair value | $ | 21 | $ | 100 | $ | (26 | ) | |||||
Valuation Methods for Instruments Measured at Fair Value on a Non-recurring Basis
The Company does not record its loan portfolio at fair value. Collateral-dependent 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 can be significant and result in a Level 3 classification of the inputs for determining fair value. Individually evaluated loans are reviewed at least quarterly for additional impairment and adjusted accordingly, based on the same factors identified above. The carrying value of the Company’s individually evaluated loans was $11.5 million at December 31, 2025 and $15.0 million at December 31, 2024, respectively. The Company’s collateral dependent loans with an allowance for credit losses was $2.5 million and $2.5 million, with an allocated allowance of $781,000 and $777,000, at December 31, 2025 and 2024, 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 for individually evaluated loans measure at fair value on a non-recurring basis as of December 31, 2025 and 2024.
| (Dollars in thousands) | ||||||||||||
| Fair value | Valuation technique | Unobservable inputs | Range | |||||||||
| As of December 31, 2025 | ||||||||||||
| Individual evaluated loans: | ||||||||||||
| One-to-four family residential real estate | $ | 356 | Sales comparison | Adjustment to appraised value | 0%-7 | % | ||||||
| Commercial real estate | $ | 134 | Sales comparison | Adjustment to comparable sales | 0%-25 | % | ||||||
| Commercial loans | $ | 1,213 | Sales comparison | Adjustment to comparable sales | 0%-50 | % | ||||||
| As of December 31, 2024 | ||||||||||||
| Individual evaluated loans: | ||||||||||||
| Commercial loans | $ | 1,768 | Sales comparison | Adjustment to comparable sales | 0%-50 | % | ||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Apr 14, 2026 | Showing above |
| 2024 | Mar 25, 2025 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.