**EXHIBIT13.1**

** **

**TO OURSTOCKHOLDERS, CUSTOMERS, AND FRIENDS**

 

LandmarkBancorp, Inc. reported net earnings of $4.5 million in 2008 with totalassets equaling $602 million at year end in what was one of the most difficultyears for the banking industry since the great depression.  Fully diluted earnings per share were $1.89per share.  This financial performancetranslates to an 8.98% return on average equity and a .75% return on averageassets.  We continued our historicalpractice of declaring a 5 percent stock dividend.  Our cash dividend paid in 2008, adjusted togive effect to the 5 percent stock dividend, increased approximately 5%compared to 2007.  The results of 2008took place in a declining economic environment that has spread from thesubprime residential loan sector in 2007 to a downturn throughout the globaleconomy in 2008.  Throughout the nationaleconomy, mortgage loan foreclosures have increased dramatically, residentialreal estate values have continued to decline, consumer spending has cut backsignificantly, banks have failed, and the government has injected large sums ofcapital into select banking institutions in an effort to stabilize theindustry.  Despite these developments,your company experienced solid profitability, ample liquidity, and a verystrong capital position.  Your company iswell positioned to face the challenges of 2009 and to take advantage ofopportunities that will be available to financially strong and well managedbanking institutions in the upcoming year. In the space below I will recap the challenges and successes weexperienced in 2008 and provide my outlook for 2009.

 

Theeconomic developments over the past two years have certainly impacted our loanportfolio.  In 2008, your companyincurred loan losses at levels significantly above our historical experienceand as a result provided $2.4 million to the loan loss reserve.  However, our sound underwriting principalshave kept our problems at manageable levels, in spite of the deterioration inthe economic environment.  We areaggressively managing all problem credits as they develop.  As a result of this aggressive resolutionstrategy, we may see an increase in non-performing loans and other real estateowned as we work through these problem credits. Most of the credit issues are in the land development and residentialconstruction sector.  Fortunately, we donot have a large concentration of credit outstanding to this sector and we havemade significant strides in reducing our overall exposure in this area over thelast couple of years.  We will continueto focus on reducing exposure in this part of our portfolio and expect to havethe majority of the issues resolved within the next 12 months.  The balance of our commercial loan portfoliocontinues to exhibit no unusual stress at this time.  Our residential loan portfolio is wellseasoned and has performed very well over the last several years, yielding goodreturns and very low losses.  Our managementpractice of insuring that the overall loan portfolio is diversified, bothgeographically and by economic sector, is paying dividends in these verydifficult economic times.  We continue tomonitor the portfolio carefully and make prudent adjustments to our loanportfolio management as economic events and trends unfold.  There is of course no guarantee that we willnot be confronted by unexpected challenges in our portfolio as a result of thechallenging times our customers continue to face.

 

Incontrast to what you would expect in the current residential housing market,your company experienced a record year in the origination of residentialmortgage loans.  In 2008 we originatedapproximately $85 million in residential mortgage loans for sale into thesecondary market.  This activitygenerated approximately $1.5 million in gains on sales of loans, an increase ofapproximately $500 thousand over 2007. We are off to an even more robust start in 2009 and fully expect anotherrecord year in mortgage loan originations. This is a key activity for our bank, not only in the origination ofnon-interest income, but also in the generation of new retail banking customersfor our bank and the development of core deposits and a total bankingrelationship.  This increased activity ina down market is the result of your company’s long standing tradition oforiginating high quality residential mortgage loans delivered to customers in aresponsive, service oriented environment. Customers now want to do business with an institution that has a longhistory of being in the mortgage business and providing a quality product.  Many of the mortgage brokers that entered thebusiness during the boom years of the housing market and contributed to thecurrent crisis with shoddy, unsound products have now either gone bankrupt orout of business.  Your company’s decisionto always offer quality mortgage products and to not participate in offeringsubprime mortgage products is now paying huge dividends.

 

Manyfinancial institutions experienced net interest income and margin compressionin 2008 as interest rates fell and non-performing loans increased.  In this difficult environment, we werepleased that net interest income

 

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increased approximately$350 thousand and the net interest margin increased from 3.47% to 3.51%.  We continue to actively manage our asset andliability pricing to identify and take advantage of market distortions whenpossible.  However, we are not extendingmaturities on loans or investments in an effort to chase yield and, as aresult, increase our interest rate risk. The difficult factor in this falling interest rate environment is thatmany financial institution competitors are struggling for liquidity and notreducing their deposit pricing as fast as market interest rate indices arefalling.  This is causing net interestrate margin compression as adjustable rate loans adjust downward in response tofalling interest rate indices and deposit pricing does not experience the samerelative adjustments.  Your company isworking to combat these pressures by implementing rate floors on loans whenpossible and adjusting loan pricing upward when it is appropriate.  We expect the maintenance of our net interestmargin to continue to be a challenge in 2009.

 

Thegrowth of recurring non-interest income is a key priority for your company inthe upcoming years.  We made significantprogress toward this goal in 2008.  Feesand service charges increased approximately $230 thousand over the previousyear.  As I mentioned earlier, gains onsales of loans increased by approximately $500 thousand, and other non-interestincome increased by approximately $115 thousand.  We will continue to explore opportunities tofurther the increases in non-interest income. We are exploring ways to continue to expand our mortgage bankingactivities to take advantage of the competitive void left by mortgagebrokers.  This would increase gains onsales of loans and at the same time supplement the continued development of feeproducing core deposit relationships.  Wecontinue to focus on the sale of non-deposit investment and insurance productsand are seeing the benefits from these efforts. We are also examining other potential products as a way to continuegrowth in this area.

 

Theeconomy played a key role in the November elections and continues todominate the news and public policy discussion and debate.  There is a public propensity to try to assessblame on the banking sector for the economic situation as a result of unwiselending, creation of complex financial derivatives, and the securitization ofcredit instruments that off loaded the risk from the originator’s balance sheetonto the balance sheet of unwary investors. What has been generally overlooked in the debate has been the extremeleverage that has been undertaken by consumers and businesses alike during a periodof low interest rates with an assumption that real estate values and incomewould continue to increase without interruption.  Many believed that the business cycle wasonly relevant to historical outdated economics and that we would have perpetualuninterrupted economic growth.  Wheneverthe mentality of “this time it is different” takes hold you see both theconsumer and business believe that the financial rules of risk and returnhave been rescinded and individual decision makers adopt risk profiles muchhigher than they realize.  When themarkets move against them, which they inevitably do, they cannot get out of theway and they suffer the consequences of their increased risk position.  Excess liquidity within the system, lowinterest rates, and relaxed residential mortgage underwriting standards, allcontributed to the bubble in residential real estate values and theunsustainable amount of leverage within the economy.  Housing will not stabilize and begin torecover until the excess inventory of new and used homes for sale isreduced.  Home values will continue todecline until the equilibrium point is reached in supply and demand.  Consumer spending will not recover until theexcess leverage is wrung out of the consumer’s balance sheet.  These factors all point to an extended periodof economic contraction and a subdued recovery when the economy begins to turn.

 

It issaid that banks reflect the economy in which they operate.  Your company will face numerous challenges in2009.  We expect that loan demand will beslow as a result of the less than favorable economic conditions.  While we feel good about the overall creditquality of our loan portfolio, we expect that portfolio management willcontinue to command much of our attention as we work to keep problem credits atan acceptable level in a constantly shifting economic environment.  We will need to focus closely on non-interestexpenses.  FDIC Insurance premiums areincreasing dramatically and the FDIC will be levying a one time emergencyassessment to bring its reserves back to an acceptable level.  FDIC assessments alone will increase ournon-interest expense in excess of $1 million. It is likely that the regulatory burden placed upon the banking industrywill increase as government reacts to the recent events and tries to put safeguards in place to insure we do not have a repeat of the credit crisis we haveendured over the past year and a half. It is regrettable that the conservative, well managed bankinginstitutions are penalized and have to pay for the sins and mistakes of otherswithin the financial services industry.

 

However,where there are challenges, there are also opportunities.  I have already addressed the opportunitypresent in our mortgage banking operation. We are also experiencing increased pricing power in our loan

 

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negotiations as we areable to achieve better rates on a risk adjusted basis as many of theaggressive, irrational competitors no longer have the ability to be activelenders.  We are increasingly presentedwith the opportunity to look at some quality credits that formerly banked withcompetitors that can no longer lend money due to credit quality problems withintheir portfolios.  We were able toacquire a branch in the Lawrence, Kansas market as one of our competitorsdecided to scale back their operations. We expect to have other opportunities that will allow us to complementand strengthen our current franchise when others are focused internally.  We will continue to aggressively look at ourcost structures to find ways where we can reduce costs and become moreefficient in the way we deliver quality financial services to customers.

 

Intimes like this, it is easy to focus on the negative issues that we all have todeal with.  I would like to conclude thisletter by looking at the strengths of your company and the reasons we believewe will succeed and prosper in the upcoming years.  We have a strong capital base of $51.5million and experienced earnings this past year of $4.5 million.  We operate in diverse Kansas communities thathave good work ethics and sound economic bases that have not felt the fullimpact of the economic downturn the rest of the nation has experienced.  Real estate values within our communities havebeen relatively stable.  We have an experiencedand seasoned management team, many of whom have experienced difficult economictimes before, that is capable of managing through this economicenvironment.  Your company has beenmanaged in a conservative manner with strong risk management principals inplace.  Finally, the board of directors,management, and associates of your company are dedicated to doing the best jobpossible and to insuring the success and prosperity of your company.  These are all key strengths that will carryus through these difficult economic times. I fully expect that your company will come through this period as astronger, more efficient, profitable organization.

 

Iwould like to thank our shareholders for your continued support andconfidence.  We will strive to enhanceyour shareholder value and reward your investment with a strong, profitableorganization you can take pride in.  I amespecially proud of my associates who work tirelessly toward the success of ourcustomers and the company and who have guided us through these difficulteconomic times.  They are the realstrength of your company and are dedicated to its success.  Finally, I must thank our customers for theirconfidence, support, and patronage.  Wewill continue to work to deliver quality financial services to enable you tosucceed and prosper in your personal and business endeavors.  We look forward to the future and are anxiousto continue the Landmark traditions of growth, profitability, financialstrength, and success.

 

Sincerely,

 
| /s/ Patrick L.  Alexander |   |   |   |
|---------------------------|--------|--------|--------|

 

Patrick L. Alexander

President and ChiefExecutive Officer

 

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**CORPORATEINFORMATION**

 

**DIRECTORSOF LANDMARK BANCORP, INC. AND LANDMARK NATIONAL BANK**

 

Larry Schugart, Chairman

Former President andChief Executive Officer

Landmark Bancshares, Inc.

 

Patrick L. Alexander

President and ChiefExecutive Officer

Landmark Bancorp, Inc.and Landmark National Bank

 

Richard A. Ball

CPA

Ball Consulting Group,Ltd.

 

Brent A. Bowman

Vice President

Bowman Bowman and Novick, Inc.

  Architects and Landscape Architects

 

Joseph L. Downey

Retired Senior VicePresident, Director and Executive Officer

Dow Chemical Company

 

Jim W. Lewis

Owner, Lewis AutomotiveGroup

 

Jerry R. Pettle

Retired Dentist

Dental Associates ofManhattan, P.A.

 

Susan E. Roepke

Retired Vice President,Secretary and Treasurer, MNB Bancshares, Inc.

Retired Senior VicePresident/Secretary/Cashier, Security National Bank

 

C. Duane Ross

Publisher Emeritus

High Plains Publishers, Inc.

 

David H. Snapp

Law Partner

Waite, Snapp &Doll

 

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**CORPORATE HEADQUARTERS**

 

701 Poyntz Avenue

Manhattan, Kansas 66502

 

**ANNUAL MEETING**

 

The annual meeting of stockholders will be held at theKansas State Alumni Center, 17th and Anderson Avenue, Manhattan, Kansas, onWednesday, May 20, 2009 at 2:00 PM.

 

**FORM 10-K**

 

A copy of the Annual Report on Form 10-K filedwith the Securities and Exchange Commission may be obtained by stockholderswithout charge on written request to Patrick L. Alexander, President and ChiefExecutive Officer, Landmark Bancorp, Inc., P.O. Box 308, Manhattan,Kansas 66505-0308, or by accessing our website at www.landmarkbancorpinc.com orthe SEC’s website at www.sec.gov.

 

**REGISTRAR AND TRANSFER AGENT**

 

Registrar and Transfer Company

10 Commerce Drive

Cranford, NJ 07016-3572

 

**INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

KPMG LLP

1000 Walnut, Suite 1000

Kansas City, Missouri 64106

 

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