**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**
| **x**                                              | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|----------------------------------------------------|-----------------------------------------------------------------------------------------------|
| ** **                                         |
| ** **                                         | ** **                                                                                    |
| **For the  quarterly period ended March 31, 2007** |
| ** **                                         |
| **OR**                                             |
| ** **                                         |
| **o**                                              | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                         |
|                                                    |                                                                                               |  |

 

**For transition period from         to             **

**Commission File Number 0-33203**

**LANDMARKBANCORP, INC.**

(Exact name of Registrant as specified in its charter)

 
| **Delaware**                                                    | **43-1930755**                           |
|-----------------------------------------------------------------|------------------------------------------|
| (State or other  jurisdiction of incorporation or organization) | (I.R.S. Employer  Identification Number) |
|                                                            |                                     |
| **701  Poyntz Avenue, Manhattan, Kansas**                       | **66502**                                |
| (Address of principal executive offices)                        | (Zip Code)                               |

 

**(785)565-2000**

(Registrant’s telephonenumber, including area code)

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes x  No o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct.

Large accelerated filer o                    Acceleratedfiler o                              Non-acceleratedfiler x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).Yes o  No x

Indicate the number of shares outstanding of each of the Registrant’sclasses of common stock as of the latest practicable date:  As of May 4, 2007, the Registrant had outstanding2,333,405 shares of its common stock, $.01 par value per share.

 

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**LANDMARK BANCORP, INC.**

**Form 10-QQuarterly Report**

**Table ofContents**

PART I
|                           | ** ** | ** **                                                                                  | ** ** | ** ** |
|---------------------------|------------|---------------------------------------------------------------------------------------------|------------|------------|
| Item 1.                   |       | Financial Statements and Related Notes                                                      |       |       |
| Item 2.                   |       | Management’s  Discussion and Analysis of Financial Conditionand Results of  Operations |       |       |
| Item 3.                   |       | Quantitative  and Qualitative Disclosures aboutMarket Risk                                  |       |       |
| Item 4.                   |       | Controls and  Procedures                                                                    |       |       |
|                      |       |                                                                                        |       |       |
|                      |       | PART II                                                                                     |       |       |
|                      |       |                                                                                        |       |       |
| Item 1.                   |       | Legal Proceedings                                                                           |       |       |
| Item  1A.                 |       | Risk  Factors                                                                               |       |       |
|                      |       |                                                                                        |       |       |
| Item 2.                   |       | Unregistered  Sales of Equity Securities andUse of  Proceeds                                |       |       |
| Item 3.                   |       | Defaults Upon  Senior Securities                                                            |       |       |
| Item 4.                   |       | Submission of  Matters to a Vote of Security  Holders                                       |       |       |
| Item 5.                   |       | Other Information                                                                           |       |       |
| Item  6.                  |       | Exhibits                                                                                    |       |       |
|                      |       |                                                                                        |       |       |
| Form 10-Q  Signature Page |       |                                                                                        |

 

1

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**
| ** **                                                                                                 | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                                 | ** ** | **2007**           | ** **  | **2006**              | ** ** |
| ** **                                                                                                 | ** ** | **(Unaudited)**    | ** **  | ** **            | ** ** |
| **ASSETS**                                                                                                 | ** ** | ** **         | ** **  | ** **            | ** ** |
| Cash  and cash equivalents                                                                                 |       | $                  | 14,487,933  |                  | $          | 14,751,914 |   |
| Investment  securities available for sale, at fair value                                                   |       | 156,318,239        |        | 145,884,168           |       |
| Loans,  net                                                                                                |       | 383,030,448        |        | 379,323,581           |       |
| Loans  held for sale                                                                                       |       | 1,967,471          |        | 1,364,474             |       |
| Premises  and equipment, net                                                                               |       | 13,632,345         |        | 13,767,075            |       |
| Goodwill                                                                                                   |       | 13,009,167         |        | 13,009,167            |       |
| Other  intangible assets, net                                                                              |       | 3,805,612          |        | 4,030,709             |       |
| Bank  owned life insurance                                                                                 |       | 11,262,001         |        | 11,144,796            |       |
| Accrued  interest and other assets                                                                         |       | 7,799,876          |        | 7,292,352             |       |
|                                                                                                       |       |               |        |                  |       |
| Total assets                                                                                               |       | $                  | 605,313,092 |                  | $          | 590,568,236 |   |
|                                                                                                       |       |               |        |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                             | ** ** | ** **         | ** **  | ** **            | ** ** |
| Liabilities:                                                                                               |       |               |        |                  |       |
| Deposits                                                                                                   |       | $                  | 457,507,193 |                  | $          | 444,485,370 |   |
| Federal Home Loan Bank borrowings                                                                          |       | 61,671,947         |        | 61,920,421            |       |
| Other borrowings                                                                                           |       | 28,512,005         |        | 28,495,643            |       |
| Accrued expenses, taxes and other liabilities                                                              |       | 7,481,710          |        | 6,430,787             |       |
| Total liabilities                                                                                          |       | 555,172,855        |        | 541,332,221           |       |
|                                                                                                       |       |               |        |                  |       |
| Stockholders’  equity:                                                                                |       |               |        |                  |       |
| Common stock, $0.01 par, 5,000,000 shares authorized, 2,342,925 and  2,341,744 shares issued, respectively |       | 23,429             |        | 23,417                |       |
| Additional paid-in capital                                                                                 |       | 22,665,794         |        | 22,607,510            |       |
| Retained earnings                                                                                          |       | 27,558,471         |        | 26,758,056            |       |
| Treasury stock, at cost; 9,520 and 5,000 shares, respectively                                              |       | (265,066           | )           | (138,506              | )          |
| Accumulated other comprehensive income (loss)                                                              |       | 157,609            |        | (14,462               | )          |
| Total stockholders’ equity                                                                            |       | 50,140,237         |        | 49,236,015            |       |
|                                                                                                       |       |               |        |                  |       |
| Total  liabilities and stockholders’ equity                                                           |       | $                  | 605,313,092 |                  | $          | 590,568,236 |   |

 

*See accompanying notes tocondensed consolidated financial statements.*

2

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**LANDMARKBANCORP, INC. AND SUBSIDIARY**

# **CONDENSED CONSOLIDATEDSTATEMENTS OF EARNINGS**

**(Unaudited)**

 
| ** **                                           | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Interest income:                                     |       |                                                 |       |   |   |
| Loans                                                |       | $                                                    | 7,136,282  |   | $ | 6,650,708 |   |
| Investment securities                                |       | 1,679,279                                            |       | 1,415,337 |   |
| Other                                                |       | 15,171                                               |       | 71,286 |   |
| Total interest income                                |       | 8,830,732                                            |       | 8,137,331 |   |
|                                                 |       |                                                 |       |   |   |
| Interest expense:                                    |       |                                                 |       |   |   |
| Deposits                                             |       | 3,250,165                                            |       | 2,427,335 |   |
| Borrowed funds                                       |       | 1,081,367                                            |       | 1,064,609 |   |
| Total interest expense                               |       | 4,331,532                                            |       | 3,491,944 |   |
|                                                 |       |                                                 |       |   |   |
| Net interest income                                  |       | 4,499,200                                            |       | 4,645,387 |   |
|                                                 |       |                                                 |       |   |   |
| Provision for loan losses                            |       | 65,000                                               |       | 60,000 |   |
|                                                 |       |                                                 |       |   |   |
| Net interest income after provision  for loan losses |       | 4,434,200                                            |       | 4,585,387 |   |
|                                                 |       |                                                 |       |   |   |
| Non-interest income:                                 |       |                                                 |       |   |   |
| Fees and service charges                             |       | 901,131                                              |       | 1,006,593 |   |
| Gains on sale of loans                               |       | 183,292                                              |       | 263,381 |   |
| Gains on sale of investments                         |       | —                                               |       | 143,541 |   |
| Gains on sale of other assets                        |       | —                                               |       | 46,823 |   |
| Bank owned life insurance                            |       | 115,824                                              |       | 45,633 |   |
| Other                                                |       | 128,622                                              |       | 185,570 |   |
| Total non-interest income                            |       | 1,328,869                                            |       | 1,691,541 |   |
|                                                 |       |                                                 |       |   |   |
| Non-interest expense:                                |       |                                                 |       |   |   |
| Compensation and benefits                            |       | 2,043,235                                            |       | 2,135,964 |   |
| Occupancy and equipment                              |       | 698,969                                              |       | 708,920 |   |
| Amortization of intangibles                          |       | 233,909                                              |       | 264,493 |   |
| Data processing                                      |       | 203,320                                              |       | 161,447 |   |
| Professional fees                                    |       | 117,907                                              |       | 84,377 |   |
| Advertising                                          |       | 108,888                                              |       | 107,518 |   |
| Other                                                |       | 751,165                                              |       | 774,135 |   |
| Total non-interest expense                           |       | 4,157,393                                            |       | 4,236,854 |   |
|                                                 |       |                                                 |       |   |   |
| Earnings before income taxes                         |       | 1,605,676                                            |       | 2,040,074 |   |
|                                                 |       |                                                 |       |   |   |
| Income tax expense                                   |       | 361,056                                              |       | 619,160 |   |
|                                                 |       |                                                 |       |   |   |
| Net earnings                                         |       | $                                                    | 1,244,620  |   | $ | 1,420,914 |   |
|                                                 |       |                                                 |       |   |   |
| Earnings per share:                                  |       |                                                 |       |   |   |
| Basic                                                |       | $                                                    | 0.53       |   | $ | 0.61 |   |
| Diluted                                              |       | $                                                    | 0.53       |   | $ | 0.60 |   |
|                                                 |       |                                                 |       |   |   |
| Dividends  per share                                 |       | $                                                    | 0.1900     |   | $ | 0.1619 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

3

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(Unaudited)**
| ** **                                                             | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                             | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
|                                                                   |       |                                                 |       |   |   |
| Net cash provided by (used in) operating activities                    |       | $                                                    | 1,582,229  |   | $ | (6,701,244 | ) |
|                                                                   |       |                                                 |       |   |   |
| Cash flows from investing activities:                                  |       |                                                 |       |   |   |
| Net increase in loans                                                  |       | (3,979,501                                           | )          | (5,788,119 | ) |
| Maturities and prepayments of  investments                             |       | 3,154,898                                            |       | 10,554,569 |   |
| Purchase of investment  securities                                     |       | (13,362,833                                          | )          | (6,360,310 | ) |
| Proceeds from sale of  investment securities                           |       | 5,000                                                |       | 499,753 |   |
| Net cash paid in FMB  acquisition                                      |       | —                                               |       | (9,147,605 | ) |
| Proceeds from sales of  premises and equipment and  foreclosed  assets |       | 40,216                                               |       | 396,813 |   |
| Purchases of premises and  equipment, net                              |       | (237,316                                             | )          | (777,532 | ) |
| Net cash used in investing  activities                                 |       | (14,379,536                                          | )          | (10,622,431 | ) |
|                                                                   |       |                                                 |       |   |   |
| Cash flows from financing activities:                                  |       |                                                 |       |   |   |
| Net increase in deposits                                               |       | 13,072,656                                           |       | 16,118,480 |   |
| Federal Home Loan Bank advance  repayments                             |       | (9,192                                               | )          | (509,192 | ) |
| Federal Home Loan Bank line of  credit, net                            |       | —                                               |       | (3,400,000 | ) |
| Proceeds from other borrowings                                         |       | 1,195,000                                            |       | 5,100,000 |   |
| Repayments on other borrowings                                         |       | (1,178,638                                           | )          | (4,280,932 | ) |
| Purchase of treasury stock                                             |       | (126,560                                             | )          | — |   |
| Proceeds from issuance of  common stock under  stock option  plans     |       | 20,491                                               |       | — |   |
| Tax benefit related to stock  option plans                             |       | 3,774                                                |       | — |   |
| Payment of dividends                                                   |       | (444,205                                             | )          | (378,861 | ) |
| Net cash provided by financing  activities                             |       | 12,533,326                                           |       | 12,649,495 |   |
| Net decrease in cash and cash  equivalents                             |       | (263,981                                             | )          | (4,674,180 | ) |
| Cash and cash equivalents at  beginning of period                      |       | 14,751,914                                           |       | 21,490,512 |   |
| Cash and cash equivalents at  end of period                            |       | $                                                    | 14,487,933 |   | $ | 16,816,332 |   |
|                                                                   |       |                                                 |       |   |   |
| Supplemental disclosure of cash flow information:                      |       |                                                 |       |   |   |
| Cash paid during period for  interest                                  |       | $                                                    | 4,166,000  |   | $ | 2,757,000 |   |
| Cash paid during period for  taxes                                     |       | $                                                    | —     |   | $ | — |   |
| Supplemental schedule of non-cash investing activities:                |       |                                                 |       |   |   |
| Transfer of loans to real  estate owned                                |       | $                                                    | 119,000    |   | $ | 24,000 |   |
| FMB acquisition:                                                       |       |                                                 |       |   |   |
| Fair value of liabilities  assumed                                     |       | $                                                    | —     |   | $ | 123,965,000 |   |
| Fair value of assets acquired,  including goodwill                     |       | $                                                    | —     |   | $ | 133,112,000 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

4

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**LANDMARKBANCORP, INC. AND SUBSIDIARY**

**CONSOLIDATEDSTATEMENTS OF EQUITY AND COMPREHENSIVE INCOME**

**(Unaudited)**
| ** **                                                                                                 | ** ** | **Common  stock** | ** ** | **Additional  paid-in   capital** | ** ** | **Retained  earnings** | ** ** | **Treasury   stock** | ** ** | **Accumulated  other  comprehensive   income (loss)** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------------------------|------------|------------------------|------------|---------------------------|------------|-----------------------------------------------------------------|------------|-----------|------------|
|                                                                                                       |       |              |       |                                   |       |                   |       |                      |       |                                                            |       |      |       |
| Balance December  31, 2005                                                                                 |       | $                 | 22,443     |                                   | 19,868,567 |                   | 25,322,019 |                      | (414,514   | )                                                               | (725,908   | )         | 44,072,607 |   |
|                                                                                                       |       |              |       |                                   |       |                   |       |                      |       |                                                            |       |      |       |
| Net earnings                                                                                               |       | —            |       | —                                 |       | 1,420,914              |       | —                    |       | —                                                          |       | 1,420,914 |       |
|                                                                                                       |       |              |       |                                   |       |                   |       |                      |       |                                                            |       |      |       |
|  Change in fair value of investment  securities available-for-sale and interest rate swap, net of tax |       | —            |       | —                                 |       | —                 |       | —                    |       | (131,007                                                        | )          | (131,007  | )          |
| Dividends paid  ($0.1619 per share)                                                                        |       | —            |       | —                                 |       | (378,860               | )          | —                    |       | —                                                          |       | (378,860  | )          |
| Stock-based  compensation                                                                                  |       | —            |       | 19,154                                 |       | —                 |       | —                    |       | —                                                          |       | 19,154    |       |
|                                                                                                       |       |              |       |                                   |       |                   |       |                      |       |                                                            |       |      |       |
| Balance March  31, 2006                                                                                    |       | $                 | 22,443     |                                   | 19,887,721 |                   | 26,364,073 |                      | (414,514   | )                                                               | (856,915   | )         | 45,002,808 |   |
|                                                                                                       |       |              |       |                                   |       |                   |       |                      |       |                                                            |       |      |       |
| Balance December  31, 2006                                                                                 |       | $                 | 23,417     |                                   | 22,607,510 |                   | 26,758,056 |                      | (138,506   | )                                                               | (14,462    | )         | 49,236,015 |   |
|                                                                                                       |       |              |       |                                   |       |                   |       |                      |       |                                                            |       |      |       |
| Net earnings                                                                                               |       | —            |       | —                                 |       | 1,244,620              |       | —                    |       | —                                                          |       | 1,244,620 |       |
|                                                                                                       |       |              |       |                                   |       |                   |       |                      |       |                                                            |       |      |       |
| Change in fair  value of investment securities available-for-sale                                          |       | —            |       | —                                 |       | —                 |       | —                    |       | 172,071                                                         |       | 172,071   |       |
| Dividends paid  ($0.1900 per share)                                                                        |       | —            |       | —                                 |       | (444,205               | )          | —                    |       | —                                                          |       | (444,205  | )          |
| Stock-based  compensation                                                                                  |       | —            |       | 34,031                                 |       | —                 |       | —                    |       | —                                                          |       | 34,031    |       |
| Exercise of  stock options, 1,181 shares, including tax benefit of $3,774                                  |       | 12                |       | 24,253                                 |       | —                 |       | —                    |       | —                                                          |       | 24,265    |       |
| Purchase 4,520  treasury shares                                                                            |       | —            |       | —                                 |       | —                 |       | (126,560                  | )          | —                                                          |       | (126,560  | )          |
|                                                                                                       |       |              |       |                                   |       |                   |       |                      |       |                                                            |       |      |       |
| Balance March  31, 2007                                                                                    |       | $                 | 23,429     |                                   | 22,665,794 |                   | 27,558,471 |                      | (265,066   | )                                                               | 157,609    |      | 50,140,237 |   |

 

*See accompanying notes tocondensed consolidated financial statements.*

5

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**LANDMARKBANCORP, INC. AND SUBSIDIARY**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**1.****            ****Interim Financial Statements**

Thecondensed consolidated financial statements of Landmark Bancorp, Inc. (the “Company”)and subsidiary have been prepared in accordance with the instructions to Form10-Q.  To the extent that information andfootnotes required by U.S. generally accepted accounting principles forcomplete financial statements are contained in or consistent with theconsolidated audited financial statements incorporated by reference in theCompany’s Form 10-K for the year ended December 31, 2006, such information andfootnotes have not been duplicated herein. In the opinion of management, all adjustments, consisting of normalrecurring accruals, considered necessary for a fair presentation of financialstatements have been reflected herein. The December 31, 2006, condensed consolidated balance sheet has beenderived from the audited consolidated balance sheet as of that date.  The results of the interim period ended March31, 2007 are not necessarily indicative of the results expected for the yearending December 31, 2007.

**2.****             Income Tax Expense**

TheCompany adopted the provisions of the Financial Accounting Standards Board (“FASB”)Financial Interpretation No. 48, “*Accounting for Uncertaintyin Income Taxes*” (FIN 48) on January 1, 2007.  FIN 48 provides a comprehensive model for thefinancial statement recognition, measurement, presentation and disclosure ofuncertain tax positions taken or expected to be taken in income taxreturns.  Unrecognized tax benefitsrepresent tax positions for which reserves have been established.  The Company’s adoption of FIN 48 did not haveany effect on its consolidated financial statements.  As of the date of adoption, our unrecognizedtax benefits totaled approximately $942,000, which if recognized, wouldfavorably affect our effective tax rate in future periods.  Included in this unrecognized tax benefit,are interest and penalties of $245,000. We recognize interest and penalties related to unrecognized tax benefitsas a component of income tax expense in our consolidated statements ofearnings.

Taxyears that remain open and subject to audit include the years 2003 through 2006for both federal and state.  We believethat it is reasonably possible that a reduction in unrecognized tax benefits ofup to $200,000 is possible during the next 12 months.

**3.****             Stock BasedCompensation**

Asummary of option activity during the first three months of 2007 is presentedbelow.
|                                                | ** ** | **Shares** | ** ** | **Weighted  average  exercise  price** | ** ** | **Weighted  average  remaining  contractual  term** | ** ** | **Aggregate  intrinsic  value** | ** ** |
|------------------------------------------------|------------|------------|------------|----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at  December 31, 2006              |       | 246,226    |       | $                                      | 24.18      |                                                | 7.77 years |                            | $          | 755,000 |   |
| Granted                                        |       | —     |       | —                                 |       | —                                              |       | n/a                             |       |
| Cancelled                                      |       | —     |       | —                                 |       | —                                              |       | n/a                             |       |
| Exercised                                      |       | 1,181      |       | 17.35                                  |       | —                                              |       | $                               | 11,101     |   |
| Outstanding at  March 31, 2007                 |       | 245,045    |       | $                                      | 24.22      |                                                | 7.55 years |                            | $          | 927,000 |   |
| Exercisable at  March 31, 2007                 |       | 103,714    |       | $                                      | 22.13      |                                                | 6.01 years |                            | $          | 609,000 |   |
| Vested and expected to  vest at March 31, 2007 |       | 235,015    |       | $                                      | 24.16      |                                                | 7.52 years |                            | $          | 903,000 |   |

 

6

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Additional information about stock options exercisedis presented below.
|                                              | ** ** | **Three months**         | ** ** |
|----------------------------------------------|------------|-------------------------------|------------|
| ** **                                   | ** ** | **ended March 31,** | ** ** |
| ** **                                   | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| Intrinsic value  of options exercised        |       | $                             | 11,101     |   | $ | — |   |
| Cash received  from options exercised        |       | $                             | 20,490     |   | $ | — |   |
| Tax benefit realized  from options exercised |       | $                             | 3,774      |   | $ | — |   |

 

As of March 31, 2007,there was $315,000 of total unrecognized compensation cost related tooutstanding options.  That cost isexpected to be recognized over a weighted-average period of 4 years.  The total fair value (at vest date) of sharesvested during the three month periods ended March 31, 2007 and 2006 was$142,000 and $99,000 respectively.

The number of sharesavailable for future grants at March 31, 2007 was 171,593.

**4.****            ****Earnings per Share**

Basicearnings per share have been computed based upon the weighted average number ofcommon shares outstanding during each period. Diluted earnings per share include the effect of all potential commonshares outstanding during each period. Earnings and dividends per share for all prior periods presented havebeen adjusted to give effect to the 5% stock dividend paid by the Company inDecember 2006.

The shares used inthe calculation of basic and diluted income per share are shown below:
|                                                     | ** ** | **Three months ended  March 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                          | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Net earnings  available to common stockholders      |       | $                                                | 1,244,620  |   | $ | 1,420,914 |   |
| Weighted average  common shares outstanding (basic) |       | 2,335,741                                        |       | 2,340,021 |   |
| Dilutive stock  options                             |       | 18,185                                           |       | 9,145 |   |
| Weighted average  common shares (diluted)           |       | 2,353,926                                        |       | 2,349,166 |   |
| Net earnings per  share                             |       |                                             |       |   |   |
| Basic                                               |       | $                                                | 0.53       |   | $  | 0.61 |   |
| Diluted                                             |       | $                                                | 0.53       |   | $ | 0.60 |   |

 

7

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**5.****             Comprehensive Income**

The Company’s other comprehensive income consists ofthe unrealized holding gains and losses on available-for-sale securities and anunrealized gain on an interest rate swap, which was terminated in December2006, as shown below.
|                                                                         | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Unrealized  holding gains (losses) on securities and interest rate swap |       | $                                                    | 277,534    |   | $ | (67,761 | ) |
| Less  reclassification adjustment for net gains included in income      |       | —                                               |       | 143,541 |   |
| Net unrealized gains (losses)                                           |       | 277,534                                              |       | (211,302 | ) |
| Income tax  expense (benefit)                                           |       | 105,463                                              |       | (80,295 | ) |
| Other comprehensive income (loss)                                       |       | $                                                    | 172,071    |   | $ | (131,007 | ) |

 

Accumulated other comprehensive income related entirelyto investment securities at March 31, 2007. The components at March 31, 2006 were $102,000 in cash flow hedgingactivities and ($959,000) in investment securities.

**6.****            ****OtherIntangible Assets**

The following isan analysis of changes in the core deposit intangible assets:
|                                 | ** ** | **Three months ended March 31,** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|
| ** **                      | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Balance at  beginning of period |       | $                                                    | 3,728,587  |   | $ | 2,044,014 |   |
| Additions                       |       | —                                               |       | 2,577,462 |   |
| Amortization                    |       | (203,815                                             | )          | (228,343 | ) |
| Balance at end of  period       |       | $                                                    | 3,524,772  |   | $ | 4,393,133 |   |

 

The following is an analysis of changes in themortgage servicing rights:
|                                 | ** ** | **Three months ended March 31,** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|
| ** **                      | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Balance at  beginning of period |       | $                                                    | 302,122    |   | $ | 374,199 |   |
| Additions                       |       | 8,812                                                |       | 18,924 |   |
| Amortization                    |       | (30,094                                              | )          | (36,150 | ) |
| Balance at end of  period       |       | $                                                    | 280,840    |   | $ | 356,973 |   |

 

The Company adopted the provisions of FASB Statementof Financial Accounting Standards (“SFAS”) No. 156, “Accounting for Servicingof Financial Assets – an amendment of FASB Statement No. 140” on January 1,2007 and elected to maintain the amortized cost method and carry the mortgageservicing rights at the lower of cost or market value.  The balance of the mortgage servicing rightscan fluctuate based on the performance of the underlying loans serviced.  The mortgage servicing rights correspond toloans serviced by the Company for unrelated third parties with outstandingprincipal balances of $99.7 million and $101.8 million at March 31, 2007 andDecember 31, 2006, respectively.  Grossservice fee income related to such loans was $64,000 and $68,000 for the threemonths ended

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March 31, 2007 and March 31, 2006, respectively, which is included infees and service charges in the condensed consolidated statements of earnings.

Accumulated amortization for core deposit intangibleassets was $1.9 million and $1.7 million at March 31, 2007 and December 31,2006, respectively.  Accumulated amortizationfor the mortgage servicing rights was $511,000 and $490,000 at March 31, 2007and December 31, 2006, respectively. Aggregate amortization expense for the three months ended March 31, 2007and 2006, was $234,000 and $264,000, respectively.  The following depicts estimated amortizationexpense for the remainder of 2007 and in successive years ending December 31:
| Year       | ** ** | **Amount** | ** ** |
|------------|------------|------------|------------|
| 2007       |       | $          | 696,000    |   |
| 2008       |       | 832,000    |       |
| 2009       |       | 631,000    |       |
| 2010       |       | 500,000    |       |
| 2011       |       | 402,000    |       |
| Thereafter |       | 736,000    |       |
|            |            |            |            |  |

 

**7.****             Impact of RecentAccounting Pronouncements**

In February 2006, the FASB issued SFAS No. 155, “*Accounting for Certain Hybrid Financial Instruments - an amendment ofFASB Statements No. 133 and 140*”. The Statement permits fair value remeasurement for certain hybridfinancial instruments containing embedded derivatives, and clarifies thederivative accounting requirements for interest and principal-only stripsecurities and interests in securitized financial assets.  It also clarifies that concentrations ofcredit risk in the form of subordination are not embedded derivatives andeliminates a previous prohibition on qualifying special-purpose entities fromholding certain derivative financial instruments.  SFAS No. 155 became effective for allfinancial instruments acquired or issued after January 1, 2007.  The adoption of SFAS No. 155 did not have anyeffect on our consolidated financial statements.

In March 2006, the FASB issued SFAS No. 156, “*Accounting for Servicing of Financial Assets – an amendment of FASBStatement No. 140*”.  TheStatement specifies under what situations servicing assets and servicingliabilities must be recognized.  Itrequires these assets and liabilities to be initially measured at fair valueand specifies acceptable measurement methods subsequent to theirrecognition.  Separate presentation inthe financial statements and additional disclosures are also required.  The Company adopted SFAS No. 156 effectiveJanuary 1, 2007.  The adoption of theStatement did not have any effect on our consolidated financial statements.

Also in March 2006, the FASB issued Staff Position85-4-1, which provides initial and subsequent measurement guidance andfinancial statement presentation and disclosure guidance for investments bythird-party investors in life settlement contracts.  The investments must be accounted for byeither (a) recognizing the initial investment at transaction price plus directexternal costs and capitalizing continuing costs, with no gain recognized inearnings until the insured dies, or (b) recognizing the initial investment attransaction price and remeasuring the investment at fair value at eachreporting period, with fair value changes recognized in earnings as theyoccur.  The Company began applying theguidance in this staff position beginning January 1, 2007.  The adoption of the Staff Position did nothave any effect on our consolidated financial statements.

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In September 2006, the FASB issued SFAS No. 157, “*Fair Value Measurements*”.  This Statement defines fair value, establishes a framework for measuringfair value in generally accepted accounting principles, and expands disclosuresabout fair value measurements.  It doesnot require any new fair value measurements. For calendar year companies, the SFAS No. 157 is effective beginningJanuary 1, 2008.  We do not expect thatadoption of SFAS No. 157 will have a material effect on our consolidatedfinancial statements.

In September 2006, the Emerging Issues Task Force (“EITF”)Issue 06-4, “*Accounting for Deferred Compensation andPostretirement Benefit Aspects of Endorsement Split-Dollar Life InsuranceArrangements*”, was ratified. EITF Issue 06-4 addresses accounting for separate agreements that splitlife insurance policy benefits between an employer and employee.  The EITF Issue 06-4 requires the employer torecognize a liability for future benefits payable to the employee under theseagreements.  The effects of applying theEITF Issue 06-4 must be recognized through either a change in accountingprinciple through an adjustment to equity or through the retrospectiveapplication to all prior periods. For calendar year companies, the EITF Issue06-4 is effective beginning January 1, 2008. We do not expect that adoption of the EITF Issue 06-4 will have amaterial effect on our consolidated financial statements.

In September 2006, the EITF Issue 06-5, “*Accounting for Purchases of Life Insurance – Determining the AmountThat Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4*”,was ratified.  The EITF Issue 06-5addresses accounting for what could be realized as an asset and providesclarification regarding additional amounts included in the contractual terms ofan individual policy in determining the amount that could be realized under theinsurance contract.  The effects ofapplying this issue must be recognized through an adjustment to equity orthrough the retrospective application to all prior periods.  The Company adopted the EITF issue 06-5effective beginning January 1, 2007.  Theadoption of the EITF Issue 06-5 did not have any effect on our consolidatedfinancial statements.

In February 2007, the FASB issued SFAS No. 159, “*The Fair Value Option for Financial Assets and Financial Liabilities*.”  SFAS No. 159 allows companies to electfair-value measurement of specified financial instruments and warranty andinsurance contracts when an eligible asset or liability is initially recognizedor when an event, such as a business combination triggers new basis ofaccounting for that asset or liability. The election, called the “fair-value option,” will enable companies toreduce the volatility in reported earnings caused by measuring related assetsand liabilities differently.  Theelection is available for eligible assets or liabilities on a contract-by-contractbasis without electing it for identical assets or liabilities under certainrestrictions.  The effective date of SFASNo. 159 will be reporting periods beginning after November 15, 2007.  We do not expect that adoption of SFAS No.159 will have a material effect on our consolidated financial statements.

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

*Overview*. Landmark Bancorp, Inc. is a bank holding company incorporated under thelaws of the State of Delaware and is engaged in the banking business throughits wholly-owned subsidiary, Landmark National Bank.  Landmark Bancorp is listed on the NASDAQGlobal Market under the symbol “LARK”. Landmark National Bank is dedicated to providing quality financial andbanking services to its local communities. Landmark National Bank originates commercial, commercial realestate,  one-to-four family residentialmortgage loans, consumer loans, multi-family residential mortgage loans, andhome equity loans.

Ourresults of operations depend primarily on net interest income, which is thedifference between interest income from interest-earning assets and interestexpense on interest-bearing liabilities. Net interest income is affected by regulatory, economic and competitivefactors that influence interest rates, loan demand and deposit flows.  In addition, we are subject to interest raterisk to the degree that our interest-earning assets mature or reprice atdifferent times, or at different speeds, than our interest-bearingliabilities.  Our results of operationsare also affected by non-interest income, such as service charges, loan feesand gains and losses from the sale of newly originated loans and investments.  Our principal operating expenses, aside frominterest expense, consist of compensation and employee benefits, occupancycosts, federal deposit insurance costs, data processing expenses and provisionfor loan losses.

Weare significantly impacted by prevailing economic conditions including federalmonetary and fiscal policies and federal regulations of financialinstitutions.  Deposit balances areinfluenced by numerous factors such as competing personal investments, thelevel of personal income and the personal rate of savings within our marketareas.  Factors influencing lendingactivities include the demand for housing and the interest rate pricingcompetition from other lending institutions.

*Critical Accounting Policies.* Critical accounting policies are those whichare both most important to the portrayal of our financial condition and resultsof operations, and require our management’s most difficult, subjective orcomplex judgments, often as a result of the need to make estimates about theeffect of matters that are inherently uncertain.  Our critical accounting policies relate tothe allowance for loan losses, the valuation of investment securities,accounting for income taxes and the accounting related to businessacquisitions, all of which involve significant judgment by our management.

We perform periodic and systematic detailed reviewsof our lending portfolio to assess overall collectability.  The level of the allowance for loan lossesreflects our estimate of the collectability of the loan portfolio.  While these estimates are based onsubstantive methods for determining allowance requirements, nevertheless,actual outcomes may differ significantly from estimated results.  Additional explanation of the methodologiesused in establishing this reserve is provided in the “Asset Quality andDistribution” section.

We report our investment securities at estimatedfair values based on published market ascertainable values, which are obtainedfrom independent sources.  We performperiodic reviews of the fair value of investment securities to determine if anydeclines in value might be considered other than temporary.  Our most recent review showed that thedecrease in fair value of the securities, resulting in an unrealized lossposition, was related to changes in interest rates.  None of the unrealized losses are related tocredit deterioration.  The Company hasthe ability and intent to hold these

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securities until market values recover, including up to the maturitydate.  Although we believe that ourestimates of the fair values of investment securities to be reasonable,economic and market factors may affect the amounts that will ultimately berealized from these investments.

The objectives of accounting for income taxes are torecognize the amount of taxes payable or refundable for the current year anddeferred tax liabilities and assets for the future tax consequences of eventsthat have been recognized in an entity’s financial statements or taxreturns.  Judgment is required inassessing the future tax consequences of events that have been recognized inour financial statements or tax returns. Under FIN 48, an income tax position will be recognized if it is morelikely than not that it will be sustained upon IRS examination, based upon itstechnical merits.  Once that status ismet, the amount recorded will be the largest amount of benefit that is greaterthan 50 percent likely of being realized upon ultimate settlement.  Changes in estimates regarding the actualoutcome of these future tax consequences, including the effects of IRSexaminations and examinations by other state agencies, could materially impactour financial position and results of operations.

Wehave completed severalbusiness and asset acquisitions which have generated significant amounts ofgoodwill and intangible assets and related amortization. The values assigned togoodwill and intangibles, as well as their related useful lives, are subject tojudgment and estimation by the Company. Goodwill and intangibles related toacquisitions are determined and based on purchase price allocations. Valuation of intangible assets is generally based on the estimated cash flowsrelated to those assets, while the initial value assigned to goodwill is theresidual of the purchase price over the fair value of all identifiable assetsacquired and liabilities assumed. If the carrying value of the goodwillexceeded the implied fair value of the goodwill, an impairment loss would berecorded in an amount equal to that excess. Performing such a discounted cashflow analysis involves the use of estimates and assumptions.  Useful lives are determined based on theexpected future period of the benefit of the asset, the assessment of whichconsiders various characteristics of the asset, including the historical cashflows.  Due to the number of estimates involved related to the allocationof purchase price and determining the appropriate useful lives of intangibleassets, we have identified purchase accounting as a critical accounting policy.

*Summary of Results*.  Netearnings for the three months ended March 31, 2007, decreased $176,000, or12.4%, to $1.2 million as compared to the three months ended March 31,2006.  The three months ended March 31,2007 resulted in diluted earnings per share of $0.53 compared to $0.60 for thesame period in 2006.  Return on averageassets, on an annualized basis, was 0.85% for the period compared to 0.96% forthe same period in 2006.  Return onaverage stockholders’ equity, on an annualized basis, was 10.33% for the periodcompared to 13.01% for the same period in 2006.

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The following table summarizes net earnings pershare and key performance measures for the periods presented.
|                               | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------|------------|------------------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Net earnings:                 |       |                                                 |       |   |   |
| Basic earnings  per share     |       | $                                                    | 0.53       |   | $ | 0.61 |   |
| Diluted earnings  per share   |       | $                                                    | 0.53       |   | $ | 0.60 |   |
| Earnings ratios:              |       |                                                 |       |   |   |
| Return on  average assets (1) |       | 0.85                                                 | %          | 0.96 | % |
| Return on  average equity (1) |       | 10.33                                                | %          | 13.01 | % |
| Dividend payout  ratio        |       | 35.85                                                | %          | 26.56 | % |
| Net interest margin (1)  (2)  |       | 3.60                                                 | %          | 3.57 | % |

 

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(1)          Theratio has been annualized and is not necessarily indicative of the results forthe entire year.

(2)          Net interest margin is presented on a fully taxable equivalent basis,using a 34% federal tax rate.

*Interest Income.* Interest income for the three months ended March 31, 2007, increased $693,000,or 8.5%, to $8.8 million from $8.1 million in the same period of 2006,resulting from increased interest income on both investment securities andloans.  Average loans for the quarterended March 31, 2007 decreased to $383.5 million from $390.6 million for thequarter ended March 31, 2006.  Offsettingthe decline in average loans was the rise in interest rates experienced duringthe past year, which contributed to the increased interest income.  As a result, interest income on loansincreased $486,000, or 7.3%, to $7.1 million for the quarter ended March 31,2007.  Average investment securitiesdecreased from $153.6 million for the quarter ended March 31, 2006, to $153.0 millionfor the quarter ended March 31, 2007. Even with the decrease in average investments for the comparableperiods, and the increased holdings of tax exempt investments, interest incomeon investment securities increased $208,000, or 14.0%, to $1.7 million for thefirst quarter of 2007, as compared to the same period of 2006.  The increase in interest rates, whichresulted in yields on our investments purchased being higher than the yields onthe investments which either matured or were sold during the past year, wasresponsible for the increase in investment income.

*Interest Expense*. Interest expense during the three months ended March 31, 2007, increased$840,000, or 24.0%, as compared to the same period of 2006.  For the three months ended March 31, 2007,interest expense on deposits increased $823,000, or 33.9%.  The increase in interest expense on depositsresulted from the repricing of deposits due to the rise in interest rates.  Average borrowings for the quarter endedMarch 31, 2007 decreased to $93.7 million from $99.9 million for the quarterended March 31, 2006.  Despite the loweraverage balances, interest expense on borrowings increased $17,000, or 1.6%, to$1.1 million.  The increase in interestrates, which increased the cost of our borrowings, more than offset the loweramount of borrowings.

*Net Interest Income*.  Netinterest income for the three months ended March 31, 2007, totaled $4.5million, decreasing $146,000, or 3.1%, as compared to the three months endedMarch 31, 2006.  This decline in netinterest income was due primarily to the increases in our cost of fundingoutpacing the increases in our yields on interest earning assets.  Average earning assets decreased during thefirst quarter of 2007, decreasing to $536.5 million from $544.2 million for thefirst quarter of 2006.  However, due toincreased investments in tax exempt municipal securities, our net interestmargin on a tax equivalent basis increased to 3.60% in the first quarter of2007 from 3.57% in the first quarter of 2006.

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*Provision for Loan Losses*.  Wemaintain, and our Board of Directors monitors, an allowance for losses onloans. The allowance is established based upon management’s periodic evaluationof known and inherent risks in the loan portfolio, review of significantindividual loans and collateral, review of delinquent loans, past loss experience,adverse situations that may affect the borrowers’ ability to repay, current andexpected market conditions, and other factors management deems important.Determining the appropriate level of reserves involves a high degree ofmanagement judgment and is based upon historical and projected losses in theloan portfolio and the collateral value of specifically identified problemloans. Additionally, allowance strategies and policies are subject to periodicreview and revision in response to a number of factors, including currentmarket conditions, actual loss experience and management’s expectations.

The provision for loan losses for the three monthsended March 31, 2007, was $65,000, compared to a provision of $60,000 duringthe three months ended March 31, 2006. One measure of the adequacy of the allowance for estimated losses onloans is the ratio of the allowance to the total loan portfolio.  At March 31, 2007, and December 31, 2006, theallowance for loan losses was $4.1 million and $4.0 million, or 1.1%, ofgross loans outstanding.  For furtherdiscussion of the allowance for loan losses, refer to the “Asset Quality andDistribution” section.

*Non-interest Income*. Non-interest income decreased $363,000, or 21.4%, for the three monthsended March 31, 2007, to $1.3 million compared to the three months ended March31, 2006.  This was primarily the resultof a $80,000, or 30.4%, decrease of gains on sale of loans, a decrease in feesand service charges of $105,000, or 10.5%, and the absence of $190,000 of gainson the sale of investments and other assets as compared to the first quarter of2006.  Also contributing to the declinein non-interest income was a $35,000 decrease in gains on sale of foreclosedassets, which is included in other non-interest income.  Offsetting these declines was a $70,000increase in the cash surrender value of bank owned life insurance, whichresulted from the purchase of additional policies totaling $7.5 million inMarch 2006.
|                               | ** ** | **Three months ended  March 31,** | ** ** |
|-------------------------------|------------|--------------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Non-interest income:          |       |                                             |       |   |   |
| Fees and service charges      |       | $                                                | 901,131    |   | $ | 1,006,593 |   |
| Gains on sale of loans        |       | 183,292                                          |       | 263,381 |   |
| Gains on sale of investments  |       | —                                           |       | 143,541 |   |
| Gains on sale of other assets |       | —                                           |       | 46,823 |   |
| Bank owned life insurance     |       | 115,824                                          |       | 45,633 |   |
| Other                         |       | 128,622                                          |       | 185,570 |   |
| Total  non-interest income    |       | $                                                | 1,328,869  |   | $ | 1,691,541 |   |

 

*Non-interest Expense*. Non-interest expense decreased $79,000, or 1.9%, to $4.2 million for thethree months ended March 31, 2007, as compared to the three months endedMarch 31, 2006.  Contributing to thereduction in non-interest expense was a $93,000 decrease in compensation andbenefits and a $31,000 decrease in amortization expense.  Offsetting those reductions were increases of$42,000 and $34,000 in data processing and professional fees, respectively.

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|                             | ** ** | **Three months ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **March 31,**               | ** ** |
| ** **                  | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| Non-interest  expense:      |       |                             |       |   |   |
| Compensation and benefits   |       | $                                | 2,043,235  |   | $ | 2,135,964 |   |
| Occupancy and equipment     |       | 698,969                          |       | 708,920 |   |
| Amortization of intangibles |       | 233,909                          |       | 264,493 |   |
| Data processing             |       | 203,320                          |       | 161,447 |   |
| Professional fees           |       | 117,907                          |       | 84,377 |   |
| Advertising                 |       | 108,888                          |       | 107,518 |   |
| Other                       |       | 751,165                          |       | 774,135 |   |
| Total  non-interest expense |       | $                                | 4,157,393  |   | $ | 4,236,854 |   |

 

*Income Tax Expense*.  Incometax expense decreased $258,000, or 41.7%, from $619,000 for the three monthsended March 31, 2006, to $361,000 for the three months ended March31, 2007.  The decrease in income taxexpense was the result of a $434,000 decrease in earnings before income taxesfor the first quarter of 2007 as compared to the first quarter of 2006 and bythe reduction in the effective tax rate for the first quarter of 2007, whichdecreased to 22.5% from 30.3% in the first quarter of 2006.  The decrease in the effective tax rate wasthe result of an increase in the utilization of tax exempt municipal bonds andbank owned life insurance.

*Asset Quality and Distribution*.  Ourprimary investing activities are the origination of commercial, mortgage,consumer loans and the purchase of investment and mortgage-backedsecurities.  Generally, we originatefixed-rate, residential mortgage loans with maturities in excess of ten yearsfor sale in the secondary market.  Wehave concentrated on generating commercial loans over the past few years andare pleased that this segment of our loan portfolio has grown.  While the January 1, 2006 First ManhattanBancorporation, Inc. (FMB) acquisition increased our one-to-four familyresidential loan totals, as the majority of the acquired loans wereresidential, we plan to continue our efforts to grow our commercial lendingactivities.  Total assets increased to$605.3 million at March 31, 2007, compared to $590.6 million at December 31,2006.  Net loans, excluding loans heldfor sale, increased by $3.7 million to $383.0 million during the threemonths ended March 31, 2007.

The allowance for losses on loans is establishedthrough a provision for losses on loans based on our evaluation of the riskinherent in the loan portfolio and changes in the nature and volume of its loanactivity.  Such evaluation, whichincludes a review of all loans with respect to which full collectibility maynot be reasonably assured, considers the fair value of the underlying collateral,economic conditions, historical loan loss experience, level of classified loansand other factors that warrant recognition in providing for an adequateallowance for losses on loans.  Webelieve that we use the best information available to determine the allowancefor losses on loans, unforeseen market conditions could result in adjustment tothe allowance for losses on loans.  Inaddition, net earnings could be significantly affected if circumstances differsubstantially from the assumptions used in establishing the allowance forlosses on loans.

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A summary of the activity in the allowance for loan losses is asfollows:
| Balance at December 31, 2006 |   | $       | 4,029,710 |   |
|------------------------------|--------|---------|-----------|--------|
| Provision for  loan losses   |   | 65,000  |      |
| Charge-offs                  |   | (42,371 | )         |
| Recoveries                   |   | 22,764  |      |
| Balance at March 31,  2007   |   | $       | 4,075,103 |   |

 

We believe that the quality of the loan portfoliocontinues to be strong.  Given the recentsubprime mortgage lending concerns within the industry, it is worth noting thatthis pipeline growth has occurred while continuing our practice of not offeringsubprime loan products.  As of March 31,2007, loans with a balance of $3.4 million were on non-accrual status, whichwas 0.9% of total loans, compared to loan balances totaling $3.6 million onnon-accrual status, or 0.9% of total loans, as of December 31, 2006.  In addition, the ratio of non-performingassets as a percentage of total assets decreased from 0.7% as of December 31,2006 to 0.6% as of March 31, 2007.  Residentialhome loans comprised 47.9% of the $3.4 million non-accrual balance at March 31,2007.  These loans have been underwrittenaccording to our residential lending policies and are well secured by realestate collateral, and in many instances, private mortgage insurance orgovernment guarantees.  We havehistorically incurred minimal losses on mortgage loans based upon collateralvalues and underlying insurance or guarantees. We are aggressively pursuing collection activity of these loans whichshould enable the collection of outstanding principal.

*Liability Distribution*.  Our primaryongoing sources of funds are deposits, proceeds from principal and interestpayments on loans and investment securities and proceeds from the sale ofmortgage loans and investment securities. While maturities and scheduled amortization of loans are a predictablesource of funds, deposit flows and mortgage prepayments are greatly influencedby general interest rates, economic conditions, competition, and therestructuring of the financial services industry.  Totaldeposits increased $13.0 million to $457.5 million at March 31, 2007, from$444.5 million at December 31, 2006. Borrowings decreased $232,000 to $90.2 million at March 31, 2007, from$90.4 million at December 31, 2006.

Non-interest bearing demand accounts at March 31,2007, were $53.5 million, or 11.7% of deposits, compared to $48.4 million,or 10.9% of deposits, at December 31, 2006. Certificates of deposit increased to $237.2 million at March 31, 2007,from $231.1 million at December 31, 2006. Money market and NOW demand accounts increased to $138.1 million atMarch 31, 2007, from $137.3 million at December 31, 2006, and were 30.2% oftotal deposits.  Savings accounts increasedto $28.6 million at March 31, 2007, from $27.7 million at December31, 2006.

Certificates of deposit at March 31, 2007, whichwere scheduled to mature in one year or less, totaled $196.2 million.  Historically, maturing deposits havegenerally remained with our bank and we believe that a significant portion ofthe deposits maturing in one year or less will remain with us upon maturity.

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*Contractual Obligations and Commercial Commitments*.  The following table presents our contractualobligations, defined as operating lease obligations and principal payments dueon non-deposit obligations with maturities in excess of one year as ofMarch 31, 2007, for the periods indicated.  Unrealized tax benefits associated with theadoption of FIN 48 are not included in the following table as the timing andresolution of these unrealized benefits can not be reasonably estimated at thistime.
| Contractual cash  obligations | ** ** | **Total**  | ** ** | **One year  or less** | ** ** | **One to  three years** | ** ** | **Four to  five years** | ** ** | **More than  five years** | ** ** |
|------------------------------------|------------|------------|------------|---------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-------------------------------------|------------|
| Operating leases                   |       | $          | 173,929    |                            | $          | 64,884                            |       | $                                 | 105,525    |                                | $          | 3,520 |   | $ | — |   |
| Service contracts                  |       | 4,935,000  |       | 1,260,000                       |       | 2,520,000                         |       | 1,155,000                         |       | —                              |       |
| FHLB borrowings                    |       | 61,671,947 |       | —                          |       | 41,075,625                        |       | 16,158,714                        |       | 4,437,608                           |       |
| Other borrowings                   |       | 28,512,005 |       | 6,091,005                       |       | 5,925,000                         |       | —                            |       | 16,496,000                          |       |
| Total contractual obligations      |       | $          | 95,292,881 |                            | $          | 7,415,889                         |       | $                                 | 49,626,150 |                                | $          | 17,317,234 |   | $ | 20,933,608 |   |

 

*Liquidity*.  Ourmost liquid assets are cash and cash equivalents and investment securitiesavailable for sale.  The levels of theseassets are dependent on the operating, financing, lending and investingactivities during any given period. These liquid assets totaled $170.8 million at March 31, 2007, and $160.6million at December 31, 2006.  Duringperiods in which we are not able to originate a sufficient amount of loansand/or periods of high principal prepayments, we increase our liquid assets byinvesting in short-term U. S. Government and agency securities or high-grademunicipal securities.

Liquidity management is both a daily and long-termfunction of our strategy.  Excess fundsare generally invested in short-term investments.  In the event we require funds beyond ourability to generate them internally, additional funds are generally availablethrough the use of Federal Home Loan Bank advances, a line of credit with theFederal Home Loan Bank or through sales of securities.  At March 31, 2007, we had outstanding FederalHome Loan Bank advances of $61.7 million and no borrowings against our line ofcredit with the Federal Home Loan Bank. At March 31, 2007, our total borrowing capacity with the Federal HomeLoan Bank was $116.2 million.  We alsohad other borrowings of $28.5 million at March 31, 2007, which included $16.5million of subordinated debentures, $5.9 million of long-term debt and $6.1million in repurchase agreements.

As a provider of financial services, we routinelyissue financial guarantees in the form of financial and performance standbyletters of credit. Standby letters of credit are contingent commitments issuedby us generally to guarantee the payment or performance obligation of acustomer to a third party. While these standby letters of credit represent apotential outlay by us, a significant amount of the commitments may expirewithout being drawn upon. We have recourse against the customer for any amountthe customer is required to pay to a third party under a standby letter ofcredit. The letters of credit are subject to the same credit policies,underwriting standards and approval process as loans made by us. Most of thestandby letters of credit are secured, and in the event of nonperformance bythe customers, we have the right to the underlying collateral, which couldinclude commercial real estate, physical plant and property, inventory,receivables, cash and marketable securities. The contract amount of thesestandby letters of credit, which represents the maximum potential futurepayments guaranteed by us, was $2.7 million at March 31, 2007.

At March 31, 2007, we had outstanding loancommitments, excluding standby letters of credit, of $74.1 million.  We anticipate that sufficient funds will beavailable to meet current loan commitments. These commitments consist of unfunded lines of credit and commitments tofinance real estate loans.

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*Capital*.  TheFederal Reserve Board has established capital requirements for bank holdingcompanies which generally parallel the capital requirements for national banksunder the Office of the Comptroller of the Currency regulations.  The regulations provide that such standardswill generally be applied on a consolidated (rather than a bank-only) basis inthe case of a bank holding company with more than $150 million in totalconsolidated assets.

AtMarch 31, 2007, we continued to maintain a sound leverage ratio of 8.52% and atotal risk based capital ratio of 13.40%. As shown by the following table, our capital exceeded the minimum capitalrequirements at March 31, 2007 (dollars in thousands):
|                          | ** ** | **Actual** | ** ** | **For capital  adequacy purposes** | ** ** | **To be well-  capitalized** | ** ** |
|--------------------------|------------|------------|------------|----------------------------------------------|------------|----------------------------------------|------------|
| **Company**              | ** ** | **Amount** | ** ** | **Ratio**                                    | ** ** | **Amount**                             | ** ** | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
| Leverage                 |       | $          | 49,421     |                                         | 8.52       | %                                      | $          | 23,216 |   | 4.0 | % | $ | 29,020 |   | 5.0 | % |
| Tier 1 Capital           |       | $          | 49,421     |                                         | 12.27      | %                                      | $          | 16,117 |   | 4.0 | % | $ | 24,176 |   | 6.0 | % |
| Total Risk Based Capital |       | $          | 53,992     |                                         | 13.40      | %                                      | $          | 32,235 |   | 8.0 | % | $ | 40,294 |   | 10.0 | % |

 

AtMarch 31, 2007, Landmark National Bank continued to maintain a sound leverageratio of 9.24% and a total risk based capital ratio of 14.33%.  As shown by the following table, the bank’scapital exceeded the minimum capital requirements at March 31, 2007 (dollars inthousands):
|                                      | ** ** | **Actual** | ** ** | **For capital  adequacy purposes** | ** ** | **To be well-  capitalized** | ** ** |
|--------------------------------------|------------|------------|------------|----------------------------------------------|------------|----------------------------------------|------------|
| **Landmark National Bank** | ** ** | **Amount** | ** ** | **Ratio**                                    | ** ** | **Amount**                             | ** ** | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
| Leverage                             |       | $          | 53,476     |                                         | 9.24       | %                                      | $          | 23,138 |   | 4.0 | % | $ | 28,923 |   | 5.0 | % |
| Tier 1 Capital                       |       | $          | 53,476     |                                         | 13.31      | %                                      | $          | 16,069 |   | 4.0 | % | $ | 24,103 |   | 6.0 | % |
| Total Risk Based Capital             |       | $          | 57,551     |                                         | 14.33      | %                                      | $          | 32,137 |   | 8.0 | % | $ | 40,172 |   | 10.0 | % |

 

Banks and bank holding companies are generallyexpected to operate at or above the minimum capital requirements.  The above ratios are well in excess ofregulatory minimums and should allow us to operate without capital adequacyconcerns.  The Federal Deposit InsuranceCorporation Improvement Act of 1991 establishes a bank rating system based onthe capital levels of banks.  As of March31, 2007, we were rated “well capitalized”, which is the highest ratingavailable under this capital-based rating system.

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*Average Assets/Liabilities*.  The following table sets forth informationrelating to average balances of interest-earning assets and liabilities for thethree months ended March 31, 2007 and the same period for 2006.  The following table reflects the average taxequivalent yields on assets and average costs of liabilities for the periodsindicated (derived by dividing income or expense by the monthly average balanceof assets or liabilities, respectively) as well as “net interest margin” (whichreflects the effect of the net earnings balance) for the periods shown:
| ** **                                                                        | ** ** | **Three months ended** | ** ** | **Three months ended** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                                        | ** ** | **March 31, 2007**     | ** ** | **March 31, 2006**     | ** ** |
| **(Dollars in thousands)**                                              | ** ** | **Average   balance**       | ** ** | **Interest**                     | ** ** | **Average   annual   yield/rate** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  annual   yield/rate** | ** ** |
| ASSETS:                                                                           |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                                          |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Investment securities (1)                                                         |       | $                                | 152,987    |                             | $          | 1,942 |   |   | 5.15 | % | $ | 153,576 |   | $ | 1,623 |   |   | 4.28 | % |
| Loans (2)                                                                         |       | 383,540                          |       | 7,149                            |       |   | 7.56 | % | 390,631 |   | 6,665 |   |   | 6.92 | % |
|                                                                              |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Total interest-earning assets                                                     |       | 536,527                          |       | 9,091                            |       |   | 6.87 | % | 544,207 |   | 8,287 |   |   | 6.18 | % |
| Non-interest-earning assets                                                       |       | 60,425                           |       |                             |       |   |   |   | 53,131 |   |   |   |   |   |   |
|                                                                              |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Total                                                                             |       | $                                | 596,952    |                             |       |   |   |   |   | $ | 597,338 |   |   |   |   |   |   |
|                                                                              |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY:                                       |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                     |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Certificates of deposit                                                           |       | $                                | 232,397    |                             | $          | 2,497 |   |   | 4.36 | % | $ | 225,556 |   | $ | 1,849 |   |   | 3.32 | % |
| Money market and NOW accounts                                                     |       | 136,812                          |       | 733                              |       |   | 2.17 | % | 139,107 |   | 555 |   |   | 1.62 | % |
| Savings accounts                                                                  |       | 27,783                           |       | 21                               |       |   | 0.31 | % | 30,815 |   | 23 |   |   | 0.30 | % |
| FHLB advances and other borrowings                                                |       | 93,726                           |       | 1,081                            |       |   | 4.68 | % | 99,905 |   | 1,065 |   |   | 4.32 | % |
|                                                                              |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Total interest-bearing liabilities                                                |       | 490,718                          |       | 4,332                            |       |   | 3.58 | % | 495,383 |   | 3,492 |   |   | 2.86 | % |
| Non-interest-bearing liabilities                                                  |       | 56,715                           |       |                             |       |   |   |   | 57,654 |   |   |   |   |   |   |
| Stockholders’ equity                                                         |       | 49,519                           |       |                             |       |   |   |   | 44,301 |   |   |   |   |   |   |
| Total                                                                             |       | $                                | 596,952    |                             |       |   |   |   |   | $ | 597,338 |   |   |   |   |   |   |
|                                                                              |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Interest rate  spread (3)                                                         |       |                             |       |                             |       |   | 3.29 | % |   |   |   |   |   | 3.32 | % |
| Net interest  margin (4)                                                          |       |                             |       | 4,759                            |       |   | 3.60 | % |   |   | 4,795 |   |   | 3.57 | % |
| Tax equivalent  interest - imputed                                                |       |                             |       | 260                              |       |   |   |   |   |   | 150 |   |   |   |   |
| Net interest  income                                                              |       |                             |       | $                                | 4,499      |   |   |   |   |   |   | $ | 4,645 |   |   |   |   |
|                                                                              |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Ratio of average  interest-earning assets to average interest-bearing liabilities |       |                             |       | 109.3                            | %          |   |   |   |   |   | 109.9 | % |   |   |   |

 

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(1)          Income on investmentsecurities includes all securities and interest bearing deposits in otherfinancial institutions.  Income on taxexempt securities is presented on a fully taxable equivalent basis, using a 34%federal tax rate.

(2)          Includes loansclassified as non-accrual.  Income on taxexempt loans is presented on a fully taxable equivalent basis, using a 34%federal tax rate.

(3)          Interest rate spreadrepresents the difference between the average yield on interest-earning assetsand the average cost of interest-bearing liabilities

(4)          Netinterest margin represents annualized net interest income divided by averageinterest-earning assets.

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**ITEM 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURE ABOUT MARKET RISK**

Our assets and liabilities are principally financialin nature and the resulting net interest income thereon is subject to changesin market interest rates and the mix of various assets and liabilities.  Interest rates in the financial marketsaffect our decision on pricing our assets and liabilities, which impacts netinterest income, a significant cash flow source for us.  As a result, a substantial portion of ourrisk management activities relates to managing interest rate risk.

Our Asset/Liability Management Committee monitorsthe interest rate sensitivity of our balance sheet using earnings simulationmodels and interest sensitivity gap analysis. We have set policy limits of interest rate risk to be assumed in thenormal course of business and monitor such limits through our simulationprocess.

We have been successful in meeting the interest ratesensitivity objectives set forth in our policy. Simulation models are prepared to determine the impact on net interestincome for the coming twelve months, including one using rates at March 31,2007, and forecasting volumes for the twelve-month projection.  This position is then subjected to a shift ininterest rates of 100 and 200 basis points rising and falling with an impact toour net interest income on a one year horizon as follows:
| Scenario                | ** ** | **$ Change in Net Interest Income** | ** ** | **% of Net Interest Income** | ** ** |
|-------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------|------------|
| 100 basis point rising  |       | $                                                            | 214,000    |                                             | 1.1        | % |
| 200 basis point rising  |       | $                                                            | 116,000    |                                             | 0.6        | % |
| 100 basis point falling |       | $                                                            | (466,000   | )                                                | (2.5       | )% |
| 200 basis point falling |       | $                                                            | (1,365,000 | )                                                | (7.2       | )% |

 

***Safe Harbor Statement under the Private SecuritiesLitigation Reform Act of 1995 - Forward-Looking Statements*****. **This documentcontains, and future oral and written statements of the Company and itsmanagement may contain, forward-looking statements, within the meaning of suchterm in the Private Securities Litigation Reform Act of 1995, with respect tothe financial condition, results of operations, plans, objectives, futureperformance and business of the Company. Forward-looking statements, which may be based upon beliefs,expectations and assumptions of the Company’s management and on informationcurrently available to management, are generally identifiable by the use ofwords such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,”“will,” “would,” “could,” “should” or other similar expressions.  Additionally, all statements in thisdocument, including forward-looking statements, speak only as of the date theyare made, and the Company undertakes no obligation to update any statement inlight of new information or future events.

TheCompany’s ability to predict results or the actual effect of future plans orstrategies is inherently uncertain. The factors which could have a materialadverse effect on the operations and future prospects of the Company and itssubsidiaries are detailed in the “Risk Factors” section included under Item 1A.of Part I of our Form 10-K.  In additionto the risk factors described in that section, there are other factors that mayimpact any public company, including ours, which could have a material adverseeffect on the operations and future prospects of the Company and itssubsidiaries.  These risks anduncertainties should be considered in evaluating forward-looking statements andundue reliance should not be placed on such statements.

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**ITEM 4.  CONTROLS AND PROCEDURES**

An evaluation was performed under the supervisionand with the participation of the Company’s management, including the ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedures (asdefined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of1934, as amended ) as of March 31, 2007. Based on that evaluation, the Company’s management, including the ChiefExecutive Officer and Chief Financial Officer, concluded that the Company’sdisclosure controls and procedures were effective.

There were no changes in the Company’s internalcontrols over financial reporting during the quarter ended March 31, 2007 thatmaterially affected or were likely to materially affect the Company’s internalcontrol over financial reporting.

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

**PART II – OTHER INFORMATION**

**ITEM 1.  LEGAL PROCEEDINGS**

There are no materialpending legal proceedings to which the Company or its subsidiaries is a partyother than ordinary routine litigation incidental to their respectivebusinesses.

**ITEM 1A.  RISK FACTORS**

There have been no material changes in the riskfactors applicable to the Company from those disclosed in Part I,Item 1A. “Risk Factors,” in the Company’s 2006 Annual Report on Form10-K.  Please refer to that section ofthe Company’s Form 10-K for disclosures regarding the risks and uncertaintiesrelated to the Company’s business.

**ITEM 2.  UNREGISTERED SALES OFEQUITY SECURITIES AND USE OF PROCEEDS**

The following table provides information about purchases by the Companyand its affiliated purchases during the quarter ended March 31, 2007, of equitysecurities that are registered by the Company pursuant to Section 12 of theExchange Act.
| Period               | ** ** | **Total   Number of   Shares   Purchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of a Publicly  Announced Plan (1)** | ** ** | **Maximum Number   (or Approximate   Dollar Value) of   Shares that May   Yet Be Purchased  Under the Plans (1)** | ** ** |
|----------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 1-31,  2007  |       | —                                                         |       | —                                       |       | —                                                                                                                        |       | 72,036                                                                                                                                                                                       |       |
| February 1-28,  2007 |       | 4,520                                                          |       | $                                            | 28.00      |                                                                                                                          | 4,520      |                                                                                                                                                                                         | 67,516     |   |
| March 1-31, 2007     |       | —                                                         |       | —                                       |       | —                                                                                                                        |       | 67,516                                                                                                                                                                                       |       |
| Total                |       | 4,520                                                          |       | $                                            | 28.00      |                                                                                                                          | 4,520      |                                                                                                                                                                                         | 67,516     |   |

 

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(1)In November 2004, our Board of Directors approved the repurchase by us of up to5%, or 101,700 shares, of our common stock. Unless terminated earlier by resolution of the Board of Directors, thecurrent repurchase program will expire when we have repurchased all sharesauthorized for repurchase thereunder.

**ITEM 3.  DEFAULTS UPON SENIORSECURITIES**

None

**ITEM 4.  SUBMISSION OF MATTERS TOVOTE OF SECURITY HOLDERS**

None

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**ITEM 5.  OTHER INFORMATION**

None

**ITEM 6.  EXHIBITS**
| Exhibits     |   |                                                                                                                                                |
|--------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                                                                |
| Exhibit 31.1 |   | Certificate of Chief Executive Officer Pursuant to Rule  13a-14(a)/15d-14(a)                                                                        |
| Exhibit 31.2 |   | Certificate of Chief Financial Officer Pursuant to Rule  13a-14(a)/15d-14(a)                                                                        |
| Exhibit 32.1 |   | Certification of Chief Executive Officer Pursuant to  18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
| Exhibit 32.2 |   | Certification of Chief Financial Officer Pursuant to  18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

** **

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                    |   | LANDMARK BANCORP, INC.                                             |
|--------------------|--------|--------------------------------------------------------------------|
|               |   |                                                               |
|               |   |                                                               |
| Date: May 11, 2007 |   | /s/ Patrick L. Alexander                                           |   |
|               |   | Patrick L. Alexander                                               |
|               |   | President and Chief Executive Officer                              |
|               |   |                                                               |
|               |   |                                                               |
| Date: May 11, 2007 |   | /s/ Mark A. Herpich                                                |   |
|               |   | Mark A. Herpich                                                    |
|               |   | Vice President,  Secretary, Treasurer  and Chief Financial Officer |
|                    |        |                                                                    |  |  |

 

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