** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C.  20549**

** **

** **

**FORM 10-Q**

** **

** **

ý**             QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

**For thequarterly period ended September 30, 2005**

** **

**OR**

** **

o         **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

**Fortransition period from                 to                 **

** **

**CommissionFile Number 0-33203**

** **

** **

**LANDMARKBANCORP, INC.**

(Exact name ofRegistrant as specified in its charter)

 

 

 

| **Delaware**                       | ** ** | **43-1930755**                           |
|------------------------------------|------------|------------------------------------------|
| (State or other  jurisdiction      |       | (I.R.S. Employer  Identification Number) |
| of incorporation or  organization) |       |                                     |

 

 

**800Poyntz Avenue, Manhattan, Kansas       66502**

(Address ofprincipal executive offices)   (Zip Code)

 

**(785)565-2000**

(Registrant’stelephone number, including area code)

 

 

             Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the Registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes ý  No o

 

             Indicate by check mark whether the Registrant is anaccelerated filer (as defined by Rule 12b-2 of the Exchange Act).  Yes o  No ý

 

             Indicate by check mark whether the Registrant is a shellcompany (as defined by Rule 12b-2 of the Exchange Act).  Yes o  No ý

 

             Indicate the number of shares outstanding of each of theRegistrant’s classes of common stock as of the latest practicable date:  As of November 2, 2005, the Registrant hadoutstanding 2,122,679 shares of its common stock, $0.01 par value per share.

 

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**LANDMARK BANCORP, INC.**

**Form 10-Q Quarterly Report**

 

**Table of Contents**

 

 

 
| PART I                    |                                                                                        |
|---------------------------|---------------------------------------------------------------------------------------------|
|                      |                                                                                        |   |
| Item 1.                   | Financial Statements  and Related Notes                                                     |   |
| Item  2.                  | Management’s Discussion and  Analysis of Financial Condition and Results of Operations |   |
| Item  3.                  | Quantitative and Qualitative  Disclosures about Market Risk                                 |   |
| Item  4.                  | Controls and Procedures                                                                     |   |
|                      |                                                                                        |   |
| PART II                   |                                                                                        |
|                      |                                                                                        |   |
| Item 1.                   | Legal Proceedings                                                                           |   |
| Item  2.                  | Unregistered Sales of Equity  Securities and Use 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 |                                                                                        |

 

2

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

** **
| ** **                                                                                                 | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|------------------|------------|
| ** **                                                                                                 | ** ** | **2005**          | ** **  | **2004**         | ** ** |
| ** **                                                                                                 | ** ** | **(Unaudited)**   | ** **  | ** **       | ** ** |
| **ASSETS**                                                                                                 |       |              |        |             |       |
| Cash and cash equivalents                                                                                  |       | $                 | 7,834,688   |             | $          | 7,845,438 |   |
| Investment securities  available for sale, at fair value                                                   |       | 145,975,496       |        | 133,604,335      |       |
| Loans, net                                                                                                 |       | 269,440,338       |        | 277,413,963      |       |
| Loans held for sale                                                                                        |       | 1,538,499         |        | 846,003          |       |
| Premises and equipment, net                                                                                |       | 7,685,215         |        | 5,864,258        |       |
| Goodwill                                                                                                   |       | 7,651,892         |        | 7,651,892        |       |
| Other intangible assets, net                                                                               |       | 2,550,195         |        | 1,339,832        |       |
| Accrued interest and other  assets                                                                         |       | 8,560,117         |        | 7,525,173        |       |
|                                                                                                       |       |              |        |             |       |
| Total assets                                                                                               |       | $                 | 451,236,440 |             | $          | 442,090,894 |   |
|                                                                                                       |       |              |        |             |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                             |       |              |        |             |       |
| Liabilities:                                                                                               |       |              |        |             |       |
| Deposits                                                                                                   |       | $                 | 329,012,713 |             | $          | 302,867,721 |   |
| Federal Home Loan Bank borrowings                                                                          |       | 59,252,135        |        | 81,053,321       |       |
| Other borrowings                                                                                           |       | 14,598,000        |        | 13,518,000       |       |
| Accrued expenses, taxes and other liabilities                                                              |       | 4,471,246         |        | 2,482,875        |       |
| Total liabilities                                                                                          |       | 407,334,094       |        | 399,921,917      |       |
|                                                                                                       |       |              |        |             |       |
| Stockholders’ equity:                                                                                 |       |              |        |             |       |
| Common stock, $0.01 par, 5,000,000 shares authorized, 2,244,327 and  2,232,218 shares issued, respectively |       | 22,443            |        | 22,322           |       |
| Additional paid-in capital                                                                                 |       | 20,279,425        |        | 19,969,551       |       |
| Retained earnings                                                                                          |       | 27,136,671        |        | 25,228,826       |       |
| Accumulated other comprehensive (loss)/income                                                              |       | (329,839          | )           | 154,101          |       |
| Treasury stock, at cost; 121,648 and 121,630 shares, respectively                                          |       | (3,206,354        | )           | (3,205,823       | )          |
| Total stockholders’ equity                                                                            |       | 43,902,346        |        | 42,168,977       |       |
|                                                                                                       |       |              |        |             |       |
| Total liabilities and stockholders’ equity                                                            |       | $                 | 451,236,440 |             | $          | 442,090,894 |   |
|                                                                                                            |            |                   |             |                  |            |  |  |  |  |

 

 

*See accompanying notes to condensed consolidatedfinancial statements.*

 

3

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

# **CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

** **
| ** **                                          | ** ** | **Three Months Ended September  30,** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                          | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| Interest income:                                    |       |                                  |       |   |   |
| Loans                                               |       | $                                     | 4,431,829  |   | $ | 4,181,628 |   |
| Investment securities                               |       | 1,246,246                             |       | 1,129,283 |   |
| Other                                               |       | 38,958                                |       | 14,093 |   |
| Total interest income                               |       | 5,717,033                             |       | 5,325,004 |   |
|                                                |       |                                  |       |   |   |
| Interest expense:                                   |       |                                  |       |   |   |
| Deposits                                            |       | 1,450,819                             |       | 1,006,231 |   |
| Borrowed funds                                      |       | 897,937                               |       | 905,624 |   |
| Total interest expense                              |       | 2,348,756                             |       | 1,911,855 |   |
|                                                |       |                                  |       |   |   |
| Net interest income                                 |       | 3,368,277                             |       | 3,413,149 |   |
|                                                |       |                                  |       |   |   |
| Provision for loan losses                           |       | 100,000                               |       | 130,000 |   |
|                                                |       |                                  |       |   |   |
| Net interest income after provision for loan losses |       | 3,268,277                             |       | 3,283,149 |   |
|                                                |       |                                  |       |   |   |
| Non-interest income:                                |       |                                  |       |   |   |
| Fees and service charges                            |       | 906,294                               |       | 993,549 |   |
| Gains on sale of loans                              |       | 162,759                               |       | 174,515 |   |
| Gains on repayments of FHLB borrowings              |       | 406,572                               |       | — |   |
| Other                                               |       | 108,752                               |       | 210,647 |   |
| Total non-interest income                           |       | 1,584,377                             |       | 1,378,711 |   |
|                                                |       |                                  |       |   |   |
| Non-interest expense:                               |       |                                  |       |   |   |
| Compensation and benefits                           |       | 1,567,125                             |       | 1,577,400 |   |
| Occupancy and equipment                             |       | 504,612                               |       | 505,423 |   |
| Data processing                                     |       | 130,490                               |       | 100,218 |   |
| Amortization of intangibles                         |       | 116,669                          |       | 101,416  |   |
| Professional fees                                   |       | 63,803                                |       | 69,523 |   |
| Advertising                                         |       | 110,680                               |       | 44,248 |   |
| Other                                               |       | 581,642                               |       | 584,245 |   |
| Total non-interest expense                          |       | 3,075,021                             |       | 2,982,473 |   |
|                                                |       |                                  |       |   |   |
| Earnings before income taxes                        |       | 1,777,633                             |       | 1,679,387 |   |
|                                                |       |                                  |       |   |   |
| Income tax expense                                  |       | 544,377                               |       | 543,456 |   |
|                                                |       |                                  |       |   |   |
| Net earnings                                        |       | $                                     | 1,233,256  |   | $ | 1,135,931 |   |
|                                                |       |                                  |       |   |   |
| Earnings per share:                                 |       |                                  |       |   |   |
| Basic                                               |       | $                                     | 0.58       |   | $ | 0.52 |   |
| Diluted                                             |       | $                                     | 0.58       |   | $ | 0.52 |   |
|                                                |       |                                  |       |   |   |
| Dividends per share                                 |       | $                                     | 0.17       |   | $ | 0.1619 |   |

 

*See accompanying notes to condensed consolidatedfinancial statements.*

 

4

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

# **CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

** **
| ** **                                          | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                          | ** ** | **2005**                            | ** ** | **2004** | ** ** |
| Interest income:                                    |       |                                |       |   |   |
| Loans                                               |       | $                                   | 12,822,321 |   | $ | 11,539,772 |   |
| Investment securities                               |       | 3,404,758                           |       | 3,145,546 |   |
| Other                                               |       | 92,203                              |       | 33,194 |   |
| Total interest income                               |       | 16,319,282                          |       | 14,718,512 |   |
|                                                |       |                                |       |   |   |
| Interest expense:                                   |       |                                |       |   |   |
| Deposits                                            |       | 3,966,316                           |       | 2,974,800 |   |
| Borrowed funds                                      |       | 2,653,547                           |       | 2,135,293 |   |
| Total interest expense                              |       | 6,619,863                           |       | 5,110,093 |   |
|                                                |       |                                |       |   |   |
| Net interest income                                 |       | 9,699,419                           |       | 9,608,419 |   |
|                                                |       |                                |       |   |   |
| Provision for loan losses                           |       | 325,000                             |       | 310,000 |   |
|                                                |       |                                |       |   |   |
| Net interest income after provision for loan losses |       | 9,374,419                           |       | 9,298,419 |   |
|                                                |       |                                |       |   |   |
| Non-interest income:                                |       |                                |       |   |   |
| Fees and service charges                            |       | 2,617,168                           |       | 2,457,706 |   |
| Gains on sale of loans                              |       | 534,153                             |       | 632,545 |   |
| Gains on repayments of FHLB borrowings              |       | 406,572                             |       | - |   |
| Gains on sale of investments                        |       | 40,540                              |       | 129,790 |   |
| Other                                               |       | 323,379                             |       | 399,663 |   |
| Total non-interest income                           |       | 3,921,812                           |       | 3,619,704 |   |
|                                                |       |                                |       |   |   |
| Non-interest expense:                               |       |                                |       |   |   |
| Compensation and benefits                           |       | 4,529,987                           |       | 4,310,278 |   |
| Occupancy and equipment                             |       | 1,478,954                           |       | 1,360,221 |   |
| Data Processing                                     |       | 400,723                             |       | 309,583 |   |
| Amortization of intangibles                         |       | 299,631                             |       | 284,782 |   |
| Professional fees                                   |       | 248,859                             |       | 230,439 |   |
| Advertising                                         |       | 292,527                             |       | 135,486 |   |
| Other                                               |       | 1,733,511                           |       | 1,609,466 |   |
| Total non-interest expense                          |       | 8,984,192                           |       | 8,240,255 |   |
|                                                |       |                                |       |   |   |
| Earnings before income taxes                        |       | 4,312,039                           |       | 4,677,868 |   |
|                                                |       |                                |       |   |   |
| Income tax expense                                  |       | 1,325,743                           |       | 1,518,389 |   |
|                                                |       |                                |       |   |   |
| Net earnings                                        |       | $                                   | 2,986,296  |   | $ | 3,159,479 |   |
|                                                |       |                                |       |   |   |
| Earnings per share:                                 |       |                                |       |   |   |
| Basic                                               |       | $                                   | 1.41       |   | $ | 1.45 |   |
| Diluted                                             |       | $                                   | 1.40       |   | $ | 1.44 |   |
|                                                |       |                                |       |   |   |
| Dividends per share                                 |       | $                                   | 0.51       |   | $ | 0.49 |   |

 

*See accompanying notes to condensed consolidatedfinancial statements.*

 

5

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**
| ** **                                                                         | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                            | ** ** | **2004** | ** ** |
|                                                                               |       |                                |       |   |   |
| Net cash provided by operating  activities                                         |       | $                                   | 4,524,534  |   | $ | 3,998,531 |   |
|                                                                               |       |                                |       |   |   |
| Cash flows from investing  activities:                                             |       |                                |       |   |   |
| Net decrease in loans                                                              |       | 6,929,364                           |       | 1,298,559 |   |
| Maturities and prepayments of investments                                          |       | 35,013,396                          |       | 24,699,893 |   |
| Purchase of investment securities                                                  |       | (48,935,454                         | )          | (5,259,465 | ) |
| Proceeds from sale of investment securities                                        |       | 140,540                             |       | 241,874 |   |
| Proceeds from sale of premises, equipment, and foreclosed assets                   |       | 387,132                             |       | 1,014,874 |   |
| Net cash received in acquisition of Great Bend branches                            |       | 30,410,720                          |       | — |   |
| Net cash paid in First Kansas acquisition                                          |       | —                              |       | (8,788,732 | ) |
| Net cash paid in Beloit and Phillipsburg branch sales                              |       | —                              |       | (8,714,311 | ) |
| Purchases of premises and equipment, net                                           |       | (1,020,113                          | )          | (904,264 | ) |
| Net cash provided by investing activities                                          |       | 22,925,585                          |       | 3,588,428 |   |
|                                                                               |       |                                |       |   |   |
| Cash flows from financing  activities:                                             |       |                                |       |   |   |
| Net decrease in deposits                                                           |       | (7,127,815                          | )          | (6,008,815 | ) |
| Federal Home Loan Bank borrowings                                                  |       | 91,300,000                          |       | 28,600,000 |   |
| Federal Home Loan Bank repayments                                                  |       | (111,867,504                        | )          | (30,827,576 | ) |
| Proceeds from other borrowings                                                     |       | 3,450,000                           |       | 8,585,000 |   |
| Repayments on other borrowings                                                     |       | (2,370,000                          | )          | (4,045,000 | ) |
| Purchase of 18 and 65,910 shares of treasury stock                                 |       | (531                                | )          | (1,973,553 | ) |
| Issuance of 12,109 and 22,628 shares of common stock under stock  option plan |       | 196,088                             |       | 195,506 |   |
| Net tax benefit related to stock option plans                                      |       | 37,344                              |       | 126,954 |   |
| Payment of dividends                                                               |       | (1,078,451                          | )          | (1,065,142 | ) |
| Net cash used in financing activities                                              |       | (27,460,869                         | )          | (6,412,626 | ) |
| Net (decrease)/increase in cash                                                    |       | (10,750                             | )          | 1,174,333 |   |
| Cash and cash equivalents at beginning of period                                   |       | 7,845,438                           |       | 7,708,115 |   |
| Cash and cash equivalents at end of period                                         |       | $                                   | 7,834,688  |   | $ | 8,882,448 |   |
|                                                                               |       |                                |       |   |   |
| Supplemental disclosure of  cash flow information:                                 |       |                                |       |   |   |
| Cash paid during period for interest                                               |       | $                                   | 6,086,000  |   | $ | 4,466,000 |   |
| Cash paid during period for taxes                                                  |       | $                                   | —     |   | $ | 1,175,000 |   |
|                                                                               |       |                                |       |   |   |
| Supplemental schedule of  noncash investing activities:                            |       |                                |       |   |   |
| Transfer of loans to real estate owned                                             |       | $                                   | 534,000    |   | $ | 916,000 |   |
| Acquisition of Great Bend branches:                                                |       |                                |       |   |   |
| Fair value of liabilities assumed                                                  |       | $                                   | 33,299,000 |   | $ | — |   |
| Fair value of assets acquired                                                      |       | $                                   | 2,888,000  |   | $ | — |   |
| First Kansas acquisition:                                                          |       |                                |       |   |   |
| Fair value of liabilities assumed                                                  |       | $                                   | —     |   | $ | 140,619,000 |   |
| Fair value of assets acquired, including goodwill                                  |       | $                                   | —     |   | $ | 149,408,000 |   |
| Beloit and Phillipsburg branch sales:                                              |       |                                |       |   |   |
| Fair value of liabilities transferred                                              |       | $                                   | —     |   | $ | (12,489,000 | ) |
| Fair value of assets sold                                                          |       | $                                   | —     |   | $ | (3,774,000 | ) |

* *

*See accompanying notes to condensed consolidatedfinancial statements.*

 

6

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

**Notes to Condensed ConsolidatedFinancial Statements**

**(Unaudited)**

 

 

**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 accounting principles generally accepted in the UnitedStates of America for complete financial statements are contained in orconsistent with the consolidated audited financial statements incorporated byreference in the Company’s Form 10-K for the year ended December 31, 2004, suchinformation and footnotes have not been duplicated herein.  In the opinion of management, alladjustments, consisting of normal recurring accruals, considered necessary fora fair presentation of financial statements have been reflected herein.  The December 31, 2004, condensed consolidatedbalance sheet has been derived from the audited consolidated balance sheet asof that date.  The results of the interimperiods ended September 30, 2005, are not necessarily indicative of the resultsexpected for the year ending December 31, 2005.

 

**2.             Acquisition of UMB Branches in Great Bend**

 

On August 19, 2005, the Company acquired twobranch locations in Great Bend, Kansas from UMB Financial Corporation.  Pursuant to the purchase agreement, theCompany purchased approximately $33.3 million in deposits along with the branchpremises and equipment for cash.  TheCompany recorded a core deposit intangible of $1.4 million which is notdeductible for tax purposes.

 

**3.             StockBased Compensation**

 

The Company utilizes thefair value recognition provisions of SFAS Statement No. 123, “Accounting for Stock-Based Compensation.”  SFAS No. 123 establishes a fair-value methodof accounting for employee stock options or similar equity instruments. Thefair value of stock-based awards to employees is calculated through the use ofoption pricing models, even though such models were developed to estimate thefair value of freely tradable, fully transferable options without vestingrestrictions, which significantly differ from the Company’s stock optionawards. These models also require subjective assumptions, including futurestock price volatility and expected time to exercise, which greatly affect thecalculated values. The Company uses the Black-Scholes option pricing model toestimate the grant date fair value of its stock options. The fair value isrecognized as compensation expense over the option vesting period, typicallyfive years.

 

**               **In December 2004, The FinancialAccounting Standards Board issued SFAS No. 123 (revised), *Shared-BasedPayment*.  The revisiondisallows the expense recognition alternatives permitted in the originalstatement and requires entities to recognize stock-based compensation 

 

7

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cost in their statements of earnings. The revision contains additional guidance in several areas includingaward modifications and forfeitures, measuring fair value, classifying an awardas equity or as a liability, and attributing compensation cost to reportingperiods.  It also contains additionaldisclosure requirements.  The Companydoes not expect that adoption of the revised Statement on January 1, 2006, willhave a material effect on its consolidated financial statements.

 

**4.             Earningsper Share**

 

                Basic earnings pershare have been computed based upon the weighted average number of common sharesoutstanding during each period.  Dilutedearnings per share include the effect of all potential common sharesoutstanding during each period.  Earningsand dividends per share for all periods presented have been adjusted to giveeffect to the 5% stock dividend paid by the Company in December 2004.

 

The shares used in the calculation of basic anddiluted income per share are shown below:

 
| ** **                                         | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                         | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Weighted average common shares outstanding (basic) |       | 2,122,570                             |       | 2,172,818                            |       | 2,115,199 |   | 2,185,725 |   |
| Dilutive stock options                             |       | 7,548                                 |       | 11,711                               |       | 10,292 |   | 14,733 |   |
| Weighted average common shares (diluted)           |       | 2,130,118                             |       | 2,184,529                            |       | 2,125,491 |   | 2,200,458 |   |

 

**5.             ComprehensiveIncome/(Loss)**

 

                The Company’s other comprehensive income/(loss)consists of the unrealized holding gains and losses on available-for-salesecurities and an interest rate swap as shown below.

 
| ** **                                                                | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net earnings                                                              |       | $                                     | 1,233,256  |                                 | $          | 1,135,931 |   | $ | 2,986,296 |   | $ | 3,159,479 |   |
|                                                                      |       |                                  |       |                                 |       |   |   |   |   |
| Unrealized holding (gains)/losses                                         |       | (697,479                              | )          | 947,140                              |       | (803,009 | ) | (308,815 | ) |
| Less —  reclassification adjustment for gains included in net income |       | —                                |       | —                               |       | 40,540 |   | 129,790 |   |
| Net unrealized  losses/(gains) on securities                              |       | (697,479                              | )          | 947,140                              |       | (843,549 | ) | (438,605 | ) |
| Unrealized gain on interest rate swap                                     |       | 54,000                                |       | 11,000                               |       | 63,000 |   | 11,000 |   |
| Income (tax expense)/benefit                                              |       | (244,522                              | )          | 364,094                              |       | (296,609 | ) | (162,490 | ) |
| Total  comprehensive income                                               |       | $                                     | 834,299    |                                 | $          | 1,729,977 |   | $ | 2,502,356 |   | $ | 2,894,364 |   |
|                                                                           |            |                                       |            |                                      |            |  |  |  |  |  |  |  |  |  |  |

 

8

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**6.             Other Intangible Assets**

 

The following tablepresents information about the Company’s other intangible assets, which arebeing amortized in accordance with SFAS No. 142:

 
| ** **                   | ** ** | **September 30, 2005**      | ** ** | **December 31, 2004**         | ** ** |
|------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                   | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Amortized intangible assets: |       |                        |       |                          |       |   |   |   |   |
| Core deposit  premium        |       | $                           | 2,818,601  |                          | $          | (664,677 | ) | $ | 1,385,000 |   | $ | (491,501 | ) |
| Mortgage  servicing rights   |       | 775,400                     |       | (379,129                      | )          | 766,892 |   | (320,559 | ) |
| Total                        |       | $                           | 3,594,001  |                          | $          | (1,043,806 | ) | $ | 2,151,892 |   | $ | (812,060 | ) |

 

Aggregate amortizationexpense for the three months ended September 30, 2005, and September 30, 2004,was $117,000 and $101,000, respectively. Aggregate amortization expense for the nine months ended September 30,2005, and September 30, 2004, was $300,000 and $285,000, respectively.  The following depicts estimated amortizationexpense for the years ending December 31:

 

| **Year** | ** ** | **Amount** | ** ** |
|----------|------------|------------|------------|
| 2005     |       | $          | 464,000    |   |
| 2006     |       | 604,000    |       |
| 2007     |       | 459,000    |       |
| 2008     |       | 322,000    |       |
| 2009     |       | 271,000    |       |
|          |            |            |            |  |

# ** **

# **7.             Repayment of Federal Home Loan BankBorrowings**

 

                On August 22,2005, the Company repaid FHLB advances with $10.0 million in outstandingprincipal acquired in the First Kansas acquisition prior to their scheduledmaturities.  The repayment resulted in $407,000of gains on the repayment of borrowings as an adjustment to the fair valueadjustment recorded on the date of acquisition from First Kansas.  On September 26, 2005, the Company repaidanother $5.0 million FHLB advance according to its scheduled maturity,resulting in no gain or loss.

 

# **8.             RecentAccounting Pronouncements**

# ** **

In December 2003, the Accounting Standards Executive Committee of theAmerican Institute of Certified Public Accountants issued Statement of Position(SOP) 03-03, “Accounting for Certain Loans and Debt Securities Acquired in aTransfer”.  SOP 03-03 addresses theaccounting for acquired loans that show evidence of having deteriorated interms of credit quality since their origination. SOP 03-03 requires acquiredloans to be recorded at their fair value, defined as the present value offuture cash flows. SOP 03-03 prohibits the carryover of an allowance for loanloss on certain acquired loans, as credit losses are considered in the futurecash flows assessment. SOP 03-03 is effective for loans that are acquired infiscal years 

 

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beginningafter December 15, 2004. The Company has evaluated the applicability of thisSOP for all prospective loans and currently does not expect this Statement tohave a material effect on its consolidated financial statements associated withany pending transactions.

 

In May 2005, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandards No. 154, “Accounting Changes and Error Corrections”.  The Statement changes the requirements forthe accounting for and reporting of a change in accounting principle.  Instead of including the cumulative effect ofthe change in net income, a change in accounting principle must be appliedretrospectively to prior periods’ financial statements.  In addition, the Statement gives specificguidance when it is impracticable to determine the effects of the change inaccounting principle.  The Statementcarries forward previously issued guidance on reporting changes in accountingestimate and errors in previously issued financial statements.  For calendar year companies, the Statement iseffective for accounting changes and corrections of errors made after January1, 2006.  The Company does not expect thatadoption of the Statement will have a material effect on its consolidated financialstatements.

 

**9.****                                     ****Other Events**

 

The Company hasentered into an agreement to construct a new branch location in Topeka, Kansaswhich is anticipated to be completed in mid 2006.

 

On September 7,2005, the Company announced the acquisition of First Manhattan Bancorporation(First Manhattan), a single thrift holding company based in Manhattan,Kansas.  At September 30, 2005, FirstManhattan had total assets of $132.4 million, including net loans and depositsof $110.6 million and $110.8 million, respectively.  The Company will pay approximately $12.9million in cash for the issued and outstanding shares of First Manhattan commonstock, subject to adjustment for certain circumstances.  The acquisition, which is subject toregulatory approval, is expected to close in late 2005 or early 2006. 

 

10

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

 

*Overview.*  LandmarkBancorp, Inc. is a one-bank holding company incorporated under the laws of theState of Delaware and is engaged in the banking business through itswholly-owned subsidiary, Landmark National Bank.  Landmark Bancorp is listed on the NasdaqStock Market National Market System under the symbol “LARK”.  Landmark National Bank is dedicated toproviding quality financial and banking services to its local communities.  Landmark National Bank originates commercialreal estate and non-real estate loans, one-to-four family residential mortgageloans, consumer loans, multi-family residential mortgage loans, and home equityloans.

 

On August 19, 2005, we acquired two branchlocations in Great Bend, Kansas from UMB Financial Corporation.  Pursuant to the purchase agreement, weacquired approximately $33.3 million in deposits along with the branch premisesand equipment for cash.  We recorded acore deposit intangible of $1.4 million which is being amortized on anaccelerated basis over ten years.

On April 1, 2004, we completed the cash acquisition ofFirst Kansas Financial Corporation (“First Kansas”), which had total assets ofapproximately $150 million, including loans and deposits of $74 million and $84million, respectively.  First Kansas hadbranches in Osawatomie, Paola, Louisburg, Fort Scott, Beloit, and Phillipsburg,Kansas.  Our acquisition of First Kansaswas accounted for using the purchase method of accounting.  The cost in excess of the tangible andidentifiable intangible net assets acquired was recorded as goodwill.  We recorded a core deposit intangible of $710,000,which is being amortized on an accelerated basis over ten years, and goodwillattributable to the acquisition of First Kansas of $6.1 million, none of whichis deductible for tax purposes.  Theoperating results presented for the nine months ended September 30, 2005,include the accounts and results of First Kansas while the corresponding ninemonths ended September 30, 2004, include First Kansas beginning April 1, 2004.

 

During the third quarter of 2004, we sold our newlyacquired Beloit and Phillipsburg branches.  Upon consummation of the transactions, we sold approximately $7.7million in deposits and approximately $2.4 million in loans and premises andequipment associated with the Beloit branch and approximately $4.7 million indeposits and approximately $846,000 in loans and premises and equipment relatedto the Phillipsburg branch.  The netproceeds received from the buyers of these branches were recorded as areduction of goodwill of approximately $466,000 and other intangible assets ofapproximately $105,000.

 

                Criticalaccounting policies are those which are both most important to the portrayal ofour financial condition and results of operations, and require our management’smost difficult, subjective or complex judgments, often as a result of the needto make estimates about the effect of matters that are inherentlyuncertain.  Our critical accountingpolicies relate to the allowance for loan losses, the valuation of investmentsecurities, and accounting for income taxes, all of which involve significantjudgment by our management.

 

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                We performperiodic and systematic detailed reviews of our lending portfolio to assessoverall collectability.  The level of theallowance for loan losses reflects our estimate of the collectability of theloan portfolio.  While these estimatesare based on substantive methods for determining allowance requirements,nevertheless, actual outcomes may differ significantly from estimatedresults.  Additional explanation of themethodologies used in establishing this reserve is provided in the “AssetQuality and Distribution” section.

 

                We report ourinvestment securities at estimated fair values based on readily ascertainablevalues which are obtained from independent sources.  Our management performs periodic reviews ofthe investment securities to determine if any investment securities havedeclined in value which might be considered other than temporary.  Although we believe that our estimates of thefair values of investment securities to be reasonable, economic and marketfactors may affect the amounts that will ultimately be realized from theseinvestments.

 

                The objectives ofaccounting for income taxes are to recognize the amount of taxes payable orrefundable for the current year and deferred tax liabilities and assets for thefuture tax consequences of events that have been recognized in an entity’sfinancial statements or tax returns. Judgment is required in assessing the future tax consequences of eventsthat have been recognized in our financial statements or tax returns.  Fluctuations in the actual outcome of thesefuture tax consequences, including the effects of IRS examinations andexaminations by other state agencies, could materially impact our financialposition and results of operations.

 

Our results of operationsdepend primarily on net interest income, which is the difference betweeninterest income from interest-earning assets and interest expense oninterest-bearing liabilities.  Netinterest income is affected by regulatory, economic and competitive factorsthat 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 andinvestments.  Our principal operatingexpenses, aside from interest expense, consist of compensation and employeebenefits, occupancy costs, federal deposit insurance costs, data processingexpenses and provision for loan losses.

 

                We are significantly impacted by prevailing economicconditions including federal monetary and fiscal policies and federalregulations of financial institutions. Deposit balances are influenced by numerous factors such as competingpersonal investments, the level of personal income and the personal rate ofsavings within our market areas.  Factorsinfluencing lending activities include the demand for housing and the interestrate pricing competition from other lending institutions.

 

*                Summary of Results*. Net earnings for the three months ended September 30, 2005, increased $97,000,or 8.6%, to $1.2 million as compared to the three months ended September 30,2004.  This improvement in net earningswas generally attributable to increased non-interest income primarilyassociated with gains associated with the repayment of FHLB borrowings.

 

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                Net earnings for the nine monthsended September 30, 2005, decreased $173,000, or 5.5%, to $3.0 million ascompared to the nine months ended September 30, 2004.  This decline in net earnings was generallyattributable to reduced gains on sale of loans and investments and increasednon-interest expense which was partially offset by the gains on repayment ofFHLB borrowings.

 

                The three months ended September30, 2005 resulted in diluted earnings per share of $0.58 compared to $0.52 forthe same period in 2004.  Return onaverage assets was 1.09% for the period compared to 0.96% for the same periodin 2004.  Return on average stockholders’equity was 11.33% for the period compared to 10.68% for the same period in 2004.

 

                The nine months ended September30, 2005 resulted in diluted earnings per share of $1.40 compared to $1.44 forthe same period in 2004.  Return onaverage assets was 0.89% for the period compared to 0.99% for the same periodin 2004.  Return on average stockholders’equity was 9.33% for the period compared to 9.91% for the same period in 2004.

 

                We continued our stockrepurchase program during the first nine months of 2005, resulting in therepurchase of an additional 18 shares. Under the current stock repurchase program authorized by our Board ofDirectors, as of September 30, 2005, we can repurchase an additional 77,036 sharesof our common stock.  As of September 30,2005, we held 121,648 shares as treasury stock at an average cost per share of$26.36.

 

                The following table summarizesnet earnings and key performance measures for the periods presented.

 
| ** **                    | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                    | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net earnings:                 |       |                                  |       |                                 |       |   |   |   |   |
| Basic earnings  per share     |       | $                                     | 0.58       |                                 | $          | 0.52 |   | $ | 1.41 |   | $ | 1.45 |   |
| Diluted earnings  per share   |       | $                                     | 0.58       |                                 | $          | 0.52 |   | $ | 1.40 |   | $ | 1.44 |   |
| Earnings ratios:              |       |                                  |       |                                 |       |   |   |   |   |
| Return on  average assets (1) |       | 1.09                                  | %          | 0.96                                 | %          | 0.89 | % | 0.99 | % |
| Return on average  equity (1) |       | 11.33                                 | %          | 10.68                                | %          | 9.33 | % | 9.91 | % |
| Dividend payout  ratio        |       | 29.31                                 | %          | 30.91                                | %          | 36.17 | % | 33.77 | % |
| Net interest  margin (1)      |       | 3.20                                  | %          | 3.09                                 | %          | 3.12 | % | 3.20 | % |

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(1) The ratio has been annualized and is not necessarily indicative ofthe results for the entire year.

 

*Interest Income.*  Interestincome for the three months ended September 30, 2005, increased $392,000, or 7.4%,to $5.7 million from $5.3 million in the same period of 2004, resulting fromincreased interest income on investment securities and loans.  Average loans for the quarter ended September30, 2005 decreased to $277.2 million from $291.1 million for the quarter endedSeptember 30, 2004.  The decrease inaverage loans was primarily due to the 

 

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continued payoffs and refinancings in our fixed-rate residential loan portfolio,of which the vast majority of originations are being sold to the secondarymarket at a faster pace than we have been able to grow our commercial lendingportfolios.  Despite the decrease inaverage loans, interest income on loans increased $250,000, or 6.0%, to $4.4million for the quarter ended September 30, 2005, primarily due to an upwardadjustment of interest rates on variable rate loans.  Average investment securities decreased from$146.3 million for the quarter ended September 30, 2004, to $144.4 million forthe quarter ended September 30, 2005. Despite the decline in average assets for the comparable periods, interestincome on investment securities increased $117,000, or 10.4%, to $1.2 millionfor the third quarter of 2005, as compared to the same period of 2004, due to theincrease in interest rates which allowed the yields on our investmentspurchased in 2005 to be higher than the yields on our maturing investments.

 

Interest income for the nine months ended September30, 2005 increased $1.6 million, or 10.9%, to $16.3 million from $14.7 millionin the same period of 2004.  Thisincrease was primarily the result of a higher level of interest earning assetsobtained in the First Kansas acquisition in addition to the rise in interestrates during the past twelve months. Average loans for the first nine months of 2005 were $278.6 million ascompared to $264.4 million for the first nine months of 2004.  Interest income on loans increased $1.3million, or 11.1%, to $12.8 million for the nine months ended September 30,2005.  Average investment securitiesincreased from $134.3 million for the nine months ended September 30, 2004, to$136.7 million for the same period of 2005, primarily as a result of the FirstKansas acquisition in April 2004.  Interestincome on investment securities increased $259,000, or 8.2%, to $3.4 millionfor the nine months ended September 30, 2005 due to the increase in interestrates which allowed the yields on our investments purchased in 2005 to behigher than the yields on our maturing investments.

 

                *Interest Expense*. Interest expense during the three months ended September 30, 2005,increased $437,000, or 22.9%, as compared to the same period of 2004.  For the three months ended September 30, 2005,interest expense on deposits increased $445,000, or 44.2%.  The increase in interest expense on depositsresulted from the addition of approximately $33.3 million in deposits that weacquired through the acquisition of two UMB branches in August 2005 and from therise in interest rates and the associated repricing of deposits as they matured. Interest expense on borrowings decreased$8,000, or 0.9%.  The decrease ininterest expense on borrowings resulted primarily from the repayment of $10.0million of FHLB advances prior to their scheduled maturities in August 2005, inaddition to scheduled principal payments.

 

Interest expense during the nine months endedSeptember 30, 2005, increased $1.5 million, or 29.5%, as compared to the sameperiod of 2004.  For the nine monthsended September 30, 2005, interest expense on deposits increased $992,000, or 33.3%.  The increase in interest expense on depositsresulted primarily from the rise in interest rates beginning in June 2004 andthe repricing of maturing deposits at these higher rates.  Interest expense on borrowings increased $518,000,or 24.3%.  The increase in interestexpense on borrowings resulted primarily from additional advances from theFederal Home Loan Bank of approximately $56.4 million which we assumed throughthe acquisition of First Kansas in April 2004 and the $7.0 million that weborrowed in April 2004 to consummate the acquisition of First Kansas.

 

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*Net Interest Income.* Net interest income for the three months endedSeptember 30, 2005, totaled $3.4 million and remained relatively flat,decreasing only 1.3%, as compared to the three months ended September 30, 2004.  This decrease resulted primarily from a lowerlevel of average interest earning assets. Average earning assets decreased during the third quarter of 2005, decreasingto $422.2 million from $439.7 million for the third quarter of 2004.  The net interest margin on earning assets was3.20% for the third quarter of 2005, up from 3.09% during the third quarter of2004.

 

                Net interestincome for the nine months ended September 30, 2005, totaled $9.7 million, a 1.0%increase, as compared to $9.6 million for the nine months ended September 30,2004, due primarily to a higher level of interest earning assets obtained throughthe First Kansas acquisition in April 2004. Average earning assets increased during the first nine months of 2005 to$416.3 million from $401.1 million for the same period of 2004.  The net interest margin on earning assets was3.12% for the first nine months of 2005, down from 3.20% during the first ninemonths of 2004.  The decline inour net interest margin was primarily the result of the increased FHLB advancesacquired with the First Kansas acquisition which are priced relatively higherthan deposit rates.  Additionally, theresidential mortgage loans acquired from First Kansas are also at rates thatare relatively lower than the average of our loan portfolio prior to theacquisition.  Also contributing to thedecline in the net interest margin was a continued reduction in loans arisingfrom payoffs and refinancings in the one-to-four family residential loanportfolio exceeding our ability to generate new commercial and consumerloans.  We believe the increase inFederal Funds rates over the past year by the Federal Open Market Committeewill have a positive impact on our net interest margin during the remainder of2005 as our interest rates on earning assets reprice to higher rates and at afaster rate than our liabilities reprice.

 

                *Provision for Loan Losses.* The provision for loan losses for the three months ended September 30,2005, was $100,000, compared to a provision of $130,000 during the three monthsended September 30, 2004.  Our continuousreview of the loan portfolio prompted a decrease in our provision primarily asa result of improvement in the asset quality of the commercial loanportfolio.  The provision for loan lossesfor the nine months ended September 30, 2005, was $325,000 compared to aprovision of $310,000 for the same period in 2004.  One measure of the adequacy of the allowancefor estimated losses on loans is the ratio of the allowance to the total loanportfolio.  At September 30, 2005, andDecember 31, 2004, the allowance for loan losses was $3.1 million and $2.9million, or 1.1% and 1.0%, respectively, of gross loans outstanding.

 

                *Non-interest Income.* Non-interest income increased $206,000, or 14.9%, for the three monthsended September 30, 2005, to $1.6 million compared to the three months endedSeptember 30, 2004.  The increase innon-interest income reflected a $407,000 gain on the repayment of $10.0 millionof FHLB advances prior to their scheduled maturities, which was partially offsetby decreased fees and service charges of $87,000 for the three months endedSeptember 30, 2005 as compared to the same period of 2004.  Also offsetting the increase in non-interestincome was a decline of 6.7% in the gains on sale of loans from $175,000 forthe three months ended September 30, 2004, to $163,000 for the same period of2005.

 

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                Non-interestincome increased $302,000, or 8.4%, for the nine months ended September 30, 2005,to $3.9 million compared to the nine months ended September 30, 2005.  The increase in non-interest income reflecteda $407,000 gain on the repayment of $10.0 million of FHLB advances.  Also contributing to this increase wasincreased fees and service charges of $159,000 for the nine months endedSeptember 30, 2005, as compared to the same period of 2004, relating primarilyto increased deposit service charges as a result of the First Kansasacquisition in April 2004.  Partiallyoffsetting these increases to non-interest income was a 15.6% decline in thegains on sale of loans from $633,000 for the nine months ended September 30,2004, to $534,000 for the nine months ended September 30, 2005.  A decrease of $89,000 in gains on sale ofinvestments for the nine months ended September 30, 2005, as compared to the sameperiod of 2004, also offset the overall increase in non-interest income.

  
| ** **                             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                             | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Non-interest income:                   |       |                                  |       |                                 |       |   |   |   |   |
| Fees and service  charges              |       | $                                     | 906,294    |                                 | $          | 993,549 |   | $ | 2,617,168 |   | $ | 2,457,706 |   |
| Gains on sales  of loans               |       | 162,759                               |       | 174,515                              |       | 534,153 |   | 632,545 |   |
| Gains on  repayment of FHLB borrowings |       | 406,572                               |       | —                               |       | 406,572 |   | — |   |
| Gains on sale of  investments          |       | —                                |       | —                               |       | 40,540 |   | 129,790 |   |
| Other                                  |       | 108,752                               |       | 210,647                              |       | 323,379 |   | 399,663 |   |
| Total  non-interest income             |       | $                                     | 1,584,377  |                                 | $          | 1,378,711 |   | $ | 3,921,812 |   | $ | 3,619,704 |   |

 

**               ***Non-interest Expense.* Non-interest expense increased $93,000, or 3.1%, to $3.1 million for thethree months ended September 30, 2005, as compared to the three months ended September30, 2004.  Increases of $66,000 inadvertising expense and $30,000 in data processing expense for the thirdquarter of 2005 as compared to the same period of 2004 were offset by decreasesof $26,000 in stationery, printing and office supplies.

 

                Non-interestexpense increased $744,000, or 9.0%, to $9.0 million for the nine months ended September30, 2005, as compared to the nine months ended September 30, 2004.  The increase in non-interest expense for thefirst nine months of 2005 as compared to the same period of 2004 resultedprimarily from compensation and benefits, occupancy and equipment and dataprocessing expenses associated with the operations of the branches acquiredfrom First Kansas.  In addition,advertising expense increased $157,000 for this nine month period related tothe advertising initiative that was implemented in early 2004.  Offsetting these increases in non-interestexpense was an $18,000 decrease in stationery, printing and officesupplies for the nine months ended September 30, 2005, compared to the ninemonths ended September 30, 2004.

 

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| ** **                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **September 30,**      | ** ** | **September 30,**     | ** ** |
| ** **                              | ** ** | **2005**               | ** ** | **2004**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| Non-interest expense:                   |       |                   |       |                  |       |   |   |   |   |
| Compensation and benefits               |       | $                      | 1,567,125  |                  | $          | 1,577,400 |   | $ | 4,529,987 |   | $ | 4,310,278 |   |
| Occupancy and equipment                 |       | 504,612                |       | 505,423               |       | 1,478,954 |   | 1,360,221 |   |
| Amortization of intangible assets  |       | 116,669           |       | 101,416          |       | 299,631  |   | 284,782  |   |
| Professional fees                       |       | 63,803                 |       | 69,523                |       | 248,859 |   | 230,439 |   |
| Data processing                         |       | 130,490                |       | 100,218               |       | 400,723 |   | 309,583 |   |
| Advertising                             |       | 110,680                |       | 44,248                |       | 292,527 |   | 135,486 |   |
| Other                                   |       | 581,642                |       | 584,245               |       | 1,733,511 |   | 1,609,466 |   |
| Total non-interest expense              |       | $                      | 3,075,021  |                  | $          | 2,982,473 |   | $ | 8,984,192 |   | $ | 8,240,255 |   |
|                                         |            |                        |            |                       |            |  |  |  |  |  |  |  |  |  |  |

 

*Income Tax Expense*.  Income taxexpense remained relatively flat, increasing only $1,000, or 0.2%, from $543,000for the three months ended September 30, 2004, to $544,000 for the three monthsended September 30, 2005.  The slightincrease in income tax expense for the three months ended September 30, 2005,resulted primarily from a slight increase in taxable income for the thirdquarter of 2005 as compared to the third quarter of 2004.  The effective tax rate for the third quarterof 2005 decreased slightly to 30.6% as compared to 32.4% for the third quarterof 2004 as a result of an increase in non-taxable investments.

 

Income tax expense decreased $193,000, or 12.7%, from$1.5 million for the nine months ended September 30, 2004, to $1.3 million forthe nine months ended September 30, 2005. The decrease in income tax expense for the nine months ended September30, 2005, resulted primarily from a decrease in taxable income.  In addition, the effective tax rate for thenine months ended September 30, 2005, decreased to 30.7% as compared to 32.5%for the same period of 2004 as a result of an increase in non-taxableinvestments and the utilization of investment tax credits.

 

*Asset Quality and Distribution.* Total assets increased to $451.2 million at September 30, 2005, comparedto $442.1 million at December 31, 2004. Our primary ongoing sources of funds are deposits, proceeds fromprincipal and interest payments on loans and investment securities and proceedsfrom the sale of mortgage loans and investment securities.  While maturities and scheduled amortizationof loans are a predictable source of funds, deposit flows and mortgage prepaymentsare greatly influenced by general interest rates, economic conditions,competition, and the restructuring of the financial services industry.

 

Net loans, excluding loans held for sale, decreased to$269.4 million during the nine months ended September 30, 2005.  This decline was primarily the result ofrefinancings and paydowns in our residential mortgage portfolio.  Our loan portfolio composition continues todiversify as a result of paydowns and our plan to continue expansion ofcommercial lending activities.  This isevidenced by our one-to-four family residential loans comprising 46.8% and43.6% of totals loans as of December 31, 2004, and September 30, 2005,respectively.

 

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Our primary investingactivities are the origination of mortgage, consumer, and commercial loans andthe purchase of investment and mortgage-backed securities.  Generally, we originate fixed-rate,residential mortgage loans with maturities in excess of ten years for sale inthe secondary market.  We do notoriginate and warehouse these fixed-rate residential loans for resale in orderto speculate on interest rates.

 

The allowance for losses onloans is established through a provision for losses on loans based on ourevaluation of the risk inherent in the loan portfolio and changes in the natureand volume of its loan activity.  Suchevaluation, which includes a review of all loans with respect to which fullcollectibility may not be reasonably assured, considers the fair value of theunderlying collateral, economic conditions, historical loan loss experience,level of classified loans and other factors that warrant recognition inproviding for an adequate allowance for losses on loans.

 

A summary of the activity inthe allowance for loan losses is as follows:

 

| Balance at  December 31, 2004 |   | $        | 2,893,603 |   |
|-------------------------------|--------|----------|-----------|--------|
| Provision for loan losses     |   | 325,000  |      |
| Charge-offs                   |   | (151,642 | )         |
| Recoveries                    |   | 51,161   |      |
| Balance at September 30, 2005 |   | $        | 3,118,122 |   |
|                               |        |          |           |        |  |

 

We believe that the qualityof the loan portfolio continues to be strong as evidenced by our low levels ofpast due and non-accrual loans which increased slightly, however, remainrelatively low overall.  As of September30, 2005, loans with a balance of $1.5 million were on non-accrual status, or0.54% of total loans, compared to a balance of $1.1 million loans onnon-accrual status, or 0.41% of total loans, as of December 31, 2004.  In addition, the ratio of non-performingassets as a percentage of total assets increased from 0.36% as of December 31,2004, to 0.48% as of September 30, 2005. While the non-accrual loans have increased, the majority of the increaseoccurred in the one-to-four family residential loan portfolio.  Residential home loans comprised 95.9% of the$1.5 million non-accrual balance at September 30, 2005.  These loans have been underwritten accordingto our residential lending policies and are well secured by real estatecollateral, and in many instances, private mortgage insurance or governmentguarantees.  We have historically incurredminimal losses on mortgage loans based upon collateral values and underlyinginsurance or guarantees.  We areaggressively pursuing collection activity of these loans which should enablethe collection of principal.

 

Management believes thatthere are numerous indications of emerging strength in the economy, includingthe Federal Open Market Committee raising the target for the Federal Funds rateby 250 basis points since the June 30, 2004 meeting.  Even though there are numerous indications ofemerging strength, it is not certain that this strength is sustainable.  We believe that we use the best informationavailable to determine the allowance for losses on loans, unforeseen marketconditions could result in adjustment to the allowance for losses on loans.  In addition, net earnings could besignificantly affected if circumstances differ substantially from theassumptions used in establishing the allowance for losses on loans.

 

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                *Liability Distribution.* Total deposits increased $26.1 million to $329.0 million at September30, 2005, from $302.9 million at December 31, 2004.  The amount of deposits acquired in the August2005 acquisition of the two UMB branches in Great Bend approximated $33.3million.  Borrowings decreased $20.7million to $73.9 million at September 30, 2005, from $94.6 million at December31, 2004.  In August 2005, we retired $10.0million of FHLB advances prior to their scheduled maturities.

 

Non-interest bearing demand accounts at September 30,2005, were $35.1 million, or 10.7% of deposits, compared to $28.5 million, or 9.4%of deposits, at December 31, 2004. Certificates of deposit increased to $166.5 million at September 30, 2005,from $154.5 million at December 31, 2004. Money market and NOW demand accounts increased to $100.8 million at September30, 2005, from $96.6 million at December 31, 2004, and were 30.6% of totaldeposits.  Savings accounts increased to $26.6million at September 30, 2005, from $23.2 million at December 31, 2004.

 

                Certificates ofdeposit at September 30, 2005, which were scheduled to mature in one year orless, totaled $122.8 million. Historically, maturing deposits have generally remained with our bankand we believe that a significant portion of the deposits maturing in one yearor less will remain with us upon maturity.

 

**               ***Contractual Obligations andCommercial Commitments.*  The following table presentsour contractual obligations, defined as operating lease obligations andprincipal payments due on non-deposit obligations with maturities in excess ofone year as of September 30, 2005, for the periods indicated.

 
| **Contractual Cash**          | ** ** | ** ** | ** ** | **One Year** | ** ** | **One to**      | ** ** | **Four to**    | ** ** | **More than**  | ** ** |
|-------------------------------|------------|------------|------------|--------------|------------|-----------------|------------|----------------|------------|----------------|------------|
| **Obligations**               | ** ** | **Total**  | ** ** | **or Less**  | ** ** | **Three Years** | ** ** | **Five Years** | ** ** | **Five Years** | ** ** |
|                          |       |       |       |         |       |            |       |           |       |           |       |
| Operating leases              |       | $          | 1,198,706  |         | $          | 1,018,060       |       | $              | 101,520    |           | $          | 79,126 |   | $ | — |   |
| Service contracts             |       | 1,690,000  |       | 780,000      |       | 910,000         |       | —         |       | —         |       |
| FHLB advances                 |       | 59,252,135 |       | 1,300,000    |       | —          |       | 51,594,531     |       | 6,357,604      |       |
| Other borrowings              |       | 14,098,000 |       | 1,750,000    |       | —          |       | 4,100,000      |       | 8,248,000      |       |
| Total contractual obligations |       | $          | 76,238,841 |         | $          | 4,848,060       |       | $              | 1,011,520  |           | $          | 55,773,657 |   | $ | 14,605,604 |   |

 

*Liquidity.*  Our mostliquid assets are cash and cash equivalents and investment securities availablefor sale.  The levels of these assets aredependent on the operating, financing, lending and investing activities duringany given period.  These liquid assetstotaled $153.8 million at September 30, 2005, and $141.4 million at December31, 2004.  During periods in which we arenot able to originate a sufficient amount of loans and/or periods of highprincipal prepayments, we increase our liquid assets by investing in short-termU. S. Government and agency securities or high-grade municipal securities.

 

Liquidity management is botha daily and long-term function of our strategy. Excess funds are 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 

 

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sales of securities.  At September 30, 2005, we had outstandingFederal Home Loan Bank advances of $59.0 million and $300,000 borrowed againstour line of credit with the Federal Home Loan Bank.  At September 30, 2005, our total borrowingcapacity with the Federal Home Loan Bank was $93.5 million.  We also had other borrowings of $14.6 millionat September 30, 2005, which included $8.2 million of subordinated debentures,$4.1 million of long-term debt and $2.3 million in repurchase agreements.

 

At September 30, 2005, wehad outstanding loan commitments, excluding standby letters of credit, of $52.2million.  We anticipate that sufficientfunds will be available to meet current loan commitments.  These commitments consist of letters ofcredit, unfunded lines of credit and commitments to finance real estate loans.

 

                *Capital.*  The FederalReserve Board has established capital requirements for bank holding companieswhich generally parallel the capital requirements for national banks under theOffice 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.

 

At September 30, 2005, wecontinued to maintain a sound leverage ratio of 9.6% and a total risk basedcapital ratio of 16.1%.  As shown by thefollowing table, our capital exceeded the minimum capital requirements at September30, 2005 (dollars in thousands):

 
| **Company**              | ** ** | **Actual  Amount** | ** ** | **Actual  Percent** | ** ** | **Required  Percent** | ** ** | **Required  Amount** | ** ** |
|--------------------------|------------|--------------------|------------|---------------------|------------|-----------------------|------------|----------------------|------------|
| Leverage                 |       | $                  | 42,634     |                | 9.6        | %                     | 4.0        | %                    | $          | 17,787 |   |
| Tier 1 Capital           |       | $                  | 42,634     |                | 15.0       | %                     | 4.0        | %                    | $          | 11,347 |   |
| Total Risk Based Capital |       | $                  | 45,752     |                | 16.1       | %                     | 8.0        | %                    | $          | 22,693 |   |

 

At September 30, 2005,our subsidiary bank continued to maintain a sound leverage ratio of 10.3% and atotal risk based capital ratio of 17.2%. As shown by the following table, our bank’s capital exceeded the minimumcapital requirements at September 30, 2005 (dollars in thousands):

 
| **Landmark National Bank** | ** ** | **Actual  Amount** | ** ** | **Actual  Percent** | ** ** | **Required  Percent** | ** ** | **Required  Amount** | ** ** |
|----------------------------|------------|--------------------|------------|---------------------|------------|-----------------------|------------|----------------------|------------|
| Leverage                   |       | $                  | 45,504     |                | 10.3       | %                     | 4.0        | %                    | $          | 17,724 |   |
| Tier 1 Capital             |       | $                  | 45,504     |                | 16.1       | %                     | 4.0        | %                    | $          | 11,317 |   |
| Total Risk Based Capital   |       | $                  | 48,622     |                | 17.2       | %                     | 8.0        | %                    | $          | 22,635 |   |

 

Banks and bank holdingcompanies are generally expected to operate at or above the minimum capitalrequirements.  The above ratios are wellin excess of regulatory minimums and should allow us to operate without capitaladequacy concerns.  The Federal DepositInsurance Corporation Improvement Act of 1991 establishes a bank rating systembased on the capital levels of banks.  Asof September 30, 2005, we were rated “well capitalized”, which is the highestrating available under this capital-based rating system.

 

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                Effective April11, 2005, the Board of Governors of the Federal Reserve System amended therisk-based capital standards for bank holding companies to allow the continuedinclusion of outstanding and prospective issuances of trust preferredsecurities in the tier 1 capital of bank holding companies, subject to stricterstandards.  The new regulations limit theamount of trust preferred securities (combined with all other restricted corecapital elements) that a bank holding company may include as tier 1 capital to25% of the sum of all core capital elements, net of goodwill less any associateddeferred tax liability.  Amounts inexcess of the limits described above generally may be included in tier 2capital.  The regulations also provide atransition period for bank holding companies to conform their capitalstructures to the revised quantitative limits. These limits will first become applicable to bank holding companiesbeginning on March 31, 2009.  We do notanticipate the amended risk-based capital standards will have a material impacton our capital structures.

 

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

 

*Quantitative and QualitativeDisclosures about Market Risk*.  Our assetsand liabilities are principally financial in nature and the resulting netinterest income thereon is subject to changes in market interest rates and themix of various assets and liabilities. Interest rates in the financial markets affect our decision on pricingour assets and liabilities which impacts net interest income, a significantcash flow source for us.  As a result, asubstantial portion of our risk management activities relates to managinginterest rate risk.

 

                OurAsset/Liability Management Committee monitors the interest rate sensitivity ofour balance sheet using earnings simulation models and interest sensitivity gapanalysis.  We have set policy limits ofinterest rate risk to be assumed in the normal course of business and monitorsuch limits through our simulation process.

 

We have been successfulin meeting the interest rate sensitivity objectives set forth in ourpolicy.  Simulation models are preparedto determine the impact on net interest income for the coming twelve months,including one using rates at September 30, 2005, and forecasting volumes forthe twelve-month projection.  Thisposition is then subjected to a shift in interest rates of 100 and 200 basispoints rising and 100 basis points falling with an impact to our net interestincome on a one year horizon as follows:

 

| **Scenario**            | ** ** | **$ Change in Net Interest Income** | ** ** | **% of Net Interest Income** | ** ** |
|-------------------------|------------|------------------------------------------|------------|------------------------------|------------|
| 100 basis point rising  |       | $                                        | 652,000    |                         | 4.6        | % |
| 200 basis point rising  |       | 1,294,000                                |       | 9.1                          | %          |
| 100 basis point falling |       | (773,000                                 | )          | (5.4                         | )%         |
| 200 basis point falling |       | (1,681,000                               | )          | (11.81                       | )%         |
|                         |            |                                          |            |                              |            |  |

 

We believe that no significant changes in our interest rate sensitivityposition have occurred since September 30, 2005.  We also believe we are appropriatelypositioned for future interest rate movements, although we may experience somefluctuations in net interest income due to short-term timing differencesbetween the repricing of assets and liabilities.

 

*Safe Harbor Statement under thePrivate Securities Litigation Reform Act of 1995 - Forward-Looking Statements.*** **This document contains, and future oral and writtenstatements of the Company and its management may contain, forward-lookingstatements, within the meaning of such term in the Private SecuritiesLitigation Reform Act of 1995, with respect to the financial condition, resultsof operations, plans, objectives, future performance and business of the Company.  Forward-looking statements, which may bebased upon beliefs, expectations and assumptions of the Company’s managementand on information currently available to management, are generallyidentifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,”“intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or othersimilar expressions.  Additionally, allstatements in this document, including forward-looking statements, speak onlyas of the date they are made, and the Company undertakes no obligation toupdate any statement in light of new information or future events.

 

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Our ability to predictresults or the actual effect of future plans or strategies is inherentlyuncertain.  Factors which could have amaterial adverse effect on our operations and future prospects  include, but are not limited to, thefollowing:

 

•                                         The strength ofthe United States economy in general and the strength of the local economies inwhich we conduct our operations which may be less favorable than expected andmay result in, among other things, a deterioration in the credit quality andvalue of our assets.

•                                         The economicimpact of past and future terrorist attacks, acts of war or threats thereof, andthe response of the United States to any such threats and attacks.

•                                         The effects of,and changes in, federal, state and local laws, regulations and policiesaffecting banking, securities, insurance and monetary and financial matters.

•                                         The effects ofchanges in interest rates (including the effects of changes in the rate ofprepayments our assets) and the policies of the Board of Governors of theFederal Reserve System.

•                                         Our ability tocompete with other financial institutions as effectively as we currently intenddue to increases in competitive pressures in the financial services sector.

•                                         Our inabilityto obtain new customers and to retain existing customers.

•                                         The timelydevelopment and acceptance of products and services, including products andservices offered through alternative delivery channels such as the Internet.

•                                         Technologicalchanges implemented by us and by other parties, including third party vendors,which may be more difficult or more expensive than anticipated or which mayhave unforeseen consequences to us and our customers.

•                                         Our ability todevelop and maintain secure and reliable electronic systems.

•                                         Our ability toretain key executives and employees and the difficulty that we may experiencein replacing key executives and employees in an effective manner.

•                                         Consumerspending and saving habits which may change in a manner that affects ourbusiness adversely.

•                                         Businesscombinations and the integration of acquired businesses which may be moredifficult or expensive than expected.

 

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•                                         The costs,effects and outcomes of existing or future litigation.

•                                         Changes inaccounting policies and practices, as may be adopted by state and federalregulatory agencies and the Financial Accounting Standards Board.

•                                         Our ability tomanage the risks associated with the foregoing as well as anticipated.

These risks anduncertainties should be considered in evaluating forward-looking statements andundue reliance should not be placed on such statements.  Additional information concerning us and ourbusiness, including other factors that could materially affect our financialresults, is included in our filings with the Securities and ExchangeCommission.

 

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**ITEM4.  CONTROLS AND PROCEDURES**

 

An evaluation was performed under thesupervision and with the participation of our management, including the ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures (as defined inRule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, asamended) as of September 30, 2005.  Basedon that evaluation, our management, including the Chief Executive Officer andChief Financial Officer, concluded that our disclosure controls and procedureswere effective.  There have been nosignificant changes in our internal controls or in other factors that couldsignificantly affect internal controls.

 

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**LANDMARKBANCORP, INC. AND SUBSIDIARY**

**PART II— OTHER INFORMATION**

 

 

**ITEM 1.  LEGAL PROCEEDINGS.**

 

                There are no material pending legal proceedings towhich the Company or its subsidiaries is a party other than ordinary routinelitigation incidental to their respective businesses.

 

 

**ITEM2.  UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS.**

 

                None

 

**ITEM3.  DEFAULTS UPON SENIOR SECURITIES.**

 

                None

 

**ITEM4.  SUBMISSION OF MATTERS TO VOTE OFSECURITY HOLDERS.**

 

                None

 

**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 toRule 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 therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                    | LANDMARK BANCORP, INC.                |
|-------------------------|---------------------------------------|
|                    |                                  |   |
| Date: November 14, 2005 | /s/ Patrick L. Alexander              |
|                    | Patrick L. Alexander                  |
|                    | President and Chief Executive Officer |
|                    |                                  |   |
| Date: November 14, 2005 | /s/ Mark A. Herpich                   |
|                    | Mark A. Herpich                       |
|                    | Vice President, Secretary, Treasurer  |
|                    | and Chief Financial Officer           |

 

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