| x | QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d)OF |
|---|---------------------------------------------------------|

|  ̈ | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE |
|--------|--------------------------------------------------------------|

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

| Large      accelerated filer  ̈ | Accelerated      filer  ̈ | Non-accelerated      filer  ̈ | Smaller      reporting company  x |
|-------------------------------------|-------------------------------|-----------------------------------|---------------------------------------------|

----

|                          |                                                                                            | Page Number   |
|-------------------------------|-------------------------------------------------------------------------------------------------|--------------------|
|                          |                                                                                            |               |
| PART      I                   |                                                                                            |
|                          |                                                                                            |               |
| Item      1.                  | Financial      Statements and Related Notes                                                     | 2 -      17        |
| Item      2.                  | Management's      Discussion and Analysis of Financial Condition and Results of      Operations | 18      – 25 |
| Item      3.                  | Quantitative      and Qualitative Disclosures about Market Risk                                 | 25      - 26       |
| Item      4.                  | Controls      and Procedures                                                                    | 27                 |
|                          |                                                                                            |               |
| PART      II                  |                                                                                            |
|                          |                                                                                            |               |
| Item      1.                  | Legal      Proceedings                                                                          | 27                 |
| Item      1A.                 | Risk      Factors                                                                               | 27                 |
| Item      2.                  | Unregistered      Sales of Equity Securities and Use of Proceeds                                | 27                 |
| Item      3.                  | Defaults      Upon Senior Securities                                                            | 27                 |
| Item      4.                  | Reserved                                                                                        | 27                 |
| Item      5.                  | Other      Information                                                                          | 27                 |
| Item      6.                  | Exhibits                                                                                        | 27                 |
|                          |                                                                                            |               |
| Form      10-Q Signature Page | 28                                                                                              |

----

| (Dollars in thousands)                                                                                                                                 |   | March 31, |    |   | December 31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|---------|--------|-------------------|--------|
|                                                                                                                                                             |   | 2010           |    |   | 2009              |   |
| Assets                                                                                                                                                           |   |           |    |   |              |   |
| Cash      and cash equivalents                                                                                                                                   |   | $              | 10,338  |   |              | $      | 12,379 |   |
| Investment      securities:                                                                                                                                      |   |           |    |   |              |   |   |   |
| Available-for-sale,      at fair value                                                                                                                           |   |           | 160,673 |   |              |   | 161,628 |   |
| Other      securities                                                                                                                                            |   |           | 8,031   |   |              |   | 7,991 |   |
| Loans,      net                                                                                                                                                  |   |           | 343,978 |   |              |   | 342,738 |   |
| Loans      held for sale                                                                                                                                         |   |           | 6,064   |   |              |   | 4,703 |   |
| Premises      and equipment, net                                                                                                                                 |   |           | 15,658  |   |              |   | 15,877 |   |
| Goodwill                                                                                                                                                         |   |           | 12,894  |   |              |   | 12,894 |   |
| Other      intangible assets, net                                                                                                                                |   |           | 2,328   |   |              |   | 2,481 |   |
| Bank      owned life insurance                                                                                                                                   |   |           | 12,670  |   |              |   | 12,548 |   |
| Real      estate owned                                                                                                                                           |   |           | 3,083   |   |              |   | 1,129 |   |
| Accrued      interest and other assets                                                                                                                           |   |           | 10,332  |   |              |   | 9,799 |   |
| Total      assets                                                                                                                                                |   | $              | 586,049 |   |              | $      | 584,167 |   |
|                                                                                                                                                             |   |           |    |   |              |   |   |   |
| Liabilities      and Stockholders’ Equity                                                                                                                  |   |           |    |   |              |   |   |   |
| Liabilities:                                                                                                                                                     |   |           |    |   |              |   |   |   |
| Deposits:                                                                                                                                                        |   |           |    |   |              |   |   |   |
| Non-interest      bearing demand                                                                                                                                 |   | $              | 56,089  |   |              | $      | 54,799 |   |
| Money      market and NOW                                                                                                                                        |   |           | 168,791 |   |              |   | 162,449 |   |
| Savings                                                                                                                                                          |   |           | 31,609  |   |              |   | 29,010 |   |
| Time,      $100,000 and greater                                                                                                                                  |   |           | 50,446  |   |              |   | 48,422 |   |
| Time,      other                                                                                                                                                 |   |           | 139,647 |   |              |   | 143,915 |   |
| Total      deposits                                                                                                                                              |   |           | 446,582 |   |              |   | 438,595 |   |
|                                                                                                                                                             |   |           |    |   |              |   |   |   |
| Federal      Home Loan Bank borrowings                                                                                                                           |   |           | 50,947  |   |              |   | 56,004 |   |
| Other      borrowings                                                                                                                                            |   |           | 26,684  |   |              |   | 26,179 |   |
| Accrued      interest, taxes, and other liabilities                                                                                                              |   |           | 7,372   |   |              |   | 9,494 |   |
| Total      liabilities                                                                                                                                           |   |           | 531,585 |   |              |   | 530,272 |   |
|                                                                                                                                                             |   |           |    |   |              |   |   |   |
| Commitments      and contingencies                                                                                                                               |   |           |    |   |              |   |   |   |
|                                                                                                                                                             |   |           |    |   |              |   |   |   |
| Stockholders’      equity:                                                                                                                                 |   |           |    |   |              |   |   |   |
| Preferred      stock, $0.01 par, 200,000 shares authorized; none issued                                                                                          |   |           | -       |   |              |   | - |   |
| Common      stock, $0.01 par, 7,500,000 shares authorized; 2,504,265 and 2,489,779      shares issued at March 31, 2010 and December 31, 2009,      respectively |   |           | 25      |   |              |   | 25 |   |
| Additional      paid-in capital                                                                                                                                  |   |           | 25,057  |   |              |   | 24,844 |   |
| Retained      earnings                                                                                                                                           |   |           | 28,191  |   |              |   | 27,523 |   |
| Accumulated      other comprehensive income                                                                                                                      |   |           | 1,191   |   |              |   | 1,503 |   |
| Total      stockholders’ equity                                                                                                                            |   |           | 54,464  |   |              |   | 53,895 |   |
|                                                                                                                                                             |   |           |    |   |              |   |   |   |
| Total      liabilities and stockholders’ equity                                                                                                            |   | $              | 586,049 |   |              | $      | 584,167 |   |

----

| (Dollars in thousands, except per share amounts) |   | Three months ended March 31, |   |
|--------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|
|                                                                           |   | 2010                                             |   |   | 2009 |   |
| Interest      income:                                                          |   |                                             |   |   |   |   |
| Loans:                                                                         |   |                                             |   |   |   |   |
| Taxable                                                                        |   | $                                                | 4,792  |   |   | $ | 5,133 |   |
| Tax-exempt                                                                     |   |                                             | 78     |   |   |   | 49 |   |
| Investment      securities:                                                    |   |                                             |   |   |   |   |   |   |
| Taxable                                                                        |   |                                             | 794    |   |   |   | 1,116 |   |
| Tax-exempt                                                                     |   |                                             | 627    |   |   |   | 609 |   |
| Other                                                                          |   |                                             | 1      |   |   |   | 3 |   |
| Total      interest income                                                     |   |                                             | 6,292  |   |   |   | 6,910 |   |
| Interest      expense:                                                         |   |                                             |   |   |   |   |   |   |
| Deposits                                                                       |   |                                             | 1,039  |   |   |   | 1,639 |   |
| Borrowings                                                                     |   |                                             | 685    |   |   |   | 879 |   |
| Total      interest expense                                                    |   |                                             | 1,724  |   |   |   | 2,518 |   |
| Net      interest income                                                       |   |                                             | 4,568  |   |   |   | 4,392 |   |
| Provision      for loan losses                                                 |   |                                             | 700    |   |   |   | 300 |   |
| Net      interest income after provision for loan losses                       |   |                                             | 3,868  |   |   |   | 4,092 |   |
| Non-interest      income:                                                      |   |                                             |   |   |   |   |   |   |
| Fees      and service charges                                                  |   |                                             | 1,005  |   |   |   | 956 |   |
| Gains      on sales of loans, net                                              |   |                                             | 511    |   |   |   | 708 |   |
| Bank      owned life insurance                                                 |   |                                             | 124    |   |   |   | 123 |   |
| Other                                                                          |   |                                             | 125    |   |   |   | 113 |   |
| Total      non-interest income                                                 |   |                                             | 1,765  |   |   |   | 1,900 |   |
|                                                                           |   |                                             |   |   |   |   |   |   |
| Investment      securities gains (losses), net:                                |   |                                             |   |   |   |   |   |   |
| Impairment      losses on investment securities                                |   |                                             | -      |   |   |   | (850 | ) |
| Less      noncredit-related losses                                             |   |                                             | -      |   |   |   | 523 |   |
| Net      impairment losses                                                     |   |                                             | -      |   |   |   | (327 | ) |
| Gains      on sales of investment securities                                   |   |                                             | 563    |   |   |   | - |   |
| Investment      securities gains (losses), net                                 |   |                                             | 563    |   |   |   | (327 | ) |
|                                                                           |   |                                             |   |   |   |   |   |   |
| Non-interest      expense:                                                     |   |                                             |   |   |   |   |   |   |
| Compensation      and benefits                                                 |   |                                             | 2,324  |   |   |   | 2,177 |   |
| Occupancy      and equipment                                                   |   |                                             | 719    |   |   |   | 651 |   |
| Federal      deposit insurance premiums                                        |   |                                             | 179    |   |   |   | 33 |   |
| Data      processing                                                           |   |                                             | 208    |   |   |   | 190 |   |
| Amortization      of intangibles                                               |   |                                             | 179    |   |   |   | 187 |   |
| Professional      fees                                                         |   |                                             | 134    |   |   |   | 172 |   |
| Advertising                                                                    |   |                                             | 118    |   |   |   | 121 |   |
| Other                                                                          |   |                                             | 947    |   |   |   | 924 |   |
| Total      non-interest expense                                                |   |                                             | 4,808  |   |   |   | 4,455 |   |
| Earnings      before income taxes                                              |   |                                             | 1,388  |   |   |   | 1,210 |   |
| Income      tax expense                                                        |   |                                             | 245    |   |   |   | 201 |   |
| Net      earnings                                                              |   | $                                                | 1,143  |   |   | $ | 1,009 |   |
| Earnings      per share:                                                       |   |                                             |   |   |   |   |   |   |
| Basic                                                                          |   | $                                                | 0.46   |   |   | $ | 0.40 |   |
| Diluted                                                                        |   | $                                                | 0.46   |   |   | $ | 0.40 |   |
| Dividends      per share                                                       |   | $                                                | 0.19   |   |   | $ | 0.18 |   |

----

| (Dollars in thousands)                                          |   | Three months ended March 31, |    |
|---------------------------------------------------------------------------|--------|--------------------------------------------------|---------|
|                                                                      |   | 2010                                             |    |   | 2009 |   |
|                                                                      |   |                                             |    |   |   |   |
| Net      cash used in operating activities                                |   | $                                                | (2,013  | ) |   | $ | (8,164 | ) |
|                                                                      |   |                                             |    |   |   |   |   |   |
| Cash      flows from investing activities:                                |   |                                             |    |   |   |   |   |   |
| Net      (increase) decrease in loans                                     |   |                                             | (4,154  | ) |   |   | 9,811 |   |
| Maturities      and prepayments of investment securities                  |   |                                             | 8,789   |   |   |   | 13,087 |   |
| Purchases      of investment securities                                   |   |                                             | (18,058 | ) |   |   | (25,919 | ) |
| Proceeds      from sale of investment securities                          |   |                                             | 10,097  |   |   |   | - |   |
| Proceeds      from sales of foreclosed assets                             |   |                                             | 142     |   |   |   | 2 |   |
| Purchases      of premises and equipment, net                             |   |                                             | (26     | ) |   |   | (78 | ) |
| Net      cash used in investing activities                                |   |                                             | (3,210  | ) |   |   | (3,097 | ) |
| Cash      flows from financing activities:                                |   |                                             |    |   |   |   |   |   |
| Net      increase in deposits                                             |   |                                             | 7,987   |   |   |   | 17,667 |   |
| Federal      Home Loan Bank advance repayments                            |   |                                             | (5,009  | ) |   |   | (9 | ) |
| Change      in Federal Home Loan Bank line of credit, net                 |   |                                             | -       |   |   |   | (6,000 | ) |
| Other      borrowings, net                                                |   |                                             | 505     |   |   |   | 632 |   |
| Proceeds      from issuance of common stock under stock option plans      |   |                                             | 143     |   |   |   | - |   |
| Excess      tax benefit related to stock option plans                     |   |                                             | 31      |   |   |   | - |   |
| Payment      of dividends                                                 |   |                                             | (475    | ) |   |   | (451 | ) |
| Purchase      of treasury stock                                           |   |                                             | -       |   |   |   | (12 | ) |
| Net      cash provided by financing activities                            |   |                                             | 3,182   |   |   |   | 11,827 |   |
| Net      (decrease) increase in cash and cash equivalents                 |   |                                             | (2,041  | ) |   |   | 566 |   |
| Cash      and cash equivalents at beginning of year                       |   |                                             | 12,379  |   |   |   | 13,788 |   |
| Cash      and cash equivalents at end of year                             |   | $                                                | 10,338  |   |   | $ | 14,354 |   |
| Supplemental      disclosure of cash flow information:                    |   |                                             |    |   |   |   |   |   |
| Cash      paid during the year for income taxes                           |   | $                                                | 450     |   |   | $ | (13 | ) |
| Cash      paid during the year for interest                               |   |                                             | 1,838   |   |   |   | 2,498 |   |
| Supplemental      schedule of noncash investing and financing activities: |   |                                             |    |   |   |   |   |   |
| Transfer      of loans to real estate owned                               |   | $                                                | 2,095   |   |   | $ | 486 |   |

----

| (Dollars in thousands, except per share amounts)          |   | Commonstock |   |   | Additionalpaid-incapital |   |   | Retainedearnings |   |   | Treasurystock |   |   | Accumulated othercomprehensiveincome |   |   | Total  |   |
|-----------------------------------------------------------------------------------------|--------|-------------|--------|--------|--------------------------|--------|--------|------------------|--------|--------|---------------|--------|--------|-------------------------------------------|--------|--------|--------|--------|
| Balance      at December 31, 2008                                                       |   | $           | 24     |   |                     | $      | 23,873 |             |   | $      | 27,819        |   |   | $                                         | (935   | )      |   | $      | 625 |   |   | $ | 51,406 |   |
| Comprehensive      income:                                                              |   |        |   |   |                     |   |   |             |   |   |          |   |   |                                      |   |   |   |   |   |   |   |   |   |   |
| Net      earnings                                                                       |   |        | -      |   |                     |   | -      |             |   |   | 1,009         |   |   |                                      | -      |   |   |   | - |   |   |   | 1,009 |   |
| Change      in fair value of investment securities available-for-sale, net of      tax  |   |        | -      |   |                     |   | -      |             |   |   | -             |   |   |                                      | -      |   |   |   | (180 | ) |   |   | (180 | ) |
| Total      comprehensive income                                                         |   |        |   |   |                     |   |   |             |   |   |          |   |   |                                      |   |   |   |   |   |   |   |   | 829 |   |
| Dividends      paid ($0.18 per share)                                                   |   |        | -      |   |                     |   | -      |             |   |   | (451          | )      |   |                                      | -      |   |   |   | - |   |   |   | (451 | ) |
| Stock      based compensation                                                           |   |        | -      |   |                     |   | 39     |             |   |   | -             |   |   |                                      | -      |   |   |   | - |   |   |   | 39 |   |
| Purchase      of 800 treasury shares                                                    |   |        | -      |   |                     |   | -      |             |   |   | -             |   |   |                                      | (12    | )      |   |   | - |   |   |   | (12 | ) |
| Balance      at March 31, 2009                                                          |   | $           | 24     |   |                     | $      | 23,912 |             |   | $      | 28,377        |   |   | $                                         | (947   | )      |   | $      | 445 |   |   | $ | 51,811 |   |
|                                                                                    |   |        |   |   |                     |   |   |             |   |   |          |   |   |                                      |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2009                                                       |   | $           | 25     |   |                     | $      | 24,844 |             |   | $      | 27,523        |   |   | $                                         | -      |   |   | $      | 1,503 |   |   | $ | 53,895 |   |
| Comprehensive      income:                                                              |   |        |   |   |                     |   |   |             |   |   |          |   |   |                                      |   |   |   |   |   |   |   |   |   |   |
| Net      earnings                                                                       |   |        | -      |   |                     |   | -      |             |   |   | 1,143         |   |   |                                      | -      |   |   |   | - |   |   |   | 1,143 |   |
| Change      in fair value of investment securities available-for-sale, net of      tax  |   |        | -      |   |                     |   | -      |             |   |   | -             |   |   |                                      | -      |   |   |   | (312 | ) |   |   | (312 | ) |
| Total      comprehensive income                                                         |   |        |   |   |                     |   |   |             |   |   |          |   |   |                                      |   |   |   |   |   |   |   |   | 831 |   |
| Dividends      paid ($0.19 per share)                                                   |   |        | -      |   |                     |   | -      |             |   |   | (475          | )      |   |                                      | -      |   |   |   | - |   |   |   | (475 | ) |
| Stock      based compensation                                                           |   |        | -      |   |                     |   | 39     |             |   |   | -             |   |   |                                      | -      |   |   |   | - |   |   |   | 39 |   |
| Exercise      of stock options, 14,486 shares, including excess tax benefit of      $31 |   |        | -      |   |                     |   | 174    |             |   |   | -             |   |   |                                      | -      |   |   |   | - |   |   |   | 174 |   |
| Balance      at March 31, 2010                                                          |   | $           | 25     |   |                     | $      | 25,057 |             |   | $      | 28,191        |   |   | $                                         | -      |   |   | $      | 1,191 |   |   | $ | 54,464 |   |

----

| 1. | Interim      Financial Statements |
|----|-----------------------------------|

| 2. | Goodwill      and Other Intangible Assets |
|----|-------------------------------------------|

|                                         |   | Three months ended March 31, |   |
|----------------------------------------------|--------|--------------------------------------------------|--------|
|   (Dollars in thousands) |   | 2010                                             |   |   | 2009 |   |
|                                         |   | Fair value atacquisition               |   |   | AccumulatedAmortization |   |   | Fair value atacquisition |   |   | AccumulatedAmortization |   |
| Balance      at beginning of period          |   | $                                                | 5,482  |   |   | $ | (3,767 | ) |   | $ | 5,396 |   |   | $ | (3,159 | ) |
| Additions                                    |   |                                             | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Adjustments      to prior estimates          |   |                                             | (37    | ) |   |   | - |   |   |   | - |   |   |   | - |   |
| Amortization                                 |   |                                             | -      |   |   |   | (129 | ) |   |   | - |   |   |   | (155 | ) |
| Balance      at end of period                |   | $                                                | 5,445  |   |   | $ | (3,896 | ) |   | $ | 5,396 |   |   | $ | (3,314 | ) |

|                                         |   | Three months ended March 31, |   |
|----------------------------------------------|--------|--------------------------------------------------|--------|
|   (Dollars in thousands) |   | 2010                                             |   |   | 2009 |   |
|                                         |   | Cost                                             |   |   | AccumulatedAmortization |   |   | Cost |   |   | AccumulatedAmortization |   |
| Balance      at beginning of period          |   | $                                                | 1,447  |   |   | $ | (681 | ) |   | $ | 772 |   |   | $ | (602 | ) |
| Additions                                    |   |                                             | 63     |   |   |   | - |   |   |   | 155 |   |   |   | - |   |
| Prepayments/maturities                       |   |                                             | (14    | ) |   |   | 14 |   |   |   | (34 | ) |   |   | 34 |   |
| Amortization                                 |   |                                             | -      |   |   |   | (50 | ) |   |   | - |   |   |   | (32 | ) |
| Balance      at end of period                |   | $                                                | 1,496  |   |   | $ | (717 | ) |   | $ | 893 |   |   | $ | (600 | ) |

----

| Year                   |   | Amount (in thousands) |   |
|------------------------|--------|---------------------------------|--------|
| Remainder      of 2010 |   | $                               | 526    |   |
| 2011                   |   |                            | 610    |   |
| 2012                   |   |                            | 514    |   |
| 2013                   |   |                            | 430    |   |
| 2014                   |   |                            | 173    |   |
| Thereafter             |   |                            | 75     |   |

| 3. | Investments |
|----|-------------|

|                                   |   | As of March 31, 2010 |    |
|----------------------------------------|--------|------------------------------------------|---------|
|                                   |   |                                     |    |   | Gross |   |   | Gross |   |   |   |   |
|                                   |   | Amortized                                |    |   | unrealized |   |   | unrealized |   |   | Estimated |   |
| (Dollars in thousands)       |   | cost                                     |    |   | gains |   |   | losses |   |   | fair value |   |
|                                   |   |                                     |    |   |   |   |   |   |   |   |   |   |
| U.      S. federal agency obligations  |   | $                                        | 25,616  |   |   | $ | 270 |   |   | $ | (20 | ) |   | $ | 25,866 |   |
| Municipal      obligations, tax exempt |   |                                     | 66,274  |   |   |   | 1,800 |   |   |   | (215 | ) |   |   | 67,859 |   |
| Municipal      obligations, taxable    |   |                                     | 1,366   |   |   |   | - |   |   |   | (9 | ) |   |   | 1,357 |   |
| Mortgage-backed      securities        |   |                                     | 51,256  |   |   |   | 1,043 |   |   |   | (58 | ) |   |   | 52,241 |   |
| Common      stocks                     |   |                                     | 762     |   |   |   | 287 |   |   |   | (10 | ) |   |   | 1,039 |   |
| Pooled      trust preferred securities |   |                                     | 1,524   |   |   |   | - |   |   |   | (1,210 | ) |   |   | 314 |   |
| Certificates      of deposit           |   |                                     | 11,997  |   |   |   | - |   |   |   | - |   |   |   | 11,997 |   |
| Total                                  |   | $                                        | 158,795 |   |   | $ | 3,400 |   |   | $ | (1,522 | ) |   | $ | 160,673 |   |
|                                   |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                   |   | As of December 31, 2009                  |    |
|                                   |   |                                     |    |   |   | Gross |   |   | Gross |   |   |   |   |   |
|                                   |   | Amortized                                |    |   | unrealized |   |   | unrealized |   |   | Estimated |   |
| (Dollars      in thousands)            |   | cost                                     |    |   | gains |   |   | losses |   |   | fair value |   |
|                                   |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.      S. federal agency obligations  |   | $                                        | 18,734  |   |   | $ | 356 |   |   | $ | - |   |   | $ | 19,090 |   |
| Municipal      obligations, tax exempt |   |                                     | 67,149  |   |   |   | 1,938 |   |   |   | (228 | ) |   |   | 68,859 |   |
| Municipal      obligations, taxable    |   |                                     | 1,366   |   |   |   | - |   |   |   | (23 | ) |   |   | 1,343 |   |
| Mortgage-backed      securities        |   |                                     | 63,265  |   |   |   | 1,532 |   |   |   | (102 | ) |   |   | 64,695 |   |
| Common      stocks                     |   |                                     | 693     |   |   |   | 191 |   |   |   | (19 | ) |   |   | 865 |   |
| Pooled      trust preferred securities |   |                                     | 1,528   |   |   |   | - |   |   |   | (1,267 | ) |   |   | 261 |   |
| Certificates      of deposit           |   |                                     | 6,515   |   |   |   | - |   |   |   | - |   |   |   | 6,515 |   |
| Total                                  |   | $                                        | 159,250 |   |   | $ | 4,017 |   |   | $ | (1,639 | ) |   | $ | 161,628 |   |

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|   |   |   |   |   | As of March 31, 2010 (Dollars in thousands)    Less than 12 months  12 months or longer  Total         No. of  Fair  Unrealized  Fair  Unrealized  Fair  Unrealized         securities  value  losses  value  losses  value  losses U.S.      federal agency obligations  6  $10,415  $(20) $-  $-  $10,415  $(20)Municipal      obligations, tax exempt  26   7,980   (156)  721   (59)  8,701   (215)Municipal      obligations, taxable  1   996   (9)  -   -   996   (9)Mortgage-backed      securities  7   8,134   (58)  -   -   8,134   (58)Common      stocks  3   25   (2)  1   (8)  26   (10)Pooled      trust preferred securities  2   -   -   314   (1,210)  314   (1,210)Total  45  $27,550  $(245) $1,036  $(1,277) $28,586  $(1,522)                                               As      of December 31, 2009 (Dollars      in thousands)     Less      than 12 months  12      months or longer  Total         No.      of  Fair  Unrealized  Fair  Unrealized  Fair  Unrealized         securities  value  losses  value  losses  value  losses Municipal      obligations, tax exempt  24  $7,765  $(167) $780  $(61) $8,545  $(228)Municipal      obligations, taxable  2   1,233   (23)  -   -   1,233   (23)Mortgage-backed      securities  6   8,140   (101)  44   (1)  8,184   (102)Common      stocks  4   59   (19)  -   -   59   (19)Pooled      trust preferred securities  3   -   -   261   (1,267)  261   (1,267)Total  39  $17,197  $(310) $1,085  $(1,329) $18,282  $(1,639)TheCompany performs quarterly reviews of the investment portfolio to determine ifinvestment securities have any declines in fair value which might be consideredother-than-temporary.  The initial review begins with all securitiesin an unrealized loss position.  The Company’s assessment ofother-than-temporary impairment is based on its reasonable judgment of thespecific facts and circumstances impacting each individual security at the timesuch assessments are made.  The Company reviews and considers allavailable information, including expected cash flows, the structure of thesecurity, the credit quality of the underlying assets and the current andanticipated market conditions.  Any credit-related impairments on debtsecurities are realized through a charge to earnings.  If an equitysecurity is determined to be other-than-temporarily impaired, the entireimpairment is realized through a charge to earnings.As of March 31, 2010, the Company doesnot intend to sell and it is more likely than not that the Company will not berequired to sell its municipal obligations in an unrealized loss position untilthe recovery of its cost.  Due to the issuers’ continued satisfactionof the securities’ obligations in accordance with their contractual terms andthe expectation that they will continue to do so, the evaluation of thefundamentals of the issuers’ financial condition and other objective evidence,the Company believes that the municipal obligations identified in the tablesabove were temporarily impaired as of March 31, 2010 and December 31,2009.Thereceipt of principal, at par, and interest on mortgage-backed securities isguaranteed by the respective government-sponsored agency guarantor, such thatthe Company believes that its mortgage-backed securities do not expose theCompany to credit related losses.  Based on these factors, along withthe Company’s intent to not sell the security and that it is more likely thannot that the Company will not be required to sell the security before recoveryof its cost basis, the Company believes that the mortgage-backed securitiesidentified in the tables above were temporarily impaired as of March 31, 2010and December 31, 2009.  The Company’s mortgage-backed securitiesportfolio consists of securities underwritten to the standards of and guaranteedby the government-sponsored agencies of FHLMC, FNMA and GNMA. 8 As of March 31, 2010, the Company ownedthree pooled trust preferred securities with an original cost basis of $2.5million, which represent investments in pools of collateralized debt obligationsissued by financial institutions and insurance companies.  The marketfor these securities is considered to be inactive.   The Companyused discounted cash flow models to assess if the present value of the cashflows expected to be collected was less than the amortized cost, which wouldresult in an other-than-temporary impairment associated with the credit of theunderlying collateral.  The assumptions used in preparing thediscounted cash flow models include the following: estimated discount rates,estimated deferral and default rates on collateral, assumed recoveries, andestimated cash flows including all information available through the date ofissuance of the financial statements.  The discounted cash flowanalysis included a review of all issuers within the collateral pool andincorporated higher deferral and default rates, as compared to historical rates,in the cash flow projections through maturity.As of March 31, 2010, the analysis ofthe Company’s three investments in pooled trust preferred securities indicatedthat the unrealized losses on the securities were not creditrelated.  The Company did not record any credit related impairments inthe first quarter of 2010.  In the first quarter of 2009, the analysisindicated that a portion of the unrealized loss was other-than-temporary on oneof the pooled trust preferred securities.  The increase innonperforming collateral on a $1.0 million par pooled trust preferred investmentresulted in a credit related other-than-temporary impairment of $327,000 duringthe quarter ended March 31, 2009.  The Company performed a discountedcash flow analysis, using the factors noted above to determine the amount of theother-than-temporary impairment that was applicable to either credit losses orother factors.  As of December 31, 2009, the Company had recordedcredit losses on all three pooled trust preferred securities totaling $961,000through a charge to earnings for the year ended December 31, 2009.The following table reconciles thechanges in the Company’s credit losses recognized in earnings:   Three months ending March 31,   (Dollars      in thousands) 2010  2009 Beginning      balance $961  $- Additional      credit losses:        Securities      with no previous other than temporary impairment  -   327 Securities      with previous other than temporary impairments  -   - Ending      balance $961  $327 It is reasonably possible that the fairvalues of the Company’s investment securities could decline in the future if theoverall economy and the financial condition of some of the issuers continue todeteriorate and the liquidity of these securities remains low.  As aresult, there is a risk that additional other-than-temporary impairments mayoccur in the future and any such amounts could be material to the Company’sconsolidated financial statements.  The fair value of the Company’sinvestment securities may also decline from an increase in market interestrates, as the market prices of these investments move inversely to their marketyields.Maturitiesof investment securities at March 31, 2010 are as follows:(Dollars in thousands) Amortized  Estimated         cost  fair value Due      in less than one year $27,831  $25,804 Due      after one year but within five years  31,026   31,713 Due      after five years  47,920   49,876 Mortgage-backed      securities and common stocks  52,018   53,280 Total $158,795  $160,673 For mortgage-backed securities, actualmaturities will differ from contractual maturities because borrowers have theright to prepay obligations with or without prepayment penalties.Gross realized gains and losses onsales of available-for-sale securities are as follows:(Dollars in thousands) Three months ended March 31,         2010  2009 Realized      gains $563  $- Realized      losses  -   - Total $563  $-  9 Otherinvestment securities include restricted investments in Federal Home Loan Bank(“FHLB”) and Federal Reserve Bank (“FRB”) stock.  The carrying valueof the FHLB stock at March 31, 2010 and December 31, 2009 was $6.3 million and$6.2 million, respectively and the carrying value of the FRB stock at March 31,2010 and December 31, 2009 was $1.8 million.  These securities are notreadily marketable and are required for regulatory purposes and borrowingavailability.  Since there is no available market values thesesecurities are carried at cost.  Redemption of these investments atpar value is at the option of the FHLB or FRB.  We have assessed theultimate recoverability of these investments and believe that no impairment hasoccurred.4.Loans      and Allowance for Loan LossesLoans consisted of the following asof:(Dollars in thousands) March 31,  December 31,         2010  2009 Real      estate loans:      One-to-four      family residential $97,762  $98,333 Commercial  105,963   106,470 Construction      and land  34,190   36,864 Commercial      loans  104,439   98,213 Consumer      loans  7,261   7,884 Total      gross loans  349,615   347,764 Deferred      loan fees/(costs) and loans in process  400   442 Allowance      for loan losses  (6,037)  (5,468)Loans,      net $343,978  $342,738                Percent of total        Real      estate loans:        One-to-four      family residential  27.9%  28.3%Commercial  30.3%  30.6%Construction      and land  9.8%  10.6%Commercial      loans  29.9%  28.2%Consumer      loans  2.1%  2.3%Total      gross loans  100.0%  100.0%A summaryof the activity in the allowance for loan losses is as follows:(Dollars in thousands) Three months ended March 31,         2010  2009 Beginning      balance $5,468  $3,871 Provision      for loan losses  700   300 Charge-offs  (147)  (82)Recoveries  16   218 Ending      balance $6,037  $4,307  10 At March31, 2010, $11.8 million in loans were on non-accrual status, or 3.4% of netloans, compared to a balance of $11.8 million, or 3.5% of net loans, at December31, 2009.  Non-accrual loans consist primarily of loans greater thanninety days past due.  There were no loans 90 days delinquent andstill accruing interest at March 31, 2010 or December 31, 2009.A summaryof the non-accrual loans is as follows:(Dollars in thousands) March 31  December 31,         2010  2009 Real      estate loans:      One-to-four      family residential $970  $1,146 Commercial  2,706   1,475 Construction      and land  5,241   6,402 Commercial      loans  2,822   2,785 Consumer      loans  36   22 Total      non-accrual loans $11,775  $11,830 A summaryof the nonperforming assets is as follows:        March 31,  December 31, (Dollars      in thousands) 2010  2009              Total      non-accrual loans $11,775  $11,830 Accruing      loans over 90 days past due  -   - Nonperforming      investments, at fair value  314   261 Real      estate owned  3,083   1,129 Total      nonperforming assets $15,172  $13,220                Total      nonperforming loans to total loans, net  3.4%  3.5%Total      nonperforming assets to total assets  2.6%  2.3%Allowance      for loan losses to gross loans outstanding  1.7%  1.6%Allowance      for loan losses to nonperforming loans  51.3%  46.2%The $2.0 increase in other real estateowned was primarily the result of the foreclosure on a $1.3 million residentialsubdivision development as the Company took possession of the real estate afterthe development slowed and the borrower was unable to comply with thecontractual terms of the loan.  The remaining increase in other realestate owned was from foreclosures on residential properties. A summaryof the impaired loans is as follows: (Dollars in thousands) March 31,  December 31,         2010  2009 Real      estate loans:      One-to-four      family residential $970  $1,146 Commercial  2,706   1,475 Construction      and land  5,241   6,402 Commercial      loans  2,822   2,785 Consumer      loans  36   22 Total      impaired loans $11,775  $11,830                Impaired      loans for which an allowance has been provided $9,046  $10,620 Impaired      loans for which no allowance has been provided  2,729   1,210 Allowance      related to impaired loans $3,430  $2,770  11 5.Earnings      per ShareBasicearnings per share have been computed based upon the weighted average number ofcommon shares outstanding during each period.  Diluted earnings pershare includes the effect of all potential common shares outstanding during eachperiod.  The shares used in the calculation of basic and dilutedearnings per share are shown below:(Dollars in thousands, except per share amounts) Three months ended March 31,         2010  2009 Net      earnings available to common shareholders $1,143  $1,009                Weighted      average common shares outstanding - basic  2,489,779   2,490,564 Assumed      exercise of stock options  2,163   5,352 Weighted      average common shares outstanding - diluted  2,491,942   2,495,916 Earnings      per share (1):        Basic $0.46  $0.40 Diluted $0.46  $0.40 (1) Allper share amounts have been adjusted to give effect to the 5% stock dividendpaid during December 2009.6.Comprehensive      IncomeThe Company’s other comprehensiveincome consists of the unrealized holding gains and losses on available for salesecurities as shown below.(Dollars in thousands) Three months ended March 31,         2010  2009 Net      earnings $1,143  $1,009 Unrealized      holding gains (losses) on available-for-sale securities for which a      portion of an other-than-temporary impairment has been recorded in      earnings  57   (125)Net      unrealized holding gains (losses) on all other available-for-sale      securities  6   (513)Less      reclassification adjustment for (gains) losses included in      earnings  (563)  327 Net      unrealized losses  (500)  (311)Income      tax benefit  (188)  (131)Total      comprehensive income $831  $829 7.Fair      Value of Financial Instruments and Fair Value  MeasurementsThe Company follows FASB ASC 820 “FairValue Measurements and Disclosures,” which defines fair value, establishes aframework for measuring fair value and expands the disclosures about fair valuemeasurements.  ASC Topic 820-10-55 requires the use of a hierarchy offair value techniques based upon whether the inputs to those fair values reflectassumptions other market participants would use based upon market data obtainedfrom independent sources or reflect the Company’s own assumptions of marketparticipant valuation.  Effective January 1, 2009, the Company beganapplying FASB ASC 820 to certain nonfinancial assets and liabilities, whichinclude foreclosed real estate, long-lived assets, goodwill, and core depositpremium, which are recorded at fair value only upon impairment.  Thefair value hierarchy is as follows:       •      Level 1:  Unadjusted quoted prices in active markets that are      accessible at the measurement date for identical, unrestricted assets or      liabilities.       •      Level 2:  Quoted prices for similar assets in active markets,      quoted prices in markets that are not active or quoted prices that contain      observable inputs such as yield curves, volatilities, prepayment speeds      and other inputs derived from marketdata.       •      Level 3:  Quoted prices or valuation techniques that require      inputs that are both significant to the fair value measurement and      unobservable. 12 Fairvalue estimates of the Company’s financial instruments as of March 31, 2010 andDecember 31, 2009, including methods and assumptions utilized, are set forthbelow:(Dollars in thousands) March 31, 2010  December 31, 2009         Carrying  Estimated  Carrying  Estimated         amount  fair value  amount  fair value Financial      assets:            Cash      and cash equivalents $10,338  $10,338  $12,379  $12,379 Investment      securities:                Available-for-sale  160,673   160,673   161,628   161,628 Other      securities  8,031   8,031   7,991   7,991 Loans,      net  343,978   345,806   342,738   343,671 Loans      held for sale  6,064   6,189   4,703   4,718 Mortgage      servicing rights  779   2,362   766   2,188 Accrued      interest receivable $2,893  $2,893  $2,702  $2,702                        Financial      liabilities:                Non-maturity      deposits $256,489  $256,489  $246,258  $246,258 Time      deposits  190,093   191,264   192,337   193,707 FHLB      borrowings  50,947   53,086   56,004   58,174 Other      borrowings  26,684   25,025   26,179   24,537 Derivative      financial instruments  23   23   84   84 Accrued      interest payable $914  $914  $1,028  $1,028 Methodsand Assumptions UtilizedThe carrying amount of cash, cashequivalents, repurchase agreements and federal funds sold are considered toapproximate fair value.The Company’s investment securitiesclassified as available-for-sale include U.S. federal agency securities,municipal obligations, mortgage-backed securities, pooled trust preferredsecurities, certificates of deposits and common stocks.  Quotedexchange prices are available for the Company’s common stock investments, whichare classified as Level 1.  Agency securities and mortgage-backedobligations are priced utilizing industry-standard models that consider variousassumptions, including time value, yield curves, volatility factors, prepaymentspeeds, default rates, loss severity, current market and contractual prices forthe underlying financial instruments, as well as other relevant economicmeasures.  Substantially all of these assumptions are observable inthe marketplace, can be derived from observable data, or are supported byobservable levels at which transactions are executed in the marketplace and areclassified as Level 2.  Municipal securities are valued using a typeof matrix, or grid, pricing in which securities are benchmarked against thetreasury rate based on credit rating.  These model and matrixmeasurements are classified as Level 2 in the fair valuehierarchy.  The Company’s investments in FDIC insured, fixed-ratecertificates of deposits are valued using a net present value model thatdiscounts the future cash flows at the current market rates and are classifiedas Level 2.The Company classifies its pooled trustpreferred securities as Level 3.  The portfolio consists of threeinvestments in pooled trust preferred securities issued by various financialcompanies.  These securities are valued based on a matrix pricing inwhich the securities are benchmarked against single issuer trust preferredsecurities based on credit rating.  The pooled trust preferred marketis inactive so single issuer trading is used as the benchmark, with additionaladjustments made for credit and liquidity risk.The Company’s other investmentsecurities include investments in FHLB and FRB stock, which are held forregulatory purposes.  These investments generally have restrictions onthe sale and/or liquidation of stock and the carrying value is approximatelyequal to fair value.  Fair value measurements for these securities areclassified as Level 3 based on the undeliverable nature and related creditrisk.The estimated fair value of theCompany’s loan portfolio is based on the segregation of loans by collateraltype, interest terms, and maturities.  The fair value is estimatedbased on discounting scheduled and estimated cash flows through maturity usingan appropriate risk-adjusted yield curve to approximate current interest ratesfor each category.  No adjustment was made to the interest rates forchanges in credit risk of performing loans where there are no known creditconcerns.  Management segregates loans in appropriate riskcategories.  Management believes that the risk factor embedded in theinterest rates along with the allowance for loan losses applicable to theperforming loan portfolio results in a fair valuation of suchloans.  This method of estimating fair value does not incorporate theexit-price concept of fair value prescribed by ASC Topic 820.  Thefair values of impaired loans are generally based on market prices for similarassets determined through independent appraisals or discounted values ofindependent appraisals and brokers’ opinions of value. 13 Mortgage loans originated and intendedfor sale in the secondary market are carried at the lower of cost or estimatedfair value, determined on an aggregate basis.  The mortgage loanvaluations are based on quoted secondary market prices for similar loans and areclassified as Level 2.The Company’s derivative financialinstruments consist solely of interest rate lock commitments and correspondingforward sales contracts on mortgage loans held for sale and are not designatedas hedging instruments.  The fair values of these derivatives arebased on quoted prices for similar loans in the secondary market.  Themarket prices are adjusted by a factor, based on the Company’s historical dataand its judgment about future economic trends, which considers the likelihoodthat a commitment will ultimately result in a closed loan.  Theseinstruments are classified as Level 3 based on the unobservable nature of theseassumptions.  The amounts are included in other assets or otherliabilities on the consolidated balance sheets and gains on sale of loans in theconsolidated statements of earnings.The Company measures its mortgageservicing rights at the lower of amortized cost or fairvalue.  Periodic impairment assessments are performed based on fairvalue estimates at the reporting date.  The fair value of mortgageservicing rights are estimated based on a valuation model which calculates thepresent value of estimated future cash flows associated with servicing theunderlying loans.  The model incorporates assumptions that marketparticipants use in estimating future net servicing income, including estimatedprepayment speeds, market discount rates, cost to service, and other servicingincome, including late fees.  The fair value measurements areclassified as Level 3.The carrying amount of accrued interestreceivable and payable are considered to approximate fair value.The estimated fair value of depositswith no stated maturity, such as non-interest bearing demand deposits, savings,money market accounts, and NOW accounts, is equal to the amount payable ondemand.  The fair value of interest bearing time deposits is based onthe discounted value of contractual cash flows of such deposits.  Thediscount rate is estimated using the rates currently offered for deposits ofsimilar remaining maturities.  These fair values do not incorporatethe value of core deposit intangibles which may be associated with the depositbase.The fair value of advances from theFHLB and other borrowings is estimated using current rates offered for similarborrowings adjusted for the Company’s current credit spread ifapplicable.Off-BalanceSheet Financial InstrumentsThe fair value of letters of credit andcommitments to extend credit is based on the fees currently charged to enterinto similar agreements.  The aggregate of these fees is notmaterial.  These instruments are also discussed in Item 2 Management’sDiscussion and Analysis of Financial Condition.LimitationsFair value estimates are made at aspecific point in time based on relevant market information and informationabout the financial instruments.  These estimates do not reflect anypremium or discount that could result from offering for sale at one time theCompany’s entire holdings of a particular financialinstrument.  Because no market exists for a significant portion of theCompany’s financial instruments, fair value estimates are based on judgmentsregarding future loss experience, current economic conditions, riskcharacteristics of various financial instruments, and otherfactors.  These estimates are subjective in nature and involveuncertainties and matters of significant judgment, and, therefore, cannot bedetermined with precision.  Changes in assumptions could significantlyaffect the estimates.  Fair value estimates are based on existingbalance sheet financial instruments without attempting to estimate the value ofanticipated future business and the value of assets and liabilities that are notconsidered financial instruments. 14 Valuationmethods for instruments measured at fair value on a recurring basisThe following table represents theCompany’s financial instruments that are measured at fair value on a recurringbasis at March 31, 2010 and December 31, 2009 allocated to the appropriate fairvalue hierarchy:(Dollars      in thousands)    As of March 31, 2010            Fair value hierarchy         Total  Level 1  Level 2  Level 3 Assets:            Cash      and cash equivalents $10,338  $10,338  $-  $- Available-for-sale      securities                U.      S. federal agency obligations  25,866   -   25,866   - Municipal      obligations, tax exempt  67,859   -   67,859   - Municipal      obligations, taxable  1,357   -   1,357   - Mortgage-backed      securities  52,241   -   52,241   - Common      stocks  1,039   979   60   - Pooled      trust preferred securities  314   -   -   314 Certificates      of deposit  11,997   -   11,997   - Liabilities:                Derivative      financial instruments $23  $-  $-  $23                                    As of December 31, 2009             Fair value hierarchy         Total  Level 1  Level 2  Level 3 Assets:                Cash      and cash equivalents $12,379  $12,379  $-  $- Available-for-sale      securities                U.      S. federal agency obligations  19,090   -   19,090   - Municipal      obligations, tax exempt  68,859   -   68,859   - Municipal      obligations, taxable  1,343   -   1,343   - Mortgage-backed      securities  64,695   -   64,695   - Common      stocks  865   805   60   - Pooled      trust preferred securities  261   -   -   261 Certificates      of deposit  6,515   -   6,515   - Liabilities:                Derivative      financial instruments $84  $-  $-  $84 The following table reconciles thechanges in the Company’s Level 3 financial instruments during the first quarterof 2010:(Dollars in thousands)    Derivative         Available-for  financial         sale-securities  instruments Level      3 asset (liability) fair value at December 31, 2009 $261  $(84)Transfers      into Level 3  -   - Payments      applied to reduce carrying value  (4)  - Total      gains (losses):        Included      in earnings  -   61 Included      in other comprehensive income  57   - Level      3 asset (liability) fair value at March 31, 2010 $314  $(23)Changes in the fair value ofavailable-for-sale securities are included in other comprehensive income to theextent the changes are not considered other-than-temporaryimpairments.  Other-than-temporary impairment tests are performed on aquarterly basis and any decline in the fair value of an individual securitybelow its cost that is deemed to be other-than-temporary results in a write-downof that security’s cost basis. 15 Valuationmethods for instruments measured at fair value on a nonrecurringbasisThe Company does not value its loanportfolio at fair value, however adjustments are recorded on certain loans toreflect the impaired value on the underlying collateral.  Collateralvalues are reviewed on a loan-by-loan basis through independentappraisals.  Appraised values may be discounted based on management’shistorical knowledge, changes in market conditions and/or management’s expertiseand knowledge of the client and the client’s business.  Because manyof these inputs are unobservable, the valuations are classified as Level3.  The carrying value of the Company’s impaired loans was $11.8 atboth March 31, 2010 and December 31, 2009, with allocated allowances of $3.4million and $2.8 million,  respectively.TheCompany’s measure of its goodwill is based on market based valuation techniques,including reviewing the Company’s market capitalization with appropriate controlpremiums and valuation multiples as compared to recent similar financialindustry acquisition multiples to estimate the fair value of the Company’ssingle reporting unit.  The fair value measurements are classified asLevel 3.  Core deposit intangibles are recognized at the time coredeposits are acquired, using valuation techniques which calculate the presentvalue of the estimated net cost savings relative to the Company’s alternativecosts of funds over the expected remaining economic life of thedeposits.  Subsequent evaluations are made when facts or circumstancesindicate potential impairment may have occurred.  The modelsincorporate market discount rates, estimated average core deposit lives andalternative funding rates.  The fair value measurements are classifiedas Level 3.Other real estate owned includes assetsacquired through, or in lieu of, foreclosure are initially recorded at the dateof foreclosure at the fair value of the collateral less estimated sellingcosts.  Subsequent to foreclosure, valuations are updated periodicallyand are based upon independent appraisals, third party price opinions orinternal pricing models and are classified as Level 3.The following table represents theCompany’s financial instruments that are measured at fair value on anon-recurring basis at March 31, 2010 and December 31, 2009 allocated to theappropriate fair value hierarchy:(Dollars in thousands)    As of March 31 ,2010               Fair value hierarchy  Total gains         Total  Level 1  Level 2  Level 3  / (losses) Assets:               Other      investment securities $8,031  $-  $-  $8,031  $- Impaired      loans  8,345   -   -   8,345   (698)Loans      held for sale  6,189   -   6,189   -   - Mortgage      servicing rights  2,362   -   -   2,362   - Other      real estate owned $3,083  $-  $-  $3,083  $-                            (Dollars      in thousands)     As of December 31 ,2009                 Fair value hierarchy  Total      gains         Total  Level 1  Level 2  Level 3  / (losses) Assets:                    Other      investment securities $7,991  $-  $-  $7,991  $- Impaired      loans  9,060   -   -   9,060   (2,770)Loans      held for sale  4,718   -   4,718   -   - Mortgage      servicing rights  2,188   -   -   2,188   - Other      real estate owned $1,129  $-  $-  $1,129  $(100) 16 8.Impact      of Recent Accounting PronouncementsIn June2009, the FASB amended the existing guidance to ASC Topic 860, Transfers andServicing.  The revision pertains to accounting for transfersof loans, participating interests in loans and other financial assets andreinforced the determination of whether a transferor has surrendered controlover transferred financial assets.  That determination must considerthe transferor’s continuing involvements in the transferred financial asset,including all arrangements or agreements made contemporaneously with, or incontemplation of, the transfer, even if they were not entered into at the timeof the transfer.  It added the term “participating interest” toestablish specific conditions for reporting a transfer of a portion of afinancial asset as a sale.  A qualifying “participating interest”requires each of the following: (1) conveys proportionate ownership rights withequal priority to each participating interest holder; (2) involves no recourse(other than standard representations and warranties) to, or subordination by,any participating interest holder; and (3) does not entitle any participatinginterest holder to receive cash before any other participating interestholder.  If the transfer does not meet those conditions, a transferorshould account for the transfer as a sale only if it transfers the entirefinancial asset or a group of entire financial assets and surrenders controlover the entire transferred assets in accordance with the conditions in ASC860-10-40, as amended.  The Company adopted the guidance as of January1, 2010.  The adoption of this guidance did not have a material effecton our consolidated financial statements.InJanuary 2010, the FASB issued ASU No. 2010-06 Fair Value Measurements andDisclosures(Topic820): ImprovingDisclosure about Fair Value Measurements which requires new disclosuresrelated to recurring and nonrecurring fair value measurements.  TheASU requires new disclosures about the transfers into and out of Levels 1 and 2as well as requiring disclosures about Level 3 activity relating to purchases,sales, issuances and settlements.  The update also clarifies that fairvalue measurement disclosures should be at an appropriate level ofdisaggregation and that an appropriate class of assets and liabilities is oftena subset of the line items in the financial statements.  The updatealso clarifies that disclosures should include the valuation techniques andinputs used to measure fair value in Levels 2 and 3 for both recurring andnonrecurring measurements.  The new guidance is effective for interim-and annual periods beginning after December 15, 2009, except for disclosures onthe Level 3 activity relating to purchases, sales, issuances and settlementswhich are effective for interim and annual periods after December 15,2010. 17 ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONSOverview.  Landmark Bancorp,Inc. is a bank holding company incorporated under the laws of the State ofDelaware and is engaged in the banking business through its wholly-ownedsubsidiary, Landmark National Bank.  Landmark Bancorp is listed on theNASDAQ Global Market under the symbol “LARK”.  Landmark National Bankis dedicated to providing quality financial and banking services to its localcommunities.  Landmark National Bank originates commercial, commercialreal estate, one-to-four family residential mortgage loans, consumer loans,multi-family residential mortgage loans and home equity loans.Our results of operations dependgenerally on net interest income, which is the difference between interestincome from interest-earning assets and interest expense on interest-bearingliabilities.  Net interest income is affected by regulatory, economicand competitive factors that influence interest rates, loan demand and depositflows.  In addition, we are subject to interest rate risk to thedegree that our interest-earning assets mature or reprice at different times, orat different speeds, than our interest-bearing liabilities.  Ourresults of operations are also affected by non-interest income, such as servicecharges, loan fees and gains from the sale of newly originated loans and gainsor losses on investments.  Our principal operating expenses, asidefrom interest expense, consist of compensation and employee benefits, occupancycosts, data processing expenses and provision for loan losses.We are significantly impacted byprevailing national and local economic conditions, including federal monetaryand fiscal policies and federal regulations of financialinstitutions.  Deposit balances are influenced by numerous factorssuch as competing personal investments, the level of personal income and thepersonal rate of savings within our market areas.  Factors influencinglending activities include the demand for housing and commercial loans as wellas the interest rate pricing competition from other lendinginstitutions.CriticalAccounting Policies.  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 accounting policies relate to the allowancefor loan losses, the valuation of investment securities, income taxes andgoodwill and other intangible assets, all of which involve significant judgmentby our management.  Information about our critical accounting policiesis included under Item 7, Management’s Discussion and Analysis of FinancialCondition and Results of Operations in our Annual Report on Form 10-K for theyear ended December 31, 2009.Summary ofResults.  During the firstquarter of 2010, our net earnings increased by $139,000, or 13.3%, to $1.1million, as compared to net earnings of $1.0 million in the same period of2009.  The increase in earnings was primarily the result of $563,000of gains on sales of investment securities resulting from our decision to sell$10.1 million of our high-quality, mortgage-backed investment securities atsignificant premiums during the first quarter of 2010.  We sold theseinvestments to capitalize on the pricing that existed in the markets due to thecurrent low market yields and the lack of supply of high-quality mortgage-backedinvestment securities.  The proceeds from the sale of theseinvestments were reinvested in shorter-term, lower-yielding U.S. federal agencyinvestment securities as we repositioned a portion of our investment portfoliofor rising interest rates.  Also contributing to the increase inearnings was an increase in our net interest income of $176,000, or 4.0%, to$4.6 million during the first quarter of 2010.  Offsetting the gainson sales of investment securities and increased net interest income was a$400,000 increase in our provision for loan losses, a $135,000 decline innon-interest income and $353,000 of increased non-interestexpenses.  Our provision for loan losses was higher in the firstquarter of 2010, as compared to the same period of 2009, based on the analysisof our loan portfolio, which indicated the additional provision for loan losseswas warranted primarily from the impact of declines in the collateral valueunderlying our impaired loans.  Our provision for loan losses washigher in both 2010 and 2009 as compared to historical levels prior to 2008, dueto the difficult economic conditions over the past few years and its impact onour loan portfolio as well as increased levels of charge-offs and nonperformingloans over the same period.  The decrease in non-interest income wasprimarily attributable to a $197,000 decrease in gains on sale of loans as theorigination volumes of one-to-four family residential real estate loans thatwere sold in the secondary market declined in the first quarter of 2010 ascompared to the same period of 2009.  The increased non-interestexpense was primarily the result of increases of $147,000 in compensation andbenefits and $146,000 in FDIC premiums.  The acquisition of a branchin Lawrence, Kansas in May 2009 contributed to the increases in compensation andbenefits and occupancy and equipment in the first quarter of 2010 as compared tothe first quarter 2009, while also increasing our professional fees during thefirst quarter of 2009.  The increase in FDIC premiums was the resultof higher assessment rates, which affected all FDIC insured institutions, andthe depletion of our previously unused FDIC assessment credits during2009. 18 Our netinterest margin increased from 3.46% for the first quarter of 2009 to 3.81% forthe first quarter of 2010. Theincrease in net interest margin was primarily a result of us maintaining theyields on our loan portfolio while our investment portfolio, deposits andFederal Home Loan Bank and other borrowings repriced lower.The following table summarizes earningsand key performance measures for the periods presented.(Dollars in thousands) Three months ended March 31,         2010  2009 Net      earnings:      Net      earnings $1,143  $1,009 Basic      earnings per share $0.46  $0.40 Diluted      earnings per share $0.46  $0.40 Earnings      ratios:        Return      on average assets (1)  0.79%  0.67%Return      on average equity (1)  8.50%  7.90%Equity      to total assets  9.29%  8.39%Net      interest margin (1) (2)  3.81%  3.46%Dividend      payout ratio  41.30%  45.24%(1) Ratiohave been annualized and is not necessarily indicative of the results for theentire year.(2) Netinterest margin is presented on a fully taxable equivalent basis, using a 34%federal tax rate.InterestIncome.  Interest income for the quarter ended March 31, 2010,decreased $618,000, or 8.9%, to $6.3 million from $6.9 million in the sameperiod of 2009.  Interest income on loans decreased $312,000, or 6.0%,to $4.9 million for the quarter ended March 31, 2010 due to decreased averageoutstanding loan balances.  Our tax equivalent yields earned on loanswere 5.73% during the first quarter of both 2010 and 2009.  Averageloan balances for the quarter ended March 31, 2010 decreased to $347.5 millionfrom $368.4 million for the same period in 2009.  Interest income oninvestment securities decreased $306,000, or 17.7%, to $1.4 million for thefirst quarter of 2010, as compared to the same period of 2009.  Thedecline in interest income on investment securities was due to a decline in theaverage balance of investments, from $182.0 million during the first quarter of2009 to $175.0 million during the first quarter of 2010, and a decline in thetax equivalent yield on those investments from 4.49% to 4.00% over the sameperiods, respectively.InterestExpense.  Interest expenseduring the quarter ended March 31, 2010 decreased $794,000, or 31.5%, ascompared to the same period of 2009.  For the first quarter of 2010,interest expense on interest-bearing deposits decreased $600,000, or 36.6%, as aresult of lower rates on deposit balances, primarily consisting of lower ratesfor our maturing certificates of deposit and lower rates on money market and NOWaccounts due to the decline in interest rates over the past fewyears.  Our total cost of deposits declined from 1.66% during thefirst quarter of 2009 to 1.09% during the same period of 2010.  Alsocontributing to the decline in interest expense were lower average depositbalances, which decreased from $400.6 million for the first quarter of 2009 to$387.2 million for the first quarter of 2010.  For the first threemonths of 2010 interest expense on borrowings decreased $194,000, or 22.1%, dueto lower outstanding balances on our borrowings and lower average costs ofborrowings.  Our cost of borrowing decreased from 3.58% in the firstquarter of 2009 to 3.37% in the same period of 2010 while our averageoutstanding borrowings declined from $99.6 million to $82.3 million over thesame periods, primarily from the maturity of some of our higher rate FHLBadvances.Net InterestIncome.  Net interestincome for the quarter ended March 31, 2010 totaled $4.6 million, increasing$176,000, or 4.0%, as compared to the $4.4 million of net interest income forthe quarter ended March 31, 2009.  Our net interest margin, on a taxequivalent basis, increased from 3.46% during the first quarter of 2009 to 3.81%during the first quarter of 2010.  The increase in net interest marginwas primarily a result of us maintaining the yields on our loan portfolio whileour investment portfolio and deposits repriced lower.  The improvementin net interest margin from interest rates more than offset the lower averagebalances of interest earning assets which declined from $550.4 million in thefirst quarter of 2009 to $522.5 million in the first quarter of2010.See theAverage Assets/Liabilities and Rate/Volume tables at the end of Item 2Management’s Discussion and Analysis of Financial Condition for additionaldetails on asset yields, liability rates and net interestmargin. 19 Provision forLoan Losses.  We maintain, andour Board of Directors monitors, an allowance for losses onloans.  The allowance is established based upon management's periodicevaluation of known and inherent risks in the loan portfolio, review ofsignificant individual loans and collateral, review of delinquent loans, pastloss experience, adverse situations that may affect the borrowers’ ability torepay, current and expected market conditions, and other factors managementdeems important.  Determining the appropriate level of reservesinvolves a high degree of management judgment and is based upon historical andprojected losses in the loan portfolio and the collateral value of specificallyidentified problem loans.  Additionally, allowance strategies andpolicies are subject to periodic review and revision in response to a number offactors, including current market conditions, actual loss experience andmanagement's expectations.Theprovision for loan losses for the quarter ended March 31, 2010 was $700,000,compared to a provision of $300,000 during the same period of2009.  Our provision for loan losses was higher in the first quarterof 2010, as compared to the same period of 2009, based on the analysis of ourloan portfolio, which indicated the additional provision for loan losses waswarranted primarily from the impact of declines in the collateral valueunderlying our impaired loans.  Our provision for loan losses washigher in both 2010 and 2009 as compared to historical levels prior to 2008, dueto the difficult economic conditions over the past few years and its impact onour loan portfolio as well as increased levels of charge-offs and nonperformingloans over the same period.  We have been working diligently toidentify and address the credit weaknesses in our loanportfolio.  While it is difficult to forecast future events, webelieve that our current allowance for loan losses, coupled with our capitallevels, loan portfolio management and underlying fundamental earnings before theprovision for loan losses, positions us to deal with this challengingenvironment.  For further discussion of the allowance for loan losses,refer to the “Asset Quality and Distribution” section.Non-interestIncome.  Non-interestincome decreased $135,000, or 7.1%, during the first quarter of 2010 primarilyas a result of a $197,000 decline in gains on sales of loans as our originationsof one-to-four family residential real estate loans that were sold in thesecondary market declined in the first three months of 2010 as compared to theorigination volumes that we experienced in the same period of2009.  We expect the origination volumes of residential real estateloans to remain lower in 2010 than the record levels we experienced during2009.InvestmentSecurities Gains (Losses).  During the firstquarter of 2010, we realized $563,000 of gains on sales of investment securitiesresulting from the sale of $10.1 million of high-quality mortgage-backedinvestment securities as we capitalized on the premium pricing that existed inthe markets for these types of securities.  During the first quarterof 2009, we identified a $1.0 million par investment in a pooled trust preferredsecurity as other-than-temporarily impaired.  The investmentexperienced increased levels of deferrals and defaults during the first quarterof 2009, which exceeded our expectations resulting in a net credit-relatedimpairment loss on this security of $327,000.  No impairment losseswere recorded in the first quarter of 2010.Non-interestExpense.  Non-interestexpense increased $353,000, or 7.9%, to $4.8 million for the quarter ended March31, 2010, as compared to the same period of 2009.  The increasednon-interest expense was primarily the result of increases of $147,000 incompensation and benefits, $146,000 in FDIC premiums and $68,000 in occupancyand equipment.  Partially offsetting the increased non-interestexpenses was a $38,000 decline in professional fees.  The acquisitionof a branch in Lawrence, Kansas in May 2009 contributed to the increases incompensation and benefits and occupancy and equipment in the first quarter of2010 as compared to the first quarter 2009, while also increasing ourprofessional fees during the first quarter of 2009.  The increase inFDIC premiums was the result of higher assessment rates, which affected all FDICinsured institutions, and the depletion of our previously unused FDIC assessmentcredits during 2009. Income TaxExpense.  Income taxexpense increased $44,000 to $245,000 for the quarter ended March 31, 2010, ascompared to the same period of 2009.  Our effective tax rate increasedfrom 16.6% for the first quarter of 2009 to 17.7% for the same period of2010.  The increase in income tax expense and effective tax rate wasprimarily the result of higher taxable earnings before income taxes as our levelof taxable income increased compared to our tax-exempt income. 20 Asset Quality andDistribution.  Our primaryinvesting activities are the origination of commercial real estate, commercialand consumer loans and the purchase of investment and mortgage-backedsecurities.  Generally, we originate fixed-rate, residential mortgageloans with maturities in excess of ten years for sale in the secondarymarket.  These loans are typically sold soon after the loanclosing.  We do not originate and warehouse these fixed-rateresidential loans for resale in order to speculate on interestrates.  Total assets increased to $586.0 million at March 31, 2010,compared to $584.2 million at December 31, 2009.  Net loans, excludingloans held for sale, increased to $344.0 million at March 31, 2010 from $342.7million at December 31, 2009.The allowance for loan losses isestablished through a provision for loan losses based on our evaluation of therisk inherent in the loan portfolio and changes in the nature and volume of itsloan activity.  Such evaluation, which includes a review of all loanswith respect to which full collectability may not be reasonably assured,considers the fair value of the underlying collateral, economic conditions,historical loan loss experience, level of classified loans and other factorsthat warrant recognition in providing for an adequate allowance for losses onloans.  During the first quarter of 2010, we experienced an increasein our nonperforming assets due to the difficult conditions in the economy andits impact on our loan portfolio.  As a result of the impact ofdeclining commercial real estate values on the underlying collateral in our loanportfolio, increased levels of non-accrual and past due loans and the currenteconomic environment on our loan customers, we have increased our allowance forloan losses.  At March 31, 2010, our allowance for loan losses totaled$6.0 million, or 1.7% of gross loans outstanding, as compared to $5.5 million,or 1.6% of gross loans outstanding, at December 31, 2009.  During thefirst quarter of 2010, our provision for loan losses was $700,000 as compared to$400,000 during the first quarter of 2009.  We feel that higher levelsof provisions for loan losses are appropriate based upon our analysis of ourloan portfolio as well as the effects of the depressed market conditions on ourloan portfolio.Loans past due more than a monthtotaled $14.8 million at March 31, 2010, compared to $13.3 million at December31, 2009.  At March 31, 2010, $11.8 million in loans were onnon-accrual status, or 3.4% of net loans, consistent with a balance of $11.8million, or 3.5% of net loans, at December 31, 2009.  Non-accrualloans consist primarily of loans greater than ninety days past due and which arealso included in the past due loan balances.  There were no loans 90days delinquent and still accruing interest at March 31, 2010 or December 31,2009.  Our impaired loans were $11.8 million at both March 31,2010 and December 31, 2009.  Two loans totaling $6.6 million, andconsisting of a $4.3 million construction loan and a $2.3 million commercialagriculture loan, constitute a significant portion of the our non-accrual andimpaired loans.  We have included in our allowance for loan lossesreserves of $716,000 on the construction loan and $2.1 million on the commercialagriculture loan.  As part of our credit risk management, we continueto aggressively manage the loan portfolio to identify problem loans and haveplaced additional emphasis on commercial real estate and constructionrelationships.  We are aggressively working to resolve these problemcredits or move the nonperforming credits out of the loanportfolio.  During the three months ended March 31, 2010 we had netloan charge-offs of $131,000 compared to a net loan recovery of $137,000 duringthe same period of 2009.  We expect to exhaust our collection attemptson the $2.3 million nonperforming commercial agriculture loan during 2010 whichmay result in a charge-off approximating the specific reserve allocation of $2.1million.  During the first quarter of 2010, real estate ownedincreased by $2.0 million primarily as the result of foreclosure on loans thatwere nonperforming at December 31, 2009.  No significant lossesresulted from the foreclosure of the loans that increased other real estateowned.Although the recent economic recessioncreated a very difficult environment for financial institutions, as well asother businesses, the U.S. government, Federal Reserve and the TreasuryDepartment initiated many programs to try to stimulate theeconomy.  Nevertheless, many financial institutions, including us,have experienced an increase in nonperforming assets during the recent economicperiod, as even well-established business borrowers developed cash flow,profitability and other business-related problems.  We believe thatour allowance for loan losses at March 31, 2010, was appropriate, however, therecan be no assurances that losses will not exceed the estimatedamounts.  While we believe that we use the best information availableto determine the allowance for loan losses, unforeseen market conditions couldresult in adjustment to the allowance for loan losses.  In addition,net earnings could be significantly affected if circumstances differsubstantially from the assumptions used in establishing the allowance for loanlosses.  Further deterioration in the local economy or real estatevalues may create additional problem loans for us and require further adjustmentto our allowance for loan losses.LiabilityDistribution.  Our primaryongoing sources of funds are deposits, FHLB borrowings, proceeds from principaland interest payments on loans and investment securities and proceeds from thesale of mortgage loans and investment securities.  While maturitiesand scheduled amortization of loans are a predictable source of funds, depositflows and mortgage prepayments are greatly influenced by general interest ratesand economic conditions.  Total deposits increased $8.0 million to$446.6 million at March 31, 2010, from $438.6 million at December 31,2009.  The increase was primarily related to seasonalfluctuations.  Total borrowings decreased $4.6 million to $77.6million at March 31, 2010, from $82.2 million at December 31,2009.  The decline was primarily from prepaying a $5.0 million FHLBadvance that converted to a variable rate. 21 Certificatesof deposit at March 31, 2010, which were scheduled to mature in one year orless, totaled $133.2 million.  Historically, maturing deposits havegenerally remained with our bank and we believe that a significant portion ofthe deposits maturing in one year or less will remain with us uponmaturity.CashFlows.  During the quarter ended March 31, 2010, our cash andcash equivalents decreased by $2.0 million.  Our operating activitiesused net cash of $2.0 million during the first quarter of 2010 primarily fromfunding the seasonal increase in origination volumes of one-to-four familyresidential which are reflected in the increased balances of loans held forsale.  Our net investing activities used net cash of $3.2 million aswe funded the increase in outstanding loan balances excluding loans held forsale.  Our financing activities provided net cash of $3.2 millionduring the first quarter of 2010, primarily from seasonal increases in publicfund deposit balances.Liquidity. Our most liquid assets arecash and cash equivalents and investment securities available forsale.  The levels of these assets are dependent on the operating,financing, lending and investing activities during any givenperiod.  These liquid assets totaled $171.0 million at March 31, 2010and $174.0 million at December 31, 2009.  During periods in which weare not able to originate a sufficient amount of loans and/or periods of highprincipal prepayments, we increase our liquid assets by investing in short-term,high-grade investments.Liquidity management is both a dailyand long-term function of our strategy.  Excess funds are generallyinvested in short-term investments.  In the event we require fundsbeyond our ability to generate them internally, additional funds are generallyavailable through the use of FHLB advances, a line of credit with the FHLB,other borrowings or through sales of investment securities.  At March31, 2010, we had outstanding FHLB advances of $50.9 million and no borrowingsagainst our line of credit with the FHLB.  At March 31, 2010, we hadcollateral pledged to the FHLB that would allow us to borrow an additional $45.1million per FHLB credit guidelines. At March 31, 2010, we had noborrowings through the Federal Reserve discount window, while our borrowingcapacity was $14.4 million.  We also have various other fed fundsagreements, both secured and unsecured, with correspondent banks totalingapproximately $58.8 million at March 31, 2010, which had no borrowings againstat that time.  We had other borrowings of $26.7 million at March 31,2010, which included $16.5 million of subordinated debentures and $5.3 millionin repurchase agreements.  The Company has a $7.5 million line ofcredit from an unrelated financial institution maturing on November 17, 2010,with an interest rate that adjusts daily based on the prime rate plus 0.25%, butnot less than 4.25%.  This line of credit has covenants specific tocapital and other financial ratios, which the Company was in compliance with atMarch 31, 2010.  The outstanding balance on the line of credit atMarch 31, 2010 was $4.9 million, which was included in otherborrowings.As aprovider of financial services, we routinely issue financial guarantees in theform of financial and performance standby letters of credit.  Standbyletters of credit are contingent commitments issued by us generally to guaranteethe payment or performance obligation of a customer to a thirdparty.  While these standby letters of credit represent a potentialoutlay by us, a significant amount of the commitments may expire without beingdrawn upon.  We have recourse against the customer for any amount thecustomer is required to pay to a third party under a standby letter ofcredit.  The letters of credit are subject to the same creditpolicies, underwriting standards and approval process as loans made byus.  Most of the standby letters of credit are secured, and in theevent of nonperformance by the customers, we have the right to the underlyingcollateral, which could include commercial real estate, physical plant andproperty, inventory, receivables, cash and marketable securities.  Thecontract amount of these standby letters of credit, which represents the maximumpotential future payments guaranteed by us, was $2.4 million at March 31,2010.At March31, 2010, we had outstanding loan commitments, excluding standby letters ofcredit, of $49.9 million. We anticipate that sufficient funds will be availableto meet current loan commitments. These commitments consist of unfunded lines ofcredit and commitments to finance real estate loans. 22 Capital.  Currentregulatory capital regulations require financial institutions (including banksand bank holding companies) to meet certain regulatory capitalrequirements.  Institutions are required to have minimum leveragecapital equal to 4% of total average assets and total qualifying capital equalto 8% of total risk weighted assets in order to be considered “adequatelycapitalized.”  As of March 31, 2010, both the Landmark Bancorp andLandmark National Bank were rated “well capitalized,” which is the highestrating available under the regulatory capital regulations framework for promptcorrective action.  Management believes that as of March 31, 2010, wemeet all capital adequacy requirements to which we are subject.  Thefollowing is a comparison of the Landmark Bancorp’s regulatory capital tominimum capital requirements at March 31, 2010:                    To be well-capitalized                     under prompt (Dollars in thousands)       For capital  corrective         Actual  adequacy purposes  action provisions         Amount  Ratio  Amount  Ratio  Amount  Ratio As of March 31, 2010                  Leverage $55,403   9.7% $22,946   4.0% $28,683   5.0%Tier      1 Capital $55,403   13.9% $15,915   4.0% $23,873   6.0%Total      Risk Based Capital $60,514   15.2% $31,830   8.0% $39,788   10.0%Thefollowing is a comparison of the Landmark National Bank’s regulatory capital tominimum capital requirements at March 31, 2010:                    To be well-capitalized                     under prompt (Dollars in thousands)       For capital  corrective         Actual  adequacy purposes  action provisions         Amount  Ratio  Amount  Ratio  Amount  Ratio As of March 31, 2010                  Leverage $59,045   10.3% $22,868   4.0% $28,585   5.0%Tier      1 Capital $59,045   14.9% $15,852   4.0% $23,778   6.0%Total      Risk Based Capital $63,969   16.1% $31,704   8.0% $39,630   10.0%Dividends.  Duringthe quarter ended March 31, 2010, we paid a quarterly cash dividend of $0.19 pershare to our stockholders.Thepayment of dividends by any financial institution or its holding company isaffected by the requirement to maintain adequate capital pursuant to applicablecapital adequacy guidelines and regulations.  As described above,Landmark National Bank exceeded its minimum capital requirements underapplicable guidelines as of March 31, 2010.  The National Bank Actimposes limitations on the amount of dividends that a national bank may paywithout prior regulatory approval.  Generally, the amount is limitedto the bank's current year's net earnings plus the adjusted retained earningsfor the two preceding years.  As of March 31, 2010, approximately $4.3million was available to be paid as dividends to Landmark Bancorp by LandmarkNational Bank without prior regulatory approval.Additionally,our ability to pay dividends is limited by the subordinated debentures that areheld by two business trusts that we control.  Interest payments on thedebentures must be paid before we pay dividends on our capital stock, includingour common stock.  We have the right to defer interest payments on thedebentures for up to 20 consecutive quarters.  However, if we elect todefer interest payments, all deferred interest must be paid before we may paydividends on our capital stock. 23 AverageAssets/Liabilities.  The followingtables set forth information relating to average balances of interest-earningassets and liabilities for the three months ended March 31, 2010 and2009.  The following tables reflect the average tax equivalent yieldson assets and average costs of liabilities for the periods indicated (derived bydividing income or expense by the monthly average balance of assets orliabilities, respectively) as well as “net interest margin” (which reflects theeffect of the net earnings balance) for the periods shown:        Quarter ended March 31, 2010  Quarter ended March 31, 2009         Averagebalance  Interest  Averageyield/rate  Averagebalance  Interest  Averageyield/rate     (Dollars      in thousands) Assets                  Interest-earning      assets:                  Investment      securities (1) $174,998  $1,724   4.00% $182,023  $2,014   4.49%Loans      receivable, net (2)  347,499   4,908   5.73%  368,417   5,206   5.73%Total      interest-earning assets  522,497   6,632   5.15%  550,440   7,220   5.32%Non-interest-earning      assets  65,028           59,975         Total $587,525          $610,415                                        Liabilities      and Stockholders' Equity                        Interest-bearing      liabilities:                        Certificates      of deposit $191,885  $891   1.88% $216,704  $1,436   2.69%Money      market and NOW accounts  164,797   129   0.32%  156,380   183   0.47%Savings      accounts  30,500   19   0.25%  27,500   20   0.29%Total      deposits  387,182   1,039   1.09%  400,584   1,639   1.66%FHLB      advances and other borrowings  82,322   685   3.37%  99,578   879   3.58%Total      interest-bearing liabilities  469,504   1,724   1.49%  500,162   2,518   2.04%Non-interest-bearing      liabilities  63,491           58,426         Stockholders'      equity  54,530           51,827         Total $587,525          $610,415                                        Interest      rate spread (3)          3.66%          3.28%Net      interest margin (4)     $4,908   3.81%     $4,702   3.46%Tax      equivalent interest - imputed      340           310     Net      interest income     $4,568          $4,392                                    Ratio      of average interest-earning assets to average interest-bearing      liabilities      111.3%          110.1%           (1)Income      on investment securities includes all securities, including interest      bearing deposits in other financial institutions.  Income on tax      exempt securities is presented on a fully taxable equivalent basis, using      a 34% federal tax rate.       (2)Includes      loans classified as non-accrual.  Income on tax exempt loans is      presented on a fully taxable equivalent basis, using a 34% federal tax      rate.       (3)Interest      rate spread represents the difference between the average yield on      interest-earning assets and the average cost of interest-bearing      liabilities.       (4)Net      interest margin represents annualized net interest income divided by      average interest-earningassets. 24 Rate/VolumeTable.  The followingtable describes the extent to which changes in interest income and interestexpense for major components of interest-earning assets and interest-bearingliabilities affected the Company’s interest income and expense for the quarterended March 31, 2010 as compared to the quarter ended March 31,2009.  The table distinguishes between (i) changes attributable torate (changes in rate multiplied by prior volume), (ii) changes attributable tovolume (changes in volume multiplied by prior rate), and (iii) net change (thesum of the previous columns).  The net changes attributable to thecombined effect of volume and rate, which cannot be segregated, have beenallocated proportionately to the change due to volume and the change due torate.        Quarters ended March 31,         2010 vs 2009         Increase/(decrease) attributable to         Volume  Rate  Net         (Dollars in thousands) Interest income:         Investment      securities $(76) $(214) $(290)Loans  (298)  -   (298)Total  (374)  (214)  (588)Interest      expense:            Deposits  (53)  (547)  (600)Other      borrowings  (145)  (49)  (194)Total  (198)  (596)  (794)Net      interest income $(176) $382  $206 ITEM3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKETRISKOur assets and liabilities areprincipally financial in nature and the resulting net interest income thereon issubject to changes in market interest rates and the mix of various assets andliabilities.  Interest rates in the financial markets affect ourdecision on pricing our assets and liabilities, which impacts net interestincome, a significant cash flow source for us.  As a result, asubstantial portion of our risk management activities relates to managinginterest rate risk.Our Asset/Liability ManagementCommittee monitors the interest rate sensitivity of our balance sheet usingearnings simulation models and interest sensitivity gap analysis.  Wehave set policy limits of interest rate risk to be assumed in the normal courseof business and monitor such limits through our simulation process.We have been successful in meeting theinterest rate sensitivity objectives set forth in ourpolicy.  Simulation models are prepared to determine the impact on netinterest income for the coming twelve months, including one using rates at March31, 2010, and forecasting volumes for the twelve-monthprojection.  This position is then subjected to a shift in interestrates of 100 and 200 basis points rising and 100 basis points falling with animpact to our net interest income on a one year horizon asfollows:        Dollar change in net  Percent change in Scenario interest income ($000’s)  net interest income 200      basis point rising $1,607   8.4%100      basis point rising $792   4.2%100      basis point falling $(546)  (2.9)% 25 SAFEHARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF1995Forward-LookingStatementsThisdocument (including information incorporated by reference) contains, and futureoral and written statements by us and our management may contain,forward-looking statements, within the meaning of such term in the PrivateSecurities Litigation Reform Act of 1995, with respect to our financialcondition, results of operations, plans, objectives, future performance andbusiness.  Forward-looking statements, which may be based uponbeliefs, expectations and assumptions of our management and on informationcurrently available to management, are generally identifiable by the use ofwords such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,”“may,” “will,” “would,” “could,” “should” or other similarexpressions.  Additionally, all statements in this document, includingforward-looking statements, speak only as of the date they are made, and weundertake no obligation to update any statement in light of new information orfuture events. Ourability to predict results or the actual effect of future plans or strategies isinherently uncertain.  Factors which could have a material adverseeffect on operations and future prospects by us and our subsidiaries include,but are not limited to, the following:        ·The      strength of the United States economy in general and the strength of the      local economies in which we conduct our operations which may be less      favorable than expected and may result in, among other things, a      deterioration in the credit quality and value of our    assets.       ·The      effects of, and changes in, federal, state and local laws, regulations and      policies affecting banking, securities, insurance and monetary and      financial matters and the effects of further increases in FDIC      premiums.       ·The      effects of changes in interest rates (including the effects of changes in      the rate of prepayments of our assets) and the policies of the Board of      Governors of the Federal ReserveSystem.       ·Our      ability to compete with other financial institutions as effectively as we      currently intend due to increases in competitive pressures in the      financial services sector.       ·Our      inability to obtain new customers and to retain existing      customers.       ·The      timely development and acceptance of products and services, including      products and services offered through alternative delivery channels such      as the Internet.       ·Technological      changes implemented by us and by other parties, including third party      vendors, which may be more difficult or more expensive than anticipated or      which may have unforeseen consequences to us and our      customers.       ·Our      ability to develop and maintain secure and reliable electronic      systems.       ·Our      ability to retain key executives and employees and the difficulty that we      may experience in replacing key executives and employees in an effective      manner.       ·Consumer      spending and saving habits which may change in a manner that affects our      business adversely.       ·Our      ability to successfully integrate acquired businesses and future      growth.       ·The      costs, effects and outcomes of existing or future    litigation.       ·Changes      in accounting policies and practices, as may be adopted by state and      federal regulatory agencies and the Financial Accounting Standards      Board.       ·The      economic impact of past and any future terrorist attacks, acts of war or      threats thereof, and the response of the United States to any such threats      and attacks.       ·Our      ability to effectively manage our creditrisk.       ·Our      ability to forecast probable loan losses and maintain an adequate      allowance for loan losses.       ·The      effects of declines in the value of our investment    portfolio.       ·Our      ability to raise additional capital ifneeded.       ·The      effects of declines in real estatemarkets.Theserisks and uncertainties should be considered in evaluating forward-lookingstatements and undue reliance should not be placed on suchstatements.  Additional information concerning us and our business,including other factors that could materially affect our financial results, isincluded in our filings with the Securities and Exchange Commission, includingthe “Risk Factors” section in our Form 10-K. 26 ITEM4.  CONTROLS AND PROCEDURESAnevaluation was performed under the supervision and with the participation of theCompany’s management, including the Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the Company’s disclosure controls andprocedures (as defined in Rule 13a-15(e) promulgated under the Securities andExchange Act of 1934, as amended) as of March 31, 2010.  Based on thatevaluation, the Company’s management, including the Chief Executive Officer andChief Financial Officer, concluded that the Company’s disclosure controls andprocedures were effective as of March 31, 2010.Therewere no changes in the Company’s internal control over financial reportingduring the quarter ended March 31, 2010 that materially affected or were likelyto materially affect the Company’s internal control over financialreporting.LANDMARKBANCORP, INC. AND SUBSIDIARYPARTII – OTHER INFORMATIONITEM1.  LEGAL PROCEEDINGSThere are no material pending legalproceedings to which the Company or its subsidiaries is a party other thanordinary routine litigation incidental to their respectivebusinesses.ITEM1A.  RISK FACTORSTherehave been no material changes in the risk factors applicable to the Company fromthose disclosed in Part I, Item 1A. “Risk Factors,” in the Company's2009 Annual Report on Form 10-K.ITEM2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDSNoneITEM3.  DEFAULTS UPON SENIOR SECURITIESNoneITEM4.  RESERVEDITEM5.  OTHER INFORMATIONNoneITEM6.  EXHIBITS       Exhibit      31.1Certificate      of Chief Executive Officer Pursuant to Rule      13a-14(a)/15d-14(a)       Exhibit      31.2Certificate      of Chief Financial Officer Pursuant to Rule      13a-14(a)/15d-14(a)       Exhibit      32.1Certification      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      32.2Certification      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 27 SIGNATURESPursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto dulyauthorized.   LANDMARK      BANCORP, INC.              Date:      May 14, 2010/s/ Patrick L. Alexander       Patrick      L. Alexander       President      and Chief Executive Officer              Date:      May 14, 2010/s/ Mark A. Herpich       Mark      A. Herpich       Vice      President, Secretary, Treasurer        and      Chief Financial Officer 28   |
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