** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13  OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|------------|---------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended June 30, 2005**

 

**OR**

 
| **o** | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|----------------------------------------------------------------------------------------------------------|

 

**For transition period from            to            **

 

**Commission File Number 0-33203**

 

**LANDMARK BANCORP, INC.**

(Exact name of Registrant as specified in its charter)

 

| **Delaware**                                              | ** ** | **43-1930755**                          |
|-----------------------------------------------------------|------------|-----------------------------------------|
| (State or other jurisdiction                              |       | (I.R.S. Employer Identification Number) |
| of incorporation or organization)                         |       |                                    |
|                                                      |       |                                    |
| **800 Poyntz Avenue, Manhattan, Kansas  66502**      |
| (Address of principal executive offices)  (Zip Code) |
|                                                      |       |                                    |
| **(785) 565-2000**                                        |
| (Registrant’s telephone number, including area code) |

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the Registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý  No o

 

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

 

Indicatethe number of shares outstanding of each of the Registrant’s classes of commonstock as of the latest practicable date: As of August 2, 2005, the Registrant had outstanding 2,122,679shares of its common stock, $.01 par value per share.

 

 

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**LANDMARK BANCORP, INC.Form 10-Q Quarterly Report**

 

**Table of Contents**

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

 

1

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**LANDMARK BANCORP, INC. ANDSUBSIDIARYCONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                 | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                 | ** ** | **2005**          | ** **  | **2004**              | ** ** |
| ** **                                                                                                 | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
| **ASSETS**                                                                                                 |       |              |        |                  |       |
| Cash and cash equivalents                                                                                  |       | $                 | 7,353,748   |                  | $          | 7,845,438 |   |
| Investment securities  available for sale, at fair value                                                   |       | 139,026,971       |        | 133,604,335           |       |
| Loans, net                                                                                                 |       | 276,993,787       |        | 277,413,963           |       |
| Loans held for sale                                                                                        |       | 1,054,038         |        | 846,003               |       |
| Premises and equipment, net                                                                                |       | 5,770,833         |        | 5,864,258             |       |
| Goodwill                                                                                                   |       | 7,651,892         |        | 7,651,892             |       |
| Other intangible assets, net                                                                               |       | 1,207,990         |        | 1,339,832             |       |
| Accrued interest and other  assets                                                                         |       | 8,116,292         |        | 7,525,173             |       |
|                                                                                                       |       |              |        |                  |       |
| Total assets                                                                                               |       | $                 | 447,175,551 |                  | $          | 442,090,894 |   |
|                                                                                                       |       |              |        |                  |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                             |       |              |        |                  |       |
| Liabilities:                                                                                               |       |              |        |                  |       |
| Deposits                                                                                                   |       | $                 | 302,927,612 |                  | $          | 302,867,721 |   |
| Federal Home Loan Bank  borrowings                                                                         |       | 81,372,261        |        | 81,053,321            |       |
| Other borrowings                                                                                           |       | 15,168,000        |        | 13,518,000            |       |
| Accrued expenses, taxes and  other liabilities                                                             |       | 4,353,364         |        | 2,482,875             |       |
| Total liabilities                                                                                          |       | 403,821,237       |        | 399,921,917           |       |
|                                                                                                       |       |              |        |                  |       |
| Stockholders’ equity:                                                                                 |       |              |        |                  |       |
| Common stock, $0.01 par,  5,000,000 shares authorized, 2,241,831 and 2,230,435 shares issued, respectively |       | 22,418            |        | 22,322                |       |
| Additional paid-in capital                                                                                 |       | 20,204,863        |        | 19,969,551            |       |
| Retained earnings                                                                                          |       | 26,264,269        |        | 25,228,826            |       |
| Accumulated other  comprehensive income                                                                    |       | 69,118            |        | 154,101               |       |
| Treasury stock, at cost;  121,648 and 121,630 shares, respectively                                         |       | (3,206,354        | )           | (3,205,823            | )          |
| Total stockholders’ equity                                                                            |       | 43,354,314        |        | 42,168,977            |       |
|                                                                                                       |       |              |        |                  |       |
| Total liabilities and  stockholders’ equity                                                           |       | $                 | 447,175,551 |                  | $          | 442,090,894 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

 

2

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**LANDMARK BANCORP, INC. AND SUBSIDIARY**

# **CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

 
| ** **                                           | ** ** | **Three  Months Ended June 30,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                           | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| Interest income:                                     |       |                                  |       |   |   |
| Loans                                                |       | $                                     | 4,288,778  |   | $ | 4,130,635 |   |
| Investment securities                                |       | 1,121,711                             |       | 1,204,938 |   |
| Other                                                |       | 40,175                                |       | 10,769 |   |
| Total interest income                                |       | 5,450,664                             |       | 5,346,342 |   |
|                                                 |       |                                  |       |   |   |
| Interest expense:                                    |       |                                  |       |   |   |
| Deposits                                             |       | 1,355,432                             |       | 1,035,768 |   |
| Borrowed funds                                       |       | 874,884                               |       | 880,225 |   |
| Total interest expense                               |       | 2,230,316                             |       | 1,915,993 |   |
|                                                 |       |                                  |       |   |   |
| Net interest income                                  |       | 3,220,348                             |       | 3,430,349 |   |
|                                                 |       |                                  |       |   |   |
| Provision for loan losses                            |       | 105,000                               |       | 120,000 |   |
|                                                 |       |                                  |       |   |   |
| Net interest income after  provision for loan losses |       | 3,115,348                             |       | 3,310,349 |   |
|                                                 |       |                                  |       |   |   |
| Non-interest income:                                 |       |                                  |       |   |   |
| Fees and service charges                             |       | 913,215                               |       | 931,422 |   |
| Gains on sale of loans                               |       | 205,818                               |       | 223,145 |   |
| Gains on sale of investments                         |       | 40,540                                |       | 32,103 |   |
| Other                                                |       | 117,447                               |       | 107,515 |   |
| Total non-interest income                            |       | 1,277,020                             |       | 1,294,185 |   |
|                                                 |       |                                  |       |   |   |
| Non-interest expense:                                |       |                                  |       |   |   |
| Compensation and benefits                            |       | 1,505,144                             |       | 1,515,074 |   |
| Occupancy and equipment                              |       | 484,108                               |       | 484,639 |   |
| Data processing                                      |       | 141,237                               |       | 130,500 |   |
| Amortization of intangibles                          |       | 86,932                                |       | 108,219 |   |
| Professional fees                                    |       | 98,913                                |       | 82,222 |   |
| Advertising                                          |       | 97,007                                |       | 48,750 |   |
| Other                                                |       | 597,588                               |       | 631,057 |   |
| Total non-interest expense                           |       | 3,010,929                             |       | 3,000,461 |   |
|                                                 |       |                                  |       |   |   |
| Earnings before income taxes                         |       | 1,381,439                             |       | 1,604,073 |   |
|                                                 |       |                                  |       |   |   |
| Income tax expense                                   |       | 431,775                               |       | 529,286 |   |
|                                                 |       |                                  |       |   |   |
| Net earnings                                         |       | $                                     | 949,664    |   | $ | 1,074,787 |   |
|                                                 |       |                                  |       |   |   |
| Earnings per share:                                  |       |                                  |       |   |   |
| Basic                                                |       | $                                     | 0.45       |   | $ | 0.50 |   |
| Diluted                                              |       | $                                     | 0.45       |   | $ | 0.49 |   |
|                                                 |       |                                  |       |   |   |
| Dividends per share                                  |       | $                                     | 0.17       |   | $ | 0.1619 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

 

3

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**LANDMARK BANCORP, INC. AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

 
| ** **                                           | ** ** | **Six  Months Ended June 30,** | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                           | ** ** | **2005**                            | ** ** | **2004** | ** ** |
| Interest income:                                     |       |                                |       |   |   |
| Loans                                                |       | $                                   | 8,390,492  |   | $ | 7,358,144 |   |
| Investment securities                                |       | 2,158,512                           |       | 2,016,263 |   |
| Other                                                |       | 53,245                              |       | 19,101 |   |
| Total interest income                                |       | 10,602,249                          |       | 9,393,508 |   |
|                                                 |       |                                |       |   |   |
| Interest expense:                                    |       |                                |       |   |   |
| Deposits                                             |       | 2,515,497                           |       | 1,968,569 |   |
| Borrowed funds                                       |       | 1,755,610                           |       | 1,229,669 |   |
| Total interest expense                               |       | 4,271,107                           |       | 3,198,238 |   |
|                                                 |       |                                |       |   |   |
| Net interest income                                  |       | 6,331,142                           |       | 6,195,270 |   |
|                                                 |       |                                |       |   |   |
| Provision for loan losses                            |       | 225,000                             |       | 180,000 |   |
|                                                 |       |                                |       |   |   |
| Net interest income after  provision for loan losses |       | 6,106,142                           |       | 6,015,270 |   |
|                                                 |       |                                |       |   |   |
| Non-interest income:                                 |       |                                |       |   |   |
| Fees and service charges                             |       | 1,710,874                           |       | 1,464,157 |   |
| Gains on sale of loans                               |       | 371,394                             |       | 458,030 |   |
| Gains on sale of investments                         |       | 40,540                              |       | 129,790 |   |
| Other                                                |       | 214,627                             |       | 189,016 |   |
| Total non-interest income                            |       | 2,337,435                           |       | 2,240,993 |   |
|                                                 |       |                                |       |   |   |
| Non-interest expense:                                |       |                                |       |   |   |
| Compensation and benefits                            |       | 2,962,862                           |       | 2,732,878 |   |
| Occupancy and equipment                              |       | 974,342                             |       | 854,798 |   |
| Data processing                                      |       | 270,233                             |       | 209,365 |   |
| Amortization of intangibles                          |       | 182,962                             |       | 183,366 |   |
| Professional fees                                    |       | 185,056                        |       | 160,916 |   |
| Advertising                                          |       | 181,847                             |       | 91,238 |   |
| Other                                                |       | 1,151,869                           |       | 1,025,221 |   |
| Total non-interest expense                           |       | 5,909,171                           |       | 5,257,782 |   |
|                                                 |       |                                |       |   |   |
| Earnings before income taxes                         |       | 2,534,406                           |       | 2,998,481 |   |
|                                                 |       |                                |       |   |   |
| Income tax expense                                   |       | 781,366                             |       | 974,933 |   |
|                                                 |       |                                |       |   |   |
| Net earnings                                         |       | $                                   | 1,753,040  |   | $ | 2,023,548 |   |
|                                                 |       |                                |       |   |   |
| Earnings per share:                                  |       |                                |       |   |   |
| Basic                                                |       | $                                   | 0.83       |   | $ | 0.93 |   |
| Diluted                                              |       | $                                   | 0.83       |   | $ | 0.92 |   |
|                                                 |       |                                |       |   |   |
| Dividends per share                                  |       | $                                   | 0.34       |   | $ | 0.3238 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

 

4

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**LANDMARK BANCORP, INC. AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)**

 
| ** **                                                                           | ** ** | **Six  Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                           | ** ** | **2005**                            | ** ** | **2004** | ** ** |
|                                                                                 |       |                                |       |   |   |
| Net cash provided by operating  activities                                           |       | $                                   | 3,846,525  |   | $ | 3,040,227 |   |
|                                                                                 |       |                                |       |   |   |
| Cash flows from investing  activities:                                               |       |                                |       |   |   |
| Net increase in loans                                                                |       | (429,630                            | )          | (1,249,834 | ) |
| Maturities and prepayments of  investments                                           |       | 21,712,032                          |       | 14,228,672 |   |
| Purchase of investment  securities                                                   |       | (27,804,212                         | )          | (4,674,989 | ) |
| Proceeds from sale of  investment securities                                         |       | 140,540                             |       | 241,874 |   |
| Proceeds from sale of premises,  equipment and foreclosed assets                     |       | 247,943                             |       | 66,915 |   |
| Net cash paid in FKAN  acquisition                                                   |       | —                              |       | (8,788,732 | ) |
| Purchases of premises and  equipment, net                                            |       | (258,374                            | )          | (320,364 | ) |
| Net cash used in by investing  activities                                            |       | (6,391,701                          | )          | (496,458 | ) |
|                                                                                 |       |                                |       |   |   |
| Cash flows from financing  activities:                                               |       |                                |       |   |   |
| Net increase in deposits                                                             |       | 59,891                              |       | 300,643 |   |
| Federal Home Loan Bank  borrowings                                                   |       | 56,200,000                          |       | 18,300,000 |   |
| Federal Home Loan Bank  repayments                                                   |       | (55,318,384                         | )          | (20,518,384 | ) |
| Proceeds from other borrowings                                                       |       | 2,375,000                           |       | 7,395,000 |   |
| Repayments on other borrowings                                                       |       | (725,000                            | )          | (440,000 | ) |
| Purchase of 18 and 33,024  shares of treasury stock                                  |       | (531                                | )          | (985,333 | ) |
| Issuance of 11,396 and 22,628  shares of common stock under  stock  option plan |       | 180,107                             |       | 344,774 |   |
| Payment of dividends                                                                 |       | (717,597                            | )          | (711,924 | ) |
| Net cash provided by financing  activities                                           |       | 2,053,486                           |       | 3,684,776 |   |
| Net (decrease)/increase in  cash and cash equivalents                                |       | (491,690                            | )          | 6,228,545 |   |
| Cash and cash equivalents at  beginning of period                                    |       | 7,845,438                           |       | 7,708,115 |   |
| Cash and cash equivalents at  end of period                                          |       | $                                   | 7,353,748  |   | $ | 13,936,660 |   |
|                                                                                 |       |                                |       |   |   |
| Supplemental disclosure of  cash flow information:                                   |       |                                |       |   |   |
| Cash paid during period for  interest                                                |       | $                                   | 3,829,000  |   | $ | 2,536,000 |   |
| Cash paid during period for  taxes                                                   |       | $                                   | —     |   | $ | 650,000 |   |
|                                                                                 |       |                                |       |   |   |
| Supplemental schedule of  noncash investing activities:                         |       |                                |       |   |   |
| Transfer of loans to real  estate owned                                              |       | $                                   | 486,000    |   | $ | 442,000 |   |
| Bank acquisition:                                                                    |       |                                |       |   |   |
| Fair value of liabilities  assumed                                                   |       | $                                   | —     |   | $ | 140,619,000 |   |
| Fair value of assets acquired                                                        |       | $                                   | —     |   | $ | 149,408,000 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

 

5

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**LANDMARK BANCORP, INC. AND SUBSIDIARY**

**Notes to Condensed Consolidated FinancialStatements**

**(Unaudited)**

** **

**1.****                                      InterimFinancial Statements**

 

Thecondensed consolidated financial statements of Landmark Bancorp, Inc. (the“Company”) and subsidiary have been prepared in accordance with theinstructions to Form 10-Q.  To theextent that information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements are contained in or consistent with the consolidated auditedfinancial statements incorporated by reference in the Company’s Form 10-Kfor the year ended December 31, 2004, such information and footnotes havenot been duplicated herein.  In theopinion of management, all adjustments, consisting of normal recurringaccruals, considered necessary for a fair presentation of financial statementshave been reflected herein.  The December 31,2004, condensed consolidated balance sheet has been derived from the auditedconsolidated balance sheet as of that date. The results of the interim periods ended June 30, 2005, are notnecessarily indicative of the results expected for the year ending December 31,2005.

 

**2.****                                     ****Stock Based Compensation**

 

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

 

In December 2004,The Financial Accounting Standards Board issued SFAS No. 123 (revised), *Shared-Based Payment*. The revision disallows the expense recognition alternatives permitted inthe original statement and requires entities to recognize stock-basedcompensation cost in their statements of earnings.  The revision contains additional guidance inseveral areas including award modifications and forfeitures, measuring fairvalue, classifying an award as equity or as a liability, and attributing compensationcost to reporting periods.  It alsocontains additional disclosure requirements. The Company does not expect that adoption of the revised Statement on January 1,2006, will have a material effect on its consolidated financial statements.

 

6

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**3.****                                      Earningsper Share**

 

Basicearnings per share have been computed based upon the weighted average number ofcommon shares outstanding during each period. Diluted earnings per share include the effect of all potential commonshares outstanding during each period. Earnings and dividends per share for all periods presented have beenadjusted to give effect to the 5% stock dividend paid by the Company in December 2004.

 

Theshares used in the calculation of basic and diluted earnings per share areshown below:

 
| ** **                                         | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                         | ** ** | **2005**                              | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Weighted average common shares outstanding (basic) |       | 2,112,306                             |       | 2,184,610                           |       | 2,111,452 |   | 2,189,904 |   |
| Dilutive stock options                             |       | 11,146                                |       | 13,789                              |       | 11,804 |   | 16,120 |   |
| Weighted average common shares (diluted)           |       | 2,123,452                             |       | 2,198,399                           |       | 2,123,256 |   | 2,206,024 |   |

 

**4.****                                      ComprehensiveIncome/(Loss)**

 

TheCompany’s other comprehensive income/(loss) consists of the unrealized holdinggains and losses on available-for-sale securities and an interest rate swap asshown below.

 
| ** **                                                           | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                           | ** ** | **2005**                              | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2005** | ** ** |
| Net earnings                                                         |       | $                                     | 949,664    |                                | $          | 1,074,787 |   | $ | 1,753,040 |   | $ | 2,023,548 |   |
|                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Unrealized holding gains/(losses)                                    |       | 715,178                               |       | (1,717,684                          | )          | (105,530 | ) | (1,255,955 | ) |
| Less reclassification adjustment for gains included  in net earnings |       | 40,540                                |       | 32,103                              |       | 40,540 |   | 129,790 |   |
| Net unrealized gains/(losses) on securities                          |       | 674,638                               |       | (1,749,787                          | )          | (146,070 | ) | (1,385,745 | ) |
| Unrealized (loss)/gain on interest rate swap                         |       | (49,000                               | )          | —                              |       | 9,000 |   | — |   |
| Income tax expense/(benefit)                                         |       | 237,742                               |       | (664,919                            | )          | (52,087 | ) | (526,584 | ) |
| Total comprehensive (loss)/income                                    |       | $                                     | 1,337,650  |                                | $          | (10,081 | ) | $ | 1,668,057 |   | $ | 1,164,387 |   |

 

7

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**5.****                                     ****Other IntangibleAssets**

 

Thefollowing table presents information about the Company’s other intangibleassets, which are being amortized in accordance with SFAS No. 142:

 
| ** **                   | ** ** | **June 30, 2005**      | ** ** | **December 31, 2004**    | ** ** |
|------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                   | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Amortized intangible assets: |       |                        |       |                          |       |   |   |   |   |
| Core deposit premium         |       | $                           | 1,385,000  |                          | $          | (593,387 | ) | $ | 1,385,000 |   | $ | (491,501 | ) |
| Mortgage servicing rights    |       | 776,120                     |       | (359,743                      | )          | 766,892 |   | (320,559 | ) |
| Total                        |       | $                           | 2,161,120  |                          | $          | (953,130 | ) | $ | 2,151,892 |   | $ | (812,060 | ) |

 

Aggregateamortization expense for the three months ended June 30, 2005, and June 30,2004, was $87,000 and $108,000, respectively. Aggregate amortization expense for the six months ended June 30,2005, and June 30, 2004, was $183,000. The following is estimated amortization expense for the years ending December 31:

 
| **Year** | ** ** | **Amount** | ** ** |
|----------|------------|------------|------------|
| 2005     |       | 337,000    |       |
| 2006     |       | 352,000    |       |
| 2007     |       | 233,000    |       |
| 2008     |       | 122,000    |       |
| 2009     |       | 97,000     |       |

 

# **6.**                                      Other Events

# ** **

On May 13, 2005, the Company announced the execution of adefinitive purchase agreement to acquire two branch locations in Great Bend,Kansas from UMB Financial Corporation. Pursuant to the agreement, the Company will purchase approximately $38.0million in deposits along with the branch premises and equipment for cash.  The purchase is expected to be completedduring August 2005.

 

In addition, the Company has entered into an agreement to construct anew branch location in Topeka, Kansas which is anticipated to be completed inearly 2006.

 

8

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## **ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

## ** **

*Overview.*  Landmark Bancorp, Inc. is a one-bankholding company incorporated under the laws of the State of Delaware and isengaged in the banking business through its wholly-owned subsidiary, LandmarkNational Bank.  Landmark Bancorp islisted on the Nasdaq Stock Market under the symbol “LARK”.  Landmark National Bank is dedicated toproviding quality financial and banking services to its local communities.  Landmark National Bank originates commercialreal estate and non-real estate loans, one-to-four family residential mortgageloans, consumer loans, multi-family residential mortgage loans, and home equityloans.

 

On April 1,2004, we completed the cash acquisition of First Kansas Financial Corporation (“FirstKansas”), which had total assets of approximately $150 million, including loansand deposits of $74 million and $84 million, respectively.  First Kansas had branches in Osawatomie,Paola, Louisburg, Fort Scott, Beloit, and Phillipsburg, Kansas.  Our acquisition of First Kansas was accounted for using the purchasemethod of accounting.  The cost in excessof the tangible and identifiable intangible net assets acquired was recorded asgoodwill.  We recorded a core depositintangible of $710,000, which is being amortized on an accelerated basis overten years, and goodwill attributable to the acquisition of First Kansas of $6.1million, none of which is deductible for tax purposes.  The operating results presented for the sixmonths ended June 30, 2005, include the accounts and results of FirstKansas while the corresponding six months ended June 30, 2004, includeFirst Kansas beginning April 1, 2004.

 

Duringthe third quarter of 2004, we sold our newly acquired Beloit and Phillipsburgbranches.   Upon consummation of the transactions, we soldapproximately $7.7 million in deposits and approximately $2.4 million in loansand premises and equipment associated with the Beloit branch and approximately$4.7 million in deposits and approximately $846,000 in loans and premises andequipment related to the Phillipsburg branch. The net proceeds received from the buyers of these branches wererecorded as a reduction of goodwill of approximately $466,000 and otherintangible assets of approximately $105,000.

 

Critical accounting policies are those which areboth most important to the portrayal of our financial condition and results ofoperations, and require our management’s most difficult, subjective or complexjudgments, often as a result of the need to make estimates about the effect ofmatters that are inherently uncertain. Our critical accounting policies relate to the allowance for loanlosses, the valuation of investment securities, and accounting for incometaxes, all of which involve significant judgment by our management.

 

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

 

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We report our investment securities at estimatedfair values based on readily ascertainable values which are obtained fromindependent sources.  Our managementperforms periodic reviews of the investment securities to determine if anyinvestment securities have declined in value which might be considered otherthan temporary.  Although we believe thatour estimates of the fair values of investment securities to be reasonable,economic and market factors may affect the amounts that will ultimately berealized from these investments.

 

The objectives of accounting for income taxes are torecognize the amount of taxes payable or refundable for the current year anddeferred tax liabilities and assets for the future tax consequences of eventsthat have been recognized in an entity’s financial statements or taxreturns.  Judgment is required inassessing the future tax consequences of events that have been recognized inour financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences,including the effects of IRS examinations and examinations by other stateagencies, could materially impact our financial position and results ofoperations.

 

Our results of operations depend primarily on netinterest income, which is the difference between interest income frominterest-earning assets and interest expense on interest-bearingliabilities.  Net interest income isaffected by regulatory, economic and competitive factors that influenceinterest rates, loan demand and deposit flows. In addition, we are subject to interest rate risk to the degree that ourinterest-earning assets mature or reprice at different times, or at differentspeeds, than our interest-bearing liabilities. Our results of operations are also affected by non-interest income, suchas service charges, loan fees and gains and losses from the sale of newlyoriginated loans and investments.  Ourprincipal operating expenses, aside from interest expense, consist of compensationand employee benefits, occupancy costs, data processing expenses, amortizationexpense and provision for potential loan losses.

 

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

 

*Summaryof Results*.  Netearnings for the three months ended June 30, 2005, decreased $125,000, or 11.6%,to $950,000 as compared to the three months ended June 30, 2004.  This decline in net earnings was generallyattributable to a reduction in net interest income.

 

Netearnings for the six months ended June 30, 2005, decreased $271,000, or 13.4%,to $1.8 million as compared to the six months ended June 30, 2004.  This decline in net earnings was generallyattributable to increased non-interest expense which was partially offset byincreases in net interest income and non-interest income.

 

Thethree months ended June 30, 2005, resulted in diluted earnings per shareof $0.45 compared to $0.49 for the same period in 2004.  Return on average assets was 0.85% for theperiod compared to 0.90% for the same period in 2004.  Return on average stockholders’ equity was 8.99%for the period compared to 10.11% for the same period in 2004.

 

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Thesix months ended June 30, 2005, resulted in diluted earnings per share of$0.83 compared to $0.92 for the same period in 2004.  Return on average assets was 0.80% for theperiod compared to

 

1.00% for the same periodin 2004.  Return on average stockholders’equity was 8.35% for the period compared to 9.55% for the same period in 2004.

 

Werepurchased 18 shares of stock during the first six months of 2005.  Under the current stock repurchase programauthorized by our Board of Directors, as of June 30, 2005, we canrepurchase an additional 77,036 shares of our common stock.  As of June 30, 2005, we held 121,648shares as treasury stock at an average cost per share of $26.36.

 

Thefollowing table summarizes net earnings and key performance measures for theperiods presented.

 
| ** **                   | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                   | ** ** | **2005**                              | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net earnings:                |       |                                  |       |                                |       |   |   |   |   |
| Basic earnings per share     |       | $                                     | 0.45       |                                | $          | 0.50 |   | $ | 0.83 |   | $ | 0.93 |   |
| Diluted earnings per share   |       | $                                     | 0.45       |                                | $          | 0.49 |   | $ | 0.83 |   | $ | 0.92 |   |
| Earnings ratios:             |       |                                  |       |                                |       |   |   |   |   |
| Return on average assets (1) |       | 0.85                                  | %          | 0.90                                | %          | 0.80 | % | 1.00 | % |
| Return on average equity (1) |       | 8.99                                  | %          | 10.11                               | %          | 8.35 | % | 9.55 | % |
| Dividend payout ratio        |       | 37.78                                 | %          | 33.33                               | %          | 40.96 | % | 35.42 | % |
| Net interest margin (1)      |       | 3.10                                  | %          | 3.08                                | %          | 3.09 | % | 3.26 | % |

 

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(1) The ratios havebeen annualized and are not necessarily indicative of the results for theentire year.

 

*InterestIncome.*  Interestincome for the three months ended June 30, 2005, increased $104,000, or 2.0%,to $5.5 million from $5.3 million in the same period of 2004.  This slight increase in interest income primarilyresulted from a small increase in interest income on loans which was offset bya small decrease in interest income on investment securities.  Average loans for the quarter ended June 30,2005, decreased $7.9 million, or 2.8%, to $279.0 million from $286.9 millionfor the quarter ended June 30, 2004. The decrease in average loans was primarily due to the continued payoffsand refinancings in the mortgage loan portfolio.  The decrease in average loans is also due to thevast majority of our fixed-rate residential loan originations being sold to thesecondary market at a faster pace than we have been able to grow our commerciallending portfolios.    Despite the slight decrease in average loans,interest income on loans increased $158,000, or 3.8%, to $4.3 million for thequarter ended June 30, 2005, primarily due to an upward adjustment ofinterest rates on variable rate loans. Average investment securities decreased from $157.1 million for thequarter ended June 30, 2004, to $134.7 million for the quarter ended June 30,2005, resulting from lower deposits available to invest following the sale oftwo branch locations in the third quarter of 2004.  Interest income on investment securities decreased$83,000, or 7.0%, to $1.1 million for the quarter ended June 30, 2005.

 

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Interestincome for the six months ended June 30, 2005, increased $1.2 million, or 12.9%,to $10.6 million from $9.4 million in the same period of 2004.  This increase was primarily the result of ahigher level of interest earning assets obtained in the First Kansasacquisition in addition to the rise in interest rates during the last sixmonths of 2004 and the first six months of 2005.  Average loans for the first six months of 2005were $279.3 million as compared to $250.9 million for the first six months of2004.  Interest income on loans increased$1.0 million, or 14.0%, to $8.4 million for the six months ended June 30,2005.  Average investment securitiesincreased from $128.2 million for the six months ended June 30, 2004, to $132.8million for the same period of 2005. Average investments for this period increased as a result of theinvestments obtained in the First Kansas acquisition in April 2004 whichwas offset by a reduction in deposits available to invest following the sale oftwo branch locations in the third quarter of 2004.  Interest income on investment securitiesincreased $142,000, or 7.1%, to $2.2 million for the six months ended June 30,2005.

 

*InterestExpense*.  Interestexpense during the three months ended June 30, 2005, increased $314,000,or 16.4%, as compared to the same period of 2004.  For the three months ended June 30, 2005,interest expense on deposits increased $320,000, or 30.9%.  The increase in interest expense on depositsresulted primarily from the rise in interest rates beginning in June of2004 and the associated repricing of deposits as they matured.  Interest expense on borrowings decreased $5,000,or 1.0%.  The decrease in interestexpense on borrowings resulted primarily from scheduled principal payments.

 

Interestexpense during the six months ended June 30, 2005, increased $1.1 million,or 33.6%, as compared to the same period of 2004.  For the six months ended June 30, 2005,interest expense on deposits increased $547,000, or 27.8%.  The increase in interest expense on depositsresulted primarily from the rise in interest rates beginning in June of2004 and the repricing of maturing deposits at these higher rates.  Interest expense on borrowings increased $526,000,or 42.8%.  The increase in interestexpense on borrowings resulted primarily from additional advances from theFederal Home Loan Bank of approximately $56.4 million which we assumed throughthe acquisition of First Kansas in April 2004 and the $7.0 million that weborrowed in April 2004 to consummate the acquisition of First Kansas.

 

*NetInterest Income.* Netinterest income for the three months ended June 30, 2005, totaled $3.2million, a 6.1% decrease, as compared to $3.4 million for the three monthsended June 30, 2004, resulting primarily from a lower level of averageinterest earning assets.  Averageinterest earning assets declined during the second quarter of 2005, decreasingto $416.6 million from $448.1 million as compared to the second quarter of 2004,primarily as a result of lower deposits available to invest following the saleof two branch locations during the third quarter of 2004.  The net interest margin on earning assets was3.10% for the second quarter of 2005, up slightly from 3.08% for the secondquarter of 2004.

 

Netinterest income for the six months ended June 30, 2005, totaled $6.3million, a 2.2% increase, as compared to $6.2 million for the six months ended June 30,2004, due primarily to a higher level of interest earning assets obtained in theFirst Kansas acquisition.  Average interestearning assets increased during the first six months of 2005 to $413.3 millionfrom $381.7 million for the same period of 2004.  The net interest margin on earning assets was3.09% for the first six months of 2005, down from 3.26% during the same periodof 2004.  The decline in our net interest margin

 

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wasprimarily the result of the increased FHLB advances acquired with the FirstKansas acquisition which are priced relatively higher than deposit rates.  Additionally, the residential mortgage loansacquired from First Kansas are also at rates that are relatively lower than theaverage of our loan portfolio prior to the acquisition.  Also contributing to the decline in the netinterest margin was a continued reduction in loans arising from payoffs andrefinancings in the one-to-four family residential loan portfolio exceeding ourability to generate new commercial and consumer loans.  We believe the increase in Federal Fundsrates over the past year by the Federal Open Market Committee will have apositive impact on our net interest margin in the second half of 2005 as ourinterest rates on earning assets reprice to higher rates.

 

*Provisionfor Loan Losses.*  Theprovision for loan losses for the three months ended June 30, 2005, was $105,000,compared to a provision of $120,000 during the three months ended June 30,2004.  Our continuous review of the loan portfolioprompted a decrease in our provision primarily as a result of improvement inthe asset quality of the commercial loan portfolio.  One measure of the adequacy of the allowancefor estimated losses on loans is the ratio of the allowance to the total loanportfolio.  At June 30, 2005, and December 31,2004, the allowance for loan losses was $3.1 million and $2.9 million, or 1.1%and 1.0%, respectively, of gross loans outstanding.  The provision for loan losses for the sixmonths ended June 30, 2005, was $225,000 compared to a provision of $180,000for the same period in 2004.

 

*Non-interestIncome.*  Non-interestincome decreased $17,000, or 1.3%, for the three months ended June 30, 2005,to $1.3 million compared to the three months ended June 30, 2004.  The decrease in non-interest income reflectedlower fees and service charges, decreasing from $931,000 for the three monthsended June 30, 2004, to $913,000 for the three months ended June 30,2005, relating primarily to loan fees being lower during the second quarter of2005 as compared to the second quarter of 2004.  Partially offsetting the decline in loan feesfor this three-month period was an increase in deposit service charges.  Also contributing to the decrease innon-interest income was a decrease in the gains on sale of loans of $17,000during the second quarter of 2005 as compared to the same period of 2004.  Mortgage refinancing and prepayments werelower during the second quarter of 2005 as compared to the same period of 2004,as many mortgage holders had already taken advantage of the low interest ratesfavorable for mortgage refinancing and because rates have risen.  Mortgage origination and refinancing activityis expected to continue at levels similar to the first two quarters of 2005 throughout the third quarter of 2005.  Offsettingthese decreases in non-interest income, was an $8,000 increase in the gains onsale of investments and a $10,000 increase in other non-interest income duringthe second quarter of 2005, compared to the second quarter of 2004.

 

Non-interestincome increased $96,000, or 4.3%, for the six months ended June 30, 2005,to $2.3 million compared to the six months ended June 30, 2004.  Theincrease in non-interest income reflected increased fees and service chargesfrom $1.5 million for the six months ended June 30, 2004, to $1.7 million forthe six months ended June 30, 2005. This increase in fees and service charges was the result of theacquisition of First Kansas in April 2004 and from substantiallyincreasing the number of our retail checking accounts opened through newmarketing initiatives that were introduced in early 2004.  Partially offsetting the increase in depositservice charges for this six-month period was a decrease in loan fees.  Also contributing to the increase innon-interest income was a $26,000

 

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increasein other income for the six months ended June 30, 2005, as compared to thesame period of 2004, which was primarily attributable to the sale of otherassets.

 

Partially offsetting these increases in non-interestincome was a decline in gains on sale of loans of 19.0%, from $458,000 for the sixmonths ended June 30, 2004, to $371,000 for the six months ended June 30,2005, as residential mortgage financing activity dropped.  Mortgage refinancings and prepayments werelower during the first half of 2005 as compared to the same period of 2004 asmany mortgage holders had already taken advantage of the low interest ratesfavorable for mortgage refinancing and because rates have risen. Another offset to the increases in non-interest income was a decrease ingains on sale of investments of $89,000 for the six months ended June 30,2005 as compared to the same period of 2004 as we sold fewer investments duringthe first half of 2005 as compared to the first half of 2004.  We periodically sell equity securities fromour holding company’s investment portfolio based on performance and otherindicators and we could sell additional equity securities in future periods.

 
| ** **                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                    | ** ** | **2005**                              | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Non-interest income:          |       |                                  |       |                                |       |   |   |   |   |
| Fees and service charges      |       | $                                     | 913,215    |                                | $          | 931,422 |   | $ | 1,710,874 |   | $ | 1,464,157 |   |
| Gains on sales of loans       |       | 205,818                               |       | 223,145                             |       | 371,394 |   | 458,030 |   |
| Gains on sales of investments |       | 40,540                                |       | 32,103                              |       | 40,540 |   | 129,790 |   |
| Other                         |       | 117,447                               |       | 107,515                             |       | 214,627 |   | 189,016 |   |
| Total non-interest income     |       | $                                     | 1,277,020  |                                | $          | 1,294,185 |   | $ | 2,337,435 |   | $ | 2,240,993 |   |

 

*Non-interestExpense.*  Non-interestexpense remained constant at $3.0 million for the three months ended June 30,2005 and 2004.  Increases of $48,000 inadvertising expense and $17,000 in professional fees for the second quarter of2005 as compared to the second quarter of 2004 were offset by decreases of $21,000in amortization of intangibles and $15,000 in stationery, printing and officesupplies.

 

Non-interestexpense increased $651,000, or 12.4%, to $5.9 million for the six months ended June 30,2005, as compared to the six months ended June 30, 2004.  The increase was primarily related to a $230,000 increase incompensation and benefits, a $120,000 increase in occupancy and equipmentexpense, and a $61,000 increase in data processing expenses, all of which wasassociated primarily with the operations of branches acquired from First Kansaswhich added four branch locations and approximately 30 employees to ourCompany.  Also contributing to theincrease in non-interest expense for the six months ended June 30, 2005,was an increase of $91,000 in advertising expenses related to our new marketinginitiative that was introduced in early 2004. Other non-interest expense also increased as a result of the operationsof the new branches associated with the First Kansas acquisition.

 

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| ** **                  | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended** | ** ** |
|-----------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **June 30,**       | ** ** | **June 30,**     | ** ** |
| ** **                  | ** ** | **2005**                | ** ** | **2004**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| Non-interest expense:       |       |                    |       |                  |       |   |   |   |   |
| Compensation and benefits   |       | $                       | 1,505,144  |                  | $          | 1,515,074 |   | $ | 2,962,862 |   | $ | 2,732,878 |   |
| Occupancy and equipment     |       | 484,108                 |       | 484,639               |       | 974,342 |   | 854,798 |   |
| Data processing             |       | 141,237                 |       | 130,500               |       | 270,233 |   | 209,365 |   |
| Amortization of intangibles |       | 86,932             |       | 108,219          |       | 182,962  |   | 183,366  |   |
| Professional fees           |       | 98,913                  |       | 82,222                |       | 185,056 |   | 160,916 |   |
| Advertising                 |       | 97,007                  |       | 48,750                |       | 181,847 |   | 91,238 |   |
| Other                       |       | 597,588                 |       | 631,057               |       | 1,151,869 |   | 1,025,221 |   |
| Total non-interest expense  |       | $                       | 3,010,929  |                  | $          | 3,000,461 |   | $ | 5,909,171 |   | $ | 5,257,782 |   |
|                             |            |                         |            |                       |            |  |  |  |  |  |  |  |  |  |

 

*IncomeTax Expense*.  Incometax expense decreased $98,000, or 18.4%, from $529,000 for the three monthsended June 30, 2004, to $432,000 for the three months ended June 30,2005.  The decrease in income tax expensefor the three months ended June 30, 2005, resulted primarily from adecrease in taxable income.  In addition,the effective tax rate for the second quarter of 2005 decreased to 31.3% comparedto 33.0% for the second quarter of 2004 as a result of the utilization ofinvestment tax credits.

 

Incometax expense decreased $194,000, or 19.9%, from $975,000 for the six monthsended June 30, 2004, to $781,000 for the six months ended June 30,2005.  The decrease in income tax expensefor the six months ended June 30, 2005, resulted primarily from a decreasein taxable income.  In addition, theeffective tax rate for the first six months of 2005 decreased to 30.8% comparedto 32.5% for the first six months of 2004 as a result of the utilization ofinvestment tax credits.

 

*AssetQuality and Distribution.* Total assets increased to $447.2 million at June 30, 2005, comparedto $442.1 million at December 31, 2004. Our primary ongoing sources of funds are deposits, proceeds fromprincipal and interest payments on loans and investment securities and proceedsfrom the sale of mortgage loans and investment securities.  While maturities and scheduled amortizationof loans are a predictable source of funds, deposit flows and mortgageprepayments are greatly influenced by general interest rates, economic conditions,competition, and the restructuring of the financial services industry.

 

Netloans, excluding loans held for sale, decreased $420,000 during the six monthsended June 30, 2005.  This decline was primarily the result ofrefinancings and paydowns in our residential mortgage portfolio.  Our loan portfolio composition continues todiversify as a result of paydowns and our planned expansion of commerciallending activities.  This is evidenced byour one-to-four family residential real estate loans comprising 46.8% of totalloans as of December 31, 2004, 45.7% of total loans as of March 31,2005, and 44.4% of total loans as of June 30, 2005.

 

Our primary investing activities are the originationof mortgage, consumer, and commercial loans and the purchase of investment andmortgage-backed securities.  Generally,we originate fixed-rate, residential mortgage loans with maturities in excessof ten years for sale in the secondary market.

 

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Wedo not originate and warehouse these fixed-rate residential loans for resale inorder to speculate on interest rates.

 

The allowance for losses on loans is establishedthrough a provision for losses on loans based on our evaluation of the riskinherent in the loan portfolio and changes in the nature and volume of its loanactivity.  Such evaluation, whichincludes a review of all loans with respect to which full collectibility maynot be reasonably assured, considers the fair value of the underlyingcollateral, economic conditions, historical loan loss experience, level ofclassified loans and other factors that warrant recognition in providing for anadequate allowance for losses on loans.

 

We believe that the quality of the loan portfoliocontinues to be strong as evidenced by our low levels of past due andnon-accrual loans which increased slightly, however, remain relatively lowoverall.  As of June 30, 2005, loanswith a balance of $1.7 million were on non-accrual status, or 0.61% of totalloans, compared to a balance of $1.1 million loans on non-accrual status, or0.41% of total loans, as of December 31, 2004.  In addition, the ratio of non-performingassets as a percentage of total assets increased from 0.36% as of December 31,2004, to 0.55% as of June 30, 2005. The increase in non-accrual loans is related to a single borrowingrelationship comprised of a pool of residential home loans totaling $449,000.  While the non-accrual loans andnon-performing asset ratios have increased, this increase occurred in theone-to-four family residential loan portfolio. Residential home loans comprised 97.0% of the $1.7 million non-accrualbalance at June 30, 2005.  Theseloans have been underwritten according to our residential lending policies andare well secured by real estate collateral, and in many instances, privatemortgage insurance or government guarantees. We have historically incurred minimal losses on mortgage loans basedupon collateral values and underlying insurance or guarantees.  We are aggressively pursuing collectionactivity of these loans which should enable the collection of principal.

 

Management believes that there are numerousindications of emerging strength in the economy, including the Federal OpenMarket Committee raising the target for the Federal Funds rate by 225 basispoints since the June 30, 2004 meeting. Even though there are numerous indications of emerging strength, it isnot certain that this strength is sustainable. We believe that we use the best information available to determine theallowance for losses on loans, unforeseen market conditions could result inadjustment to the allowance for losses on loans.  In addition, net earnings could besignificantly affected if circumstances differ substantially from theassumptions used in establishing the allowance for losses on loans.

 

*LiabilityDistribution.*  Totaldeposits of $302.9 million remained constant at June 30, 2005, and December 31,2004.  Borrowings increased $1.9 millionto $96.5 million at June 30, 2005, from $94.6 million at December 31,2004.

 

Non-interestbearing demand accounts at June 30, 2005, were $27.2 million, or 9.0% ofdeposits, compared to $28.5 million, or 9.4% of deposits, at December 31,2004.  Certificates of deposit increasedto $162.6 million at June 30, 2005, from $154.5 million at December 31,2004.  Money market and NOW demand accountsincreased to $89.9 million at June 30, 2005, from $76.6 million at December 31,2004, and were 29.7% of total deposits. Savings accounts of $23.2 million remained constant at June 30, 2005,and December 31, 2004.

 

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Certificatesof deposit at June 30, 2005, which were scheduled to mature in one year orless, totaled $119.7 million. Historically, maturing deposits have generally remained with our bankand we believe that a significant portion of the deposits maturing in one yearor less will remain with us upon maturity.

 

*ContractualObligations and Commercial Commitments.*  The followingtable presents our contractual obligations, defined as operating leaseobligations and principal payments due on non-deposit obligations withmaturities in excess of one year as of June 30, 2005, for the periodsindicated.

 
| **Contractual Cash**          | ** ** | ** ** | ** ** | **One Year** | ** ** | **One to**      | ** ** | **Four to**    | ** ** | **More than**  | ** ** |
|-------------------------------|------------|------------|------------|--------------|------------|-----------------|------------|----------------|------------|----------------|------------|
| **Obligations**               | ** ** | **Total**  | ** ** | **or Less**  | ** ** | **Three Years** | ** ** | **Five Years** | ** ** | **Five Years** | ** ** |
|                          |       |       |       |         |       |            |       |           |       |           |       |
| Operating leases              |       | $          | 261,480    |         | $          | 66,648          |       | $              | 103,632    |           | $          | 90,232 |   | $ | 968 |   |
| Service contracts             |       | 1,885,000  |       | 780,000      |       | 1,105,000       |       | —         |       | —         |       |
| FHLB advances                 |       | 81,372,261 |       | 11,900,000   |       | —          |       | 41,982,185     |       | 27,490,076     |       |
| Other borrowings              |       | 15,168,000 |       | 1,750,000    |       | —          |       | 5,170,000      |       | 8,248,000      |       |
| Total contractual obligations |       | $          | 96,936,741 |         | $          | 14,496,648      |       | $              | 1,208,632  |           | $          | 47,242,417 |   | $ | 35,739,044 |   |
|                               |            |            |            |              |            |                 |            |                |            |                |            |  |  |  |  |  |  |

 

*Liquidity.*  Our most liquid assets are cash and cashequivalents and investment securities available for sale.  The levels of these assets are dependent onthe operating, financing, lending and investing activities during any givenperiod.  These liquid assets totaled $146.4million at June 30, 2005, and $141.4 million at December 31, 2004.  The amount of investments acquired in the April 2004acquisition of First Kansas approximated $62.8 million.  During periods in which we are not able tooriginate a sufficient amount of loans and/or periods of high principalprepayments, we increase our liquid assets by investing in short-term U. S.Government and agency securities or high-grade municipal securities.

 

Liquidity management is both a daily and long-termfunction of our strategy.  Excess fundsare generally invested in short-term investments.  In the event we require funds beyond ourability to generate them internally, additional funds are generally availablethrough the use of Federal Home Loan Bank advances, a line of credit with theFederal Home Loan Bank or through sales of securities.  At June 30, 2005, we had outstandingFederal Home Loan Bank advances of $70.5 million and $5.9 million borrowedagainst our line of credit with the Federal Home Loan Bank.  At June 30, 2005, our total borrowingcapacity with the Federal Home Loan Bank was $95.4 million.  We also had other borrowings of $15.2 millionat June 30, 2005, which included $8.2 million of subordinated debentures,$5.2 million of long-term debt and $1.8 million in repurchase agreements.

 

At June 30, 2005, we had outstanding loancommitments, excluding standby letters of credit, of $49.9 million.  We anticipate that sufficient funds will beavailable to meet current loan commitments. These commitments consist of letters of credit, unfunded lines of creditand commitments to finance real estate loans.

 

*Capital.*  The Federal Reserve Board has establishedcapital requirements for bank holding companies which generally parallel thecapital requirements for national banks under the Office of the Comptroller ofthe Currency regulations.  Theregulations provide that such standards will generally

 

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be applied on aconsolidated (rather than a bank-only) basis in the case of a bank holdingcompany with more than $150 million in total consolidated assets.

 

At June 30,2005, we continued to maintain a sound leverage ratio of 9.8% and a total riskbased capital ratio of 16.3%.  As shownby the following table, our capital exceeded the minimum capital requirementsat June 30, 2005 (dollars in thousands):

 
| ** **               | ** ** | **Actual  Amount** | ** ** | **Actual  Percent** | ** ** | **Required  Percent** | ** ** | **Required  Amount** | ** ** |
|--------------------------|------------|--------------------|------------|---------------------|------------|-----------------------|------------|----------------------|------------|
| Leverage                 |       | $                  | 43,047     |                | 9.8        | %                     | 4.0        | %                    | $          | 17,577 |   |
| Tier 1 Capital           |       | $                  | 43,047     |                | 15.2       | %                     | 4.0        | %                    | $          | 11,321 |   |
| Total Risk Based Capital |       | $                  | 46,122     |                | 16.3       | %                     | 8.0        | %                    | $          | 22,642 |   |

 

At June 30,2005, our subsidiary bank continued to maintain a sound leverage ratio of 10.8%and a total risk based capital ratio of 17.7%. As shown by the following table, our bank’s capital exceeded the minimumcapital requirements at June 30, 2005 (dollars in thousands):

 
| ** **               | ** ** | **Actual  Amount** | ** ** | **Actual  Percent** | ** ** | **Required  Percent** | ** ** | **Required  Amount** | ** ** |
|--------------------------|------------|--------------------|------------|---------------------|------------|-----------------------|------------|----------------------|------------|
| Leverage                 |       | $                  | 47,008     |                | 10.8       | %                     | 4.0        | %                    | $          | 17,493 |   |
| Tier 1 Capital           |       | $                  | 47,008     |                | 16.7       | %                     | 4.0        | %                    | $          | 11,296 |   |
| Total Risk Based Capital |       | $                  | 50,083     |                | 17.7       | %                     | 8.0        | %                    | $          | 22,593 |   |

 

Banks andbank holding companies are generally expected to operate at or above theminimum capital requirements.  The aboveratios are well in excess of regulatory minimums and should allow us to operatewithout capital adequacy concerns.  TheFederal Deposit Insurance Corporation Improvement Act of 1991 establishes abank rating system based on the capital levels of banks.  As of June 30, 2005, we were rated “wellcapitalized”, which is the highest rating available under this capital-basedrating system.

 

Effective April 11, 2005, the Board ofGovernors of the Federal Reserve System amended the risk-based capitalstandards for bank holding companies to allow the continued inclusion ofoutstanding and prospective issuances of trust preferred securities in the tier1 capital of bank holding companies, subject to stricter standards.  The new regulations limit the amount of trustpreferred securities (combined with all other restricted core capital elements)that a bank holding company may include as tier 1 capital to 25% of the sum ofall core capital elements, net of goodwill less any associated deferred taxliability.  Amounts in excess of thelimits described above generally may be included in tier 2 capital.  The regulations also provide a transitionperiod for bank holding companies to conform their capital structures to therevised quantitative limits.  Theselimits will first become applicable to bank holding companies beginning on March 31,2009.  We do not anticipate the amendedrisk-based capital standards will have a material impact on our capitalstructures.

 

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**ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISK**

 

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

 

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

 

Wehave been successful in meeting the interest rate sensitivity objectives setforth in our policy.  Simulation modelsare prepared to determine the impact on net interest income for the comingtwelve months, including one using rates at June 30, 2005, and forecastingvolumes for the twelve-month projection. This position is then subjected to a shift in interest rates of 100 and200 basis points rising and 100 basis points falling with an impact to our netinterest income on a one year horizon as follows:

 
| **Scenario**            | ** ** | **$ Change in Net Interest Income** | ** ** | **% of Net Interest Income** | ** ** |
|-------------------------|------------|------------------------------------------|------------|------------------------------|------------|
| 100 basis point rising  |       | $                                        | 445,000    |                         | 3.6        | % |
| 200 basis point rising  |       | 923,000                                  |       | 7.4                          | %          |
| 100 basis point falling |       | (595,000                                 | )          | (4.8                         | )%         |
|                         |            |                                          |            |                              |            |  |

 

We believe that nosignificant changes in our interest rate sensitivity position have occurredsince June 30, 2005.  We alsobelieve we are appropriately positioned for future interest rate movements,although we may experience some fluctuations in net interest income due toshort-term timing differences between the repricing of assets and liabilities.

 

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

 

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Ourability to predict results or the actual effect of future plans or strategiesis inherently uncertain.  Factors whichcould have a material adverse effect on our operations and futureprospects  include, but are not limitedto, the following:

 

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

 

•                                         The economicimpact of past and future terrorist attacks, acts of war or threatsthereof,   and the response of the UnitedStates to any such threats and attacks.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

These risks and uncertainties should beconsidered in evaluating forward-looking statements and undue reliance should notbe placed on such statements.  Additionalinformation concerning us and our business, including other factors that couldmaterially affect our financial results, is included in our filings with theSecurities and Exchange Commission.

 

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**ITEM 4. CONTROLS AND PROCEDURES**

 

Anevaluation was performed under the supervision and with the participation of ourmanagement, including the Chief Executive Officer and Chief Financial Officer,of the effectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rule 13a-15(e) promulgated under theSecurities and Exchange Act of 1934, as amended) as of June 30, 2005.  Based on that evaluation, our management,including the Chief Executive Officer and Chief Financial Officer, concludedthat our disclosure controls and procedures were effective.  There have been no significant changes in ourinternal controls or in other factors that could significantly affect internalcontrols.

 

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

**PART II – OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS.**

 

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

 

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

 

The following table provides information aboutpurchases by the Company and its affiliated purchasers during the quarter endedJune 30, 2005, of equity securities that are registered by the Companypursuant to Section 12 of the Exchange Act:

 
| **Period**            | ** ** | **Total  Number  of Shares  Purchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased  as Part of a  Publicly  Announced Plan(1)** | ** ** | **Maximum Number  (or Approximate  Dollar Value) of  Shares that May  Yet Be Purchased  Under the Plan(2)** | ** ** |
|-----------------------|------------|-----------------------------------------|------------|------------------------------------|------------|---------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|
| April 1-30, 2005 |       | —                                  |       | —                             |       | —                                                                                |       | 77,054                                                                                                      |       |
| May 1-31, 2005   |       | 18                                      |       | $                                  | 29.50      |                                                                                  | 18         |                                                                                                        | 77,036     |   |
| June 1-30, 2005  |       | —                                  |       | —                             |       | —                                                                                |       | 77,036                                                                                                      |       |
| Total                 |       | 18                                      |       | $                                  | 29.50      |                                                                                  | 18         |                                                                                                        | 77,036     |   |

 

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(1)   We have repurchased an aggregate of 24,664shares of our common stock pursuant to the repurchase program that we publiclyannounced in November 2004.

 

(2)   Our Board of Directors approved therepurchase by us up to an aggregate of 101,700 shares of our common stockpursuant to the repurchase program. Unless terminated earlier by resolution of the Board of Directors, the repurchaseprogram will expire when we have repurchased all shares authorized forrepurchase thereunder.

 

**ITEM 3.  DEFAULTS UPON SENIORSECURITIES.**

 

None

 

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

 

On May 18, 2005, the annual meeting of LandmarkBancorp, Inc. stockholders was held. At the meeting, Brent A. Bowman, Joseph L. Downey, and David H. Snappwere elected to serve as Class I directors with terms expiring in 2008.Continuing as Class II directors (term expires in 2006) are Richard Ball,Susan E. Roepke and C. Duane Ross and continuing as Class III directors(term expires in 2007) are Patrick L. Alexander, Jim W. Lewis, Jerry R. Pettle,and Larry Shugart.  The stockholders alsoratified the appointment of KPMG LLP as Landmark Bancorp, Inc.’sindependent public accountants for the year ending December 31, 2005, andapproved the amendment to Article 4 of the certificate of incorporation toincrease the number of authorized shares of common stock, $0.01 par value pershare, from 3,000,000 to 5,000,000 shares.

 

There were 2,110,443 shares of common stock eligibleto vote at the annual meeting.  Thevoting on each item at the annual meeting was as follows:

 
| ** **               | ** ** | ** ** | ** ** | **Withheld/** | ** ** | ** **  | ** ** | **Broker**    | ** ** |
|--------------------------|------------|------------|------------|---------------|------------|-------------|------------|---------------|------------|
| ** **               | ** ** | **For**    | ** ** | **Against**   | ** ** | **Abstain** | ** ** | **Non-Votes** | ** ** |
|                     |       |       |       |          |       |        |       |          |       |
| Brent A. Bowman          |       | 1,595,898  |       | 68,430        |       | —      |       | —        |       |
| Joseph L. Downey         |       | 1,649,152  |       | 15,176        |       | —      |       | —        |       |
| David H. Snapp           |       | 1,649,092  |       | 15,236        |       | —      |       | —        |       |
| KPMG LLP                 |       | 1,608,010  |       | 14,324        |       | 41,994      |       | —        |       |
| Article 4 Amendment |       | 1,445,854  |       | 205,325       |       | 13,149      |       | —        |       |

 

**ITEM 5.  OTHER INFORMATION.**

 

None

 

**ITEM 6.  EXHIBITS**

 

A.                                   Exhibits

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

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|                      |   | LANDMARK BANCORP, INC.                |
|---------------------------|--------|---------------------------------------|
|                      |   |                                  |
|                      |   |                                  |
| Date: August 4, 2005 |   | /s/  Patrick L. Alexander        |   |
|                      |   | Patrick L. Alexander                  |
|                      |   | President and Chief Executive Officer |
|                      |   |                                  |
|                      |   |                                  |
| Date: August 4, 2005 |   | /s/  Mark A. Herpich             |   |
|                      |   | Mark A. Herpich                       |
|                      |   | Vice President, Secretary, Treasurer  |
|                      |   | and Chief Financial Officer           |
|                           |        |                                       |  |  |

 

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