**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 March 31,  2006**                                                 |
| ** ** | ** ** | ** **                                                                                              |
| ** ** | ** ** | **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)                          |       |                                    |
|                                                       |       |                                    |
| **701 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 theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes ý  No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.
| Large  accelerated filer o | Accelerated  filer o | Non-accelerated  filer ý |
|----------------------------|----------------------|-------------------------------|

 

Indicatethe number of shares outstanding of each of the Registrant’s classes of commonstock as of the latest practicable date: As of May 3, 2006, the Registrant had outstanding 2,228,591 sharesof its common stock, $.01 par value per share.

 

 

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**LANDMARK BANCORP, INC.**

**Form 10-Q Quarterly Report**

 

**Table of Contents**

 
| **Number**                    | ** **                                                                                  | ** ** | ** ** |
|-------------------------------|---------------------------------------------------------------------------------------------|------------|------------|
|                          |                                                                                        |       |
| 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 1A.                      | Risk Factors                                                                                |       |
| Item 2.                       | Unregistered Sales of Equity  Securities and Use of Proceeds                                |       |
| Item 3.                       | Defaults Upon Senior  Securities                                                            |       |
| Item 4.                       | Submission of Matters to a  Vote of Security Holders                                        |       |
| Item 5.                       | Other Information                                                                           |       |
| Item 6.                       | Exhibits                                                                                    |       |
|                          |                                                                                        |
| Form 10-Q Signature Page |                                                                                        |

 

2

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**LANDMARK BANCORP, INC. AND SUBSIDIARY**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                     | ** ** | **March 31,  2006** | ** **  | **December 31,  2005** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** **                                                                     | ** ** | **(Unaudited)**          | ** **  | ** **                  | ** ** |
| **ASSETS**                                                                     | ** ** | ** **               | ** **  | ** **                  | ** ** |
| Cash and cash equivalents                                                      |       | $                        | 16,816,332  |                        | $          | 21,490,512 |   |
| Investment securities available for sale, at fair value                        |       | 146,262,761              |        | 140,130,512                 |       |
| Loans, net                                                                     |       | 389,153,084              |        | 274,565,855                 |       |
| Loans held for sale                                                            |       | 2,693,280                |        | 1,163,211                   |       |
| Premises and equipment, net                                                    |       | 11,981,657               |        | 8,412,235                   |       |
| Goodwill                                                                       |       | 13,009,167               |        | 7,535,584                   |       |
| Other intangible assets, net                                                   |       | 4,750,106                |        | 2,418,213                   |       |
| Accrued interest and other assets                                              |       | 18,407,161               |        | 9,393,839                   |       |
|                                                                           |       |                     |        |                        |       |
| Total assets                                                                   |       | $                        | 603,073,548 |                        | $          | 465,109,961 |   |
|                                                                           |       |                     |        |                        |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                  | ** ** | ** **               | ** **  | ** **                  | ** ** |
| Liabilities:                                                                   |       |                     |        |                        |       |
| Deposits                                                                       |       | $                        | 454,316,388 |                        | $          | 331,272,731 |   |
| Federal Home Loan Bank  borrowings                                             |       | 67,665,844               |        | 63,212,318                  |       |
| Other borrowings                                                               |       | 29,568,800               |        | 22,046,000                  |       |
| Accrued expenses, taxes and  other liabilities                                 |       | 6,519,708                |        | 4,506,305                   |       |
| Total liabilities                                                              |       | 558,070,740              |        | 421,037,354                 |       |
|                                                                           |       |                     |        |                        |       |
| Stockholders’ equity:                                                     |       |                     |        |                        |       |
| Common stock, $0.01 par,  5,000,000 shares authorized, 2,244,327 shares issued |       | 22,443                   |        | 22,443                      |       |
| Additional paid-in capital                                                     |       | 19,887,721               |        | 19,868,567                  |       |
| Retained earnings                                                              |       | 26,364,063               |        | 25,322,019                  |       |
| Accumulated other  comprehensive loss                                          |       | (856,915                 | )           | (725,908                    | )          |
| Treasury stock, at cost;  15,736 shares                                        |       | (414,514                 | )           | (414,514                    | )          |
| Total stockholders’ equity                                                |       | 45,002,808               |        | 44,072,961                  |       |
|                                                                           |       |                     |        |                        |       |
| Total liabilities and  stockholders’ equity                               |       | $                        | 603,073,548 |                        | $          | 465,109,961 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

 

3

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

# **CONDENSED CONSOLIDATEDSTATEMENTS OF EARNINGS**

**(Unaudited)**

 
| ** **                                           | ** ** | **Three  Months Ended March 31,** | ** ** |
|------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                           | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Interest income:                                     |       |                                   |       |   |   |
| Loans                                                |       | $                                      | 6,650,708  |   | $ | 4,101,714 |   |
| Investment securities                                |       | 1,415,337                              |       | 1,036,801 |   |
| Other                                                |       | 71,286                                 |       | 13,070 |   |
| Total interest income                                |       | 8,137,331                              |       | 5,151,585 |   |
|                                                 |       |                                   |       |   |   |
| Interest expense:                                    |       |                                   |       |   |   |
| Deposits                                             |       | 2,427,335                              |       | 1,160,065 |   |
| Borrowed funds                                       |       | 1,064,609                              |       | 880,726 |   |
| Total interest expense                               |       | 3,491,944                              |       | 2,040,791 |   |
|                                                 |       |                                   |       |   |   |
| Net interest income                                  |       | 4,645,387                              |       | 3,110,794 |   |
|                                                 |       |                                   |       |   |   |
| Provision for loan losses                            |       | 60,000                                 |       | 120,000 |   |
|                                                 |       |                                   |       |   |   |
| Net interest income after  provision for loan losses |       | 4,585,387                              |       | 2,990,794 |   |
|                                                 |       |                                   |       |   |   |
| Non-interest income:                                 |       |                                   |       |   |   |
| Fees and service charges                             |       | 1,052,226                              |       | 797,659 |   |
| Gains on sale of loans                               |       | 263,381                                |       | 165,576 |   |
| Gains on sale of investments                         |       | 143,541                                |       | — |   |
| Other                                                |       | 232,393                                |       | 97,180 |   |
| Total non-interest income                            |       | 1,691,541                              |       | 1,060,415 |   |
|                                                 |       |                                   |       |   |   |
| Non-interest expense:                                |       |                                   |       |   |   |
| Compensation and benefits                            |       | 2,135,964                              |       | 1,457,718 |   |
| Occupancy and equipment                              |       | 708,920                           |       | 490,234  |   |
| Data processing                                      |       | 161,447                                |       | 128,996 |   |
| Amortization of intangibles                          |       | 264,493                                |       | 96,030 |   |
| Professional fees                                    |       | 84,377                                 |       | 86,143 |   |
| Advertising                                          |       | 107,518                                |       | 84,840 |   |
| Other                                                |       | 774,135                                |       | 554,281 |   |
| Total non-interest expense                           |       | 4,236,854                              |       | 2,898,242 |   |
|                                                 |       |                                   |       |   |   |
| Earnings before income taxes                         |       | 2,040,074                              |       | 1,152,967 |   |
|                                                 |       |                                   |       |   |   |
| Income tax expense                                   |       | 619,160                                |       | 349,591 |   |
|                                                 |       |                                   |       |   |   |
| Net earnings                                         |       | $                                      | 1,420,914  |   | $ | 803,376 |   |
|                                                 |       |                                   |       |   |   |
| Earnings per share:                                  |       |                                   |       |   |   |
| Basic                                                |       | $                                      | 0.64       |   | $ | 0.36 |   |
| Diluted                                              |       | $                                      | 0.64       |   | $ | 0.36 |   |
|                                                 |       |                                   |       |   |   |
| Dividends per share                                  |       | $                                      | 0.1700     |   | $ | 0.1619 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

 

4

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**LANDMARK BANCORP, INC. AND SUBSIDIARY**

 

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                  | ** ** | **Three  Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                  | ** ** | **2006**                               | ** ** | **2005** | ** ** |
|                                                                        |       |                                   |       |   |   |
| Net cash provided by operating activities                                   |       | $                                      | 6,933,754  |   | $ | 1,669,181 |   |
|                                                                        |       |                                   |       |   |   |
| Cash flows from investing activities:                                       |       |                                   |       |   |   |
| Net (increase) decrease in  loans                                           |       | (6,679,493                             | )          | 2,629,990 |   |
| Maturities and prepayments of  investments                                  |       | 10,554,569                             |       | 9,443,110 |   |
| Purchase of investment  securities                                          |       | (6,360,310                             | )          | (8,405,034 | ) |
| Proceeds from sale of  investment securities                                |       | 499,753                                |       | — |   |
| Net cash paid in FMB  acquisition                                           |       | (8,023,721                             | )          | — |   |
| Proceeds from sales of  premises and equipment and  foreclosed  assets |       | 396,813                                |       | 66,966 |   |
| Purchases of premises and  equipment, net                                   |       | (777,532                               | )          | (70,717 | ) |
| Net cash provided by/(used in)  investing activities                        |       | (10,389,921                            | )          | 3,664,315 |   |
|                                                                        |       |                                   |       |   |   |
| Cash flows from financing activities:                                       |       |                                   |       |   |   |
| Net increase in deposits                                                    |       | 16,118,480                             |       | 4,335,586 |   |
| Federal Home Loan Bank advance  borrowings                                  |       | —                                 |       | 3,500,000 |   |
| Federal Home Loan Bank advance  repayments                                  |       | (509,192                               | )          | (5,009,192 | ) |
| Federal Home Loan Bank line of  credit repayments, net                      |       | (3,400,000                             | )          | (3,500,000 | ) |
| Proceeds from other borrowings                                              |       | 5,100,000                              |       | 2,505,000 |   |
| Repayments on other borrowings                                              |       | (4,280,932                             | )          | (890,000 | ) |
| Payment of dividends                                                        |       | (378,861                               | )          | (358,799 | ) |
| Net cash provided by financing  activities                                  |       | 12,649,495                             |       | 582,595 |   |
| Net increase/(decrease) in  cash and cash equivalents                       |       | (4,674,180                             | )          | 5,916,091 |   |
| Cash and cash equivalents at  beginning of period                           |       | 21,490,512                             |       | 7,845,438 |   |
| Cash and cash equivalents at  end of period                                 |       | $                                      | 16,816,332 |   | $ | 13,761,529 |   |
|                                                                        |       |                                   |       |   |   |
| Supplemental disclosure of cash flow information:                           |       |                                   |       |   |   |
| Cash paid during period for  interest                                       |       | $                                      | 2,757,000  |   | $ | 1,861,000 |   |
| Cash paid during period for taxes                                           |       | $                                      | —     |   | $ | — |   |
|                                                                        |       |                                   |       |   |   |
| Supplemental schedule of non-cash investing activities:                |       |                                   |       |   |   |
| Transfer of loans to real  estate owned                                     |       | $                                      | 24,000     |   | $ | 158,000 |   |
| FMB Acquisition:                                                            |       |                                   |       |   |   |
| Fair value of liabilities  assumed                                          |       | 131,988,000                            |       | — |   |
| Fair value of assets acquired,  including goodwill                          |       | 123,964,000                            |       | — |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

 

5

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

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

 

The condensed consolidated financial statements ofLandmark Bancorp, Inc. (the “Company”) and subsidiary have been preparedin accordance with the instructions to Form 10-Q. To the extent thatinformation and footnotes required by U.S. generally accepted accountingprinciples for complete financial statements are contained in or consistentwith the consolidated audited financial statements incorporated by reference inthe Company’s Form 10-K for the year ended December 31, 2005, suchinformation and footnotes have not been duplicated herein. In the opinion ofmanagement, all adjustments, consisting of normal recurring accruals,considered necessary for a fair presentation of financial statements have beenreflected herein. The December 31, 2005, condensed consolidated balancesheet has been derived from the audited consolidated balance sheet as of thatdate. The results of the interim period ended March 31, 2006 are notnecessarily indicative of the results expected for the year ending December 31,2006 and include the results of operations of FMB beginning on January 1,2006.

 

**2.****                                     ****Acquisition of First ManhattanBancorporation, Inc.**

 

TheCompany completed the acquisition of First Manhattan Bancorporation, Inc.(FMB) effective January 1, 2006. FMB’s subsidiary thrift was merged intothe Company’s wholly-owned subsidiary, Landmark National Bank, immediatelyfollowing the acquisition. This acquisition expanded our market share inManhattan and further expanded the Company’s presence in higher-growth marketareas. At December 31, 2005, FMB had total assets of $129 million,including loans and deposits of $109 million and $107 million, respectively. TheCompany paid cash in the amount of $12.9 million for all of the outstandingstock of FMB. In connection with the acquisition, the Company recorded a coredeposit intangible asset of $2.6 million, which is being amortized on anaccelerated basis over 10 years. The acquisition cost in excess of the tangibleand identifiable net assets acquired has been recorded as goodwill of $5.5million, none of which is deductible for tax purposes. Pro forma information,for the quarter ended March 31, 2005, as if the acquisition wasconsummated January 1, 2005, is as follows (in thousands, except per sharedata):

 
| Revenue                     |   | $    | 6,848  |   |
|-----------------------------|--------|------|--------|--------|
| Net earnings                |   | 828  |   |
| Basic earnings  per share   |   | 0.37 |   |
| Diluted earnings  per share |   | 0.37 |   |

 

6

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**3.****                                     ****StockBased Compensation**

 

In December 2004, The Financial Accounting StandardsBoard issued SFAS No. 123 (revised), Shared-Based Payment (123R). Therevision disallows the expense recognition alternatives permitted in theoriginal statement and requires entities to recognize stock-based compensationcost in their statements of earnings. The revision contains additional guidancein several areas including award modifications and forfeitures, measuring fairvalue, classifying an award as equity or as a liability, and attributingcompensation cost to reporting periods. It also contains additional disclosurerequirements. Prior to the adoption of SFAS No. 123R on January 1,2006, the Company recorded the fair value of options issued under the plan asexpense in accordance with SFAS No. 123, *Accountingfor Stock Based Compensation*. The Company’s adoption of the revisedStatement on January 1, 2006, did not have a material effect on itsconsolidated financial statements.

 

The Company has a stockoption plan, the purpose of which is to provide additional incentive to certainofficers, directors, and key employees by facilitating their purchase of astock interest in the Company. The plan is administered by the board ofdirectors who selects employees to whom options are granted and the number ofshares granted. The option price may not be less than 100% of the fairmarket value of the shares on the date of the grant, and no option shall beexercisable after the expiration of ten years from the grant date. In thecase of any employee who owns more than 10% of the outstanding common stock atthe time the option is granted, the option price may not be less than 110%of the fair market value of the shares on the date of the grant, and the optionshall not be exercisable after the expiration of ten years from the grantdate. The Company intends to utilize authorized, but un-issued shares tosatisfy option exercises. The stock-based compensation cost that has beencharged against income was $19,000 in the first three months of 2006 and $36,000in the first three months of 2005.

 

In determining compensation cost, the Black-Scholes option-pricingmodel is used to estimate the fair value of options on date of grant. TheBlack-Scholes model is a closed-end model that uses the assumptions outlinedbelow. Expected volatility is based on historical volatility of the Company’sstock and a consideration of other factors. The Company uses historicalexercise behavior and other factors to estimate the expected term of theoptions, which represents the period of time that the options granted areexpected to be outstanding. The risk-free rate for the expected term is basedon U.S. Treasury rates in effect at the time of grant. The fair value of eachoption grant is estimated on the date of grant. The fair value of optionsgranted in 2005 were estimated utilizing the following assumptions: dividendrate of 4.8%, volatility of 18.0%, risk-free interest rate of 4.3%, andexpected lives of five years, resulting in a fair value of $3.40 per option atgrant date. There have been no options granted in 2006.

 

7

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Asummary of option activity during the first three months of 2006 is presentedbelow.

 
| **(Dollars in thousands, except per share data)**   | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at January 1,  2006                |       | 127,340    |       | $                                      | 23.73      |                                                | 7.38 years |                            | n/a        |   |
| Granted                                             |       | —     |       | —                                 |       | —                                              |       | n/a                             |       |
| Cancelled                                           |       | —     |       | —                                 |       | —                                              |       | n/a                             |       |
| Exercised                                           |       | —     |       | —                                 |       | —                                              |       | n/a                             |       |
| Outstanding at March 31,  2006                 |       | 127,340    |       | $                                      | 23.73      |                                                | 7.14 years |                            | $          | 481,000 |   |
| Exercisable at March 31,  2006                 |       | 76,119     |       | $                                      | 21.91      |                                                | 6.55 years |                            | $          | 426,000 |   |
| Vested and  expected to vest at March 31, 2006 |       | 123,239    |       | $                                      | 23.63      |                                                | 7.11 years |                            | $          | 477,000 |   |

 

Additional informationabout stock options exercised is presented below.

 
| ** **                                   | ** ** | **Three Months  Ended March 31,** | ** ** |
|----------------------------------------------|------------|----------------------------------------|------------|
| **(Dollars in thousands)**                   | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Intrinsic value  of options exercised        |       | $                                      | —     |   | $ | — |   |
| Cash received  from options exercised        |       | $                                      | —     |   | $ | — |   |
| Tax benefit  realized from options exercised |       | $                                      | —     |   | $ | — |   |

 

As of March 31, 2006,there was $60,000 of total unrecognized compensation cost related to theoptions. That cost is expected to be recognized over a weighted-average periodof 2 years. The total fair value (at vest date) of shares vested during thethree month periods ended March 31, 2006 and 2005 was $99,000 and $93,000respectively.

 

**4.****                                      Earningsper Share**

 

Basicearnings per share have been computed based upon the weighted average number ofcommon shares outstanding during each period. Diluted earnings per shareinclude the effect of all potential common shares outstanding during eachperiod. 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 2005.

 

Theshares used in the calculation of basic and diluted income per share are shownbelow:

 

| ** **                                          | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                          | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Weighted average  common shares outstanding (basic) |       | 2,228,591                              |       | 2,216,117 |   |
| Dilutive stock  options                             |       | 8,710                                  |       | 13,147 |   |
| Weighted average  common shares (diluted)           |       | 2,237,301                              |       | 2,229,264 |   |

 

8

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**5.****                                      ComprehensiveIncome/(Loss)**

 

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

 

| ** **                                                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Net earnings                                                              |       | $                                      | 1,420,914  |   | $ | 803,376 |   |
|                                                                      |       |                                   |       |   |   |
| Change in  unrealized holding(gains)/losses                               |       | (96,761                                | )          | (820,708 | ) |
| Less –  reclassification adjustment for gains included in net income |       | 143,541                                |       | — |   |
| Net change in unrealized losses/(gains) on  securities                    |       | (240,302                               | )          | (820,708 | ) |
| Unrealized gain  on interest rate swap                                    |       | 29,000                                 |       | 58,000 |   |
| Income tax  benefit                                                       |       | (80,295                                | )          | (289,829 | ) |
| Total comprehensive income                                                |       | $                                      | 1,289,907  |   | $ | 330,497 |   |

 

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

 

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

 
| ** **                    | ** ** | **March 31, 2006**     | ** ** | **December 31, 2005**    | ** ** |
|-------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                    | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Amortized  intangible assets: |       |                        |       |                          |       |   |   |   |   |
| Core deposit premium          |       | $                           | 5,396,065  |                          | $          | (1,002,932 | ) | $ | 2,818,602 |   | $ | (774,588 | ) |
| Mortgage servicing rights     |       | 781,236                     |       | (424,263                      | )          | 775,666 |   | (401,467 | ) |
| Total                         |       | $                           | 6,177,301  |                          | $          | (1,427,195 | ) | $ | 2,151,891 |   | $ | (1,176,055 | ) |

 

Aggregate amortization expense for the three monthsended March 31, 2006 and March 31, 2005, was $264,000 and $96,000,respectively. The following depicts estimated amortization expense for theyears ending December 31:

 

| **Year** | ** ** | **Amount** | ** ** |
|----------|------------|------------|------------|
| 2006     |       | $          | 1,073,000  |   |
| 2007     |       | 972,000    |       |
| 2008     |       | 697,000    |       |
| 2009     |       | 599,000    |       |
| 2010     |       | 500,000    |       |
|          |            |            |            |  |

 

9

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The mortgage servicing rights correspond to loansserviced by the Company for others with outstanding principal balances of$106.5 million and $107.2 million at March 31, 2006 and December 31,2005, respectively. Gross service fee income related to such loans was $68,000and $70,000 for the three months ended March 31, 2006 and March 31,2005, respectively, and is included in fees and service charges in thecondensed consolidated statements of earnings.

 

The following is ananalysis of the changes in mortgage servicing rights:

 
| ** **                      | ** ** | **Three Months  Ended March 31,** | ** ** |
|---------------------------------|------------|----------------------------------------|------------|
| ** **                      | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Balance at  beginning of period |       | $                                      | 374,199    |   | $ | 446,332 |   |
| Additions                       |       | 18,924                                 |       | 20,166 |   |
| Amortization                    |       | (36,150                                | )          | (43,712 | ) |
| Balance at end  of period       |       | $                                      | 356,973    |   | $ | 442,786 |   |

 

# **7.**                                      Impact of Recent Accounting Pronouncements

# ** **

InDecember 2004, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standards No. 123 (revised), “Share-BasedPayment”. The revision requires entities to recognize the cost of employeeservices received in exchange for awards of equity instruments, based on thegrant date fair value of those awards in their statements of operations. TheStatement requires several accounting changes in the areas of awardmodifications and forfeitures. It contains additional guidance in severalareas, including measuring fair value, classifying an award as equity or as aliability, and attributing compensation cost to reporting periods. For calendaryear companies, the Statement was effective January 1, 2006. The Companyimplemented provisions of the original Statement 123 beginning in 2003 and hasrecorded the cost of stock-based awards in its statements of income. TheCompany’s adoption of Statement 123 (revised) did not have a material effect onits consolidated financial statements in 2006.

 

In May 2005, theFASB issued Statement of Financial Accounting Standards No. 154, “AccountingChanges and Error Corrections”. The Statement changes the requirements for theaccounting for and reporting of a change in accounting principle. ThisStatement requires retrospective application to prior periods’ financialstatements of changes in accounting principle, unless it is impracticable todetermine either the period-specific effects or the cumulative effect of thechange. This statement applies to all voluntary changes in accounting principle.It also applies to changes required by an accounting pronouncement in theunusual instance that the pronouncement does not include specific transitionprovisions. The Statement carries forward previously issued guidance onreporting changes in accounting estimate (which shall be accounted for in theperiod of change and future periods, if affected) and errors in previouslyissued financial statements (which shall be reported as a prior periodadjustment by restating the prior

 

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period financial statements). For calendar yearcompanies, the Statement was effective for accounting changes and correctionsof errors made after January 1, 2006. The Company’s adoption of the Statement didnot have a material effect on its consolidated financial statements.

 

InFebruary 2006, the FASB issued Statement of Financial AccountingStandards No. 155, “Accounting for Certain Hybrid Financial Instruments -an amendment of FASB Statements No. 133 and 140”. The Statement permits fair valueremeasurement for certain hybrid financial instruments containing embeddedderivatives, and clarifies the derivative accounting requirements for interestand principal-only strip securities and interests in securitized financialassets. It also clarifies that concentrations of credit risk in the form ofsubordination are not embedded derivatives and eliminates a previousprohibition on qualifying special-purpose entities from holding certainderivative financial instruments. For calendar year companies, the Statement iseffective for all financial instruments acquired or issued after January 1,2007. The Company does not expect that adoption of the Statement will have amaterial effect on its consolidated financial statements.

 

In March 2006, the FASB issued Statement ofFinancial Accounting Standards No. 156, “Accounting for Servicing ofFinancial Assets – an amendment of FASB Statement No. 140”. The Statementspecifies under what situations servicing assets and servicing liabilities mustbe recognized. It requires these assets and liabilities to be initiallymeasured at fair value and specifies acceptable measurement methods subsequentto their recognition. Separate presentation in the financial statements andadditional disclosures are also required. For calendar year companies, theStatement is effective beginning January 1, 2007. The Company does notexpect that adoption of the Statement will have a material effect on itsconsolidated financial statements.

 

Also in March 2006, the FASB issued StaffPosition 85-4-1, which provides initial and subsequent measurement guidance andfinancial statement presentation and disclosure guidance for investments bythird-party investors in life settlement contracts. The investments must beaccounted for by either (a) recognizing the initial investment attransaction price plus direct external costs and capitalizing continuing costs,with no gain recognized in earnings until the insured dies, or (b) recognizingthe initial investment at transaction price and remeasuring the investment atfair value at each reporting period, with fair value changes recognized inearnings as they occur. For calendar year companies, the guidance in this StaffPosition must be applied beginning January 1, 2007. The Company does notexpect that adoption of the Staff Position will have a material effect on itsconsolidated financial statements.

 

**8.****                                      OtherEvents**

 

The Companyhas entered into an agreement to construct a new branch location in Topeka,Kansas which is anticipated to be completed in mid 2006.

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

 

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

 

EffectiveJanuary 1, 2006 we completed our acquisition of First ManhattanBancorporation, Inc. (FMB), which was a thrift holding company. Immediatelyfollowing the acquisition, the Company merged the thrift into Landmark NationalBank. This acquisition expanded our market share in Manhattan and furtherexpanded the Company’s presence in higher-growth market areas includingLawrence and Junction City, Kansas. At December 31, 2005, FMB had totalassets of $129 million, including loans and deposits of $109 million and $107million, respectively. We paid cash in the amount of $12.9 million for all ofthe outstanding stock of FMB. In connection with the acquisition, the Companyrecorded a core deposit intangible asset of $2.6 million, which is beingamortized on an accelerated basis over 10 years, and goodwill of $5.5 million,none of which is deductible for tax purposes.

 

Our results of operations depend primarily on netinterest income, which is the difference between interest income frominterest-earning assets and interest expense on interest-bearing liabilities. Netinterest income is affected by regulatory, economic and competitive factorsthat influence interest rates, loan demand and deposit flows. In addition, weare subject to interest rate risk to the degree that our interest-earningassets mature or reprice at different times, or at different speeds, than ourinterest-bearing liabilities. Our results of operations are also affected bynon-interest income, such as service charges, loan fees and gains and lossesfrom the sale of newly originated loans and investments. Our principaloperating expenses, aside from interest expense, consist of compensation andemployee benefits, occupancy costs, federal deposit insurance costs, dataprocessing expenses and provision for loan losses.

 

Weare significantly impacted by prevailing economic conditions including federalmonetary and fiscal policies and federal regulations of financial institutions.Deposit balances are influenced by numerous factors such as competing personalinvestments, the level of personal income and the personal rate of savingswithin our market areas. Factors influencing lending activities include thedemand for housing and the interest rate pricing competition from other lendinginstitutions.

 

*Critical Accounting Policies.* Critical accounting policies are those which are both most importantto the portrayal of our financial condition and results of operations, and requireour management’s most difficult, subjective or complex judgments, often as a

 

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resultof the need to make estimates about the effect of matters that are inherentlyuncertain. Our critical accounting policies relate to the allowance for loanlosses, the valuation of investment securities, the accounting related tobusiness acquisitions and accounting for income taxes, all of which involvesignificant judgment by our management.

 

We perform periodic and systematic detailedreviews of our lending portfolio to assess overall collectability. The level ofthe allowance for loan losses reflects our estimate of the collectability ofthe loan portfolio. While these estimates are based on substantive methods fordetermining allowance requirements, nevertheless, actual outcomes may differsignificantly from estimated results. Additional explanation of themethodologies used in establishing this reserve is provided in the “AssetQuality and Distribution” section.

 

We report our investment securities at estimatedfair values based on published market ascertainable values which are obtainedfrom independent sources. Our management performs periodic reviews of theinvestment securities to determine if any investment securities have declinedin value which might be considered other than temporary. Although we believethat our estimates of the fair values of investment securities to bereasonable, economic and market factors may affect the amounts that willultimately be realized 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 tax returns. Judgmentis required in assessing the future tax consequences of events that have beenrecognized in our financial statements or tax returns. Fluctuations in theactual outcome of these future tax consequences, including the effects of IRSexaminations and examinations by other state agencies, could materially impactour financial position and results of operations.

 

Wehave completed severalbusiness and asset acquisitions which have generated significant amounts ofgoodwill and intangible assets and related amortization. The values assigned togoodwill and intangibles, as well as their related useful lives, are subject tojudgment and estimation by the Company. Goodwill and intangibles related toacquisitions are determined and based on purchase price allocations. Valuationof intangible assets is generally based on the estimated cash flows related tothose assets, while the initial value assigned to goodwill is the residual ofthe purchase price over the fair value of all identifiable assets acquired andliabilities assumed. If the carrying value of the goodwill exceeded the impliedfair value of the goodwill, an impairment loss would be recorded in an amountequal to that excess. Performing such a discounted cash flow analysis involvedthe use of estimates and assumptions. Useful lives are determined based on theexpected future period of the benefit of the asset, the assessment of whichconsiders various characteristics of the asset, including the historical cashflows. Due to the number of estimates involved related to the allocation ofpurchase price and

 

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determiningthe appropriate useful lives of intangible assets, we have identified purchaseprice accounting as a critical accounting policy.

 

*Summary of Results*. Net earnings for the three months ended March 31, 2006,increased $618,000, or 76.9%, to $1.4 million as compared to the three monthsended March 31, 2005. Our improved earnings were attributed primarily toour acquisition of First Manhattan Bancorporation along with continuedimprovement in our net interest margin. The acquisition allowed for continuedgrowth in non-interest income areas such as fees and service charges and gainson sale of loans. At the same time, we were able to begin realizing some costsavings associated with the acquisition during the first quarter of 2006. Inaddition, we realized gains on sale of investments and other real estate owned ofapproximately $242,000.

 

The three months ended March 31, 2006 resultedin diluted earnings per share of $0.64 compared to $0.36 for the same period in2005. Return on average assets was 0.96% for the period compared to 0.74% forthe same period in 2005. Return on average stockholders’ equity was 13.01% forthe period compared to 7.70% for the same period in 2005.

 

The following table summarizes net earnings pershare and key performance measures for the periods presented.

 
| ** **                   | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------|------------|----------------------------------------|------------|
| ** **                   | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Net earnings:                |       |                                   |       |   |   |
| Basic earnings per share     |       | $                                      | 0.64       |   | $ | 0.36 |   |
| Diluted earnings per share   |       | $                                      | 0.64       |   | $ | 0.36 |   |
| Earnings ratios:             |       |                                   |       |   |   |
| Return on average assets (1) |       | 0.96                                   | %          | 0.74 | % |
| Return on average equity (1) |       | 13.01                                  | %          | 7.70 | % |
| Dividend payout ratio        |       | 26.56                                  | %          | 44.97 | % |
| Net interest margin (1)      |       | 3.46                                   | %          | 3.08 | % |

 

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

 

*Interest Income.*Interest income for the three months ended March 31, 2006,increased $3.0 million, or 58.0%, to $8.2 million from $5.2 million in the sameperiod of 2005, resulting largely from increased interest income on investmentsecurities and loans. Average loans for the quarter ended March 31, 2006increased to $390.6 million from $277.3 million for the quarter ended March 31,2005. The increase in average loans was primarily due to the $109.4 million inloans acquired in the FMB acquisition. Additionally, the rise in interest ratesexperienced during the past year contributed to the increased interest income. Asa result, interest income on loans increased $2.5 million, or

 

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62.1%,to $6.7 million for the quarter ended March 31, 2006. Average investmentsecurities increased from $131.0 million for the quarter ended March 31,2005, to $148.1 million for the quarter ended March 31, 2006. Correspondingwith the increase in average investments for the comparable periods, interestincome on investment securities increased $379,000, or 36.5%, to $1.4 millionfor the first quarter of 2006, as compared to the same period of 2005. Alsocontributing to the increased investment income was the increase in interestrates which resulted in yields on our investments purchased during the pastyear being higher than the yields on our maturing investments.

 

*Interest Expense*.Interest expense during the three months ended March 31, 2006, increased$1.5 million, or 71.1%, as compared to the same period of 2005. For the threemonths ended March 31, 2006, interest expense on deposits increased $1.3million, or 109.2%. The increase in interest expense on deposits resulted fromthe addition of approximately $106.8 million in deposits that we acquiredthrough the FMB acquisition on January 1, 2006 and from the rise in interestrates and the associated repricing of deposits as they matured. Interestexpense on borrowings increased $184,000, or 20.9%. The increase in interestexpense on borrowings resulted primarily from the increase in interest rates.

 

*Net Interest Income*. Net interest income for the three months ended March 31, 2006,totaled $4.6 million, increasing $1.5 million, or 49.3%, as compared to thethree months ended March 31, 2005. This increase resulted primarily fromthe increased level of average interest earning assets associated with the January 1,2006 FMB acquisition. Average earning assets increased during the first quarterof 2006, increasing to $544.2 million from $410.0 million for the first quarterof 2005. Also contributing to the improvement in net interest income was anincrease in our net interest margin. The net interest margin on earning assetswas 3.46% for the first quarter of 2006, up from 3.08% during the first quarterof 2005. We believe the increase in Federal Funds rates over the past year by theFederal Open Market Committee will have a positive impact on our net interestmargin during the remainder of 2006 as our interest rates on earning assetsreprice to higher rates and at a faster rate than our liabilities reprice.

 

*Provision for Loan Losses*. The provision for loan losses for the three months ended March 31,2006, was $60,000, compared to a provision of $120,000 during the three monthsended March 31, 2005. Our continuous review of the loan portfolio prompteda decrease in our provision primarily as a result of improvement in the assetquality of the commercial loan portfolio. Our review also included the analysisof the FMB loans acquired along with the FMB allowance for loan losses acquiredin the amount of $891,000. One measure of the adequacy of the allowance forestimated losses on loans is the ratio of the allowance to the total loanportfolio. At March 31, 2006, and December 31, 2005, the allowancefor loan losses was $4.1 million and $3.2 million, or 1.0% and 1.1%,respectively, of gross loans outstanding.

 

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*Non-interest Income*. Non-interest income increased $631,000, or 59.5%, for the threemonths ended March 31, 2006, to $1.7 million compared to the three monthsended March 31, 2005. This improvement was primarily the result of a$98,000, or 59.1%, increase of gains on sale of loans, and an increase in feesand service charges of $255,000, or 31.9%, both of which are attributable tovolume increases associated with the FMB acquisition. Gains on sale ofinvestments from our holding company’s equity securities portfolio were$144,000 in the first quarter compared to no gains or losses in the firstquarter of 2005. Other non-interest income included $98,000 in gains recognizedwith the sale of other real estate owned during the first quarter of 2006.

 

| ** **                   | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------|------------|----------------------------------------|------------|
| ** **                   | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Non-interest  income:        |       |                                   |       |   |   |
| Fees and service charges     |       | $                                      | 1,052,226  |   | $ | 797,659 |   |
| Gains on sales of loans      |       | 263,381                                |       | 165,576 |   |
| Gains on sale of investments |       | 143,541                                |       | — |   |
| Other                        |       | 232,393                                |       | 97,180 |   |
| Total non-interest income    |       | $                                      | 1,691,541  |   | $ | 1,060,415 |   |

 

*Non-interest Expense*. Non-interest expense increased $1.3 million, or 46.2%, to $4.2million for the three months ended March 31, 2006, as compared to thethree months ended March 31, 2005, resulting primarily from the impact ofthe acquisition of FMB on January 1, 2006 and the late August 2005acquisition of two branches in Great Bend, Kansas, including increases incompensation and benefits of $678,000, occupancy and equipment of $219,000,amortization of acquired intangibles of $168,000 and data processing costs of$32,000.

 

| ** **                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------|------------|----------------------------------------|------------|
| ** **                         | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Non-interest expense:              |       |                                   |       |   |   |
| Compensation and benefits          |       | $                                      | 2,135,964  |   | $ | 1,457,718 |   |
| Occupancy and equipment            |       | 708,920                                |       | 490,234 |   |
| Amortization of intangible  assets |       | 264,493                                |       | 96,030 |   |
| Professional fees                  |       | 84,377                                 |       | 86,143 |   |
| Data processing                    |       | 161,447                                |       | 128,996 |   |
| Advertising                        |       | 107,518                                |       | 84,840 |   |
| Other                              |       | 774,135                                |       | 554,281 |   |
| Total non-interest expense         |       | $                                      | 4,236,854  |   | $ | 2,898,242 |   |

 

*Income Tax Expense*. Income tax expense increased $270,000, or 77.1%, from $350,000 forthe three months ended March 31, 2005, to $619,000 for the three monthsended March 31, 2006. The increase in income tax expense for the threemonths ended March 31, 2006, resulted from the increase in taxable incomefor the first quarter of 2006

 

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ascompared to the first quarter of 2005. The effective tax rate for the first quarterof 2006 remained constant at 30.3% as compared to the first quarter of 2005.

 

*Asset Quality and Distribution*. Total assets increased to $603.1 million at March 31, 2006,compared to $465.1 million at December 31, 2005, resulting from the FMBacquisition. 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 andscheduled amortization of loans are a predictable source of funds, depositflows and mortgage prepayments are greatly influenced by general interestrates, economic conditions, competition, and the restructuring of the financialservices industry.

 

Net loans, excluding loans held for sale, increased by$114.6 million to $389.2 million during the three months ended March 31,2006. This increase was primarily the result of the addition of $109.4 millionin loans in the FMB acquisition. We have concentrated on generating commercialloans over the past years and are pleased that this segment of our loanportfolio has grown. While the FMB acquisition increased our one-to-four familyresidential loan totals, as the majority of the acquired loans wereresidential, we plan to continue our efforts to grow our commercial lendingactivities.

 

Our primary investing activities are the originationof commercial, mortgage, consumer loans and the purchase of investment andmortgage-backed securities. Generally, we originate fixed-rate, residential mortgageloans with maturities in excess of ten years for sale in the secondary market. 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, which includes a review of all loans with respect towhich full collectibility may not be reasonably assured, considers thefair value of the underlying collateral, economic conditions, historical loanloss experience, level of classified loans and other factors that warrantrecognition in providing for an adequate allowance for losses on loans.

 

A summary of the activity in the allowance for loanlosses is as follows:

 
| Balance at December 31, 2005 |   | $       | 3,151,373 |   |
|-----------------------------------|--------|---------|-----------|--------|
| Allowance of  acquired bank       |   | 891,374 |      |
| Provision for  loan losses        |   | 60,000  |      |
| Charge-offs                       |   | (43,776 | )         |
| Recoveries                        |   | 32,459  |      |
| Balance at March 31,  2006   |   | $       | 4,091,410 |   |

 

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We believe that the quality of the loan portfoliocontinues to be strong as evidenced by our low levels of past due andnon-accrual loans. The loans acquired from FMB on January 1, 2006 did nothave a material impact on our non-accrual loan totals or our classified assetratios as the fair market value of loans acquired were recorded in accordancewith SOP 03-3. As of March 31, 2006, loans with a balance of $2.4 millionwere on non-accrual status, or 0.6% of total loans, compared to loan balances totaling$3.2 million on non-accrual status, or 1.2% of total loans, as of December 31,2005. In addition, the ratio of non-performing assets as a percentage of totalassets decreased from 0.9% as of December 31, 2005, to 0.5% as of March 31,2006. The decrease in non-accrual loans was primarily related to a $1.6 millioncommercial real estate loan, which was past due for payments in excess of 90days at December 31, 2005, on which the bank received a full payoff,including interest and late charges totaling approximately $101,000, during March 2006.Residential home loans comprised 85.3% of the $2.4 million non-accrual balanceat March 31, 2006. These loans have been underwritten according to ourresidential lending policies and are well secured by real estate collateral,and in many instances, private mortgage insurance or government guarantees. Wehave historically incurred minimal losses on mortgage loans based uponcollateral values and underlying insurance or guarantees. We are aggressivelypursuing collection activity of these loans which should enable the collectionof 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 400 basispoints since the June 30, 2004 meeting. Even though there are numerousindications of emerging strength, it is not certain that this strength issustainable. We believe that we use the best information available to determinethe allowance for losses on loans, unforeseen market conditions could result inadjustment to the allowance for losses on loans. In addition, net earningscould be significantly affected if circumstances differ substantially from theassumptions used in establishing the allowance for losses on loans.

 

*Liability Distribution*. Total deposits increased $123.0 million to $454.3 million at March 31,2006, from $331.3 million at December 31, 2005. The amount of depositsacquired in the January 1, 2006 FMB acquisition approximated $106.8million. Borrowings increased $12.0 million to $97.2 million at March 31,2006, from $85.3 million at December 31, 2005, resulting from borrowings utilizedto fund the FMB acquisition along with $5 million of FHLB advances acquired inthe FMB acquisition.

 

Non-interest bearing demand accounts at March 31,2006, were $50.3 million, or 11.1% of deposits, compared to $38.4 million, or 11.6%of deposits, at December 31, 2005. Certificates of deposit increased to $232.4million at March 31, 2006, from $163.1 million at December 31, 2005. Moneymarket and NOW demand accounts increased to $140.3 million at March 31,2006, from $103.7 million at December 31, 2005, and were 30.9% of totaldeposits. Savings accounts increased to $31.2 million at March 31, 2006,from $26.1 million at December 31, 2005.

 

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Certificates of deposit at March 31, 2006,which were scheduled to mature in one year or less, totaled $165.6 million. Historically,maturing deposits have generally remained with our bank and we believe that asignificant portion of the deposits maturing in one year or less will remainwith us upon maturity.

 

*Contractual Obligations 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 March 31, 2006, for the periodsindicated.

 
| **Contractual Cash Obligations** | ** ** | **Total**  | ** **  | **One Year  or Less** | ** ** | **One to  Three Years** | ** ** | **Four to  Five Years** | ** ** | **More than  Five Years** | ** ** |
|----------------------------------|------------|------------|-------------|-----------------------|------------|-------------------------|------------|-------------------------|------------|---------------------------|------------|
| Operating leases                 |       | $          | 238,813     |                  | $          | 64,884                  |       | $                       | 127,368    |                      | $          | 46,561 |   | $ | — |   |
| Service  contracts               |       | 6,195,000  |        | 1,260,000             |       | 2,520,000               |       | 2,415,000               |       | —                    |       |
| FHLB borrowings                  |       | 67,665,844 |        | 5,000,000             |       | 24,000,000              |       | 32,998,125              |       | 5,667,719                 |       |
| Other borrowings                 |       | 29,568,800 |        | 4,672,800             |       | 8,400,000               |       | —                  |       | 16,496,000                |       |
| Total  contractualobligations    |       | $          | 103,668,457 |                  | $          | 10,997,684              |       | $                       | 35,047,368 |                      | $          | 35,459,686 |   | $ | 22,163,719 |   |

 

*Liquidity*. Ourmost liquid assets are cash and cash equivalents and investment securitiesavailable for sale. The levels of these assets are dependent on the operating,financing, lending and investing activities during any given period. Theseliquid assets totaled $163.1 million at March 31, 2006, and $161.6 millionat December 31, 2005. During periods in which we are not able to originatea sufficient amount of loans and/or periods of high principal prepayments, weincrease our liquid assets by investing in short-term U. S. Government andagency securities or high-grade municipal securities.

 

Liquidity management is both a daily and long-termfunction of our strategy. Excess funds are generally invested in short-terminvestments. In the event we require funds beyond our ability to generate theminternally, additional funds are generally available through the use of FederalHome Loan Bank advances, a line of credit with the Federal Home Loan Bank orthrough sales of securities. At March 31, 2006, we had outstanding FederalHome Loan Bank advances of $67.7 million and no borrowings against our line ofcredit with the Federal Home Loan Bank. At March 31, 2006, our totalborrowing capacity with the Federal Home Loan Bank was $134.0 million. We alsohad other borrowings of $29.6 million at March 31, 2006, which included $16.5million of subordinated debentures, $8.4 million of long-term debt and $4.7million in repurchase agreements.

 

At March 31, 2006, we had outstanding loancommitments, excluding standby letters of credit, of $67.4 million. Weanticipate that sufficient funds will be available to meet current loancommitments. These commitments consist of letters of credit, unfunded lines ofcredit and commitments to finance real estate loans.

 

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*Capital*. TheFederal Reserve Board has established capital requirements for bank holdingcompanies which generally parallel the capital requirements for national banksunder the Office of the Comptroller of the Currency regulations. Theregulations provide that such standards will generally 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 March 31,2006, we continued to maintain a sound leverage ratio of 7.77% and a total riskbased capital ratio of 12.00%. As shown by the following table, our capitalexceeded the minimum capital requirements at March 31, 2006 (dollars inthousands):

 
| **Company**               | ** ** | **Actual Amount** | ** ** | **Actual Percent** | ** ** | **Required  Percent** | ** ** | **Required  Amount** | ** ** |
|---------------------------|------------|-------------------|------------|--------------------|------------|-----------------------|------------|----------------------|------------|
| Leverage                  |       | $                 | 45,083     |               | 7.77       | %                     | 4.0        | %                    | $          | 23,203 |   |
| Tier 1 Capital            |       | $                 | 45,083     |               | 11.00      | %                     | 4.0        | %                    | $          | 16,387 |   |
| Total Risk Based  Capital |       | $                 | 49,173     |               | 12.00      | %                     | 8.0        | %                    | $          | 32,774 |   |

 

At March 31, 2006, LandmarkNational Bank continued to maintain a sound leverage ratio of 8.86% and a totalrisk based capital ratio of 13.58%. As shown by the following table, the bank’scapital exceeded the minimum capital requirements at March 31, 2006 (dollarsin thousands):

 
| **Landmark National Bank** | ** ** | **Actual Amount** | ** ** | **Actual Percent** | ** ** | **Required  Percent** | ** ** | **Required  Amount** | ** ** |
|----------------------------|------------|-------------------|------------|--------------------|------------|-----------------------|------------|----------------------|------------|
| Leverage                   |       | $                 | 51,444     |               | 8.86       | %                     | 4.0        | %                    | $          | 23,219 |   |
| Tier 1 Capital             |       | $                 | 51,444     |               | 12.58      | %                     | 4.0        | %                    | $          | 16,352 |   |
| Total Risk Based  Capital  |       | $                 | 55,535     |               | 13.58      | %                     | 8.0        | %                    | $          | 32,705 |   |

 

Banks and bank holding companies are generallyexpected to operate at or above the minimum capital requirements. The aboveratios are well in excess of regulatory minimums and should allow us to operatewithout capital adequacy concerns. The Federal Deposit Insurance CorporationImprovement Act of 1991 establishes a bank rating system based on the capitallevels of banks. As of March 31, 2006, we were rated “well capitalized”,which is the highest rating available under this capital-based rating system.

 

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**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**

 

*Quantitative and 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 marketsaffect our decision on pricing our assets and liabilities which impacts netinterest income, a significant cash flow source for us. As a result, asubstantial portion of our risk management activities relates to managinginterest rate risk.

 

Our Asset/Liability Management Committee monitorsthe interest rate sensitivity of our balance sheet using earnings simulationmodels and interest sensitivity gap analysis. We have set policy limits ofinterest rate risk to be assumed in the normal course of business and monitorsuch limits through our simulation process.

 

We have been successful in meeting the interest ratesensitivity objectives set forth in our policy. Simulation models are preparedto determine the impact on net interest income for the coming twelve months,including one using rates at March 31, 2006, and forecasting volumes forthe twelve-month projection. This position is then subjected to a shift ininterest rates of 100 and 200 basis points rising and falling with an impact toour net interest income on a one year horizon as follows:

 
| **Scenario**             | ** ** | **$ Change in Net Interest Income** | ** ** | **% of Net Interest Income** | ** ** |
|--------------------------|------------|------------------------------------------|------------|------------------------------|------------|
| 100 basis point  rising  |       | $                                        | 568,000    |                         | 3.2        | % |
| 200 basis point  rising  |       | 1,123,000                                |       | 6.3                          | %          |
| 100 basis point  falling |       | (823,000                                 | )          | (4.6                         | )%         |
| 200 basis point  falling |       | (1,449,000                               | )          | (8.2                         | )%         |
|                          |            |                                          |            |                              |            |  |

 

We believe that no significant changes in ourinterest rate sensitivity position have occurred since March 31, 2006. Wealso believe we are appropriately positioned for future interest ratemovements, although we may experience some fluctuations in net interestincome due to short-term timing differences between the repricing of assets andliabilities.

 

*Safe Harbor Statement under the Private Securities Litigation Reform Actof 1995 - Forward-Looking Statements*. Thisdocument contains, and future oral and written statements of the Company andits management may contain, forward-looking statements, within the meaningof such term in the Private Securities Litigation Reform Act of 1995, withrespect to the financial condition, results of operations, plans, objectives,future performance and business of the Company. Forward-looking statements,which may be based upon beliefs, expectations and assumptions of theCompany’s management and on information currently available to management, aregenerally identifiable by the use of words such as “believe,” “expect,” “anticipate,”“plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” orother similar expressions. Additionally, all statements in this document,including forward-looking statements, speak only as of the

 

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date they are made, and the Company undertakes noobligation to update any statement in light of new information or futureevents.

 

TheCompany’s ability to predict results or the actual effect of future plans orstrategies is inherently uncertain. The factors which could have a materialadverse effect on the operations and future prospects of the Company and itssubsidiaries are detailed in the “Risk Factors” section included underItem 1A. of Part I of our Form 10-K. In addition to the risk factorsdescribed in that section, there are other factors that may impact anypublic company, including ours, which could have a material adverse effect onthe operations and future prospects of the Company and its subsidiaries. Theserisks and uncertainties should be considered in evaluating forward-lookingstatements and undue reliance should not be placed on such statements.

 

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**ITEM 4. CONTROLS AND PROCEDURES**

 

An evaluation was performed under the supervisionand with the participation of our management, including the Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgatedunder the Securities and Exchange Act of 1934, as amended) as of March 31,2006. Based on that evaluation, our management, including the Chief ExecutiveOfficer and Chief Financial Officer, concluded that our disclosure controls andprocedures were effective. There were no changes in our internal controlover financial reporting that occurred during the quarter ended March 31,2006, that have materially affected, or are reasonably likely to materiallyaffect our internal control over financial reporting.

 

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**LANDMARK BANCORP, INC. ANDSUBSIDIARY**

**PART II – OTHERINFORMATION**

 

**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 1A.****                                           ****RISK FACTORS**

 

There have been nomaterial changes in the risk factors applicable to the Company from thosedisclosed in Part I, Item 1A. “Risk Factors,” in the Company’s 2005Annual Report on Form 10-K. Please refer to that section of theCompany’s Form 10-K for disclosures regarding the risks and uncertaintiesrelated to the Company’s business.

 

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

 

None

 

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES.**

 

None

 

**ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.**

 

None

 

**ITEM 5. OTHER INFORMATION.**

 

None

 

**ITEM 6. EXHIBITS**

 

Exhibits

 

Exhibit 31.1                                    Certificate of Chief Executive OfficerPursuant to Rule 13a-14(a)/15d-14(a)

 

Exhibit 31.2                                    Certificate of Chief Financial OfficerPursuant to 

 

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Rule 13a-14(a)/15d-14(a)

 

Exhibit 32.1                                    Certification of Chief Executive OfficerPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906of the Sarbanes-Oxley Act of 2002

 

Exhibit 32.2                                    Certification of Chief Financial OfficerPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906of the Sarbanes-Oxley Act of 2002

 

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**SIGNATURES**

 

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

 
|                    | LANDMARK BANCORP, INC.           |
|-------------------------|---------------------------------------|
|                    |                                  |
|                    |                                  |
| Date: May 12, 2006 | /s/ Patrick L. Alexander              |   |
|                    | Patrick L. Alexander                  |
|                    | President and Chief Executive Officer |
|                    |                                  |
|                    |                                  |
| Date: May 12, 2006 | /s/ Mark A. Herpich                   |   |
|                    | Mark A. Herpich                       |
|                    | Vice President, Secretary, Treasurer  |
|                    | and Chief Financial Officer           |

 

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