**UNITED STATES**

**SECURITIES 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, 2003**                                                                                                                                                                          |
|       |   |                                                                                                                                                                                                                        |
|       |   | **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  of incorporation or organization) |   | (I.R.S. Employer  Identification Number) |
|                                                             |   |   |
| **800 Poyntz Avenue, Manhattan,  Kansas**                        |   | **66502** |
| (Address of  principal executive offices)                        |   | (Zip Code) |
|                                                             |   |   |
| **(785) 565-2000**                                               |
| (Registrant’s  telephone number, including area code)       |

 

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

 

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

 

Indicate thenumber of shares outstanding of each of the Registrant’s classes of commonstock as of the latest practicable date: As of May 8, 2003, the Registrant had outstanding 1,993,549 shares of itscommon 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.                   | Changes in 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 and Reports on Form 8-K |
|                      |   |
| Form 10-Q Signature  Page |

 

1

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**LANDMARK BANCORP, INC. AND SUBSIDIARY**

**CONDENSED CONSOLIDATED****BALANCESHEETS**

 
|                                                                                                                         |   | **March 31,  2003** |        | **December 31,  2002** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-------------|------------------------|------------|
|                                                                                                                         |   | **(Unaudited)**     |        |                   | ** ** |
| **ASSETS**                                                                                                                   |   |                |        |                   |       |
| Cash and cash equivalents                                                                                                    |   | $                   | 7,193,794   |                   | $          | 11,448,684 |   |
| Investment securities  available for sale                                                                                    |   | 90,988,907          |        | 89,296,337             |       |
| Loans, net                                                                                                                   |   | 218,611,860         |        | 224,061,263            |       |
| Loans held for sale                                                                                                          |   | 4,663,995           |        | 5,050,603              |       |
| Premises and equipment, net                                                                                                  |   | 3,765,181           |        | 3,755,048              |       |
| Goodwill                                                                                                                     |   | 1,971,178           |        | 1,971,178              |       |
| Other intangible assets                                                                                                      |   | 1,102,900           |        | 1,131,584              |       |
| Other assets                                                                                                                 |   | 4,307,122           |        | 4,599,483              |       |
|                                                                                                                         |   |                |        |                   |       |
| Total assets                                                                                                                 |   | $                   | 332,604,937 |                   | $          | 341,314,180 |   |
|                                                                                                                         |   |                |        |                   |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                |   |                |        |                   |       |
| Liabilities:                                                                                                                 |   |                |        |                   |       |
| Deposits                                                                                                                     |   | $                   | 258,839,242 |                   | $          | 264,280,870 |   |
| Other borrowings                                                                                                             |   | 25,575,548          |        | 26,203,121             |       |
| Accrued expenses, taxes and  other liabilities                                                                               |   | 6,896,859           |        | 9,756,414              |       |
| Total liabilities                                                                                                            |   | 291,311,649         |        | 300,240,405            |       |
|                                                                                                                         |   |                |        |                   |       |
| Stockholders’ equity:                                                                                                   |   |                |        |                   |       |
| Common stock, $0.01 par,  3,000,000 shares authorized, 2,176,421 and 2,157,865 shares issued at 2003  and 2002, respectively |   | 21,764              |        | 21,578                 |       |
| Additional paid in capital                                                                                                   |   | 18,528,957          |        | 18,269,582             |       |
| Retained earnings                                                                                                            |   | 25,296,213          |        | 24,295,211             |       |
| Accumulated other  comprehensive income                                                                                      |   | 1,688,956           |        | 1,898,970              |       |
| Treasury stock, at cost;  182,872 and 148,031 shares, respectively                                                           |   | (4,097,395          | )           | (3,266,359             | )          |
| Unearned employee benefits                                                                                                   |   | (145,207            | )           | (145,207               | )          |
| Total stockholders’ equity                                                                                              |   | 41,293,288          |        | 41,073,775             |       |
|                                                                                                                         |   |                |        |                   |       |
| Total liabilities and  stockholders’ equity                                                                             |   | $                   | 332,604,937 |                   | $          | 341,314,180 |   |

 

*See accompanying notes to condensed consolidated financialstatements.*

 

2

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**LANDMARK BANCORP, INC. AND SUBSIDIARY**

# **CONDENSED CONSOLIDAT**ED STATEMENTS OF EARNINGS

**(Unaudited)**

** **
|                                                |   | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------|--------|----------------------------------|------------|
|                                                |   | **2003**                         |       | **2002** | ** ** |
| Interest income:                                    |   |                             |       |   |   |
| Loans                                               |   | $                                | 3,819,834  |   | $ | 4,340,348 |   |
| Investment securities                               |   | 806,387                          |       | 645,479 |   |
| Other                                               |   | 8,944                            |       | 56,569 |   |
| Total interest income                               |   | 4,635,165                        |       | 5,042,396 |   |
|                                                |   |                             |       |   |   |
| Interest expense:                                   |   |                             |       |   |   |
| Deposits                                            |   | 1,248,897                        |       | 1,733,196 |   |
| Borrowed funds                                      |   | 300,521                          |       | 343,836 |   |
| Total interest expense                              |   | 1,549,418                        |       | 2,077,032 |   |
|                                                |   |                             |       |   |   |
| Net interest income                                 |   | 3,085,747                        |       | 2,965,364 |   |
|                                                |   |                             |       |   |   |
| Provision for loan losses                           |   | 60,000                           |       | 33,500 |   |
|                                                |   |                             |       |   |   |
| Net interest income after provision for loan losses |   | 3,025,747                        |       | 2,931,864 |   |
|                                                |   |                             |       |   |   |
| Non-interest income:                                |   |                             |       |   |   |
| Fees and service charges                            |   | 611,997                          |       | 399,791 |   |
| Gains on sale of loans                              |   | 634,507                          |       | 250,155 |   |
| Gains on sale of investments                        |   | 25,682                           |       | 25,800 |   |
| Other                                               |   | 69,042                           |       | 55,139 |   |
| Total non-interest income                           |   | 1,341,228                        |       | 730,885 |   |
|                                                |   |                             |       |   |   |
| Non-interest expense:                               |   |                             |       |   |   |
| Compensation and benefits                           |   | 1,213,100                        |       | 1,211,954 |   |
| Occupancy and equipment                             |   | 312,377                          |       | 286,389 |   |
| Professional fees                                   |   | 122,779                          |       | 51,670 |   |
| Amortization                                        |   | 111,319                          |       | 89,976 |   |
| Data processing                                     |   | 80,079                           |       | 83,429 |   |
| Other                                               |   | 513,536                          |       | 493,035 |   |
| Total non-interest expense                          |   | 2,353,190                        |       | 2,216,453 |   |
|                                                |   |                             |       |   |   |
| Earnings before income taxes                        |   | 2,013,785                        |       | 1,446,296 |   |
|                                                |   |                             |       |   |   |
| Income tax expense                                  |   | 690,252                          |       | 487,956 |   |
|                                                |   |                             |       |   |   |
| Net earnings                                        |   | $                                | 1,323,533  |   | $ | 958,340 |   |
|                                                |   |                             |       |   |   |
| Earnings per share:                                 |   |                             |       |   |   |
| Basic                                               |   | $                                | 0.67       |   | $ | 0.44 |   |
| Diluted                                             |   | $                                | 0.66       |   | $ | 0.43 |   |
|                                                |   |                             |       |   |   |
| Dividends per share                                 |   | $                                | 0.16       |   | $ | 0.1428 |   |

 

*See accompanying notes to condensed consolidated financialstatements.*

 

3

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**LANDMARK BANCORP, INC. AND SUBSIDIARY**

**CONDENSED CONSO****LIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
|                                                                           |   | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                                           |   | **2003**                         |       | **2002** | ** ** |
|                                                                           |   |                             |       |   |   |
| Net cash (used in) provided by operating activities                            |   | $                                | (481,971   | ) | $ | 3,734,832 |   |
|                                                                           |   |                             |       |   |   |
| INVESTING ACTIVITIES                                                           |   |                             |       |   |   |
| Net decrease in loans                                                          |   | 5,384,675                        |       | 6,221,865 |   |
| Maturities and prepayments of investments available  for sale                  |   | 9,400,731                        |       | 6,730,767 |   |
| Purchase of investment securities available for sale                           |   | (11,743,301                      | )          | (17,990,512 | ) |
| Proceeds from sale of investment securities available  for sale                |   | 58,000                           |       | 75,800 |   |
| Payments received and proceeds from sale of foreclosed  assets                 |   | 179,120                          |       | 172,893 |   |
| Improvements to real estate owned                                              |   | —                           |       | (1,016 | ) |
| Purchases of premises and equipment, net                                       |   | (121,605                         | )          | (142,828 | ) |
| Net cash provided by (used in) investing activities                            |   | 3,157,620                        |       | (4,933,031 | ) |
|                                                                           |   |                             |       |   |   |
| FINANCING ACTIVITIES                                                           |   |                             |       |   |   |
| Net decrease in deposits                                                       |   | (5,441,628                       | )          | (8,944,459 | ) |
| Federal Home Loan Bank and other borrowings                                    |   | 14,950,000                       |       | — |   |
| Federal Home Loan Bank repayments                                              |   | (15,544,906                      | )          | (71,428 | ) |
| Purchase of 34,841 and 94,733 shares of treasury stock                         |   | (831,036                         | )          | (1,962,513 | ) |
| Issuance of 18,556 and 30,854 shares of common stock  under stock option plans |   | 259,561                          |       | 324,410 |   |
| Payment of dividends                                                           |   | (322,530                         | )          | (316,442 | ) |
| Net cash used in financing activities                                          |   | (6,930,539                       | )          | (10,970,432 | ) |
| Net decrease in cash                                                           |   | (4,254,890                       | )          | (12,168,631 | ) |
| Cash at beginning of period                                                    |   | 11,448,684                       |       | 22,163,258 |   |
| Cash at end of period                                                          |   | $                                | 7,193,794  |   | $ | 9,994,627 |   |
|                                                                           |   |                             |       |   |   |
| Supplemental disclosure of cash flow information:                              |   |                             |       |   |   |
| Cash paid during period for interest                                           |   | $                                | 1,557,000  |   | $ | 2,143,000 |   |
| Cash paid during period for taxes                                              |   | $                                | 825,000    |   | $ | 175,000 |   |
|                                                                           |   |                             |       |   |   |
| Supplemental schedule of non-cash investing  activities:                       |   |                             |       |   |   |
| Transfer of loans to real estate owned                                         |   | $                                | 26,000     |   | $ | 68,000 |   |

 

*See accompanying notes to condensed consolidated financialstatements.*

 

4

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**LANDMARK BANCORP, INC. AND SUBSIDIARY**

**Notes to Condens****ed Consolidated Financial Statements**

 

**1.             InterimFinancial Statements**

 

The condensedconsolidated financial statements of Landmark Bancorp, Inc. (the “Company”) andsubsidiary have been prepared in accordance with the instructions to Form10-Q.  To the extent that informationand footnotes required by accounting principles generally accepted in theUnited States of America for complete financial statements are contained in orconsistent with the consolidated audited financial statements incorporated byreference in the Company’s Form 10-K for the year ended December 31, 2002, suchinformation and footnotes have not been duplicated herein.  In the opinion of management, alladjustments, consisting of normal recurring accruals, considered necessary fora fair presentation of financial statements have been reflected herein.  The December 31, 2002, condensedconsolidated balance sheet has been derived from the audited consolidatedbalance sheet as of that date.  Theresults of the interim period ended March 31, 2003, are not necessarily indicativeof the results expected for the year ending December 31, 2003.

 

**2.             EarningsPer Share**

 

Basic earnings per sharehave been computed based upon the weighted average number of common sharesoutstanding during each period.  Dilutedearnings per share include the effect of all potential common sharesoutstanding during each period. Earnings and dividends per share for all periods presented have beenadjusted to give effect to the 5% stock dividends paid by the Company inDecember 2002.

 

The shares used in thecalculation of basic and diluted income per share are shown below:

 
|                                                |   | **Three  Months Ended March 31,** | ** ** |
|-----------------------------------------------------|--------|-----------------------------------|------------|
|                                                |   | **2003**                          |       | **2002** | ** ** |
| Weighted  average common shares outstanding (basic) |   | 1,987,404                         |       | 2,146,301 |   |
| Dilutive  stock options                             |   | 31,979                            |       | 70,750 |   |
| Weighted  average common shares (diluted)           |   | 2,019,383                         |       | 2,217,051 |   |

 

5

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**3.             ComprehensiveIncome**

 

The Company’s onlycomponent of other comprehensive income is the unrealized holding gains onavailable for sale securities.

 
|                                                                 |   | **Three  Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                 |   | **2003**                          |       | **2002** | ** ** |
| Net  earnings                                                        |   | $                                 | 1,323,533  |   | $ | 958,340 |   |
|                                                                 |   |                              |       |   |   |   |
| Unrealized  holding (losses) gains                                   |   |                              | (313,050   | ) | 167,284 |   |
| Less  reclassification adjustment for gains included in net earnings |   | 25,682                            |       | 25,800 |   |
| Net  unrealized (losses) gains on securities                         |   | (338,732                          | )          | 141,484 |   |
| Income  tax (benefit) expense                                        |   | (128,718                          | )          | 53,764 |   |
| Total  comprehensive income                                          |   | $                                 | 1,113,519  |   | $ | 1,046,060 |   |

 

6

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**LANDMARKBANCORP, INC. AND SUBSIDIARY**

**MANAGEMENT’S DISCUSSION****ANDANALYSIS**

**OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

 

*General.*  Landmark Bancorp, Inc. is a one-bank holdingcompany incorporated under the laws of the State of Delaware and is engaged inthe banking business through its wholly-owned subsidiary, Landmark NationalBank.  Landmark Bancorp is listed on theNasdaq Stock Market National Market System (symbol “LARK”).  Landmark National Bank is dedicated toproviding quality financial and banking services to its local communities andcontinues to originate commercial real estate and non real estate loans, smallbusiness loans, residential mortgage loans, consumer loans, and home equityloans.

 

Our results of operationsdepend primarily on net interest income, which is the difference betweeninterest income from interest-earning assets and interest expense oninterest-bearing liabilities.  Ouroperations are also affected by non-interest income, such as service charges,loan fees and gains and losses from the sale of newly originated loans andinvestments.  Our principal operatingexpenses, aside from interest expense, consist of compensation and employeebenefits, occupancy costs, federal deposit insurance costs, data processingexpenses and provision for loan losses.

 

Our accounting principlesand the methods of applying these principles conform with accounting principlesgenerally accepted in the United States and with general practices within thebanking industry.  Critical accounting policiesrelate to loans and related earnings, investment securities and incometaxes.  A description of these policies,which significantly affect the determination of our financial position, resultsof operations and cash flows, are summarized in Note 2, Summary of SignificantAccounting Policies in the Notes included in our Annual Report on Form 10-K forthe year ended December 31, 2002.

 

*Summary of Results*.   Netearnings for the three months ended March 31, 2003, increased $365,000, or38.1%, to $1.3 million as compared to the three months ended March 31,2002.  This improvement in net earningswas generally attributable to increased fees and service charges, increasedgains on sale of loans and an improvement in our net interest margin.

 

The three monthsended March 31, 2003, resulted in diluted earnings per share of $0.66 comparedto $0.43 for the same period in 2002. Return on average assets for the three months ended March 31, 2003, was1.61% compared to 1.12% for the same period in 2002.  Return on average stockholders’ equity was 12.91% for the threemonths ended March 31, 2003, compared to 9.64% for the same period in 2002.

 

We continued ourstock repurchase program during the first quarter of 2003, resulting in therepurchase of an additional 34,841 shares. As of March 31, 2003, we held 182,872 shares as treasury stock at anaverage cost per share of $22.41.

 

The followingtable summarizes net income and key performance measures for the two periodspresented.

 

7

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|                         |   | **Three  Months Ended March 31,** | ** ** |
|------------------------------|--------|-----------------------------------|------------|
|                         |   | **2003**                          |       | **2002** | ** ** |
| Net  earnings                |   | $                                 | 1,323,533  |   | $ | 958,340 |   |
| Basic  earnings per share    |   | $                                 | 0.67       |   | $ | 0.44 |   |
| Diluted  earnings per share  |   | $                                 | 0.66       |   | $ | 0.43 |   |
| Earnings  ratios:            |   |                              |       |   |   |
| Return  on average assets(1) |   | 1.61                              | %          | 1.12 | % |
| Return  on average equity(1) |   | 12.91                             | %          | 9.64 | % |
| Dividend  payout ratio       |   | 24.24                             | %          | 33.21 | % |
| Net  interest margin(1)      |   | 3.97                              | %          | 3.63 | % |

 

----

(1) The ratio has beenannualized and is not necessarily indicative of the results for the entireyear.

 

*Interest Income.*  Interest income for the three months endedMarch 31, 2003, decreased $407,000, or 8.1%, to $4.6 million from $5.0 millionfor the three months ended March 31, 2002. This decrease was primarily related to the decrease in rates as ourinterest earning assets repriced during 2002 and the first quarter of2003.  Average loans for the quarterended March 31, 2003, were lower at $227.0 million, compared to $236.8 millionfor the quarter ended March 31, 2002. The decline was primarily the result of refinancings and paydowns in ourresidential mortgage portfolio. Offsetting the decline attributable to lower loans outstanding was anincrease in average investment securities from $70.6 million for the quarterended March 31, 2002, to $89.3 million for the quarter ended March 31, 2003.

 

*Interest Expense*.  Interest expense during the three monthsended March 31, 2003, decreased $528,000, or 25.4%, as compared to the sameperiod of 2002.  For the three monthsended March 31, 2003, interest expense on deposits decreased $484,000, or27.9%, and interest expense on borrowings, consisting primarily of advancesfrom the Federal Home Loan Bank of Topeka, decreased $43,000, or 12.6%, duringthis time period.  This decrease ininterest expense resulted primarily from the decline in interest rates.  Reduced borrowings from the Federal HomeLoan Bank precipitated the reduced interest expense on borrowings.

 

*Net Interest Income.* Net interest income increased to $3.1million, a 4.1% increase, for the three months ended March 31, 2003, comparedto $3.0 million for the three months ended March 31, 2002.  Average earning assets during the firstthree months of 2003 totaled $315.4 million, versus $324.4 million during thefirst three months of 2002.  The netinterest margin for the three months ended March 31, 2003,  was 3.97%, up from 3.63% for the threemonths ended March 31, 2002.  Thisincrease resulted primarily from interest rates on our interest-bearingliabilities which repriced downward at a more rapid pace than our interest-earningassets.

 

*Provision for Loan Losses.*  The provision for loan losses for the threemonths ended March 31, 2003, was $60,000, compared to a provision of $33,500during the three months ended March 31, 2002. Our continuous review of the loan portfolio prompted an increase in ourprovision, primarily as a result of increased commercial loan balances and somedeterioration in the consumer loan portfolio

 

8

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asset quality as a result of poor economic conditions.  At March 31, 2003, and December 31, 2002,the allowance for loan losses was $2.6 million, or 1.2% and 1.1%, respectively,of gross loans outstanding.

 

*Non-interestIncome.*  Non-interestincome increased $610,000, or 83.5%, for the three months ended March 31, 2003,to $1.3 million from $731,000 for the three months ended March 31, 2002.  The increase in non-interest incomereflected increased fees and service charges from $400,000 for the three monthsended March 31, 2002, to $612,000 for the three months ended March 31, 2003,relating primarily to a pricing enhancement of our fee-based services andproduct offerings during 2002.  Alsocontributing to the increase in non-interest income was an improvement of153.6% in gains on sale of loans from $250,000 for the three months ended March31, 2002, to $635,000 for the three months ended March 31, 2003, as residentialmortgage financing activity increased due to the low home mortgage rates.  Mortgage refinancing activity is expected todiminish during 2003 as many mortgage holders have already taken advantage ofthe low interest rates favorable for mortgage loan refinancing.

 
|                           |   | **Three  Months Ended March 31,** |      |
|--------------------------------|--------|-----------------------------------|-----------|
|                           |   | **2003**                          |      | **2002** |   |
| Non-interest income:           |   |                              |      |   |   |
| Fees and service  charges      |   | $                                 | 611,997   |   | $ | 399,791 |   |
| Gains on sales  of loans       |   | 634,507                           |      | 250,155 |   |
| Gains on sales  of investments |   | 25,682                            |      | 25,800 |   |
| Other                          |   | 69,042                            |      | 55,139 |   |
| Total  non-interest income     |   | $                                 | 1,341,228 |   | $ | 730,885 |   |

 

*Non-interestExpense.*  Non-interestexpense increased $137,000, or 6.2%, to $2.4 million for the three months endedMarch 31, 2003, compared to the same period in 2002.  The increase was primarily related to an increase of $71,000 inprofessional fees, a $26,000 increase in occupancy and equipment expense and anincrease of $21,000 in amortization for the three months ended March 31, 2003,compared to the three months ended March 31, 2002.  The increase in occupancy and equipment expense was primarilyrelated to the depreciation of our enhanced computer system while amortizationexpense increased as prepayment speeds on our mortgage servicing portfolio haveaccelerated.

 
|                      |   | **Three Months Ended March 31,** |      |
|---------------------------|--------|----------------------------------|-----------|
|                      |   | **2003**                         |      | **2002** |   |
| Non-interest expense:     |   |                             |      |   |   |
| Compensation and benefits |   | $                                | 1,213,100 |   | $ | 1,211,954 |   |
| Occupancy and equipment   |   | 312,377                          |      | 286,389 |   |
| Professional fees         |   | 122,779                          |      | 51,670 |   |
| Amortization              |   | 111,319                          |      | 89,976 |   |
| Data processing           |   | 80,079                           |      | 83,429 |   |
| Other                     |   | 513,536                          |      | 493,035 |   |
| Total noninterest expense |   | $                                | 2,353,190 |   | $ | 2,216,453 |   |

 

9

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*IncomeTax Expense*.  Incometax expense increased $202,000, or 41.5%, from $488,000 for the three monthsended March 31, 2002, to $690,000 for the three months ended March 31,2003.  This increase in income taxexpense resulted primarily from an increase in taxable income.  The effective tax rate for the first quarterof 2003 was 34.3% compared to 33.7% for the first quarter of 2002.

 

*AssetQuality and Distribution.* Total assets declined to $332.6 million at March 31, 2003, compared to$341.3 million at December 31, 2002. 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, economicconditions, competition, and the restructuring of the financial servicesindustry.

 

Net loans, excluding loans held for sale, decreased$5.4 million during the three months ended March 31, 2003.  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 evidencedby our one-to-four family residential real estate loans comprising 44.7% oftotal loans as of December 31, 2002, and 42.9% of total loans as of  March 31, 2003.

 

Our primary investing activities are the originationof mortgage, consumer, and commercial loans and the purchase of investment andmortgage-backed securities.  Generally,we originate long- term fixed-rate residential mortgage loans for immediatesale in the secondary market and do not originate and warehouse those loans forresale in order 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 the small number and amount of loanspast due one month or more.  As of March31, 2003, loans with a balance of $1.0 million were on non-accrual status, or0.44% of total loans, compared to a balance of $925,000 loans on non-accrualstatus, or 0.40% of total loans, as of December 31, 2002.  In addition, the ratio of non-performingassets as a percentage of total assets decreased from 0.41% as of December 31,2002, to 0.38% as of March 31, 2003.

 

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Residential home loans comprised 30.5% of the $1.0million non-accrual balance at March 31, 2003. We have historically incurred minimal losses on mortgage loans basedupon collateral values.  We have notexperienced significant asset quality deterioration relating to the commercialloan portfolio as a result of the poor economic conditions.  We have seen some deterioration, however, inthe consumer loan portfolio asset quality.

 

We have a concern for the outlook of the economyduring 2003.  A slowdown in economicactivity beginning in 2001 severely impacted several major industries as wellas the economy as a whole.  Even thoughthere are numerous indications of emerging strength, it is not certain thatthis strength is sustainable.  Inaddition, consumer confidence may be negatively impacted by the recentsubstantial decline in prices in the equity markets.  These events could adversely affect cash flows for bothcommercial and individual borrowers, as a result of which, we could experienceincreases in problem assets, delinquencies and losses on loans.  Many financial institutions have experiencedan increase in non-performing assets during this difficult economic period, aseven well-established business borrowers have developed cash flow,profitability and other business related problems.  We believe that the allowance for losses on loans at March 31,2003, was adequate.  While we believethat we use the best information available to determine the allowance forlosses on loans, unforeseen market conditions could result in adjustment to theallowance for losses on loans.  Inaddition, net earnings could be significantly affected if circumstances differsubstantially from the assumptions used in establishing the allowance forlosses on loans.

 

*LiabilityDistribution.*  Total depositsdecreased $5.4 million to $258.8 million at March 31, 2003, from $264.3 millionat December 31, 2002.  Borrowingsdecreased $628,000 to $25.6 million at March 31, 2003, from $26.2 million atDecember 31, 2002.

 

Non-interest bearing demand accounts at March 31,2003, were $20.8 million, or 8.0% of deposits, compared to $23.4 million, or8.9% of deposits,  at December 31,2002.  Money market and NOW demandaccounts decreased to $77.7 million at March 31, 2003, from $78.4 million atDecember 31, 2002, and were 30.0% of total deposits while savings accountsincreased to $15.4 million from $15.0 million during the same period.  Certificates of deposit decreased to $144.9million at March 31, 2003, from $147.4 million at December 31, 2002.  The reduction of certificate of deposit andmoney market accounts is reflective of our excess liquidity position in that wewere not bidding aggressively on public deposits during the past three months.

 

Certificates of deposit at March 31, 2003, which werescheduled to mature in one year or less, totaled $86.3 million.  Historically, maturing deposits havegenerally remained with our bank and we believe that a significant portion ofthe deposits maturing in one year or less will remain with us upon maturity.

 

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*Contractual Obligations and Commercial Commitments.* The following table presents our contractual obligations, defined asoperating lease obligations and principal payments due on non-depositobligations with maturities in excess of one year as of March 31, 2003, for theperiods indicated.

 
| **Contractual Cash  Obligations** |   | **Total**  |       | **One Year  and Less** |   | **One to  Three Years** |   | **Four to  Five Years** |       | **More than  Five Years** |   |
|-----------------------------------|--------|------------|------------|------------------------|--------|-------------------------|--------|-------------------------|------------|---------------------------|--------|
|                              |   |       |       |                   |   |                    |   |                    |       |                      |   |
| Operating leases                  |   | $          | 211,248    |                   | $      | 121,357                 |   | $                       | 89,891     |                      | $      | — |   | $ | — |   |
| FHLB advances                     |   | 25,325,548 |       | 2,240,868              |   | 11,500,000              |   | 500,000                 |       | 11,084,680                |   |
| Repurchase  Agreements            |   | 250,000    |       | 250,000                |   | —                  |   | —                  |       | —                    |   |
|                              |   |       |       |                   |   |                    |   |                    |       |                      |   |
| Total  contractual obligations    |   | $          | 25,786,796 |                   | $      | 2,612,225               |   | $                       | 11,589,891 |                      | $      | 500,000 |   | $ | 11,084,680 |   |

 

*Liquidity.*  Our most liquid assets are cash and cashequivalents and investment securities available for sale.  The level of these assets is dependent onthe operating, financing, lending and investing activities during any given period.  These liquid assets totaled $98.2 million atMarch 31, 2003, and $100.7 million at December 31, 2002.  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 the management strategy. Excess funds are generally invested in short-term investments.  In the event we require funds beyond ourability to generate them internally, additional funds are generally availablethrough the use of Federal Home Loan Bank advances, a line of credit with theFederal Home Loan Bank or through sales of securities.  At March 31, 2003, we had outstandingFederal Home Loan Bank advances of $25.3 million and had no borrowingsoutstanding on our line of credit with the Federal Home Loan Bank.  At March 31, 2003, our total borrowingcapacity with the Federal Home Loan Bank was $69.9 million.

 

At March 31, 2003, we had outstanding loan commitmentsof $37.3 million.  We anticipate thatsufficient funds will be available to meet current loan commitments.  These commitments consist of letters ofcredit, unfunded lines of credit and commitments to finance real estate loans.

 

*Capital.*  The 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 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.

 

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At March 31, 2003, wecontinued to maintain a sound leverage ratio of 11.2% and a total risk basedcapital ratio of 18.0%.  As shown by thefollowing table, our capital exceeded the minimum capital requirements at March31, 2003 (dollars in thousands):

 

|                      |   | **Actual  Amount** |   | **Actual  Percent** |   | **Required  Percent** |   | **Required  Amount** |   |
|---------------------------|--------|--------------------|--------|---------------------|--------|-----------------------|--------|----------------------|--------|
| Leverage                  |   | $                  | 36,938 |                | 11.2   | %                     | 4.0    | %                    | $      | 13,209 |   |
| Tier 1 Capital            |   | $                  | 36,938 |                | 16.8   | %                     | 4.0    | %                    | $      | 8,778 |   |
| Total Risk Based  Capital |   | $                  | 39,537 |                | 18.0   | %                     | 8.0    | %                    | $      | 17,556 |   |

 

At March 31, 2003, ourbank continued to maintain a sound leverage ratio of 10.4% and a total riskbased capital ratio of 16.8%.  As shownby the following table, our bank’s capital exceeded the minimum capital requirementsat March 31, 2003 (dollars in thousands):

 

|                      |   | **Actual  Amount** |   | **Actual  Percent** |   | **Required  Percent** |   | **Required  Amount** |   |
|---------------------------|--------|--------------------|--------|---------------------|--------|-----------------------|--------|----------------------|--------|
| Leverage                  |   | $                  | 34,001 |                | 10.4   | %                     | 4.0    | %                    | $      | 13,032 |   |
| Tier 1 Capital            |   | $                  | 34,001 |                | 15.6   | %                     | 4.0    | %                    | $      | 8,721 |   |
| Total Risk Based  Capital |   | $                  | 36,600 |                | 16.8   | %                     | 8.0    | %                    | $      | 17,442 |   |

 

Banks and bank holdingcompanies are generally expected to operate at or above the minimum capitalrequirements.  The above ratios are wellin excess of regulatory minimums and should allow us to operate without capitaladequacy concerns.  The Federal DepositInsurance Corporation Improvement Act of 1991 establishes a bank rating systembased on the capital levels of banks. As of March 31, 2003, we were rated “well capitalized”, which is thehighest rating available under this capital-based rating system.

 

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**LANDMARK BANCORP, INC. AND SUSIDIARY**

**QUANTITATIVE AND QUALITATIV****EDISCLOSURES**

**ABOUT MARKET RISK**

 

 

*Quantitative and QualitativeDisclosures About Market Risk*.  Our assets and liabilities are principally financial in natureand the resulting net interest income thereon is subject to changes in marketinterest rates and the mix of various assets and liabilities.  Interest rates in the financial marketsaffect our decision on pricing our assets and liabilities which impacts netinterest income, a significant cash flow source for us.  As a result, a substantial portion of ourrisk management activities relates to managing interest rate risk.

 

Our Asset/LiabilityManagement Committee monitors the interest rate sensitivity of our balancesheet using earnings simulation models and interest sensitivity gapanalysis.  We have set policy limits ofinterest rate risk to be assumed in the normal course of business and monitorsuch limits through our simulation process.

 

We have been successfulin meeting the interest rate sensitivity objectives set forth in ourpolicy.  Simulation models are preparedto determine the impact on net interest income for the coming twelve months,including one using rates at December 31, 2002, and forecasting volumes for thetwelve-month projection.  This positionis then subjected to a shift in interest rates of 100 and 200 basis pointsrising and 100 basis points falling with an impact to our net interest incomeon a one year horizon as follows:

 

| **Scenario**             |   | **$ change in net interest income  of** |    | **% of net  interest income** |   |
|--------------------------|--------|-----------------------------------------|---------|-------------------------------|--------|
| 100 basis point  rising  |   | $                                       | 270,000 |                          | 2.2    | % |
| 200 basis point  rising  |   | 503,000                                 |    | 4.1                           | %      |
| 100 basis point  falling |   | (393,000                                | )       | (3.2                          | )%     |
|                          |        |                                         |         |                               |        |  |

 

We believe that nosignificant changes in our interest rate sensitivity position have occurredsince December 31, 2002.  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 document (includinginformation incorporated by reference) contains, and future oral and writtenstatements of the Company and its management may contain, forward-lookingstatements, within the meaning of such term in the Private SecuritiesLitigation Reform Act of 1995, with respect to the financial condition, resultsof operations, plans, objectives, future performance and business of theCompany.  Forward-looking statements,which may be based upon beliefs, expectations and assumptions of the Company’smanagement and on information currently available to management, are generallyidentifiable by the use of words such as “believe,” “expect,” “anticipate,”“plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” orother similar expressions. Additionally, all statements in this document, including forward-lookingstatements, speak only as of the date they are made, and the Company undertakesno obligation to update any statement in light of new information or futureevents.

 

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

 

•                                         Thestrength of the United States economy in general and the strength of the localeconomies in which we conduct our operations which may be less favorable thanexpected and may result in, among other things, a deterioration in the creditquality and value of our assets.

 

•                                         Theeconomic impact of past and future terrorist attacks, acts of war or threatsthereof,   and the response of theUnited States to any such threats and attacks.

 

•                                         Theeffects of, and changes in, federal, state and local laws, regulations andpolicies affecting banking, securities, insurance and monetary and financialmatters.

 

•                                         Theeffects of changes in interest rates (including the effects of changes in therate of prepayments our assets) and the policies of the Board of Governors ofthe Federal Reserve System.

 

•                                         Ourability to compete with other financial institutions as effectively as wecurrently intend due to increases in competitive pressures in the financialservices sector.

 

•                                         Ourinability to obtain new customers and to retain existing customers.

 

•                                         Thetimely development and acceptance of products and services, including productsand services offered through alternative delivery channels such as theInternet.

 

•                                         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.

 

•                                         Ourability to develop and maintain secure and reliable electronic systems.

 

•                                         Ourability to retain key executives and employees and the difficulty that we mayexperience in 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.

 

•                                         Thecosts, effects and outcomes of existing or future litigation.

 

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

 

•                                         Ourability to manage the risks associated with the foregoing as well asanticipated.

 

These risks and uncertainties should be considered inevaluating forward-looking statements and undue reliance should not be placedon 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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## **LANDMARKBANCORP, INC. AND SUBSIDIARY**

**CONTROLSAND PROCEDURES**

 

*Controls and Procedures.*Based upon an evaluation within the 90 days prior to the filing date of thisreport, the Company’s Chief Executive Officer and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures areeffective.  There have been nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect the Company’s internal controls subsequent to thedate of the evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 

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** **

**LANDMARKBANCORP, INC. AND SUBSIDIARY**

**PARTII**

 

ITEM 1.                                                     LEGALPROCEEDINGS.

 

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

 

 

ITEM 2.                                                     CHANGESIN SECURITIES AND USE OF PROCEEDS.

 

None

 

 

ITEM 3.                                                     DEFAULTSUPON SENIOR SECURITIES.

 

None

 

 

ITEM 4.                                                     SUBMISSIONOF MATTERS TO VOTE OF SECURITY HOLDERS.

 

None

 

 

ITEM 5.                                                     OTHERINFORMATION.

 

None

 

 

ITEM 6.                                                     EXHIBITSAND REPORTS ON FORM 8-K.

 

A.                                   Exhibits

 

Exhibit 99.1            Certificateof Chief Executive Officer

Exhibit 99.2            Certificate of Chief FinancialOfficer

 

B.                                     Reportson Form 8-K

 

A report on Form 8-K wasfiled on April 30, 2003, to report pursuant to Item 12 that the Company hadissued a press release announcing earnings for the three months ended March 31,2003, and the declaration of a cash dividend to stockholders.

 

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A report on Form 8-K wasfiled on February 4, 2003, to report under Item 5 that the Company had issued apress release announcing earnings for the three months ended and year endedDecember 31, 2002, and the declaration of a cash dividend to stockholders.

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                     | LANDMARK BANCORP, INC.                 |
|--------------------------|----------------------------------------|
|                     |                                   |
|                     |                                   |
| Date:  May 15, 2003 | /s/ Patrick L.  Alexander              |   |
|                     | Patrick L. Alexander                   |
|                     | President and Chief  Executive Officer |
|                     |                                   |
|                     |                                   |
|                     |                                   |
| Date:  May 15, 2003 | /s/ Mark A. Herpich                    |   |
|                     | Mark A. Herpich                        |
|                     | Vice President,  Secretary, Treasurer  |
|                     | and Chief Financial  Officer           |

 

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**CERTIFICATIONPURSUANT TO**

**SECTION302 OF THE SARBANES-OXLEY ACT OF 2002**

 

I, Patrick L. Alexander,Chief Executive Officer of the Company, certify that:

 

1.             I have reviewed this quarterly report on Form 10-Q ofLandmark Bancorp, Inc.;

 

2.             Based on my knowledge, this quarterly report does notcontain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3.             Based on my knowledge, the financial statements, andother financial information included in the Report, fairly present in allmaterial respects the financial condition, results of operations and cash flowsof the registrant as of, and for, the period presented in this quarterlyreport;

 

4.             The registrant’s other certifying officers and I areresponsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and wehave:

 

(a)           designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

(b)           evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

(c)           presented in this quarterly reportour conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.             The registrant’s other certifying officers and I havedisclosed, based on our most recent evaluation, to the registrant’s auditorsand the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

(a)           all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant’s ability to record, process, summarize and report financial dataand have identified for the registrant’s auditors any material weaknesses ininternal controls; and

 

(b)           any fraud, whether or not material,that involves management or other employees who have significant role in theregistrant’s internal controls; and

 

6.             The registrant’s other certifying officers and I haveindicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to date of their evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

 
| Date:    May  15, 2003 |   | /s/                     | Patrick L. Alexander |   |
|--------------------------------------------|--------|-------------------------|----------------------|--------|
|                                       |   | Patrick L. Alexander    |
|                                       |   | Chief Executive Officer |

 

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**CERTIFICATIONPURSUANT TO**

**SECTION302 OF THE SARBANES-OXLEY ACT OF 2002**

 

I, Mark A. Herpich, ChiefFinancial Officer of the Company, certify that:

 

1.             I have reviewed this quarterly report on Form 10-Q ofLandmark Bancorp, Inc.;

 

2.             Based on my knowledge, this quarterly report does notcontain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3.             Based on my knowledge, thefinancial statements, and other financial information included in the Report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodpresented in this quarterly report;

 

4.             The registrant’s other certifying officers and I are responsiblefor establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

(a)           designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

(b)           evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

(c)             presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.             The registrant’s other certifying officers and I havedisclosed, based on our most recent evaluation, to the registrant’s auditorsand the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

(a)           allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b)           anyfraud, whether or not material, that involves management or other employees whohave significant role in the registrant’s internal controls; and

 

6.             The registrant’s other certifyingofficers and I have indicated in this quarterly report whether or not therewere significant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to date of their evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

 
| Date:    May  15, 2003 |   | /s/                     | Mark A. Herpich |   |
|--------------------------------------------|--------|-------------------------|-----------------|--------|
|                                       |   | Mark A. Herpich         |
|                                       |   | Chief Financial Officer |

 

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