Recent Developments. Recent events in the U.S. and global financial markets, including the deterioration of the worldwide credit markets, have created significant challenges for financial institutions such as us. Dramatic declines in the housing market during the past year, marked by falling home prices and increasing levels of mortgage foreclosures, have resulted in significant write-downs of asset values by many financial institutions, including government-sponsored entities and major commercial and investment banks. In addition, many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions, as a result of concern about the stability of the financial markets and the strength of counterparties.

In response to the crises affecting the U.S. banking system and financial markets and in an attempt to bolster the distressed economy and improve consumer confidence in the financial system, on October 3, 2008, the U.S. Congress passed, and the President signed into law, the Emergency Economic Stabilization Act of 2008 (the "Stabilization Act"). The Stabilization Act authorizes the Secretary of the U.S. Treasury and the Federal Deposit Insurance Corporation (the "FDIC") to implement various temporary emergency programs designed to strengthen the capital positions of financial institutions and stimulate the availability of credit within the U.S. financial system. Pursuant to the Stabilization Act, the U.S. Treasury will have the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On October 14, 2008, the U.S. Treasury announced that it will purchase equity stakes in eligible financial institutions that wish to participate. This program, known as the Capital Purchase Program, allocates $250 billion from the $700 billion authorized by the Stabilization Act to the U.S. Treasury for the purchase of senior preferred shares from qualifying financial institutions. Eligible institutions will be able to sell equity interests to the U.S. Treasury in amounts equal to between 1% and 3% of the institution's risk-weighted assets. In conjunction with the purchase of preferred stock, the U.S. Treasury will receive warrants to purchase common stock from the participating institutions with an aggregate market price equal to 15% of the preferred investment. Participating financial institutions will be required to adopt the U.S. Treasury's standards for executive compensation and corporate governance for the period during which the U.S. Treasury holds equity issued under the Capital Purchase Program. Many financial institutions have already announced that they will participate in the Capital Purchase Program. While we believe that we have sufficient capital to support continued growth, we are considering whether or not to participate in the Capital Purchase Program.

Also on October 14, 2008, using the systemic risk exception to the FDIC Improvement Act of 1991, the U.S. Treasury authorized the FDIC to provide a 100% guarantee of newly-issued senior unsecured debt and deposits in non-interest bearing accounts at FDIC insured institutions. Initially, all eligible financial institutions will automatically be covered under this program, known as the Temporary Liquidity Guarantee Program, without incurring any fees for a period of 30 days. Coverage under the Temporary Liquidity Guarantee Program after the initial 30-day period is available to insured financial institutions at a cost of 75 basis points per annum for senior unsecured debt and 10 basis points per annum for non-interest bearing deposits. After the initial 30-day period, institutions will continue to be covered under the Temporary Liquidity Guarantee Program unless they inform the FDIC that they have decided to opt out of the program. We are assessing participation in the Temporary Liquidity Guarantee Program and anticipate that we will participate in the insurance program covering the non-interest bearing deposits but not participate in the program to guarantee unsecured senior debt.

Under the Troubled Asset Auction Program, another initiative based on the authority granted by the Stabilization Act, the U.S. Treasury, through a newly-created Office of Financial Stability, will purchase certain troubled mortgage-related assets from financial institutions in a reverse-auction format. Troubled assets eligible for purchase by the Office of Financial Stability include residential and commercial mortgages originated on or before March 14, 2008, securities or obligations that are based on such mortgages, and any other financial instrument that the Secretary of the U.S. Treasury determines, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, is necessary to promote financial market stability. The U.S. Treasury has not issued any definitive guidance regarding this program and the Company's management has not determined whether or not it will participate.

Under the Stabilization Act, the U.S. Treasury is also required to establish a program that will guarantee principal of, and interest on, troubled assets originated or issued prior to March 14, 2008, including mortgage-backed securities. The program may take any form and may vary by asset class, but it must be voluntary and self-funding. The U.S. Treasury has the authority to set premiums to reflect the credit risk characteristics of the insured assets. The U.S. Treasury has solicited requests for comments on how the program should be structured but no program has been implemented to date. The

Stabilization Act also temporarily increases the amount of insurance coverage of deposit accounts held at FDIC-insured depository institutions, including Landmark National Bank, from $100,000 to $250,000. The increased coverage is effective during the period from October 3, 2008 until December 31, 2009.

It is not clear at this time what impact the Stabilization Act, the Capital Purchase Program, the Temporary Liquidity Guarantee Program, the Troubled Asset Auction Program, other liquidity and funding initiatives of the Federal Reserve and other agencies that have been previously announced, and any additional programs that may be initiated in the future will have on our future financial condition and results of operations.

The preceding is a summary of recently enacted laws and regulations that could materially impact our results of operations or financial condition. This discussion is qualified in its entirety by reference to such laws and regulations and should be read in conjunction with "Supervision and Regulation" discussion contained in the Company's 2007 Form 10-K.

Overview. Landmark Bancorp, Inc. is a bank holding company incorporated under the laws of the State of Delaware and is engaged in the banking business through its wholly-owned subsidiary, Landmark National Bank. Landmark Bancorp is listed on the NASDAQ Global Market under the symbol "LARK". Landmark National Bank is dedicated to providing quality financial and banking services to its local communities. Landmark National Bank originates commercial, commercial real estate, one-to-four family residential mortgage loans, consumer loans, multi-family residential mortgage loans and home equity loans.

Our results of operations depend primarily on net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Net interest income is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, we are subject to interest rate risk to the degree that our interest-earning assets mature or reprice at different times, or at different speeds, than our interest-bearing liabilities. Our results of operations are also affected by non-interest income, such as service charges, loan fees and gains and losses from the sale of newly originated loans and investments. Our principal operating expenses, aside from interest expense, consist of compensation and employee benefits, occupancy costs, data processing expenses and provision for loan losses.

We are significantly impacted by prevailing national and local economic conditions, including federal monetary and fiscal policies and federal regulations of financial institutions. Deposit balances are influenced by numerous factors such as competing personal investments, the level of personal income and the personal rate of savings within our market areas. Factors influencing lending activities include the demand for housing and commercial loans as well as the interest rate pricing competition from other lending institutions.

Critical Accounting Policies. Critical accounting policies are those which are both most important to the portrayal of our financial condition and results of operations, and require our management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to the allowance for loan losses, the valuation of investment securities and accounting for income taxes, all of which involve significant judgment by our management.

We perform periodic and systematic detailed reviews of our lending portfolio to assess overall collectability. The level of the allowance for loan losses reflects our estimate of the collectability of the loan portfolio as of each reporting date. While these estimates are based on substantive methods for determining allowance requirements, nevertheless, actual outcomes may differ significantly from estimated results. Additional explanation of the methodologies used in establishing this reserve is provided in the "Asset Quality and Distribution" section.

We report our investment securities at estimated fair values based primarily on observable market inputs, which are primarily obtained from independent sources. Occasionally we perform our own analysis, which may include discounted cash flows, to support the fair values for investment securities in which observable market inputs are not available. We also perform periodic reviews of the fair value of investment securities to determine if any declines in value might be considered other than temporary. Our most recent review showed that all of our securities, except one common stock investment, that had experienced decreases in fair value, resulting in unrealized loss positions, were related to changes in interest rates and not to a credit deterioration. We determined that one common stock investment had experienced an other than temporary impairment and recorded a write down for that impairment. We have the ability and intent to hold these securities until market values recover, including up to the maturity date. Although we believe that our estimates of the fair values of investment securities to be reasonable, economic and market factors may affect the amounts that will ultimately be realized from these investments.

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Under FIN 48, an income tax position will be recognized if it is more likely than not that it will be sustained upon IRS examination, based upon its technical merits. Once that status is met, the amount recorded will be the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Changes in estimates regarding the actual outcome of these future tax consequences, including the effects of IRS examinations and examinations by other state agencies, could materially impact our financial position and results of operations.

Summary of Results. During the third quarter of 2008 our net earnings totaled $1.2 million as compared to $1.4 million in the same period of 2007, which was a $288,000 decrease in net earnings. This decrease was primarily attributable to a $430,000 increase in our provision for loan losses. We increased our provision for loan losses to $500,000 for the third quarter of 2008 based on our analysis of our loan portfolio and the elevated environmental risk factors associated with the deteriorating market conditions experienced during the third quarter of 2008. Our net interest margin remained at 3.47% during the third quarter of 2008.

During the first nine months of 2008 we experienced a $243,000 decrease in net earnings as compared to the first nine months of 2007. The decrease in earnings was primarily attributable to a $1.2 million increase in our provision for loan losses. Partially offsetting the higher provision for loan losses were increases in our non-interest income. During the first nine months of 2008 we recorded gains of $497,000 on sales of investment securities and a $246,000 gain recognized on the prepayment of a $10 million FHLB advance, as well as a $397,000 increase in gains on sales of loans during the first nine months of 2008 as compared to the same period of 2007. Our net interest margin declined from 3.52% during the first nine months of 2007 to 3.48% during the same period of 2008.

This decline in net interest margin was primarily the result of competitive deposit pricing pressures not allowing us to decrease our costs of deposits in line with our decrease in variable loan rates during 2008 as the Federal Reserve Bank continued to decrease the federal funds target rate. Our variable rates on commercial and commercial real estate loans are generally tied to the prime rate, which moves with the federal funds target rate. Our certificate of deposits and money market rates are typically priced off of our alternative funding sources as well as competitors' rates, which typically do not decline as fast or as far as the federal funds target rate. Those characteristics generally lead to a decline in our net interest margin in a declining rate environment, which occurred during the first nine months of 2008.

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

                                     Three months ended September 30,          Nine months ended September 30,
                                        2008                 2007                 2008                 2007
Net earnings:
Net earnings                      $       1,150,025    $       1,437,566    $       3,792,946    $       4,035,789
Basic earnings per share          $            0.51    $            0.59    $            1.65    $            1.65
Diluted earnings per share        $            0.51    $            0.59    $            1.65    $            1.64
Earnings ratios:
Return on average assets (1)                   0.75 %               0.95 %               0.83 %               0.90 %
Return on average equity (1)                   9.11 %              11.53 %               9.96 %              10.85 %
Dividend payout ratio                         37.25 %              30.65 %              34.55 %              33.14 %
Net interest margin (1) (2)                    3.47 %               3.47 %               3.48 %               3.52 %

(2) Net interest margin is presented on a fully taxable equivalent basis, using a 34% federal tax rate.

Interest Income. Interest income for the three months ended September 30, 2008, decreased $1.3 million, or 14.6%, to $7.8 million from $9.1 million in the same period of 2007, resulting from decreased interest income on loans. Interest income on loans decreased $1.3 million, or 18.3%, to $6.0 million for the quarter ended September 30, 2008 due primarily to decreases in yields during the third quarter of 2008 as compared to the same of period of 2007. See the Rate\Volume Table at the end of this Item 2 for additional details. Average loans outstanding for the quarter ended September 30, 2008 decreased to $379.5 million from $386.5 million for the quarter ended September 30, 2007. Interest income on investment securities increased $12,000, or 0.7%, to $1.8 million for the third quarter of 2008, as compared to the same period of 2007. Average investment securities outstanding increased from $156.3 million for the quarter ended September 30, 2007, to $172.1 million for the quarter ended September 30, 2008. Offsetting the increase in average

investments outstanding for the comparable period was a lower yield on those investments as market rates declined during the third quarter of 2008 as compared to the same period of 2007.

Interest income for the nine months ended September 30, 2008, decreased $2.7 million, or 9.9%, to $24.2 million from $26.9 million in the same period of 2007, resulting from decreased interest income on loans. Interest income on loans decreased $2.9 million, or 13.2%, to $18.8 million for the nine months ended September 30, 2008 due primarily to decreases in yields during the first nine months of 2008 as compared to the same of period of 2007. See the Rate\Volume Table for additional details. Average loans for the nine months ended September 30, 2008 decreased to $380.1 million from $384.7 million for the nine months ended September 30, 2007. Interest income on investment securities increased $181,000, or 3.4%, to $5.5 million for the first nine months of 2008, as compared to the same period of 2007. Average investment securities outstanding increased from $156.6 million for the nine months ended September 30, 2007, to $170.8 million for the nine months ended September 30, 2008. Offsetting the increase in average investments outstanding for the comparable period was a lower yield on those investments as market rates declined during the first nine months of 2008 as compared to the same period of 2007.

Interest Expense. Interest expense during the three months ended September 30, 2008 decreased $1.4 million, or 29.9%, as compared to the same period of 2007. For the three months ended September 30, 2008, interest expense on interest-bearing deposits decreased $1.2 million, or 35.5%. Average interest-bearing deposits decreased from $399.7 million during the quarter ended September 30, 2007 to $388.2 million for the quarter ended September 30, 2008. The decrease in interest expense on interest-bearing deposits resulted from lower deposit balances and lower rates on those balances, primarily lower rates for our maturing certificates of deposit, and lower rates on money market and NOW accounts, as they repriced down, along with the federal funds target rates and other interest rates, throughout 2008. Average borrowings for the quarter ended September 30, 2008 increased to $111.6 million from $94.5 million for the quarter ended September 30, 2007, however interest expense on borrowings decreased $136,000, or 12.1%, to $984,000 for the three months ended September 30, 2008 as compared to the same period in 2007. The declining rates on our variable rate borrowings more than offset the higher average outstanding balances during the quarter.

Interest expense during the nine months ended September 30, 2008 decreased $2.7 million, or 20.0%, as compared to the same period of 2007. For the nine months ended September 30, 2008, interest expense on interest-bearing deposits decreased $2.1 million, or 21.0%. Average interest-bearing deposits decreased from $398.3 million during the nine months ended September 30, 2007 to $395.5 million for the nine months ended September 30, 2008. The decrease in interest expense on interest-bearing deposits resulted from lower rates on deposit balances, primarily lower rates for our maturing certificates of deposit, and lower rates on money market and NOW accounts, as they repriced down, along with the federal funds target rates and other interest rates, throughout the first nine months of 2008. Average borrowings for the nine months ended September 30, 2008 increased to $104.4 million from $95.8 million for the nine months ended September 30, 2007, however interest expense on borrowings decreased $582,000, or 17.3%, to $2.8 million for the nine months ended September 30, 2008 as compared to the same period in 2007. The declining rates on our variable rate borrowings more than offset the higher average balances during the first nine months of 2008.

Net Interest Income. Net interest income for the three months ended September 30, 2008 totaled $4.5 million, increasing $59,000, or 1.3%, as compared to the three months ended September 30, 2007. Average interest-earning assets increased during the third quarter of 2008 to $551.7 million from $542.8 million for the third quarter of 2007. Our net interest margin, on a tax equivalent basis, remained at 3.47% during the third quarters of both 2008 and 2007.

Net interest income for the nine months ended September 30, 2008, totaled $13.5 million, increasing $28,000, or 0.2%, as compared to the nine months ended September 30, 2007. Average interest-earning assets increased during the nine months of 2008 to $550.9 million from $541.2 million for the first nine months of 2007. Our net interest margin, on a tax equivalent basis, declined to 3.48% for the nine months ended September 30, 2008 from 3.52% for the same period in 2007.

Provision for Loan Losses. We maintain, and our board of directors monitors, an allowance for losses on loans. The allowance is established based upon management's periodic evaluation of known and inherent risks in the loan portfolio, review of significant individual loans and collateral, review of delinquent loans, past loss experience, adverse situations that may affect the borrowers' ability to repay, current market conditions, and other factors management deems important. Determining the appropriate level of reserves involves a high degree of management judgment and is based upon historical and projected losses in the loan portfolio and the collateral value of specifically identified impaired loans. Allowance policies are subject to periodic review and revision in response to a number of factors, including current market conditions, actual loss experience and management's expectations.

The provision for loan losses for the three months ended September 30, 2008 was $500,000, compared to a provision of $70,000 during the three months ended September 30, 2007. The provision for loan losses for the nine months ended September 30, 2008 was $1.4 million, compared to a provision of $195,000 during the nine months ended September 30, 2007. We increased our provision for loan losses by $1.2 million during 2008 due to the continuing difficult conditions in the credit markets and increased historical losses as a result of increased charge-offs, despite the fact that our levels of non-accrual and past due loans declined during 2008. While our markets experienced a general economic slowdown in late 2007, the economic decline accelerated during 2008. This was evidenced nationally by deteriorating U.S. economic indicators coupled with further declines in residential real estate prices, higher energy and food costs and ebbing consumer confidence. These risk factors were further exemplified by the Federal Open Market Committee reducing the fed funds target rate by 225 basis points during 2008 and through the use of the programs discussed previously.

One measure of the adequacy of the allowance for estimated losses on loans is the ratio of the allowance to the total loan portfolio. At September 30, 2008, the allowance for loan losses was $3.8 million, or 1.0% of gross loans outstanding, compared to $4.2 million, or 1.1% of gross loans outstanding at December 31, 2007. Our allowance for loan losses to gross loans ratio declined during the first nine months of 2008, despite the increase in our provision, because the $1.8 million in charge-offs were primarily related to impaired loans that had been previously identified by management. The charge-offs decreased gross loans and the allowance for loan losses, lowering the corresponding ratio. For further discussion of the allowance for loan losses, refer to the "Asset Quality and Distribution" section.

Non-interest Income. Non-interest income increased $165,000, or 10.5%, for the three months ended September 30, 2008, to $1.7 million, as compared to the three months ended September 30, 2007. The increase was primarily attributable to increases of $98,000 in gains on sale of loans and $45,000 in fees and service charges, as compared to the third quarter of 2007. The increased gains on sales of loans were driven by higher origination volumes of residential real estate loans that were sold in the secondary market, while the increases in fees and service charges were primarily related to deposits.

Non-interest income increased $1.4 million, or 31.2%, for the nine months ended September 30, 2008, to $5.8 million, as compared to the nine months ended September 30, 2007. The increase was primarily attributable to $497,000 of gains on sales of investments and a $246,000 gain on the prepayment of a FHLB advance along with increases of $397,000 in gains on sales of loans and $215,000 in fees and service charges, as compared to the first nine months of 2007. Market conditions during the second quarter of 2008 allowed us to sell longer term, higher yielding agency securities while purchasing shorter term, lower yielding mortgage-backed obligations at gains that were higher than the reductions in interest income as a result of the transactions. During 2008, we began a strategy of issuing longer-term, fixed rate FHLB advances and repaying shorter-term FHLB advances to lengthen our FHLB advance maturities while rates were believed to be at a relatively low point in the rate cycle. As a result of the prepayment of a $10 million advance, we were able to recognize a gain of $246,000, which represented the remaining fair value adjustment required by purchase accounting for a prior acquisition.

Non-interest Expense. Non-interest expense increased $150,000, or 3.6%, to $4.3 million for the three months ended September 30, 2008, as compared to the three months ended September 30, 2007. These increases were primarily driven by higher costs of compensation and a $30,000 other than temporary impairment charge recorded on a common stock investment in the third quarter of 2008, which is included in other non-interest expense.

Non-interest expense increased $387,000, or 3.1%, to $12.9 million for the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007. These increases were primarily driven by higher costs of compensation and benefits and a $70,000 valuation allowance related to the declines in the fair value of two foreclosed assets, which is included in other non-interest expense.

Income Tax Expense. Income tax expense decreased $67,000, or 18.3%, from $367,000 for the three months ended September 30, 2007, to $300,000 for the three months ended September 30, 2008. The effective tax rate for the third quarter of 2008 was 20.7% compared to 20.4% during the third quarter of 2007. The decrease in income taxes was primarily the result of lower taxable income.

Income tax expense increased $176,000, or 6.7%, from $1.1 million for the nine months ended September 30, 2007, to $1.2 million for the nine months ended . . .