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 from the sale of newly originated loans and gains or losses on 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, income taxes and business acquisitions, all of which involve significant judgment by our management.

Information about our critical accounting policies is included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2008. The only change in our critical accounting policies since December 31, 2008 is a result of the adoption of FSP No. FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other Than Temporary Impairments." Based on the guidance in the FSP, now if we deem a decline in the fair value of a debt security to be other than temporary, we lower the cost basis, through a charge to earnings, by the amount of credit losses inherent in the investment versus writing the security down to market value.

Summary of Results. During the first quarter of 2009, our net earnings declined by $57,000 to $1.0 million as compared to net earnings of $1.1 million in the same period of 2008. During the first quarter of 2009 we identified a $1.0 million investment in a pooled trust preferred security as other than temporarily impaired. The net credit-related impairment related to this security was approximately $327,000. Offsetting the loss was a reduction in our provision for loan losses by $300,000 for the first quarter of 2009 as compared to 2008 based on our analysis of our loan portfolio. Our increase in non-interest income was primarily attributable to a $519,000 increase in gains on sale of loans, which was driven by higher origination volumes of residential real estate loans that were sold in the secondary market. Results for the first quarter of 2008 included a $246,000 gain from the prepayment of a FHLB advance, which represented the remaining unamortized fair value adjustment recorded in purchase accounting. During the first quarter of 2009 we also experienced elevated levels of the non-interest expenses primarily related to compensation and benefits, costs associated with our Lawrence branch acquisition and increased foreclosure and other real estate expenses.

Our net interest margin was 3.47% during the first quarters of both 2009 and 2008. For each period, we were able to reduce our cost of deposits and borrowings to offset the lower yields earned on loans and investment securities in markets that experienced a dramatic decline in benchmark interest rates that began in late 2007 and continued throughout 2008. The lower cost of funding allowed us to maintain our net interest margin in markets that had considerable competitive pricing pressures. We expect these pricing pressures to continue during 2009, which may make maintaining or increasing our net interest margin difficult.

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

                                  Three months ended March 31,
(Dollars in thousands)              2009                2008

Net earnings:
Net earnings                   $         1,009     $         1,067
Basic earnings per share       $          0.43     $          0.43
Diluted earnings per share     $          0.42     $          0.43
Earnings ratios:
Return on average assets (1)              0.67 %              0.70 %
Return on average equity (1)              7.90 %              8.27 %
Dividend payout ratio                    45.24 %             42.22 %
Net interest margin (1) (2)               3.47 %              3.47 %

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

Interest Income. Interest income for the quarter ended March 31, 2009, decreased $1.6 million, or 18.7%, to $6.9 million from $8.5 million in the same period of 2008. Interest income on loans decreased $1.5 million, or 22.2%, to $5.2 million for the quarter ended March 31, 2009 due primarily to decreases in the yields earned on our loans as rates declined during 2008. Our tax equivalent yields earned on loans declined from 7.02% to 5.75% during the first quarters of 2008 to 2009. Average loans outstanding for the quarter ended March 31, 2009 decreased to $368.4 million from $381.4 million for 2008. Interest income on investment securities decreased $109,000, or 5.9%, to $1.7 million for the first quarter of 2009, as compared to 2008. Average investment securities outstanding increased from $166.8 million for the quarter ended March 31, 2008, to $182.0 million for 2009. Offsetting the increase in average investments outstanding for the comparable period were lower yields earned on the investments, which declined from 5.05% during the first quarter of 2008 to 4.50% during the first quarter of 2009. The higher levels of investments was the result of the increased liquidity from lower outstanding loan balances.

Interest Expense. Interest expense during the quarter ended March 31, 2009 decreased $1.5 million, or 37.6%, as compared to the same period of 2008. For the first quarter of 2009 interest expense on interest-bearing deposits decreased $1.5 million, or 47.5% as a result of lower rates on deposit balances, primarily lower rates for our maturing certificates of deposit and lower rates on money market and NOW accounts due to the decline in interest rates experienced during 2008. Our total cost of deposits declined from 3.13% during the first quarter of 2008 to 1.66% during the same period of 2009. For the first quarter of 2009 interest expense on borrowings decreased $32,000, or 3.6%, due primarily to lower rates on our outstanding borrowings. Our cost of borrowing declined from 3.70% in the first quarter of 2008 to 3.59% in the same period of 2009.

Net Interest Income. Net interest income for the quarter ended March 31, 2009 totaled $4.4 million, decreasing $70,000, or 1.6%, as compared to the three months ended March 31, 2008. Our net interest margin, on a tax equivalent basis, remained at 3.47% during the first quarters of both 2009 and 2008.

See the Rate\Volume Table at the end of Item 2 Management's Discussion and Analysis of Financial Condition for additional details on asset yields, liability rates and net interest margin.

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 and expected 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 problem loans. Additionally, allowance strategies and 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 quarter ended March 31, 2009 was $300,000, compared to a provision of $600,000 during the same period of 2008. While our provision for loan losses declined $300,000 during the first quarter of 2009 as compared to 2008, the provision remains elevated compared to historical levels due to the difficult conditions that continue to exist in the economy as well as increased levels of nonperforming loans in our portfolio. The higher provision for loan losses is based upon our analysis of our loan portfolio as well as distressed market conditions. The increased levels

of loan loss provision will likely continue in the current economic environment and the continued uncertainty regarding the length and severity of the recession we are currently experiencing. For further discussion of the allowance for loan losses, refer to the "Asset Quality and Distribution" section.

Non-interest Income. Non-interest income increased $241,000, or 13.3%, for the quarter ended March 31, 2009, to $2.1 million, as compared to the quarter ended March 31, 2008. The increase was primarily attributable to an increase of $519,000 in gains on sale of loans. 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. Offsetting the increased gains on sales of loans, was a $246,000 gain that was recognized in the first quarter of 2008 from the prepayment of a FHLB advance, which represented the remaining unamortized fair value adjustment required by purchase accounting.

Investment Securities Gains (Losses). During the first quarter of 2009 we identified a $1.0 million investment in a pooled trust preferred security as other than temporarily impaired. The net credit-related impairment loss on this security amounted to $327,000. See Note 3 on Investments in the accompanying consolidated financial statements for additional details.

Non-interest Expense. Non-interest expense increased $321,000, or 7.5%, to $4.6 million for the quarter ended March 31, 2009, as compared to the same period of 2008. These increases were primarily driven by increases of $205,000 in compensation and benefits, $103,000 in foreclosure and other real estate expenses and $61,000 in professional fees. The increase in compensation and benefits was driven by general salary increases as well as increased costs associated with commissions paid due to the higher residential real estate loan volumes. The increases in foreclosure and other real estate are the result of increased fees and expenses associated with foreclosure activity, higher other real estate balances and a $30,000 impairment of one other real estate property. The increases in professional fees are primarily associated with our Lawrence branch acquisition. There were also various increased costs associated with the higher levels of 1-4 family mortgage loan originations. Offsetting those increases was a $110,000 reduction in our occupancy and equipment costs.

Income Tax Expense. Income tax expense decreased $119,000, or 37.3%, from $321,000 for the quarter ended March 31, 2008, to $201,000 for the quarter ended March 31, 2009. The effective tax rate for the first quarter of 2009 was 16.6% compared to 23.1% during the first quarter of 2008. The decline in the effective tax rate was primarily driven by lower taxable income as a percentage of earnings before income taxes, while tax exempt income remained relatively constant between the periods.

Asset Quality and Distribution. Our primary investing activities are the origination of commercial, commercial real estate, mortgage and consumer loans and the purchase of investment securities. Total assets increased to $617.3 million at March 31, 2009, compared to $602.2 million at December 31, 2008. Net loans, excluding loans held for sale, decreased to $355.2 million at March 31, 2009 from $365.8 million at December 31, 2008. The reduction in our total loans is primarily the result of reducing our exposure to construction and commercial real estate loans in response to the current issues in real estate.

Loans consisted of the following:

                                                March 31,     December 31,
(Dollars in thousands)                             2009           2008
Real estate loans:
One-to-four family residential                  $  110,023   $      112,815
Commercial                                         121,506          126,977
Construction                                        16,730           19,618
Commercial loans                                   103,504          101,976
Consumer loans                                       7,674            7,937
Total                                              359,437          369,323

Less: Deferred loan fees and loans in process          (50 )           (320 )
Less: Allowance for loan losses                      4,307            3,871
Loans, net                                      $  355,180   $      365,772

Percent of total
Real estate loans:
One-to-four family residential                        30.6 %           30.5 %
Commercial                                            33.8 %           34.4 %
Construction                                           4.7 %            5.3 %
Commercial loans                                      28.8 %           27.6 %
Consumer loans                                         2.1 %            2.2 %
Total gross loans                                    100.0 %          100.0 %

The allowance for losses on loans is established through a provision for losses on loans based on our evaluation of the risk inherent in the loan portfolio and changes in the nature and volume of its loan activity. Such evaluation, which includes a review of all loans with respect to which full collectibility may not be reasonably assured, considers the fair value of the underlying collateral, economic conditions, historical loan loss experience, level of classified loans and other factors that warrant recognition in providing for an adequate allowance for losses on loans. We feel that higher levels of provisions for loan losses are required based upon our analysis of our loan portfolio as well as depressed market conditions. We feel the external risks within the environment which we operate remain present today and will need to be continuously monitored. We have identified the stresses in our loan portfolio and are working to reduce the risks of certain loan exposures, including significantly reducing our exposure to construction and land development loans. Although we believe that we use the best information available to determine the allowance for loan losses, unforeseen market conditions could result in adjustment to the allowance for loan losses. In addition, net earnings could be significantly affected if circumstances differ substantially from the assumptions used in establishing the allowance for loan losses.

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

(Dollars in thousands)         Three months ended March 31,
                                 2009                2008
Beginning balance           $         3,871     $         4,172
Provision for loan losses               300                 600
Charge-offs                             (82 )            (1,503 )
Recoveries                              218                  19
Ending balance              $         4,307     $         3,288

Loans past due more than a month totaled $13.2 million at March 31, 2009, compared to $9.4 million at December 31, 2008. At March 31, 2009, $11.0 million in loans were on non-accrual status, or 3.1% of net loans, compared to a balance of $5.7 million in loans on non-accrual status, or 1.6% of net loans, at December 31, 2008. There were no loans 90

days delinquent and still accruing interest at March 31, 2009 and December 31, 2008. The increase in non-accrual and impaired loans was primarily related to three construction and land loan relationships which were placed on non-accrual during the first quarter of 2009. As part of the Company's credit risk management, we continue to aggressively manage the loan portfolio to identify problem loans and have placed additional emphasis on its commercial real estate and construction relationships. During the quarter ended March 31, 2009 we had a net loan recovery of $137,000 compared to the $1.5 million of net loan charge-offs for the comparable period of 2008. The net loan recovery was primarily the result of a $200,000 deficiency settlement on previously charged-off construction loans which were foreclosed on during 2009 and are currently included in other real estate owned.

A summary of the non-performing assets is as follows:

                                                          March 31,    December 31,
(Dollars in thousands)                                      2009           2008
Total non-accrual loans                                  $    10,984   $       5,748
Accruing loans over 90 days past due                               -               -
Other real estate owned                                        2,390           1,934
Total nonperforming assets                               $    13,374   $       7,682

Total nonperforming loans to total loans, net                    3.1 %           1.6 %
Total nonperforming assets to total assets                       2.2 %           1.3 %
Allowance for loan losses to gross loans outstanding             1.2 %           1.0 %
Allowance for loan losses to total nonperforming loans          39.2 %          67.3 %

A summary of the impaired loans is as follows:

                                                       March 31,      December 31,
(Dollars in thousands)                                   2009             2008
Impaired loans for which an allowance has been
provided                                             $       7,081    $       1,867
Impaired loans for which no allowance has been
provided                                                     4,298            5,192
Total impaired loans                                        11,379            7,059
Allowance related to impaired loans                  $       1,679    $         705

Liability Distribution. Our primary ongoing sources of funds are deposits, proceeds from principal and interest payments on loans and investment securities and proceeds from the sale of mortgage loans. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, competition and the restructuring of the financial services industry. Total deposits increased $17.7 million to $457.2 million at March 31, 2009, from $439.5 million at December 31, 2008. The increase was related to seasonal fluctuations and increased retail deposits. Total borrowings decreased $5.5 million to $98.9 million at March 31, 2009, from $104.4 million at December 31, 2008. The decline was primarily from repaying outstanding borrowings on our FHLB line of credit.

Certificates of deposit at March 31, 2009, which were scheduled to mature in one year or less, totaled $170.0 million. Historically, maturing deposits have generally remained with our bank and we believe that a significant portion of the deposits maturing in one year or less will remain with us upon maturity.

Liquidity. Our most liquid assets are cash and cash equivalents and investment securities available for sale. The levels of these assets are dependent on the operating, financing, lending and investing activities during any given period. These liquid assets totaled $197.8 million at March 31, 2009 and $185.1 million at December 31, 2008. During periods in which we are not able to originate a sufficient amount of loans and/or periods of high principal prepayments, we increase our liquid assets by investing in short-term U. S. federal agency obligations, high-grade municipal securities or FDIC insured certificates of deposits with other financial institutions.

Liquidity management is both a daily and long-term function of our strategy. Excess funds are generally invested in short-term investments. In the event we require funds beyond our ability to generate them internally, additional funds are generally available through the use of FHLB advances, a line of credit with the FHLB, or other borrowings or through sales of securities. At March 31, 2009, we had outstanding FHLB advances of $71.2 million and no borrowings against our line of credit with the FHLB. At March 31, 2009, our total borrowing capacity with the FHLB was $121.9 million. At March

31, 2009, we had no borrowings through the Federal Reserve discount window, while our borrowing capacity was $15.9 million. We also have various other fed funds agreements, both secured and unsecured, with correspondent banks totaling approximately $67.0 million at March 31, 2009, which had no borrowings against at that time. We also had other borrowings of $27.7 million at March 31, 2009, which included $16.5 million of subordinated debentures, $5.6 million of long-term debt and $5.6 million in repurchase agreements.

As a provider of financial services, we routinely issue financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by us generally to guarantee the payment or performance obligation of a customer to a third party. While these standby letters of credit represent a potential outlay by us, a significant amount of the commitments may expire without being drawn upon. We have recourse against the customer for any amount the bank is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards and approval process as loans originated by us. Most of the standby letters of credit are secured, and in the event of nonperformance by the customer, we have the right to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The contract amount of these standby letters of credit, which represents the maximum potential future payments guaranteed by us, was $2.1 million at March 31, 2009.

At March 31, 2009, we had outstanding loan commitments, excluding standby letters of credit, of $67.3 million. We anticipate that sufficient funds will be available to meet current loan commitments. These commitments consist of unfunded lines of credit and commitments to finance real estate loans.

Capital. The Federal Reserve Board has established capital requirements for bank holding companies which generally parallel the capital requirements for national banks under the Office of the Comptroller of the Currency regulations. The regulations provide that such standards will generally be applied on a consolidated (rather than a bank-only) basis in the case of a bank holding company with more than $150 million in total consolidated assets. Banks and bank holding companies are generally expected to operate at or above the minimum capital requirements. Our ratios are well in excess of regulatory minimums and should allow us to operate without capital adequacy concerns.

At March 31, 2009, we continued to remain well capitalized, with a leverage ratio of 8.90% and a total risk based capital ratio of 14.08%. As shown by the following table, our capital exceeded the minimum capital requirements at March 31, 2009 (dollars in thousands):

                                                  For capital          To be well-
                                Actual         adequacy purposes       capitalized
Company                     Amount    Ratio     Amount       Ratio    Amount    Ratio
Leverage                   $ 53,142    8.90 % $    23,890      4.0 % $ 29,862     5.0 %
Tier 1 Capital             $ 53,142   13.03 % $    16,316      4.0 % $ 24,474     6.0 %
Total Risk Based Capital   $ 57,449   14.08 % $    32,632      8.0 % $ 40,791    10.0 %

At March 31, 2009, Landmark National Bank continued to remain well capitalized, with a leverage ratio of 9.62% and a total risk based capital ratio of 15.13%. As shown by the following table, the bank's capital exceeded the minimum capital requirements at March 31, 2009 (dollars in thousands):

                                                  For capital          To be well-
                                Actual         adequacy purposes       capitalized
Landmark National Bank      Amount    Ratio     Amount       Ratio    Amount    Ratio
Leverage                   $ 57,196    9.62 % $    23,793      4.0 % $ 29,741     5.0 %
Tier 1 Capital             $ 57,196   14.07 % $    16,256      4.0 % $ 24,384     6.0 %
Total Risk Based Capital   $ 61,503   15.13 % $    32,512      8.0 % $ 40,640    10.0 %

Average Assets/Liabilities. The following tables set forth information relating to average balances of interest-earning assets and liabilities for the three months ended March 31, 2009 and 2008. The following tables reflect the average . . .