Landmark Bancorp 10Q 2002 Q3 Quarterly report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 0-33203

LANDMARK BANCORP, INC.
(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date: As of November 8, 2002, the Registrant had outstanding 1,961,864 shares of its common stock, $.01 par value per share.

LANDMARK BANCORP, INC.
Form 10-Q Quarterly Report

Table of Contents

		Page Number
PART I
Item 1.	Financial Statements and Related Notes	2–8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	9–15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16–17
Item 4.	Controls and Procedures	18
PART II
Item 1.	Legal Proceedings	19
Item 2.	Changes in Securities	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
Item 5.	Other Information	19
Item 6.	Exhibits and Reports on Form 8-K	19
Form 10-Q Signature Page		20

LANDMARK BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

			September 30, 2002			December 31, 2001
ASSETS
Cash and cash equivalents			$	7,070,351		$	22,163,258
Investment securities available for sale				85,950,588			75,310,561
Loans, net				226,322,309			235,324,457
Loans held for sale				5,794,408			5,654,077
Premises and equipment, net				3,869,020			3,521,469
Goodwill				2,108,801			2,108,801
Other intangibles				1,151,564			1,268,913
Other assets				4,255,656			4,348,022

		Total assets	$	336,522,697		$	349,699,558

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
	Deposits		$	260,474,159		$	273,246,285
	Federal Home Loan Bank borrowings			27,349,061			28,697,063
	Accrued expenses, taxes and other liabilities			7,662,659			7,551,457

		Total liabilities		295,485,879			309,494,805

Stockholders' equity:
	Common stock, $.01 par, 3,000,000 shares authorized, 2,151,302 and 2,082,681 shares issued at 2002 and 2001, respectively			21,513			20,827
	Additional paid in capital			18,111,696			17,075,297
	Retained earnings			25,495,645			23,073,530
	Accumulated other comprehensive income			1,732,434			423,138
	Treasury stock, at cost; 191,001 and 2,306 shares, respectively			(4,142,090	)		(43,940	)
	Unearned employee benefits			(182,380	)		(344,099	)

		Total stockholders' equity		41,036,818			40,204,753

		Total liabilities and stockholders' equity	$	336,522,697		$	349,699,558

See accompanying notes to condensed consolidated financial statements.

LANDMARK BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

				Three Months Ended September 30,
				2002		2001
Interest income:
	Loans			$	4,155,734	$	2,977,585
	Investment securities				734,912		563,345
	Other				22,436		51,894

		Total interest income			4,913,082		3,592,824

Interest expense:
	Deposits				1,336,776		1,731,656
	Borrowed funds				331,523		301,742

		Total interest expense			1,668,299		2,033,398

		Net interest income			3,244,783		1,559,426
Provision for loan losses					50,000		15,000

		Net interest income after provision for loan losses			3,194,783		1,544,426

Non-interest income:
	Fees and service charges				592,232		88,368
	Gains on sale of loans				263,242		187,579
	Gains on sale of investments				1,500		500,540
	Other				60,129		76,359

		Total non-interest income			917,103		852,846

Non-interest expense:
	Compensation and benefits				1,213,977		795,827
	Occupancy and equipment				298,954		125,131
	Amortization				91,182		47,629
	Data processing				100,719		34,514
	Other				581,726		194,264

		Total non-interest expense			2,286,558		1,197,365

		Earnings before income taxes			1,825,328		1,199,907
Income tax expense					620,828		559,600

		Net earnings		$	1,204,500	$	640,307

Earnings per share:
			Basic	$	0.62	$	0.57

			Diluted	$	0.60	$	0.51

Dividends per share				$	0.15	$	0.1428

See accompanying notes to condensed consolidated financial statements.

LANDMARK BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

				Nine Months Ended September 30,
				2002		2001
Interest income:
	Loans			$	12,677,742	$	9,841,998
	Investment securities				2,145,295		1,958,167
	Other				88,442		153,382

		Total interest income			14,911,479		11,953,547

Interest expense:
	Deposits				4,510,228		5,665,036
	Borrowed funds				1,017,410		1,366,055

		Total interest expense			5,527,638		7,031,091

		Net interest income			9,383,841		4,922,456
Provision for loan losses					116,500		75,000

	Net interest income after provision for loan losses				9,267,341		4,847,456

Non-interest income:
	Fees and service charges				1,474,447		305,793
	Gains on sale of loans				748,725		444,740
	Gains on sale of investments				94,918		930,993
	Other				191,162		127,419

		Total non-interest income			2,509,252		1,808,945

Non-interest expense:
	Compensation and benefits				3,633,481		2,047,417
	Occupancy and equipment				867,452		397,349
	Amortization				264,442		151,516
	Data processing				256,155		113,279
	Other				1,688,650		552,316

		Total non-interest expense			6,710,180		3,261,877

		Earnings before income taxes			5,066,413		3,394,524
Income tax expense					1,724,071		1,370,250

		Net earnings		$	3,342,342	$	2,024,274

Earnings per share:
			Basic	$	1.68	$	1.82

			Diluted	$	1.63	$	1.68

Dividends per share				$	0.45	$	0.4284

See accompanying notes to condensed consolidated financial statements.

LANDMARK BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

			Nine Months Ended September 30,
			2002			2001
Net cash provided by (used in) operating activities			$	4,303,353		$	(9,643,847	)

INVESTING ACTIVITIES
	Net decrease in loans			8,627,902			19,461,273
	Maturities and prepayments of investments available for sale			17,450,137			4,895,749
	Purchase of investment securities available for sale			(27,323,554	)		—
	Proceeds from sale of investment securities available for sale			276,685			31,284,353
	Payments received and proceeds from sale of foreclosed assets			454,709			153,220
	Purchases of premises and equipment, net			(693,881	)		(40,036	)
	Other investing activity, net			(992	)		(40,652	)

		Net cash (used in) provided by investing activities		(1,208,994	)		55,713,907

FINANCING ACTIVITIES
	Net decrease in deposits			(12,772,126	)		(6,530,955	)
	Federal Home Loan Bank repayments, net			(1,348,002	)		(25,000,000	)
	Purchase of 188,695 and 10,539 shares of treasury stock			(4,098,150	)		(202,243	)
	Issuance of 68,621 and 20,039 shares of common stock under stock option plans			951,238			200,393
	Payment of dividends			(920,226	)		(473,043	)

		Net cash used in financing activities		(18,187,266	)		(32,005,848	)

	Net (decrease) increase in cash			(15,092,907	)		14,064,212
	Cash at beginning of period			22,163,258			5,936,637

	Cash at end of period		$	7,070,351		$	20,000,849

Supplemental disclosure of cash flow information:
	Cash paid during period for interest		$	5,572,000		$	6,730,891

	Cash paid during period for taxes		$	1,117,000		$	1,390,001

Supplemental schedule of noncash investing activities:
	Transfer of loans to real estate owned		$	319,000		$	545,972

	Loans securitized and transferred to investment securities		$	—		$	17,786,000

See accompanying notes to condensed consolidated financial statements.

LANDMARK BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Interim Financial Statements

The condensed consolidated financial statements of Landmark Bancorp, Inc. (the "Company") and subsidiary have been prepared in accordance with the instructions to Form 10-Q. To the extent that information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements are contained in or consistent with the consolidated audited financial statements incorporated by reference in the Company's Form 10-K for the year ended December 31, 2001, such information and footnotes have not been duplicated herein. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of financial statements have been reflected herein. The December 31, 2001, condensed consolidated balance sheet has been derived from the audited consolidated balance sheet as of that date. The results of the interim periods ended September 30, 2002, are not necessarily indicative of the results expected for the year ending December 31, 2002. The former Landmark Bancshares utilized a September 30 fiscal year. Landmark Bancorp has a December 31 fiscal year end and presented the results for the quarter ended December 31, 2001, on Form 10-K as a transition period. The results for the three months and nine months ended September 30, 2001, do not include MNB Bancshares' results.

2. Earnings Per Share

Basic earnings per share have been computed based upon the weighted average number of common shares outstanding during each period. Diluted earnings per share include the effect of all potential common shares outstanding during each period. Earnings and dividends per share for all periods presented have been adjusted to give effect to the 5% stock dividend paid by the Company in December 2001.

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

	Three Months Ended September 30,		Nine Months Ended September 30,
	2002	2001	2002	2001
Weighted average common shares outstanding (basic)	1,943,703	1,116,313	1,987,868	1,111,103
Dilutive stock options	49,592	142,948	58,875	91,758

Weighted average common shares (diluted)	1,993,295	1,259,261	2,046,743	1,202,861

3. Comprehensive Income

The Company's only component of other comprehensive income is the unrealized holding gains on available for sale securities.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2002		2001			2002		2001
Net income	$	1,204,500	$	640,307		$	3,342,342	$	2,024,274

Unrealized holding gains		616,256		362,980			2,206,685		1,968,426
Less — reclassification adjustment for gains included in net income		1,500		500,540			94,918		930,993

Net unrealized gains/(losses) on securities		614,756		(137,560	)		2,111,767		1,037,433

Income tax expense/(benefit)		233,607		(50,373	)		802,471		396,125

Total comprehensive income	$	1,585,649	$	553,120		$	4,651,638	$	2,665,582

4. Recent Accounting Developments

Effective October 1, 2001, we adopted certain provisions of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Tangible Assets", as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. Effective January 1, 2002, we adopted the remaining provisions of SFAS 142. SFAS 142 addresses the accounting and reporting for acquired goodwill and other intangible assets. It requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. For acquisitions consummated after June 30, 2001, goodwill is not being amortized. It is tested for impairment at a reporting unit level, under certain circumstances. Intangible assets with definite useful lives are amortized over their respective estimated useful lives to the estimated residual values, and reviewed for impairment. In connection with the transitional goodwill impairment evaluation, SFAS 142 requires us to assess whether there is an indication that goodwill is impaired as of the date of adoption. This assessment is a two-step process. The first step is to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step of the test must be performed. The second step is to compare the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. Upon evaluating our goodwill for impairment, the fair value of the reporting unit exceeded the carrying value of the unit. Therefore, no indication of goodwill impairment exists and accordingly the performance of the second step of the transitional goodwill impairment evaluation described above was not necessary.

The following table presents information about our intangible assets, which are being amortized in accordance with SFAS 142:

		September 30, 2002					December 31, 2001
		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
	Core deposit premium	$	780,000	$	(141,818	)	$	780,000	$	(35,434	)
	Mortgage servicing rights		772,676		(259,294	)		755,414		(231,067	)

Total		$	1,552,676	$	(401,112	)	$	1,535,414	$	(266,501	)

Aggregate amortization expense for the three months ended September 30, 2002, and September 30, 2001, was $91,182 and $47,629, respectively. Aggregate amortization expense for the nine months ended September 30, 2002, and September 30, 2001, was $264,442 and $151,516, respectively. The following is estimated amortization expense for the years ending:

Year	Amount
2002	$	386,000
2003		304,000
2004		290,000
2005		159,000
2006		82,000

Prior to our merger with MNB Bancshares on October 9, 2001, there was no goodwill on our balance sheet to be amortized. Pursuant to the guidance of SFAS 142, goodwill resulting from the merger with MNB Bancshares has not been amortized since the merger date but is evaluated for impairment on an annual basis.

LANDMARK BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General. Landmark Bancorp, Inc. is a one-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 Stock Market National Market System (symbol "LARK"). Landmark National Bank is dedicated to providing quality financial or banking services to its local communities and continues to originate commercial real estate and non-real estate loans, small business loans, residential mortgage loans, consumer loans, and home equity loans. Effective October 9, 2001, Landmark Bancshares, Inc. and MNB Bancshares, Inc. completed their merger into Landmark Merger Company, which immediately changed its name to Landmark Bancorp, Inc. In addition, Landmark Federal Savings Bank merged with Security National Bank and the resulting bank changed its name to Landmark National Bank, which is the wholly-owned subsidiary of Landmark Bancorp, Inc. Landmark Bancorp, Inc. is the accounting successor to the former Landmark Bancshares, and therefore, all financial information presented for periods prior to October 9, 2001, reflects only the operations of Landmark Bancshares. The former Landmark Bancshares utilized a September 30 fiscal year end. Landmark Bancorp has a December 31 fiscal year end and presented the results for the quarter ended December 31, 2001, on Form 10-K as a transition period. The results for the three months and nine months ended September 30, 2001, do not include MNB Bancshares' results.

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. Our 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, federal deposit insurance costs, data processing expenses and provision for loan losses.

Our accounting principles and the methods of applying these principles conform with accounting principles generally accepted in the United States and with general practices within the banking industry. Critical accounting policies relate to loans and related earnings. A description of these policies, which significantly affect the determination of financial position, results of operations and cash flows, are summarized in Note 2, Summary of Significant Accounting Policies in the Notes included in our Annual Report on Form 10-K for the quarter ended December 31, 2001.

Summary of Results. Net earnings for the three months ended September 30, 2002, increased $564,000, or 88.1%, to $1.2 million as compared to the three months ended September 30, 2001. Net interest income increased $1.7 million, or 108.1%, from $1.5 million to $3.2 million. This improvement in net earnings and net interest income was generally attributable to the merger and our interest bearing liabilities, which repriced downward at a more rapid pace than our interest earning assets. Non-interest income increased $64,000, or 7.5%, from $853,000 to $917,000, as fee and service charges resulted in a $504,000 increase and gains on sale of loans increased $76,000 compared to the prior year. These increases were offset by a reduction of $499,000 in gains on sales of investments. Non-interest expense increased $1.1 million, relating primarily to the combined operating expenses occurring as a result of the merger.

Net earnings for the nine months ended September 30, 2002, increased $1.3 million, or 65.1%, to $3.3 million as compared to the nine months ended September 30, 2001. Net interest income increased $4.5 million, or 90.6%, from $4.9 million to $9.4 million. This improvement in net earnings and net interest income was generally attributable to the merger and our interest bearing liabilities, which repriced downward at a more rapid pace than our interest earning assets. Non-interest income increased $700,000, or 38.7%, from $1.8 million to $2.5 million, as fee and service charges resulted in a

$1.2 million increase and gains on sale of loans increased $304,000 compared to the prior year. These increases were offset by a reduction of $836,000 in gains on sales of investments. Non-interest expense increased $3.4 million, relating primarily to combined operating expenses occurring as a result of the merger.

The three months ended September 30, 2002, resulted in diluted earnings per share of $0.60 compared to $0.51 for the same period in 2001. Return on average assets was 1.42% for the period compared to 1.25% for the same period in 2001. Return on average stockholders' equity was 11.77% for the period compared to 9.87% for the same period in 2001.

The nine months ended September 30, 2002, resulted in diluted earnings per share of $1.63 compared to $1.68 for the same period in 2001. Return on average assets was 1.32% for the period compared to 1.26% for the same period in 2001. Return on average stockholders' equity was 11.10% for the period compared to 10.84% for the same period in 2001.

Our successful completion of a 5% stock repurchase program, initiated in December 2001, resulted in us repurchasing 97,039 shares. During April 2002, our board of directors approved a new stock repurchase program enabling us to repurchase up to an additional 100,800 shares, or 5%, of our outstanding stock. As of September 30, 2002, we have repurchased 191,001 shares at an average cost per share of $21.69.

The decrease in earnings per share for the nine months ended September 30, 2002, as compared to the nine months ended September 30, 2001, was primarily the result of the issuance of 817,806 shares to former MNB Bancshares shareholders as a result of the October 9, 2001, merger. The following table summarizes net income and key performance measures for the two periods presented.

		Three Months Ended September 30,						Nine Months Ended September 30,
		2002			2001			2002			2001
Net earnings:
	Basic earnings per share	$	0.62		$	0.57		$	1.68		$	1.82
	Diluted earnings per share	$	0.60		$	0.51		$	1.63		$	1.68
Earnings ratios:
	Return on average assets(1)		1.42	%		1.25	%		1.32	%		1.26	%
	Return on average equity(1)		11.77	%		9.87	%		11.10	%		10.84	%
	Dividend payout ratio		25.00	%		28.00	%		27.61	%		25.50	%
	Net interest margin(1)		3.93	%		3.12	%		3.88	%		3.16	%

(1): The ratio has been annualized and is not necessarily indicative of the results for the entire year.

Interest Income. Interest income for the three months ended September 30, 2002, increased $1.3 million, or 36.7%, to $4.9 million from $3.6 million in the same period of 2001. Interest income on loans increased $1.2 million, or 39.6%, during this time period. This increase was primarily related to an increase in average loans resulting from the merger, which overcame the decrease in rates experienced as interest earning assets repriced during 2001. Average loans for the third quarter of 2002 were significantly higher at $234.5 million, compared to $147.9 million for the third quarter of 2001.

Interest income for the nine months ended September 30, 2002, increased $3.0 million, or 24.7%, to $14.9 million from $11.9 million in the same period of 2001. Interest income on loans increased $2.8 million, or 28.8%, during this time period. This increase was primarily related to an increase in average loans resulting from the merger, which overcame the decrease in rates experienced as interest earning assets repriced during 2001. Average loans for the first nine months of 2002 were significantly higher at $234.8 million, compared to $162.1 million for the first nine months of 2001.

During 2001, the national prime rate decreased from 9.5% to 8.0% in the first quarter, decreased from 8.0% to 6.75% in the second quarter and decreased again from 6.75% to 6.0% in the third quarter. During the first, second and third quarters of 2002, the national prime rate remained unchanged at 4.75%. On November 6, 2002, the Federal Reserve policy makers lowered their benchmark interest rate 50 basis points. This resulted in the lowest target interest rate on overnight loans between banks since 1961. Correspondingly, the national prime rate also decreased 50 basis points to 4.25%. This most recent rate reduction may have a negative impact on our net interest margin. At these historical low interest rate levels, we may have pressure from our commercial loan customers to refinance and obtain lower rates. In addition, the rates paid on deposit products have been driven to significantly low levels during the past year. There is little room for us to lower the rates on our deposit products another 50 basis points.

Interest Expense. Interest expense during the three months ended September 30, 2002, decreased $365,000, or 18.0%, as compared to the same period of 2001. Interest expense on deposits decreased $395,000, or 22.8%, while interest expense on borrowings, consisting of advances from the Federal Home Loan Bank of Topeka, increased $30,000, or 9.9%, during this time period. This decrease in interest expense resulted despite an increase in deposits resulting from the merger, as a result of the decline in rates. An increase in borrowings from the Federal Home Loan Bank, as a result of the merger, precipitated the increased interest expense on borrowings.

Interest expense during the nine months ended September 30, 2002, decreased $1.5 million, or 21.4%, as compared to the same period of 2001. Interest expense on deposits decreased $1.2 million, or 20.4%, while interest expense on borrowings, consisting of advances from the Federal Home Loan Bank of Topeka, decreased $349,000, or 25.5%, during this time period. This decrease in interest expense resulted despite an increase in deposits resulting from the merger, as a result of the decline in rates. Reduced borrowings from the Federal Home Loan Bank after March 31, 2001, precipitated the reduced interest expense on borrowings.

Net Interest Income. Net interest income for the three months ended September 30, 2002, totaled $3.2 million, a 108.1% increase, as compared to $1.6 million for the same period in 2001. The improvement was reflective of our growth resulting from the MNB merger. Average earning assets during the third quarter of 2002 totaled $322.2 million, versus $198.5 million during the third quarter of 2001. Net interest margin on earning assets was 3.93% for the third quarter of 2002, up from 3.12% during the third quarter of 2001. The increase in net interest margin reflected the continued growth in commercial loans and commercial real estate loans, primarily related to the MNB merger. The increase was also impacted by the significant decline in interest rates during 2001 as our liabilities repricing exceeded corresponding reductions in our asset yields during 2001. Countering the increase, our net interest margin was negatively impacted by the fact that as part of the merger, the assets and liabilities of MNB were recorded at their respective fair market values. Based on the relatively low interest rates prevailing at the merger date, the effective yields on MNB's interest-earning assets and rates on MNB's interest-bearing liabilities were significantly reduced, thus causing our post merger blended yields and cost of funds to decline.

Net interest income for the nine months ended September 30, 2002, totaled $9.4 million, a 90.6% increase as compared to $4.9 million for the same period of 2001. The improvement was reflective of our growth resulting from the MNB merger. Average earning assets during the first nine months of 2002 totaled $323.2 million, versus $208.2 million during the same period of 2001. Net interest margin on earning assets was 3.88% for the first nine months of 2002, up from 3.16% during the first nine months of 2001. The increase in net interest margin reflected the continued growth in commercial loans and commercial real estate loans, primarily related to the MNB merger. The increase was also impacted by the significant decline in interest rates during 2001, as our liabilities repricing exceeded corresponding reductions in our asset yields during 2001. Countering the increase, our net interest margin was negatively impacted by the fact that as part of the merger, the assets and liabilities of MNB

were recorded at their respective fair market values. Based on the relatively low interest rates prevailing at the merger date, the effective yields on MNB's interest-earning assets and rates on MNB's interest-bearing liabilities were significantly reduced, thus causing our post merger blended yields and cost of funds to decline.

Provision for Loan Losses. The provision for loan losses for the three months ended September 30, 2002, was $50,000, compared to a provision of $15,000 during the third quarter of 2001. The provision for loan losses for the nine months ended September 30, 2002, was $117,000, compared to a provision of $75,000 for the same period in 2001. Our continuous review of the portfolio prompted an increase in our provision, primarily as a result of increased commercial loan balances and some deterioration in the consumer loan portfolio asset quality, due to the current economic downturn. At September 30, 2002, and December 31, 2001, the allowance for loan losses was $2.6 million, or 1.1%, of gross loans outstanding.

Non-interest Income. Non-interest income increased $64,000, or 7.5%, for the three months ended September 30, 2002, to $917,000 compared to the same period in 2001. Fees and service charges increased from $88,000 to $592,000, relating primarily to the MNB merger and the fee income associated with MNB's products and services. Also contributing to this increase was an improvement of 40.3% in gains on sale of loans from $188,000 to $263,000 as residential mortgage financing activity increased due to the MNB merger and the continuing decrease in interest rates. Gains on sales of investments partially offset the increases as fewer equity securities in our investment portfolio were sold during the third quarter in 2002 compared to the same quarter in 2001.

Non-interest income increased $700,000, or 38.7%, for the nine months ended September 30, 2002, to $2.5 million compared to the same period in 2001. Fees and service charges increased from $306,000 to $1.5 million, relating primarily to the MNB merger and the fee income associated with MNB's products and services offered. Also contributing to this increase was an improvement of 68.4% in gains on sale of loans from $445,000 to $749,000, as residential mortgage financing activity increased due to the MNB merger and the continuing decrease in interest rates. Gains on sales of investments partially offset the increase as fewer equity securities in our investment portfolio were sold during the first nine months of 2002 compared to the same period in 2001.

			Three Months Ended September 30,				Nine Months Ended September 30,
			2002		2001		2002		2001
Non-interest income:
	Fees and service charges		$	592,232	$	88,368	$	1,474,447	$	305,793
	Gains on sales of loans			263,242		187,579		748,725		444,740
	Gains on sales of investments			1,500		500,540		94,918		930,993
	Other			60,129		76,359		191,162		127,419

		Total non-interest income	$	917,103	$	852,846	$	2,509,252	$	1,808,945

Non-interest Expense. Non-interest expense increased $1.1 million to $2.3 million for the three months ended September 30, 2002, compared to the same period in 2001. Non-interest expense increased $3.4 million to $6.7 million for the nine months ended September 30, 2002, as compared to

the same period in 2001. The increases were primarily related to additional compensation and benefits and occupancy and equipment expenses as a result of the MNB merger.

			Three Months Ended September 30,				Nine Months Ended September 30,
			2002		2001		2002		2001
Non-interest expense:
	Compensation and benefits		$	1,213,977	$	795,827	$	3,633,481	$	2,047,417
	Occupancy and equipment			298,954		125,131		867,452		397,349
	Amortization			91,182		47,629		264,442		151,516
	Data processing			100,719		34,514		256,155		113,279
	Other			581,726		194,264		1,688,650		552,316

		Total non-interest expense	$	2,286,558	$	1,197,365	$	6,710,180	$	3,261,877

Income Tax Expense. Income tax expense for the three months ended September 30, 2002, increased $61,000, or 10.9%, from $560,000 for the three months ended September 30, 2002. Income tax expense for the nine months ended September 30, 2002, increased $354,000, or 25.8%, from $1.4 million for the nine months ended September 30, 2001. The increase in income tax expense resulted primarily from an increase in taxable income. The effective tax rate for the third quarter of 2002 was 34.0% compared to 46.6% for the third quarter of 2001. The effective tax rate for the nine months ended September 30, 2002, was 34.0% compared to 40.4% for the same period of 2001. The reduction in the 2002 effective tax rate compared to 2001 results from the increased level of non-taxable municipal investments and tax credits from MNB as a result of the merger.

Asset Quality and Distribution. Total assets declined to $337 million at September 30, 2002, compared to $350 million at December 31, 2001. 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 and investment securities. 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.

Net loans, excluding loans held for sale, decreased $9 million during the nine months ended September 30, 2002. The decline was primarily the result of refinancings and paydowns in our residential mortgage portfolio. Our loan portfolio composition continues to diversify as a result of pay downs and the merger of MNB. This is evidenced by our one-to-four residential real estate loans comprising 81%, 54% and 47% of total loans as of September 30, 2001, December 31, 2001, and September 30, 2002, respectively.

Our primary investing activities are the origination of mortgage, consumer, and commercial loans and the purchase of investment and mortgage-backed securities. Generally, we originate long-term, fixed-rate, residential mortgage loans for sale in the secondary market and do not originate and warehouse those loans for resale in order to speculate on interest rates. During the past nine months, based on our analysis of our asset liability repricing and the current interest rate environment, we have elected to retain within our loan portfolio approximately $8 million of 15-year, fixed-rate, residential mortgage loans.

The allowance for losses on loans is established through a provision for losses on loans based on management's 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 believe that the quality of the loan portfolio continues to be strong as evidenced by the small number and amount of loans past due one month or more. As of September 30, 2002, loans with a balance of $1.5 million were on non-accrual status, or 0.66% of total loans, compared to a balance of $1.0 million loans on non-accrual status, or 0.43% of total loans, as of December 31, 2001. The ratio of the allowance for losses on loans to non-performing loans decreased to 1.7% as of September 30, 2002, compared to 2.6% as of December 31, 2001.

Although residential home loans comprised 58% of the $1.5 million non-accrual balance at September 30, 2002, we have historically incurred minimal losses based upon collateral values. We have not experienced significant asset quality deterioration relating to the commercial loans as a result of the current economic downturn. We have seen some deterioration, however, in the consumer loan portfolio asset quality as a result of the current economic conditions. Consequently, we increased the monthly loan loss provision during the third quarter 2002 in response to these developments.

Along with other financial institutions, we share a concern for the outlook of the economy during the remainder of 2002. A slowdown in economic activity beginning in 2001 severely impacted several major industries as well as the economy as a whole. Even though there are numerous indications of emerging strength, it is not certain that this strength is sustainable. In addition, consumer confidence may be negatively impacted by the recent substantial decline in equity prices. These events could still adversely affect cash flows for both commercial and individual borrowers, as a result of which, we could experience increases in problem assets, delinquencies and losses on loans. Many financial institutions have experienced an increase in non-performing assets during this difficult economic period, as even well-established business borrowers have developed cash flow and other business related problems. We believe that the allowance for losses on loans at September 30, 2002, was adequate. While we believe that we use the best information available to determine the allowance for losses on loans, unforeseen market conditions could result in adjustment to the allowance for losses on loans. In addition, net earnings could be significantly affected if circumstances differ substantially from the assumptions used in establishing the allowance for losses on loans.

Liability Distribution. At September 30, 2002, total deposits decreased $12.8 million from December 31, 2001, while borrowing levels decreased $1.3 million during the same period.

Non-interest bearing demand accounts at September 30, 2002, increased to $20.1 million, or 7.7% of deposits, compared to approximately $19.0 million at December 31, 2001. Certificates of deposit decreased to $150.2 million at September 30, 2002, from $161.2 million at December 31, 2001. Money market and NOW accounts increased to $75.8 million at September 30, 2002, from $73.3 million at December 31, 2001, and were 29.1% of total deposits while savings accounts decreased to $14.4 million from $19.7 million during the same period. The reduction of certificates of deposit is reflective of our excess liquidity position in that we have not bid aggressively on public deposits during the past nine months.

Certificates of deposit at September 30, 2002, which were scheduled to mature in one year or less, totaled $111.0 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 level of these assets are dependent on the operating, financing, lending and investing activities during any given period. At September 30, 2002, and December 31, 2001, respectively, these liquid assets totaled $93.0 million and $97.5 million. 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. Government and agency securities.

Liquidity management is both a daily and long-term function of the management strategy. Excess funds are generally invested in short-term investments. In the event funds are required beyond the ability to generate them internally, additional funds are generally available through the use of Federal Home Loan Bank advances, a line of credit with the Federal Home Loan Bank or through sales of securities. At September 30, 2002, we had outstanding Federal Home Loan Bank advances of $27.3 million and had no borrowings outstanding on our line of credit with the Federal Home Loan Bank. At September 30, 2002, our total borrowing capacity with the Federal Home Loan Bank was $88.0 million.

At September 30, 2002, we had outstanding loan commitments of $29.6 million. We anticipate that sufficient funds will be available to meet current loan commitments. These commitments consist of letters of credit, unfunded lines of credit and commitments to fund 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.

At September 30, 2002, we continued to maintain a sound leverage ratio of 10.9% and a total risk based capital ratio of 18.9%. As shown by the following table, our capital exceeded the minimum capital requirements at September 30, 2002 (dollars in thousands):

	Actual Amount		Actual Percent		Required Percent		Required Amount
Leverage	$	36,508	10.9	%	4.0	%	$	13,383
Tier 1 Capital	$	36,508	17.7	%	4.0	%	$	8,256
Total Risk Based Capital	$	39,060	18.9	%	8.0	%	$	16,512

Banks and bank holding companies are generally expected to operate at or above the minimum capital requirements. The above ratios are well in excess of regulatory minimums and should allow us to operate without capital adequacy concerns. The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a bank rating system based on the capital levels of banks. As of September 30, 2002, we were rated "well capitalized", which is the highest rating available under this capital-based rating system.

LANDMARK BANCORP, INC. AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

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

Our Asset/Liability Management Committee monitors the interest rate sensitivity of our balance sheet using earnings simulation models and interest sensitivity GAP analysis. We have set policy limits of interest rate risk to be assumed in the normal course of business and monitor such limits through our simulation process.

We have been successful in meeting the interest rate sensitivity objectives set forth in our policy. Simulation models are prepared to determine the impact on net interest income for the coming twelve months, including one using rates at May 31, 2002, and forecasting volumes for the twelve-month projection. This position is then subjected to a shift in interest rates of 100 and 200 basis points rising and 100 basis points falling with an impact to our net interest income on a one-year horizon as follows:

Scenario	$ Change in Net Interest Income		% of Net Interest Income
100 basis point rising	($137,000	)	(1.0	%)
200 basis point rising	($87,000	)	(0.7	%)
100 basis point falling	$147,000		1.1	%

We believe that no significant changes in our interest rate sensitivity position have occurred since May 31, 2002. We also believe we are appropriately positioned for future interest rate movements, although we may experience some fluctuations in net interest income due to short-term timing differences between the repricing of assets and liabilities.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995—Forward-Looking Statements. This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company's management and on information currently available to management, are generally identifiable by the use of words such as "believe," "expect," "anticipate," "plan," "intend," "estimate," "may," "will," "would," "could," "should" or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries include, but are not limited to, the following:

•: The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company's assets.

•: The economic impact of the terrorist attacks that occurred on September 11^th, as well as any future threats and attacks, and the response of the United States to any such threats and attacks.
•: The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, insurance and monetary and financial matters.
•: The effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company's assets) and the policies of the Board of Governors of the Federal Reserve System.
•: The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector.
•: The inability of the Company to obtain new customers and to retain existing customers.
•: The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet.
•: Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers.
•: The ability of the Company to develop and maintain secure and reliable electronic systems.
•: The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner.
•: Consumer spending and saving habits which may change in a manner that affects the Company's business adversely.
•: Business combinations and the integration of acquired businesses, which may be more difficult or expensive than expected.
•: The costs, effects and outcomes of existing or future litigation.
•: Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board.
•: The ability of the Company to manage the risks associated with the foregoing as well as anticipated.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission.

LANDMARK BANCORP, INC. AND SUBSIDIARY
CONTROLS AND PROCEDURES

Controls and Procedures. Based upon an evaluation within the 90 days prior to the filing date of this report, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

LANDMARK BANCORP, INC. AND SUBSIDIARY

PART II

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 2. CHANGES IN SECURITIES.

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

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

None

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

A.: Exhibits

Exhibit 99.1 Certificate of Chief Executive Officer

Exhibit 99.2 Certificate of Chief Financial Officer

B.: Reports on Form 8-K

A report on Form 8-K was filed on August 1, 2002, to report under Item 5 that the Company had issued a press release announcing earnings for the three months ended June 30, 2002, and the declaration of a cash dividend to stockholders.

A report on Form 8-K was filed on October 29, 2002 to report under Item 5 that the Company had issued a press release announcing earnings for the three months ended September 30, 2002, and the declaration of a cash dividend to stockholders.

SIGNATURES

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

	LANDMARK BANCORP, INC.
Date: November 14, 2002	By:	/s/ PATRICK L. ALEXANDER Patrick L. Alexander President and Chief Executive Officer
Date: November 14, 2002	By:	/s/ MARK A. HERPICH Mark A. Herpich Vice President, Secretary, Treasurer and Chief Financial Officer

CERTIFICATION PURSUANT TO
SECTION 302 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 of Landmark Bancorp, Inc.;

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

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

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

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

(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

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

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

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

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

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ PATRICK L. ALEXANDER

Patrick L. Alexander
Chief Executive Officer

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

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

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

(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

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

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

Date: November 14, 2002

/s/ MARK A. HERPICH

Mark A. Herpich
Chief Financial Officer

QuickLinks

LANDMARK BANCORP, INC. Form 10-Q Quarterly Report Table of Contents
LANDMARK BANCORP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
LANDMARK BANCORP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
LANDMARK BANCORP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
LANDMARK BANCORP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
LANDMARK BANCORP, INC. AND SUBSIDIARY Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Interim Financial Statements

2. Earnings Per Share

3. Comprehensive Income

4. Recent Accounting Developments

LANDMARK BANCORP, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LANDMARK BANCORP, INC. AND SUBSIDIARY QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LANDMARK BANCORP, INC. AND SUBSIDIARY CONTROLS AND PROCEDURES
LANDMARK BANCORP, INC. AND SUBSIDIARY
PART II

ITEM 1. LEGAL PROCEEDINGS.

ITEM 2. CHANGES IN SECURITIES.