Michael Scheopner - President & CEO Mark Herpich - CFO Brad Chindamo - Credit Risk Manager

Good morning and welcome to the Landmark Bancorp Inc. Second Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Scheopner, President and Chief Executive Officer. Please go ahead.

Thank you and good morning. Thank you for joining our call today to discuss Landmark's earnings and results of operations for the second quarter of 2015. Joining the call with me today to discuss various aspects of our second quarter and year-to-date 2015 performance are Mark Herpich, Chief Financial Officer of the company, and Brad Chindamo, company's Credit Risk Manager. Before we get started, I would like to remind our listeners that some of the information we will be providing today falls under the guidelines for forward-looking statements as defined by the Securities and Exchange Commission. As part of these guidelines I must point out that any statements made during this presentation that discusses our hopes, beliefs, expectations or predictions of the future are forward-looking statements and our actual results could differ materially from those expressed. Additional information on these factors is included from time-to-time in our 10-K and 10-Q filings which can be obtain by contacting the company or the SEC. We reported net earnings of $2.6 million or $0.76 per share on a fully diluted basis for the second quarter 2015. This represents a 26% increase over our second quarter 2014 earnings level. Our 2015 year-to-date net earnings totaled $5.4 million, a 42.8% increase from the first half of 2014. Return on average assets for the first six months of this year calculates to 1.25%, the company's return on average equity was 14.67%. Net interest income for the second quarter 2015 increased 9% year-over-year totaling $6.6 million with good organic growth in interest assets and an incremental margin improvement. Total non-interest income for the quarter was $4.7 million, up 11.9% from the same period last year, mainly due to increased volumes of one-to-four family residential mortgage loan originations. Mark and Brad will provide additional detail on Landmark's financial…

Thanks, Michael and good morning to everyone. As Michael has already summarized our results for the second quarter and six months ended June 30th of 2015, I would like to make a few comments on various elements comprising those earnings results. Starting with the second quarter income statement highlights, net interest income increased 548,000 or 9% as Michael mentioned to $6.6 million in comparison to the prior year's second quarter. Net interest income was impacted positively by our net interest margin which increased to 3.56% from 3.47% during the second quarter of 2014. In comparison to the net interest margin of 3.47% in the first quarter of 2015, our net interest margin also increased from a quarter-to-quarter perspective. The higher net interest income was primarily driven by a 6.8% increase in our average interest earning assets from $742.3 million in the second quarter of 2014 to $792.5 million during the second quarter of 2015. Looking at our provision, we provided $200,000 to the allowance for loan losses in the second quarter of 2015, compared to a $300,000 provision in the second quarter of 2014. Non-interest income increased $496,000 to $4.7 million for the second quarter of 2015, as compared to the same period of 2014. Our gains on sales of loans reflected an increase of $405,000 for the second quarter of 2015 compared to a year earlier, which was primarily attributable to the increased volumes of mortgaged loans originated for sale. Also impacting our non-interest income for the second quarter of 2015 was a $236,000 gain associated with selling a closed overlapping branch facility in Ford Scot [ph]. Partially offsetting these gains was a decline of $109,000 of fees and service charges. Our second quarter non-interest expenses increased by $350,000 to $7.4 million on a linked quarter basis, primarily resulting…

Thanks, Mark and good morning to everyone. Net loans outstanding as of June 30, 2015 totaled $421 million. This is a $4 million increase from the previous quarter end total of $417 million and a $5 million increase from our year-end total of $416 million in net loans. We remained focused on prospecting new high quality commercial banking relationships and expanding existing high quality relationships. Non-performing loans, which primarily consist of loans greater than 90 days past due totaled $6.4 million or 1.50% of gross loans as of June 30, 2015; this compares to a level of 1.44% as of year-end 2014. A significant part of non-performing loans is principally associated with one credit, the commercial loan relationship consisting of $2.6 million in real estate and land loans which was placed on non-accrual status after the borrower filed for Chapter 13 bankruptcy reorganization in 2012. Since the bankruptcy filing, the principal balance of the loans have been reduced from $4.4 million to $2.6 million from asset sales and cash flows from the properties securing the loans. Another indicator we monitor as part of our credit risk management effort is our level of loans past due 30 to 89 days. The level of past due loans between 30 and 89 days still accruing interest as of June 30, 2015 totaled $1.7 million or 0.40% of gross loans. Of the loans in the 30 to 89-day past due category, 51% or $854,000 are associated with one loans, a commercial real estate loan. We continue to monitor delinquency trends carefully in all loan categories. Our balance and other assets real estate owned totaled $46,000 as of June 30, a decrease from $198,000 in the prior quarter. The other real estate owned balances have been reduced as a result of the sales properties. We…

Thank you, Brad. I also want to thank Mark for his comments earlier in this call. Before we go to questions, I just want to summarize by saying that we are pleased with Landmark's operating results for the second quarter of 2015, as well as our overall performance year-to-date. We believe that the company's risk management practices and capital strength continue to position us well for long term growth. I anticipate our trends of solid earnings to continue during the remainder of 2015. With that, I'll open the call up to questions that anyone might have.

Yes, I was really impressed with the work that you've done with your municipal portfolio. Could you speak just a moment about what your philosophy is on your securities portfolio and maybe give us a hand about what the average class, the effective duration? Are you primarily going with obligations or revenue bonds as your municipal portfolio?

Good morning, Bill, and thanks for that question. I guess with respect to our investment portfolio on the municipal bonds, I guess to start out with; we're focused primarily on probably 100% just on municipal general obligation bonds. We do not look at industrial revenue new bonds, we get any of those we treat those as loans and classify those in our loan portfolio, subject to additional credit underwriting. But we're really looking at safe bonds, we're kind of attempted to create a barbell structure at some extent and if we go out longer on the curve we want to make sure that either Kansas bonds that are in our communities and we know the areas or they are double layer better. At shorter end we're looking there as well and we want high quality bonds but our average duration I think is – I think getting into the 3.5 years or so range at this point in time. So our average life might be a little longer than that, I think it might be closer to 4.5 years, which is probably about as long as we wanted to be at this point in time but that's why we're focused on high quality Midwestern bonds. We still think there is lot of value in those bonds at this point.

Very good. Thank you for your answer and you're doing a good job. Keep it up.

Thanks, Bill.

[Operator Instructions] At this time, I'm not showing any additional questions. So that concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Scheopner for any closing remarks.

Thank you. And I want to thank everyone who called in and participated in today's earnings call. I appreciate your continued support and confidence in the company. And I look forward to sharing news related to our third quarter results at our next earnings conference call. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.