Good morning. And welcome to Landmark Bancorp’s Second Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Michael Scheopner, President and CEO. Please go ahead, sir.

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 and year-to-date 2020. Joining the call with me to discuss various aspects of our second quarter performance is Mark Herpich, Chief Financial Officer for the company. 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 discuss 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 obtained by contacting the company or the SEC. I want to start the call today and take this opportunity to express my thanks and appreciation to all of the associates at Landmark National Bank. It has been an entire team effort during the first half of this year. Each of these associates have taken their role as part of the nation’s critical infrastructure sector seriously and they have focused daily on executing our company vision that everyone starts as a customer and leaves as a friend. Elements of our pandemic response plan remain in place as of today with the safety and well-being of our associates and customers foremost in mind. We have maintained limited access to our traditional bank lobby network and continue to have a portion of our associates working from home with enhanced precautions in place for the safety of those that remain in our bank facilities. To ensure we are…

Thanks, Michael, and good morning to everyone. Michael mentioned our record net earnings for the second quarter and six months ended June 30, 2020, and now I’d like to make a few comments on various elements comprising those results. Starting with highlights of the second quarter income statement, net interest income was $9 million, an increase of $1.5 million or 20.5% in comparison to the prior year second quarter. The improvement in net interest income built upon a $98.1 million or 10.9% increase in average interest earning assets to $999.3 million in comparison to the prior year second quarter period. This growth was entirely attributable to loan growth of $161.9 million or 31.6%, as our average investment balance actually declined by $74.8 million. The loan growth was impacted significantly by our SBA PPP loans, which totaled $130.1 million at June 30th. In addition, Landmark’s net interest margin on a tax equivalent basis improved to 3.72% in the second quarter of 2020, as compared to 3.43% in the same period of 2019. The net interest margin benefited significantly from the increase in average loan balances as our asset allocation continues to be weighted more heavily to loans and less to investments as a proportion. While our overall cost of interest-bearing liabilities declined from 1.03% in the second quarter of 2019 to 0.36% in the current quarter. Our loan-to-deposit ratio increased to 73.0% as of June 30, 2020, as compared to 61.5% as of June 30, 2019. Looking at the provision for loan losses, our analysis resulted in providing $400,000 to the allowance for loan losses in the second quarter of 2020, as compared to $400,000 in the second quarter of 2019. On a year-to-date basis, as Michael mentioned earlier, our 2020 provision for loan losses is $1.6 million in comparison to…

Thank you, Mark, and thank you for your comments. As Mark noted, net loans outstanding as of the end of the second quarter 2020 totaled $689.6 million. This is a 29.6% increase from our year-end 2019 net loan total of $532.2 million. PPP loans made up $130.1 million of the overall $157.4 million increase in loans outstanding. As of the end of the second quarter, our construction and land loan portfolio balances totaled $29.4 million or 4.2% of our total loan portfolio. Outstanding loan balances in the commercial real estate portfolio totaled $144.2 million, representing 20.6% of our total loan portfolio. Commercial and industrial loans were $247.5 million as of June 30, 2020 or 35.3% of the current portfolio and that includes the $130.1 million in PPP loans. With regard to our agricultural loan portfolio, total balances were $98 million or 14% of our total loan portfolio as of the end of the second quarter. And our mortgage one-to-four family loan portfolio represented 22% of the portfolio at $154.4 million as of June 30, 2020. As I noted in my opening comments, our mortgage banking activity during the first half of 2020 has been extremely strong, driven by historically low loan rates. As of the end of June 2020, our single-family loan production totaled approximately $181.5 million, 52% of this production volume involved purchase money transactions, while 48% was made up of refinance activity. As we entered the third quarter, our mortgage pipeline levels remain high and we anticipate significant production volumes extending through the third quarter of this year. Obviously, there remains much uncertainty regarding the overall impact of the COVID-19 pandemic on our loan portfolio. As previously noted, we recorded a $1.6 million provision for loan losses during the first half of this year and we may need…

[Operator Instructions] Our first question comes from John Rodis with FIG Partners. Please go ahead.

Good morning, guys.

Good morning, John.

Hope you guys are doing well.

Yeah.

Michael, I just wanted to make sure your comment on deferrals. So if you -- it sounds like as you stand today you are around $41 million, am I thinking about that right?

It would be somewhere, John, if you take what has returned to contractual terms as of the 24th of July, we would be somewhere in the neighborhood of $37 million outstanding.

Well, but then, I guess, then accounting for, you said a couple of loans that extended another three months or is that $18 million net of those $4 million, I guess, that’s correct?

$18 was -- that $18 million was net, so...

It was net of the $4 million. Okay. Okay. So it’s $37 million. Okay.

Right.

So far you have had obviously good success. So do you think as we go through August, September, you will continue to have more roll-off or at least you will have better clarity, I guess?

Yeah. I think that’s really fair, John, as we look at the buckets in the third quarter from the standpoint of those loans that are scheduled to exit the modifications, that would represent a majority of what we have left, that’s been modified. As we went through the allowance process as of the second quarter, we went through each of those individual borrowing relationships and evaluated how those businesses and clients have pivoted in these economic times and kind of evaluated where their risks were from restoration of income streams, et cetera, and we feel pretty good about where we are positioned and how those clients are positioned to come out of the next quarter.

Okay. Okay. So, then, I guess, depending on the outcome of the remaining deferrals, so that will sort of drive also the provisioning in the back half of the year?

That’s exactly right.

Okay. Just, I guess, a question on mortgage, obviously, very strong in the quarter for you guys and for a lot of banks. As you -- I assume there’s some normal seasonality as we get towards the back half of the year. But I would think the third quarter would probably continue to be strong and is it fair on my part to think that mortgage in the third quarter is probably less than the second quarter but still above the first quarter level?

I think that would be a fair assessment, John. I mean it’s going to be a very strong quarter based upon pipeline volumes, and as I mentioned in my comments, I think, the thing that I am most pleased about is that through the first half of the year, our production volumes were still more than half weighted in purchase money activity versus the refinance activity. So we have seen some really robust housing conditions in the markets in which we do business and that has not changed as we look at that pipeline make up moving into the third quarter. So I think your assessment from the standpoint of production volume, just given our capacity to digest that volume through our operating system is a fair assessment.

And just to make sure my notes are right, you said refi activity was roughly 48%, didn’t you?

Yeah. Year-to-date through the end of the second quarter that was -- refinance activity was weighted at 48% of that volume.

Okay. Okay. And then just one another question if I might on loans, if you exclude the PPP loans for the quarter, you still had a small amount of growth in, let’s call it, sort of the core loan portfolio. Do you think you will see much in the way of growth in the second half of the year or sort of staying flat…

I think it’s going to be pretty…

…with that being excluded?

Yeah. John, I think, that’s a great question. I think it’s going to be pretty modest in the second half from a volume standpoint as far as growth projections. I mean, it -- I do -- we are seeing some still decent pipeline activity in the commercial lines. But it’s too longstanding clients, and we have seen a little bit of business development opportunity as a result of new clients that we assisted through the PPP process. So I think it’s really going to be a pretty modest growth line on the commercial line in the second half of the year.

Okay. And then, I guess, final question, just an update on the ag industry from your perspective and your borrowers?

Yeah. I’d say it’s relatively stable, John. We are seeing from a crop conditions standpoint, the most recent report from the State of Kansas on field crops for corn, soybeans, sorghums and cotton, most of that would be at a good or I guess, they use excellent, I have our time using excellent when it comes to agribusiness.

Okay.

But good or excellent conditions really in the field crops and that would be similar to what we are seeing on pasture and range conditions. Our borrowers economically we continue to work with them and really assess their liquidity and their leverage positions on a production cycle basis just to make sure that they are doing okay. We have got -- we have a couple of relationships that quite candidly, I mean, it’s been an extended down cycle for ag business and we have got a couple that are in a little more stressed condition than they were a year ago. But for the most part, our client base is weathering the storms pretty well.

Okay. Okay. Great. Thank you, guys.

Hey, John. Thanks for your questions and stay well, please.

You too. Thanks.

[Operator Instructions] At this time, there are no further questions. So this concludes our question-and-answer session. I would like to turn the conference back over to Michael Scheopner for any closing remarks.

Thank you. And I want to thank everyone who participated in today’s earnings call. I truly do appreciate your continued support and the confidence that you have in the company. And I look forward to sharing news related to our third quarter 2020 results at our next earnings conference call. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.