Michael Scheopner - President and CEO Mark Herpich - CFO

Good morning and welcome to the Landmark Bancorp's Third 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 Chief Executive Officer. Please go ahead.

Thank you. Good morning. Thank you for joining our call today to discuss Landmark's earnings and results of operations for the third quarter of 2016. Joining the call with me today to discuss various aspects of our third quarter and year-to-date 2016 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. We've reported net earnings of $2.1 million or $0.56 per share on a fully diluted basis for the third quarter of 2016. This compares to net earnings of $2.5 million during the third quarter of 2015. Year-to-date 2016 net earnings totaled $6.6 million compared to $7.9 million during the first nine months of 2015. The decline from the prior-year primarily relates to two factors. The first was a $1.2 million swing from a $700,000 net credit to the provision for loan losses during the first nine months of 2015 as a result of a large recovery on a previously charged-off construction loan to a fairly typical $500,000 provision during the same period of 2016. The second factor was a lower level of gain on sales of loans due to decreased production levels in 2016 after we lost several mortgage banking originators during the first…

Thanks, Michael and good morning to everyone. As Michael has already summarized our earnings for the third quarter and nine months ended September 30 of 2016, I would like to make a few comments on various elements comprising those results. While our September 30, 2016 year-to-date net earnings were lower than the first nine months of 2015, earnings remained strong absent the impact of that first quarter of 2015 credit provision for a $1.0 million reversal of loan losses, which related to a large recovery last year on a previously charged-off loan. Our third quarter 2016 earnings were also impacted by reduced loan sales volumes and related gains on sales of loans, resulting from the departure of several mortgage lenders as Michael has already alluded. Starting with the third quarter income statement highlights. Net interest income was $6.6 million, an increase of $125,000 or 1.9% in comparison to the prior year's third quarter. The improvement in net interest income resulted from $25.3 million or 3.2% increase in average interest-earning assets to $809.9 million in comparison to the prior year third quarter period. Lower yields on interest-earning assets and higher rates on interest-bearing deposits and borrowings resulted in a decline in our net interest margin from 3.48% in the third quarter of 2015 to 3.45% in the same period of 2016. Looking at our provision for loan losses, we provided $150,000 to the allowance in the third quarter of 2016 compared to $100,000 in the third quarter of 2015. Non-interest income increased or decreased, excuse me $734,000 to $3.7 million in the third quarter of 2016, down 16.4%, as compared to the same period of 2015. The decrease was primarily related to $794,000 decline in the gains on sales of loans. The volume of mortgage loans sold and originated for sale…

Thanks, Mark and thank you for your comments. We continue to maintain a diversified mix in the loan portfolio, both in loan types and in geography across the state. On a consolidated basis, Landmark's gross loan portfolio totaled approximately $435.6 million as of September 30, 2016. In terms of exposure to credit concentrations, we continue to focus on our portfolio management of commercial real estate and construction and land relationships. Recent regulatory publications have emphasized increased emphasis on these portfolio categories. As part of our comprehensive credit risk management process, we review construction land and commercial real estate for loan type and geographic concentration issues on a quarterly basis. As at September 30 2016, our construction and land loan portfolio balances totaled $16.1 million or 3.7% of our total loan portfolio. Outstanding loan balances in our commercial real estate portfolio totaled $116.4 million, representing 26.7% of our total loan portfolio. Landmark's loan portfolio in the construction land category as of September 30, 2016 totaled 17.6% of risk-based capital, well below the regulatory guideline of 100%, a level where regulators would view the total as a concentration, requiring heightened risk management practices. Our commercial real estate portfolio was at 144.7% of risk-based capital, which is far below the 300% regulatory guideline in that category. The mortgage one-to-four family loan portfolio represents just over 30% of the portfolio at $133.7 million for September 30, 2016 compared to $131.9 million or just under 31% as of year-end 2015. The broader residential real estate economy across the State of Kansas showed stable to increasing sales activity for the past year with improved equilibrium between supply and demand metrics in most markets. The Manhattan, Kansas market was recently recognized as one of the Top 10 healthiest housing market MSAs in a publication by Nationwide Mutual…

[Operator Instructions] 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. I want to thank everyone for participating in today's earnings call. I appreciate your continued support and confidence in our company. I look forward to sharing news related to our fourth quarter 2016 results at our next earnings conference call. Thank you and good morning.

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