West Bancorporation Inc (WTBA) 2011 Q1 法說會逐字稿

Good afternoon, and welcome to the West Bancorporation quarterly earnings conference call.

(Operator Instructions).

Please note, this event is being recorded. I would now like to turn the conference over to Doug Gulling, Executive Vice President and CFO. Please go ahead.

Thank you, and welcome everyone for joining us today. With me on the call is Dave Nelson, our Chair -- our President and CEO of West Bancorporation, Brad Winterbottom, President of West Bank, and Harlee Olafson, Executive Vice President and Chief Risk Officer. And normally our Chairman, Dave Milligan, joins us, but he is attending a funeral service of a dear friend and supporter of West Bank this afternoon. So he will not be joining us. I'd like to read our fair disclosure statement.

Comments made during this conference -- call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking information is based upon certain underlying assumptions, risks, and uncertainties. Because of the possibility of change in the underlying assumptions, actual results could differ materially from these forward-looking statements. The Company undertakes no obligation to revise or update such statements to reflect current events or circumstances after this call, or to reflect the occurrence of unanticipated events. Again, welcome, and I'm going to turn it over to Dave Nelson to start us off.

Thank you, Doug, and good afternoon. Thank you everyone for joining us today. And thank you for your continued interest and support of West Bank. Yesterday, we held our annual shareholders meeting, and we talked a fair amount about the direction that we're headed, and why we're looking forward to the future with confidence. Talked about how last year, our primary objectives were really two-fold. First, was to achieve dramatic improvement in our credit quality. And secondly, to implement permanent improvement in our credit process. We have now cut our non-performing assets in half, from a year ago, as of March 31. We've returned to profitability, and our capital ratios are very strong.

So this year, our primary focus is going to be our sales and service culture. While it's true, we will make more money by simply losing less, we also need to grow, and to grow responsibly. And we also know that we can't shrink our way to prosperity. It's very true that the rate of economic expansion will impact the level of sales opportunity, but it won't impact our sales relationship building activities. Our investments in infrastructure are not only serving to improve our credit quality, they are allowing our sales team to become much more focused on relationship-building that generates revenue. Our sales and service culture is good, but that's not been where our focus has been recently. We have a very strong and talented team that works hard and cares deeply, and we have now several initiatives planned to enhance our marketing and our calling programs.

We're very pleased with our first quarter results, and the improvement in our performance. And based upon our first quarter performance, our Company's Board of Directors declared a quarterly common stock dividend of $0.05 per share. The dividend is payable May 31, 2011, to shareholders of record on May 9. Our strong performance should also allow us to finalize our TARP repayment plans in the near future. We believe the retained earnings of the Company are sufficient to repay TARP in full, but we have other means as well. We have applied for the Small Business Lending Fund, and also filed a shelf registration statement that would allow us to sell common and preferred stock, in the case that we need to use one or both of those options. Thank you. I'd now like to turn the call over to Harlee Olafson, our Chief Risk Officer.

Thanks a lot, Dave. I just have a couple of comments. I think you've already outlined, that asset performance and asset quality is improved. Specifically within that, past dues are at historically low levels, and we continue to decline in the total of other real estate and substandard type credits. So we continue to reduce those levels. On an ongoing basis, we continue to prudently look at new credit opportunities, and to actively manage the existing loan portfolio. Our allowance for loan loss remains at appropriate and conservative levels, and we have strengthened our credit analyst team, with the addition of two experienced team members. All of this is in place, to help support our efforts in the future to enhance our sales and service culture. With that, I'd turn it over to President, Brad Winterbottom.

Thanks, Harlee. Dave mentioned earlier, sales activity, and we are focused on sales, meetings, transactions. We are meeting with our bankers on a weekly basis, talking about and reviewing lists and other information, and making calls on prospects. We're following up with customers and looking to expand. And quite frankly, today, our existing customers are not asking for additional funds. Their balance sheet is continuing to shrink or deleverage.

But there are some sales opportunities. And you can see the shrinkage in the loan portfolio in the first quarter, and I would just say that that looks like, that may have bottomed out. And we're seeing some evidence that in some activities, that maybe we can start building back up the loan portfolio. We've hired some folks, some new folks here over the last 30 to 90 days, some very seasoned folk here in our market, and both markets. And those hires, have early signs of success, in terms of attracting new business. So we're pleased with that.

The mortgage activity is holding it's own. We've got a great group of folks there. And we're probably -- we are thinking of maybe adding some additional originators. And then finally, in our trust department, they had a nice year-over-year growth, and it's in the 20% range. And things are going well in the trust department. So that's the new business activity that's going on. And Doug, I'd like to have you make some more comments.

Yes, sure. I'd like to, just review a few numbers and majors. Our net interest margin for the first quarter was 3.62%. It's been in that range now for a couple of months, and we would anticipate that for the foreseeable future that it will remain in the 3.5% to 3.6% range. Our capital ratios are -- we believe very, very strong, and are well in excess of the ratios needed to be well-capitalized. And then, I know a few of you like some quarterly averages, that we don't include in our 10-Qs, so I'll just read those off. Our quarterly average assets were $1,321,616,000, quarterly average deposits were $973,595,000, and the quarterly average equity was $147,252,000. So with that, I think we would like to open it up for questions.

(Operator Instructions).

We have a question from Daniel Cardenas of Raymond James. Please go ahead.

Good afternoon, guys.

Hi, Dan.

And I missed this here. In terms of, you were talking about the loan portfolio and your expectations. Do you think you've kind of hit the bottom here, and you're looking to see some growth going forward? Is that kind of what you guys said?

Yes. We've had probably two and a quarter years of declining loan volume. But there's evidence here, that at least through April that -- and not only evidence through April that it's bottomed out, but that the activity, and the things that we're chasing, and we think that we're working on to get closed that, that number might start increasing now.

Now, I guess a couple of questions. I mean, can you talk about type of evidence that you're seeing. And particularly, in what arenas are you seeing that evidence? Is it for C&I ?

It's C&I business. It's real estate construction, with some take-out. It would be primarily those two.

All right. And can you comment, I guess on competition? Everybody I'm talking to right now keeps telling me that they're going after the C&I business, but it's a pretty competitive market. Are you seeing the same things right now?

It's very competitive, absolutely.

I think that there's -- I think there's also going on here at -- some of our competition is -- had some tough quarters. So they're probably trying to shrink their balance sheets as well. And our phones are ringing -- here is a better way of saying it, maybe. Our phones are ringing weekly, from folks that are working elsewhere, wanting to come join us -- saying we like what we've seen you guys do over the last year and-a-half, as you worked through your issues, and we're just now starting to recognize ours, and I don't want to be part of that.

So potential for some talent acquisitions, also can help drive growth?

Yes.

What was behind the drop from year-end to the first quarter? I mean, that was a pretty substantial bounce down.

In terms of?

Loans.

Loans?

Loans, yes.

Again, some have been -- a lot has been refinancing. Some have been, I think some construction loans that made it's way through, and then paid off, and it would be significant ones. We have -- there was also some transactional activities that were maturing, and we let them know that, quite frankly, we didn't have an interest in renewing it. And a couple of those are fairly -- were fairly significant transactions, low margins, and we didn't see a relationship build there. So we wanted to exit those, and focus our efforts on more of a relationship.

Okay. And then the pipelines, can you talk about those? Those are building up nicely, I take it or -- ?

Yes.

I don't want to get into the numbers, but our calling efforts that we've started late last year, and running through to date, and as early as 9.00 AM this morning, we've got a lot of nice things going on. And it's C&I, it's commercial real estate activity.

And then, is this just kind of market share grab, or is it actual -- actually, people kind of coming in and ?

It's a little of both.

Both?

Yes.

All right. I'll step back for right now, let other people ask questions.

(Operator Instructions).

We have a question from Brad Ness of Choral Capital. Please go ahead.

Yes, guys. How you doing?

Good, Brad. How are you?

Doing good. I noticed in your OREO properties, there looked like there was a property, I think from Arizona, and maybe one in Missouri, and I guess the out-of-market lending always surprises me a little bit. But could you give me, one, just a comment on those properties? And two, just kind of the out-of-market lending in aggregate, how significant is that on your balance sheet?

Well, it's Arkansas and Missouri.

Arkansas, Missouri and -- in Arizona, would have been a home. And that was off the books, I think in early 2010, so I don't -- I'm not aware of any other Arizona property that was in OREO. Missouri, Arkansas are the -- really the two that I can think of right now. Don't have the list in front of me.

And Brad, in both of those cases, we followed a central Iowa customer into those two areas.

Okay. Got you. And as far as just other kind of non-Iowa or contiguous state's exposure, is that significant?

No.

No.

Okay. Also, it looked like your deposit fees were a little lower than I expected in the quarter. It looks like it was down about $100,000 from the first quarter of last year. Could you just give me some color, what happened there?

Most of that would be in the overdraft area. That continues to shrink a little bit.

Okay. Because I was thinking you guys really, never allowed the electronic overdrafts, and looking at the trend last year that line item was pretty stable. So I would have thought, it would have hit last year, rather than first quarter of this year. Is there some timing differences that I'm just missing?

Well, I don't know that there's any particular events. I mean, it's been trending lower, really over the last few years. And we've asked people, they've been given an opportunity to opt in on electronic transactions and we've probably been surprised that not as many have opted in as we thought might. But otherwise, nothing in particular. Brad, I don't know exactly what you're looking at in service charge category last year, we also had a SmartyPig fee or fees from SmartyPig and we have those this year, but that -- and that was $260,000 or so.

Yes. Yes. I was looking at $838,000, just absolute, SmartyPig?

Okay. Yes. So exclusive of that. So I don't know if it's the economy, if people watch things a little closer, but we've -- the overdraft fees have been trending down.

Okay. Fair enough. Also, on the salary and benefits line item, it looked like it was a $200,000, $250,000 higher than the fourth quarter. And I guess I was expecting to be flattish or even lower, given the mortgage banking income was pretty substantially lower than the fourth quarter also. I figured most of that would be variable component pay. Could you just give me some color on the salary and benefits line item?

Sure. Probably three things. We're accruing for potential bonuses at a little higher level than we were in the fourth quarter. We're also accruing for a little higher profit sharing, than we did last year. And then there were bonuses paid for -- well, non-exec -- there were no executive bonuses last year, but there were some bonuses paid to other folks. And those were paid in the first quarter, and then there would be associated payroll taxes on those.

Okay. Let's see. And what's your net interest margin? I know you gave some guidance for the near term. I was under the impression that, say in a rising interest rate environment, you guys would be fairly neutral. Does that still hold when you look at your asset liability management?

When we look at that, it's neutral to slightly positive in a rising rate environment.

Okay. And lastly here, just given the trends on asset quality, it looks like things are getting better every quarter. Would that be -- expectations as you kind of talk to your customers, and look at your loan book over the next three or so quarters?

The asset quality is going to continue to improve as we go forward. I think a lot of the larger gains that we've made on asset quality, we won't have as substantial of gains in the next couple quarters, because some of the things are a little stickier. But we do intend to continue to have strong asset quality.

Okay. Great. Well, appreciate it, guys. I will jump off, let someone else ask a question.

Thanks, Brad.

(Operator Instructions).

This concludes our question-and-answer session. I would like to turn the conference back over to Doug Gulling for any closing remarks.

Well, we would just like to thank you for your interest in our Company, and joining us today, and we'll look forward to our call next quarter. So, thank you.

The conference has now concluded. Thank you for attending today's West Bancorporation quarterly earnings conference call. You may now disconnect.