West Bancorporation Inc (WTBA) 2011 Q2 法說會逐字稿

Good afternoon, and welcome to the West Bancorporation Second Quarter Quarterly Earnings 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 Doug Gulling. Please go ahead, sir.

Okay, thank you, and thanks to everyone for joining us today. With me on the call is Dave Nelson, our CEO, Dave Milligan, Chairman, and Harlee Olafson, our Chief Risk Officer. I'll begin with 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 a 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. Thanks, again, and I'll turn it over to Dave Nelson to begin.

Thank you, Doug, and good afternoon, everyone, and thank you again for joining us and thank you for your continued support of our organization. We felt we had a very good second quarter. We're certainly pleased with our performance. Really all of our metrics and fundamentals continue to improve and are trending positive. Our credit quality continues to improve and we had some loan growth this quarter and are pleased with our level of profitability.

We also had some very significant events occur, all that were all very positive during the quarter. We -- the informal MOU that we had was terminated, which then led to our ability to redeem the TARP funds. The entire $36 million of TARP was redeemed in full and we were able to do so without selling any additional stock or borrowing any money, which led to our Director's decision to declare a second quarter dividend, a $0.05 dividend to common holders of record on August 8, and which will be payable August 30. I'd like to invite Harlee to share some more details regarding our pipeline and our credit quality. Harlee?

Well, thanks, Dave. I'm going to start first with credit quality, because that's always a top, top thing to look at in our organization. I'd say the important thing right now is that credit quality is stable and we haven't had new surprises that have occurred of any significance. Due to that, we also have a very low level of past dues, and in fact, past dues other than loans that are on nonaccrual continue at a very low level at less than 0.5% of the portfolio. Due to the lower level of credit problems, we have picked up our calling activities and have assigned those activities to our sales team, and they have been quite successful in the recent past.

The pipeline in the various categories have strengthened and it's built first in the discovery stage and has progressed along through the proposal and pending closing stages. We have built some momentum in building a good pipeline. As Dave stated, we did have an uptick in loans outstanding in the quarter, and I think part of the first quarter, we did project the decline in loans outstanding due to, I think, three things. And that's projects that were completed, reduction in loans that we requested to have paid off, and low loan usage on lines of credit. We look forward to continuing to build our pipeline and continuing with strong sales activities to keep it in that stage. Thank you, and I'll move it back to Doug.

Okay, thanks, Harlee. I just wanted to make a couple of comments on two other aspects of our financial performance. Our net interest margin's been relatively stable the first six months of the year. For the second quarter, the margin was 3.58% compared to 3.62% for the first quarter. Looking ahead, as long as market rates stay about where they are, I think we'll continue to see relative stability in the margin, although there are a couple of factors that could cause it just to trend down slightly. That is that as our investment portfolio experiences maturities or calls, certainly the reinvestment rate is generally lower than what the yield has been on the maturing or called instruments. Then likewise, on some of the fixed rate loans that may be maturing that have been outstanding for three to five years, that those yields, or rates could be a little lower also.

But other than those two items, we would expect the margin to stay in the 350 range at least for the foreseeable future, again, absent any wild swings in market interest rates. Then secondly, just to touch upon our capital ratios in this post-TARP environment, our tangible common equity ratio, of course, was not influenced by TARP, and at June 30, it's at 9.45%, up from 8.49% at the end of the year. We think that, that's a very strong level and allows us room to grow the balance sheet and also evaluate dividends on a quarterly basis. All of our regulatory ratios, which were outlined in the press release and the 10-Q are still well above the requirements to be a well-capitalized institution. We're quite comfortable with our capital position at this point in time. With that, we'll conclude our prepared remarks and would be happy to answer any questions that you may have.

(Operator Instructions) Daniel Cardenas, Raymond James.

Question on the loan growth, can you -- well, first, tell me what runoffs look like during the quarter, and then if you could, give me a sense for which categories were showing the most growth?

I can tell you the categories that we're seeing growth in. Specifically, growth is coming both in owner/occupied commercial real estate, some level investor/developer real estate, rented, non-development type properties, and also C&I business.

Dan, on the runoff, we are refreshing those numbers, and I don't have a number to quote you.

Okay, that's fair enough. Then as you look at the pipelines, are those trends similar to what you saw in the second quarter in terms of where the growth could potentially come from going forward?

Absolutely. The nice thing that we've seen within our pipeline is a progression from the initial stages of finding opportunity as it progresses through the uncovering, whether it's something that we're wanting to do and delivering it to proposal stage. We've seen a lot of growth as it progresses through that pipe. And it's a mixture, again, of commercial real estate and C&I business.

Okay, and what's competition like right now? Are most folks still internally focused, or are you beginning to see a pickup in competition on the loan side?

This is Dave Milligan. I think perhaps the contrary. I think what we're really seeing is some real interest in some of the local business perhaps due to our relative strength and seeing some of these people very receptive to our sales and [treaties].

So then is it -- are you seeing -- for the growth you saw, is that just taking market share away, or is it actually the local business people feeling better about the economy and beginning to reinvest in their businesses?

I would say it's still pretty neutral on the economy. I don't think it's worse, I don't know that it's better. Some of it may be a little more confidence in our existing customers, but a fair amount of it is people who want to do business with us. Harlee?

I think that's true. One thing that we did notice just recently are a couple of significant project expansions of existing customers where they may have been holding back doing new type of projects and we've seen some of that occurring also. There's a mix, but there's definitely a lot of business that wasn't always ours.

Okay, fair enough. Then just a quick question on OREO trends during the quarter. Maybe if you could give us a little bit of color as to what sales looked like and whether you expect to see a pickup in inflows any time soon?

The sales this quarter were certainly less than they had been in the first quarter. We did get rid of a few items, but dollar amount wasn't all that significant. We're a little over $14 million in REO, and I don't know, I guess Dan, my opinion at this point in time is that it could be rather slow going for a while in terms of getting rid of some of our existing, or remaining projects. I think there are projects that are going take a while to market.

Okay. Are you seeing a pickup in interest from potential buyers? Do you think we've kind of hit a bottom here and are they starting to sense that?

I think we saw a fair level of increased interest in, especially in the first quarter of this year. I think what Doug is saying is some of the projects that we have left in that category might be a little stickier in nature and aren't as quick to move. But as far as new things going into other real estate, we don't have anything that would be anticipated in any time in the near future.

Okay, and then just one last question on the OREO and I'll step back. Of that $14 million, how many properties make up that $14 million?

Well, there's probably a dozen to a dozen and a half in total, but there's probably four to five that make up the bulk of the dollars.

Okay. So you could see some material improvement at one of those larger credits went away?

Oh, no question. But like we said, those are projects that are either raw land or developed lots and we're not expecting them to move very quickly.

Okay. All right. I'll step back for now.

Kevin McLaughlin, BDF Investments.

Good quarter, gentlemen. I think Dave Milligan gave me the answer that I was looking for because just locally, I was hearing that there might be accounts moving because of weakness at other financial institutions. If you want to add any color to that, you're certainly welcome to, but that's kind of a delicate question, I imagine.

Kevin, this is Dave Nelson, and we do believe that we've got a strong pipeline and there's still a lot of pent-up demand that's building that when the economy does expand and improve, we'll be well-positioned for that. But in the meantime, and we think we can still grow and even if the economic expansion is slow in coming, we do think there are good reasons for people to choose to do business with us compared to perhaps where they're currently doing business, and that has started to happen.

Now, if there were -- I guess I should ask the question this way. If there were accounts that were interested in moving because of a weakness at another institution, nervousness, you wouldn't have any capital problems handling them, I presume, unless they were extraordinarily large?

No. We have plenty of capacity.

Okay, okay. Thank you very much, and good quarter.

Brad Ness of Choral Capital.

On the OREO, you guys are currently marketing most all those properties, right?

All of them, yes.

Okay, okay. It does look like the nonperforming assets have been decreasing over the past couple of quarters rather nicely, down 30%. Con you reconcile that with the classified credits, which look to be fairly flat over that time period and the big spike in substandard assets?

The comment there would be that we did have a loan move into the substandard area. It's not going to be a one-way street going forward, but overall, we think the trend is towards improvement and it has been. But there's still the potential for something to pop up.

Okay. That makes sense. Regarding -- I try to normalize your earnings and you guys have a great normalized earnings stream now. Looks like your second quarter efficiency ratio was around 50%. If I was to target an efficiency ratio going forward, or if you guys were to target an efficiency ratio going forward, do you know, is it around this number, 50%, or do you think there's some improvement, or some -- maybe could be higher?

I think the efficiency ratio's at a normalized level right now.

Okay.

I don't see a significant change one way or the other.

Okay, and lastly, looks like most of the deposit growth for the quarter came in CDs. Could you just discuss the deposit strategy for the quarter and the emphasis on core deposits?

Well, certainly we always have an interest in core deposits. We have a particular checking account that's been successful for us in that it pays a fairly attractive rate, but it is conditioned upon meeting three or four requirements; one of which has been the use of a debit card and signature-based debit card transactions. That's something that as we learn more of the impact of the Durbin Amendment on small banks like ours, we may revisit the characteristics of that account. But we think that going forward, that, that will remain an important account for us.

Beyond that, we stay competitive with interest rates. We're not the highest. We're not the lowest. We are putting more emphasis on our branch system and the sales tactics and approach that they take on a daily and weekly basis. Dave or Harlee may describe it differently, but I think it's putting more emphasis on the sales management process within the branches.

Okay, appreciate it, guys.

Thank you. (Operator Instructions) I'm showing no further questions. This concludes our question and answer session. I would like to turn the conference back over to Management for any closing remarks.

Well, we would just like to thank you for joining us this quarter. We appreciate your interest in our Company and we'll look forward to our comments next quarter. Thanks again.

Thank you. The conference has now concluded. Thank you for attending. You may now disconnect your lines.