West Bancorporation Inc (WTBA) 2011 Q3 法說會逐字稿

Good afternoon, and welcome to the West Bancorporation third quarter 2011 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 Doug Gulling. Please go ahead.

Okay, thank you. Thanks, everyone for joining us today. With me on the call are Brad Winterbottom, our Bank President; Dave Milligan, Chairman of the Company; Harlee Olafson, our Chief Risk Officer; and Dave Nelson, our Company's President and CEO; and 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 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 for joining us, and to start us off, I'm going to turn it over to Dave Nelson.

Thank you, Doug, and thank you everyone for joining us.

Thank you very much for your continued support of our organization. Our third quarter, we're very pleased with our quarter. Our credit quality continues to improve, and consequently, our provision expenses declined, and our capital and our reserves remain strong. Also, during the third quarter, it was the second consecutive quarter that we've experienced loan growth. We also repurchased our warrants, which were -- when we exited the TARP program, we still had the outstanding warrants, but we redeemed those in full during the third quarter. And all of that put us in a position to increase our dividend. We've announced that we are having a 40% increase in our dividend at $0.07, with a record date of November 7, and that's to be payable November 29.

With that, I'd like to turn it over to our Bank President, Brad Winterbottom, to talk about our sales and activities.

We've been spending a lot of time in the third quarter, which actually really started at the first of the year in terms of redefining sales activity and calling efforts. And what we're seeing some results even though the economy is not cooperating with us, but we've had a nice opportunity for new business, and all of this is within our markets. None of this is through loan participations, or outside of our normal trade territory. We have nice activity that we are chasing or in process of booking for the fourth quarter.

We also have some pay-offs, so that growth pattern is trending in the right direction, but it certainly is not in a straight line. Our mortgage activity, residential mortgage activity -- with the rates being where they are, the pipeline is full for the fourth quarter, so we should see some decent fee income there, and with that comes opportunities for new deposits as well; and those are my comments for now.

Harlee?

Thanks, Brad.

One of the significant issues that occurred in the third quarter was write-offs on OREO of approximately $1,700,000. We do, on an ongoing basis, obtain appraisals on our other real estate properties, and write the values down to what we expect to realize upon liquidation of those properties. And I'm sure one of the things that everybody is interested in is what's going to happen with that in the future. One of the best things that I can say about that is, we're not adding significantly to those numbers of properties. In fact, in the third quarter, we had a $450,000 add to OREO; the second quarter was only $100,000; the first quarter was nothing; and the fourth quarter of '10 was only $12,000. So our total OREO balance compared to last summer is about half of what it was then.

Certainly, we also have continued, like I said, the process of receiving appraisals and writing down to expected values; and the level of write-down in this quarter is not expected to remain at that level. Our substandard and watch list loans have action plans to improve or to exit, and we're diligently working those credits to improve our overall portfolio. At the end of the third quarter, past dues over 30 days that were not on non-accrual were almost zero.

That concludes my comments, and I'll turn it back to Doug.

Just wanted to comment on a couple of areas. You'll notice that, for the quarter, we -- our provision for loan losses was zero. Harlee mentioned the fact that credit quality continues to improve. Our net charge-offs for the quarter were around $300,000, but REO's down, our non-performing assets are down and net charge-offs are significantly less than they were a year ago. As a result, we felt that the allowance, at slightly over 2% of loans, was appropriate and adequate for losses inherent in the portfolio. And, as always, that's something we'll just look at each quarter.

The net interest margin improved slightly during the quarter, and that was due to the fact that our average earning assets were actually a little lower in the third quarter, with most of that decline coming in the overnight funds. And so the mix of our earning assets improved, and allowed the margin to tick up a few basis points. And then, I'd just point out that all of our capital ratios continue to be well in excess of the requirements to be well-capitalized, and we believe our capital position is very strong.

And so, with that, we'll ask for any questions.

(Operator Instructions) Daniel Cardenas of Raymond James.

So, in the quarter, your REO cost was up due to appraisals. Can you give me an indication as to how many appraisals you had done in the third quarter, and then what that looks like for the fourth quarter?

The most significant pieces of property were appraised in this quarter. The levels of appraisals remaining that would keep us within a one-year timeframe is relatively insignificant for the fourth quarter.

Okay, all right. And then some good loan growth on a sequential-quarter basis; you guys said it was all in footprint. I mean, just a couple questions on that -- if you could comment on competition; you've been more successful it looks like than some of the other folks in the Midwest. Some insight as to what's leading you to win these loans? And then, if you could just remind us what's changed in your underwriting standards over the past 12 months to give us a little bit of comfort with some of the growth that we're seeing.

Well, maybe our smiles are a little prettier than the competition, but why are we getting the business? I would say that just -- we are tracking calls. We are monitoring and asking our folks for good call activity. We're a community bank; we're active in the community.

I think our staff is well known. We have a very stable staff, and as it relates to maybe some of our competition, maybe some of our competitors are having a little tougher go of it, and are looking to maybe shrink. I think we benefited some from that, and we benefited some from our own good doing. Has our credit standards changed? I would say, no, they have not changed.

And quite frankly, I would add that we're dealing from a position of strength, and others are not, and we're being very purposeful about targeting business that we want and taking steps to pursue it.

Okay, and you said your pipelines are looking good coming into the fourth quarter?

Yes.

Okay, and then was most of that growth that we saw, which months -- was it spread out evenly through the quarter, or was it more weighted towards the -- to the end of the month or end of the quarter or?

No, I would say it was spread through the month -- excuse me, the quarter.

And then, what you're seeing in the pipeline, is that more C&I type of business, or what kind of business do you think it is?

I would say it's a mix of maybe some construction activity and some C&I business.

What kind of construction?

About 50/50, I would say. Construction, some of it's homebuilding, and some of it would be commercial building. We're involved with a rather large hospitality transaction, and that's under construction, so that should ramp up.

Okay, so, for the homebuilding, are these pre-sold homes or --?

I would say it's about half and half. And the spec side of it would be on the low end, which still has, we think, some decent activity going on in the market -- $200,000 and under.

And in your markets, what's generally been the market time for homes in that dollar amount? How long does it take to sell, essentially?

Three months, probably. If I understand your question correctly.

Right.

A lot of these, they may start out as a spec, but towards the end they are selling, and there would be a purchase agreement. We typically finance spec somewhere between 9 months and 12 months, and this is strictly off memory, but it's very rare that we -- that by that end of the 9 months or 12 months that we've got to deal with, it's matured and it has not sold. It's very rare that, that's happened.

And then how much skin in the game does the builder have for the specs -- for these spec homes?

It certainly varies, but we're doing it at 75% to 80% to appraised value, some have more.

Okay. And then, I noticed on the deposit side, pretty good movement there. Can you comment a little bit about that? And then, how should we be thinking about your loan-to-deposit ratio as we move forward?

Well, I wouldn't say that there was any particular trend in deposits that were out of the ordinary. Our deposits are going to bounce around a little bit, but nothing specific there. Loan-to-deposit ratio, our policy states a 95% loan-to-deposit ratio; we're more in the 85% to 90% range, and I think that's probably where we, over time, where we will be.

I'd just add one more comment on that. Either non-profit or community-based type deposits, significant deposits, high 6-figure, low 7-figure type balances. We've had some RFPs that have expired, and we've won that business; and we have others that we've bid on that we should know more about in the fourth quarter. So, again, back to Dave's comment, the position of strength, I think that there are some folks out there that are looking to make sure that their deposits are safe, and we're getting a lot of opportunities that way.

And then, of the improvement in the margin this quarter, how sustainable is that going into the fourth quarter and into 2012?

I don't think it's going to increase from where it is. In fact, if anything, I could foresee a 5 basis point deterioration in the fourth quarter, but nothing significant. But it improved because at the end of second quarter -- we went into the third quarter with, I don't know, roughly $100 million in Fed funds, I think. And on the last day of the quarter, we had less than $10 million in Fed funds, and that's come back now after the third quarter, or end of the third quarter. But we're targeting a lower level of Fed funds than where we had been earlier, so that is really what drove the improvement in the margin.

Okay, great. Thanks. That will do me for right now.

(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.

Okay, well, just thank you for joining us, and we'll talk about the full year at the end of January. Thanks a lot.

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