West Bancorporation Inc (WTBA) 2012 Q1 法說會逐字稿

Good afternoon and welcome to the West Bancorporation, Incorporated 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. Mr. Gulling, please go ahead.

Thank you and welcome to our quarterly conference call. On the line with me are Dave Nelson, our Company President and CEO, Harlee Olafson, our Chief Risk Officer, and Brad Winterbottom, West Bank President. I want to 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. With that out of the way, I'm going to turn it over to Dave Nelson to get us started.

Thank you, Doug. Good afternoon, everyone, and thank you very much for joining us. We had a very solid quarter. Other than provision being at zero, there really was nothing extraneous or any one-time significant events during the quarter. The low rate environment has really been driving up home loan origination, so we certainly see income in that area up sharply during the quarter. We're seeing signs of growth in our commercial loan portfolio. We had growth during the quarter and year-over-year.

Our focus now is directly on our sales culture and continuing that growth trend. Really, we are very pleased with the quarter and our start to the year. Also, our Board just recently announced a first quarter 2012 dividend of $0.08 per share. With that, I'd like to turn the call over to Brad Winterbottom, our Bank President. Thank you, again, for your interest in our Company.

Good afternoon. I wanted to visit a little about loan growth and some sales activity. First, on our retail side, we are making a concerted effort to reach out to our larger retail customers and visiting with them about our service and our products and if there's anything else to sell them and that really has picked up a lot of traction on our retail side. In addition to that, our retail mortgage area had an excellent quarter, all reflective of interest rates. I would tell you that in the second quarter, we will have added at least one more originator. Our goal, and it'll take a while to get there, but our goal is to have a mortgage originator, at least one in every branch.

We will be adding at least one in the second quarter. On the commercial side, our sales activity has been very good. We've had some pay-offs, but I think loans are up approximately $10 million for the quarter and we have a good pipeline, with some closings in April and May and optimistic for continued loan growth. That concludes my comments. I'd like to turn it over to Harlee to talk about credit quality.

Thanks, Brad. Credit quality has been stable, in my opinion. There haven't been any major surprises within the last six months and especially, during this last quarter. OREO progress, although slow, continues. We did sell, what we consider, a major piece of OREO in the last quarter for $1 million and with that, reduced our OREO balance.

One of the things that's occurring within our commercial loan area is that we are making progress on putting our new commercial loan system that helps us approve, maintain our loan portfolio, and we hoped to be functional with that by the end of the second quarter. As Dave had mentioned, we had zero provision within the quarter and that's truly a result of the adequacy of our loan loss reserve. With the loan loss reserve being at a fully adequate level and no new significant changes to the credit portfolio, a provision was not needed. I have no other comments.

Okay, thanks, Harlee. Just a couple of additional comments I'll make. As Dave stated at the beginning, we felt this was a pretty clean quarter, kind of normal quarter, solid quarter. A couple of comments on a little bit more of the details. If you've read the 10-Q, I think we've made this comment. But in the first quarter of 2011, not knowing how the Company was going to perform for the year, we began the year accruing for incentives and the retirement plan contribution at a 50% level and then in the last half of the year in 2011, we caught that up to the full accrual level. We began 2012 at the full accrual level, so that accounts for a little bit of the difference in the compensation and benefit cost quarter-over-quarter.

In fact, that's roughly about $240,000. I wanted to make a couple of comments just about the margin. I think credit quality is something that's always on the minds of management and investors, but as Harlee stated, while that stabilized, I don't think that's an area that we'll ever take our eye off the ball, given what we've been through the last couple of years. But I think a lot of people that follow banks know that interest rate risk is getting more attention and that is something that we look at and know that there are some headwinds right now given the fact that the Fed came out again yesterday and said they plan on keeping interest rates at these low levels through the end of 2014. There's just no question that, as we have loans that have been outstanding for four and five years that are renewing, maturing and renewing, that the new interest rates are generally lower than the existing interest rates.

That's definitely the case with a lot of the securities in the investment portfolio. We were able to tweak down deposit rates at the beginning of the year, helped a little bit. In fact, our margin for the first quarter of 2012 was 3.50 which was pretty consistent with the fourth quarter at 3.49. We are down 12 basis points from where it was in the first quarter of last year, but the last couple quarters have been fairly stable. We do see some risk to the margin going forward and would expect it to decline a little bit as we go throughout the rest of this year. With that, I think our prepared remarks are completed. We would entertain any questions that may be out there.

(Operator Instructions) Daniel Cardenas, Raymond James.

Of the loan growth you saw this quarter on the commercial side, it sounds like it's more market share grab than increased confidence on borrowers side. Is that a good read?

That would be a good read.

Are you taking it more from the larger players or is it a combination of big and small?

I would say it's a combination, big and small.

Maybe if you could talk a little bit about competitive pressures that you're seeing in your footprint.

Sure. Competition is very stiff, certainly downward pressure. We have a lot of real estate loans that have fixed rates, would have prepayment penalties, so that's part of our discussion with our customers. But we've been able to maybe reduce rate and then extend and lock out for another five years with a lot of customers and we've been doing that probably for the last six months. That's a guess, but the last six months, that activity has really kind of picked up. But yes, we're hearing some rates that don't put smiles on our face like some of our competitors are doing and we've lost a couple transactions to rates, but I don't know if that's answering your question.

Is it mostly the bigger guys that are putting out the rates?

Yes.

Okay. Do you see them easing any on terms or is it just pricing concessions that you're seeing?

I don't see that. I see it's more rate-driven, not ease of covenants or those types, loan-to-values. I think everyone still has bruises from a few years ago. They can still see those bruises, so they're not easing up on any credit terms.

Okay. That's good to hear and then you said your pipeline is slowly building right now?

We have a nice pipeline and there's some great activity and we're waiting for some appraisals, et cetera, on some commercial real estate, but we've got a nice pipeline. We also know of a couple of pay-offs that are coming very soon. Quite frankly, they've been sitting on liquidity thinking maybe they will rebound and grow and they were saving that liquidity to help fund some of that growth. It's not there, so they've decided to pay off debt.

As you look at your pipeline, it's at mostly commercial or is it you're seeing some activity on the retail side too?

The retail is certainly a lot smaller, but I'm specifically talking about the commercial pipeline. Really it's a mixture of probably commercial real estate and C&I business. We've got a couple, I would say franchise, C&I business that are looking at an acquisition, out-of-market acquisition that we would probably help them with.

When you say out-of-market acquisition, is that a couple counties down or is it out of state?

It would be out of State. In one case and in another case, it's in a different county. But it makes sense, they have operations in other states as well, so this is not too wild for them.

Got you. Okay. I think you kind of hit on the margin. You're looking for that to be under some pressure. Maybe just a couple of points here, if you could give me what your cost of funds did for the quarter? Then maybe tell me if there's anymore levers that can be pulled on that side to help ease off some of that pressure.

Yes, our cost of funds for the first quarter was 1.13%, that's down from 23 basis points from a year ago. Dan, I don't have that cost for the fourth quarter in front of me, but I would say that I don't know that we've got many levers left. Like I said, we tweaked down all of our liability prices at the beginning of the year. There may be just hit and miss a little bit, but for the most part, we do a rate shop every week. We want to be competitive. We don't want to be the highest in the market and we're situated where we think we need to be, so I don't see a whole lot of levers to pull.

Then on the yield side, as I look at the securities portfolio, is that where most of the pressure is going to be coming from?

I think it's going to come from both the investment portfolio and the loan portfolio.

Just a quick question on capital, your capital levels have been building, a little bit of contraction on a sequential quarter basis, but that looks like it was due to growth. What are your plans to implement excess capital right now?

Yes, you're right. Our tangible common equity ratio, I think, is about 9.6%. I think the way we're looking at that right at the moment is we've got a regulatory exam that's going to start next week. We don't expect any surprises. We think that the results will not indicate anything that will be a surprise to us, but I'd kind of like to get through that. We'll be doing some, quote-unquote, strategic planning in the second quarter. We'll see what the outlook is for the economy and then start to make decisions on capital, whether we have some growth opportunities that we'll use it for, whether we need to return it to shareholders in one fashion or another. But we're thinking about it all the time, Dan, but I think we're probably won't do anything for a little while yet and evaluate a few of those things I mentioned.

Okay. That sounds fair. My guess is as you think about your TCE ratio, what's the low end of your comfort range?

We don't have an official board-stated policy. I'll speak for myself. I think 8% might be a number that we'd want to stay above. But it depends on the risk profile and economic conditions at any given time and maybe it could even be a little lower than that, but say 7.5% to 8%. Let me just ask you, when you look across your bank universe, what do you think a good number is?

It depends. Just hitting the factors that you were hitting on, credit quality, organic growth opportunities, and potential M&A opportunities. It's a little bit different for everybody. Still given some economic uncertainty, 7.5% to 8% is probably a good place to be.

We definitely think about that all the time and we'll be formulating more plans as we move forward.

Excellent. All right. Thanks, guys. Good quarter.

(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.

I would just like to say on behalf of all of us here that we appreciate you taking the time to join us today and we'll look forward to another call at the end of July. Thank you.

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