West Bancorporation Inc (WTBA) 2012 Q3 法說會逐字稿

Good afternoon and welcome to the West Bancorporation quarterly earnings conference call. All participants will be in a 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.

Thank you and thanks to everyone for joining us today. I'd like to first of all introduce those on the call with me. We have our CEO, Dave Nelson, our Chief Risk Officer, Harlee Olafson, and our Chairman, Dave Milligan. Typically, Brad Winterbottom, our Bank President, also joins us but he's out of the office on business today.

I'd like to begin with of 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 those 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, thank you for joining us and Dave Nelson will start us off.

Thank you, Doug, and good afternoon, everyone, thank you for joining us. And thank you for your interest and continued support of our Company. We're very pleased with the quarter. It was a solid quarter, no unusual variances, just continued improvement in our metrics. Our challenges are shared with others, being loan growth and margin compression and we'll share more of our thoughts on those later in the call. But based on our earnings and strong capital position, our Directors declared a $0.10 per share quarterly dividend payable November 27 to shareholders of record on November 7.

In terms of our outlook for loan growth, we have had since the beginning of the year some growth, modest, but yet positive. We've really focused on our calling efforts and the activities necessary to grow our loan portfolio. We've also recently added some bankers and also created or carved out a specialty group to specifically target C&I business where we think we have a lot of opportunity.

Our mortgage activity for residential mortgages has been very strong this quarter and essentially doubled from third quarter of last year. We had year to date, we've had $89 million compared to last year through the first three quarters of $38 million. Our local economies here in the Des Moines area and Iowa City, we just saw some recent unemployment figures that show some improvement. The State average in Iowa is at 5.2%, and both of our Des Moines and Iowa City marketplaces are more favorable than that with Des Moines and West Des Moines being at 4.5% and Iowa City at 3.2%. I'd like to turn the call over to Harlee Olafson, our Chief Risk Officer, for your comments.

Thanks, David. My comments are going to talk about the quality of our loan portfolio and some ongoing efforts that we have to continue to grow that. Right at the present time, the credit quality is good. We've had a few lingering problems in our loan portfolio that are nearing conclusion that should further improve our credit metrics. Our levels of past dues are very low, even from in the best of times, and part of that is due to continued emphasis to maintain strong collection procedures and also some improvement in regard to the basic business climate for our customers.

In regard to OREO and how that is affecting our financial position, OREO write-downs for the quarter were fairly modest and part of that comes from continued appraisals of OREO properties and how we continue to book them as a percentage of what the value is of those various properties. Very little of that left to do for the year. We have a small increase in non-accrual loans and that's really a function of a handful of smaller credits that are not performing and needed some action. From a pipeline perspective, the pipeline on the commercial side is at a very strong level and does have a broad basis in regard to pipeline that is in a more infant stage of what we're looking at, some that has been approved and accepted by the customer and a fair amount that is in a position where it's ready to close in the fourth quarter. That concludes my comments.

Okay, thanks, Harlee. I wanted to make a comment about net interest margin. That's something that the industry talks about quite a bit right now, particularly I think it's typically described as headwinds and we would probably agree with that, that there are some headwinds for our net interest margin. However, when I look back over the last three quarters, ours has held up fairly well. First quarter, our margin was 3.5%, second quarter 3.44%, and in the third quarter 3.45%. It's held up a little better than I would have anticipated earlier this year. Having said all that, there is no question that we believe there remains and continues to be headwinds, and I would expect our fourth-quarter margin to trend down a few basis points from where it is or where it was for the third quarter.

When we look at third-quarter earnings, we feel that the results were pretty normal or could be considered pretty much core results. We didn't have anything that stuck out as being extremely abnormal or unusual. We did take a provision this quarter, which we had not done for a few quarters, but I think a provision for a financial institution would be considered normal or typical. Of course, we look at that on a quarter-by-quarter basis, so not sure what next quarter will bring until we get there.

And as Harlee mentioned, we did have some REO write-downs but it was a more modest level, so nothing that was extreme in that area. And as we think about earnings and going forward, I think that we believe that some of the wild cards as far as our performance going forward will be the headwinds affecting net interest margin, loan growth, what REO write-downs do and our mortgage activity, which for the last year or so has been really good. And rates are projected to stay low for another year or two, but you just never know how long those refinancing activities will exist. I think that would be all of our prepared remarks and so at this point in time we'd be happy to answer any questions.

We will now begin the question-and-answer session.

(Operator Instructions)

Daniel Cardenas of Raymond James.

As you look at loan growth, you said you've added bankers, you've formed a C&I group, maybe just a little detail in terms of number of bankers you've added, what your expectations are for '13 in terms of additional hires? And then on the C&I group, is that -- was that formed internally or did you -- are they part of the talent add that you've done recently?

We specifically added to our team in Eastern Iowa an individual that was an experienced banker from a separate financial institution. Here in Des Moines specifically, we have promoted two individuals that have some C&I experience that had been working in our credit department that were deserving and ready to be added into our sales force. We also would have plans to be adding one additional banker in Des Moines. The C&I group as it stands right now is made up of a manager and four bankers.

And Dan, I would just tag on that the Eastern Iowa banker was added during the third quarter but these other folks really are just getting up and running here at the beginning of the fourth quarter.

So relatively new initiative then on the C&I side?

Yes.

That's true.

Okay, good. Pretty tough expectations for them then coming into 2013? You setting the bar pretty high for them or --?

The main emphasis that's occurring right now is to make sure that each of them has over 250 prospects, and they're working on that right now and are very close to that. And their calling efforts are specific to activities that are required on a daily basis to make enough contacts to build the first portion of the pipeline and then move it through to close.

Okay. And what's their initial feedback in terms of competitive nature of the C&I business? I take it they're primarily in Des Moines?

That is true. The feedback that they're receiving is that part of the segment that we're working on we believe and through initial conversations has been a bit underserved and we have the ability to try to find what's in the customer's best interest that we have to provide and we believe that we have good products and services to provide and that people that we've put into those roles have the ability to match those up and provide a good solution to the customer. So we have high expectations for activities and we expect them to build their pipelines and we expect that with that activity, we will also generate business.

So being an underserved market then perhaps is there not as much pressure on pricing than there would be in some of the markets a little bit further upstream?

That is true. I think the biggest thing that you find is that on the C&I side is that there's more products and services that we can cross-sell to that customer base and it isn't totally reliant on one large transaction, based upon a piece of real estate that a lot of people are bidding on.

All right, that sounds fair. Okay, and then going to the net interest margin, it's been holding fairly steady throughout the course of the year. Sounds like you're expecting some compression coming into 4Q, modest compression. Do you continue to see that building throughout '13 and then perhaps are there any levers that you can pull? Your funding cost is relatively low but are there any levers you can pull to help mitigate some of the competitive forces that are out there?

Well, Dan, we think the levers that we can pull are becoming fewer and further between. Of course, we've probably said that before and we always keep finding some. But I think the incremental benefits from deposit repricing continue to be diminished. We did reprice a lot of our deposits at the end of July and I think that helped maintain the margin in the third quarter. I think it's unlikely that we would have further deposit rate changes in the fourth quarter. But we'll just have to see what develops and see what market rates do.

But I think that we would expect some margin headwinds from the standpoint that every time a bond is called or matures, it's being reinvested at a lower rate and there's still an element of that affecting the loan portfolio also. I think our main challenge is to grow the loan portfolio to mitigate some of that margin compression.

Okay, sounds fair. And then you guys increased your dividend $0.02 this quarter.

Well, we increased it last quarter.

Last quarter, okay.

Yes, dividend paid in August was at $0.10, and so we're maintaining that level this quarter.

I guess given what can be a pretty tough loan growth environment and not a lot of opportunities to put some of that money to work and a very strong capital position, couple things. Thoughts on stock buybacks. Is that something that you're interested in doing? Then maybe thoughts on where you'd like to see the payout ratio going forward because you're around, what, 45% or so right now?

That's right, for this quarter.

Regarding our strong capital position, it's something that we're certainly proud of and pleased that we're in that situation. And there are a variety of options that we continue to discuss and alternatives and how best to deploy our capital. And it certainly is our preference to grow and to use it that way and to -- where the organic growth is our priority. Certainly well aware of other potential uses that we continue to evaluate and assess.

In terms of the dividend payout ratio, this 35% to 40%, 45%, this range that we're in is, depending on our capital position and our continued earnings, this is where we anticipated that would be at.

The Board's perspective, we're very cognizant of what you're talking about. We're also aware that there's political uncertainty obviously going on here and what we're facing as a nation here probably going into next year and the various tax proposals that are out there and we'll see where that washes out. Suffice it to say that nothing would be off the table and we will attempt to act in a way that maximizes the shareholder value.

Okay. All right, sounds good. I'll step back and see if anybody else has any questions then right now. Thanks, guys.

(Operator Instructions)

And showing no further questions, I would like to turn the conference back over to Doug Gulling for any closing remarks.

Nothing else to add other than just to thank you for joining us. We appreciate your interest in our Company and we'll have another quarterly call at the end of January. So thank you.

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