West Bancorporation Inc (WTBA) 2014 Q2 法說會逐字稿

Good day and welcome to the West Bancorporation Incorporated second-quarter 2014 earnings call.

(Operator Instructions)

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

Thank you, Andrew. Welcome everyone. Thank you for dialing in today. On the call with me are Dave Milligan, our Chairman; Dave Nelson, our Chief Executive Officer; Brad Winterbottom, our Bank President; and Harlee Olafson, our Chief Risk Officer.

And to begin, let me 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. Additional information concerning factors that could cause actual results to materially differ from those in the forward statements can be found in our periodic filings with the Securities and Exchange Commission. Again, thank you for joining us and Dave Nelson is going to start us off.

Thank you, Doug and good afternoon, everyone. Thank you very much for joining us. We appreciate your interest in our Company. I have a few general comments and then would ask the others to share some more detail.

But we had a great quarter and we're very proud of our performance in our trajectory. We had solid growth in all three of our markets with both loans in deposits. Our credit quality and loan growth are both extremely good. Bad parts of the bank continue to get smaller and the good parts are growing. All key financial metrics continue to improve.

We're currently constructing our new Eastern Iowa headquarters building, and our Rochester branch that we opened last year is now profitable and we are planning to construct our bank building there next year.

With the strong earnings our Board has approved a quarterly dividend of $0.12 per share payable on August 20 to shareholders of record as of August 4. Also during the quarter, a Company highlight during June, we were invited by NASDAQ to come to New York and ring the closing bell. With that, I'd like to turn it over to Brad Winterbottom, our Bank President.

Good afternoon. I'd like to just talk briefly about our loan growth and we had a nice quarter. We're up about 8.5% from the beginning of the year with good growth in the second quarter, and it really came from all markets. It came from Rochester, Eastern Iowa, and Central Iowa.

The growth has been in primarily commercial real estate activity. We've had several construction loans that were in the process of funding, a couple of those were built and had some pay-offs during the quarter but this is the time for construction and that activity is very brisk. Our homebuilding business is also very brisk. Commercial activity, the C&I business we've had some growth there as well and a lot of that is really coming from the Central Iowa community.

Other areas of the bank, the retail deposits are growing for us. All of our salespeople are busy. They have a lot of -- we're doing a lot of ask for them to make sure that their sales activities are full. Our trust department continues to grow and really all phases of the bank are looking good. That would be my comments and now to Harlee for some of the credit trends.

Thanks, Brad. As you can see within our quarterly report, we have seen a continued decline in our non-performing assets, and past dues at the end of the quarter were very minimal, very few past dues.

A new trend that we've been looking at is the migration from either our watch category to substandard or from watch to a non-watch category, and that migration has tipped toward credits improving compared to deteriorating. This is partly due I think to improving economic conditions for the borrowers and/or actions taken by Management at our borrowers companies that have improved their financial position.

With the improvement in credit quality we also have concentrated input procedures in place to protect ourselves from other risks that are common to all banks that are non-credit related so we have had some time to do that and some time to put some things in place that should protect us from most things in the future.

Just last comments is we're pleased with the growth that we've had in our portfolios in all three markets. I really attribute the growth to our culture and our processes that allow us to be nimble and responsive when opportunities arise, and our bankers are seeking relationships with the best businesses in our markets and we expect that to continue. With that, I'll turn it over to Doug.

I've just got a couple of comments I wanted to make and then we'll open it up to questions. But in general, when we look at the quality of the earnings here in the second quarter, we think it's really a solid core quarter, and what we mean by that is we didn't have any one-time items, any extraneous items in there and -- (technical difficulties) Okay, well what I was saying is we believe that our second-quarter earnings were really just solid, basic core earnings. We didn't have any extraneous one-time items there and so we're very, very pleased with the solid level of earnings in the second quarter.

Net interest margin did decline a little bit from the first quarter, but on average it's better than it was second quarter last year and for the first six months of last year. We would expect the margin to be in that 3.50% range give or take a few basis points and what we -- if we are able to improve it, we think the improvement will come by continuing to improve the mix of earning assets, which of course we've been able to do year over year by virtue of the loan growth and then minimizing our idle funds and taking some dollars out of -- letting the run-off from the investment portfolio find its way into the loan portfolio. And a lot of that will depend upon deposit growth, which as Brad indicated though, has also been healthy and is at least so far is keeping up with loan growth.

If you've had a chance to go through the Q, you'll notice we did make an additional BOLI bank owned life insurance purchase of $5 million towards the beginning of May. That crediting rates in the 3.5% range, and that's of course tax free so the effective rate or the effective crediting rate is closer to 5%, so that was a worthwhile transaction. And we did it to cover a few more people in the bank that weren't covered under other BOLI programs.

And then lastly, we did have a provision for loan loss in the second quarter. We're at the point with our loan growth that we think a provision with a growing loan portfolio is probably the normal and right thing to do. No question our experience factor is continuing to improve, but with the loan growth we thought the $150,000 was a prudent amount to put in and of course believe that our allowance is adequate at the end of the second quarter. So with that, we will pause and respond to any questions that may be out there.

(Operator Instructions)

The first question comes from Andrew Liesch of Sandler O'Neill & Partners. Please go ahead.

Hi, everyone.

Hi, Andrew.

Can you give some comments on where the loan pipeline stands right now and then if there are any larger pay-offs you see coming in the near future?

Well, pipeline is and continues to be strong, I would say it's very comparable to where we were 90 days ago, in terms of the activities. We've had a few pay offs during the quarter and surely some significant ones. And Harlee mentioned the trend of moving from watch to substandard or watch to non-watch. We had some of those watch credits actually find another home [nine quarter] so we lost that volume, but we replaced it with improved credit quality.

We had a couple more pay off since June 30 and we're okay with that. Do we have some significant pay offs pending?

Yes, but nothing out of the ordinary.

I don't know if that answers your question, but there's a couple large ones but we have a few of those every quarter.

Right. And then I'm just curious how deposit growth has been in Rochester. It seems like loan growth is doing quite nicely. How is it coming on the funding side?

Deposit growth in Rochester again we have a functional office in Rochester for providing services and we are picking up some nice Company business there that's helping fuel some deposit growth. Most of the business that we're picking up there is from operating companies, and until we have a fully functional bank building, the core consumer and other deposits such as that will remain minimal until that time.

Those deposits are being processed through remote capture, so the business that we are getting there are moving their primary accounts to us, but for the daily cash activities they maintain an account somewhere else. And then obviously the retail side of that, we're not chasing those deposits yet because we don't have drive ups, we don't have teller lines.

That's it. Thanks for taking my question.

Thanks, Andrew.

(Operator Instructions)

The next question comes from Dan Cardenas of Raymond James.

Good afternoon guys. Nice quarter. Just a quick question on the construction growth that you're seeing right now, maybe if you could give a little bit of color as to the type of construction activity that you're seeing right now. Is it single family, multi-family, et cetera?

Multi-family. We have a handful of multi-family projects going on with very experienced and long-time builders here in our markets. There are more houses that are under construction that have tenants, so it's kind of a build to suite. We have a couple medical office buildings that are being build to suite, so those would be -- those are probably the three that stick out the most.

And are you having success once those projects are done converting them on to commercial loans on your portfolio?

In terms of the warehouses, I would say that we have provided a permanent piece that will go with the construction loan, and those warehouses have very strong tenants that will be moving in once the warehouses are completed.

The apartment side of it we have provided some mini perms but those folks are interested in moving that to non-recourse type facilities once they are up and running. And those medical office buildings, those will typically, those are typically construction-only loans.

And we had about $10 million of those exit the bank in the second quarter, those medical office buildings because they were built on time within budget and then exited to -- they actually were sold to the investment community.

And then maybe some comments on the M&A environment right now and your appetite especially given a fairly robust currency.

Well, Dan, I think our position hasn't changed a lot over the last couple of quarters in that. Looking for an acquisition is not our top priority. We look at things that come by and we did look at a couple of things recently but nothing that we thought would be a good fit for us, and we're concentrated more on organic growth at this time.

Okay. So given that then, as you look at your branching footprint, especially in the Des Moines area, do you feel like you're fairly well represented in Des Moines or could we expect maybe some additional branch locations as you look to capture more market share?

Well I don't think you'll see additional branch locations in Des Moines. We're building a new one in Coralville but we'll actually consolidate an office there. And in Rochester our plans are just for one branch in that market. With the type of business that we do we believe that that is quite sufficient size of a market for Rochester.

Okay, great. I'll step back right now, again good quarter guys.

Thanks, Dan.

(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.

We would just like to say thank you for your interest in our Company and joining us today, and we'll look forward to our call at the end of October. Thank you.

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