West Bancorporation Inc (WTBA) 2014 Q4 法說會逐字稿

Good afternoon and welcome to the West Bancorporation's fourth-quarter 2014 earnings conference call.

(Operator Instructions)

Please note that today's conference is also being recorded. At this time I'd like to turn the conference call over to Mr. Doug Gulling, Chief Financial Officer. Sir, please go ahead.

Okay, thank you. And welcome everyone to our conference call to discuss our forth-quarter 2014 earnings. And I'm sure we'll talk about the entire year also. Around the table with me today are Dave Nelson, our CEO; Harlee Olafson, our Chief Risk Officer; Marie Roberts, our Chief Accounting Officer; Dave Milligan, Chairman; Brad Winterbottom, West Bank's President.

To begin with I'd like to 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.

And at this time I'll turn it over to Dave Nelson.

Thank you, Doug. Good afternoon. Welcome, everyone and thank you for joining us. 2014 was a great year for West Bank. Not the absolute best in our 121-year history but close. Our $20 million bottom line ranked number two, all-time, but the fourth quarter was a record quarter.

We had some non-recurring items take place during the fourth quarter. Doug will add some detail on those items. But based upon this performance, our Board of Directors declared a regular quarterly dividend of $0.14 per common share. The dividend is payable February 25 to shareholders of record on February 11.

Just a few highlights on the year. Our loans grew almost $200 million and our outstanding loan balances now are at an all-time record high. Our credit quality is incredibly solid. Our OREO balance at the bank level is zero and our Holding Company has one property.

Our margins held up during the year and our past dues are almost non-existent. We even have some non-accrual loans that are current. We recently completed construction and moved into our new Eastern Iowa headquarters building in Coralville, and we are now starting the design process for our new Rochester bank building.

With that I'd turn the call over to our President, Brad Winterbottom.

Good afternoon. I want to talk a little bit about our loan growth -- 19% for the year. And we had about $100 million growth in the fourth quarter. I would say roughly one-third of that would have been refinance of some commercial real estate projects from very good customers that had those assets financed elsewhere. They were coming due and we moved those assets over to us.

We also purchased some participations. We had a strategy throughout the year of buying up to $50 million. Most of that happened during the fourth quarter of this year.

We purchased participations on publicly traded companies. We buy into a big pool. And all of these would be publicly traded companies.

The balance of that would be, again, just continued sales activity. Our folks are doing a great job combing the streets. That growth came from Rochester markets, the Iowa City markets, and the Des Moines markets. So, all three are very vibrant at this time.

Trust activity needs to be highlighted. We had great growth in our trust department, and that's primarily personal trust.

Our mortgage activity is decent. We did change the way that we are providing mortgages to our customers. Really, we're now doing that through our retail staff versus specific residential real estate mortgage originators. We think that that provides a better cross-sell activity through other products and we're seeing some benefits of that as we start the new year.

With that, that ends my comments and I'll turn it over to Harlee Olafson who will talk about credit trends.

Good afternoon. I think you've already heard that our credit is in pretty good position right now. One of the things that we are doing is beginning to do a more thorough evaluation on any concentrations of different types of credit that we have in specific categories.

One of the things that's good to see is that in all categories of our watch list, the total number of credits and the total dollar amount in those categories has declined. So, although we have very little in regard to other real estate non-accrual or substandard credits, even the next categories of our least offensive watch list credits has declined significantly. Which bodes well, I think, for how credits can migrate through that process.

As you can see in our report, our Texas ratio from the previous year has gone from 7.69 down to 2.71. And past dues, as David talked about, are virtually non-existent. But I think the nice thing about all of that is that through the growth that we've had through the year in the fourth quarter, we haven't had to become overly exuberant in regard to how we price credits, and the margins have held up pretty well there.

I'll just make a couple comments on Rochester and our Eastern Iowa office and Iowa City and Coralville. Both offices, both areas had very nice 2014s for example.

Rochester, at the end of the year, loans went over the $50 million in outstandings -- that was a $33 million increase for the year -- and their deposits were up by $4 million this year. We do not have a traditional banking type of store there as of yet. That will be coming in 2015. It should be a little bit easier to make deposits and do things such as that once we have a more traditional office.

In Iowa City and Eastern Iowa, loan growth went from $193 million at the end of 2013 to $249 million at the end of 2014, for an increase of $56 million. And deposits also went up by $10 million over the year. Shortly after the end of the year, we opened our new headquarters office in Coralville in Eastern Iowa.

With that, that's the end of my comments.

Okay, thanks, Harlee. This is Doug and I'd like to, first of all, just talk and explain the one-time items that impacted the fourth quarter.

We had mentioned, I think on the previous couple of calls, that we were going to, and then actually had, sold the main office building, our old main office building, in Iowa City. The sale of that facility, plus the disposition of some other miscellaneous type assets, resulted in a net after-tax benefit or gain of $1.3 million.

Then we had a pool trust preferred security at the Holding Company level that had started at the Bank, but we then moved it to the Holding Company just to protect the Bank from what we thought would be further losses in that investment. But we sold that security at the end of the year and recognized a roughly $500,000 pre-tax loss. However, due to the values when it transferred from the Bank to the Holding Company, when all things were said and done, we were able to use some capital loss carryforwards against the gain portion of the transaction and net a $600,000 benefit in the fourth quarter.

Then we had REO writedowns and loss on sale that cost us roughly $1 million after-tax in the fourth quarter. Those items we would consider to be non-core. I suppose there could be some debate on REO transactions, but those aren't going to repeat themselves. We're down to where we have very little REO and so we don't consider that to be a core result.

Those things net to about $1 million of after-tax income in the fourth quarter. So, we reported $5.8 million. And if you then would take out the net impact of these one-time items, we would be at about $4.8 million.

That includes a $500,000 provision for loan loss in the fourth quarter. And, what's a core number on the provision -- that's hard to say, but with that loan growth in the fourth quarter, we thought $500,000 was the right number.

But, again, going forward, it probably won't be that high because I don't think we anticipate $100 million quarters very often. So, we would say that our core earnings on a quarterly basis, at this point in time, would be between $4.8 million and $5 million, or $0.30, $0.31 a share, something like that.

I'll also comment upon the margin. We were able to improve the margin 11 basis points year over year. And it actually went up a couple of basis points in the fourth quarter. There are two or three reasons for that, but by far and away the most significant driver of the improved margin is the improved mix of interest-earning assets, with the higher loan balances that are outstanding.

Since this is the end of the year, and we won't file our 10-K until around March 6, I think there are a couple of averages that some of you like to know about, so let me just share those. Average assets for the quarter were $1.570 billion. Average equity was $137.8 million. Quarterly average loan balance was $1.134 billion. If there are any other numbers anybody would like, let us know.

I think with that, we'll conclude our prepared remarks and respond to any questions.

(Operator Instructions)

Our first question comes from Andrew Liesch from Sandler O'Neill.

Hello. Just curious if you can talk a little bit more about these participations -- the location, what loan types they are, and what yields you have on them versus the rest of the portfolio.

It's all C&I business. It would be nationwide-type credits. We're buying no more than $2 million of each transaction. We chose to buy up to 25 transactions

They are monitored by one of our bankers along with a team of folks who we're buying them from. And the pricing is all variable. It's LIBOR-based with floors.

So, it's providing to us a minimum of, say, 3.25%, I would say. I don't have it all here in front of me but that's off memory. So it would be floating based LIBOR plus and then with floors in the 3.25% range.

And, Andrew, just a little kind of background on our conceptual thinking on these assets. It was actually about a year ago that one of our correspondent bankers with a national bank just said -- we've got a program through one of our subsidiaries that banks can buy these participations in national credits. They are variable rate and if you have any interest let us know.

So, we considered that for a few months and decided to go ahead and dip our toe into this because they are variable rate, they adjust quarterly, and we still think interest rates are going to go up some day. But after today it might be a little further out. And, in a way, we moved dollars or took dollars that otherwise would have found their way into the investment portfolio in a fixed-rate instrument with a four-year duration and a yield of 2%, found their way into these variable rate assets.

That's a little better background on those assets. I think we funded the first one in the second quarter and we've just gradually ramped that up. And here at the end of the year we had $43 million outstanding, and today I think we, if not today very soon, we will have $50 million outstanding. And that's going to be our limit for awhile.

We're going to watch them to see how they perform. Supposedly, they are liquid and that if we wanted to sell one we could sell it. Of course, there would be some market risk in doing that. Anyway, that's a little background on those.

Okay. But they're from like a large national bank?

Yes.

And then the yields where they are, just where the margin came in this quarter, it seems like there might be some pressure on the loan yield going forward, and there will be some pressure on the margin from here?

If market rates don't change much from where they are right now, I think our margin will stay in the range that it's in. I think it will stay in the 3.55% range.

Okay. Thanks so much.

(Operator Instructions)

Our next question comes from Daniel Cardenas from Raymond James.

Good afternoon. Just a quick follow-up on the participations. Are there any penalties if you try to liquidate early?

No. Like I said could be subject to market pricing risk, but no penalties.

Okay, perfect. And then maybe a discussion as to what you guys saw this quarter, this past quarter, in terms of paydowns and payoffs, is that rate what you expected? Slower? Better?

There were a few customers that sold assets that were unanticipated. That certainly found its way to our portfolio. But we had nice activity of finding new stuff and some things that we committed to maybe a few quarters ago that finally found their way to closing and that added good volume. More than made up for what the payoffs were.

Dan, in very rough numbers, Brad and his group did a little analysis and, very rough numbers we made $400 million in new loans this year. We're up a net $200 million -- well, $190 million, but say $200 million. We identified $100 million of payoffs. So, that leaves $100 million and that's roughly what we've considered to be normal amortization. That's how the loan flows looked this year.

Great, perfect. And then how are your pipelines looking for the quarter versus a quarter ago?

Very good. Our bankers have whip marks on their back.

And your credit are bored, is that how it works?

No that's not true. They're busy too. No, it's a good pipeline. Good things are happening in all three of our markets.

Good. Now, with the changes that you made in your residential loan production products, are there any other changes coming down the pipeline in 2015 with any other product lines?

Not that we have planned at this moment.

Okay, great. That will do me for right now. Good quarter. Thank you.

(Operator Instructions)

Ladies and gentlemen at this time, I'm showing no additional questions. I'd like to turn the conference call back over for any closing remarks.

We would just like to thank you for joining us today. And we'll talk again at the end of the first quarter. Thank you.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your telephone lines.