West Bancorporation Inc (WTBA) 2015 Q1 法說會逐字稿

Good afternoon and welcome to the West Bancorporation first-quarter 2015 earnings conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Mr. Doug Gulling. Please go ahead.

Thank you. And welcome, everyone. Thank you for joining us this afternoon. With me on the call today is Dave Nelson, our CEO; Brad Winterbottom, our Bank President; Dave Milligan, our Chairman; and Harlee Olafson, our Chief Risk Officer.

I will 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 takes 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 the 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 I'd like to turn it over to Dave Nelson.

Thank you, Doug. And welcome, everyone. Thank you very much for joining us. We had a great quarter. In fact, it was a record first quarter, which was also preceded by record quarters during the third and fourth quarter of last year.

Based on that performance, our Board of Directors approved an increase to our dividend, declaring a first-quarter dividend of $0.16 per share, which is up from the previous $0.14. And this dividend will be payable May 20 of this year to shareholders of record as of May 6.

We are going to talk a lot about how that record happened. I just had a few comments about why we are positioned to have a great year.

Our opening 2015 balance sheet was bigger, stronger, and more efficient than last year. We started this year with approximately $100 million more in average loans outstanding. Our credit quality was great at the start of 2014 but it was even better at the start of this year. We have intentionally and more aggressively deployed both our liquidity and capital.

We said Rochester was expected to make a positive contribution to the bottom line during 2014, and it did. The Rochester contribution will be even greater this year.

Our sales culture continues to improve and our infrastructure is in place that can support more growth without adding much expense. We are in a position of financial strength and 2015 has already started off better. Obviously the first quarter of this year was better than the first quarter last year, this quarter being an all-time record-earning first quarter during our 122-year history.

With that I would like to turn the call over to Brad, our Bank President.

Thanks, Dave. My comments will be brief. The loan volume, the loan activity from end of year to the end of the first quarter was good; however, we don't see a lot of growth. However, we expect that we're going to start seeing growth here in the second quarter and throughout the remainder of the year.

We have a lot of construction loans that we will be funding, and have been funding. Our calling efforts have been very strong. The pipeline is very good in all three markets -- the Des Moines market, the Eastern Iowa, Iowa city, Coralville market, and the Rochester market Our bankers are busy and there is good activity out there, so I do anticipate to see our loan balances grow again.

With that, I will turn it over to Harlee and he can talk about credit quality.

Thanks, Brad. Credit quality is fun to talk about when it is good and it certainly is at this point. Just a couple of specifics. Our total watch list -- that would include our other real estate -- is 1.6% of our total loans outstanding. I don't think that I've ever seen anything like that in my career in regard to being in that good of a position.

Within that category, 58% of the watch list is in our least critical position, 25% is in sub-standard, 7% is in non-accrual, and we have one OREO property that accounts for 10% of that total. That OREO piece is what we believe to be a good piece of property and it's booked at 75% of its appraised value. So, we don't feel a lot of risk with it at this point.

Past dues have been almost nonexistent. In fact, our past due totals over 30 days past due is less than our total of nonaccrual loans, and most of our nonaccrual loans are also current.

In looking at a couple of other things, Rochester and Iowa City, for example, Rochester and Iowa City combined now represent $300 million worth of our loan portfolio, which helps us to provide some diversification. We have great markets in both Rochester, Iowa city and Des Moines, and having a little more diversification there, I think, is beneficial. We now have a new building that's been constructed and is operational in our Iowa City, Coralville market. Our people are all moved in there and are happy with that.

With that, I'd turn it back over to Doug.

Okay, thanks, Harlee. I want to just make three comments, the first one being in the 10-Q we made a couple of comments about a deposit concentration. That developed towards the end of the first quarter when entities of a related party deposited $82 million with us. And that, combined with what they already have on deposit, took the total of those various entities up a little over $200 million.

And we made the comment that we don't take that recent deposit of $80 million is going to stay here for the long term, so we would expect that to go out. We don't know for sure but sometime certainly in 2015 and it could be as soon as in the second quarter. We've maintained the liquidity to cover that $80 million whenever they do decide to redeploy those funds.

A comment about the margin -- when I look back over the last year, our margin on a quarterly basis has fluctuated between 3.64% and 3.55%. This quarter we were at 3.59%. So, we've had, I think, a relatively stable margin. When we look at some of our asset liability management reports, if interest rates stay where they are right now, I think we could see just minimal decline in the margin, and minimal by probably not more than 5 basis point. I think absent some dramatic change in the interest rate environment our margins should be relatively stable.

And then, lastly, we did not have a provision for loan loss in the first quarter. We had net recoveries of a little under $300,000 and just didn't need to provide for anything in this quarter.

And I wanted to make the comment that here in the second quarter we've already received $275,000 in cash recoveries on loans that have previously been charged off. While we still have two more months of this quarter to go, sitting here today our guess would be that we probably won't have a provision in the second quarter either. But things can certainly change.

With that, we'll conclude our prepared remarks and respond to any questions that may be out there.

(Operator Instructions)

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

Hey, guys. Can you just give a little bit more clarity on the mortgage banking business and how that's going to flow through the income statement? Basically my question is, is the gain on sale that you had this quarter, like the fees there, is that what it's going to be going forward, or similar to that with maybe an uptick with more purchase but then also a drop in related expenses?

I think it will be a little higher. Obviously it's going to depend on volume. But impacting that line item this quarter we actually had a $35,000 negative adjustment, if you will, on that line item. It was due to the mortgage program finance program with Federal Home Loan Bank that we had previously been involved in.

Under that program we would accrue some fees and some expected losses. And now that we are not going to be in that program anymore we reevaluated that and ended up taking a $35,000 charge that ended up on that fee line. That line, as far as the business activity for the first quarter, would have been $35,000 higher. Going forward it'll just depend on the volume.

I'd also add that first quarter would probably be the worst quarter out of the year, especially in the Iowa-Minnesota markets just because of the weather and we don't see a lot of people moving into homes in the first quarter. And that activity has certainly picked up towards the end of March and into April. So, I would expect that number to be a little bit higher but not real significantly higher.

I think the important thing to remember there, too, is that even though the numbers are different than the previous year, the expenses that go along with that number in our old way of doing business, the net result was very minimal. In fact, and anything that we put in that number now is almost all profit. So, it's a significant difference.

Right. And then, Doug, can you drill into a little bit more on the margin? I'm just curious what new loans are coming on. And then also if you purchased any securities in the quarter and what those yields were.

We had minimal investment security activity in the first quarter. We sold two issues that totaled about $10 million or $11 million, reinvested the funds, and went a little further out on the yield curve and picked up a few basis points in yield. And that was the extent of the activity, other than normal paydowns on the mortgage-backed securities and the MBSs.

And as far as the yield on new loans, I'll let Brad talk about that.

Most of our loans are either floating off of prime or margin above prime. And then fixed rates, we are still pricing in the 5, maybe 7 if you are long-time valued customer. We have seen our markets go to 10 years. We don't do that, we have not done that, and don't anticipate doing that. So 5-, 7-year fixed rate. And we are using -- we're looking at the 5-year treasury, we're looking 5-year Federal Home Loan Advance Rate, using a margin above that.

Okay. Those are my questions. Thanks so much.

(Operator Instructions)

At this time I show no further questions. I would like to turn the conference back over to Doug Gulling for any closing remarks.

I guess all we have to say is thank you for your support of our Company and thank you for joining us today. We'll have another call at the end of the second quarter. Thank you.

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