West Bancorporation Inc (WTBA) 2015 Q2 法說會逐字稿

Good afternoon, and welcome to the second-quarter 2015 earnings conference call.

(Operator Instructions)

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

Thank you. Welcome, everyone. Thank you for joining us today. On the call with me today are the following: Dave Nelson, our CEO; Brad Winterbottom, Bank President; Harlee Olafson, Chief Risk Officer; Marie Roberts, our Chief Accounting Officer; and Dave Milligan, Chairman of the Board.

I'll 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. 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.

I'll turn it over to Dave Nelson to begin.

Thank you Doug, and good afternoon everyone. Thank you for joining us. Westbanc had a great quarter. We'll talk more about this, but Westbanc had an all-time record second quarter in our Company's 122-year history. Also during the quarter we hit an all-time record high stock price of $20.99.

We're growing revenues in all three of our marketplaces. And our infrastructure's in place with the capacity for more growth without adding a lot of expense. This is reflected in our declining -- or improving efficiency ratio.

Our loan quality is incredibly strong, and we have a significant pipeline of new business. And with the second quarter being a record quarter, we now have had four consecutive record quarters for earnings.

We have a fully-funded allowance for loan losses and are well capitalized. And therefore our Board has declared a second-quarter dividend of $0.16 per share payable August 19 to shareholders of record as of August 5, 2015. And the highest quarterly dividend ever paid is the $0.16 where we are currently at.

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

Good afternoon. Doug and Dave both mentioned good loan activities, and that is true in all markets. Our sales staff is working hard and we have a full pipeline. We've had some payoffs of some construction loans, significant construction loans, and we've had a few other non-revenue producing real estate loans that have paid off during the quarter fairly significantly, which doesn't reflect in the -- well, it does reflect, but into the growth that is -- that we've experienced year to date. I think we're just slightly above 3% for the year, 13% over the last 12 months.

I would anticipate sales activities continuing to be strong. And most of our customers are having very nice years. And so I would also anticipate our problem credits to remain really non-meaningful.

Our trust area is active, and we're seeing some nice growth in our trust area that provides some non-interest income. And that would be all of my comments. Harlee, would you like to add?

Sure, Brad. Thank you very much. Good afternoon. My comments are going to be about past trends in our credit and a couple of comments on our locations in Rochester and Iowa City.

Just from a historical perspective, our total watch list currently stands at $17 million, and that compares to one year ago when it was $39.7 million. Our most recent quarter in March 2015 it was at $20.5 million. This quarter we did have an increase in non-accruals.

Part of that's due to we recognized one credit that we would really like to move out of the Bank this year, and to do that you have to push a little bit to get that resolved. That credit makes up more than 50% of the non-accrual category, and it is a property that the owner has a letter of intent to sell, which would pay our loan in full.

We have one piece of OREO still in our portfolio. It's a decent piece of property. It seems to be just out of the current development zone where people are putting up a lot of property. But we are looking for the right user on that to be able to move that one piece of property.

In Iowa City. Iowa City staff continues to do a good job being leaders in the marketplace. They have continued to grow their market share on the -- especially on the loan side of the business. Credit quality in Iowa City is extremely strong, and with that there really is no loss premium in the pricing in Iowa City.

So we oftentimes see a little bit lower pricing in Iowa City compared to our Des Moines market. There's a lot of activity and very strong credit quality, and we're getting our share.

In Rochester, I would say that we are getting the cream of the crop in regard to the customers in Rochester. And that's due to having, I believe, the best bankers in the marketplace. We continue to bring in some nice franchise-type relationships.

We don't have a headquarters location yet in Rochester, but that location is expected to begin to be constructed, probably at the end of the third quarter of this year. So we expect to use that as our focal point in Rochester, and be able to do a better job regarding providing all the financial services our customers deserve in Rochester. That's the end of my comments.

Okay. Thanks, Harley. I wanted to comment upon three items. First one being the net interest margin. We've been pleased with really a pretty constant net interest margin over the last year. And in fact on a linked-quarter basis, the yields on our loans and investments have remained constant and we've -- but yet, we've still seen a few basis points improvement in our cost of funds. It's probably going to stay like that until -- unless and until the Fed starts making some moves on interest rates.

We did take a provision for loan loss in the second quarter which we did not do in the first quarter. Even though we had significant net recoveries in the second quarter, with the growth in the loan portfolio our analysis just pointed to a provision of a couple hundred thousand dollars. And then lastly as far as expenses go, I think that the expense structure you see for the second quarter is representative of our core expenses and should be fairly representative of what expenses will look like for the remainder of the year.

And with that, we would like to answer any questions.

(Operator Instructions)

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

Hey, everyone.

Hi, Andrew.

Doug, can you talk a little about the securities portfolio and the liquidity position? It looked like it declined a little bit. Just curious if some of that stemmed from the deposits, the one large depositor that left and -- yes, let's start with that.

Sure. Our investment portfolio has declined this year. We have not added to it. We have done a few sales and purchases. And in fact did some in the second quarter to the tune of about $6.8 million. We've had some corporate securities that had rolled down the curve, had slight gains in them. And then -- so we took those gains and then reinvested the proceeds in some municipal securities that, granted though, had a little longer life to them. But we picked up somewhere in the neighborhood of 300 basis points, [2.5%] -- maybe 250 basis points. And would estimate that on an annualized basis we'll pick up $150,000 in interest income.

But back a little bit more to your question, those deposits actually haven't left us yet. What we're able to do through Promontory is utilize the one-way sell product that they have. And we have off-loaded some of those deposits temporarily. There's no impact to the customer. They get the same rate that they would have if they're on our balance sheet. But given that we didn't expect those deposits to be around very long, we did not want to invest them. And so by using the one-way sell product, it saves us some basis points. So the deposits are still around if we want to bring them back. It's kind of a reserve liquidity pocket, if you will. But going forward, we'll re-evaluate whether we actually deploy those deposits as we learn more as to how long they may stick around.

Okay. That's helpful. I guess along those lines, then, with the securities that you bought and the loan growth that's coming on, where do you see the margin coming in? My guess is it's going to hold pretty steady around this 3.59%, 3.6% level.

Andrew, yes, I would agree with that. I think it's going to be right around where it is, give or take a few basis points. Again, absent some move by the Fed or just a disruption in market rates, I think our margin should be fairly constant for the next couple of quarters.

Got you. And then one last question. Can you just give an update on what your asset sensitivity is?

Well, our reports show that in a rising rate environment -- I mean, we run scenarios up [$100 million], up [$200 million], up [$300 million], up [$400 million], up -- ramping up, all the various scenarios. And in all cases, we are asset sensitive to the point that it shouldn't increase net interest income.

Got you. Those were my questions. I'll step back. Thank you.

Thanks, Andrew.

(Operator Instructions)

There are no further questions at this time.

Okay. Well, we again thank everyone for joining us today. We appreciate sharing our good news on the quarter and look forward to our discussion next quarter. So thank you very much.