West Bancorporation Inc (WTBA) 2015 Q3 法說會逐字稿

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

(Operator Instructions)

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

Thank you, Dan. And welcome, everyone. I would like to introduce the folks that are in the room here with me on the line. We have Marie Roberts, our Chief Accounting Officer; Dave Milligan, Chairman of our Company; Dave Nelson, CEO; Harlee Olafson, Chief Risk Officer; and Brad Winterbottom, President of West Bank.

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 uncertain 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-looking statements can be found in our periodic filings with the Securities and Exchange Commission.

So again, welcome to the call. And I am going to turn it over to Dave Nelson.

Thank you, Doug. Good afternoon, everyone. Thank you for joining us. We had a great quarter. In fact, we had a record third quarter -- a record third-quarter in our 122-year history, which is actually now our fifth consecutive record quarter in terms of earnings.

Doug will provide more detail on this, but just some year-over-year average increases. With our gross loans year-over-year for nine months we were up 16%, with our deposits up 11.5%, and our earnings per share increased 10.9%, all year over year.

All of our performance metrics are continuing to improve. At the end of third quarter our return on equity is 14.62%, return on assets $1.28, and our efficiency ratio continued to improve, dropping to 47.12. Our credit quality, very strong but it somehow continues to strengthen as evidenced by the Texas ratio is now down to 2.35%.

Some other significant events for us during the quarter -- we had our Rochester groundbreaking earlier this month -- Rochester, Minnesota. We started an LPO or de novo bank in Rochester about two-and-a-half years ago and are now in the process of constructing our permanent main office.

Also during the quarter, we were once again recognized by Sandler O'Neill as one of America's top-performing banks. Their sample of 435 publicly traded banks with a market cap below $2.5 billion, they selected 34 top banks from across the country, which again we were one of them. There were 14 repeat winners, with West Bank being one of those 14. But there was only one bank to be on the list four years in a row and that would be West Bank. So we're certainly pleased with that recognition.

And with all of this, our Board of Directors approved a $0.16 per common share dividend to our shareholders of record as of November 11, 2015, payable November 25, 2015. And with that, I would like to turn it over to Brad for a few comments.

Good afternoon, everyone. My comments will be brief. Our bankers -- and this is kind of same song, just a different day -- they're busy. They're busy with sales activities. We've done a good job of attracting new deposit customers as well as loan customers. This is in all three markets.

We've had decent growth during the third quarter of this year. As I look at the fourth quarter I would tell you that we have some anticipated payoffs. These would be construction loans that are scheduled to be completed and moved out of the Bank through the sale to third parties or just moving to nonrecourse type debt. That number is roughly $40 million, roughly.

We have good activities to replace those loans and we also have significant construction credits, buildings that are under construction that we're financing. So, I think that volume should replace what's coming off. But we've had a little bit of a headwind with a lot of the construction activity paying off and some of our customers actually selling some assets based upon the price they are able to get.

But, in all markets, good activities. Good deposits and those will be my comments. Harlee, how about discussing some credit trends?

All right, thanks, Brad. As you can see in the information provided, the Texas ratio has continued to improve and along with that past dues on our portfolio are so low there are almost none there. I think part of that is due to good economic activity in all three of our markets. All markets have been strong, with increasing building and other economic activity. Employment is strong in all three markets.

One of the things that has led to, I think, is competition for credit has started to, in many cases, loosen in regard to the standards that are being upheld by some of our competition. And what I mean by that is there is less cash equity being required in projects, lower debt service coverages are being accepted, longer terms are being asked for. We're being vigilant, trying to stay on top of our underwriting standards, our structures, and what specifically is happening in each of the markets so that we can stay on top of that.

In this last quarter we have one relatively significant credit that we've added to our watchlist, not in our more difficult categories that we consider substandard, nonaccrual or anything such as that. At this time it is not expected that will deteriorate further.

In looking at the Rochester and Iowa City locations, Rochester location continues to grow, both in the C&I side and the commercial real estate side. Without a traditional bank facility in Rochester, they have done a good job of obtaining full customer relationships. And we expect that to continue as we add a facility there in the future.

In Iowa City, our President in Iowa City retired just in October. We knew that was coming, so we had a transition period and have named a new President, Jim Conard, in Iowa City. They were able to do a nice job with transitioning our previous President's customers to the rest of the team. And we expect that team to continue to gain market share in that market.

So, in all, I would say the economy in our markets is good, economic activity is good, credit quality is good, and we have plans to continue to do what we have been doing in the past to keep our loan portfolio strong. Jim, who is our new President in Iowa City, was brought in about three years ago with the designation basically as a President-in-Waiting because we knew we would have a retirement in the future.

With that, that concludes my comments and I will hand it back to Doug.

Thanks, Harlee. I just want to make a few general comments about the quarter. When I look at the quarter, or when we all really analyze the quarter, we would characterize it as being a normal quarter. We did not have anything that we would consider to be abnormal or unusual or a one-time item. We had a provision for loan loss in the third quarter of $200,000, which we thought was appropriate, given the loan growth that we experienced in the third quarter.

Our net interest margin maintained at 3.59%. And I think that was accomplished with the loan growth we had and with adding some dollars into the investment portfolio, which was done towards the end of the third quarter. It was actually done during the month of September. So, we should see more benefit from the larger investment portfolio in the fourth quarter.

But, all in all, very pleased with the quarter. Again, just a solid, normal, no-nonsense quarter. So, with that, that completes our prepared remarks and we would answer any questions that may be out there.

(Operator Instructions)

Andrew Liesch, Sandler O'Neill.

Hi, good afternoon, guys. This is actually Aaron Deer on the line for Andrew.

The first question, actually following up on your comments regarding the securities book, I was curious, you did grow the book a fair bit this quarter. Can you talk about what kind of securities were purchased? It sounds like maybe you've got a willingness to add more into that book going forward. And what your thoughts are in terms of just what's giving you the impetus for growing that book further?

Sure, you bet. We purchased $90 million worth of securities in September, and then actually purchased another $4 million or $5 million in early October. But probably 90% of those purchases were mortgage-backed, CMOs, securities of that nature, with a duration under four years. The thought being there that we like the securities that are going to give us monthly cash flows, so that cash is available either for reinvestment or diversion into the loan portfolio, depending upon what is going on.

And then, what was the impetus for adding to the portfolio? It was the fact that we had deposit growth earlier in the year. And I think we've talked about that on a couple previous calls. But we weren't sure of the stickiness of those deposits. We've gotten to the point where it looks like they are going to be around for a while, and so we thought we would go ahead and invest those funds.

I would tell you that, of course, you never know when a deposit is going to leave, but the contingency plan for the increase in the portfolio is if some of those deposits were to leave, we can use the securities as collateral for Federal Home Loan Bank advance or a repo borrowing or other collateralized borrowing, really at a cost that would not be significantly different from the cost of the deposit. So, we just thought we're at a point where it made sense to invest those dollars.

Sure. And then maybe just give a little additional color on your expectations with the anticipated paydowns coming this quarter. You sounded relatively confident in terms of the pipeline and for net growth for the fourth quarter. Did I interpret that correctly? You still feel pretty confident we'd see continued gains in the overall loan book?

I think so. A year ago we had double-digit growth in the portfolio, and I would say our activities are equal, if not better. There has been some payoff through mostly sales, of customers selling an apartment building that we had financed or some type of a building that was sold to third party. So, I would expect the fourth quarter to hold its own, to have a slight growth. But when compared to a year ago, we're not going to see that type of growth in the fourth quarter. We had a really good fourth quarter a year ago, and I don't see that happening this fourth quarter.

Okay. And then maybe just one last one on credit: I know all the credit trends generally go in the right direction, but just curious, the one that popped onto the watchlist this quarter -- what industry was that in or what loan type was that?

We're not going to talk about that because it would stick out. But it is a credit that's in central Iowa, and it is performing; it is current. It has positive debt service. But that got tighter, and with a few other issues, we decided to put it on our watchlist.

Okay. Good stuff. Thanks for taking my questions.

Aaron, it's not an industry or whatever that would be indicative of economic trends or factors.

It sounds very one-off then?

Correct.

Okay. Very good. Thank you.

(Operator Instructions)

Showing no further questions, I would like to turn the conference back over to management for any closing remarks.

The only thing we have to say is thank you again for joining us. We appreciate your interest in our Company, and we look forward to reporting our 2015 year-end results at the end of January. So, thanks again.

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