West Bancorporation Inc (WTBA) 2016 Q2 法說會逐字稿

Good morning and welcome to the West Bancorporation Quarterly Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (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.

Thank you and good morning, everyone. Thank you for joining us this morning. In the room here on the conference call with me are Dave Nelson, our CEO; Brad Winterbottom, Bank President; Marie Roberts, our Chief Accounting Officer; Dave Milligan, our Chairman; and Harlee Olafson, our Chief Risk Officer. And I will begin with our fair disclosure statement.

Comments made during this conference call may contain forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans, strategies, projections, anticipated events and trends, the economy and other future conditions.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements can be found in the Company's periodic filings with the Securities and Exchange Commission, including the Company's 10-K for the year ended December 31, 2015. Any forward-looking statement made by us during this call is based only on information currently available to us and speaks only as of today's date. 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.

Good. Got that out of the way. So, Dave Nelson will start our comments.

Thank you, Doug, and good morning, everyone. Thank you for joining us and thank you for your interest and support of our company. We had another record quarter. I'm pleased to report that we had a record second quarter for earnings, all-time record in our 123-year history of our company, and it also represents the eighth consecutive record quarter.

Doug will provide more detail on this, but during the first six months of the year, our gross loans increased $133 million, which represents a 10.8% increase during the first six months of this year. Our net deposits during the same period increased $70 million, which represents a year-to-date increase of 4.9%. And despite this growth, our pipeline is still good. And our credit quality is exceedingly strong, which Harlee will talk more of, and Brad will speak more to our growth and our pipeline.

Based upon this performance, our Board of Directors has approved a second quarter dividend of $0.17, which remains unchanged from last quarter and it -- but it also is equal to the highest quarterly dividend ever paid by our company. So now, we have record earnings and record dividends. The $0.17 per share dividend has a record date of August 10 and a payable date of August 24.

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

Good morning. Just to follow-up on some of Dave's comments, as it relates to the loan activity in the second quarter, we added about $100 million of loans in the second quarter and primarily towards the last third of the quarter. So that loan volume has continued and our pipeline looks strong.

We do have -- in the third quarter, we have about a half a dozen loans that are in construction phase, they are anticipated that they will accept the Bank. And however, we have also added some construction loans that have yet to be advanced upon. So it maybe a little wavy line, but I think the trend line will continue to move upward.

Good activities in all three markets, Central Iowa, Eastern Iowa and Southeast Minnesota. In terms of the Trust business, we are adding accounts into our Trust business, its revenue is down from a year ago, primarily due to the one-time fees of a state -- handling of states and we haven't had that kind of activity so far year-to-date.

But really the deposit gathering side of it has been strong. We've been fortunate to add some significant new deposit relationships that should stick for a long time that helps fuel our loan growth. And we're pleased with the progress.

Those would be my comments, and Harlee do you want to add anything?

Sure, Brad. Thank you. I'll talk a little bit about our credit area. And just a few highlights is that, our loan recoveries or recoveries on past charge-offs currently and through the last few quarters has exceeded our charge-offs. Kind of an event that we thought was very noteworthy, was at the end of -- on June 30, our loans over 30 days past due averaged or if you -- from a statistical perspective, were zero.

We actually have one loan in the amount of $12,000 that was 30 days past due, that includes all loans including the loans that are on non-accruals. So our non-accrual loans are even current. We have no OREO and our total watch list has declined. The nice thing that we see from the financial information that we received from our borrowers is that cash flows are very strong.

Our underwriting is remaining consistent and when we look at our biggest and most major customers and concentrations, they're all doing very well. In looking at the two areas outside of Central Iowa, Rochester, the Group is continuing to build their base business and they will soon have an actual Bank building to operate out of. We expect that, that property will be completed at the end of October and they expect to move into their new facility in November.

They're continuing to identify, who they want to do business with and have specifically chartered who that is and when they will be trying to obtain that business. In Iowa City, Coralville both loans and deposits have been on the upswing and the thing that's really good in our opinion is that the leaders within our Bank in Coralville are also leaders within the community of Coralville and Iowa City and have developed a high profile as the place to go to for a lot of things.

So with that, I'd conclude my comments and turn it over to Doug.

Okay. Thanks, Harlee. I just want to make comments on a few other areas. First of all, our net interest margin. It has declined a few basis points compared to the same periods of last year and I would say that the biggest impact has been the fact that we have an interest rate swap that became effective in December and is still effective. We look at that, we consider about terminating it, but with where rates are right now, we're going to let it ride for a while.

Our provision, of course, is higher than it was a year ago, and it really just relates to the fact that our loan portfolio is bigger. It's not due to any inherent credit concerns that we have and as you previously heard, our credit quality is extremely good, but with the amount of loan growth we've had, we just needed to increase the allowance a little bit.

We did have security gains in the quarter of $60,000 and I think that compares to the second quarter of last year of $37,000. But we have three preferred stock issues totaling $1.5 million that we've been thinking about selling and because rates were low and they had some nice gains we thought we would go ahead and get rid of those, and because if rates go up, they're going to go underwater.

And just a comment or two about the investment portfolio, it has declined during the first six months of the year. We would anticipate that we will continue to let the run-off in the portfolio, either through the called securities or maturing securities, find their way the loan portfolio. So we would expect our investment portfolio to continue to dwindle probably for the remainder of the year.

That concludes our prepared remarks. And so, we would be happy to answer any questions that maybe out there.

We will now begin the question-and-answer session. (Operator Instructions) Andrew Liesch, Sandler O'Neill & Partners. Please go ahead.

A few questions from me. It looks like a larger commercial real estate loan came on the balance sheet this quarter. Just kind of curious, the dynamics of that and how that might affect the margin, like what sort of yield is it? And then, the timing of -- when it came on the balance sheet, was it near to the end of the quarter or early in the quarter? Just your thoughts there.

It's roughly about a half a dozen assets that came on to the books late May to early mid-June. So these would be a couple of apartments and a couple of buildings that have -- that are fully leased or almost fully leased. These would be refinances, on the buildings -- the business buildings, those were refinances. They were maturing loans at life companies and the owners of the building chose not to finance back through the life companies that brought those assets to us. And then there were a couple of apartments that were acquired. So it wasn't one relationship, it was [about half of a dozen].

Okay. And then, I'm just curious, do you have with you the -- your percentage of -- your commercial real estate concentration as a percentage of total risk-based capital?

Yes. It's around 382% I believe, give or take a percent, but it's right (multiple speakers).

How have your conversations with the regulators been? Do you think you might need to raise some sub-debt if it's -- with what it being where it is or how do you feel about your capital position?

We just had an exam and it went well and certainly talk about that, but I guess, we believe that we have the monitoring systems in place and are doing the things that we need to do to service those loans.

The other thing that we've done on that, Andrew, is that, we have specifically done quite extensive stress testing on the portfolio and that along with the credit quality, where the loan to values are on those type of properties and the cash flow that's being generated off those properties, have in my mind, comforted what our regulators look at when they look at our portfolio.

Okay. And then one last question, just you guys have a very good currency, what are your thoughts on M&A, perhaps buying an over capitalized bank?

Well, Andrew, this is Dave. And that too of course is the topic that we have routine and frequent discussion upon, but at this point, it's not a strategic objective.

Kevin McLaughlin, BDF Investments.

Congratulations on a great quarter. I wanted to ask Brad, you've mentioned the gross loans being up $133 million. Are you doing anything in agriculture? I've heard about some very intelligent money that I respect buying into Ag right now and I was wondering, if you'd give me kind of a look at that? And then on the deposit side, you mentioned being up $70 million or 4.9% for the quarter. Can you talk about the contribution from the Trust department, but can you kind of give me some background on how much would be coming from Trust and how much would be coming from commercial deposits that are interest-free?

Our trust deposits are -- have been fairly consistent over say the last three years and that might only be, I don't know, $10 million to $15 million in total. So it's relatively small, when you look at our total deposit base.

As it relates to the Ag side, a lot of farmers will have to drive by many banks, before they found one of our branches. So we are not Ag experts and so, we're not really looking for those types of loans. So we have a very small Ag portfolio. It's probably because of a lawyer or some professional person is a gentleman farmer, we might be financing that side of it. But we really don't seek out that type of financing. We have customers that are involved in that business and we certainly have them as customers, but the actual financing of crops or livestock is not something that we do a lot of. Does that answer your question?

Yes, thank you very much.

(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.

Well, we have no other specific comments, we just like to say we appreciate your interest in our company and thank you for joining us this morning.

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