West Bancorporation Inc (WTBA) 2017 Q2 法說會逐字稿

Good day, and welcome to the West Bancorporation Quarterly Earnings Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Doug Gulling. Please go ahead.

Yes. Thank you, Brian. Good morning, everyone. Thank you for joining us today. In the room with me today are Dave Nelson, our CEO; Brad Winterbottom, our bank President; Marie Roberts, our Chief Accounting Officer; Dave Milligan, our Chairman; and Harlee Olafson, our Chief Risk Officer. And I need to start 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 and 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 and 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, 2016. 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.

So with that, I'd like to turn it over to Dave Nelson.

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, second quarter. This is now our 12th consecutive record quarter. This was also an all-time record quarter in our 124-year history. This has been happening because we have been growing, while continuously improving our credit quality. And I'd like to remind our team that there are many, many aspects to our business that are all very important, but we don't have to be the best at everything to be able to be one of America's top performing banks; however, we do have to get credit quality right, and we have been. In fact, our credit quality is so good, it's really almost unbelievable. Harlee will provide more detail on that. But a couple of observations to share that may perhaps be somewhat unique to West Bank.

And at first, we've been in a net recovery position now for the last 2.5 years. And as we have grown, we've actually reduced our FTEs. We have -- it's consistent with our efficiency philosophy. We just want the best people and fewer of them, and that's what we've been doing. It's been working well for us.

Also during the quarter, we received another national accolade. This was from Bank Director magazine that honored West Bank with being recognized as #6 in the nation for all publicly traded banks in the category of the $1 billion to $5 billion range. Based on the record quarter, our Board of Directors declared an $0.18 dividend, which is the same as last quarter, but still represents the highest quarterly dividend ever paid, and has a record date of August 9 with a payment date of August 23.

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

Good day, everyone. Loan activity has been good. However, maybe our numbers don't really reflect that, as the numbers are down. I would say that during the second quarter, we hit a high mark of roughly $1.475 billion. And we've had some payoffs. And those payoffs were -- some were anticipated -- most were anticipated, not all. But we've had some customers selling some assets in terms of buildings and getting out of some markets where we had had some loans. And in addition to that, we were purchasing -- we had a philosophy of buying up to $50 million of participations through Wells Fargo. And a lot of those companies refinanced their debt. And we chose not to participate due to really the lack of a good earning interest rate to us. So that number has probably declined during the quarter of roughly $20 million.

And I would also add that we also had some additional payoffs in the month of July. And we're seeing that number may be back down to where we started the year. Having said that, our pipeline is still good. We have construction loans that have significant draws that will take place. We have approved some additional nice credit that will add to our volumes. And I anticipate our loan activity to be decent through the end of the year. Deposit gathering is still strong. We are increasing our deposits. And all of this is coming through all 3 markets.

That would conclude my comments. And I'm going to turn it over to Harlee to talk about asset quality and a few other things.

Thanks, Brad, and good morning everyone. As Dave mentioned that our asset quality at this time is very good, local economies are good. And what we have continued to strive and do with our bankers is not to stretch our loans to put on marginal loan for the case of volume. So we have continued to do that. We've had some payoffs that would not have been classified credits, but we're on the lower half of good in regard to -- we're able to obtain pricing that we kind of look at as being given to our A credits for what we would be considering more of C credits, and some of those have paid off, which, in the long run, I think, is good news.

We've gone through external loan review and have had our preliminary exit review with our FDIC exams. And preliminarily, those have validated our strong loan portfolio, lack of past dues. In fact, the last -- end of the last quarter, again, past dues over 30 days are so low that they hardly create a number on the decimal point.

The strength of that has allowed us not to have to add significantly to provision. Provision has gone up because over the last number of quarters, we have had more collections on previous charge-offs, and we've had charge-offs for the quarter. So we have been in a net win position on charge-offs the last few quarters.

Just a couple of comments on Rochester and Iowa City. Our Rochester bank is fully operational. We do have a strong experienced staff there, and the individuals are now doing a good job of accumulating premier-type retail customers in our -- as depositors. The pipelines in both Rochester and Iowa City are strong. The staffs are stable, and we have nice customer bases in both markets that should allow for continued growth in both communities.

With that, I turn it back over to Doug.

Okay. Thanks, Harlee. And I don't have anything specific to add at this time. So we would like to answer any questions that may be out there.

(Operator Instructions) The first question comes from Andrew Liesch with Sandler O'Neill.

Doug, just some questions around the margin here. Some of the comments in the 10-Q sounds like it will be a little bit under pressure. Is that mostly from higher funding costs? Or what are you seeing on the loan yield side as well?

Well, certainly, as we add some large deposits that have been coming in, they're -- they're priced at the top of our interest rate scale. And loan pricing, no, I'd say, is holding its own. I wouldn't say there's a lot of deterioration there. And so our margin did decline 4 basis points in the second quarter. Looking out, I think there could be 2 or 3 basis points of pressure in the third quarter, little hard to tell. I mean, we are not expecting -- I mean, as I think the world at this point in time is not expecting another Fed increase until December. So that will not influence our deposit pricing for the rest of the -- for the second half of the year.

Okay. And then was there -- just waiting to the queue, was there a gain on sale of an asset in the other line item for noninterest income?

Yes. If -- you may recall, back in October of 2015, we sold our -- well, the entity called SmartyPig was sold. We had an interest in that. And at that point in time, we recognized a gain of a few hundred thousand, I can't remember exactly, but there were some hold back conditions, and we held back a little bit of money. Well, all those conditions have been satisfied. So we recognized an additional $88,000 of gain on that sale here in the second quarter.

Okay. And then it looks like you added some securities during the quarter. I was just curious, what size are you comfortable writing the securities book at relative to assets? And then just curious what you -- what you purchased?

Yes. We -- well, as far as what size are we comfortable with, well, that's going to depend on our fluctuation in the loan portfolio and our ability to gather deposits. And so I think the investment portfolio -- we've got some deposits in the pipeline as well as loans, and I think that the investment portfolio could grow a little bit in the third quarter. What did we buy? We bought a mix of municipals as well as mortgage backs.

(Operator Instructions) At this time, there are no questions in the queue. I would like to turn the conference back over to Doug Gulling for any closing remarks.

Well, we have nothing else to add. So we just thank you for joining us today. And again, appreciate your interest in our company. So thank you.

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