West Bancorporation, Inc.
Q2 2019 Earnings Call Transcript

Published: 26 Jul 2019

[Operator:]

Good morning, and welcome to the West Bancorporation Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. [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.

[Doug Gulling:]

Yes. Thank you. Welcome, everybody. Thank you for joining us this morning for our discussion of our second quarter results. On the call with me this morning are Dave Nelson, our Chief Executive Officer; Harlee Olafson, our Chief Risk Officer; and Jane Funk, our Chief Accounting Officer.And I'll 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. 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.At this time, I'll turn it over to Dave Nelson.

[Dave Nelson:]

Well, thank you, Doug, and good morning, everyone. Appreciate you joining us. We had another very good quarter. We had growth in all of our markets, and our expansion into Minnesota is going very well. Our credit quality remains very strong, and therefore our Board approved a $0.21 dividend to shareholders of record as of August 7 and payable on August 21.We recently received another accolade in the Bank Director Magazine came out with their 2018 year-end stack ranking for banks from $1 billion to $5 billion, and they had West Bank at number 26 in America.Our focus, as you can imagine, currently is squarely on our Minnesota expansion. And as you know, about four months ago, we announced our expansion into St. Cloud, Mankato and Owatonna, Minnesota, all starting as brand-new LPOs, which we've since converted to full branch status. And several of you, no doubt recall, that about six years ago, we started in Rochester Minnesota also initially as an LPO with no loans no deposits.But we also started with very significant advantages in that we were able to hire the top bankers in the marketplace, who all had deep existing relationships, and they're also supported with the local community advisory Board of Directors, not only pledging all of their business that was important to us, but also endorsing us and giving us instant credibility and validated our position in the marketplace. And now six years later, we are -- what I believe is fair to say, is the premier business bank of choice in the Rochester community.So with these three new locations in Minnesota that we're expanding into, we're going about it in exact same fashion as we did in Rochester, where we were able to hire the top bankers in all three of those marketplaces, who many have spent their entire career, and perhaps with others it's even their hometown have deep existing relationships, and they are also supported with what some may refer to as the who's who of the business community in those three marketplaces. So, we are, of course, expecting and hoping for similar outcomes.And when we started in Rochester, it only took nine months of operations before we reached a profitable run rate. And we're off to a great start in our three new markets, which I know Harlee will speak more to. So with that, I would like to turn it over to Harlee Olafson, our Chief Risk Officer.

[Harlee Olafson:]

Well, thank you, Dave. I'm going to talk about a couple of things today

[Doug Gulling:]

Okay. Thanks, Harlee. My only specific comment here is just to relate to you the actual expenditures on our Minnesota expansion so far this year. And on a year-to-date basis, we've spent a little over $1 million on a pretax basis and that would be $825,000 or so after tax. And for the second quarter, our Minnesota expansion cost totaled approximately $580,000 and that would be somewhere around $465,000 after tax.So with that, we would entertain any questions.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Andrew Liesch of Sandler O'Neill. Please go ahead.

[Andrew Liesch:]

Good morning, everyone.

[Doug Gulling:]

Andrew?

[Dave Nelson:]

Good morning.

[Doug Gulling:]

Good morning.

[Andrew Liesch:]

Few questions from me here. Noticed the rise -- and I -- looks like that's retail CDs in the quarter. Can you just explain what was behind that?

[Doug Gulling:]

I don't know if it shows up in retail but...

[Andrew Liesch:]

Let me just -- other CD.

[Doug Gulling:]

Okay. Other CDs. That would be -- at June 30, we had $75 million of brokered CDs on our books. And what we have done for funding some of this expansion is, we've entered into long-term swaps and the underlying borrowing is either a 30-day or 90-day brokered CD or federal home loan bank advance.At the end of June it happened to be, $75 million worth of brokered CDs. But every 30 days or 90 days we evaluate the cost of brokered CD versus a federal home loan bank advance and may go in and out of those depending upon those costs.

[Andrew Liesch:]

Okay. Yes. That's helpful. And then, just some of the other deposit trends. It looked like saving accounts were down, interest checking were up, non-interest checking, were down, was there anything -- I mean was there any shifting between products there? Were there any seasonal inflows and outflows? Just kind of curious what was behind the deposit movement here?

[Doug Gulling:]

Yeah. There was -- I would just say it's just customer activity. I mean, we had no product changes. And so, it's just the customer behavior.

[Andrew Liesch:]

Got you, and then, just moving over to the loan growth there. I'm not sure, if you guys want to say it publicly here. If you can say it publicly, but just kind of curious how much of the growth this quarter came from Minnesota. And what other geographic breakdown you can provide?

[Doug Gulling:]

At the end of June, we had about $26 million in loans from the three new Minnesota markets.

[Andrew Liesch:]

Got you, that's a great start. And then, my next question just kind of goes up to the, margin, if you're funding with the -- some of this expansion with 30- or 90-day money.Just kind of, how do you view the margin came down about five basis points this quarter? And then, how would you expect it to react if we have a Fed rate cut next week?

[Doug Gulling:]

Right, okay, so, the underlying funding that we're talking about is 30- or 90-day money. However, we've got long-term swaps, wrapped around those borrowings.And so, we entered into a couple of swaps in June that were in the -- one was for 10 years at 2.01%. And another one was eight years I believe at about a 1.95%. And we believe those are really attractive long-term fixed rates.Now as far as, what happens to the margin going forward, if we get a rate cut next Wednesday which apparently we're going to of 25 basis points that will add about $40,000 of net interest income per month. And probably would increase our margin by a couple of basis points.

[Andrew Liesch:]

Got you, and that's kind of driven by what -- how the margin went down when the Fed was raising rates of the several institutional high-beta clients, whose funds are just indexed to the Fed fund rate. Is that correct?

[Doug Gulling:]

That's correct. Along with the flat yield curve, that we've been experiencing for the -- I don't know past year or so.

[Andrew Liesch:]

Right, right, all right, that covers my question. Thanks so much.

[Doug Gulling:]

Hey, thanks, Andrew.

[Operator:]

[Operator Instructions] I'm seeing that there are no further questions. I would like to turn the conference back over to Mr. Gulling for closing remarks.

[Doug Gulling:]

Okay. Thank you, Danielle. And thank you everyone for joining us today. We truly appreciate your interest in our company. Thank you.

[Operator:]

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