West Bancorporation, Inc.
Q4 2018 Earnings Call Transcript

Published: 25 Jan 2019

[Operator:]

Good day, everyone, and welcome to the West Bancorporation Quarterly Earnings Conference Call. [Operator Instructions]. And please note that today's event is being recorded. And I would now like to turn the conference over to Doug Gulling, Chief Financial Officer. Please go ahead.

[Douglas Gulling:]

Thank you, Will. Good morning, everyone. Welcome to our quarterly conference call this morning. With me on the line today are Dave Nelson, our Chief Executive Officer; Harlee Olafson, Chief Risk Officer; Brad Winterbottom, West Bank President; and Jane Funk, our Chief Accounting Officer. And let me 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. With that, I'd like to turn it over to Dave Nelson.

[David Nelson:]

Thank you, Doug, and thank you everyone for joining us. We appreciate your support and your interest in our company. We had another record quarter and another record year, which was a very fitting performance for our 125th anniversary year. We had a very strong -- we had very strong growth during the fourth quarter and credit quality remains pristine. Our board approved a $0.20 quarterly dividend with a record date at February 6, with a payment date of February 20. With that, I'll turn the call over to Brad Winterbottom, our bank President for a little more detail.

[Brad Winterbottom:]

Thank you. We had an exceptional fourth quarter in terms of loan activity. We increased our loan portfolio in the fourth quarter by 8%, which added to our first three quarters of the year. We had a 14% increase in loans outstanding. That growth came from a lot of existing customers, expanding relationships. But in addition to that, we've also added a couple of new credits that we're pleased to have moving the relationship to us. There has been acquisition financing. There has been expansion of their existing relationships in terms of adding additional assets to, especially, the real estate developers and owners, and it's coming from all 3 markets. We've -- we had nice growth in all 3 markets in not only in the fourth quarter but year-over-year. And with that, we've gathered some nice deposit relationships that go with those loan transactions. Our pipeline remains good to very good, certainly this time of year, you're a little nervous as you enter into the first year, and not seeing all the things that are in front of us but we do have a good pipeline. We have some commitments that will be funded here if they have not already been in January. And we look forward to a -- another excellent year in 2019. In addition to that, I would just -- this is minor but it is growing, our Trust department continues to add good earning assets, and I think year-over-year our Trust department showed an excess of $200,000 increase. And that's just some decent fee income for us as that area continues to grow. With that, I'll turn it over to Mr. Harlee Olafson, who will talk about our credit trends and some other things that's on his mind.

[Harlee Olafson:]

Thanks, Brad. I'll start with the credit side, and our watchlist remains very low. Our total watchlist is at 3% of total loans, which is historically really sound and only a very small portion of that watchlist is in substandard or nonaccrual area. In addition to that, our past dues are again at historically low level, at 0.005% of our loans at 30 days past due, and no commercial real estate loans at the end of the year were past due over 30 days. We continue to have our loan structure to improve over time with appropriate amortizations, and on our C&I credits, expected improvement through credit metrics and on those commercial loans. One of the nice things in the fourth quarter, over 50% of our growth and our commercial closes were our noncommercial real estate transactions. We continue to have no exposure in regard to direct credit with the ag sector. We continue to stress test our portfolio and continue to see some improvement in that area. Our underwriting standards are currently unchanged. We continue to emphasize good projects with borrowers who have multiple sources of income, excess cash flow and/or liquid assets. In Rochester and Iowa City, both markets had very good years. There's continued focus on providing a full service, a full product menu of services to customers where we have different levels of success at that, but we continue to try to provide all the services that we can to our creditworthy customers in those markets. Rochester had a nice increase over the year in both loans and deposits and Iowa City had significant loan growth in the fourth quarter on multiple projects that had been worked on for up to a year. So some of that just came to fruition then. So in summary on this area, not everything is perfect but our strong and established customers have performed well and keep our strong portfolio in a stable position. And with that, I'd turn it over to Doug.

[Douglas Gulling:]

Okay, thanks Harlee. I've got 3 more items just to add to the discussion here. In December, one of the transactions that we closed included some new-market tax credits. And as a result, in the fourth quarter, we had amortization cost of that investment, closing cost totaling $647,000, which showed up in miscellaneous expense. And then offsetting that, we had tax credits of $810,000. And going forward, in 2019, for the year that amortization will be $732,000 and the tax credit for '19 will be the $810,000 number. Secondly, at the end of the year we had roughly $79 million in short-term funding that we took on to fund the loan growth that we had in December, and we did that just to get through year-end and then see kind of what the landscape looked like. Well, fortunately, in early January swap rates were very competitive and we entered into 2 long-term swaps, each for $25 million apiece, and so we are effectively borrowing $25 million for 5 years at 2.57% and another $25 million for 7 years at 2.62%. So we think that should work out well and lock in a nice spread over some of those new loans that went on in the fourth quarter. And then lastly, since we have not filed our 10-K yet, which of course we never do it here at the end of the year until around March 1, but some of you want to know what some of our average numbers are for the quarter and the year. So here they are

[Operator:]

[Operator Instructions]. And the first questioner today will be Andrew Liesch with Sandler O'Neill + Partners.

[Aaron Deer:]

This is actually Aaron Deer on for Andrew this morning. I appreciate the color on the average loan balances, that's helpful and as well as on the tax-related items. I was just going to ask if you wouldn't mind running through those again. I just want to make sure I understand the -- both the -- it sounds like there's an amortization cost piece to that as well the actual tax benefit. What were those two numbers and -- going forward? And was that on a quarterly basis or for the full year?

[Douglas Gulling:]

That's for the full year. And so for the entire year in 2019, the amortization will be $732,000. And of course, we'll amortize that equally over the year. And the tax credit will be $810,000 and we'll also recognize that equally over the year.

[Aaron Deer:]

Got it, okay. And then the loan growth was, again, really terrific. And just wondering if maybe you can give a sense of -- it sounds like you feel pretty good here based on some draws expected. But just more generally speaking, what's your outlook for 2019? And I don't know if you're comfortable or not maybe giving some guidance in terms of what kind of growth rate you're anticipating or what your goals are?

[Douglas Gulling:]

Well, Aaron, we've never given specific guidance or goal numbers. I mean, I know it's kind of subjective or whatever to just say we have a good pipeline and expect good growth. But 2018 was a record year for loan growth, $211 million. It's probably unrealistic to expect that again. But we expect good growth next year.

[Aaron Deer:]

Terrific. And then, maybe just one last question on margin. I think that was actually a little better than expected, I guess, just given the deposit costs have been trending higher. As you look out over the next quarter or 2, what kind of -- it seems like you're getting some good traction in terms of bringing in good core funding, which should be helpful, but what are you seeing in the marketplace in terms of deposit competition now that might possibly limit any upside in the margin or cause some additional pressure here going forward?

[Douglas Gulling:]

Well, we haven't seen a marked change in competition for deposits. There's no question that some of our large deposits are on the upper end of cost and see -- and improve with the change in the Fed funds rate. But at this point in time, we haven't seen other than -- I mean, the credit unions are always crazy, but we haven't seen a big change in the competition for deposits. As far as looking forward on the margin, we're at the point where we think with the swaps we've done, the fixed rate borrowings with adding some variable rate loans that if the Fed were to increase again, which of course that may not happen now, but we think we're better positioned for increases than we were a year ago.

[Operator:]

[Operator Instructions]. And there look to be no further question, so this will conclude our question-and-answer session. I would like to turn the conference back over to Doug Gulling for any closing remarks.

[Douglas Gulling:]

Well, we'd just like to thank you again for joining us, and we appreciate your interest in our company. We'll talk again at the end of April. So thank you.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.