West Bancorporation, Inc.
Q2 2017 Earnings Call Transcript

Published: 29 Jul 2017

[Operator:]

Good day and welcome to the West Bancorporation Quarterly Earnings 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 also note that this event is being recorded. I would now like to turn the conference over to Doug Gulling. Please go ahead.

[Doug Gulling:]

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. I need 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.

[Dave Nelson:]

Thank you, Doug, and good morning, everyone. Thank you for joining us and thank you for your interest and support in our company. We had another 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 like to remind our team that there are many aspects to our business they are all very important, but we don’t have to be the best at everything to be able to be one of the Americas 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 to be somewhat unique to West Bank.. And the first, we've been in the net recovery position now for the last 2.5 years and as we have grown we have actually reduced our FTEs. We have -- it's been consistent with our efficiency philosophy. We just want the best and people are 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 number six in the nation for all publically traded banks and 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, it has a record date of August 9th with a payment date of August 23. With that, I would like to turn the call over to our Bank President, Brad Winterbottom.

[Brad Winterbottom:]

Good day, everyone. Loan activity has been good; however, may our numbers don’t really reflect that. The numbers are down. I would say that during the second quarter, we hit a high mark of roughly a $1.475 billion, and we've had some payoffs and those payoffs were somewhere 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 some loans. And in addition to that, we were purchasing -- we've had a philosophy of buying up to $50 million of participations through Wells Fargo. And lot of those companies refinanced their debt and we chose not to participate due to really the lack 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've also had some additional payoffs in the month of July, and we're saying that number may be back down to where we started the year. Have been said that, our pipeline is still good, we have construction loans that have significant growth 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 that year. Deposit gathering is still strong. We’re increasing our deposits and all of this is coming through all three 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.

[Harlee Olafson:]

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've continued to strive and do with our bankers is not to stretch on our loans to put on marginal loan for the case of volumes. So, we will continue to do that. We had some payoffs that would not been classified credits, but we're on the whole half of good in regard to the -- we're able to obtain pricing that we kind look at as being given to our A credits for what we'd be considering more of C credits and some of those have paid off, which in the line and I think is good news. We have gone through external loan review and that had our preliminary exit review with our FDIC exams. And preliminarily, those validated our strong loan portfolio lack of past dues in fact the last into the last quarter again past dues over 30 base 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 the provision. The provision is got up because over the last number of quarters we have had more collections on previous charge offs and we have had charge offs for the quarter. So we have been in a net, net win position on charge offs last few quarters. Just a couple of comments on Rochester and Iowa City. Our Rochester bank is fully operational. We do have a strong experience 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 that we have nice customer basis in both markets that should allow for continued growth in those communities. With that, I'll turn it back over to Doug.

[Doug Gulling:]

Thanks, Harlee, and I don’t have anything specific to add at this time. So, we would like to answer any questions that maybe out there.

[Operator:]

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

[Andrew Liesch:]

Doug just questions around the margin here as the comments in the 10-Q sounds like to be little bit under pressure. Is that mostly from higher funding cost? Or what are you seeing on the loan yield side as well?

[Doug Gulling:]

Well, certainly, as we add some large deposits that have been coming in their price to top of our interest rate scale. And loan pricing though I would say is holding, its own. I wouldn’t say there is a lot of deterioration there. And so our margin did declined 4 basis points in the second quarter looking at I think there could be 2 to 3 basis points of pressure in the third quarter little hard to tell. I mean we are not expecting as I think the world at this point and time is not expecting another fed increase until December. So, that will not influence our deposit pricing for the rest of the or for the second half of the year.

[Andrew Liesch:]

And then was there a -- just reading through the Q, is there a gain on sale of an asset in the other line item for non-interest income?

[Doug Gulling:]

Yes, if you may recall back in October of 2015, we sold our well. The entity called SmartyPig was sold. At an interest in that and at that point in time we recognized gain of the few 100,000, I can't remember exactly. But there were some holdback 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 it appears in the second quarter.

[Andrew Liesch:]

Okay. And then it looks like you added some securities during the quarter because it curious like what size of are you comfortable running the securities book at relative to assets and then I'm just curious what do you owe, what you purchased?

[Doug Gulling:]

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

[Andrew Liesch:]

Fairly good. Thank you for taking my questions.

[Operator:]

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

[Doug Gulling:]

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.