West Bancorporation, Inc.
Q3 2017 Earnings Call Transcript

Published: 27 Oct 2017

[Operator:]

Good day, 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 also note that 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:]

Thank you, Rachel, and good morning, everyone. Thank you for joining us this morning. On the call with me today are Brad Winterbottom, West Bank President; Dave Nelson, our Chief Executive Officer; Marie Roberts, our Chief Accounting Officer; and Harlee Olafson, our Chief Risk Officer. I need to 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 31st, 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. With that, I'll turn it over to Dave Nelson.

[Dave Nelson:]

Thank you, Doug. Welcome everyone. Good morning. Thanks for joining us and thank you for your interest and support of our company. We had another great quarter. In fact, it was an all-time record quarter. This represents our 13th consecutive record quarter for each respective quarter. We had good growth in all three of our markets. Very strong credit quality. Our past dues and problem loans are almost non-existent. So, based upon this performance, our Board of Directors have declared a quarterly dividend of $0.18 per share with a record date of November 8th and a payment date of November 22nd. Just a couple points of interest. During the quarter in July, West Bank was identified or named by Bank Director Magazine as the number six in the nation for community banks. Also we were recently recognized as a top workplace in the State of Iowa. Next year, June 29th, will be our 125th anniversary. So, we're looking forward to some celebrations of that. With that, I'd like to turn the call over to our Bank President, Brad Winterbottom.

[Brad Winterbottom:]

Thanks, Dave. I'll just follow-up on a couple points that Dave made. For the quarter ended 9/30, our loan volume was up roughly 1.5%, and it's roughly up 5% for the year. Most of that is in the real estate area, including our construction and development. We have several large projects that are under construction. So, I think that, that will also continue to help fuel some of our growth for this coming quarter. Our sales activities in all markets are very strong. We're pleased with our activities. Our deposit gathering is also very strong and pleased with that as well. The economies in all areas are -- in all of our markets are fine. We see no weakness and it also reflects on our credit quality. And Harlee, he'll touch maybe a little bit more about that now.

[Harlee Olafson:]

Thanks Brad and I don't know what -- our credit quality continues to be very strong. We have no other real estate, minimal amount of accruals and almost no past dues. I think what is -- makes that happen is, we have a good standard underwriting practices and very good monitoring procedures, but we are not looking at any surprises that have occurred in the past six months and don't foresee anything like that going forward. In regard to our Rochester and Eastern Iowa banks, both have -- had good growth this year and have good pipelines. So, our expectations there are for continued success. With that, I turn it over to Doug.

[Brad Winterbottom:]

Let me add one more thing to what Harlee said. This is Brad. During the quarter, we had roughly six loans that were on our watch list exit the bank. And they were performing, but there were some stress certainly on their balance sheet and income statement. And so our underlying credit quality did improve, and I would say, significantly during the quarter as well.

[Doug Gulling:]

And so this is Doug and a couple of comments then following up on credit quality that everybody has mentioned so far. We did not take a provision in the third quarter and we haven't taken one all year. In the second quarter, we did actually have a net charge-offs, but for year-to-date, we're still in a net recovery position. And the charge-off that we did have was a loan that had a specific reserve assigned to it in the past. And when you look at the unallocated portion of our allowance, it did go up in the third quarter. And then of all of our metrics, the only measure that has slipped a little bit is the net interest margin. And I would say the reason for that slippage between the second and third quarter is the fact that, we had lot of loan to pay-off right towards the end of June. And so when you look at the average loan balances outstanding, they were actually smaller or lower in the third quarter than they were in the second quarter. So, our earning asset mix was a little less favorable in the third quarter than the second quarter. We did add to the investment portfolio. But even having said all of that, our fully taxable equivalent net interest income was still just slightly higher in the third quarter than it was in the second quarter. But with that, that's the end of our prepared remarks. And so we would be happy to answer any questions.

[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:]

Just wanted to talk about the balance sheet a little bit and the margin going forward. The -- looks like you brought on some borrowings this quarter. Just curious what the rationale for that is? And then what's the -- what are your thoughts on the size of the securities portfolio going forward?

[Doug Gulling:]

Sure. Actually, we really didn't bring on any borrowings. On the last day of the quarter, we borrowed some overnight money to the tune of $48 million. And then that was gone probably two days into the fourth quarter. And average borrowings for the second -- or third quarter were about $2.6 million. And on any given day, our overnight borrowings can spike like they did on September 30th, just due to fluctuations and some of our larger companies cash needs. And so we do not bring any permanent borrowings in the third quarter. The -- going forward, I would anticipate that the investment portfolio probably, it's a little hard to guess because it's a function of loan growth. And I think Brad and Harlee both would tell us that our loan pipeline looks pretty good and we've got some good opportunities. And so sitting here today, I'm going to say that our investment portfolio is not going to grow much in the fourth quarter, but again, it's a function of loan growth and deposit growth. And we are expecting some decent deposit growth this quarter to the extent that it will exceed loan growth is really hard to predict.

[Andrew Liesch:]

Okay. So -- but I just thought maybe -- because deposit growth is really good here in the third quarter with that liquidity build. Will that be held in cash, more in securities, just curious? Or what your thoughts are on -- what do you think their earning asset mix will look like this quarter and into next year?

[Doug Gulling:]

Well, yes, to the extent that -- we do have excess liquidity. It will find its way into the investment portfolio. I mean, we won't -- we don't plan on keeping a lot of money just in fed funds.

[Andrew Liesch:]

Okay, very good. Thank you for taking my question.

[Doug Gulling:]

Yes, thanks Andrew.

[Operator:]

The next question comes from Kevin [Indiscernible] Investments. Please go ahead.

[Unidentified Analyst:]

Good morning.

[Dave Nelson:]

Hi Kevin.

[Unidentified Analyst:]

I just wanted to ask -- first of all, congratulations on the great quarter. Secondly, I just wanted ask, with all your success up in Rochester and almost 100 businesses having moved their accounts to you, are you seeing any competition developing from any other community banks like yourselves? I mean, is your success attracting competition?

[Harlee Olafson:]

Kevin, this is Harlee. There is a broad base of banks in Rochester to start with. And the -- certainly, I think if you take some business from them, they would get a little perturbed with that and try to fight back to a certain degree, but the -- we're just trying to do what we do up there and do it well. And there is plenty of opportunity for us to continue to grow that marketplace even with the competition there.

[Unidentified Analyst:]

Okay. Are you still somewhat unique with your trust services available to retail customers as opposed to the trust services available from the likes of U.S. Bancorp and Wells Fargo and [Indiscernible]?

[Harlee Olafson:]

No. Our trust services are made available to our customers with their opportunity to use their own investment advisers. So, that is a little unique compared to some of the other outlooks up there.

[Brad Winterbottom:]

But they do focus strictly on retail.

[Unidentified Analyst:]

Thank you. And congratulations again.

[Dave Nelson:]

Thanks Kevin.

[Operator:]

[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.

[Doug Gulling:]

Well, we just like to thank you, again, for joining us this morning. We appreciate your interest in our company. And we'll be back at the end of January with the full results for 2017. Thank you.

[Operator:]

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