West Bancorporation, Inc.
Q3 2016 Earnings Call Transcript

Published: 28 Oct 2016

[Operator:]

Good morning 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 note this event is being recorded. I would now like to turn the conference over to Mr. Doug Gulling, Chief Financial Officer. Please go ahead.

[Doug Gulling:]

Thank you, Alison and good morning everyone. Thank you for joining us this today. With me on the call today are Dave Nelson, our Chief Executive Officer, Harlee Olafson, our Chief Risk Officer, and Marie Roberts, our Chief Accounting Officer. I would like 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 solely 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, 2015. 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 anticipated events. So again thank you and I'm going to turn it over to Dave Nelson to begin the call.

[Dave Nelson:]

Thank you, Doug, and good morning, everyone. Thank you for joining us. Well, we had another record quarter that makes our ninth consecutive record quarter. Based upon the performance our Board of Directors has declared a regular quarterly dividend of $0.17 per common share. This is equal to the highest quarterly dividend ever paid by the company. The dividend is payable on November 23 to shareholders of record as of November 9. We are continuing to experience good growth this year. We've got a very strong pipeline, our credit quality is exceptional, our new Rochester main office is nearing completion and will open during November. Our target date is actually November 14. Harlee is going to provide more detail on our loan activities and the categories for growth, outlook for continued growth, probably touch on some comments or observations about our local economies that we serve our credit trends and also some comments about our operations in both Rochester and Iowa City. So with that, I would like to turn the call over to our Chief Risk Officer, Harlee Olafson. Harlee?

[Harlee Olafson:]

Thanks, Dave, and good morning everyone. To start with, I will talk about specific loan categories and what our outlook is for future. We have had strong commercial real estate activities with very strong borrowers. Our C&I activity is really fairly flat and part of that in my mind is due to that our companies are doing very well but do not have a huge borrowing needs right now, we get fluctuations based upon receivable and inventory levels but big fixed asset financing on the C&I side has been fairly low. We've had very busy first half of the year, some of the balances have not increased as much in the last quarter as we might have anticipated. And part of that is due to having some very strong construction projects in process and in fact the availability on good strong construction projects right now that have yet to advance is right at about $150 million. So we expect that those advances to occur throughout the end of this year and into 2017. With regard to our local economy in all markets unemployment is very low. On the part that it affects us most is very more vacancy, strong tenant requirements, the economy in all markets seems fairly robust at this time. On our credit trends, we have virtually almost no past dues and in fact I would think it would be somewhere in the neighborhood of tenth of 1% over 30 days, some of that was due to timing. Watchlist is trending in the right direction. We have good plans in place for what we have on our watchlist which is a fairly small number, so we can concentrate on the ones that we have. In Rochester and Iowa City, we've had good activity there. One of the things that we found is that our competition in Rochester and Iowa City has a little loser credit requirements in regard to down payments and also the pricing is a little tighter, so in both those cities we have passed on some good credit opportunities because of pricing and/or the competition allowing less equity into projects. In Rochester, as Dave mentioned, we will have our facility completed in November and we look forward to providing a full service of products for our customers, they are both on the commercial and retail side. My last comment is that we over the last six years have been party to a class action lawsuit which always is something that's hanging over our head. In this last quarter, we did go to mediation and settled that lawsuit and have actually accrued the cost of that settlement in our financial statements. So we're glad to have that behind us now. With that, that's the end of my comments and I will turn it back over to Doug.

[Doug Gulling:]

Okay, thanks Harlee. Just a couple of brief comments. As you will notice, our net interest margin did decline two basis points from the second quarter. However net interest income grew on the strength of our average earning assets that were outstanding in the third quarter. What we saw was two and three basis point declines in the yield, own yields and our investment yields, but our overall cost of funds were constant from the second to the third quarter. And then we did have a provision for loan losses of $200,000. That covered net charge-offs of about $71,000 and then added $128,000 to the allowance based on very modest changes in the loan balances from June 30 to September 30. And as Harlee mentioned a couple of times, our non-performing assets, credit problems are almost non-existent but the number still continues to triple down which is definitely a positive. With that, that concludes our prepared remarks and we would be happy to answer any questions.

[Operator:]

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

[Andrew Liesch:]

A question on to the margin and your outlook there, can you just provide us an update on how you think it will perform if the Fed rate is raised here in December?

[Doug Gulling:]

If the Fed raised its rates in December, I think we will see just minimal contraction and the reason for that is that most likely we would adjust a few of our money market rates and we would get a little bit of benefit on some variable rate loans but rates really need to go up another 50 to 75 basis points before the full benefit kicks in on the variable rate loans that have floors on them.

[Andrew Liesch:]

Got it, got it. And then I'm just curious so I think you said what happened earlier this year or late last year with the last rate hike that you increased some local deposit rates, would you have plans to do that again or are you working on anything on the funding side that may allow you could not have to do that?

[Doug Gulling:]

Most likely we would, we would increase some of those rates. I mean we need to stay competitive.

[Andrew Liesch:]

Great, those are my only questions.

[Doug Gulling:]

Okay, thanks Andrew.

[Operator:]

[Operator Instructions]. And ladies and gentlemen, as I'm not showing any further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Gulling for any closing remarks.

[Doug Gulling:]

Well I just like to thank you again for joining us. We appreciate your interest in our company and we will have another call at the end of January. So thank you.

[Operator:]

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