West Bancorporation, Inc.
Q3 2015 Earnings Call Transcript

Published: 30 Oct 2015

[Operator:]

Good afternoon, and welcome to the West Bancorporation Third Quarter 2015 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 Doug Gulling, Chief Financial Officer. Please go ahead, sir.

[Doug Gulling:]

Thank you Dan and welcome everyone. I'd like to introduce the folks that are in the room here with me on the line and we have Marie Roberts, our Chief Accounting Officer; Dave Milligan, Chairman of our company; Dave Nelson, CEO; Harlee Olafson, Chief Risk Officer and Brad Winterbottom, President of West Bank. 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 Private Securities Litigation Reform Act of 1995. Such forward-looking information is based up on certain underlying assumptions, risks and uncertainties. Because of the possibility of change in the underlying assumptions, actual results could differ materially from these forward-looking statements. 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. Additional information concerning factors that could cause actual results to materially differ from those in the forward statements can be found in our periodic filings with the Securities and Exchange Commission. So again welcome to the call and I'm going to turn it over to Dave Nelson.

[Dave Nelson:]

Thank you Doug, good afternoon everyone, thank you for joining us. We had a great quarter, in fact we had a record third quarter, record third quarter in our 122 year history which is actually now our fifth consecutive record quarter in terms of earnings. Doug will provide more detail on this but just some year-over-year average increases with our gross loans year-over-year for nine months, they are up 16%, their deposits 11.5%, and our earnings per share increased 10.9%, all year-over-year. All of our performance metrics are continuing to improve. In the third quarter, our return on equity is $14.62, return on assets $1.28 and our efficiency ratio continue to improve dropping to $47.12. Our credit quality very strong with somehow continues to strengthen as evidenced by Texas ratio is now down to $2.35, some other significant debentures [ph] during the quarter. We had our Rochester groundbreaking earlier this month. Chester, Minnesota, as you know, we started an LPO, a de novo bank, in Rochester about 2.5 years ago and are now in the process of constructing our permanent main office. Also during the quarter, we were once again recognized by Sandler O'Neill as one of America’s top performing banks, their sample of 435 publicly traded banks with a market cap below 2.5 billion. They selected 34 top banks from across the country, which again we were one of them. There were 14 repeat winners with West Bank being one of those 14, but there was only one bank to be on the list four years in a row and that would be West Bank. So we’re certainly pleased with that recognition. And with all of this, our Board of Directors approved the $0.16 per common share dividend to our shareholders of record as of November 11, 2015 payable November 25, 2015. And with that, I’d like to turn it over to Brad for a few comments.

[Brad Winterbottom:]

Good afternoon everyone. My comments will be brief. Our bankers are -- and this is kind of same song just a different day, they’re busy they’re busy with sales activities. We’ve done a good job of attracting new deposit customers as well as loan customers, and this is in all three markets. We’ve had descent growth during the third quarter of this year. As I look at the fourth quarter, I would tell you that we have some anticipated pay-offs, these would be construction loans that are scheduled to be completed and moved out of the Bank through the sale to third parties, or just moving to non-recourse type debt. And that number is roughly $40 million, roughly. We have good activities to replace those loans. And we also have significant construction credits buildings that are under construction that we’re financing. So I think that that volume should be, it should replace what’s coming off. But we’ve had a little bit of a headwind with a lot of the construction activity paying off and some of our customers actually selling some assets based upon the price that they’re able to get. But in all markets good activities, good deposits and those would be my comments. Harlee, how about discussing some credit trends.

[Harlee Olafson:]

Thanks Brad. As you can see in the information provided, the Texas ratio has continued to improve and along with that pass dues on our portfolio are so low there almost not on there. I think part of that is due to good economic activity in all three of our markets, all markets have been strong with increasing building and other economic activity. Employment is strong in all three markets. One of the things that that has lent to I think is competition for credit has started to in many cases loosen in regard to the standards that are being upheld by some of our competition. And what I mean by that is there's less cash equity being required in projects, lower debt service coverages are being accepted. Longer terms are being asked for. So we're being vigilant trying to stay on top of our underwriting standards, our structures and what specifically is happening in each of the markets so that we can stay on top of that. In this last quarter we have one relatively significant credit that we've added to our watchlist. Not in our more difficult categories that we consider substandard nonaccrual or anything such as that. This time it's not expected that that will deteriorate further. And looking at the Rochester and Iowa City locations, Rochester location continues to grow both on, in the C&I side and the commercial real estate side without a traditional bank facility in Rochester they have done a good job of obtaining full customer relationships and we expect that to continue as we add a facility there in the future. In Iowa City our president in Iowa City retired this, just in October and we knew that was coming so we had a transition period and have named a new president Jim Connors in Iowa City, they were able to do a nice job of transitioning our previous president's customers to the rest of the team and we expect that team to continue to gain market share in that market. So in all I would say the economy in our markets is good, economic activity is good, credit quality is good and we have plans to continue to do what we've been doing in the past to keep our loan portfolio strong. Jim who's our new president in Iowa City was brought in about three years ago with the designation basically as a president in waiting because we knew we would have a retirement in the future. With that, that concludes my comments, now hand it back to Dave.

[Dave Nelson:]

Thanks Harlee, I just want to make a few general comments about the quarter. When I look at the quarter, when we all really analyze the quarter we would characterize it as being a normal quarter, we did not have anything that we would consider to be abnormal or unusual or a onetime item. We had a provision for loan loss in the third quarter of $200,000 which we thought was appropriate given the loan growth that we experienced in the third quarter. Our net interest margin maintained at 3.59% and I think that was accomplished with the loan growth we had and with adding some dollars into the investment portfolio which was done towards the end of the third quarter, was actually done during the month of September so we should see more benefit from the larger investment portfolio in the fourth quarter. But all in all very pleased with the quarter and again just kind of a solid normal no nonsense quarter, so with that, that completes our prepared remarks and we would answer any questions that may be out there.

[Operator:]

We will now begin the question and answer session. [Operator Instructions] And our first question comes from Andrew Liesch of Sandler O'Neill, please go ahead.

[Aaron Deer:]

This is actually Aaron Deer on the line for Andrew. First question actually following up on your comments regarding the securities book, I was curious you did grow the book a fair bit this quarter. Can you talk about what kind of securities were purchased and it sounds like maybe you’ve got a willingness to add more into that book going forward. And what are your thoughts in terms of just what’s given you the impetus for growing that book further?

[Dave Nelson:]

We purchased $90 million worth of securities in September and then actually purchased another $4 million or $5 million in early October. But probably 90% of those purchases were mortgage back CMOs securities, so of that nature with a duration under four years. And the fact being there that we like the securities that are going to give us monthly cash flows. So that that cash is available either for reinvestment or diversion into the loan portfolio depending upon what is going on. And then what was the impetus for adding to the portfolio, it was the fact that we had deposit growth earlier in the year and I think we’ve talked about that on our couple of previous calls. But we weren’t sure of the stickiness of those deposits. And we’ve gotten to the point where it looks like they’re going to be around for a while and again so we felt we go ahead and invest those bonds. I would tell you that of course you never know when a deposit is going to leave. But the contingency plan for the increase in the portfolio is if some of those deposits were to leave, we can use the securities as collateral for federal home loan bank advance or Repo borrowing or other collateralized borrowing really at a cost that would not be significantly different from the cost of the deposit. So we expect we’re at a point where it make sense to invest those dollars.

[Aaron Deer:]

And then maybe just give a little additional color on your expectations with the anticipated pay-downs coming this quarter. How would if the -- it grows where confidence in terms of pipeline, and for net growth for the fourth quarter. Did I interpret that correctly, do you still feel pretty comfortable that you’d see continued gains in the overall loan book?

[Dave Nelson:]

I think so, yes. The year ago we had double digit growth in the portfolio. And I would say our activities are equal if not better but we’ve -- there has been some pay off through mostly sales of customer selling in apartment building that we had financed or some type of a billing that was refinanced, not refinanced sold, to third party. So I would expect the fourth quarter to hold its own to have a slight growth. But when compared to a year ago, we’re not going to see that type of growth in the fourth quarter. We had a really good fourth quarter a year ago. And I don’t see that happening this fourth quarter.

[Aaron Deer:]

And then just one last one on credit, I know all the credit trends generally go on in the right direction. But just curious when that popped end of watch for us this quarter, what industry is that and what loan type was that?

[Dave Nelson:]

We’re not going to talk about that because it would stick out. But it is a credit that’s in central Iowa and it is performing, it is current, it has positive net service. But that got tighter and with few other issues we decided to put it on our watch list.

[Aaron Deer:]

Okay, good stuff. Thanks for taking my questions.

[Dave Nelson:]

Aaron it’s not an industry or whatever that would indicative of economic trends or factors.

[Aaron Deer:]

It sounds very one off then.

[Dave Nelson:]

Correct, yes.

[Operator:]

[Operator Instructions] Showing no further questions, I would like to turn the conference back over to management for any closing remarks.

[Dave Nelson:]

So the thing we have to say is thank you again for joining us. We appreciate your interest in our Company. And we look forward to reporting our 2015 year end results at the end of January. So, thanks again.

[Operator:]

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