West Bancorporation, Inc. (NASDAQ:WTBA)
Q4 2015 Earnings Conference Call
January 29, 2016, 11:00 ET
Doug Gulling - CFO
Dave Nelson - CEO
Harlee Olafson - Chief Risk Officer
Andrew Liesch - Sandler O'Neill
Welcome to the West Bancorporation Fourth Quarter 2015 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Doug Gulling, Chief Financial Officer. Please go ahead.
Thank you, Gary and welcome everyone. Thank you for joining us this morning. With me on the call today are Dave Nelson, our Chief Executive Officer; Dave Milligan, our Chairman; and Harlee Olafson, our Chief Risk Officer. 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 upon 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.
At this time, I will turn it over to Dave Nelson.
Thank you, Doug and good morning, everyone. Thank you for joining us. We had a great fourth quarter. It was a new West Bank record fourth quarter. In fact, every quarter during 2015, was a record quarter. Therefore, 2015, was an all-time record earnings year in our 122-year history. And we've now had six consecutive record quarters.
We've been saying for a while now that the bad parts of our bank keep getting smaller and the good parts are growing. And that trend has continued now to the point where we're almost out of the bad parts. We'll have more detail on this, but our past dues are almost nonexistent, Texas ratio at year-end was 0.87% and OREO is zero.
Our pipeline is growing and our local economies we serve are solid. We believe we're in a good position for another good year. Our Board of Directors declared a $0.16 per common share quarterly dividend to shareholders of record as of February 10, 2016, payable to shareholders February 24, 2016.
I would now like to turn the call over to Harlee Olafson, for more detail on our revenue generation.
Thanks, Dave. I'm going to talk about some specifics in regard to load generation and just deposit generation and also some of the specific income categories within the Bank and also credit trends within our organization. In regard to loan activity, just from a context of how things work in our organization, this last year, we generated in the neighborhood of $450 million in new loans this last year. And, with that, we also had over $140 million in specific loan payoffs. Along with that, we have ongoing amortization and those things.
Our loan growth in the fourth quarter, was mitigated, I think specifically, by a couple of things. And they were unanticipated loan payoffs that came from one of our significant customers selling a property that they received such a good price on they needed to do it. And another one of about $10 million that paid off that was not anticipated.
We also had numerous payoffs from construction loans that had run their course and are something that happens in the normal course of business. We would have anticipated our ending loan balance to be in the neighborhood of $25 million to $30 million higher than it was without these unanticipated payoffs. How is it looking for the upcoming year? I would say it is looking really good. We currently have over 200 active construction loans and our pipeline is strong in regard to new commercial business that we expect to close in the future.
On a couple of specific categories, our trust business this last year actually had a slight dip in regard to the income that they generated. This is not, in my opinion, due to their core not being good, but they have a couple of one-time events in 2014 that generated income, maybe at an extraordinary fashion compared to 2015. Total clients and total base is good. The market a little bit is against us at this point as some of the fee generation is based upon total market value.
Mortgage activity, I think it did exactly what we wanted it to do in 2015. We were able to provide good service. The income side of the business is limited as is the expense side of it is limited. So, we were able to provide good service without having it as a big risk to our financial position.
Local economies and the markets that we serve, as Dave talked about, Rochester, Iowa City, Coralville, Des Moines market, have all been good. There has been a fair amount of construction activity in especially the Iowa City and Des Moines markets. I think there are a couple of areas where there hadn't been any vacancies and now you can see a couple that are popping up. We will have to keep an eye on that as we go.
In regard to our credit trends, as Dave talked about earlier, our Texas ratio is below 1% right now. And I almost hate to say it, but our past-due percentage over 30 days at the end of the year was 0.06% that was past-due over 30 days. So our customers are paying their bills and they are paying them on time. Our total watch list categories trends are good. Risk within the portfolio is, in my opinion at this time, in as good of shape as we have seen it. I consider our portfolio to be strong and stable at this time.
We have also gone through the process of stress testing our commercial real estate portfolio. And that is helping us stay on top of any trends that might be creeping up in various areas or categories. Overall, portfolio is strong, our markets are doing well.
Just a couple of other comments in regard to Rochester and Iowa City, Coralville. In Iowa City, Coralville, we did open in the last year our Eastern Iowa headquarters and we're very pleased with that. Not only from a perspective of having a new facility that's in a high-traffic area, it gives us some visibility, but it's very functional for our group there and how we conduct business. In Rochester, we have begun construction on our headquarters facility for Minnesota and expect that facility to come online later in 2016.
With that, I turn it back over to Doug.
Thanks, Harlee. I'd like to just comment on a few other areas of our results for the year. As far as the net interest margins is concerned, on an annual basis, it did stay steady at 3.59% compared to the prior year. In the fourth quarter, it did drop a couple of basis points from the third quarter and that decline is due to a little lower yield in our investment portfolio and a little increase in the cost of our funds.
Our deposit costs actually went up1 a basis point or 2 due to new deposits going into our higher cost products. And then we had -- we have one remaining interest rate swap on a Federal Home Loan Bank advance and it became effective December 21.
As you know, we had swaps on other advances and as those have become effective, we have terminated those. And we believe we will terminate this one, but it's not favorable to do so right now. The swap has a negative value of $1.3 million today. And we're just not willing to lock in that cost which gets amortized over the remaining life of the borrowing and then at the same time, would turn the borrowing into a variable rate borrowing.
And so, with the swap being effective, it increases the cost of a $30 million advance by about 200 basis points. Again, we probably will terminate that at some time, but hopefully, the value of the swap will come down and we don't expect a big increase in LIBOR this year, particularly with the economic news that has come out lately. So we'll just continue to evaluate that swap.
The provision for the fourth quarter was $450,000 which was up from the prior two quarters. We actually had net charge-offs in the fourth quarter of about $140,000 and the previous three quarters we had had net recovery. With the net charge-offs and the growth in the loan portfolio, we did add a little more into the provision or into the allowance.
We mentioned that we had a one-time gain from the sale of our interest in SmartyPig, that was $500,000 after tax. And because we had that onetime item that we really didn't expect, we decided to in effect pre-fund our contribution to our foundation for 2016, of $180,000. So our expenses in the fourth quarter are probably $180,000 higher than they normally would have been because of that decision.
I think that's all of our prepared remarks, but we would love to respond to any questions that may be out there.
[Operator Instructions]. Our first question comes from Andrew Liesch with Sandler O'Neill. Please go ahead.
Harlee, did I hear -- you said that there might be a couple trends you might be worried about maybe related to some vacancies?
Just from a perspective that things have been so, so strong. We have seen in the suburb market of Des Moines that some of multifamily business instead of being 98% to 100% occupied and just a function of whether they have somebody moving in or not, might be 96% to 98% right now.
To get to the point, there's maybe just a point where you start looking and saying, are we getting to the point where we built enough for awhile? So we're just looking at that. The other category, such as warehousing and things such as that, appear to be very strong yet.
Your comments generally seem pretty positive. With the decline and I guess your concern of the global economy, are you guys seeing anything that has you concerned at all?
Well, not in our local markets. And so, the question is, how all these global headwinds and slowing and negative interest rates in other parts of the world, will that affect us? I don't know. Our local markets still seem good.
I think that's very true. I think the proper place to be involved here is just to stay prepared and to stay vigilant with who we're doing business with.
And then with the recent rise in the Fed funds rate by the Fed, have you guys seen any effects of that, I mean like loan yields or on deposit costs?
Well on loan yields, anything tied to prime we increased with the increase in prime. But we do have floors on many of our variable rate loans so we didn't actually see an increase on all of the variable rate loans. But we did see an increase on some of them. And we bumped CD rates a little bit and we bumped a couple of tiers of our money market accounts a few basis points. But we have not seen anything significant.
Okay. And one last question, do you have the average loan balance for the quarter?
Yes. I have that right here. Average, quarterly average loan balance for the fourth quarter was $1.235 billion.
[Operator Instructions]. As we have no further questions, this concludes our question and answer session. I would like to turn the conference back over to Doug Gulling for any closing remarks.
Well, the only thing to say at this point in time is thank you for joining us. We appreciate the interest in our Company. And we'll visit again at the end of April. So, thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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