West Bancorporation, Inc. (NASDAQ:WTBA)
Q2 2016 Earnings Conference Call
July 29, 2016 11:00 AM ET
Doug Gulling - Chief Financial Officer
Brad Winterbottom - West Bank President
Harlee Olafson - Chief Risk Officer
Dave Nelson - Chief Executive Officer
Marie Roberts - Chief Accounting Officer
Dave Milligan - Chairman
Andrew Liesch - Sandler O’Neill
Kevin McLaughlin - BDF Investments
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 Doug Gulling, Chief Financial Officer. Please go ahead.
Thank you and good morning everyone. Thank you for joining us this morning. In the room here on the conference call with me are Dave Nelson, our CEO, Brad Winterbottom, Bank President, Marie Roberts, our Chief Accounting Officer, Dave Milligan our Chairman and Harley Olafson our Chief Risk Officer.
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 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, economy and other future conditions.
Because forward-looking statements related to the future, they are subject to inherent uncertainties, risk 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 obligations to revise or update such statements to reflect current events or circumstances after this call or to reflect the occurrence of anticipated events. Good, that out of the way, so Dave Nelson will start with our comments.
Thank you, Doug and good morning, everyone. Thank you for joining us and thank you for your interest and support for our Company. Well, we had another record quarter and I am pleased to report that we had a record second quarter for earnings, all time record in our 123 years history of our company and it also represents the eighth consecutive record quarter. Doug will provide more detail on this with during the first six months of the year, our gross loans increased 133 million which represents 10.8% increase during the first six months of this year, our net deposits during the same period increased $70 million which represents a year-to-date increase of 4.9% and despite this growth our pipeline is still good and our credit quality is exceedingly strong which probably will talk more when Brad will speak more to our growth in our pipeline.
Based upon on this performance our Board of Directors has approved a second quarter dividend of $0.17 which remains unchanged from last quarter but it also is equal to the highest quarterly dividend ever paid by our company. So now we have record earnings and record dividends, the $0.17 per share dividend has a record date of August 10 and our payable date of August 24.
With that I'd like to turn the call over to our Bank President, Brad Winterbottom. Brad?
Good morning. Just to follow up on some of Dave's comments as it relates to the loan activity in the second quarter, we had it about $100 million of loans in the second quarter and primarily towards the last third of the quarter. So that old volume has continued and our pipeline looks strong. We do have, in the third quarter about a half a dozen loans that are in construction phase. They are anticipated that they will exit the bank and however we have also added some construction loans that have yet to be advanced upon so, it may be a little wavy line but I think the trend line will continue to move upward.
Good activities in all three market, Central Iowa, Eastern Iowa and Southeast Minnesota. In terms of the trust business, we are adding accounts into our trust business, its revenue is down from a year ago primarily due to the onetime fees of the state handling of states and we haven't had that kind of activity so far year-to-date but really the deposit gathering side of it has been strong. We have been fortunate to add some significant new deposit relationships that should stick for a long time that helps fuel our loan growth and we're pleased with the progress. Those would be my comments and Harlee if you wanted to add anything?
Sure. Brad, thank you. I'll talk a little bit about our credit area and, just a few highlights is that our loan recoveries or recoveries and charge offs currently and through the last few quarters has exceeded our charge offs. Kind of an event that we thought was very noteworthy was at the end of June 30th, our loans over 30 days passed to average or if you from a statistical perspective were a zero. We actually have one loan in the amount of $12,000 that was 30 days past due and that includes all loans including the loans that are nonaccrual. So our nonaccrual loans or even current.
We have no OREO and our total watch-list has declined. The nice thing that we see from the financial information that we have received from our borrowers is that cash flows are very strong. Our underwriting is remaining consistent and when we look at our biggest and most major customers and concentration they're all doing very well.
In looking at the two areas outside of central Iowa, Rochester the group is continuing to build their base business and they will soon have an actual bank building to operate, out of we expect that property will be completed at the end of October and they expect to move into their new facility in November. They're continuing to identify who they want to do business with and have specifically charted who that is and when they will be trying to obtain that business.
In Iowa City Coralville, loan forms and deposits have been upswing and the thing that's really good in our opinion is that the leaders within our Bank and Coralville are also leaders within the community of Coralville and Iowa City and have developed a high profile as the place to go to for a lot of things.
So with that I would conclude my comments and turn it over to Doug.
Okay. Thanks Harlee. I just want to make comments on a few other areas. First of all, our net interest margin. It has declined a few basis points compared to the same periods of last year and I would say that the biggest impact has been the fact that we have an interest rate swap that became effective in December and still effective. We look at that. We consider about terminating it but referral rates are right now we're going to let it ride for a while.
Our provision of course is higher than it was a year ago and it really just relates to the fact that our loan portfolio is bigger. It's not due to any inherent credit concerns that we have and as you previously heard our credit quality is extremely good but with the amount of loan growth we had, we just needed to increase the allowance a little bit. We did have security gains in the quarter of $60,000 and I think that compares to the second quarter of last year of 37,000 but we have three preferred stock issues totaling 1.5 million that we've been thinking about selling and because rates were low and they had some nice gains we thought we would go ahead and get rid of those and because of rates go up, they're going to go under water.
And just a comment or two about the investment portfolio, it has declined here in the first six months of the year we would anticipate that we will continue to let the runoff in the portfolio either through the called securities or maturing securities find their way into the loan portfolio. So we would expect our investment portfolio to continue to windell probably for the remainder of the year.
That concludes our or prepared remarks and so we would be happy to answer any questions that may be out there.
We will now begin the question and answer session. [Operator Instructions] our first question comes from Andrew Liesch of Sandler O’Neill & Partners. Please go ahead.
Good morning, Andrew.
Few question from me. It looks like that a larger commercial real estate loan came on the balance sheet this quarter, just kind of curious the dynamics of that and how that might affects on margin? What sort of yield is there and the timing when it came on the balance sheet, is it at the near the end of the quarter or early in the quarter, just your thoughts there.
That's roughly about a half a dozen assets that came under the books late May to early mid June. So these would be a couple of apartments and a couple of buildings that are fully leased or almost fully leased, these would be a refinances on the buildings the business buildings those were refinances. They were maturing loans at life companies the owners of the buildings chose not to finance through the life company but those assets to us and then there were a couple of apartments that were acquired. So, it wasn’t one relationship but about a half of them.
Okay and then I am just curious do you have with you the percentage of your commercial real estate concentration as a percentage of total risk based capital?
Yes that's around 382%, I believe.
Okay, how is your conversation with the regulator has been? Do you think it might needs [indiscernible] but was it being where it is or how do you feel about your capital position?
We just had an exam and it went well. And certainly talk about that but I guess we believe that we have the monitoring systems in place and are doing the things that we need to do to service those laws.
The other thing that we have done on that Andrew is that we have specifically done quite extensive stress testing on the portfolio and that along with the credit quality, where the loan the values are and those type of properties and the cash flows has been generated on those properties, in my mind, comparative what our regulators look at when they look at our portfolio.
Okay and then one last question, just you guys have very good currency. What are your thoughts on M&A perhaps buying an overcapitalized bank?
Andrew, this is Dave. Well of course, the topics that we have routine frequent discussions upon but at this point it's not a strategic objective.
Very good. Those are my questions. Thanks.
Our next question comes from Kevin McLaughlin of BDF Investments. Please go ahead.
Good morning everyone and congratulations on a great quarter. I want to ask Brad, you mentioned the gross loan being up 133 million, are you doing anything in agriculture? I've heard about some very intelligent money that I respect buying into ag right now and I was wondering if you given kind of a look at that? And then on the deposit side, you mentioned being up $70 million or 4.9% for the quarter, can you talk about the contribution from the trust department but can you kind of give me some background on how much would be coming from trust and how much would be coming from commercial deposits that are interest free. Thank you.
Our trust deposits have been fairly consistent over, say the last three years and that might only be, I don’t know $10 million to $15 million in total. So it's relatively small when you look at our total deposit base. As it relates to the ag side, a lot of farmers would have to drive by many banks before they found, one of our branches. So, we are not ag experts and so we're not really looking for those types of loans. So we have a very, very small ag portfolios probably because of lawyer or some professional person is a gentleman farmer we might be financing that side of it but we really don't see that type of financing.
We have customers that are involved in that business and we certainly have them as customers but the actual financing of crops or for livestock is not something that we do allow. Does that answer your question?
Yes. Thank you very much.
[Operator Instructions] This concludes our question and answer session and I would like to turn the conference back over to Doug Gulling for any closing remarks.
Though we have no other specific comments, we just like to say we appreciate your interest in our company and thank you for joining us this morning.
The conference has now concluded. Thank you for attending today's presentation, you may now disconnect.
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