WTBA (2019 - Q4)

Good morning and welcome to the West Bancorp Quarterly Earnings Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions [Operator Instructions]. I would now like to turn the conference over to Mr. Doug Gulling. Please go ahead. Doug Gul

Thank you. Good morning everyone. Thank you for joining us this morning. On the call today are Dave Nelson, our CEO; Brad Winterbottom, our West Bank President; Harlee Olafson, our Chief Risk Officer; and Jane Funk, our Chief Accounting 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 Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. 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. And at this time, Dave Nelson will start us off.

Thank you, Doug and good morning everyone, thank you for joining us. I'll have some just some introductory remarks and then turn it over to others for some more detail. But we had another record year at West Bank or we had loan growth of over 12%, deposit growth of over 6%. Our credit quality is incredibly good, and we have a solid pipeline, our culture and morale is very strong. And perhaps what's even more exciting to us than our record year is our expansion into Minnesota and how that's going and give you more detail on that later, but during March of 2019 last year we started West Banks in three new markets in Minnesota. We didn't enter the market via a traditional acquisition. We didn't pay a premium for an existing book of business. We just started our own banks, with what we believe are the top bankers in those communities and then recruited community leaders and business owners to serve as our advocates and created community advisory boards and through – with their assistance, are pleased to say that in just nine months of operations, we achieved breakeven and a positive financial run rate. The net or the cost of the expansion during that nine months was 2.8 million. And of course, during that nine months of operations, we were ramping up loans and deposits and had revenue. So the net cost of the expansion on a pre-tax basis was 1.7 million. So even despite the earnings drag of the 1.7 million, West Bank still achieved an all time record year for earnings in our 126 year history. And based on that performance, our board has approved a quarterly dividend at $0.21 per share of the payment date of February 19 to owners of record as of February 5. And with that, I'd like to turn the call over to Brad Winterbottom our Bank President.

Thanks, Dave. I want to apologize in advance. I'm fighting cold, so I'm going to sound a little rough. Fourth quarter, we had over $100 million of additions to our own portfolio and it came really from all of our markets. Obviously the biggest increase in the markets would be our three markets up in Minnesota that we added in March as Dave said, but we had over 100 million in out standings from September 30 to December 31 and then roughly about $220 million growth for the year. Those loans are really spread between C&I and in real estate secured transactions and as an example, our C&I out standings at 12-31-18 was about 359 million. At the end of '19, it was about 431 million. Real estate secured transactions at the year and '18 was $1.724 billion versus at year end '19 $1.943 billion. Or gathering deposits we are spending a little bit more money in technology to improve our deposit gathering abilities up in our Minnesota markets that – so we should do a better job of that in '20. And as I look at the pipeline today, we have robust activity, again and all four markets, things are working very well. With that, I'm going to turn it over to Harlee and he's going to give us a little more insight as to asset quality.

Thanks Brad. I'm going to talk a little bit about the watch lists and credit trends and then just some information on our – we – are just completed regulatory exam. But to start with our watch list is at a very low level even from our historical basis we've had a low watch list for a number of years, but it might be in the best position that it's been that I can remember. All credits within the watch list are properly structured and performing on repayment. We have a very low level of matic rules, we have zero credit loss potential within our non-accrual category, all are very well secured and performing. From an overall portfolio perspective, we have a very seasoned portfolio that has continued to perform and grow. When we do our stress testing on that portfolio, we can see the total level of loan to value on the portfolio continues to decline on the commercial real estate side and new credit that's being put within the portfolio is properly secured and backed up with strong individual guarantees. We just had our regulatory exam with the FDIC. And in that exam, we did not have any risk rating changes within that exam that they have told us, so you can look at that along with our independent review of our loan files that we have continued to keep a very strong, consistent and accurate accounting of our credit and its risk ratings. Go on to look at specific markets our Eastern Iowa City market this last year had a tremendous year and they increase their loan balances very – by almost 25% over the year, and also had a nice strong quarter. They've been doing this with current customers that have strong balance sheets and good projects. In Rochester our year-over-year was a fairly flat year due to a very large loan payoff. But since that payoff they have – by the end of the year, they came back to being at the level that they were at the beginning of the year and may have a strong pipeline going forward. In our new Minnesota locations, we started as Dave said, with no bank building, no customers and not having to purchase the equity of sudden existing business and try to improve upon it. We started with very good bankers and the customers are coming and the loans and deposit balances are growing steadily. We have a great pipeline going into this next year. What we put on the books in our new Minnesota locations is almost entirely C&I credit in owner occupied real estate. I think we have less than 10% of the new credit that was put on in the new Minnesota markets was non-owner occupied real estate. So it's been a nice addition for our franchise to be able to put that type of new business on the books. And we look forward to having an exceptional year in all those markets in addition to our existing Central Iowa market. With that, I'll turn it back over to Doug.

Okay. I'll make a – comment on a few items here. We did have a provision for loan loss in the third quarter or of the fourth quarter of $300,000. And so that ended up being a revision of 600,000 for the year. And that was primarily due to our loan growth. We did have a couple of charge offs during the year, but really the provision was related to the loan growth that we had. Just to comment on our margin, we would expect that maintain where it's at currently going forward, there might be just a slight improvement in the first quarter due to the fact that we'll have a full quarter benefit of the lower deposit costs as a result of fed cuts during the fourth quarter, and we'll be adding more loan balances in the first quarter, but for the most part, I don't anticipate our margin changing much from where it was in the fourth quarter. I will point out that we used additional FDIC credits on our insurance premium to the tune of $227,000 in the fourth quarter, and we have $73,000 remaining that we will carry over into the first quarter of 2020. And then lastly, I'll give – some of you may be interested in just some quarterly average numbers that aren't available because we haven't filed our 10-K yet and we won't do – we anticipate filing that on or around February 28. But for the fourth quarter, our average assets were $2.470 billion, average equity for the fourth quarter was $206.505 million and average loans for the quarter were $1.875 million. With that, we will entertain any questions.

We will now begin the question-and-answer session. [Operator Instructions] We don't have any questions at this time. We don't have any questions at this time. I'd like to turn the conference back over to Mr. Doug Gulling for any closing remarks. : :

Okay, well, I guess we covered everything. So that's all we have for today. We appreciate your interest in our company. And we'll cover the first quarter towards the end of April. So thank you for joining us.

The conference has now concluded.

Hey Nick, why don't you stay on.

Yes. Thank you for attending today's presentation. You may now disconnect.