Q4 2020 West Bancorporation Inc Earnings Call
Please hold and operator will be with you shortly.
[music].
Good morning. This is the operator.
No.
Good morning, I would like to joke for West Bank Corporation earnings call.
Name and company please.
David Brown from IRA.
Yeah.
John you're right am I able to stay current without the night shifts.
So during our 2020, we increased our allowance for loan loss by about 70%.
Expense and added $12 million to our allowance and we still had a record year increasing earnings by 14%.
So those are my general comments I'd now like to turn the call over to our bank President Brad Winterbottom.
Thank you.
Dave mentioned that we did roughly a $225 million in PPP loans and I think at the end of the year.
We had roughly $45 million of those.
Forgiven.
So when I look at the loans loan portfolio for the fourth quarter absent any PPP.
Transactions, our loan growth was roughly.
Just slightly ahead of 4% and then for the year it was.
Just over 8% growth excluding PPP loans.
We had growth in all markets with probably the exception of the central Iowa market, which was relatively flat.
I'd say that.
We've had we had roughly three customers significant customers.
Sold during the.
The fourth quarter.
Which would have impacted probably the central Iowa market.
As it relates to deposit growth our average deposits.
<unk> just under 30%.
For the year.
<unk>.
I would say that we've seen we've seen growth in all markets there.
It would be primarily existing customers certainly we've added new customers as well, but I think most of that growth has really come from existing customers.
Harley is going to talk about asset quality, but I just wanted to point out that at the end of the year on a $2.2 billion loan portfolio.
We had two loans that totaled $18000.
It was 30 days or more past due so.
I think.
With that statement and Dave, adding stating that we added $12 million to the loan loss provision.
We had one charge offs in the months and the year of 2020 and that was $1572.
I think our portfolio quality remains very good.
And with that I am going to pass it over to Kirk.
Well thanks, Thank you Brad.
Today, I will discuss our watch list.
And credit trends COVID-19 credit issues.
COVID-19 modifications.
Dave already updated us on.
The progress on our new PPP second draw loans, and then a little information specific to our markets.
Sure.
Currently today, our watch list is at $44 million.
Yeah.
That compares to the end of 2019.
It was at $52 million at 18.
At $53 million.
We have one credit.
Preserves our biggest risk on the watch list.
<unk> is very cooperative and is on the process of marketing their specialized properties.
We will receive a payment from the sale of one property on the first quarter for about 10% of their debt.
And we also found out.
Our eligible for a just under $2 million PPP loan that they did not received during the first draw.
We are in.
With that credit and forbearance with them until April it after that point.
They start paying fairly significant principal payments again.
Yes.
As everybody has.
Has.
Experienced certain loans have been under more stress due to the COVID-19 pandemic.
Hotels restaurants theaters things such as that have.
Certainly.
We had difficult issues because of either being closed or having significantly reduced hours or times or abilities to even be open.
Yes.
On our hotel portfolio, we are tracking monthly their occupancy and cash burn.
Most have adequate liquidity and on investor ability to weather the problems along with.
Also getting significant PPP loans from a second draw.
We have a few restaurants and again they are receiving enough aid through PPP to survive.
Our theaters, which we have a nice theater business concentration.
We will also receive significant dollars through the stages program.
<unk>.
Relief Act.
Regarding COVID-19 modifications at the end of the year, we had $140 million or $6, one 4% of our loans and modification.
$60 million of this group are paying monthly interest.
And $80 million is fully deferred for P&I. This includes our credit that is also on non accrual at this time.
Most of these modifications will extend.
Through the first quarter of 2021, but all will be on.
<unk> modification at the air before the end of the second quarter.
And looking at.
Specific markets.
The Rochester market.
And I think we probably commented on this in previous times that Mayo is.
Big.
Generator evolve that goes on in Rochester, and Theyre up to.
What we consider full capacity again in eastern Iowa. They are also dominated by the University of Iowa.
As Time's gone on we're seeing them become more normalized than what they were on the height of one things were shut down.
The new markets in Minnesota.
Over time on St Cloud and Mankato are all regional centers.
Our customer base there.
It was very strong and thriving.
With that.
<unk>.
I'll stop and turn this over to Jane.
Okay. Thanks Harley.
I'm, just going to comment on our PPP loans and the impact on net interest income so.
Like I mentioned, we originated $225 million in PPP loans in 2020.
Net generated $4 $7 million of interest income.
The $4 7 million represents the 1% interest rate on the loans plus amortization of the fees received from the SBA.
When the fees are received we amortize them over the life of the loans, which are the vast majority of the loans on a portfolio or for two years.
So we recognized about $3 7 million of income and normal amortization excuse me interest in normal amortization and then there was approximately an additional $1 million of accelerated fees based on the pay downs received through December 31.
On the forgiveness.
As far as the yield.
So the yield on the PPP loans for 2020 was $3 one 5%.
That was a little bit of a drag on our overall yield on loans.
As far as the net interest margin for the year at three 2%.
That's basically the same if you were to exclude the PPP loans overall.
It did not have a drag on net interest margin for 2020.
So those are that's.
Kind of a little bit more detail on the impact on the income statement and I'll turn it back over to Doug. Okay. Thanks, Jayne I'll just add a couple more comments.
In.
Allowance area, Brad mentioned, the one minor charge off we had at the beginning of the year.
For the year, we had recoveries of 202000, so net recoveries right at 200000.
I'm sure. Some of you are wondering okay.
Are we going to do for our provision in the fourth first quarter.
And of course.
We still have two months to go in this quarter and we will do our full analysis at the end of the quarter and make our determination then but.
Sitting here today, our best guess is that our provision in the first quarter of 2021 will be quite a bit lower.
And then what it has been running for the last three quarters of 2020.
In terms of the margin.
We would expect over the course of 2021 debt.
Margin.
May moderate may have moderate compression.
Mainly because as loans and investments mature payments are made on loans.
The reinvestment rate most likely it's going to be lower than what what had been the stated rate.
On those loans or investments.
In the short run.
The margin is going to be influenced to buy.
How many PPP loans are on.
Our forgiven.
And the extent of the new PPP loans.
Come on the books.
And then lastly.
We have not.
Issued our 10-K, yet I know that some of you want a few average numbers.
For the fourth quarter and so.
Our quarterly our average assets for the fourth quarter.
<unk> 2 billion.
$957 million 945000.
The average equity for the fourth quarter was $218 million 941000.
And the average loans for the quarter were 2 billion.
$242 million 736000.
And I would mentioned that we.
We expect to file our.
10-K on proxy on or around March one.
And so with that that concludes our prepared remarks, and we would be happy to respond to any questions.
We will now begin the question and answer session.
If you'd like to ask a question. Please press Star then one on your Touchtone phone.
You are using a speakerphone please pick up your handset before pressing the keys.
Draw. Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Again, if you have a question.
On the one.
Yeah.
Yeah.
Okay.
Our first question today will come from Brendan Nosal with Piper Sandler. Please go ahead.
Hey, good morning, everybody I hope you're doing well, yes, good morning Brendan.
Let's see.
I wanted to start off here on some of the excess liquidity that you guys saw build even further this quarter and it looks like fed funds sold on the asset side of the balance sheet increased very sharply driven by deposit inflows.
So just kind of curious.
What some of the underlying drivers were and then to your thoughts on on how you might use debt liquidity over the course of the year.
Sure.
The drivers were there were several.
Our public funds cut.
Customers.
Right in $100 million in.
In the fourth quarter.
Then we had a spike at the end of the year, we had some businesses that just had year end transactions that.
Are the.
The money flowed through the bank and some of it has already gone out now in January.
Today, we're sitting on about $200 million in liquidity.
And our plan is at this point in time to.
Enter into a reverse repo program.
Where are.
We would.
Earn 115% on this overnight money well it'll end up being 30 day money and we and our thoughts at the moment will be to put about $100 million into that and see how that goes.
We do expect some deposit run off further here in the first quarter.
Just due to normal business operations.
And.
So that's kind of how I would summarize the deposit flows and our liquidity situation.
Yes fantastic.
Helpful color.
Okay. Good and then turning to loan growth as you folks noted gross is exceptionally strong.
Fourth quarter ex PPP and it made for a pretty solid year overall, given the environment.
Can you just offer some thoughts on where growth came from this quarter, both geographically and by portfolio and then how are you guys frame up your thoughts on growth for the year.
I would say in the fourth quarter.
The majority.
Of the growth.
Would have come through like I said all markets.
<unk> lagging a bit in central Iowa market.
It is predominantly real estate.
Secured transactions.
There were a couple of large.
Owner occupied businesses that we are that we are.
On transacted there were some multifamily and there we also have roughly.
$200 million.
Commitments.
On on construction, so we will see some of that growth, but I would also.
Say that with the first draws of PPP the forgiveness.
<unk>.
Activity is currently road robust right now.
And I would say.
I looked at it today as an example.
We were at $180 million at the end of the year.
Today that number is more like 100 and.
$35 million $130 million, so that forgiveness is happening.
And yes, we are doing the second round, but that's just really kind of started so I would anticipate.
Most of that $225 million in PPP loans that we.
It did in <unk>.
In the second quarter of 2020, I would imagine most of that will.
It will be gone here.
Relatively well by this year.
I would imagine most of our customers will be fully forgiven.
Got it okay that certainly makes sense.
And then turning over to <unk>.
The expansion.
In Minnesota.
Curious for any updated thoughts on on how that's going on certainly sounds like it's going well on its contributing to growth, but is there any incremental thoughts there and then just remind us where balances in the new market stand at year end.
Sure.
The new markets are performing very well.
The totals I think at year end.
About 200.
$60 million in loans.
Right in the neighborhood of $125 million to $130 million on deposits.
The markets have in there.
This is these have been very strong C&I markets for us So we really haven't.
Had a tremendous amount of.
Investor developer type.
Type of property loans in those markets. So it's a nice balance for us there.
Our.
Only disappointment has been the inability to go meet with the opportunities and customers that we are.
Our teeing up and our prospect close face to face.
Minnesota is a lot.
More restricted in regard to the activities.
Our.
That you are able to do restaurants had been closed places like that so a lot of places where you're trying to meet and greet at your customers and develop relationships.
Less accessible.
We do believe that.
That has been on an exceptional.
Opportunity for us and will continue to be a high growth area for us on the future.
Got it.
Okay.
And then let's see.
Turning to capital for a moment it looks like the big liquidity inflows blunting TCE ratio, a little bit but of course, they are pretty risk free assets. So it doesn't do much to your regulatory ratios.
But just curious for any updated thoughts on capital management, and how you view that.
Heading into the new year.
Sure.
You indicated all of our regulatory ratios have been I would say really pretty constant pretty consistent.
Over the last couple of years for sure and they all are well in excess of the requirement to be well capitalized and cover our Basel III.
Requirements.
On the pure equity to asset ratio of no question that.
This influx of liquidity inflated the balance sheet.
And did cause.
And in addition to that.
Over the course of the year the market value of our swaps declined quite a bit and of course that.
<unk> through equity and so.
That that.
<unk> to the lower equity ratio, but.
It's still a little above 7% and with our risk profile on our regulatory capital ratios in good shape.
We don't see any any.
Concern there.
Okay.
And then maybe the last one for me before I step back.
I think costs were certainly very very well controlled this year.
I think probably came in lower than many were thinking for the year.
Just as you look over the next couple of quarters, how do you see the expense base Traject, Inc.
It will probably well hopefully if its.
If the world opens up a little bit more our business development and customer Entertainment expenses will go go up from where they were.
But.
Absent that I don't see a whole lot of change in expenses, we're going to have.
Some increases in salaries for normal annual.
Increases.
But other than that I don't see a whole lot of change in our expenses, our occupancy expenses won't change much this year.
Following year.
Building, a building and Shoretel.
Minnesota, a suburb of St cloud that'll be done at the end of this year. So it won't be operational until the beginning of 2022.
So I just don't see a whole lot of change in expenses other than what we just mentioned Doug our head count.
Okay.
Really not changed over the last two years no all of our growth no thats right.
Even as we've added some people and while we certainly added people in Minnesota, but.
<unk>.
Contracted in some other areas of the bank.
Thank our FTE count is right around 170 people in it.
And that way for for at least the past year.
Okay fantastic.
Thank you so much for taking all the questions I appreciate it yeah.
Thank you Brandon.
And then if you'd like to ask the question. It is star then the one star then one.
Sure.
Yeah.
Sure.
Yeah.
There appear to be no more questions at this time.
So this will conclude our question and answer session I would like to turn the conference back over to Doug Gulling for any closing remarks.
Well, that's all we have for today again, thank you for joining us and we do appreciate your interest in and West Bancorporation.
No.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.