Q1 2021 West Bancorporation Inc Earnings Call
Good day and welcome to the West Bancorporation first quarter 2021 earnings Conference call.
All participants will be in a listen only mode should you need assistance during todays call are starving hereof to be connected with an operator.
After todays presentation, there will be and opportunity to ask a question.
To ask a question you May press Star, then one and a touch comes back.
To withdraw your question Press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Doug Guzman, Chief Financial Officer. Please go ahead.
Good morning, everyone welcome to our conference call. This morning.
On the call we have Dave Nelson, our Chief Executive Officer, Harley Olafson, Chief Risk Officer, Jane Funk, our Chief Accounting Officer.
Brad Winterbottom.
West Bank, President and Brad Peters Executive Vice President in charge of our Minnesota locations.
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.
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.
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 Dave Nelson will start us off.
Thank you Doug and good morning, everyone. Thank you for joining us.
To start off by first introducing Brad Peters, who has started with West Bank January 1st 2019 to lead our Minnesota expansion and Brad was just recently named as a policymaking officer during our organizational meetings this week and will lead.
All of our Minnesota markets, and we will hear from Brad a little later during the call, but we will have several presenters today. So I'll shorten my comments, but I would say, we just had the best quarter ever during our 128 year history. It's been a long time since I've seen a quarterly return on.
On the equity of 20% was an efficiency ratio under 40.
Based on net performance, our directors have declared a quarterly dividend and increased the dividend from 'twenty two cents to <unk> 24 cents per share. The payment date of may 26th to shareholders of record as of May 12.
I'd like to share some good news.
Recently, the West Bank has received three national accolades and one of the ways, we measure our directional progress towards our vision is how our financial performance compares to others.
And the performance rankings of banks across America for 2020 are just now beginning to be released.
During this past March and this month of April West Bank has received three national accolades for top performance.
And the 2020 Raymond James Community Cup recognizes the top 25 community banks across America with assets as small as 500 million up to 10 billion.
West Bank was ranked number 21 and America and the only bank in Iowa, and Minnesota to be recognized and one of very few from the mid west.
West Bank also recently well West Bank has received this award the Raymond James Community Cup now seven out of the past eight years.
S&P Global ranked West Bank number 10, and our nation on their list of the top 50 large community banks across America, both public and private with assets from three to 10 billion again West Bank was the only Iowa, and Minnesota Bank to make that list and one of the very few from the mid west.
Finally Bank Director magazine, just published their list of the top 25 banks across America with assets greater than 1 billion with the lowest or most favorable efficiency ratio and listed West Bank is number 19 and America.
Oh and with that I'd like to turn the call over to Harley Olafson, our chief risk officer.
Thank you Dave.
I will begin today talking about various credit issues.
Uh huh.
And our our Texas ratio for the quarter increased due to the death of one of our customers and the time it took to properly document.
The loan and the trusts name.
And that did take a little bit longer than we expected and it did carry over.
The month end of March.
All of the interest was and it was paid correct and the loan has now been renewed and is now and our standard classification.
And nothing really negative to report on that going forward, but it's good for them to our Texas ratio for the end of the quarter.
Second our other <unk>.
Significant non accrual assets.
Is and the process of collection and as for latter part of the collection period.
And in fact today one of the pieces of property.
And is being sold and about 10 per cent of the loan balance.
Be repaid today from the sale of a small piece of property.
They have also sold.
And our leasing back.
A significant other property that is and expected to close.
And by about the third week of May.
This sale would pay down to a very minimal ballast remainder of our non accrual debt.
Third our watch list has had a significant increase this quarter. It is now.
At 5.1% of total loans.
This is due to one hotel group and one separate hotel being placed on our watch list.
In reviewing the hotel loans and total we have seen average occupancy increase from 30% and January to 42% and March.
Hotel and we put on the watch list have started to recover as well, but at a slower pace.
These loans that are on the watch list now we're very good.
Operating entities prior to the pandemic.
Pre pandemic loan to value was were and the low 60, percents and debt service coverages were greater than one and a half to one.
We expect a vs.
These hotel groups to achieve positive cash flow later this summer.
But they will remain on our watch list until we have assurances that they are cash flow positive.
And looking at modifications that we currently have.
Uh huh.
Our modifications are rolling off and they will are continuing the rollout of the about $100 million and modifications and 34 million and.
Returned to full principal and interest payments in April.
48 million and return to principal and interest payments and may cause.
17 million returned to principal and interest payments and June.
We do have a couple of loans in that group that may.
See about couple months interest only modifications.
But that hasn't been determined quite yet.
Overall, the health of the portfolio was very good.
Business entities that needed PPP funding risk.
Received adequate funds to manage disruptions from the pandemic.
A large number of customers received funding and ended up having very profitable financial results, even though they received.
Additional government funding.
Our one significant customer added to our watch list due to their corporate structure did not receive as much funding due to program limitations.
As discussed previously the sector as you would expect that has been affected the most and as our hotel group.
Again, they have also received significant.
PPP funding the portfolio as a whole has been showing signs of improvement and as I discussed previously.
January occupancy was 30% February was 38% and Marshalls 42 per sub on average.
You may have some questions for me later, but shifting off the credit and looking at.
Our eastern Iowa.
There are this market has continued to perform at a very high level.
We are continuing to gain market share and eastern Iowa, with new and expand and current customer relationships and with that I will turn it over to Brad Winterbottom.
Thank you Mike My comments, we're gonna be brief.
Hardly touched on the eastern Iowa.
Market in terms of new business generation and and.
For the quarter.
Absent P P P loans.
And we grew two five per cent roughly.
Our pipeline report is is good.
We have a a lot of customers and prospects that we're talking to about new business and.
We're starting to get back to face to face meetings, not not 100 per cent, but where it's getting closer.
Our our loan growth is.
And then decent and all six of our markets.
And we're seeing C&I business as well as.
And as real estate transactions I would tell you that with banks with a lot of liquidity and I think that that's generally most banks.
We're starting to see some very aggressive interest rates being offered and that will probably have some headwinds for us.
However.
We're still in front of these folks.
And with our sales had its own.
Outlook for loan growth are again, our pipeline is decent good.
Uh huh.
We're aggressively looking for a good new customers.
We had roughly $25 million of loans pay off and the first quarter from.
From asset sales and I think that that's going to continue as well so that too will provide some headwinds, but our and.
And it's nothing new.
Those are my comments.
Brad theaters.
Yeah.
Thanks, Brad and good morning, everyone.
And I'm going to provide you a brief update on our Minnesota expansion.
Our team continues to make good progress building, our presence and each of the Minnesota regional centers.
We continue to focus on C&I and.
Our pipelines are strong.
Our loan Outstandings and the three new markets have grown to nearly 300 million.
And collectively with Rochester, Minnesota is now over a half a billion dollars and loan outstandings.
Our core deposit growth has also been strong.
And our C&I focus has really driven from strong Treasury management business.
We continue to make progress on our new building and St Cloud, It's X well and SAR tell which is a suburb of St cloud.
We're looking to open that new facility late this year.
And the main caito market is very close to acquiring land for a new building.
We're expecting to begin construction on that facility. This fall.
Oh that is the end of my comments on art and I'll now turn it over to Jane funk.
Thanks, Brad.
I'm just going to make a couple of comments on the impact of the PPP loans on our income statement, our PPP loan income and the first quarter was two.
$2.842 million.
That was and impact on our net interest income and our income before taxes.
Bottom line impact after tax will be about $2 1 million of that $2 8 million and interest income of approximately $2 million of that was what we would consider accelerated fees at the time of low.
And forgiveness and the first quarter. So that's just a little color commentary I P. P. P loans and I'll turn it over to Doug for the rest of the financial comments.
Hey, I'll make a comment on a on a couple of areas first of all on the provision as you know our provision and the first quarter was $500000 that compares to $1 million and the first quarter of last year and down significantly from the $4 million that we provided in the fourth quarter of 2020 and really the.
The provision and the first quarter represented a providing for oh on the loans that are on the loan growth and non P. P. P loan growth and the first quarter you know I'm sure you know the question on your mind as well, what's it look like going forward.
And it's a you know we always take a look at that at the end of the end of each quarter.
And but I think our best guess at the moment is that it would be a similar to the first quarter. Our at most and if if everything gets resolved as Harley was talking about earlier and it could be very minimal.
As far as the margin is concerned and you know what's the outlook on the margin well.
We are I think it's probably going to trend down a little bit.
And any loan payments loan maturities loan pay offs.
Any any pay downs and maturities and the investment portfolio are getting reinvested at a lower rate right now.
And there isn't much repricing opportunity on the liability side of the balance sheet now offsetting that a little bit is we are going to work.
To.
Get some of our short term liquidity and.
Into the investment portfolio or a reverse repo program that it hit at a higher rate and then we earn at the fed and so that that will be a positive.
And lastly.
Just on earnings.
First quarter was it wasn't all time record.
Significantly higher than what we had been running.
While we do not give guidance I think it's fair to say that our second quarter will not be as high as the first quarter, but we do expect a very strong.
And decent our second quarter earnings.
With that that completes all of our prepared remarks, and we would be happy to answer any questions.
We will now begin the question and answer session to ask a question Press Star then one on a touchtone phone.
And you are using a speakerphone please pick up your handset before pressing the keys.
Anytime you question has been addressed and you would like to withdraw your question Press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yes.
And the first question comes from Brendan Nosal.
With Piper Sandler. Please go ahead.
Hey, good morning, everybody how are you good thanks Brendan.
Maybe just to start off here on the P. P. P side of things do you happen to know how much in remaining unrealized fees you have left at this point for each of the two routes.
Yes, so for the first round.
As of March 31, we had about 770000 earned unamortized P. P P fees.
And on the second round of lending, we had a 2.880 million.
And fees.
Fantastic. Thank you.
And then in reading through your 10-Q I didn't notice that there was about 50 million and <unk> that are being repaid.
Repaid either and this month offering or and day.
Just wondering what the cost was on those advances.
And do you see any further opportunities to pay down more of the DFA shelby's.
Excess liquidity.
Well good question Brendan.
The cost of those federal home loan bank advances.
Was approximately two 6% so we are going to.
And I have some benefit from that because we're going to use.
Money, that's earning 10 basis points right now and pay off the.
Borrowings that had and effective cost at two 6% net and the reason that that conscious kind of high is that we had swaps wrapped around those assets that we terminated at the end of the first quarter and then we're paying off those advances and well $25 million has been paid off for now.
Now in April and another 25 million will be paid off in may.
And we do not see any other opportunities for that.
Right at the moment.
Got it okay alright, that's.
That's helpful.
Wonderful.
So you guys offered a lot of fantastic color on kind of the the loan growth environment and it gets it sounds like you're still getting in front of plenty of commercial customers pipelines are strong.
But payoffs for me and a bit of a headwind and and if anything the competitive environment and just getting more challenging I mean, you guys have been doing very nice loan growth for the past couple of quarters.
I was kind of looking for high single digit to 10%, which you guys did this quarter.
So is that kind of a reasonable expectation for for growth from the rest of the year ex PPP.
Well I don't have an official answer but I would tell you. This that we've had a lot of discussions with developers.
And the builders others that require.
Input costs that include lumber drywall steel et cetera, those prices are going up and.
A bit too fast for some of our customers and they are starting to question, whether they need to do.
And additional building or additional asset and so.
So that's to be determined.
But we.
We do have over $150 million and construction advances.
Net.
Net should fund through probably the rest of this year.
And.
So and we're talking to a fair amount of other C&I type customers.
That would.
Obviously al.
And we increase our.
Our footing so.
I don't know if I would say, 10%, but last year I think we were at eight eight.
8% ex and whatnot.
Without the P. P O.
How's that for another day.
It was a very good non answer thank you for the color, let's see on credit and I think your prepared comments answered most of the questions that I would've had so that was certainly helpful.
I think I know the answer to this day just to kind of confirm.
And then move up and and the watch list and kind of what's remaining on deferral. It doesn't sound like you see any material loss content on and kind of those pieces of the portfolio is that correct.
That is correct.
Okay Alright.
And then maybe one last one for me and then I'll step back on the.
And the M&A environment has certainly taken a turn for for the better over the past couple of weeks or a month or two.
I know traditionally you folks are very internally focused and and you've been able to kind of.
I have a lot of runway with organic growth on your own but just kind of curious for up to any updated thoughts on an M&A. That's something that interest you or or is the organic focus still top of mind for the time being and.
Brendan. This is this is Dave and I can answer that and.
We're always open to the idea and the concept, but youre correct that we have been very successful and with our internal growth and in fact.
And just recently had reason to.
If you look back at our growth and when we don't.
Rarely do we talk about growth as a standalone because we don't set goals about being a certain size by a certain time, nor do we give bankers goals about selling a certain amount of something during a certain time.
But we've quietly over the last nine years gun about almost tripling our size without making an acquisition from 2011 to 'twenty 'twenty, we've gone from $1 2 billion to three point too so it's not quite but close to tripling.
And we just recently crossed and $3 billion, Mark and assets. So it causes me to look back and see how long it took west bank to grow its most recent billion.
To go from two to 3 billion and it took 110 years to get our first one from zero to one but to grow the most recent bill and only took three years, so acquisitions and yes, I mean always open to it I think the intrinsic value of our franchise as the purity of our business model.
And so if we were to.
Head down that road, we would certainly look to.
And at other banks with a similar business model to maintain the value of the purity of what we have.
Okay fantastic.
And I think that's all that I had for you folks, but thank you for taking the questions.
Thank you Brendan.
Yeah.
Yeah.
Thomas or anyone else.
Yes, we haven't we have a question from Kevin Mclaughlin with Mclaughlin investments. Please go ahead.
Thank you and good morning, everyone.
My question and beat for Dave and Brad Peters.
Because I like what you're doing and Minnesota, so much and I visited your Rochester operation and and saw with my own eyes.
And what is it.
Are there any metrics that you apply when youre looking for new opportunities or how.
How do you determine I mean as you've been.
Turning profitable and you know six to nine months and the operations that you started so far but is there some kind of a formula that you apply whether you have to see a certain ability to grow by a certain amount and a certain period of time before you're willing to make that commitment or take the step.
Hi, Kevin This is Dave and and again I want to thank you for coming to our annual meeting yesterday and I very much appreciate your support but.
Let me start with that and saying that.
For the reasons why we've been so successful going into these new marketplaces with no customers and zero revenue and ironically in all cases, achieving a profitable run rate and just nine months and Doug and I. When we are at conferences and talked other bankers around the country, we often like to ask that question of <unk>.
Others, if they were to <unk>.
Expand into a new marketplace, how long would they think it would take them to achieve a breakeven or a profitable run rate and they often say well. If we didn't think we could do it and for five years. So we probably wouldn't you know.
For probably three years two years would be fantastic. The reason we've been so successful with this and have chosen and the locations. We have was due to our very unique and strong advantage package and that advantage package being the ability to.
Hire the top bankers in that town, who have existing relationships. So you think about a formula for what one would look for in order to keep doing this and other places would start with the local leadership to be able to identify and be successfully attract.
And at least one.
Leader, whom you could build a team around.
And so if we had the ability to continue to replicate and Oh.
And what we've done we most certainly would like to do that.
Okay.
Is there any opportunity that you've turned down.
I mean, I love, what you've done so far but I think that your success.
And may attract other people and I just wondered if there was any when coming to you that is interested and aligning themselves with you for.
Well everything that we've done we've initiated so we're kind of we're kind of the ones that would extend the invitation and versus the other way around and okay.
Yes.
And I know that you've taken a lot of business away from brummer. So as a follow up can you do you follow brammer and how they've been recovering through this whole thing.
Well I really don't.
I mean I there.
And I've been in the news a lot for various reasons, but honestly I haven't I have not heard anything current.
Okay.
Well I'm just going to close by thanking you for all of you for all the hard work you did last year, which was phenomenal and finally just for making me look so good I've got a lot of very happy clients and Oh I appreciate everything you've done congratulations and thank you Kevin. Thank you very much.
Yeah.
Okay.
Okay.
And we have no. Further question. This concludes our question and answer session.
And I would like to turn the conference back over to Douglas for any closing remarks.
Well.
Yes, that's that concludes our remarks and we just appreciate your interest and our company and thank you for joining us this morning.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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Yeah.
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