Q2 2021 West Bancorporation Inc Earnings Call

Good day and welcome to the West Bancorporation.

<unk> quarterly earnings call all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing star zero. After today's presentation, there will be and opportunity to ask questions to ask a question. You May Press Star then 1 on a touchtone phone.

To withdraw your question please.

Press Star then 2 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.

Okay. Thank you Matt Good morning, everyone. Thank you for joining us on.

On the call today from West Bancorporation, whereas a day.

Dave Nelson, our Chief Executive.

And of Officer, Harley Olafson, Chief Risk Officer, Jane Funk, Chief Accounting Officer, Brad Winterbottom West Bank, President and Brad Peters, Our Minnesota Group, President and well 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 and such.

Such statements to reflect current events or circumstances. After this call or to reflect the occurrence of unanticipated events with that Dave Nelson will start us off.

Doug and good morning, everyone and thank you for joining us and for your interest and support of our company.

Hello, everyone is back to work.

And at West Bank, all Covid loan modifications have expired and our bank is operating under normal non pandemic protocols.

West Bank had another record quarter.

Our loan growth net of P. P. P. During the first 6 months or year to date.

6%.

And we have a good pipeline.

So based on this performance we have declared a 24 since second quarter dividend, which will be payable August 26 to shareholders of record as of August 11th of 2020.1.

And with that I'll turn the call over to Harley Olafson, our chief.

She for risk officer.

Thank you, Dave and good morning to everyone I will address credit issues for overall credit quality at West Bank is very good at the end of the quarter. We had only 1 loan past due over 30 days and the amount of $85000.

So on.

As a home that will be paid off in August.

Our Texas ratio dropped from 93, 8% to 531%.

Our 1 significant non accrual loans has sold 1 of their properties and is expected to close on September.

Timber for 'twenty, 1 and will decrease our non accrual by over $5 million other.

Other properties are also and play 1 has a preliminary mou that would provide the sale of $10 million.

We believe the specific provision of $3 million.

Or is that we have on this 1 credit is more than adequate.

And 1 significant credit on our watch list that was severely impacted by the pandemic and.

I'm pleased to say that they're recovering nicely and are positively cash flowing.

And we'll wait to see sustained performance.

And we upgrade.

All COVID-19 modifications have expired and all customers are back to full payments as of June.

P. P. P loans continue to pay off we're getting regular reductions on that it seems like on a daily basis no.

Credit trends are good and businesses.

And before they put them on liquidity.

I know that Brad Winterbottom, and Brad Peter's will discuss.

Markets, and Minnesota, and Central Iowa, but I would add that our eastern Iowa.

On the market is doing very well.

And.

It has significant pie.

Pipeline.

With that I will turn this over to Brad Winterbottom our president.

Good morning, everyone Dave.

Dave mentioned, a 6% loan growth year to date and we.

We had 3% in the first quarter, 3% growth.

And the second quarter, so, we're up $125 million and and and loans.

Net growth is really spread across all of our markets. There's.

And there has been a good demand.

And in all markets.

And that's and.

Our pipeline remains very strong and again when I look at the pipeline.

There was a lot of good names and all of our markets that we are chasing deposits are up also on $125 million for the first 6 months.

We are gathering deposits.

Harley mentioned the lack of past dues are customers seem to be doing very well.

There is demand out there.

It is a it's tough there.

There are very aggressive interest rates from our competitors.

We're holding our own and with.

With that I will pass it over to Brad Peter's and he can talk about Minnesota.

Thanks, Brad and good morning, everyone I'm going to provide a brief update on our progress and Minnesota.

Our team continues to make good progress and building our presence in each of our Minnesota regional centers.

And that's.

Our calling activity and activities continue to focus on C&I.

And our pipelines remain robust.

On a loan outstandings in our for our Minnesota markets have grown to nearly $560 million.

And our C and our C&I focus has driven.

On core.

Posit growth and Treasury management business.

Are we continuing to make progress on our new building in St Cloud.

And we're anticipating to open that new facility late this year.

And the Mankato market is scheduled to close on a building site and.

And strong August and we're expecting to Ben to begin construction later in the fall.

That is the end of my comments I will now turn it over to Jane funk.

Yeah, Thanks, Brad and.

I'm, just going to give a little information on for P. P. P loan activity and the impact on net interest.

West income so for the second quarter.

Interest income on the P. P. P loan portfolio was a million $387000 a year to date.

Our total PPP income was 4 million and 229000 and acceleration of fees and the second quarter.

It was around.

Around 700000 for that quarter.

Year to date acceleration and it's about 2.700 million.

Our balances on P. P. P loans at June 30th were $85 million, we had unamortized fees remaining on that $85 million of <unk>.

And.

Most of that vast majority of that is and the second round of P. P. P F.

And with that I'll turn it over to Doug.

Okay. Thanks, Jay and I just have a couple of comments are related to provision and margin on.

On the provision as you know, we took a negative $2 million provision and this.

<unk> Mail order and I would say that that was primarily due to the adjustment of some qualitative factors.

We dropped.

A qualitative factor related to the overall economy by 5 basis points.

Do you know, what we perceive to be improvement.

And second.

It is still well on that factor is still well above the pre pandemic factor that we had been using and we also made a small adjustment and a qualitative factor just related to our CRE portfolio due to the improvement there.

And as far as the margin is concerned.

You know as we look ahead.

Would say that we expect the margin to be under somewhat pressured due to the fact that we have little if any.

Re pricing power on the deposit and.

Liability side and.

Any loan payment loans pay off any investment maturity or or pay down on mortgage backs and.

Generally gets renewed at a lower rate now offsetting that and what will be a positive will be as we continue to.

Decrease the amount of fed funds and put that money into the investment portfolio that will be and all.

Offsetting positive, but overall it <unk> probably be a little bit of pressure on on the margin.

And with that we would like to entertain any questions.

We will now begin the question and answer session to ask a question you May Press Star then 1 on a touchtone phone.

If you're using a speaker phone please pick up your handset before pressing the keys and <unk>.

And anytime you question and that's been addressed and you would like to withdraw your question. Please press Star then 2 at.

At this time, we will pause momentarily.

And bill or Ross.

Yeah.

And our first question will come from Brendan Nosal with Piper Sandler. Please go ahead.

Hey, good morning, everybody how are you.

Good morning Brendan.

Maybe to start off here on on the growth side of things.

And to US, obviously and another quarter of very strong results and and you folks and managed to kind of push through the the general lending slowdown that has plagued the a lot of other small banks over the past year I mean, it sounds like pipelines remain quite strong and you are still getting in front of good opportunities. So I guess my and my question is you know if you've been doing.

And that being 6% growth year to date and does that for like a reasonable piece going forward kind of debt, 10% to 12% annualized.

Yeah, I would I would say that.

That's a good assumption based upon what we're looking at today.

Yep, Alright fantastic Okay.

Right.

And maybe turning to to the expense side of things I'm, just kind of curious to get off for a little bit of color on the expense outlook and where you might see opportunities over the next year. So just to kind of keep an eye on the overall cost base.

Well I, we wouldn't expect any any wild fluctuations.

And kind of ins and our expenses.

No this year.

The FDIC insurance premiums up some because of our deposits are up quite a bit.

Alright, and our asset size.

And the compensation area.

And the price of our stock.

At the time that our issue grants are made influences that.

But beyond that we would expect our expenses to.

Remain.

Pretty well under control and and.

We continue to have a very favorable.

<unk> ratio.

<unk> Alright, that's that's helpful color.

And we are and I would add Brendon and we've added a couple of bankers.

And our markets are.

But you know what.

My.

Our expectation is that they will more than pay for themselves.

Yes of course.

Okay excellent.

Hugh you folks mentioned.

1 of the the positive offsets on on potential margin pressure and is your ability to invest a fed funds into higher yielding securities I'm, just kind of wondering you know how much.

In terms of balances.

And you think you'll be able to put to work and kind of what would be those rates look like today for ya.

Well.

We have roughly $250 million and fed funds.

We don't have on.

But real specific target but.

I would expect that we could put another 1.

And it's 450 million to our work over the next few months I mean, we're doing though somewhat gradual ah ah transfer of that money.

I think we did 60 million and May and another $60 million in June we get a little bit and July probably.

100 of debt up somewhat in August and September but.

As far as for reinvestment rates are they arent pretty.

We're staying relatively short on those purchases and.

And you know if we can get above 1% you know we feel pretty good.

Ram Okay excellent.

Let's see.

Just kind of trying to think about.

And the kind of adequate reserve level that the overall economy improves mean this quarter's negative provision release more reserves and I was perhaps anticipating but you still have a much higher level.

The overall allowance and you you did entering pre COVID-19 and as you.

And it's just kind of wondering.

Your thoughts on on the glide path for the reserve ratio.

It might settle and then whether getting there comes in the form of loan growth or outright reserve.

And.

Yeah, you know, we don't have a target ratio.

And ratio is the result of.

Our analysis every quarter.

And you know the factors that go into that are or what you would expect loan growth a day.

The quality or the change and the watch list and.

And the redirection of that change.

And and then on and overall evaluation of our various qualitative factors. So.

And you know.

You know, we don't have a target ratio, we we let the ratio.

Fall, where it may.

And after we evaluate all those other pieces.

Okay, Alright, that's that's totally fair.

And last 1 for me before I step back.

And there were some some nice improvement and in total criticized assets this quarter, but you're still trending above kind of where they were.

At this point and last year.

Curious for.

And how you view, the timing and and the drivers of a further improvement to kind of work through that remaining.

A bit of a credit noise.

This is Harley I'll.

Yes.

Obviously, we had a increase and watch list and that was really due to.

1 specific customer.

And the customers showing improvement, but we would look to see sustained.

The improvement.

And cash flow over a period of time before we would upgrade our risk of losses is really minimal there. So it's not.

It doesn't have that sort of situation and that's really a situation of recovering from and.

And it type of issues in regard to not being open.

And then ramping the business back up.

Even though it's a higher.

Higher than what it has been on.

I'd also comment that the overall watch list and all categories within it are less than 5.

And so on of total loans, which is and historical perspective snowberry loans.

Yeah of course of course, alright excellent. Thank you for taking my questions everybody. Thanks.

Thanks Brendan.

Again, if you have a question. Please press Star then 1.

Is there and no more 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, we'd just like to thank you for joining us this morning and again, we appreciate your interest and our company. So thank you.

5%.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Yeah.

Sure.

Yes.

Hum.

Got it.