Q1 2022 West Bancorporation Inc Earnings Call

Good morning. Thank you for attending todays West Bancorporation, Inc. Earnings call. My name is to me and I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star followed by.

One on your telephone keypad I would now like to pass the conference over to our host James Bullock Chief Financial Officer with Big Corporation. Please go ahead.

Thank you and welcome everybody to our earnings call quarterly earnings call.

Today, I've got with me, Dave Nelson, our CEO , Harley Olafson, our chief Risk Officer, Brad Winterbottom Bank, President and Brad Peters, Our Minnesota Group President.

I'll start out with reading 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 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 with that.

At we'll turn it over to Dave Nelson, our CEO . Thank you Jane and good morning, everyone.

For joining us and thank you for your continued support and interest in our company I have just a few general comments I'll make before I turn the call over to others for more details.

But as you have seen from our release, we had a record first quarter.

Our first quarter growth was rather flat, but we do have a strong pipeline.

Our credit quality remains very strong in fact, the first quarter ended 331 was the third consecutive quarter and in which we did not have a single loan in our entire loan portfolio that was 30 days past due.

And that of course does include the few classified loans that we do have.

During the quarter, we added some more bankers and also moved into our recently completed a new bank facility in St Cloud, Minnesota and.

And we are also now positioned to start.

Construction on our Mankato in our West des Moines.

Bank buildings during may.

During the quarter. We we also received recognition from several publication's naming west Bank is one of the top performing community banks in America during 2021 , including the top 25 list from Piper Sandler Raymond James in S&P Global.

And based upon our first quarter performance. Our board of Directors has declared a 25 cent dividend to shareholders of record as of May 11, and payable on May 25.

So with that I'd like to turn the call over to Harley Olafson, our chief risk officer.

Thank you, Dave and good morning.

I will make comments on our loan portfolio credit quality watch list and our eastern Iowa market.

Just from a total perspective I think it's interesting to note now that our.

Our credit portfolio consists of about 50% of our loan balances are at or a central Iowa market, 25% in eastern Iowa and 25%.

In Minnesota, we have created some geographic.

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Our new locations.

And our I would say also that all of our all of our different locations and cities.

Have strong economic basis at the current time.

Our watch list continues to decrease and it's currently at 2.76% of loans all credits on the watch list and non accruals are current and receiving payments in fact.

As Dave stated earlier, we had no 30 day past due loans in the entire loan portfolio for third quarter in a row.

We still have one credit that is considered a workout or specific reserve on that credit is two and a half million dollars in it should be more than adequate to cover our risk.

We have.

Good expectations that we will work through that credit.

N b through with it sometime this year.

Since we have very little current credit risk within the portfolio, we continue to focus our efforts.

We're doing business with strong customers that have a good cash flow and or significant liquidity.

Theres still a lot of liquidity in the market and the ability to lend at good spreads is a challenge.

Shifting to our eastern Iowa market, we continue to gain market share there and have a strong pipeline of business. We have a strong group of bankers that have developed solid relationships.

They're under currently.

Currently are working on.

A lot of things that had come up previously that or better.

Still in the pipeline.

But I would say that there was total projects in the works.

Eastern Iowa due to high construction costs are rising rates.

And to talk about some of our other markets I'll turn it over to Brad Winterbottom, Our bank President.

Good morning.

Overall, our loan portfolio net of PPP loans, which continue to shrink.

We had a growth rate of about one 7% approximately.

That is despite roughly $60 million of payoffs that took place in the first quarter and in those payoffs were the result of businesses being sold assets being sold or.

Our assets being refinanced elsewhere.

The pipeline is very strong and it's good in all markets.

Including Minnesota, Eastern Iowa and des Moines.

Area.

We did add two very seasoned bankers in the first quarter of this year one in the des Moines market and one in the a and the Minnesota market.

And these are bankers that have had.

A very large relationships elsewhere, very seasoned bankers know, what they're doing and we're expecting good things from them along with the rest of our team.

With that I'll turn it over to Mr. Peters here and he'll talk about Minnesota. Thanks, Brad Good morning, everyone I'm going to provide a brief update on our expansion into Minnesota.

Our team continues to make good progress in growing our business in each of our Minnesota regional centers.

Each of our markets are seeing solid growth on our <unk>.

<unk> continue to be focused on building relationships and those activities have created ongoing new business opportunities.

Our loan growth has been strong our C&I focus has driven strong core deposit growth and Treasury management business.

As Dave mentioned, our new building in the St Cloud market opened during the last week of March.

And the man Caito market has purchased a building site with construction expected to begin.

Next month.

The Mankato team has also added a seasoned business bankers.

To take advantage of our growth opportunities.

Our autonomy market continues to explore potential new sites for a new facility and that that work is ongoing.

Those are the end of my comments I will now turn it back to Jane.

Thanks, Brad I'm, just a couple of comments on the financials and then we'll open it up for questions. We did take a negative provision this quarter, a 750000 and that was primarily the result of reducing one of our qualitative factors and the commercial real estate portfolio related.

To pasty trends and classifications, there was a factor that we had increased during the pandemic and when are you know we've got the consistent performance in our portfolio of those past dues and classifications.

They all all of our loans continued to perform strongly so we reduce that factor back to the pre pandemic level.

So that resulted in a 750000 negative provision.

And our margin it does continue to see pressure.

The first quarter of 2020 two when we remove the impact of the PPP loans. Our net interest margin was a 2.81% comparable to first quarter of 2021 would be 294%. There was a 13 basis point reduction in margin.

Our deposit rates pretty much Florida out back in 2020, so there wasn't a lot of movement on the cost side.

But loan yields continue to decline as rate competition is pretty intense.

Through 2021 and into 2020 to them so that the loan yield competition continues in this environment, where we've got a lot of liquidity in the market.

Those are my comments on the financials and I think we would open it up for questions now.

Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question Press Star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before.

Asking a question, we'll pause briefly ask questions are registered.

The first question is from the line of Brendan Nosal with Piper Sandler Your line is open.

Hey, good morning folks How're you doing.

Hi, Brandon how are you doing today.

Thanks.

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

Despite the payoffs I still thought it was a pretty solid quarter for growth and you folks mentioned strong pipelines kind of multiple times throughout the prepared remarks, so just kind of curious.

Any other large payoffs in the pipeline and then how you think about loan growth through the balance of the year.

We actually do have some additional.

Known payoffs coming up here in the second quarter, we are in.

And these would be due to asset sales.

And.

As of today that number is close to another $60 million.

However, our pipeline is is good and we think we can replace that.

In the second quarter as well.

Understood. Okay. That's certainly helpful.

And then maybe turning to the the margin Jane Thanks for the detail you provided.

Just kind of curious now that rates are starting to to ryzen, perhaps do so quite rapidly coming up can you remind us how much of the loan book is variable or adjustable rate and then on the liability side how much in deposits you have indexed to fed funds today.

Well on the loan side.

Say about 35% of the.

Portfolio is either variable rate or has maturities over the next 12 months.

So that's you know what we're looking at on the loan side now we do still expect some pressure on the loans, even though the markets are going up we're seeing still a lot of competition at low rates and our environment. So it's kind of yet to be determined how that will play out once the fed increases.

Increases rates on the deposit side, our we've got a portion of our deposit base that is more sensitive to the fed funds rate and so we expect our betas to maybe be a little bit higher than.

The rest of our you know other financial institutions, but that's something that we are actively managing them right now, we're having a lot of discussions and a lot of conversations.

And trying to manage that sensitivity with the upcoming expected rate increases.

Yes.

Yeah understood understood that makes sense.

Okay.

Let's see on on capital I mean, you're kind of tangible book value and GAAP capital ratios were impacted like every other bank this quarter due to gas impairment I guess kind of in my point of view, it's mostly accounting noise and regulatory ratios remained strong overall, but just wondering if that kind of a temporary impairment.

Changes the way, you're thinking about balance sheet growth or capital return in the near term.

Not significantly like you said you know it's not it wasn't unexpected I mean, I think we knew going into increasing rate environment that that we would have declines in the value of the investment portfolio and yeah. We were we're not an outlier in the industry and so it's.

You know like you said, it's kind of accounting noise.

Yep Yep of course.

And then you folks continue to add bankers in in your markets.

Certainly showed up in loan growth over the past couple of years I'm. Just curious do you see any other opportunities to do so and then maybe tie that opportunity into expectations for expenses for the next couple of quarters.

I would say that we're.

We're always looking for good bankers.

We don't have any planned new hires.

So I would say.

No to your question.

You know if.

If somebody shows up and says throw me a rope, we we might throw him a rope we might not.

Okay.

Yes.

We are always recruiting.

And you know if we do hire someone that it would be a seasoned revenue producers.

And do you expense the effect would be very short term.

Got it okay. Good.

Maybe turning to credit quality briefly I mean as you folks know what it's just remarkably strong did I am just kind of curious conceptually.

The fed does over tightened and gets us into a hard landing scenario.

Any thoughts on kind of what part of the portfolio you might be a little more concerned about is that that didn't come to pass.

Frankly, right now we're very diversified.

Again, we're not into we don't have niche lending.

Categories, we are.

In situations, where even if we are into a risk.

Our research and our.

Current customer mix.

<unk> strong balance sheets, and very liquid right now.

And.

Generally liquidity you'd hope to.

Get through.

More difficult times.

I, we have not.

Have a we do not have an abundance of.

Credit that's in <unk>.

Areas that I would say our.

Real subject to downturn right now.

So I feel very good better credit portfolio will continue to.

Uh huh.

Very good even with the.

Some increasing rates and a possible downturn in the economy.

Perfect perfect.

Last question for me and then I'll step back.

The the tax rate looked a little bit lower this quarter than where it had been running I guess roughly 19% on a GAAP basis versus the 21% or so that it.

It had been for the past couple of quarters, just kind of curious if at this lower level is an expected run rate or if it'll kind of bounce back to where it had been.

It'll bounce back that benefit this quarter related to the vesting of our issues in the tax benefits from.

No tax benefit.

Benefit versus a book benefit that had been recorded so that that usually happens in the first quarter. When our RSV is best and this year, we just had a.

A bigger a difference there.

Got it got it okay fantastic well. Thank you so much for taking the questions.

Yep.

Thank you Mr. Nova.

Again to ask a question press star one.

Yes.

There are no additional questions waiting at this time I will now turn the conference over to the management team for any concluding remarks.

Thank you everyone for joining us today.

And that's the end of our remarks and well end the call here. Thank you.

That concludes the West Bancorporation, Inc. Earnings call. Thank you for your participation you may now disconnect your line.

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