Q2 2024 West Bancorporation Inc Earnings Call

Welcome to the conference. Thank you for holding. We have the name of our conference.

Speaker Change: Hello, caller.

Speaker Change: Hi, looking for the West Bancorporation call, please.

Speaker Change: West Bancorporation, we have your first and last name on this file, please.

Speaker Change: Sure, this is going to be for Rachel, R-A-C-H-E-L, Smith, S-M-I-T-H.

Speaker Change: All right, sir. We'll send you now into the conference. Thank you.

Speaker Change: Thank you.

Speaker Change: Over to our bank president, Brad Winterbottom.

Brad Lee Winterbottom: Thank you, Harlee.

Brad Lee Winterbottom: For the quarter ended June 30, 2024, our loan portfolio was relatively flat when compared to the first quarter ended 3-31.

Speaker Change: Outstandings were just under three billion dollars.

Speaker Change: For the first six months of 24, our loan portfolio grew $71 million, or 2.43%.

Speaker Change: driven primarily on vertical construction loan commitments.

Speaker Change: We have slightly over 123 million in unfunded commitments on vertical construction draws that should occur over the next 12 months.

Speaker Change: Deposit gathering sales efforts continue to be an emphasis in a highly competitive environment in the markets we serve.

Speaker Change: And we're winning our fair share of battles.

Speaker Change: We have and continue to see good opportunities in markets we grow, we serve, excuse me, to grow our market share but remain selective in our loan opportunities.

Speaker Change: We remain confident in our abilities to create and maintain positive relationships.

Speaker Change: with our customers and prospects that we're pursuing.

Speaker Change: With that, I'll turn it over to Mr. Peters. Thanks, Brad. Good afternoon, everyone. I'm going to provide a brief update on our progress in Minnesota.

Bradley P. Peters: We continue to build new business in each of our Minnesota regional centers. We are focused on C&I and high-value retail deposits. Our team is actively calling on and consistently winning new business.

Bradley P. Peters: We continue to navigate through a challenging environment due to the rapid rise in interest rates.

Speaker Change: These challenges have created new opportunities for our team. The quality of our bankers and our relationship-based approach has set us apart from our competition.

Speaker Change: We have built facilities designed with relationship building in mind. We are leveraging these facilities to have high quality one-on-one discussions that lead to opportunities to grow our business.

Speaker Change: The new facility in our Oatama market is under construction, and we anticipate we'll be occupying the new bank late in the fourth quarter of this year.

Speaker Change: Those are the end of my comments. I will now turn the call back over to Jane.

Jane: Thanks Brad. Our net income this quarter was 5.2 million dollars compared to 5.8 million in the first quarter of 2024 and 5.8 million in the second quarter of 23.

Speaker Change: There was no provision for credit losses recorded in the second quarter. As previously mentioned, our credit quality remains pristine.

Speaker Change: Our net interest margin has stabilized the last few quarters. Net interest income was up $480,000 in the second quarter compared to the first quarter of 2024, which is the second straight quarter of an increase in net interest income.

Speaker Change: Non-interest expenses have increased as expected with the occupancy of our new corporate headquarters.

Speaker Change: And our, as mentioned earlier, our loan growth was about 2.4% primarily due to funding of construction loans.

Speaker Change: And our deposit balances at June 30th include a large deposit from a municipal customer that we expect to draw down over the next 12 to 18 months for a construction project. Excluding those funds in any broker deposit activity, the core deposits have increased 1.9% year to date.

Speaker Change: Those are the highlights I was going to cover. That's the end of our prepared comments, so now we'll open it for questions.

Speaker Change: As a reminder, to ask a question, please press star followed by the number one on your telephone keypad.

Speaker Change: Our first question comes from Andrew Liesch from Piper Sandler. Please go ahead, your line is open.

Andrew Brian Liesch: Hey, good afternoon, everyone.

Andrew Brian Liesch: Hi Andrew. Hi, just want to stick with the loan growth here. It's on a pretty good pipeline of construction. How's that looking here for the third quarter? Are there any large payoffs that you see coming down the pipe?

Speaker Change: We have a few payoffs scheduled, probably in the, maybe the $20-25 million range. That will get replaced with...

Speaker Change: funded commitments. We, you know, you can get surprised with, hey, we sold this property and it's going to close in 60 days, but the ones that we are aware of are roughly around 25 million.

Speaker Change: We have been very selective in adding new projects based upon where we stand with CRE and our liquidity position.

Speaker Change: Got it. That's very helpful.

Speaker Change: Then, on the funding side, great to get that win from the municipality. It sounds like there are some other potential commercial customers. Where do those stand?

Speaker Change: and any timing of some potential deposit trends, larger deposits.

Speaker Change: Well, we have...

Speaker Change: Roughly 30 commercial bankers and about 15 principal bankers and that's their job daily to go out and find those deposits. So we're chasing any and all.

Speaker Change: It's very competitive.

Speaker Change: We're seeing CDs.

Speaker Change: that might be six months, they're north of 5%, but we're competing.

Speaker Change: We're chasing the lower-priced type deposits as well as non-interest-bearing deposits.

Speaker Change: I'm not answering your question very well, but we're out hunting every day.

Speaker Change: No, that's very helpful. Very good information. Thank you.

Speaker Change: Jane, on the expense front going forward...

Jane: Higher on the occupancy, like you mentioned, and as was expected.

Speaker Change: Is this the $13.2 million number a good run rate until maybe the next branch in office in Minnesota hits expenses?

Speaker Change: It's probably pretty close. I mean, I think we would have had a full quarter of occupancy in the new headquarters in this quarter, and we had some one-time costs in there with the move and stuff, but it's probably a reasonable assumption.

Speaker Change: Got it. And then a little bit of an uptick once the new Minnesota office comes in there? Yeah, that'll be probably January , December , January .

Speaker Change: And that's the smallest building that we've constructed, so that'll be on a smaller scale.

Speaker Change: Okay, very helpful. And then, Harlee, the increase in the watch list, any commentary behind that, like what what drove that increase this quarter?

Harley: We just have a couple of commercial customers that had

Speaker Change: A weaker operating performance.

Speaker Change: The

Harley: They're well capitalized, well secured.

Harley: We expect, we expect them to.

Harley: meet their projections for this next year and come through it and continue to be good commercial customers. And again, like I said, the...

Harley: We have a we have a couple of non accruals

Harley: that have been with us for a while that we expect will pay off in the next, well, I think they'll all be gone before the end of the year, but there's some closings that are scheduled.

Harley: from sale or refinance of those.

Speaker Change: Got it. That's a that's really helpful and some some good trends to hear and then I guess towards the end of my my question the the Deposit that came on looked like you that was used to fund some Payoffs of some brokered funding and just if you have handy, what was the rate that the deposits came on versus?

Speaker Change: The brokereds that were paid off, just that spread.

Speaker Change: They were very similar.

Speaker Change: Okay. Yeah, there wasn't much of a difference.

Speaker Change: Okay, so it really does seem like the margin stabilized here. Do you think that you need great cuts for it to start moving higher?

Speaker Change: We probably don't. I mean, we're seeing good improvement on the loan yields and, you know, our cost of deposits.

Speaker Change: is really kind of stabilizing. Probably one of the challenges that we'll see in the net interest margin is we do have a couple of fixed rate interest rate swaps that will be maturing in the second half of the year. And a couple of those have rates.

Speaker Change: below 2%. So we'll be, you know, refinancing, resetting rates on those. So, but I think we are seeing yield improvement on loans that that's a little bit in excess of what we had expected. So.

Speaker Change: Great, a little bit of margin expansion then we'll get some rate cuts and help a little bit after that then. That sound reasonable?

Speaker Change: Good, good.

Speaker Change: That covers all my questions. Thanks so much. Thanks, Andrew.

Speaker Change: Once again to ask a question please press star followed by one on your telephone keypad.

Speaker Change: We have no further questions. I would like to turn the call back over to Jane Funk for any closing remarks.

Speaker Change: All right, thank you. We just want to thank everybody for joining us today and we look forward to talking to you again next quarter. Thank you.

Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.