Q3 2024 West Bancorporation Inc Earnings Call

Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the West Bank Corporation, third quarter, 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Speaker Change: After the speaker's remarks, there will be a question and answer session. If you'll like to ask a question during that time, press star, follow by the number one on your telephone keypad. If you like to withdraw your question, press star one.

Speaker Change: I would now like to hand it, Dave's call over to James Funk, CFO. Please go ahead.

Speaker Change: Thank you. Yes, this is Jane Funk, the CFO with West Bank Corporation and I'd like to welcome the participants in the Call today and thank you for joining us. With me today are Dave Nelson, CEO, Harley Olafson, Chief Risk Officer, Brad Winterbottom, Bank President and Brad Peters, Minnesota Group President.

Speaker Change: I will begin the call with reading the Fair Disclosure Statement during today's conference call.

Speaker Change: We may make projections or other forward-looking statements within the meeting of the safe harbor provisions of the private securities litigation reform act of 1995.

Speaker Change: Regarding future events or the future financial performance of the company.

Speaker Change: We caution that such statements are predictions and that actual results made different materialies.

Speaker Change: Please see the forward-looking statement disclosure in our 2024-3rd Quarter earnings release for more information about risks and uncertainties.

Speaker Change: which may affect us. The information we will provide today is accurate as of September 30, 2024, and we undertake no duty to update the information. And with that, I will turn it over to Dave Nelson. Thank you Jane. Good afternoon, everyone. Thank you for joining us in for your interest in our company.

Dave Nelson: I have some general comments and you will hear more details from others.

Dave Nelson: I'm pleased to say our quarter went as expected. Loan demand is not strong but we have had some modest growth. Our deposit gathering activities are showing results in our balance sheet and we have a very strong deposit pipeline.

Dave Nelson: Credit Quality remains very strong with no problems.

Dave Nelson: We believe our margin has stabilized, it is improving and we will benefit from further Fed-Rate cuts.

Dave Nelson: Our board of directors has declared a 25-cent per share quarterly dividend to share holders of record as of November 6th and payable November 20th.

Speaker Change: With that, I'd like to now turn to call over to our chief risk officer Mr. Hartley Olison.

Hartley Olison: Thank you, Dave. Our long-forcolio remains very strong.

Hartley Olison: Starting with the commercial real estate portfolio, due to limited new projects we have seen overall loaned values declines.

Hartley Olison: That service coverage is remained strong, but if shown a slight decline from the previous quarter

Hartley Olison: Our largest commercial real estate concentrations, our multi-family and warehouse properties.

Hartley Olison: We do not have any significant downtown, multi-tendent office properties and there are excuse me, there are zero pastes in the commercial real estate portfolio.

Hartley Olison: Our CNI portfolio that represents about 500 million and funded balances continues to be strong.

Hartley Olison: In reviewing this sector, our customers operating profits in 2021 and 2022 were extremely strong and have moderated in 23 and year today, 2024.

Hartley Olison: The portfolio continues to exhibit strong bowel sheets with adequate debt service.

Hartley Olison: At quarter end, we had only one past two long. This loan is a residential real estate property where the owner is deceased.

Hartley Olison: We have allowed the airs of the property to list a per se on expectful payment. As alone as less than a hundred thousand dollars in the property has been sold for over two hundred thousand dollars, and the closing is on October 30th.

Hartley Olison: The uncommon strength of our Montfort Folio is in part due to the economic strengths of our communities.

Hartley Olison: All of our locations have different economic engines that allow communities to grow and thrive. Then our communities, we have customers of strong track records, good balance sheets, and strong repayment abilities.

Hartley Olison: In the future, we do have significant personal real estate loans that will reprise and the cause or customer's cash flows to decline.

Hartley Olison: We have stressed us that the individual loans and do not see significant payment issues at the expected higher rates.

Speaker Change: At the end of our prepared remarks on available questions, I now turn it over to our bank president, Brad Winterbottom.

Brad Winterbottom: Thank you, Harlee.

Brad Winterbottom: For the quarter ended September 30, 24, our lone port folio was relatively flat when compared to the second quarter ended June 30.

Brad Winterbottom: Outstanding's were just over $3 billion.

Brad Winterbottom: For the first nine months of 24, our lone portfolio grew 94 million, or 3.2% driven primarily by a vertical construction lone commitments.

Brad Winterbottom: We have slightly over $87 million in unfunded commitment on large vertical construction projects with anticipated draws that should occur over the next 12 months.

Brad Winterbottom: The positive gathering sales efforts continue to be an emphasis in a highly competitive environment in the markets we serve.

Brad Winterbottom: and we have experienced cord deposit growth of approximately 3.5%.

Brad Winterbottom: We remain selective in obtaining new lending opportunities and quite frankly those opportunities are less than previous years.

Brad Winterbottom: We remain confident in our abilities to create and maintain positive relationships with our customers and prospects that we are pursuing.

Speaker Change: with Anne, I'll turn that over to Mr. Brad Peters.

Anne: Thanks, Brad. Good afternoon, everyone. I'm going to provide a brief update on our progress in Minnesota.

Brad Peters: Our relationship based strategy on growing our business continues to be successful in Minnesota.

Brad Peters: Each of our Minnesota Regional Centers have focused on CNI and high value retail deposits and we are winning new relationships.

Brad Peters: We have built facilities designed to host events in high quality one-on-one client and prospect meetings.

Brad Peters: Our unique approach gives us a competitive advantage to fully show the West Bank difference.

Brad Peters: The interest rate environment continues to be a challenge. This has created opportunities for our team as our relationship based approach and experience, high quality bank or set us apart from our competition.

Brad Peters: The new facility in our O'Connor Market is under construction. We've had a slight delay, but anticipate we'll occupy the new building in the first quarter of 2025.

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

Jane Funk: and thanks, Brad.

Jane Funk: Our net income for the quarter was $6 million compared to 5.2 in the second quarter of 2024 and 6 million in the third quarter of 23. net income for the first nine months of 2024 was $17 million compared to $19.6 million for the same period of 2023.

Jane Funk: We recorded a million one million dollar provision for credit losses in the third quarter of 2024.

Jane Funk: This provision was primarily due to increasing forecasted unemployment rates and was not the result of specifically identifying credit deterioration in the lone portfolio.

Jane Funk: We also recorded a $1 million negative provision for credit loss was related to unfunded commitments. The reduction in the unfunded commitments liability is primarily due to the decrease in the unfunded commitment balances.

Jane Funk: We've now had three consecutive quarters of increases in that interest income, and then then net interest margin increased by basis points of quarter compared to the second quarter of 2024.

Jane Funk: With the 50 basis point reduction in the Fed rate in September, we were able to lower deposit rates in our highest costing sectors, which we believe will benefit our net interest margin.

Jane Funk: The impact of any future rate changes is dependent on multiple variables, including but not limited to the rate sensitivity of depositors, the mix of deposits, and the ongoing repricing opportunities for loans investments and deposit cash flows and securities.

Jane Funk: Court deposit balances have increased 7% year to date. Approximately half of that is related to temporary funds that we expect to be withdrawn in 2025.

Speaker Change: Remaining 3.5% core deposit growth that Brad referenced earlier is a mix of public funds, commercial and retail activity reflecting our focused efforts on deposit relationships.

Speaker Change: Those are the end of the prepares remarks and we'll open it for questions.

Speaker Change: At this time, if you would like to ask a question, press star 1 on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star 1 again. We'll pause for just a moment to compile the Q&A roster.

Speaker Change: Your first question is from a line of angiolace with Piper Sandler.

Speaker Change: Hey, good afternoon.

Speaker Change: Thanks for taking the questions here. Just want to drill down on some of the long-growth commentary. Sounds like maybe the pipeline is lower than I've been.

Speaker Change: and prior years, but maybe weighted more towards construction. I mean, do you think that mid-single-digit loan growth is still reasonable? I could have falls short from that, I guess also. Are there any lumpy payoffs coming down the line that you see?

Speaker Change: We do have some anticipated payoffs primarily because of some construction advances that will materialize to final products and those.

Speaker Change: Those assets will get sold. We have...

Speaker Change: We have a large CNI customer that is sold their business and that's anticipated to close in the fourth quarter But I think we have things that will fill that back up so

Speaker Change: I think we're about where we're going to be at year end.

Speaker Change: Got it. Okay. That's helpful. And then the margin, great to see the five-basers point improvement here. Something that you reduce rates on the accounts, where there's a lot of opportunity to do so.

Speaker Change: I guess how are the conversations going on the rate for what you had at C.D. is going to be some money markets on the brokerate side.

Speaker Change: [inaudible] you

Speaker Change: Well, we've certainly versed a lot more benefit on like the CD side.

Speaker Change: We've got a larger volume, most of our CD portfolio in our broken CDs are relatively short.

Speaker Change: and the Black House. Certainly within 12 months, a large bulk of that is within six months, type of lives. So we'll see, we're pricing benefit in core CDs and for a good CDs.

Speaker Change: and seeing good benefit at generally at least a 50 basis point decline from the current rates that they're booked out. So we'll see benefit there.

Speaker Change: the Transational Accounts Money Market account. We were probably pretty aggressive with the 50 basis points.

Speaker Change: We've not seen any negative reaction to that. Future rate cuts will be unlikely to maybe be able to move at the same cliff, but we're basically like every other bank testing the waters.

Speaker Change: Got it. You know, that covers all the questions I've had. You've covered everything in your performance in the information today in the 8K. Thanks so much. I'll step back.

Speaker Change: As a reminder to ask a question, press star one on your telephone keypad.

Speaker Change: The End

Speaker Change: At the current time, there are no further questions. I will now hand today's call back over to presenters for any cold and remarks.

Speaker Change: Thank you everybody for joining us today and if we look forward to discuss your adult results, next corner. Thank you.

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