Q4 2024 West Bancorporation Inc Earnings Call
Thank you for standing by my name is Jill and I'll be your conference operator today at this time I would like to welcome everyone to the West Bancorporation, Inc. Fourth quarter 2024 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one again.
Speaker Change: Now, let's turn the conference over to Jane Funk, our Chief Financial Officer, you may begin.
James: Good afternoon, I'm, James <unk>, the CFO of West Bancorporation, Inc, and I'd like to welcome the participants on the call today and thank you for joining US with me today I've got Dave Nelson, Our CEO, Harley Olafson, our chief risk Officer, and Brad Peter's, Our Minnesota Group President.
James: Now I will read the fair value or excuse me fair disclosure statement.
James: During today's conference call, we may make projections or other forward looking statements within the meaning of the safe Harbor provision.
James: Of the private Securities Litigation Reform Act of 1995 regarding future events.
James: Or the future financial performance of the company.
James: We caution that such statements are predictions and that actual results may differ materially. Please see the forward looking statements disclosure in our 2020 for fourth quarter earnings release for more information about risks and uncertainties, which may affect us.
James: The information we will provide today is accurate as of December 31, 2024, and we take we undertake no duty to update the information and with that I'll turn it over to Dave Nelson.
Dave Nelson: Thank you Jane and thank you, everyone, who has dialed in to join US. We appreciate your interest and support of our company.
Speaker Change: It had an excellent fourth quarter from an earnings standpoint, it was our best quarter during the previous seven quarters.
Speaker Change: During 2022, we knew and forecasted the 2023 and 2024, we're going to be challenging due to margin compression and they were we also had forecasted the 2025 would be better and it will we actually we believe the 2025 improvement is already underway.
Speaker Change: Collected within our fourth quarter 2020 for performance.
Speaker Change: We believe our forecasted 2025 improvement was accelerated.
Speaker Change: Tremendous deposit gathering success during 2024, which.
Speaker Change: Allowed for the corresponding reduction in wholesale deposits.
Speaker Change: We will continue to benefit from further short term rate reductions and significant asset repricing opportunities during 2025 and 2026, our credit quality remains pristine in the economies of the communities.
Speaker Change: And which we do business are strong and our loan and deposit pipelines remain solid.
Speaker Change: Based upon our fourth quarter performance, we have declared a 25 cent dividend to common shareholders of record as of February 5th.
Speaker Change: And payable February 19th.
Speaker Change: Those are the extent of my prepared remarks, and I will now turn the call over to our Chief risk Officer, Mr. Harley Olafson.
Harley Olafson: Thank you, Dave as Dave stated earlier as credit quality remains a strength at West Bank.
Speaker Change: Highlights.
Speaker Change: At quarter end, we had zero past dues over 30 days.
Speaker Change: Our watch list represents only two 6% of total.
Speaker Change: Loans.
Speaker Change: Our $2 4 billion commercial real estate portfolio continues to perform very well.
Speaker Change: A small amount of multi tenant office properties that are performing well.
Speaker Change: Reforming as expected with good long term tenants in our markets office properties are dealing with significant agencies or other types of commercial real estate, such as multifamily warehouses mixed use and hotels are performing very well.
Speaker Change: Our $500 million CNI portfolio was also strong we receive interim financials on most borrowers and are not aware of any significant deterioration in financial Straits.
Speaker Change: Of course, we will be getting.
Speaker Change: We will begin receiving most year end financials.
Speaker Change: Neutrals in the coming months.
Speaker Change: The diamond strength of our loan portfolio is due to doing business with customers with proven track records, good balance sheets, and strong and diverse payment abilities.
Speaker Change: Our banks are located in thriving communities from a lending perspective half of our outstanding loans are originated in our des Moines market, 27% in Minnesota locations and 23% in Iowa City Coralville.
Speaker Change: Good morning to St Cloud, Mankato, and Owatonna as strong business climates and have diverse business. The Rochester economy is dependent on the health and growth of Mayo clinic and all of the services they require to support the significant portion of the city's total employment.
Speaker Change: City corridor is dominated by the University of Iowa, and most of the business. There goes to support a major university students and faculty population along with the major medical facility.
Speaker Change: We have a seasoned team of bankers that continue to prospect for comprehensive banking relationships. This.
This has been a focus of the group and as you can see in our significant deposit growth.
Speaker Change: They're.
Speaker Change: Their efforts.
Speaker Change: Been rewarded.
Speaker Change: There are succeeding and capturing new business relationships and expanding our market share with our existing customers.
Speaker Change: Interest rates will affect the level of new projects and expansions.
Speaker Change: That we will continue to see moderate growth in 2025.
Speaker Change: Available for any questions after our prepared remarks.
Speaker Change: I'll now turn it over to Brad Peters, our Minnesota Group President.
Brad Peters: Thanks, Charlie and good afternoon, everyone.
Brad Peters: I'm going to provide a brief update on our progress in Minnesota.
Brad Peters: Our new credit opportunities have slowed somewhat and we are also very selective in where we are focusing our efforts we continue to proactively call on C&I prospects.
Brad Peters: And many of those prospects have no credit needs, but our bankers are spending their time, winning new relationships with core deposits.
Brad Peters: We're also working closely with our existing business banking client base to win the high value in retail deposits of business owners key executives and employees of the businesses We bank.
Brad Peters: We do not have specific production goals for our bankers, but instead measure our bankers on the right activities that will drive results.
Brad Peters: We have a seasoned group of bankers that have proven this strategy to be effective.
Brad Peters: Deposit growth has been strong in each of our Minnesota regional centers.
Brad Peters: Our superior service and high touch retail banking have driven the positive results.
Brad Peters: The final construction project in Owatonna is now complete the new facility opened for business. This week.
Brad Peters: This facility like the others in Minnesota was designed with well appointed entertainment areas that allow our teams to host client and prospect events and quality small group meetings.
Brad Peters: These unique facilities aligned perfectly with our strategy of building our business based on strong relationships.
Brad Peters: Our team has embraced this and we have done an outstanding job of leveraging our buildings to grow our business.
Brad Peters: Those are the end of my comments I will now turn the call back over to Jane Thanks, Brad.
Jane Funk: I'll just make a few comments.
Jane Funk: On our financial performance. So net income was $7 1 million in the fourth quarter compared to $6 million in the third quarter of 2024.
And $4 5 million in the fourth quarter of 2023 net income was 24 1 million for both 2024 and 2023.
Jane Funk: We recorded a $1 million provision for credit losses in the fourth quarter of 2024. This provision was primarily due to an increase in certain qualitative factors.
Jane Funk: And our methodology and was not the result of any specifically identified credit deterioration in the loan portfolio.
Jane Funk: In December we sold approximately $12 million of investment Securities and recorded a $1 $2 million loss those funds will be reinvested in the loan portfolio and we expect the earn back period to be approximately two years.
Jane Funk: In the fourth quarter. We also recorded a one $8 million income tax benefit from an energy related investment tax credit associated with the construction of our new headquarter building.
Jane Funk: Core deposit balances increased 15, 8% in 2024 with an eight 3% increase in the fourth quarter. The core deposit growth is a mix of public funds commercial and retail activity, reflecting our focused efforts on deposit relationships.
Jane Funk: Deposit growth facilitated a reduction in expense of wholesale funding of over $200 million in the fourth quarter of 2024, which has helped to reduce our cost of funding.
Jane Funk: We have now had four consecutive quarters of increases in net interest income and net interest margin increased seven basis points this quarter compared to third quarter.
Jane Funk: With the 100 basis point reduction in the fed rates since September we've been able to lower deposit rates and our highest costing sectors, resulting another full improvements in our cost of funds and net interest margin the impact of any future rate changes is dependent on multiple variables, including but not limited to the rate sensitivity of depositors to the mix of deposits.
Jane Funk: And the ongoing repricing opportunities from loan investments and deposit cash flows maturities.
Jane Funk: That completes the prepared comments. So now we will open it up for questions.
Speaker Change: Thank you the floor is now open for questions. If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
Jane Funk: If you would like to withdraw your question simply press Star one again.
Jane Funk: If you are called upon to ask the question in a listening via a loudspeaker on your device. Please pickup your handset and ensure that your phone is not on mute when asking a question.
Speaker Change: And your first question comes from the line of Andrew Liesch of Piper Sandler Your line is open.
Andrew Liesch: Hey, good afternoon, everyone.
Andrew Liesch: Just wanted to touch on the provision you mentioned qualitative factors in commercial real estate would that be.
Andrew Liesch: The vacancy rate at other properties I was curious what these qualitative factors might be.
Speaker Change: It really.
Andrew Liesch: Was more of a <unk>.
Speaker Change: The recognition of <expletive>.
Speaker Change: Loans reprice higher and debt service coverage ratios, maybe will decline a little bit.
Speaker Change: And the impact of that on kind of the economics of the property and the values of properties. It's really just kind of a broad base acknowledgment, but nothing necessarily specific to the portfolio.
Speaker Change: Got it yes, it makes sense.
Speaker Change: It sounds like loan pipelines are pretty solid here to start the year I guess by type is it.
Speaker Change: Construction commercial real estate, where are you seeing the most activity.
Speaker Change: Most of the activity that we're seeing right now is.
Speaker Change: Activity.
Speaker Change: We've had a.
Speaker Change: Business purchases.
Speaker Change: Bye bye.
Speaker Change: We've had other opportunities.
Speaker Change: Sure.
Speaker Change: More in the relationship CNI business.
Speaker Change: There isn't a huge pipeline of new commercial real estate projects.
Speaker Change: Are on the docket right now, but it is a good pipeline.
Speaker Change: Got it that's great to hear about the C&I.
Speaker Change: On an expenses it looks like that I think the third quarter might've been a little bit undersized, but as we look into 2025 and thats a good jumping off point.
Speaker Change: For <unk>.
Speaker Change: Costs, but recognizing there could be some seasonal upticks.
Speaker Change: In the first quarter.
Speaker Change: Yes, I would say fourth quarter would've included probably some accrual adjustments as it relates to like incentive bonuses and some discretionary compensation pieces.
Speaker Change: And then also.
Speaker Change: Some true up of <unk>.
Speaker Change: Say like depreciation costs with the new buildings that we've got coming online so.
Speaker Change: December was was actually probably a little bit elevated.
Speaker Change: Got it okay. That's helpful.
On the noninterest income side.
Speaker Change: Trust services are up nicely.
Speaker Change: Was there any one time benefit there I guess, what's the or.
Speaker Change: Or is this the new run rate going forward.
It's probably closer to a new run rate I mean, there is some onetime estate fees, but we.
Speaker Change: We seem to have reoccurring experiences with state works so.
Speaker Change: The increase in value of assets and the fees related to that so.
Nothing really.
Speaker Change: A large one term that wouldn't reoccur.
Speaker Change: Great.
Speaker Change: And then just lastly on the cost of deposits down pretty nicely here.
Speaker Change: You have full quarter effect of the.
Speaker Change: November and December rate cut so I think there is more improvement.
Speaker Change: We had naturally.
Speaker Change: On that front in the first quarter.
Speaker Change: I think Thats a fair assessment.
Speaker Change: Got it and maybe that could help at the margin, but not to the same paces in the fourth quarter.
Speaker Change: Well part of that is going to be dependent again on we still got a lot of assets repricing. So some of the timing of maturities and cash flows on the asset side will be as big of an impact is kind of the full repricing of the deposits for a full quarter got it.
Speaker Change: Got it.
Speaker Change: That covers all my questions. Thanks, so much for the time today. Thanks.
Andrew Liesch: Thanks, Andrew.
Andrew Liesch: Again, if you have a question. Please press star one on your telephone keypad.
Andrew Liesch: With no further questions that concludes our Q&A session I will now turn the conference back over to CFO Jane Funk for closing remarks.
Speaker Change: Yeah again, we just want to thank everybody for your interest in our company and thank you for joining US today, and we will talk to you again next quarter. Thank you.
Speaker Change: This concludes today's conference call you may now disconnect.
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