Earnings call transcript Q1 2023

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Operator

Good afternoon, everyone. Thank you for attending today’s West Bancorporation Q1 Earnings Call. My name is Viera and I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Jane Funk, CFO of West Bank. Please proceed.

Jane Funk

you. Thank to call thanking today. want us for out our on start just everyone by joining I Risk Bank With got Minnesota CEO; Chief Dave in Regional Nelson, Brad me our our Harlee conference President. Olafson, Peters, and Brad President; room, I’ve Officer; our Winterbottom, our

I start reading disclosure statement. our will third by out

may XXXX meaning or we Securities harbor results safe and affect provisions we actual information future the of Private conference So update we projections of release We Please other the earnings during for XXXX, call, statement forward-looking the more today’s is to events the March information. forward-looking will statements caution of information XX, provide us. disclosure and The today Reform regarding Act financial and the performance that accurate may of Litigation make that the and differ about are as undertake XXXX which quarter materially. may statements future our within the duty first company. risks no see and uncertainties, predictions of such

I’ll At Dave Nelson. over to point, turn it this

Dave Nelson

Thank economy you, our our Jane. been net company. expected. we first curve contracted during margin today. turned yield has has joining earnings. with all for interest within our in interest you, Thank our We appreciate adversely With months recent as out happening and that us specifically our your everyone, quarter industry, impacted The inverted and

mean to based, economy, to them or say uncertainty and we and just logo. actually the remain are balances. loan mean personally costs we with fairly deposits we flat and depository we deposit in our know don’t We surrounding people run-up with our the frequently. them relationship relatively have think loyal Given fared brand interact well are we When

try actually that mutually provide one what most and other to is important to know another. each to We

deposits So reasons. we customers not irrational had have for withdraw

reserves their have some some and lost for We customers deposits owners using higher lost business a have customers. but purposes, have been we various some own not rate, to business due chasing

curves, subsides interest We are increased to taken has also problem successfully hit with a capitalized gaining faster net were deposit more yield will so. and have if well of Bank yields. and sources persist inverted new as plenty West Obviously, loan funding This advantageous curve than the to margin is has our until the liquidity and business. yield get the normalizes. ability it do costs

While grow we economy me, our opportunities several do have overall including year. I in expecting much don’t to many, our pipeline, this think are

not and a for If Higher whole our economic loan interest demand. as expected recession grow. to is possible economy our it reduce industry does to grow, rates not fear of are

net just our loan and our our single net quality interest credit harm in we past increasing without quarter level interest but interest of end rates return. Rapidly will we will assets as had margin rates historic margin, earnings remains Our reprice and temporarily having due seventh consecutive improve pristine, days. XX stabilize, a our believe

maintain to position deposits long-term success. are and We our for ourselves to customer up willing pay on base

dividend of are quarterly per XX, of dividend the May Board this May payable Our is $X.XX my of XX on on Those prepared stockholders regular extent a to quarterly share. declared Directors of common has record – remarks. year. of The XXXX,

to like now I’d Olafson. over Officer, So Chief turn Harlee call to our the Risk

Harlee Olafson

past very of due afternoon. XX and West Dave, consecutive things a quality said, zero good over we loans days. quarter, at said, for Thank Bank. And to couple I’m strong going seventh as had remains you, Credit repeat he Dave a

one no of OREO have We and $XXX,XXX on non-accrual. loan

Our level. watch list low is at a historically

long strong lack customer has sources cash cash and period that well, my served over shown dealing has flows, of on base the We time. to as flow us a strong focus on have global continued liquidity our of customers’ with of global pass-throughs

continue stress our increases. rate individual are and have loans that to will portfolio We test and maturing

low loans fairly to cover cash have and values increased flow with costs. excess relatively loan to seasoned Most are

$XXX loan-to-value, We $XXX have of an an a housing C&I XX%, with $XXX and is XX%. loan-to-value average XX% $XXX average medical diverse loan million of with XX% and Warehouses portfolio $XXX properties with XX%; senior average of million $XXX $XX concentrations mixed-use million as values our loan-to-value multifamily XX%; loan-to-value million, XX%; average largest office million, $XXX loan-to-value hotels, follows: owner-occupied of with properties, loan of million, to office and office average with properties loan-to-values of housing, million average million

Iowa our all Our portfolio of is Eastern volume best also of Minnesota with provide customers their in and to geographic West has diversification XX% now our obtain in focus the locations. business. service with X our in to balances XX% to outstanding XX% Bank’s

customer continue rising We profit to and With interest on have have a norms. has business. brought challenge. allow plenty said, relationships. The and margins customers. need the that margins to with new significant more our not did to our in a existing new new there retention do back increasing we at increase pace propose be costs along to XXXX, in rates to relationships same price trend will will further loan they rates strong Lower declined. historic and our economy to opportunities being keep be pay as are depository C&I development That of rates,

President. turn call over the Brad our now Bank I’ll Winterbottom, to

Brad Winterbottom

else comments talked echo Dave My the you of things some will you. Thank about. really

our For by sales under reduced the PPP our ended loans environment first loans A and with year $X.XX plus growth expected XXXX. quarter, higher X% interest mostly from billion, in just driven from outstanding rate gross payoffs pipeline the asset outstanding. up were impacted loans refinance

activity a smaller we are to in that than pipeline working on close good the the near-term. quarters, prior still bit are there While is

deposit We have gathering in sales, traction our remains a some gained which priority.

will sales higher are the amortization loans We margin in which normal from time. help replacing and asset priced loans, with

the with and call team’s pleased encouraged are our sales activities. are efforts with We entire

With turn over this Peters. that, I am going Brad Mr. to to

Brad Peters

brief a to update I’m provide going on expansion Thanks Minnesota. Brad. our Good into afternoon, everyone.

which and our these deposit Owatonna we relationships. uncertain grown In of of new to our occupying The through challenging centers. of new to each bankers with Minnesota that the summer. for times, to in continues our this majority has our business. identified market business forward treasury are site market summer, grow begin C&I, a looking its regional anticipate continue value business. Our spite our completion in clients management facility has to our working our team we plans environment, In with later Mankato is make for solid and is growing The actively this and construction our a new of progress providing building, deep late

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

Jane Funk

a statements. financial make just I’ll comments few Brad. our about Thanks

On of core increased due our the of decline quarter have commercial public receipt result this $XX in a fluctuations to base, the as broker public quarter operating deposits. Other payments. customer decline our allocations deposit normal Deposits deposits in income April, were side, activities including of and fund primarily the during March fund deposit in was and deposits property million tax tax primarily tax a depositors.

competitor see market rates. competition We to continue market end-market significant money rate money from funds CD and treasury and

end. from managing and Customers XX% balances. which active advances year. our within of by manage primarily make up to Home higher-yielding operating are deposit CD that growth loan interest-bearing quarter utilize funds seeing approximately We’re programs Loan fluctuations accounts deposits over broker our public to and their state We our have market deposit options. a surplus the in low migration estimated excludes money An at cash to covered and deposit base and operating balances non-interest-bearing much uninsured the or Federal also become checking more Bank and deposits, last

of XX Loan secured of funding are March Bank Federal at Federal from Our liquidity by available $XXX Reserve, position consisted securities. million and and which loans Home

financial we securities. unsecured have $XXX $XX with lines other have We million unencumbered institutions, fund of million Fed of

have to additional also and We one-web through two brokered funds contracts intersite option. access with brokers

rate mentioned, interest significantly has repricing reduction increases interest loans, pace liquidity scale net amortization competitive by rates significantly maturities The outpaced and in the the our periods. short-term repricing our low been loan resulted curve. in our assets. of cost fixed should By that of of loan and loan the yield short-term has rising margin, nature in the inverted in and and our market of rates future yield CRE First, of our the deposits of benefit impacted of concentrations and net portfolio and as our interest interest ongoing longevity margin, has

However, migration put higher-yielding will from accounts additional to additional pressure deposit any deposits margins. CD of and low-cost money options our on market

for of comments, are we questions now. our open Those the up it end want to and prepared

Operator

comes [Operator from proceed. first Piper today question Instructions] Please Brendan Sandler. with Our Nosal

Brendan Nosal

doing? afternoon you good folks. are Hey, How

Jane Funk

How Good, Brendan. are you?

Dave Nelson

afternoon. Good

Brendan Nosal

thanks. Good, Good.

add over us Let’s deposit of hoping pricing see, can funding of costs you month-to-month of kind and you first March? start to kind funding the the you then maybe area. where pressure. And I of of just course the was on end the evolve walk quarter it kind felt off were costs when through how you stock could if most at the funding happen

Jane Funk

Yes.

We side, pressure the market probably on increase So biggest in deposit on impact costs our the was lot area. did our a first money competitive which market money the we of saw quarter, funding rates our in deposit costs. the

But more the was like seeing rates. things to funds, those more quarter that. pressure on think first I more and CDs liquid prior it we’re

of So on that’s pressure the most where side. think deposit the pricing came I

Brendan Nosal

it. Got

frame occurred – like quarter kind banks, deposit base in kind I’m that it was other within March of the curious of bank of start the the of then? – the when Okay. just And around was time quarter what at value or and more the that part mix then of terms saw the quarter, you this many have given the

Jane Funk

the customer bank that as with our didn’t had pricing say – the At to deposit were a over things I that. our impact like lot deposit would relates we’ve year and interaction a base of balances. significant failures not it on time, last have

But with we Dave think, So at to parts we’re questions seeing. were the certainly, relationship-based And our that the I other of fielding us allows there market conversations really that didn’t – behavior customers. see of was some time. directly our again, said, as have irrational we the model

Brendan Nosal

it. Got

can whenever that index on the Fed And you start Alright. reprice Okay. how then balances had hopefully update you lower would cutting much me maybe rates? deposit

Jane Funk

Yes. been million, around $XXX Mark. pretty steady that have Those

Brendan Nosal

in balance the side where rate. curious production of Okay. sheet, loan Prefect. of today just new sheet the on And of kind of then the coming is maybe new on kind the terms other

Dave Nelson

coming are loans the from? where again. that Say

Brendan Nosal

new of rate loan is at? on coming What production

Dave Nelson

would on mid- I maybe Xs, occasion. to say X touching high

Brendan Nosal

Okay. Alright. Prefect.

just how much loan-to-deposit be don’t short-term push loans aligned. operating there completely will kind that of the kind the curious to much willing you higher ratio of how the deposits of have and you and if XX.X%, With up in – comfort kind flows between to

Dave Nelson

not deposit. on a our good tell maths having specific we’ve has a that’s shrunk. to that question. sure you, I’m loan a can Well, And about talked ever I pipeline

we’re also lot of gathering have terms but additional opportunities, not of We’re loan – had running activity in new from deposits. discussion in a

And our prior I so know are months we has that increased as last so loan – that equate It’s still increased. closed was over to quarter, has cost outstandings, as think deposit funding that gathering the the out time in than as over But daily. efforts I during it’s of first $XXX ago. the we – pipeline but X robust the we’re it is million But this a doesn’t commitments year chasing not okay. of

Brendan Nosal

it. Got it. Got

shaping a overall curious that’s of growth kind to of taking year, year. see the thinking the just start in of and year content obviously, the about balance softer Okay, growth how helpful. the on kind for percentage? the you loan Maybe terms kind super of loan the But up of pipeline bit

Dave Nelson

We aware additional in few are of next That there. sold expected assets their close we will that have that have months. a – been the loans. in don’t are bigger number to

of happen type that digit. years, prior in had going growth the this don’t see year, that’s don’t I a double I to which but we’ve that’s are So think guess.

Brendan Nosal

Yes.

helpful. So

a happen quarter? Maybe a to moment. was it of month the think have the get NIM finished to of turning just to Good. what back for kind just the sense March, margin for the you Okay. where Do of

Jane Funk

the – net March XXX, – say was margin? I XXX interest It think

Brendan Nosal

Okay.

XXX, XXX and it at bit. seems was was little with full like right? stabilized March it’s The a So least quarter

Jane Funk

the slowed have then increases slowed have Yes. the down. I hit the – would margin pace the Fed of say at to down, our

Brendan Nosal

down was quarter. Okay. guess at quarter, time repeat in NIM bps bps second sounds XX Prefect. last can that another that as this correct? quarter, again shouldn’t the I way I that ask It like XX

Jane Funk

types – not, it. the Fed certainly on what but depending We of migration assuming on depending play deposits hope those does, the will again, things of into

Brendan Nosal

Yes.

base. from there turning that managing base is the you Any away definitely but really but know I thoughts in moving those revenue go a number pieces challenging of kind overall endless a an Okay. of environment. couple maybe on just ones about to that’s of expense topics there, the op here, how

Jane Funk

where this biggest XX%, Well, would margin. the was net is which was quarter on our efficiency interest not The normally like that ratio be. impact to we

is I are in think in operating the usually structure – XXs. the what a in our benefits normal us environment, that cost we

So, pressure this in cuts margin net without having make we of significant interest can withstand some expenses. to

Brendan Nosal

Got it.

Okay. office loan Good. credit is in the think to that book. the office, quality noted Maybe of particular, deck total slide turning and about X% I

suburban think the split I that? prepared remarks. you more on I debt Maybe loan portfolio? average anything between that’s your caught size, coverage, exposure, in can any Is urban LTV offer the and there color service that like

Dave Nelson

and law occupied. by only tenants. is firm, well have XXX% portfolio real we fairly Yes. performing a another with which time. construction basically We a company, property, occupied new that one It’s office have it’s office Actually, this the urban very firm, so at is long-term

a office of properties, are office a strong office have that owner have hands. fair other that And properties occupied. properties amount we suburban of fair we Our in also are amount very

So, the of our service higher over the in looking are And over medical EBIT are if well, stress our performed a flow at at debt level. and of office, XXX. average are cash test office medical latest coverage that properties office held most doctor properties clinics at you very is

Brad Winterbottom

I liquidity their also it there office that those that would that are behind guarantees guarantee. add two worth some commas with sit it of like of stands we behind loans outstanding, substantial that have just behind

these seasoned long-term sheet substantial stand very that behind are it balance it. that – with customers So, – in a they have are behind

Brendan Nosal

AOCI Maybe Excellent to the and as kind again, some on recapture last direction from exposures to starting more us to helps in up. one of various see year. me and move I color across question really from guys capital, it hit of the ratios benchmark you that nice banks, know right stock

year, your want to So, maybe with it? kind trying priorities year just lay you slower what modestly outlook of the for you out growth capital are loan this accomplish how and this to updated use and

Jane Funk

of probably Well, I mentioned, significant the again, position. of XX the think necessarily a in capital months, a the banking next lot we amount are economic expecting industry. not strong for growth of in growth, like means And not a we course which

over growth next or And lot a year. so our sheets, balance we lot of a change don’t see of the

we if for position, there earnings So, improvement in ideally to expect our capital retained capital with would the to is any the year. continue AOCI, the And strengthen.

Brendan Nosal

much you and Alright. it. my Perfect. question Thank all of so for taking so appreciate many I

Jane Funk

Thanks.

Operator

question. your Thank for you

Our River Capital. next David with question comes from proceed. Oaks Please Welch

David Welch

looking And Alright. understand question, an Thank you. I I but am this I probably you articulate not will be will will for. what think acknowledge

you side. your loans today’s And environment, clientele. deposits not assets. are bring into looking terms about earning the that funding heavily open are the like extending estate and general deposit-heavy understanding kind on would You asset that specifically, At between your least on in. is generally commercial then don’t my to side is a very the you I real on am and of however, for difference earning the customers customers in thoughts

Harlee Olafson

address could I Maybe that.

of concentration of our customers is they credit. C&I portfolio. on level liquid that the I when have look biggest at are one in their And lines this missed think Our the borrowing C&I low part is we gets our how that and actually

at it significant customer But Our invested base, the billion. helps. owners a either know type. about developer the bank, and have also lines from of are commercial I in customers you $X personal individual don’t balance investor – are credit that a base the assets lot depository are owner-occupied if customers. customer estate in the And and C&I unfunded when we a to of real or of look sheet

David Welch

ahead. Yes. It helps and go

Dave Nelson

we credit. I quite their income additional most would that also at our have have statements, had their year, lines through in an – add, C&I for XX% not of we annual are renewals for those of of about are are looked we we lines part, all renewing the balance impacts of XXXX. all sheet, positive But credit

liquid were borrowers and stronger that. something don’t require then make year we little they a you That’s question just we and ago. our about not a loans more that are a asked bit do do. do not do than maybe So, We And deposits.

not doing are We transactions.

deal. don’t We for We don’t a really are looking relationships. – do we

David Welch

so to real year-end, you And simply quarter year-end, and is if S&P, Are me Okay. we a at That’s am now Y-XC. tell to looking going C&I want good just know. I a ask to was XX% telling I off. just read am wrong. I XX%. you loans at those am And your couple your loans estate formerly and where just it’s are numbers I your of from what’s on. numbers? I using total disclosure to this that am At SNL wrong coming

Jane Funk

No.

got credit I C&I and they because type saying think Harlee necessarily show was are of unused. balance of lines sheet what have lot a base their on a of was the don’t up we customers significant customer

of customers our aren’t have strong we just deposit So, got C&I borrowers. help to They a base fill base. heavy that

David Welch

Okay.

XX% okay. the of that’s account are are real lines of drawn, into estate, credit the necessarily loans So, but taking that not not

Jane Funk

Correct. Yes.

David Welch

Thank the clarification. you for

Operator

questions. are at waiting registered. There this no your time. Thank no Instructions] are you currently questions [Operator questions for There

further remarks. pass the to So, the management for conference I will over back team any

Jane Funk

Well, want us everybody we Alright. just thank for to joining today.

second in this We months quarter. for thanks again And will the again. three do

Operator

all concludes the for West QX Bancorporation’s participation. Thank That your earnings you call.

You may now lines. your disconnect

West Bancorporation (WTBA) 27 Apr 232023 Q1 Earnings call transcript