West Bancorporation Q4 2024 Earnings Report

West Bancorporation EPS Results

• Actual EPS: $0.42
• Consensus EPS: $0.40
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.27

West Bancorporation Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $21.42 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

West Bancorporation Announcement Details

• Quarter: Q4 2024
• Date: 1/23/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 23, 2025
• Conference Call Time: 3:00PM ET

West Bancorporation (NASDAQ:WTBA) operates as the financial holding company provides community banking and trust services to individuals and small- to medium-sized businesses in the United States. It offers deposit services, including checking, savings, and money market accounts, as well as time certificates of deposit. The company also provides loan products comprising commercial real estate loans, construction and land development loans, commercial lines of credit, and commercial term loans; consumer loans, including loans extended to individuals for household, family, and other personal expenditures not secured by real estate; and 1-4 family residential mortgages and home equity loans. In addition, it offers online and mobile banking, treasury management services including cash management, client-generated automated clearing house transactions, remote deposit, and fraud protection services; merchant credit card processing and corporate credit cards; and administration of estates, conservatorships, personal trusts, and agency accounts. The company was founded in 1893 and is headquartered in West Des Moines, Iowa.

West Bancorporation Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Thank you for standing by. My name is Jaylen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Westbank Corporation Inc. 4th Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

[Operator]

After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Jane Funk, Chief Financial Officer. You may begin.

[Jane Funk, Chief Financial Officer at West Bancorporation]

Good afternoon. I'm Jane Funk, the CFO of Westbank Corporation Inc. 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 Olesen, our Chief Risk Officer and Brad Peters, our Minnesota Group President. Now, I will read the fair value or excuse me, fair disclosure statement.

[Jane Funk, Chief Financial Officer at West Bancorporation]

During today's conference call, we may make projections or other forward looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward looking statement disclosure in our 2024 Q4 earnings release for more information about risks and uncertainties which may affect us. The information we will provide today is accurate as of December 31, 2024 and we undertake no duty to update the information. And with that, I'll turn it over to Dave Nelson.

[Dave Nelson, CEO at West Bancorporation]

Thank you, Jane, and thank you everyone who has dialed in to join us. We appreciate your interest and support of our company. We had an excellent Q4. From an earnings standpoint, it was our best quarter during the previous 7 quarters. During 2022, we knew and forecasted that 2023 2024 were going to be challenging due to margin compression and they were, we also had forecasted that 2025 would be better and it will.

[Dave Nelson, CEO at West Bancorporation]

We actually we believe the 2025 improvement is already underway and reflected within our Q4 2024 performance. We believe our forecasted 2025 improvement was accelerated by our tremendous deposit gathering success during 2024, which then allowed for the corresponding reduction in wholesale deposits. We will continue to benefit from further short term rate reductions and significant asset repricing opportunities during 20252026. Our credit quality remains pristine and the economies of the communities in which we do business are strong and our loan and deposit pipelines remain solid. Based upon our 4th quarter performance, we have declared a $0.25 dividend to common shareholders of record as of February 5th and payable February 19th.

[Dave Nelson, CEO at West Bancorporation]

Those are the extent of my prepared remarks and I will now turn the call over to our Chief Risk Officer, Mr. Harley Olesen.

[Harlee Olafson, Chief Risk Officer at West Bancorporation]

Thank you, Dave. As Dave stated earlier, credit quality remains a strength at Westbank. Highlights are include at quarter end, we had 0 past dues over 30 days and our watch list represents only 0.26% of total loans. Our $2,400,000,000 commercial real estate portfolio continues to perform very well. We have a small amount of multi tenant office properties that are performing as expected with good long term tenants.

[Harlee Olafson, Chief Risk Officer at West Bancorporation]

In our markets, office properties are dealing with significant vacancies. Our other types of commercial real estate such as multifamily, warehouses, mixed use and hotels are performing very well. Our $500,000,000 C and I portfolio was also strong. We received interim financials on most borrowers and are not aware of any significant deterioration in financial strength. Of course, we will be getting we will begin receiving most year end financials in the coming months.

[Harlee Olafson, Chief Risk Officer at West Bancorporation]

The uncommon 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. 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. Des Moines, St. Cloud, Mankato and Owatonna have strong business climates and have diverse business.

[Harlee Olafson, Chief Risk Officer at West Bancorporation]

The Rochester economy is dependent on the health and growth of Mayo Clinic and all the services they require to support a significant portion of the city's total employment. Iowa City Coralville is dominated by the University of Iowa and most of the business there goes to support a major university student and faculty population along with the major medical facility. We have a seasoned team of bankers that continue to prospect for comprehensive banking relationships. This has been a focus of the group. And as you can see in our significant deposit growth, their efforts have been rewarded.

[Harlee Olafson, Chief Risk Officer at West Bancorporation]

They are succeeding in capturing new business relationships and expanding our market share with our existing customers. Interest rates will affect the level of new projects and expansions. I expect that we will continue to see moderate growth in 2025. I am available for any questions after our prepared remarks. I will now turn it over to Brad Peters, our Minnesota Group President.

[Brad Peters, Minnesota Group President, West Bank at West Bancorporation]

Thanks, Harley. Good afternoon, everyone. I'm going to provide a brief update on our progress in Minnesota. 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 and I prospects and many of those prospects have no credit needs, but our bankers are spending their time winning new relationships with core deposits.

[Brad Peters, Minnesota Group President, West Bank at West Bancorporation]

We are also working closely with our existing business banking client base to win the high value retail deposits of business owners, key executives and employees of the businesses we bank. We do not have specific production goals for our bankers, but instead measure our bankers on the right activities that will drive results. We have a seasoned group of bankers that have proven this strategy to be effective. Deposit growth has been strong in each of our Minnesota regional centers. Our superior service and high touch retail banking have driven the positive results.

[Brad Peters, Minnesota Group President, West Bank at West Bancorporation]

The final construction project in Owatonna is now complete. The new facility opened for business this week. 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. These unique facilities align perfectly with our strategy of building our business based on strong relationships. Our team has embraced this and we have done an outstanding job of leveraging our buildings to grow our business.

[Brad Peters, Minnesota Group President, West Bank at West Bancorporation]

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

[Jane Funk, Chief Financial Officer at West Bancorporation]

Thanks, Brad. I'll just make a few comments on our financial performance. So net income was $7,100,000 in the 4th quarter compared to $6,000,000 in the Q3 of 2024 $4,500,000 in the Q4 of 2023. Net income was $24,100,000 for both 20242023. We recorded a $1,000,000 provision for credit losses in the Q4 of 2024.

[Jane Funk, Chief Financial Officer at West Bancorporation]

This provision was primarily due to an increase in certain qualitative factors in our methodology and was not the result of any specifically identified credit deterioration in the loan portfolio. In December, we sold approximately $12,000,000 of investment securities and recorded a $1,200,000 loss. Those funds will be reinvested in the loan portfolio and we expect the earn back period to be approximately 2 years. In the Q4, we also recorded a $1,800,000 income tax benefit from an energy related investment tax credit associated with the construction of our new headquarter building. Core deposit balances increased 15.8% in 2024 with an 8.3% increase in the 4th quarter.

[Jane Funk, Chief Financial Officer at West Bancorporation]

The core deposit growth is a mix of public funds, commercial and retail activity reflecting our focused efforts on deposit relationships. Deposit growth facilitated a reduction in expense of wholesale funding of over $200,000,000 in the Q4 of 2024 which has helped reduce our cost of funding. We have now had 4 consecutive quarters of increases in net interest income and net interest margin increased 7 basis points this quarter compared to Q3. With the 100 basis point reduction in the fed rates in September, we've been able to lower deposit rates in our highest costing sectors, resulting in noticeable 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, the mix of deposits, and the ongoing repricing opportunities from loan investments and deposit cash flows maturities.

[Jane Funk, Chief Financial Officer at West Bancorporation]

That completes the prepared comments. So now we will open it up for questions.

[Operator]

Thank you. The floor is now open for questions. Your first question comes from the line of Andrew Liesch of Piper Sandler. Your line is open.

[Andrew Liesch, Analyst at Piper Sandler Companies]

Hey, good afternoon, everyone. Just want to touch on the provision that you mentioned qualitative factors in commercial real estate. Would that be like the vacancy rate at other properties? Just curious what these qualitative factors might be?

[Jane Funk, Chief Financial Officer at West Bancorporation]

It really was more of a recognition of as loans reprice higher and debt service coverage ratios maybe will decline a little bit, 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 based acknowledgment, but nothing necessarily specific to the portfolio.

[Andrew Liesch, Analyst at Piper Sandler Companies]

Got it. Yes, makes sense. And it sounds like loan pipelines are pretty solid here to start the year, I guess, by type. Is it construction, commercial real estate? Where are you seeing the most activity?

[Harlee Olafson, Chief Risk Officer at West Bancorporation]

Most of the activity that we're seeing right now is C and I activity. We've had a business purchase by the group. We've had other opportunities that have been more in the relationship of C and I Business. There isn't a huge pipeline of new commercial real estate projects that are on the docket right now, but it is a good pipeline.

[Andrew Liesch, Analyst at Piper Sandler Companies]

Got it. That's great to hear about the C and I. On expenses, it looks like that I think the Q3 might have been a little bit undersized. But as we look into 2025, is this a good jumping off point for cost, but recognizing there could be some seasonal upticks in the Q1?

[Jane Funk, Chief Financial Officer at West Bancorporation]

Yes, I would say Q4 would have included probably some accrual adjustments as it relates to like incentive bonuses and some discretionary compensation pieces. And then also some true up of, I would say, like depreciation costs with the new buildings that we've got coming online. So December was actually probably a little bit elevated.

[Andrew Liesch, Analyst at Piper Sandler Companies]

Got it. Okay. That's helpful. And then on the non interest income side, trust services are up nicely. Was there any one time benefit there?

[Andrew Liesch, Analyst at Piper Sandler Companies]

I guess what's there or is this a new run rate going forward?

[Jane Funk, Chief Financial Officer at West Bancorporation]

It's probably close to new run rate. I mean there's some one time estate fees, but we seem to have reoccurring experiences with state work. So you know, it's increase in value of assets and the fees related to that. So, nothing really large one term that wouldn't reoccur.

[Andrew Liesch, Analyst at Piper Sandler Companies]

Great. And then just lastly, on cost of deposits down pretty nicely here, full quarter effect of the November December rate cuts, do you think there's more improvement just to be had naturally on that front in the Q1?

[Jane Funk, Chief Financial Officer at West Bancorporation]

I think that's a fair assessment.

[Andrew Liesch, Analyst at Piper Sandler Companies]

Got it. And so maybe that could help with the margin, but not to the same pace as in the Q4?

[Jane Funk, Chief Financial Officer at West Bancorporation]

Well, part of that is going to be dependent again on, you know, we still got a lot of assets repricing, so some of the timing of maturities and cash flows on the asset side will be, you know, as big of an impact as, you know kind of the full repricing of the deposits for a full quarter.

[Andrew Liesch, Analyst at Piper Sandler Companies]

Got it. That covers all my questions. Thanks so much for the time today.

[Jane Funk, Chief Financial Officer at West Bancorporation]

Thanks, Andrew.

[Operator]

With no further questions, that concludes our Q and A session. I'll now turn the conference back over to CFO, Jane Funk, for closing remarks.

[Jane Funk, Chief Financial Officer at West Bancorporation]

Yes. 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.

[Operator]

This concludes today's conference call. You may now disconnect.

Participants

Executives

• Jane Funk, Chief Financial Officer
• Dave Nelson, CEO
• Harlee Olafson, Chief Risk Officer
• Brad Peters, Minnesota Group President, West Bank

Analysts

• Andrew Liesch, Analyst at Piper Sandler Companies