WEST BANCORPORATION INC Q3 FY2024 earnings call

• Dave Nelson: Quarter went as expected, loan demand not strong but modest growth, deposit gathering showing results, credit quality strong, margin stabilized and improving, will benefit from Fed rate cuts, Board declared $0.25 per share quarterly dividend.
• Harlee Olafson: Loan portfolio very strong, commercial real estate loan to values declined, debt service coverage slightly down but strong, C&I portfolio strong, only one past due loan which is a residential real estate property with expected full payment, loan portfolio strength due to community economic strengths.
• Brad Winterbottom: Loan portfolio relatively flat vs second quarter, first nine months grew $94 million or 3.2% primarily by vertical construction loan commitments, has over $87 million unfunded commitments on large vertical construction projects, deposit gathering efforts showing results.
• Brad Peters: Minnesota relationship-based strategy successful, building facilities for client meetings, new facility in Owatonna market under construction with slight delay, anticipate occupying in first quarter 2025.

Loan portfolio: Loan portfolio remains strong. Commercial real estate portfolio saw overall loan to values decline due to limited new projects, debt service coverage slightly declined but remains strong, largest concentrations are multifamily and warehouse properties, no significant downtown multi-tenant office properties and zero past dues. C&I portfolio (~$500 million funded balances) is strong, customers' operating profits moderated but portfolio exhibits strong balance sheets. Net income: Third quarter net income was $6 million vs $5.2 million in second quarter 2024 and $6 million in third quarter 2023. First nine months 2024 net income $17 million vs $19.6 million in same period 2023. Net interest income: Had three consecutive quarters of increases, net interest margin increased 5 basis points this quarter. Core deposits: Core deposit balances increased 7% year-to-date, ~half is temporary funds expected to be withdrawn in 2025, remaining 3.5% core deposit growth is mix of public funds, commercial, and retail activity.

• Expect margin to benefit from further Fed rate cuts. - Board declared a $0.25 per share quarterly dividend. - Impact of future rate changes dependent on multiple variables including rate sensitivity of depositors, mix of deposits, and repricing opportunities for loans, investments, and deposit cash flows maturities.

• Commercial real estate debt service coverage slightly declined from previous quarter, future commercial real estate loans will reprice causing customers' cash flows to decline but stress tested show no significant payment issues. - $1 million provision for credit losses in third quarter 2024 due to increase in forecasted unemployment rates, $1 million negative provision for credit losses related to unfunded commitments due to decrease in unfunded commitment balances.

Q: Drill down on loan growth commentary, pipeline lower than prior years, mid-single-digit loan growth reasonable, lumpy payoffs?

A: Brad Winterbottom says have some anticipated payoffs from construction advances materializing to final product and a large C&I customer selling business closing in fourth quarter, think at year-end where they'll be.

Q: Margin, 5 basis point improvement, conversations on rates, CD and money market rates, fourth quarter margin expansion?

A: Jane Funk says seeing more benefit on CD side with large volume of short-term CDs, brokered CDs mostly within 12 months, bulk within six months, will see repricing benefit, transactional accounts money market accounts were aggressive with 50 bps cut, future rate cuts unlikely at same pace but testing waters