WEST BANCORPORATION INC Q4 FY2024 earnings call

• Dave Nelson noted the fourth quarter was the best in seven quarters, with 2025 improvement already underway due to deposit gathering success in 2024 and expected rate reductions and asset repricing. A $0.25 dividend was declared.
• Harlee Olafson highlighted pristine credit quality, with zero past dues over 30 days and a 0.26% watch list of loans. The commercial real estate portfolio performed well, with some office properties facing vacancies but other types doing well. The C&I portfolio was strong.
• Brad Peters discussed Minnesota operations, noting slowed new credit opportunities but focus on core deposits, strong deposit growth in regional centers, and a new facility in Owatonna opening.

Net income in the fourth quarter was $7.1 million, compared to $6 million in the third quarter of 2024 and $4.5 million in the fourth quarter of 2023. Net income for both 2024 and 2023 was $24.1 million. A $1 million provision for credit losses was recorded in the fourth quarter of 2024, primarily due to qualitative factors. Approximately $12 million of investment securities were sold in December with a $1.2 million loss. A $1.8 million income tax benefit from an energy-related investment tax credit was recorded. Core deposit balances increased 15.8% in 2024, with an 8.3% increase in the fourth quarter. Deposit growth led to a reduction in wholesale funding by over $200 million. Net interest income has increased for four consecutive quarters, and net interest margin rose seven basis points in the fourth quarter compared to the third quarter.

• The 2025 improvement was accelerated by 2024 deposit gathering success. Continues to benefit from short-term rate reductions and asset repricing opportunities in 2025 and 2026.

• Impact of future rate changes dependent on variables like depositor rate sensitivity, deposit mix, and repricing opportunities. Qualitative factors in the provision related to loan repricing and debt service coverage.

Q: Just want to touch on the provision. 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?

A: 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.

Q: 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 you're seeing the most activity?

A: Most of the activity that we're seeing right now is C&I activity. We've had business purchase by the group. We've had other opportunities that have been more in the relationship of C&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.

Q: On expenses, it looked like I think the third quarter might have been a little bit undersized. But as we look into 2025, is this a good jumping off point, for costs but recognizing there could be some seasonal upticks in the first quarter?

A: Yes. I would say fourth quarter 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.

Q: On the non-interest income side, trust services are up nicely. Was there any one-time benefit there? I guess what's the - or is this the new run rate going forward?

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

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

A: I think that's a fair assessment.