WEST BANCORPORATION INC Q1 FY2025 earnings call

• Dave Nelson noted financial improvement with margin as the main driver, first quarter earnings 35% higher than last year, core deposit growth last year, flat loan and deposit growth in Q1 2025 but good pipeline, and a $0.25 per share dividend declared.
• Harlee Olafson stated credit quality is strong with no nonaccruals, OREO, or adversely classified assets, commercial real estate portfolio performs well though office property is an issue, C&I portfolio is seasoned but less profitable now, and economy uncertainty concerns them.
• Brad Winterbottom mentioned loan portfolio was relatively flat in Q1, $100 million in payoffs replaced with quality new assets, deposits decreased slightly due to cash flow fluctuations, and focus on deposit gathering.
• Brad Peters talked about Minnesota banks' customers being cautious, C&I efforts, retail deposit growth in regional centers, and completed building projects that help with business growth.

Net income for the first quarter was $7.8 million, compared to $7.1 million in Q4 2024 and $5.8 million in Q1 2024. Net interest income has increased for five consecutive quarters, and net interest margin rose 30 basis points this quarter compared to Q4 2024. The cost of deposits decreased 38 basis points. Loan yields in Q1 2025 were 5.52%. Credit quality remains excellent with no problem loans, no nonaccruals, OREO, or adversely classified assets. Revenue contribution details weren't explicitly broken down by product segments beyond the overall financials mentioned.

• Net income was $7.8 million for Q1 2025.
• Net interest income has increased for five consecutive quarters.
• Deposit costs decreased 38 basis points.
• No significant one-time items in noninterest income or expense.
• Tax rate is higher this year due to the expiration of a 7-year new market tax credit at the end of 2024.

• Concern about economy uncertainty affecting customers.
• Prices for imported products and possible supply interruptions could cause production problems and earnings distress.
• Vacant office property impacting commercial real estate customers with pending lease expirations.

Q: Thank you everyone. Good afternoon. Hey Andrew, Jane, just sticking with the margin here. Obviously, good improvement in the deposit cost side. But absent rate cuts, I mean, is there more room or will it be more challenging to bring deposit costs down at this point?

A: I would say in this environment, the deposit costs, we'd probably move them as much as we think we can in light of the current environment. So they're probably pretty static until something else happens in the marketplace.

Q: And then on the new loans that were added in the quarter, I'm curious if you have the rate on what those were added at versus what's been rolling off just to try to get a sense of that differential.

A: Well, of the $100 million or so that paid off in the first quarter, I would say 75% of those were probably started with a three or a four. Those all would have been replaced with -- started with a six in front of it, maybe even some with a few 7s. And I would say that the current environment is probably in the high six range.

Q: The loan pipeline sounds like it's pretty good, and obviously, $100 million is solid. Should growth accelerate here in the second quarter or are you expecting other larger payoffs in the horizon?

A: There's a handful of nice transactions that we're looking at. So I would say we do have some planned payoffs, but I think the opportunities exceed the payoffs, to be honest with you. And we'll see what happens. There's other people involved, obviously.

Q: Jane, just on the expenses, there were some elevated accruals in the fourth quarter. In the first quarter, was there anything keeping expenses a little bit lower? I'm just trying to get a sense of the run rate into 2Q.

A: No. I would expect that the first quarter performance will be pretty indicative of the go-forward. There's not any significant items that we foresee at this point in time.

Q: And then I noticed the tax rate was a little higher than I was expecting. [indiscernible] see improved better rate to be modeling?

A: Yes. So we had a tax credit, like a 7-year new market tax credit that expired at the end of '24. So the accounting for that, that goes away. So our tax rate will be a little bit higher this year than what it was last year.

Q: And then the last one on credit here. Is there anything you can point to with concerns about tariffs or immigration policy that you're watching specifically or that your browers are talking about? I know your credit metrics are strong but just curious if there's anything that you're seeing that you want to highlight that's a concern.

A: Well, I don't have anything on immigration policy, but the tariffs, we have some manufacturers that in their product, what they provide in their total product, they have mixes of components that are coming from offshore. And the concern, there's some concern there that the -- that cost will increase and/or the supply of it may be hindered, that it won't flow as easily as it has in the past. Again, I like to always say that the customers that we have been doing business with are seasoned and have developed good balance sheets so typically can weather through those type of things, but they are concerning.

Q: I have a question for Mr. Nelson relative to the letters to stockholders. In the first paragraph, you referenced the significant strides to the return to excellence by concentrating on what we can control. Is that a reference to the duration risk that we take? And then in the second paragraph, you referred to being bankers and not lenders. Would you have any color on that?

A: Well, sure, and thank you for the question. The differentiation between bankers and lenders is kind of a way of highlighting that we don't really like to be called lenders because that's just part of what we do. We work both sides of the balance sheet for both loans, deposits and a multitude of other services. And so we talk about comprehensive recommendations, meaning that it's not just about making a loan but it's about building a relationship and providing more services than just lending. And in terms of focusing on what we control and control really, in my mind, what I was talking about there is what we do on purpose every day despite economic conditions or the weather or competitors. And it's what's under our control about getting out and talking to people and being of assistance and learning all we can about our customers' business and looking for ways to be of further assistance.

Q: I have a question related to heading at the top of one of your charts in your attachment to the press release. It says successful lift-out strategy. And normally, a lift-out strategy would be outsourcing of a business function or part of your business. What do you mean by that language?

A: This is Brad Peters from the Minnesota markets. The lift-out strategy is referencing our success in lifting out key people from other financial institutions to become Westbankers. So we were successful in our Minnesota locations at doing that.

Q: How do you actually manage to hold on to your core deposit, certificate of deposit numbers when your rates are so low compared to other places in the market? I just don't understand anybody leaving their money to earn like 1% or something less than that. It just seems like a silly personal strategy.

A: We have the ability to -- a lot of our core deposit base is commercial-based and so we will do a rate based on relationship. So we're not doing advertised retail specials like you see other institutions, but we certainly have pricing strategies similar to those other institutions.

Q: So you're saying I could negotiate with you?

A: You could call your banker and talk about rates.