West Bancorporation, Inc. (NASDAQ:WTBA) Q4 2023 Earnings Call Transcript January 25, 2024
West Bancorporation, Inc. misses on earnings expectations. Reported EPS is $0.29 EPS, expectations were $0.31. WTBA isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to West Bancorporation Inc.'s Fourth Quarter 2023 Earnings Call. Please note that this call is being recorded. All participants are now in listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to Jane Funk, CFO. Please go ahead.
Jane Funk: Thank you, and welcome, everybody. Thank you for joining us today. On the call today, we'll have myself; Dave Nelson, our CEO; Harlee Olafson, Chief Risk Officer; Brad Winterbottom, our Bank President; and Brad Peters, our Minnesota Group President. I'll start the call with our earnings call forward-looking statements. 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 1995 (ph) 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 2023 fourth quarter 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, 2023, and we undertake no duty to update the information. And with that, I'll turn it over to Dave Nelson.
David Nelson: Thank you, Jane, and thank you, everyone for joining us this morning, and thank you for your continued interest and support of our company. Our quarter went as expected. During the quarter, we had a provision and an intentional loss trade that Jane will provide details on both of those. In terms of margin compression, no Fed rate hike during the fourth quarter was welcome and future rate cuts would be even more helpful. Our credit quality remains pristine. We ended the quarter and the year with no 30 day past due loans and essentially no credit problems. Our Board of Directors approved a $0.25 per share regular quarterly dividend, payable Wednesday, February 21 to shareholders of record as of Wednesday, February 7. Those are the extent of my prepared remarks. I would now like to turn the call over to our Chief Risk Officer, Mr. Harlee Olafson.
Harlee Olafson: Thank you, Dave. And as he stated, our credit quality remains extremely strong. Our watch list is only $440,000. And as said before, we have no past due loans at quarter end over 30 days. We do stress test our portfolio each quarter and have seen improving trends in total loan to value and this -- and debt service coverage, just for some percentages of the portfolio makeup in the commercial real estate area. 32% of our portfolio is multifamily, 18% is warehouse, 10% is office, which is approximately 50% owner occupied, 7% in mixed-use properties, 15% in hotels, 11% in medical office properties and 7% in senior housing assisted living type properties. Office properties in downtown locations have the most pressure on values due to vacancies.
We have minimal exposure to the type of property. Assisted living and long-term care facilities also are under pressure due to the high cost of staffing those facilities. And we have a limited amount of that also. Our focus is to provide great service to our customers that have comprehensive relationships with us. We're not looking for applicants that just want to do a deal. Our bankers have been doing a good job capturing more of our customers' total business. The economy in our markets remain strong, with having to increase our deposit rates to maintain our customer base, we keep prospecting those relationships that add to both sides of the balance sheet. And with that, I will turn it over to our Bank President, Brad Winterbottom.
A customer using internet banking on a laptop at a cafe, demonstrating the convenience of the service.
Brad Winterbottom: Good afternoon. For the year ended 2023, our loan portfolio grew just over 6.7% and $2.93 billion in outstandings. And for the quarter ended 12/31/23, our loan portfolio grew $78 million or 2.7%. Our growth in the portfolio was in part due to some asset acquisition funding and vertical construction draws on previously committed transactions. We have slightly over $190 million in unfunded commitments on vertical construction draws that should take place over the next 12 months to 18 months. Deposit gathering sales efforts are an emphasis in a very highly competitive environment in the markets we serve. We're winning our fair share battles of these. Our pipeline is good. Given the interest rate environment we're living in, we have and continue to see good opportunities in all markets we serve to grow our market share and we remain confident in our abilities to create and maintain positive relationships with our customers and the prospects that we are pursuing.
With that, I'll turn it over to Brad Peters, our Minnesota President.
Bradley Peters: Thanks, Brad. Good afternoon, everyone. I'm going to provide a brief update on our progress in Minnesota. We continue to navigate through a challenging environment due to the rapid rise in interest rates. In spite of those challenges, we are growing new business and enhancing existing relationships. Our focus has been on C&I growth and we have been intentional in our calling efforts to draw a new deposit and treasury management business. We are also growing our high value retail deposits by focusing on our business owners and their key employees. The Mankato market has now opened their new facility. This has been a great tool to attract new business and high value personal deposit relationships. Our Owatonna market has finalized plans for the new building and construction will begin later this spring. Those are the end of my comments. I will now turn it back over to Jane.
Jane Funk: Thanks, Brad. Just a few comments on our financials, and then we'll open it up for questions. So our earnings were $4.5 million in the fourth quarter compared to $5.9 million in the third quarter. The fourth quarter income included a $431,000 loss on sale of investment securities. The securities transaction provided approximately $11 million of proceeds that was reinvested in the loan portfolio and the earn back period on that loss transaction is estimated to be about one year. We also recorded a $500,000 provision for credit losses in the fourth quarter as a result of loan growth. and growth in unfunded commitments. Net interest income was relatively flat with a small decline of $273,000 in the fourth quarter compared to the third quarter, and our net interest margin declined just 4 basis points quarter-over-quarter.
The net interest margin decline has slowed significantly since earlier in the year. And for each of the month -- each of the three months in the fourth quarter was relatively stable. However, due to market rate volatility, our customers' cash flow activities and competition for deposits, any forecasting net interest margin in the near term remains uncertain. Our 2023 earnings were $24.1 million with the decline from prior year, primarily the result of the decline in net interest income. Our net interest margin declined from 2.76% in 2022 and to 2.01% in 2023. Year-over-year increases in non-interest expenses were primarily due to market and inflationary related increases in compensation costs, occupancy costs of our new building in St. Cloud, Minnesota and increases in the FDIC insurance assessment rate.
Those are the end of the prepared comments, and we'll open it up for questions.
