Ladies and gentlemen, thank you for standing by. Welcome to the West Bancorporation, Inc. Earnings Call. My name is Irene, and I will be coordinating this event. I would like to turn the conference over to our host, Jane Funk, Chief Financial Officer. Jane, please go ahead.
Thank you, and good morning, everybody. Thanks for joining us on the call this morning. Today, on the call, we've got myself, Dave Nelson, our CEO and President of WTBA. We've got Harlee Olafson, our Chief Risk Officer, Brad Winterbottom, our West Bank President, and Brad Peters, our Minnesota Region President. I'll start out reading our fair disclosure statement. Any comments made during this conference call may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Any forward-looking statement made by us during this call is based only on information currently available to us and speaks only as of today's date. The company undertakes no obligation to revise or update such statements to reflect current events or circumstances after this call or to reflect the occurrence of unanticipated events. With that, I'll turn the call over to Dave Nelson to get us started.
Thank you, Jane, and thank you everyone for joining us. We very much appreciate your interest in our company. We had another good quarter with strong performance metrics. I just have a few general comments, and then we'll turn the call over to others for more details. We have declared a $0.25 dividend to common stockholders payable August 24th to shareholders of record as of August 10th, 2022. While the increasing rate environment is putting pressure on our margin, our credit quality has continued to improve to the point where we almost have an absence of problem loans or even past due loans. Most of our communities in which we do business are all sitting on record building permits.
The extent of the impact that our inflationary marketplace, coupled with the corresponding increase in interest rates, will have on delaying or perhaps stalling some of this activity remains unknown. However, in any event, we have a strong pipeline and pristine credit quality. With that, I'd like to turn the call over to our Chief Risk Officer, Mr. Harlee Olafson.
Well, thank you, Dave. Again, this is Harlee Olafson. I'm gonna make a few comments on our credit quality. First being our credit quality, in our opinion, is in the best shape that it has ever been. We have no past due loans over 30 days. Our philosophy that there's not enough margin in banking to take on risky credit has served us well in the past and hopefully in the future. We don't feel we have concentrations in business that may suffer unduly in a recession. Certainly, there may be some challenges, but we believe our strong customer base will manage through an economic downturn. Previously, we had one significant credit on non-accrual within our portfolio that has now been resolved.
We had a $2.5 million specific loss reserve assigned to that credit, and the loss after payoff was less than $500,000. This freed up a little over $2 million in reserve. Before I turn the call over to Brad Winterbottom, I will comment on our Eastern Iowa performance. Loan growth in Eastern Iowa has continued to be strong at approximately 9% year to date. Prospects for future business there are good, but we also see that there has been a slowdown in new projects, there and in our other markets. Again, I will now turn the call over to our Bank President, Brad Winterbottom.
Thanks, Harlee. For the quarter, total loan growth is approximately 3%, which was an excellent quarter. Going forward, we have headwinds in front of us. We have three loans that are commercial construction projects that have matured, and two have paid off as of today, with a third one expected to pay off through the remainder of this year. Those three total $100 million. We have some replacement for those, but in terms of the growth pattern, I think that will probably slow some things up. We're seeing our home building business, which we have a nice portfolio of dealing with very reputable long-term home building customers in Central Iowa.
They're slowing up, given the interest rate environment. We're seeing some deals getting passed on or, in the planning stages we're working on. Due to the supply chain issues, uncertain construction costs, and the rising rate environment, some of those folks have just put that on hold. Makes sense to them. It makes sense to us. We have a very long list of other things that we're working on to replace some of this volume. I can't tell you where that will all end up, but you know, obviously with the rising rate environment, it's a lot harder to go refinance something today than it was maybe six months ago. We're in a deposit gathering mode right now. We've lost some deposits.
Existing customers using their money to do other things. One was a significant acquisition that they funded out of cash. We're gathering deposits. We're still making calls daily on customers and prospects, and I anticipate that will not change. Mr. Peters, you are next.
Thanks, Brad. Good morning, everyone. I'm going to provide a brief update on our market expansion into Minnesota. Our team continues to make good progress in growing business in each of our Minnesota regional centers. Each of our markets are seeing solid growth. Our bankers are focused on building relationships, and our activities have created ongoing new business opportunities. We continue to grow our business by adding new relationships focused on C&I. This focus has driven strong core deposit growth and treasury management business. We opened our new building in St. Cloud during the month of March. The Mankato market has begun construction of a new facility with plans for completion in the middle of next year. Our Owatonna market is in the process of exploring potential new sites for a building. That is the end of my comments. I will now turn it back over to Jane.
Thanks, Brad. I'll make just a couple comments on the financial statements. On the income statement, we did record a negative provision this quarter. Total negative provision for the year is $2.5 million. That's primarily driven by the impaired loan that we had that was our significant impaired loan that was settled in June. We had a specific reserve on that particular relationship of $2.5 million. Our ultimate charge-off was $451,000. That was the primary reason for the negative provisions in the second quarter. Our effective income tax rate was higher this quarter for the Iowa bank franchise tax rates.
There was a change in those rates that were enacted in June, and that resulted in us remeasuring our deferred tax assets as a result of those changes in tax rates and resulted in an additional tax expense of $671 thousand in June. That's a one-time event, a one-time remeasurement of the deferred tax assets. The significance of the amount is really driven by the large deferred tax asset on the investment portfolio. From a margin standpoint, our margin for the quarter was 2.93% compared to 2.99% last year. In year-to-date, we are at 2.89% compared to 3.08%. The 2021 numbers have more of an impact from the PPP loans.
When we look at the decline in margin, part of it is driven by, you know, fewer PPP fees recognized in 2022, and then also just recognition of the rate environment that we're in, the pressure on the deposit side for pricing as the market rates increase and then continued really continued pressure also on the loan side. In our markets, we're still seeing a fairly high level of competition and pricing competition on loans. We did complete our subdebt issuance in June, around June 15. We issued $60 million of subdebt at the holding company level. The net proceeds of that was injected into West Bank as capital.
Brad had mentioned our declining deposits, primarily driven by existing customers using some of their liquidity to complete business transactions. Rather than borrowing for those transactions, they're using their cash. Also, some accounts that were a little bit more sensitive to market rates and moved some money into treasuries. That accounts for the vast majority of our shift in deposits in the second quarter. That's all the comments that I have on the financial statements, and I think we will open it up for questions at this time.
Thank you. Ladies and gentlemen, we will now begin our question-and-answer session. To ask a question, please press star then one on your telephone keypad now. To withdraw your question, please press star then two. If you are using a speakerphone, please pick up your handset before pressing the keys. Our first question comes from Brendan Nosal from Piper Sandler. Brendan, your line is open.
Hey, good morning, folks. How are you?
Good morning, Brendan.
Good morning.
I guess first, congratulations on the credit cleanup in this quarter. It was certainly nice to see. Maybe to start off on the growth side of things, maybe, you know, based on your prepared comments, you know, definitely some continuing factors with strong pipelines, but higher anticipated payoffs as we move through the year of that $100 million. Can you help me just kind of tie that together to what you're still expecting for loan growth through the balance of the year?
That's really kind of hard to say, but I'll give it a shot. We have picked up a couple of other nice construction projects and large ones. That's going to replace the items that I talked about in terms of the payoff that happened in the month of July, and another one that is a condo project that will get paid off as those units are sold. Those are all scheduled to be closed, the vast majority of those by the end of this year. I think we have some construction projects that are right behind the ones that are paying off. You know, we should catch that up. That'll probably take maybe a year to do that.
In the meantime, we're working on, literally I got a list here of, our weekly pipeline report of things that we're working on, and there's probably over 40 names that we're chasing that, we're having significant conversations with. I would not anticipate a double-digit loan growth by the end of the year, but, that's just my opinion. I have nothing in front of me that says that we'll have that or don't have that. I don't know if that helps or
Yeah. It certainly does. Thank you. So you're saying that you don't think you'll achieve double digits, and that's for the full year, correct?
That's for the full year based on what I know today.
Perfect. That's helpful. All right, good. Maybe moving on to the funding side here. Kind of I get the deposit dynamics that you guys highlighted during the prepared remarks, and hear you loud and clear that you're in deposit gathering mode. But just kind of help me understand the potential for additional deposit outflows as you look at things today. Will that pressure wane, or do you think that dynamic will continue as rates move higher?
I think with that, what we saw in the second quarter was a little bit. You know, it was kind of a timing thing. That's when the Fed started moving rates, so we had some people that moved kind of quickly to alternative investments. That's. I haven't seen that the last few months. That would've been early in the second quarter. Certainly, you know, the significant customer that had the significant transaction and using cash for that, you know, good for them for having the ability to do that. It's just, it's part of our deposit management process to manage those flows. I'm not seeing at this point in time any other large things like that happening. We certainly know that, you know, the Fed just moved another 75 basis points.
They're expected, you know, to maybe move another 100 basis points this year, and that certainly, you know, customers are certainly monitoring that as closely as we are. It's hard to predict what the flows are gonna do, but what's happened in the last couple of months has been pretty stable.
Okay. That's fantastic. That's some helpful color. Let's see. Maybe turning to deposit pricing. Interest-bearing deposit costs were up 18 basis points quarter-over-quarter. I guess that kind of feels like it's a beta of, you know, 25%-30-ish% so far, averages what Fed Funds did this quarter. I mean, can you update us on your deposit beta assumptions through the cycle and then what you're seeing on kind of deposit pricing from the past couple of hikes?
Well, I think on deposit pricing, you know, what you just mentioned for betas is, you know, our betas might be a little bit higher than the industry in general. Certainly, you know, that's an ongoing management process for us in this environment of regular volatility, and you know, communication with our customers and what they're seeing in alternatives for their funds. I think, you know, the betas that you just mentioned are probably, you know, we'll continue to see those betas throughout the year, I think.
Okay. Good. Turning to the margin this quarter. I guess once you strip out PPP, the result was quite nice actually. It looks like kind of a remixing of the earning asset base really drove a lot of expansion, you know, more loans and less cash and securities. I'm curious if there's any more remixing of the asset base that you intend to do at this point.
No. Nothing specific.
Okay. All right. Good. Maybe kind of your thoughts on the margin outlook as we move through the balance of the year in light of, you know, what the Fed has and will likely continue with short-term rates.
Yeah, the margin's really, you know, gonna be a function of managing deposits, the deposit betas, the deposit volumes that we can bring in a function of, you know, the local markets, competition and the local competition on the loan side also, not just the deposit side. I think, you know, we're a little bit more liability sensitive, so we're still expecting to see some pressure on margin. We did, you know, we issued sub-debt in middle of June. You know, that pricing really isn't reflective in our margin yet. It'll just be a factor of how we manage through, you know, loan generation and managing deposit betas.
Yeah. Understood. Okay. Let's see. Maybe on expenses, I guess core expenses were up about 5.5%-6% for the quarter, to $11.3 million. I mean, is that a run rate that you feel pretty good about for the remainder of the year, or is there the potential for some more upward pressure?
I would think the rest of the year would be pretty similar.
Okay. Perfect. Maybe finally on capital ratios. GAAP capital ratios, like many other banks, were impacted again by AOCI. But those, the reg ratios there are still quite healthy. Just any updated thoughts on kind of how you view the discrepancy with a thinner TCE ratio today, but still strong reg ratios?
Yeah. Our GAAP capital, you know, is right now. The biggest impact on that is the investment portfolio and the fair value adjustment on the investment portfolio. You know, that'll vary among institutions depending on, you know, whether they've got held-to-maturity securities, you know, what their level available-for-sale is. The comparability to other institutions gets a little bit clouded from stuff like that. You know, we continue to watch it, but we don't have any specific actions that we plan at this time to, you know, change our strategy.
Yeah. Yeah. Okay. Perfect. One final one from me before I step back here. Just on the tax rate, I know that there was, you know, the one-time expense this quarter related to the Iowa tax law change. Outside of the one-time expense, will there be any go-forward ramification on your effective tax rate?
Not that I'm aware of at this time.
Okay. All right. Perfect. All right. Well, thank you so much for taking my questions.
Thanks, Brendan Nosal.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. Ladies and gentlemen, it seems that we currently have no further questions. Therefore, I would like to hand back to Jane Funk for any closing remarks. Jane, over to you.
Yeah, thank you. Once again, we just wanna thank everybody for joining us and having an interest in our company this morning. We'll talk to y'all again next quarter. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for being with us today. Have a lovely day ahead. You may disconnect your lines now.