West Bancorporation, Inc. Aktie

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to West Bancorporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Jane Funk, CFO. Please go ahead.

Thank you. Good afternoon, everyone. I'm Jane Funk, the CFO of West Bancorporation, Inc., and I'd like to welcome the participants on our call today, and thank you for joining us. With me today are Dave Nelson, our CEO; Harlee Olafson, Chief Risk Officer; Todd Mather, our Central Iowa Market President; and Brad Peters, our Minnesota Group President. 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 Act of 1995 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 2026 second quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is accurate as of June 30, 2026, and we undertake no duty to update the information.

With that, I'll turn it over to Dave Nelson.

Well, thank you, Jane, and good afternoon, everyone. Thank you all for joining us. We have a lot of good news to share. I have a few general comments, and others will make more detailed comments. We had another very strong quarter. Year-over-year net income increased 37%, and we announced an increased dividend, which is now at the highest level ever in our history. All financial metrics are strong. 2026 year-to-date return on average equity is a little over 16%.

We have a strong balance sheet with higher levels of liquidity and capital, and credit quality remains pristine with zero loans past due 30 days. Our Board of Directors has approved an increase to our quarterly dividend to $0.26 per common share payable on August 19 to shareholders of record as of August 5. I'll be available for questions, following the comments of others.

But now I'd like to turn the call over to our Chief Risk Officer, Mr. Harlee Olafson.

Thank you, Dave. As of June 30, 2026, credit quality is very strong at West Bank. As Dave mentioned, we have zero past dues over 38 days, no OREO, no nonaccruals. Our watch list has declined 50% from March 31, '26 and is currently 0.7% of our loan balance. All banks have customers that go through challenging times. Our bankers have done a good job recognizing when problems are likely to occur. We aggressively take action to augment those credits to keep them as a safe asset or have them obtain financing elsewhere or if it is in the best interest of all to sell the business or assets.

Many of our creditworthy customers have been cautious when looking at new development opportunities. Due to this, our commercial real estate development loans have declined. Some have gone to nonrecourse lenders, and some have sold. Our commercial real estate portfolio is seasoned, strong and continues to perform as expected. We are diversified by both size and location. Strong underwriting and having customers with strong cash flow and liquidity keep us strong. After all prepared remarks, I'm available for questions.

Now I turn it over to Todd Mather, our Des Moines Area Market President.

Thank you, Harlee. For the quarter ended 6/30/2026, our average loan outstandings increased slightly compared to the first quarter. We did experience a few larger payoffs from asset sales and customers refinancing specific assets into the secondary market. We did not lose any customers. The majority of those assets were priced below the current rate environment. Deposit gathering efforts continue to be an emphasis, and we have been successful in attracting new depositors. Our bankers continue to proactively prospect new opportunities, and our pipeline of new business has seen an uptick during the quarter as a result of our disciplined and consistent approach. We are confident in our abilities to create and maintain positive relationships with customers and prospects that we are pursuing in a highly competitive market.

I will now turn it over to Brad Peters, our Minnesota Group President.

Thanks, Todd. Good afternoon, everyone. I'm going to provide you a brief update on our Minnesota banks. Our expansion into Minnesota began with our first full-service bank in Rochester opening in 2016. We grew our presence in Minnesota by expanding into St. Cloud, Mankato and Owatonna in 2019. All of our locations are located in strong, vibrant regional centers with diverse businesses driving their respective economies. Although it has been over 7 years since our recent expansion, we are still relatively new to the marketplace and continue to introduce West Bank to our communities. Our relationship-based model with a business banking focus has allowed us to grow while maintaining a small number of employees.

We also strategically invested in unique facilities, offering our teams the opportunity to entertain and engage in quality conversations with our clients and prospects. Our markets have benefited from the national banks abandoning any local presence, and we continue to capture new business due to this. The disruption in our markets due to recent M&A activity also has provided ample targets to pursue. Our disciplined calling approach has driven results.

Our business banking focus and our seasoned group of bankers set us apart from the competition. We are also capturing the personal accounts of our business owners and key executives, along with high-value retail deposit opportunities in our communities. We expect to see continued core deposit growth and are also well positioned to grow our business banking market share as the economy improves. Those are the end of my comments.

I will now turn the call back over to Jane.

Thanks, Brad. Net income was $11.1 million for the second quarter compared to $8 million in the second quarter of 2025, representing a 39% increase in net income. As Dave mentioned, year-to-date, our net income is 37% higher than the first 6 months of 2025. Net interest income continues to improve through improvement in our net interest margin. Net interest income increased $4.1 million or 19% compared to second quarter of last year, and our margin has increased 10 basis points compared to the previous quarter and 42 basis points compared to the second quarter of last year.

The cost of deposits declined 2 basis points compared to the previous quarter and 46 basis points compared to the second quarter of last year. As described earlier, credit quality remains pristine and no provision for credit losses was recorded this quarter. Noninterest expenses remain well controlled with a 2% increase from the second quarter of last year. And year-to-date, noninterest expenses were up 2.6% compared to the first half of 2025. And there were no unusual items recorded this quarter in noninterest income or noninterest expenses.

Those are the end of our prepared comments, so we'll open it up for questions.

[Operator Instructions] Your first question comes from Brendan Nosal with Hovde Group.

Maybe just to start off here, can you walk us through the competitive environment for both loans and core deposits and how that has evolved over the course of the year?

Well, in Minnesota, I can say that the deposit competition is fierce. I mean that from all banks, we see pressure on transactional accounts, money market accounts and CDs. So I think, as I said, our advantage is we've got seasoned bankers with relationship building skills, and that certainly helps us, but it is fiercely competitive.

I'll just add up on the competition in regard to the lending side or the total relationship side of the business, I think we're doing quite well on that. You probably noticed from a year ago or so, our real estate that was in the construction side or development side of the business was still at a fairly high level. As I mentioned earlier, a lot of the people that are involved with building new properties, new development properties are very cautious because of the perceived interest rate -- the rates that they would have to obtain to make their properties cash flow.

And if there isn't a good margin in that, they're passing on that for the time being. I think a lot of people had anticipated perhaps some falling of interest rates through this year. And as we've seen, that hasn't really occurred. A lot of reasons for that, that you know as well as I do. But I think we have the most right now, strong C&I, decent, nice large business prospects that are really close to -- we're really close to landing. So I think our approach is still good. It's just a function of what's really available in the market. I hope that answers your question.

Yes, that's helpful color. Maybe turning to loan growth, a bit of an odd quarter with average loans up for the past 3 months, but spot balances down. Maybe just kind of speak to underlying loan demand and when you think you'll start seeing period-end loans start to grow again?

We are booking a fair amount of new credit, but we've had over $200 million in developed properties that have either been sold to other investors or have gone to nonrecourse financing in the first 6 months of this year. And that -- so we're pedaling pretty hard on the production side, but a lot of those properties that moved on, you're just catching up with that. I think with what we have in the pipeline, we will start to -- that trend will start to move in the other direction. I'm not exactly sure if it will come a lot this quarter or the next quarter, but we do see some very good things on the horizon.

Okay. All right. That's helpful. Maybe one more for me before I step back. Can you walk us through the criticized asset migration for the quarter? Clearly, a lot of cleanup on special mention, but then also a bit of migration into substandard. So kind of curious what you resolved and then the state of what you downgraded for the quarter.

Sure. Well, we resolved a fairly large credit that came off our watch list. One that was -- 2 that were on our watch list, we felt had some deterioration. It's really only 2 credits. Both are well secured and are in the process of working through some things. again, there are situations where we're not concerned with losses on those credits, but they are having cash flow difficulties.

[Operator Instructions] Your next question comes from Nathan Race with Piper Sandler.

I was wondering if you could kind of help us on the update in terms of what you have repricing on the loan side of things. It was nice to see loan yields continue to increase in the quarter and help the margin. And just curious what you have remaining over the next few quarters that would reprice higher and by what degree as well in terms of the yield increase?

Yes. We've got -- it will -- there'll be a little bit of a slowdown in the second half of the year. But over the next 12 months, we've got probably about $600 million that will reprice over the next 12 months. And those are in the low to mid-4s for a weighted average rate.

Okay. And if I heard you right, Jane, it sounds like that's more weighted to the first half of next year than the back half of this year, correct?

Yes. Yes.

Got you. And I appreciate the earlier comments around just intense deposit pricing competition. But is it fair to assume, Jane, that the margin can continue to grind higher just with those repricing tailwinds, maybe not to the same magnitude as we saw in 2Q, but nonetheless an upward bias to the margin.

Yes. I think that's a fair analysis. That's kind of how we're looking at it, knowing that we've got some repricing benefit on the fixed rate loan side. You see our deposit costs only changed a couple of basis points this quarter. As we mentioned, there's the competition, pricing competition seems to be increasing right now. So we don't really see much relief on the funding side, but certainly, we'll have benefit of repricing on the asset side.

Understood. And then is there any visibility into just kind of the magnitude of payoffs that we can expect over the next couple of quarters? It sounds like it's been quite pronounced for various reasons over the last handful of quarters. But any sense for if we're nearing kind of an inflection point where payoffs will start to moderate relative to what we've seen somewhat recently?

Yes. This is Todd. I think we talk to our customers quite frequently about things that they're going to sell or things that they're going to go into the second market. To Harlee's earlier comment, we still have more of those coming. I expect most of that will probably happen in the third quarter depending upon what happens to treasury rates, but we're going to see a little more of that. We've got a lot of good things in the pipeline to offset it. But I'd expect that to slow after the third quarter.

Okay. Got it. Very helpful. And then just one more housekeeping question, Jane. Is it fair to assume the tax rate comes down a little bit. It's bounced around over the last handful of quarters, but it was a little higher in 2Q?

Yes, there isn't any specific items driving that. no significant changes in our tax structure. It's just the variability from quarter-to-quarter.

Okay. Got it. And actually, one last one for you, Jane. Just on the expense outlook. You guys are doing a great job of controlling what you can control from an expense growth perspective. Just any thoughts on how you see the second half run rate relative to the first half? And then just any major investments or projects that you guys are contemplating? I think in the past, we've talked about some updates on the core, but just curious if there's any other major technology or other areas around the expense base that could drive some upward pressure relative to what we saw in the first couple of quarters of this year?

Yes. I don't think -- I'm not foreseeing anything for the rest of this year that would have a significant expense impact. We're looking at some things that may have in 2027 and 2028. But for this year, there shouldn't be any large projects or anything that I can think of that would be impacting noninterest expense. So we're not expecting any significant fluctuations there.

Your next question comes from the line of Paul DeShaw, who's a private investor.

There appear to be some changes occurring at the Federal Reserve, particularly as it relates to their balance sheet. Any comments on how that may affect things down the road for the company?

Well, we're unsure about that, Paul. Do you mean in terms of the effect on the money supply?

Well, there appears to be maybe the interest rates, we should be more worried about keeping interest rates such that it increases the supply as opposed to curtailing the demand. It seems to be a major philosophical change as we go down the road. I'm just curious as to how you might view that if, in fact, that is correct.

Well, this is Dave speaking. And my opinion is that I'm anticipating some lower short-term interest rates, which will hopefully be somewhat of a catalyst to a bit of an expansion creating some loan demand. But I'm not sure if I'm addressing your question or not, but -- that would be my, I guess, both my hope and my prediction.

It's hypothetical. I'm just -- it does appear there's a different approach being taking or is underway through their various focus groups, et cetera, et cetera. And I would -- my personal opinion would be very, very positive, but I'm curious what your input would be on that is what it boils down to.

I think one of the things, and I don't know if this will address what from our perspective is that we've worked really hard here to try to get ourselves in a position where if rates go up or rates go down, we have ourselves in a balanced position to maintain our margins and continue to flourish in our markets.

And we have no further questions at this time. I will now turn the conference back over to Jane Funk for closing comments.

Thank you. Thanks, everyone, for joining us today, and thank you for your interest in our company. We'll talk to you next quarter.

And this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Thank you for standing by. At this time, I would like to welcome everyone to the West Bancorporation, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jane Funk, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon, everyone. I'm Jane Funk, the CFO of West Bancorporation, Inc. and I'd like to welcome the participants on our call today, and thank you for joining us. With me today are Dave Nelson, our CEO; Harlee Olafson, Chief Risk Officer; Brad Winterbottom, Bank President; and Brad Peters, our Minnesota Group President. I'll start out by reading our fair disclosure statement.

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 Act of 1995 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 2026 first quarter earnings release for more information about risks and uncertainties, which may affect us. The information we provide today is accurate as of March 31, 2026, and we undertake no duty to update the information. And with that, I'll turn it over to Dave Nelson.

Thank you, Jane. Welcome, everyone, and thank you for joining us this afternoon. I have a few general comments and then others will provide additional detail. We had a very strong quarter and look forward to continued earnings growth. As the COVID era 5-year duration assets reprice, our margin is expected to continue to improve. Our loan balances have been flat, but we have had growth in our deposits. When loan demand increases, we will definitely find it. We have several attractive credit opportunities in our pipeline. Once again, at quarter end, March 31 of this year, our credit quality remains pristine, and we did not have a single loan past due 30 days. West Bank continues to make investments in technology to better serve our customers and to create efficiencies in our operations. Our Board of Directors declared a $0.25 quarterly dividend with a May 20 payment date to shareholders of record as of May 6. Those are the extent of my prepared remarks, and I would now turn the call over to our Chief Risk Officer, Mr. Harlee Olafson.

Thank you, Dave. For the quarter end March 31, '26, credit quality is very strong. As Dave mentioned, we had no past dues over 30 days, no OREO, no nonaccruals, no substandard loans. Our watch list is down 20% from year-end and is at a very low 1.4% of total loans. 90% of our watch list is related to the trucking industry. The trucking industry continues to suffer through low freight, excess capacity and high price of diesel. The industry has a history of going through cyclical times. Our portfolio is well secured, and we believe the businesses in our portfolio are making good decisions to remain viable. We expect resolution of a large credit within that group before the end of the second quarter. Our commercial real estate portfolio continues to perform very well. We are diversified in both the type of commercial real estate we have and by location.

Our stress test continues to show lower loan to values and good strong cash flow on a majority of the credit. Our commitment to strong underwriting is the foundation of our credit quality. Customer relationships with multiple sources of repayment and liquidity are sought after. Our credit pipeline consists of numerous strong relationships and the total pipeline volume has increased substantially in the last 2 months. Our portfolio is strong because we have chosen good customers that have the financial characteristics that align with our underwriting. After all prepared remarks, I'm available for questions. I now turn it over to Brad Winterbottom, our Bank President.

Thanks, Harlee. For the quarter ended, our loan portfolio was flat compared to the year-end 12/31/25. At the end of the first quarter, we were at $3 billion in outstandings. We continue to experience notable loan payoffs as a result of secondary market refinancings and asset sales. The change in loan mix primarily due to reclassifications resulting from completed construction projects moving to permanent financing and commercial loan restructuring adding real estate as collateral. As we enter the second quarter, this trend will continue. However, we continue to backfill these payoffs with new opportunities at better interest rates.

And we are not losing customers. Rather, they are restructuring their asset portfolios with longer-term interest rates through the secondary markets. We still believe the new activity is mild due to economic and political issues we face, but we are still finding new and good opportunities due to our calling activities. Deposit gathering sales efforts continue to be an emphasis in the markets we serve, a very competitive market today. We remain selective in obtaining new loan opportunities, looking for relationships versus transactional or participation opportunities. We remain confident in our ability to create and maintain positive relationships with our customers and prospects that we are pursuing in this highly competitive markets we serve. That ends my comments. I would now like to turn it over to Brad Peters.

Thanks, Brad. Good afternoon, everyone. I'm going to provide you a brief update on our Minnesota banks. Our expansion into Minnesota began with our full-service bank in Rochester opening in 2016. We added the St. Cloud, Mankato and Owatonna markets early in 2019 with our final building being completed last year in Owatonna. Although it has been over 7 years since our expansion, we are still relatively new to the marketplace and continue to introduce West Bank to our communities. Our relationship-based model with a business banking focus has allowed us to efficiently grow while maintaining a small number of employees.

We also have strategically invested in unique facilities, offering our teams the opportunity to entertain and engage in quality conversations with our clients and prospects. The disruption in our markets due to the recent M&A activity has provided ample targets to pursue. Our disciplined calling approach has driven results. Our business banking focus and our seasoned group of bankers set us apart from the competition. We are also capturing the personal business of our business owners and key executives, along with high-value retail deposit opportunities in our communities. We expect to see continued core deposit and loan growth and are well positioned to grow our business banking market share as the economy improves. Those are the end of my comments. I will now turn the call back over to Jane.

Thanks, Brad. Just a couple of comments about the financial performance, and then we'll open it up for questions. Our net income for the quarter was $10.6 million compared to $7.8 million in the first quarter of 2025, representing a 35% increase in net income. Net interest income continues to improve through improvement in our net interest margin. Net interest income increased $3.5 million or 17% compared to first quarter of last year. Our margin has increased 12 basis points compared to the previous quarter and 31 basis points compared to the first quarter of last year. Cost of deposits has declined 14 basis points compared to the previous quarter and 40 basis points compared to the first quarter of last year.

As described earlier, credit quality remains pristine, and there was no provision for credit losses recorded this quarter. Noninterest expenses remained well controlled with a 3% increase from first quarter of last year and no unusual items to identify in this quarter. Our core deposit balances were down a little bit this quarter compared to year-end, primarily as a result of just normal fluctuations that we experienced through our customers' normal cash flow fluctuations. So a little bit of seasonality there. So that's the primary driver of the deposit fluctuations. And we've talked about the loan portfolio already. So those are the completion of our comments, and we would open it up for questions.

[Operator Instructions] And your first question comes from the line of Brendan Nosal with Hovde Group.

Just starting off here on funding, specifically that municipal depositor from last year that put $243 million of bond proceeds on your balance sheet. Just kind of curious where those outstanding balances sit today.

Yes. There's probably 75% remaining, I think, in our deposits on the balance sheet, somewhere around 75% of that. So still a fair amount that's still sitting there.

Okay. Okay. That's helpful. Maybe pivoting to loan growth. I appreciate all the comments that you all made in the prepared remarks. Just kind of curious, what do you think takes it to get loan demand in your markets higher and then translate that into your own near-term loan growth expectations?

Well, I would say that we've had a very active new business opportunity, but we've had a lot of customers, and it's going to continue into the second quarter that we have some loan payoffs, and they are coming because they're moving them to the secondary market. We still have in those customers. So we're backfilling those, and we have a very nice -- we have a very large prospect list that we're chasing with opportunities. And so that's the balance. It's pretty hard to tell you when we think that that's going to stop and we're going to grow the portfolio. But we've been adding new assets to our loan portfolio.

I think just a little bit of additional color to that is that when rates were relatively high, like over 1% higher than they are right now, new construction projects for different types of property came close to a standstill. So what has happened during that period of time is that new construction projects haven't ramped up and provided new dollars on to the loan balances, while other projects got completed and then stabilized and then the investor borrower is able to take it to nonrecourse financing or sell. So there is a little bit of a gap area there that I think is starting to see some signs of borrowers and developers starting to fill in that gap again with new projects.

Okay. All right. I appreciate the color on that topic. Maybe sticking with the theme of the balance sheet. Just on capital ratio saw a nice bump this quarter as the balance sheet contracted a little bit. Just kind of curious for your updated thoughts on how you think about capital needs versus deployment opportunities over the course of the year.

Yes. I think capital is kind of something that you're always talking about and always planning for. I think our earnings improvement in 2025 and the continuation of that earnings improvement will help us with our capital as we have a little bit of lag in loan growth. So we're just trying to manage what our expectations are for loan growth with our income and our retention of earnings. So nothing different than the way you would manage it over a normal course of business.

And I'd just add, when business picks up, our bankers are out busy. They are out busy talking to folks. And so when the new opportunities come, we're going to be in the front row.

Perfect. I'm going to try and sneak one more in here before I step back. Just turning to the net interest margin, a lot of nice margin expansion this quarter. Can you just update us on the outlook for the NIM if the Fed is on hold here for the rest of the year?

Yes. If the Fed rates don't change, we've still got a pretty fair amount of cash flow coming off the fixed rate portfolio that will mature in 2026 and 2027 that are at rates that are still in the 4s, some in the 3s. So we've got a fair amount of opportunity with asset repricing. We'll have about -- I think it's projected about $38 million rolling off of the investment portfolio over the next 12 months, and that's 2% or sub-2% rate that that's rolling off of. So we believe if rates are steady and deposit and funding costs are steady, we've got plenty of opportunity on the asset side in repricing to improve margin.

[Operator Instructions] And your next question comes from the line of Nathan Race with Piper Sandler.

Just going back to the margin discussion, Jane, I wonder if you could maybe help just kind of triangulate kind of where maybe the margin could shake out over the next few quarters, assuming the Fed on pause and just based on that repricing -- I'm sorry, the fixed rate loan repricing that you mentioned. I mean, are we talking something in like the 270 range? Or do you think that's too aggressive at this point?

Well, I would say that over -- over the next 12 months, we've probably got between loans and investments that will be repricing, there's probably $250 million, somewhere around there that will be repricing. And again, those are at a blended rate, maybe below 4%. So that's where we're getting our confidence in the net interest margin improving, but I have -- we don't have a specific number or target.

Got you. Okay. And then just going back to some of the balance sheet dynamics. I appreciate the cash flow coming off the bond book in terms of kind of what the yield pickup could be there. But just curious, as you're thinking about kind of hopefully some stronger loan growth coming through later this year as payoffs hopefully moderate. Is the expectation that you'll have some excess liquidity that you can fund that loan growth? Or do you think kind of deposit growth can keep up with kind of the pace of loan growth that you will -- that will hopefully develop as 2026 progresses?

Yes. We'll certainly allocate investment cash flows to the loan portfolio as needed. We haven't been purchasing securities the last few years. And so a lot of the liquidity that we're building as the short-term liquidity is really for that anticipation of loan activity.

Got you. Okay. Great. And then one last one. Expenses were really well managed in the quarter as they typically are with you guys. Just curious if you're still kind of budgeting for kind of similar expense growth than what we saw last year in that kind of 4% to 5% range or if there's any initiatives or any kind of de novo plans or opportunities to add some additional commercial bankers, particularly in Minnesota in light of the M&A-related disruption there that could cause some expenses to be front-loaded as you may be investing for growth?

Our expectation at this time is expense management will be kind of ordinary course of business, and we're not expecting any anomalies or additional items.

Yes. Nate, I would always -- I mean, we're always on the lookout for opportunities in the marketplace. And we know the individuals that we would like to potentially bring on board and those conversations are ongoing, but the timing of that is not, I would say, has not been established.

Got you. And Brad, if I could just sneak one more in for you. Just curious as you're on the ground there in those markets where there's that disruption going on, I mean, any sense or how long of a tail some of these opportunities could present in terms of bringing over clients or potentially some relationship managers? Is this like a 1-year process? Or do you think it's going to unfold over the next maybe 2 or 3 years?

I think it's several years. I mean just looking at sales cycles, all of this takes time. I think our focus now is to work to get in second place and position ourselves to win the business, and that's kind of what we've been doing all along. So I see that continuing. And I think the ramp-up, I mean, it's over a course of years.

There are no further questions at this time. I will now turn the call back over to Jane Funk for closing remarks.

All right. Thank you. We appreciate everyone's interest in our company today. Thank you for joining us, and have a good day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the West Bancorporation, Inc. Q4 2025 Earnings Conference Call. [Operator Instructions]

I will now turn the call over to Jane Funk, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon, everybody. I'm Jane Funk, the CFO at West Bancorporation, Inc., and I'd like to welcome the participants on our call today, and thank you for joining us. With me today are Dave Nelson, CEO; Harlee Olafson, Chief Risk Officer; Brad Winterbottom, Bank President; Brad Peters, Minnesota Group President; and Todd Mather, West Bank's Chief Credit Officer.

I'll begin by reading our fair disclosure statement. 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 Act of 1995 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 2025 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, 2025, and we undertake no duty to update the information.

With that, I'll turn it over to Dave Nelson.

Thank you, Jane. Good morning, and thank you, everyone, for joining us. We appreciate your interest in our company. I have a few general comments and then others will add more detail. We had a really good fourth quarter. And during the quarter, we executed a securities loss trade to better position ourselves for 2026. Jane will speak more to this, but despite the loss trade, net income on the year was up 35% over last year.

We also maintained a problem-free loan portfolio. Deposits are growing quite nicely. Margins are expanding with more of that to come. Loan growth is expected to pick up when the economic expansion begins. We are in a really good shape to grow and are looking forward to a special year. West Bank has declared a $0.25 dividend payable February 25 to shareholders of record as of February 11. Those are the extent of my prepared remarks.

I'd now like to turn the call over to Mr. Harlee Olafson.

Thank you, Dave. Good afternoon, everyone. For the year-end 2025, credit quality is very strong. We have no past dues over 30 days. We have no other real estate owned. We have no nonaccruals. We have no substandard loans. Our watch list has increased, but our watch list of total loans is still at a very low 1.7% of loans. 70% of our watch list is related to the trucking industry. The trucking industry has been suffering through low freight and excess capacity. The industry has a history of going through good times and bad times. Our portfolio is well secured, and we believe the businesses are making good decisions to remain viable.

Our commercial real estate portfolio continues to perform very well. We are diversified in both the type of commercial real estate we have and by location. Our commitment to strong underwriting is the foundation of our credit quality, customer relationships with multiple sources of repayment and liquidity are sought after. Our portfolio is strong because we have chosen good customers that have the financial characteristics that align with our underwriting.

After all prepared remarks, I'm available for questions. And now I'll turn it over to Todd Mather, our Banking Manager and Chief Credit Officer.

Thank you, Harlee. For the quarter ended 12/31/25, our loan outstandings were down slightly at just under $3 billion. We experienced a few larger payoffs from asset sales and refinance activity. The majority of those assets were priced below the current rate environment. We replaced those assets with quality new assets at better interest rates. Deposit gathering efforts continue to be an emphasis, and we have been successful in attracting new depositors. During the quarter, deposit balances increased just over $162 million with increases in core commercial and retail deposits.

We remain selective in obtaining new loan opportunities, and those opportunities are less than in prior years. We are confident in our abilities to create and maintain positive relationships with our customers and prospects that we are pursuing in a highly competitive market.

I will now turn it over to Brad Peters, our Minnesota Group President.

Thanks, Todd. Good afternoon, everyone. I'm going to provide you a brief update on our Minnesota banks. But first, I want to describe to you a history of where we started and how we have built our Minnesota regional center banks. Each of our locations started as a loan production office with 0 revenue, beginning with our Rochester Bank in 2013. We added the St. Cloud, Mankato and Owatonna locations in early 2019 with our lift-out strategy. Our bankers had existing relationships with business owners, key executives and community leaders. We built an efficient model using a small staff supplemented with community leaders as advisory board members. These leaders have been key in building our business through their endorsement and advocacy efforts.

Each market grew quickly with a time line of 8 months to achieve a positive run rate. We then constructed permanent single bank locations in each market that became full-service banks. These facilities are designed as a relationship building tool, hosting client and prospect entertaining events and high-quality one-on-one conversations. These unique facilities align perfectly with our strategy of building business based on strong relationships. Our team has embraced this and has done an outstanding job of leveraging our buildings to grow our business.

Today, we are seeking new business opportunities with the recent M&A activity from our competitors in our markets. Our bankers have specific activity plans that target high-quality prospects. Each market has been successful in attracting new business to West Bank. Our bankers are focusing on full relationships, including deposit-rich business banking opportunities. Our disciplined calling approach has enabled our team to have success in building this new business. Our business banking focus and our seasoned group of bankers set us apart from our competition.

As part of our relationship focus, we are also targeting high-value retail deposits. We have been successful in winning the retail deposits of our business owners, key executives and employees. We are also attracting new deposits from high-earning individuals in our communities.

Those are the end of my comments. I will now turn the call back over to Jane.

Thanks, Brad. I will make just a couple of financial comments, and then we'll open it up for questions. So net income was $7.4 million for the fourth quarter compared to $9.3 million in the third quarter of 2025 and $7.1 million in the fourth quarter of last year. Net income for 2025 was $32.6 million compared to $24.1 million in 2024. As Dave mentioned, in the fourth quarter, we sold $64 million of securities available for sale and realized a pretax net loss of $4 million. We believe this transaction improves the flexibility of our balance sheet. Proceeds may be used for strategic improvement in our long-term earnings profile through redeployment into higher earning assets or repayment of high-cost funding. Without incurring the loss of the security sale, our fourth quarter net income would have exceeded $10 million.

We are very pleased with the continuous improvement in core earnings and believe we are set up for a strong 2026. Net interest income continued to improve through improvement in our net interest margin. Margin increased 11 basis points compared to third quarter and 49 basis points compared to fourth quarter last year. The cost of deposits declined 28 basis points compared to third quarter and 64 basis points compared to fourth quarter last year. Core deposit balances, excluding brokered funds, increased approximately $212 million in the fourth quarter and $223 million for the year. We saw increases in all sectors, including retail, commercial and public fund deposits. We consider our public funds to be core deposits because of the relationships we have with those municipalities. As described earlier, the credit quality remains pristine and no provision for credit losses was recorded this quarter.

Those are the end of our comments, and we'll open it up for questions.

[Operator Instructions] Your first question comes from Nathan Race with Piper Sandler.

I was wondering if you could just kind of walk us through some of the loan growth dynamics in the quarter. It sounds like maybe payoffs were elevated. And I would just be curious to get a sense for how the loan pipeline stands heading into this year? I know Brad mentioned there's a lot of opportunities going on in around the twin cities and south of there across the locations in those geographies. So I would just love to get some more color along those lines.

This is Brad Winterbottom. We had one specific customer sell some medical office buildings, and that was north of $50 million in payoffs. We've had some other customers sell or refinance out into the secondary markets and multifamily, large multifamily. So we've -- that activity was very active in the fourth quarter. And I think we'll have a little bit more of that in the first quarter, but we've -- we're out trying to replace that volume.

Nate, this is Brad Peters. The other -- I mean, I mentioned the opportunities we've had with the M&A. We kind of see that as continuing into next year, even though that transition took place with the [ Bremer ] merger. But we've also seen some opportunities with the [ Aleris ] transaction as well. So I see that continuing into 2026.

Okay. Great. And then, Jane, can you just update us in terms of the amount of loans you have repricing over the balance of this year and kind of what the yield pickup could be [ on the fixed [indiscernible] side of things ]?

Yes. The fixed rate portfolio that reprices in 2026, I think it's just under $400 million. And the pickup is probably going to be around 1.5%, maybe 2% on those. So they're in the 4s. I think the average rate on that, what's maturing is in the low 4s.

Okay. Great. And then as you described, the deposit growth among core categories was quite pronounced in the quarter. Any seasonality there or any kind of unique flows? And just generally, are you expecting kind of continued mid-single-digit growth in terms of both loans and deposits this year?

Yes. I would say our outlook on deposits is a little bit uncertain at this point just because some of that growth comes from public funds. We've got some public entities that did some bonds, raised funds through bond offerings this year. We know that money is going to flow out in 2026. So whatever growth we can transact in retail and commercial might be offset by public funds, but that would just be normal public fund volatility.

Okay. Great. And then maybe just one last one. It seems that securities portfolio repositionings have been pretty well received among investors these days, and I think that's reflected in your stock today and among other banks that have executed securities portfolio repositionings lately. So just curious what the appetite and potential magnitude would be to execute additional kind of bite-sized repositionings over the course of 2026?

Yes. We look at it on a regular basis. I think part of that depends on kind of our liquidity and our needs for that cash, where else can we deploy it. So that's an ongoing evaluation that we do. So we don't have any set goal or plans for 2026, but we will continue to evaluate that.

Okay. Great. And then, Jane, if I could just sneak one more in, I apologize. Just any thoughts on kind of a good starting point for the margin, just given the timing of the repositioning in the quarter? And just it seems like you guys still have some opportunities to reduce deposit costs on the heels of the December rate cut. So just trying to put all the pieces that we discussed together in terms of margin starting point for the first quarter.

Yes. I would say right now, kind of for the December end of year, January, beginning of year, we're probably running around 2.5% margin. And we think that there's room certainly to improve that throughout the year without any changes in the rate environment.

[Operator Instructions] Thank you. I'm showing no further questions in queue. I'd like to turn the conference back over to Jane Funk for closing remarks.

We appreciate everybody's interest in our company that's on the call today and just want to thank you for joining us. Have a good day.

This concludes today's conference call. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Colby, and I will be your conference operator today. At this time, I would like to welcome you to the West Bancorporation, Inc. Q3 2025 Earnings Conference Call. [Operator Instructions]

I would like to turn the conference over to Jane Funk, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon. I'm Jane Funk, the CFO of West Bancorporation, Inc. and I'd like to welcome the participants on the call today, and thank you for joining us. With me today are Dave Nelson, our CEO; Harlee Olafson, Chief Risk Officer; Brad Peters, our Minnesota Group President; and Todd Mather, our Chief Credit Officer.

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 Act of 1995 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 2025 third quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is accurate as of September 30, 2025, and we undertake no duty to update the information.

With that, I'll turn it over to Dave Nelson.

Thank you, Jane, and good afternoon, everyone. Thank you for joining us, and thank you for your interest in our company. I have a few general comments, and then we'll turn the call over to others for more details.

West Banc had another solid quarter with a 16% earnings increase over the prior quarter and 55% increase over third quarter of last year. Our financial performance metrics continue to improve, primarily driven by an expanding margin. The future Fed rate cuts will also be favorable to our margin as well as loan renewal repricing is also helping our margin, and this will continue into enduring 2026.

West Banc credit quality continues to be very strong with essentially no problem loans or any 30-day past due loans. Yesterday, our Board declared a $0.25 per share quarterly dividend to common stockholders payable Wednesday, November 19, 2025, to shareholders of record as of Wednesday, November 5, 2025.

Those are my prepared remarks, and I would now turn the call over to Mr. Harlee Olafson, our Chief Risk Officer.

Thank you, Dave. My remarks are going to be pretty short because credit quality hasn't changed much here.

So credit quality at West Banc for the third quarter of 2025 remains very strong. We have no past dues, no OREO, no nonaccruals, no doubtful accounts and no substandard loans. We have a small watch list that is mainly in the transportation industry. These credits are well secured, but the entities are having cash flow issues. Our commercial real estate portfolio is well diversified and is performing as expected. Having strong customers with liquidity and strong cash flows has served us well. We remain committed to our past underwriting disciplines and expect credit quality to remain pristine.

After our prepared remarks, I'm available for questions. I now turn it over to Todd Mather, our Banking Manager and Chief Credit Officer.

Thank you, Harlee. For the quarter ended 9/30/25, our loan outstandings were up slightly at just over $3 billion. We experienced a few larger payoffs from asset sales and refinance activity. The majority of those assets were priced below the current environment. We replaced those assets with quality new assets at better interest rates. Our depositing gather efforts continue to be an emphasis, and we have been successful in attracting new customers and depositors.

We remain selective in obtaining new loan opportunities, and those opportunities are less than in prior years. We are confident in our abilities to create and maintain positive relationships with our customers and prospects that we are pursuing in a highly competitive market.

I will now turn it over to Brad Peters, our Minnesota Group President.

Thanks, Todd. Good afternoon, everyone. I'm going to provide a brief update on our Minnesota banks.

We continue to see a slowdown with the majority of our manufacturing clients. The economic uncertainty has created a cautious environment in each of our Minnesota regional centers. Our bankers have been diligent in staying close with our clients and have increased calling activities to better manage relationships. We are seeing new business opportunities with the recent M&A activity from competitors in our markets. Our bankers have targeted calling plans and each market has had success bringing new business to West Banc.

Our calling is focused on deposit-rich business banking opportunities. We have a disciplined calling approach that has enabled our team to be successful in attracting new business. Our seasoned group of bankers and our business banking focus set us apart from the competition.

We are also targeting high-value retail deposits. Our bankers have been successful in winning the retail deposits of our business owners and key executives. We are also attracting new deposits from high-earning individuals in our communities. We do not have specific production goals for our bankers, but rather measure our bankers on doing the right activities that will drive results.

This method of performance management is more difficult to manage, but our local leaders are fully engaged with our activity-based expectations, and we have established specific activity expectations, which we coach our bankers on consistently. This method has proven to be successful as we expand our market share in our communities.

Our facilities are designed to host client and prospect entertaining. These unique facilities align perfectly with our strategy of building business based on strong relationships. Our team has embraced this and have done an outstanding job of leveraging our buildings to grow our business.

Those are the end of my comments. I will now turn it back over to Jane.

Thanks, Brad. I'll make just a few comments on the financial performance for the quarter, and then we'll open it up for questions. So our loan balances increased approximately $43 million in the third quarter, but were relatively flat year-to-date. Core deposit balances decreased approximately $82 million in the third quarter. This decline was primarily due to normal and anticipated cash flow fluctuations in core public fund deposits.

Net income was $9.3 million in the third quarter compared to $8 million in the second quarter of 2025 and $6 million in the third quarter of last year. Net income and net interest income continued to improve through improvement in net interest margin, and our margin improved 9 basis points compared to last quarter.

The yield on the loan portfolio continues to improve as fixed rate assets reprice into higher yields. In the third quarter, loan yield was 5.66% compared to 5.59% in the second quarter and 5.52% in the first quarter of this year. The cost of deposits declined 2 basis points in the third quarter compared to second quarter.

As described earlier, credit quality remains pristine and no provision for credit losses was recorded this quarter. There were no significant onetime items in noninterest income or noninterest expense in the third quarter. And our effective tax rate this quarter was a bit lower than prior quarters this year due to a change in estimate on an energy-related investment tax credit. The effective tax rate was around 19% this quarter compared to 22% to 23% in the first 2 quarters of the year.

Those are my final comments on the financials. So now we'll open it up for questions.

[Operator Instructions] Your first question comes from the line of Nathan Race from Piper Sandler.

Maybe just to start in terms of where the pipeline stands from a loan growth perspective, nice growth in the quarter, nearly 6% annualized. So just be curious to get an update there. I know Brad indicated there are some opportunities to pull some market share in Minnesota, just given some of the M&A-related disruption there. So I would love to just get an update in terms of where pipelines stand and how you're thinking about growth over the balance of this year and then into 2026 as well, please?

Thanks, Nate. Yes, I would say in Minnesota, our pipeline is good, but it's not as robust as it has been in the past, and that's probably because we're really being more selective around what we're trying to attract from a credit perspective. But I think we can expect to continue to maintain the pace that we're at today.

Okay. So it sounds like mid-single digits is doable going forward?

I think so.

Okay. Great. And then, Jane, I think the $50 million municipal deposit that you flagged last quarter, it looked like that came out based on the end-of-period balances. So just curious, is the expectation that you guys can fund that mid-single-digit growth outlook with deposit gathering from here and maybe a little bit as welcome cash flow off the securities portfolio?

Yes, that would be the objective. As we look at the cash flows off the investment portfolio and our opportunities for deposit gathering, that would be our objective. There may be a little bit of wholesale funding or broker deposits that we need to backfill that for a short period of time, but we expect to be able to manage that cash flow.

Okay. Great. And Jane, it seems like you guys have still a decent amount of margin tailwinds at your back in terms of -- I believe you have around $550 million of fixed rate loans repricing over the next 12 months or so. And then if you could just update us on your deposit beta assumptions as we get additional Fed rate cuts going forward?

Yes. On the loan side, yes, we do still see a lot of repricing opportunities. So like in our fixed rate loan portfolio, the average -- weighted average rate of that portfolio is currently like 4.86%. So there's still plenty of room there. And what we look at for maturities and repricing into 2026, we feel there's good opportunity there to continue to improve the yield on the loan portfolio.

As far as deposit betas looking forward, I know that a year ago when the Fed did their rate changes, the rate declines, we were able to be pretty aggressive with our betas at that time on deposits. Should the Fed reduce rates another 25, 50 basis points this year and into next year, it's probably still questionable as to whether our betas can be as aggressive as they were a year ago. Just from a competitive standpoint, there's still a lot of pricing pressure on deposits. So I would expect it to maybe be a little bit lower than what we were able to do a year ago.

Okay. And Jane, maybe one last one for you. I appreciate the commentary on the tax rate impacts in the third quarter. Any thoughts on the go-forward tax rate?

I would say the go-forward tax rate is probably similar to what we had the first half of the year. In the third quarter, it's just the anomaly.

Okay. Got you. And then just curious if there's any update in terms of capital management or deployment priorities. You built capital at a pretty nice clip this quarter, and I imagine that should continue to unfold. But just curious if there's any kind of strategic priorities, whether it's additional location build-outs, adding team members to maybe accelerate the pace of organic growth. But I would just love to hear any updated thoughts on just how you're thinking about excess capital management.

We don't have any specific plans necessarily, but I think being able to take advantage of good loan opportunities, organic growth is really what we're looking for.

Okay. Great. Congrats on a great quarter.

Thank you.

[Operator Instructions] Your next question comes from the line of David Welch, private investor.

This is coming from a guy who grew up in Iowa and then has lived in Minnesota for 20 years. I know you're not a direct ag lender, but soybean prices, corn prices, I'm seeing an incredible amount of press about the distress in the farming community. Is that going to have a knock-off or knock-on effect to West Banc in your opinion?

Obviously , the dollars generated off of farm ground is going to be less. Our direct impact will -- it will have some impact on some of our customers, but most of our customers are not specific ag manufacturers. We have some customers that specifically provide pieces and parts to places like John Deere. But overall, we're a little bit insulated from that in our customer base.

Okay. That's kind of what I figured, but I thought I should ask. And it's been quite a few years now, and it might be a little unfair for me to ask it this way, but what's the medium-term assessment of how the Minnesota growth venture has gone thus far?

I think it's -- I mean, we never put together a specific projection, but I think I can say with confidence we've exceeded expectations to this point. Each of the markets have contributed to the bottom line, we continue to grow at a reasonable pace. I think at this point, company-wide, it accounts for about 1/3 of our company. So we're pleased.

There are no further questions at this time. I'd like to turn the call back over to Jane Funk for any closing remarks.

All right. We just want to thank everybody for joining us today, and we appreciate your interest in our company, and have a good day. Thank you.

This concludes today's conference call. You may now disconnect.