West Bancorporation

Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I'd like to welcome you to the West Band Corporation Inc. Q4 2025 earnings conference call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at that time, please press star, then the number one on your telephone keypad to enter the queue. If you'd like to withdraw your question at any time, simply press star 1 again. 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 Bank Corporation, 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, Harley Oleson, 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 31st, 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 25-cent dividend payable February 25th to shareholders of record as of February 11th. Those are the extent of my prepared remarks. I'd now like to turn the call over to Mr. Harley Oleson.

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 non-accruals. We have no substandard loans. Our watch list has increased but our watch list to 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 was well secured and we believe the business 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, Harley. For the quarter ended 1231.25, 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 zero 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 timeline of eight 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've been successful in winning the retail deposits of our business owners, key executives and employees. We're 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 they've mentioned, in the fourth quarter, we sold $64 million of securities available for sale and realized a pre-tax net loss of $4 million. We believe this transaction improves the flexibility of our balance sheet. Proceeds may be used for strategic improvement and 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 were set up for a strong 2026. Net interest income continued to improve for 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 poor 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.

Thank you. We will now begin the question and answer session. Again, if you'd like to ask a question, please press star, then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, simply press star 1 again. We'll pause just for a moment to compile the roster. Your first question comes from Nathan Race with Piper Sandler. Your line is open.

Yes, good afternoon, everyone. Thanks for taking the questions. Hope we're all doing well.

Thanks, Nathan.

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 we'll just be curious to get a sense for the loan pipelines and heading into this year. I know Brad mentioned there's a lot of opportunities going on around the Twin Cities and south of there across the locations in those . So we'll just .

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

Nate, this is Brad Peters. You know, 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 Burma merger, but we've also seen some opportunities with the LRS 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? Yeah, for...

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

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

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

Yeah, we look at it on a regular basis. I think, you know, part of that depends on, you know, kind of our liquidity and our needs for that cash. Where else can we deploy it? You know, 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, you know, it seems like you guys still have, you know, 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.

Yeah, I would say, you know, right now, kind of for 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.

Okay, great. I appreciate all the color. Thank you.

Thank you.

Again, if you'd like to ask a question, please press star, then the number one on your telephone keypad. 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.