West Bancorporation

Thank you for standing by. At this time, I would like to welcome everyone to the West Bank Corporation Inc. First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. 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 Main 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, our CEO, Harley Olson, 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 rebrands for 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. 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 details. We had a very strong quarter and look forward to continue earnings growth. As the COVID era five-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, a quarter in March 31st of this year, our credit quality remains pristine, and we did not have a single loan pass through 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 20th payment date to shareholders of record as of May 6th. Those are the extent of my prepared remarks, and I would now turn the call over to our Chief Risk Officer, Mr. Harley Olson.

Thank you, Dave. For the quarter end, March 31st, 26, credit quality is very strong. As Dave mentioned, we have no past dues over 30 days, no OREO, no amount accruals, 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 business is 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 few 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, Harley. Where the quarter ended, our loan portfolio was flat compared to the year end, 1231.25. At the end of the first quarter, we were at $3 billion and outstanding. We continue to experience notable loan payoffs as a result of secondary market refinancing 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. 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. The positive 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 abilities 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 seven 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 and 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. So 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 the 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. Non-interest 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.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. And your first question comes from the line of Brendan Noble with Hug the Group. Please go ahead.

Hey, good afternoon, everybody. Hope you're doing well.

Hi, Brendan.

We're 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.

Yeah, 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. We've been pivoting to loan growth. You know, I appreciate all the comments that you all made in the prep remarks. I'm just kind of curious, what do you think takes it to get loan demand in your markets higher and then translate that into, you know, your own near-term loan growth expectations?

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 them as customers, but we're backfilling those, and we have a very nice we have a very large prospect list that we're chasing with opportunities. So that's the balance. It's pretty hard to tell you when you 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.

All right. Just a little bit of additional color to that is that when rates were relatively high, like over a percent 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 have been ramped up and provided new dollars onto the loan balances while other projects got completed and then stabilized, and then the investor, the borrower is able to take it to non-recourse financing or sell. So there's a little bit of a gap area there that I think was just starting to see some signs of borrowers and developers starting to fill in that gap again with new projects.

All right. I appreciate the color on that topic. We'll be sticking with the theme of the balance sheet. Just on capital, the 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.

Yeah, I think, you know, capital is kind of something that's 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. We're just trying to manage what our expectations are for loan growth with our income and our retention of earnings. Nothing different than than the way you would manage it over a normal course of business.

When business picks up, our bankers are out busy. They're 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 to keep one more in here before I step back. Just turning to the net interest margin, a lot of nice margin expansion in this quarter. Can you just update us on the outlook for the NIN if this Fed is on hold here for the rest of the year?

Yeah. If the Fed rates don't change, we've still got, you know, a pretty fair amount of cash flow coming off the six-rate portfolio that will mature soon. in 2026 and 2027 that are, you know, at rates that are, you know, still in the fours, some in the threes. 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, you know, 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.

Okay. Perfect. All right. Well, thank you for taking my questions, everyone. Appreciate it. Thank you.

Again, if you would like to ask a question, press star 1 on your telephone keypad. And your next question comes from the line of Nathan Rice with Hyper Sandler. Please go ahead.

Hi, everyone. Good afternoon. Hope you're all doing well.

Hey, Nathan.

Just going back to the margin discussion, Janice, 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, you know, assuming that that's on pause and just based on that February pricing. I'm sorry, that fixed rate of low rate pricing that you had 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, you know, 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, you know, at a blended rate, maybe below 4%. So that's where we're getting, you know, our confidence in the net interest margin improving, but we don't have a specific number of targets.

Gotcha. Okay. And then just going back to some of the balance sheet dynamics, I appreciate, you know, 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, you know, is the expectation that, you know, you'll have some excess equity that you can fund out loan growth? Or do you think kind of deposit growth can keep up with kind of the pace of loan growth that you will? progresses?

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

Gotcha. Okay, great. And then one last one, you know, expenses are really well managed in the corridor as they typically are with you guys. And I'm just curious if, you know, 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, you know, de novo plans that are to add some additional commercial bankers, particularly in Minnesota, in light of the M&A-related disruption there that, you know, could cause, you know, some expenses to be front-loaded as you're maybe investing for growth?

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

Yeah, 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.

Gotcha. And, Brad, if I could just take one more for you. You know, I'm just curious, you know, if 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, you know, some of these opportunities could – present in terms of bringing over clients or potentially some relationship managers? You know, is this like a one-year, you know, process? Or do you think it's going to, you know, unfold over the next maybe two or three years?

Oh, I think it's several years. I mean, just looking at sales cycles, you know, 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.

Okay, great. Well, I appreciate all the color. Thanks, everyone.

Thank you. There are no further questions at this time. I'll 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.