West Bancorporation

Ladies and gentlemen, thank you for standing by. My name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to West Bank Corporation second 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 at that time, please press star then the number one on your telephone keypad. If you'd like to withdraw your question, again, press star 1. Thank you. 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 Bank Corporation, Inc. 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.

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 the others will make more detailed comments. We have 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%. 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 26 cents per common share, payable on August 19th to shareholders of record as of August 5th. 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 non-accruals. 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 safe 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 non-recourse 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'll 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. The 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 seven 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, and we'll 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 six months of 2025. Net interest income continues to improve through improvement in our net interest margins. 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 two 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. Non-interest expenses remain well controlled with 2% increase from the second quarter of last year. And year-to-date, non-interest expenses are up 2.6% compared to the first half of 2025. And there were no unusual items recorded this quarter in non-interest income or non-interest expenses. Those are the end of our prepared comments, so we'll open it up for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, again, press star 1. Your first question comes from Brendan Nossel with Fuzzy Group. Please go ahead.

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

Hi, Brendan. Hi.

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

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

I'll just 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 people that are involved with building new properties, new development properties, are very cautious because of the perceived interest 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 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, as well as I do. But I think we have the most right now Strong, CNI, decent, nice, large business prospects that 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.

Yeah, that's helpful, Collin. turning to loan growth. A bit of an odd quarter with average loans up for the past three months, but spot balance is down. Maybe kind of speak to underlying loan demand and when you think you'll start seeing period and 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 non-recourse financing in the first six months of this year. We're peddling pretty hard on the production side, but a lot of those properties that moved on Thank you for joining us.

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? There will be a lot of cleanup on special mention, but then also a bit of migration into substandards. I'm 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. Two that were on our lossless wheat belt had some deterioration. It's really only two credits. Both are well secured and are in the process of working through some things. Again, they're situations where we're not concerned with losses on those credits, but they're having cash flow difficulties.

All right, fantastic. Thank you for taking my questions.

If you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from Nathan Race with Piper Sandler. Please go ahead.

Hi, everyone. Good afternoon. Thanks for taking the questions. Hey, Nathan. Yeah, 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. You know, it's 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, you know, two quarters that would reprice higher and by what degree as well in terms of the yield increase.

Yeah, we've got... 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 we'll reprice over the next 12 months, and those are in the low to mid-fours for a weighted average rate.

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.

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

Yeah, I think that's a fair analysis. That's kind of how we're looking at it, knowing that we've got some Some repricing benefit on the fixed rate loan side. You know, 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, you know, the funding side, but certainly we'll have a benefit of repricing on the asset side.

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

Yeah, 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. You know, the Harley 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, you know, treasury rates. But, you know, we're going to see a little more of that. You know, 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, it's very soon the tax rate comes down a little bit. It's almost around the last half of the course, but a little higher in 2Q.

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

And actually one last one for you, Jane, just on the expense outlook. You guys are doing a great job of controlling what you 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 that could drive some upward pressure relative to what we saw in the first couple of cores of this year.

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

Okay, great. I appreciate all the thought. I think we've got some great quarters.

Thanks, Dave. Our next question comes from the line of Paul DeShaw, who's a private investor. Please go ahead.

There appears 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. 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 doesn't appear there's a different approach being taken or is underway through their various focus groups, etc., etc., and my personal opinion would be very, very positive, and I'm curious what your input would be on that as well, as well as what I was talking to.

I think one of the things, and I don't know if this will address what from our perspective is, 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.