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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. 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 Bancorporation, 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, 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 31st, 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 detail. We had a very strong quarter and look forward to continued 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, at quarter end, March 31st 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 declare 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. Harlee Olafson.

Thank you, Dave. For the quarter ended March 31st, 2026, credit quality is very strong. As Dave mentioned, we have no past dues over 30 days, no OREO, no non-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 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 tests 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 two 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 12/31/2025. 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 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 restructurings 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. 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 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 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 culling 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.

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 experience through our customers' normal cash flow fluctuations, a little bit of seasonality there. That's the primary driver of the deposit fluctuations. We've talked about the loan portfolio already. 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. Your first question comes from the line of Brendan Nosal with Hovde Group. Please go ahead.

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

Hi, Brendan.

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. Still a fair amount that's still sitting there.

Okay. That's helpful. Maybe pivoting to loan growth. Appreciate all the comments that you all made in the prep 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 markets. We still have them as customers. We're backfilling those, and we have a very large prospect list that we're chasing and with opportunities. 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. 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. What has happened during that period of time is that new construction projects haven't ramped up and provided new dollars onto the loan balances, while other projects got completed and then stabilized, and then the investor borrower is able to take it to non-recourse financing or sell. 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.

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

I'd just add, when business picks up, our bankers are out busy. They are out busy talking to folks. 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?

Yeah. If the Fed rates don't change, we've still got 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 fours, some in the threes. 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 a 2% or sub 2% rate that that's rolling off of. 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. I appreciate it.

Thank you.

Again, if you would like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Nathan Race with Piper Sandler. Please go ahead.

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

Hey, Nathan.

Just going back to the margin discussion, Jane, I was wondering if you could maybe help just kind of triangulate where maybe the margin could shake out over the next few quarters, assuming the Fed's on pause and just based on that Fed repricing. I'm sorry, that fixed rate loan repricing that you had mentioned. Are we talking something in like the 2.70% range, or do you think that's too aggressive at this point?

Well, I would say that over the next 12 months, we've probably got between loans and investments that'll 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%. That's where we're getting our confidence in the net interest margin improving. We don't have a specific number or target.

Got you. Okay. Just going back to some of the balance sheet dynamics. I appreciate the cash flow coming off the bottom book in terms of what the yield pickup could be there. Just curious, as you're thinking about 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 deposit growth can keep up with the pace of loan growth that will hopefully develop as 2026 progresses?

Yeah. 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, the short-term liquidity is really for that anticipation of loan activity, so.

Got you. Okay, great. One last one. Expenses were really well managed in the quarter as they typically are with you guys. Just curious if you're still budgeting for similar expense growth than what we saw last year in that 4%-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 really disruption there that could cause some expenses to be front-loaded as you're maybe investing for growth.

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

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

Got you. 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. 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 one-year process, or do you think it's going to unfold over the next maybe two or three years?

Oh, I think it's several years. 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. I see that continuing, and I think the ramp up, 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.

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.