Q2 2025 West Bancorporation Inc Earnings Call
Unknown Shareholder: Good afternoon and thank you for standing by.
John: My name is John and I will be your conference operator today. At this time, I would like to welcome everyone to the West Bancorp Inc. Second Quarter 2025 Earnings Conference Call.
John: All lines have been placed in 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. To withdraw your question, simply press star one again.
Jane Funk: I would now like to turn the conference over to Jane Funk, CFO. Please go ahead.
Jane Funk: Thank you and good afternoon everyone. I'm Jane Funk, the CFO at West Bank Corporation, 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 Peters, Minnesota Group President, and Todd Mather, West Bank's Chief Credit Officer.
Good afternoon and thank you for standing by. My name is John and I will be your conference operator. Today at this time I would like to welcome everyone to the West Bank Corp Inc, second quarter 2025 earnings conference. Call all lives have been placed on mute to prevent any background noise. After the speaker's marks, 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 1 on your telephone keypad to withdraw your question, simply press star 1. Again, I would now like to turn the conference over to Jane Funk CFO. Please go ahead.
Thank you and good afternoon everyone. I'm Jane Funk the CFO at West Bank Corporation and I'd like to welcome the participants on our call today and thank you for joining us.
Jane Funk: I'll read 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 disclosures in our 2025 second quarter earnings release for more information about risks and uncertainties which may affect us.
Speaker Change: With me today are Dave Nelson. Our CEO Harley Olson, Chief risk officer Brad Peters, Minnesota group president and Todd Mather, West Bank's Chief credit officer.
Um I'll read 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
Jane Funk: The information we will provide today is accurate as of June 30, 2025, and we undertake no duty to update the information.
Our predictions and that actual results May differ materially. Please see the forward-looking statement disclosures in our 2025 second quarter earnings release for more information about risks and uncertainties, which may affect us
David Nelson: With that, I'll turn the call over to Dave Nelson for his remarks. Thank you, Jane, and good afternoon everyone. Thank you for joining us and thank you for your interest in our company. West Bank had another solid quarter, which was significantly better than second quarter of last year. First half earnings this year about 54% higher than last year's earnings. Our journey back to top performing metrics is continuing as forecast. Our focus has been on relationship building and deposit growth. We still have a fair amount of asset repricing to benefit from this year and also during 2026, which will continue to improve our margin in earnings.
Speaker Change: The information we will provide today is accurate as of June 30th 2025 and we undertake no duty to update the information with that. I'll turn uh the call over to Dave Nelson for his remarks. Thank you Jane. Good afternoon, everyone thank you for joining us and thank you for your interest in our company.
Speaker Change: Westbank had another solid quarter which was significantly better than second quarter of last year.
First half earnings this year are about 54% higher than last year's earnings.
Speaker Change: Oh, our journey. Back to top performing. Metrics is continuing as forecast?
David Nelson: We are gaining new relationships in all our markets and continue to have very strong asset quality.
Our Focus has been on relationship building and deposit growth. We still have a fair amount of asset repricing to benefit from this year and also during 2026 which will continue to improve our margin and earnings.
David Nelson: We have declared a 25 cent per share dividend payable August 20th to shareholders of record as of August 6th. Our stock is currently providing a yield in excess of 5%.
Speaker Change: We are gaining new relationships and all our markets and continue to have very strong asset quality.
Speaker Change: We have declared a 25 cent per share dividend. Payable August 20th to shareholders of record as of August 6th.
Harlee Olafson: Those are the end of my prepared remarks, but I will now turn the call over to our Chief Risk Officer, Mr. Harlee Olafson. Thank you, Dave. Credit quality continues to be very strong at West Bank. At quarter end, we had one small 30-day past due loan that is now current. We have a number of enviable zeros. We have zero other assets. We have zero other real estate. We have zero doubtful accounts. We have zero non accruals and we have zero substandard loans. Our watch list consists of four relationships, three are trucking related, all are well secured and current on their payments.
Speaker Change: Our stock is currently providing a yield in excess of 5%.
Those are the end of my prepared remarks but I will now turn the call over to our chief risk officer Mr. Harley Oleson
Thank you, Dave credit quality continues to be very strong at West Bank. At quarter end, we had 1 small 30-day pass, due loan that is now current
Harley Oleson: We have a number of enviable zeros, we have zero other assets. We have zero other real estate. We have zero doubtful accounts. We have zero non-accruals and we have zero substandard loans.
Our watch list consists of 4 relationships.
Harlee Olafson: The other watch list credit is a small non-profit that struggles with funding. There has not been a lot of new development that our markets or commercial real estate portfolio continues to improve from both a loan to value and a debt service coverage perspective. Office property in our Des Moines market, like in many larger communities, is in a distressed situation. We are aware of numerous properties that have significant vacancy problems. Since there is more space available than there are tenants, it depresses the entire office market. A large percentage of our office property is owner occupied. We have a handful of multi-tenant properties that we watch carefully.
Harley Oleson: That struggles with funding.
Harley Oleson: There has not been a lot of new developments in our markets or commercial real estate portfolio. Continues to improve from both a loan to value and a debt service coverage perspective.
Harley Oleson: Office property in our De Moine market. Like, in many larger communities is in a distressed situation. We are aware of numerous properties that have significant vacancy problems.
Harley Oleson: Since there is more space available than there are tenants that depresses the entire office Market.
Harley Oleson: A large percentage of our office property is owner occupied.
Harlee Olafson: Currently, they are all performing well, but some have leases that will expire and their future health will depend on their keeping their tenants. Our average loan to value on non owner occupied office property is 65% and the debt service coverage is 1.35 times. Having strong customers with liquidity, strong global cash flows and varied income sources has served us well. With our commitment to our underwriting disciplines, we expect our credit portfolio to remain very strong.
We have a handful of multi-tenant, properties that we watch carefully.
Currently they are all performing well but some have leases that will expire and their future health will depend on their keeping their tenants.
Harley Oleson: Our average loan to value on non-owner occupied office, property is 65%, and the debt service coverage is 1.35 times.
Having strong customers with liquidity strong, global cash flows and varied income sources has served this. Well,
Harlee Olafson: Our six markets are all thriving, and our team of experienced bankers continue to prospect for strong, comprehensive relationships.
With our commitment to our underwriting disciplines, we expect our credit portfolio to remain very strong.
Harlee Olafson: At the end of all our prepared remarks, I am available for any questions.
Harley Oleson: Our 6 markets are all thriving and our team of experienced Bankers continue to prospect for strong comprehensive relationships.
Todd Mather: I will now turn it over to Todd Mather, our Chief Credit Officer and Business Banking Manager. Thank you, Harlee. For the quarter ended at 630.25. 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 current rate environment.
At the end of all our prepared remarks. I am available for any questions. I will now turn it over to Todd Mather. Our chief credit officer and business banking manager.
Todd Mather: Thank you Harley for the quarter ended 63025. Our loan outstandings were down slightly at just under 3 billion.
Todd Mather: We replace those assets with quality new assets that better Deposit gathering continues to be an emphasis, and we have been successful in attracting new depositors. During the quarter, deposit balances increased just over $67 million. We remain selected 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.
We experienced a few larger payoffs from asset sales and refinance activity, the majority of those assets were priced below current rate environment.
Todd Mather: We replace those assets with quality. New assets that better interest rates.
Todd Mather: Deposit Gathering continues to be an emphasis and we have been successful in attracting new depositors.
Todd Mather: During the quarter deposit, balances increased just over 67 million.
Todd Mather: We remain selected in obtaining new loan opportunities, and those opportunities are less than in Prior years.
Brad Peters: 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 Bank. Our clients remain cautious with the economic uncertainty in the marketplace. Our bankers have been diligent in staying close to our clients and we have increased our frequency of calls to our clients. We continue to target deposit-rich business banking. We have a disciplined calling approach that has enabled our team to be successful in attracting new people. Our seasoned group of bankers and our business banking focus set us apart from our competitors.
Todd Mather: 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.
Speaker Change: 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.
Speaker Change: Uh, our clients remain cautious with the economic uncertainty in the marketplace, our Bankers have been diligent in staying close to our clients and, and we have increased our frequency of calls to our customer base.
Speaker Change: We continue to Target deposit, Rich business banking opportunities.
Speaker Change: We have a disciplined calling approach that has enabled our team to be successful and attracting new business.
Brad Peters: We are also targeting high value retail Our bankers have been successful in winning the retail deposits of our business owners and key executives.
Speaker Change: Our seasoned group of bankers and our business banking Focus set us apart from our competition.
Brad Peters: We're also attracting new deposits from high earning individuals that are Each of our Minnesota regional centers have seen significant retail We do not have specific production goals for our bankers, but instead measure our bankers on the right activities that will drive revenue. Measuring activities requires our local leaders to be actively engaged with their teams. Consistent Inspection of Calling This method has proven to be successful as we expand our market share. All of our building construction projects are now We design each of our facilities with well-appointed entertainment areas that allow our teams to host client and prospect events in quality small groups.
Speaker Change: 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 also attracting new deposits from high earning individuals in our communities. Each of our Minnesota, Regional centers have seen significant retail deposit growth
We do not have specific production goals for our Bankers, but instead measure our Bankers on the right activities, that will drive results.
Speaker Change: Measuring activities requires our local leaders to be actively engaged with their teams. With consistent inspection of calling efforts. This method has proven to be successful as we expand our market share in our communities.
Brad Peters: 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.
Speaker Change: All of our building construction projects are now complete. We design each of our facilities with well-appointed entertainment areas that allow our teams to host client and Prospect events and quality small group meetings.
Speaker Change: These unique facilities, align perfectly with our strategy of building business, based on strong relationships.
Speaker Change: Our team has embraced this and has done an outstanding job of leveraging, our buildings to grow our business.
Brad Peters: I will now turn the call back over to Thanks, Brad. I'll just make a few financial related comments. As Todd mentioned, our loan balances decreased approximately $50 million in the second quarter as customers sold real estate assets or refinanced in the secondary market in the ordinary course of their businesses. We also saw a slight reduction in the utilization of commercial lines of credit. Core deposit balances increased approximately $195 million in the second quarter. An existing municipal customer raised funds through a bond offering for a construction project and those funds are expected to be withdrawn over the next couple of years as the construction project progresses.
Speaker Change: Market in the ordinary course of their businesses. We also saw a slight reduction in the utilization of, uh, commercial lines of credit.
Speaker Change: Core deposit balances increased, approximately 195 million in the second quarter.
Jane Funk: That was the primary reason for the large increase in core deposits. Those deposits resulted in a reduction of brokered funding of approximately $127 million this quarter, along with an increase in our cash and short-term liquidity position. Net income was $8 million in the second quarter compared to $7.8 million in the first quarter of 2025 and $5.2 million in the second quarter of 2024. Net income and net interest income continue to improve. As described earlier, credit quality remains very strong, so no provision for credit losses was recorded this quarter, and there were no significant one-time items in non-interest income or non-interest expense in the second quarter.
An existing Municipal customer raised funds through a bond offering for a construction project. And those funds um, are expected to be withdrawn over the next couple of years as the construction project progresses. That was the primary reason, uh, for the large increase in, uh, core deposits.
Speaker Change: Those deposits resulted in a reduction of brokered funding of approximately 127 million this quarter along with an increase in our cash and short-term liquidity position.
Jane Funk: The yield in the loan portfolio continues to improve as fixed-rate assets reprice at higher yields. The second quarter loan yield was 5.59% compared to first quarter's 5.52%. The improvement in loan yield in the second quarter was partially offset by a four basis point increase in the cost of deposits. We were fairly aggressive in lowering deposit rates last year when the Fed was lowering the federal funds rate. As the Fed has been holding rates since December, we do see some pockets of upward pricing pressure on deposits resulting in that slight increase in the second quarter.
Speaker Change: Net income was 8 million and the second quarter compared to 7.8 million in the first quarter of 25 and 5.2 million in the second quarter of 2024, net income and net interest income, continue to improve as described earlier. Credit, quality remains very strong. So no provision for credit losses, was recorded this quarter and there were no significant 1-time items in non-interest income or non-interest expense in the second quarter, the yield and the loan portfolio continues to improve as fixed rate assets. Repriced at higher yields.
Speaker Change: The second quarter loan yield was 5.59% compared to First quarter's 5.52 percent.
Speaker Change: The improvement loan yield in the second quarter was partially offset by 4 basis point increase in the cost of deposits.
John: Those are the completion of our remarks and now we'll open it up for questions. Ladies and gentlemen, we will now begin the question and answer session. If you have dialed in and would like to ask a question, as a reminder, that is to press star 1 on your telephone keypad. And if you would like to withdraw your question, simply press star 1 again. We will pause for a moment to compile the Q&A roster.
Speaker Change: We were fairly aggressive in lowering deposit rates last year, when the Fed was lowering, the federal funds rate as the FED has been holding rates since December. We do see some pockets of upward pricing pressure on deposits. Resulting in that slight increase, uh, in the second quarter.
Speaker Change: Those are the completion of our remarks and now we'll open it up for questions.
Ladies and gentlemen, we will now begin the question and answer session if you have dialed in and would like to ask a question as a reminder, that is to press star 1 on your telephone keypad. And if you would like to ignore your question, simply press star 1 again,
John: Thank you.
Speaker Change: We will pause for a moment to compile the Q&A roster. Thank you.
Nathan Race: Your first question comes from the line of Nathan Race with Piper Sandler. Please go ahead. Hi everyone. Good afternoon. Thanks for taking the questions.
Speaker Change: Your first question comes from the line of Nathan race with 5% ler. Please go ahead.
Speaker Change: Hi everyone. Good afternoon. Thanks for taking the questions. Hi Nate.
Harlee Olafson: Question just maybe first on how you guys are seeing client sentiment these days and just how the pipeline is looking ahead into the back half of the year from a loan growth perspective and appreciate you know payoffs are still somewhat of a headwind but just any thoughts on how you see loan growth turning in the back half of the year and kind of what you're hearing and seeing from commercial clients these days.
Question. Just, maybe first on how you guys are. Um, seeing client sentiment these days. Um, and just how the pipeline's looking into the back out for the year from a loan growth perspective and appreciate you know payoffs are still some of the headwind. But um just any thoughts on how you see loan growth training in the back half of the year and kind of what you're
Here. And seeing some commercial clients these days.
Harlee Olafson: Well, I'll take that this is Harlee Olafson. The pipeline is pretty robust right now. There's a number of projects within the pipeline. We're holding a little bit strong on our pricing thought process. not Taking on underpriced assets at this time, but I do believe that we will, we will have many good opportunities this year to maintain and grow our loan portfolio. Okay, great.
Harley Oleson: Well, I'll take that. This is Harley Olaf, so the, uh, pipeline is pretty robust right now. There's a number of projects within the pipeline. Um, we're
Speaker Change: holding a little bit strong on our pricing thought process.
not, uh,
Speaker Change: Taking on underpriced assets at this time, but I do believe that we will, we will uh, have many good opportunities this year to maintain and grow our loan portfolio.
Jane Funk: Then maybe a question for Jane, you know, just curious how you're thinking about the margin trajectory in the back half of this year. Obviously it, you know, deposit costs tick up in the quarter, so just curious how you're thinking about the margin trajectory, you know, if the Fed remains on pause and then maybe if we got one or two cuts as well in the back half of the year. Yeah, we do see opportunity for some improvement in the margin in the second half of the year. We still have, you know, a lot of opportunity for asset repricing in the loan portfolio, so that will continue.
Speaker Change: Okay, great. Um, then maybe a question for Jane, you know, just curious how you're thinking about the margin trajectory in the back half of this year. Obviously I you know, deposit costs took up in the quarter. Um, so just curious how you're thinking about the margin trajectory, you know, if the Fred remains on pause and then maybe if we got 1 or 2 Cuts as well in the back half of the year
Jane Funk: And we would expect that, whether the Fed cuts rates or not. So the asset repricing, we believe, will be there as we're projecting. And then the deposit side, we, like I said, we're seeing pressure on deposits and insert in pockets. So I would expect, you know, maybe deposit costs to be relatively kind of flat, maybe tick up a couple basis points. I don't know that we'll be able to lower much until the Fed does some sort of move. Okay, great.
Speaker Change: Uh, yeah, we do see, uh, opportunity for, uh, some improvement in the margin, um, in the second half of the year. We still have, you know, a lot of opportunity for asset repricing, um, in the low portfolio, so that will continue. Um, and and we would expect that whether the FED Cuts rates or not. Um, so the asset repricing We Believe will will be there as we're projecting and then the deposit side. Um,
Speaker Change: We like, you know, like I said, we're we're seeing pressure on deposits and in certain Pockets. So,
Speaker Change: I would expect, you know, maybe deposit costs, um, to be relatively, uh, kind of flat maybe tick up a couple basis points. I don't know that, we'll we'll be able to lower much until. Uh, the FED does does some sort of move
Unknown Shareholder: And there's been some notable M&A relay disruption your northern markets and around the Twin Cities and south of there.
Speaker Change: Okay, great. Um, and there's been some notable m&a related disruption in your um,
Brad Peters: So just curious kind of what the appetite is to maybe hire some additional producers in those markets open to other offices, or just kind of maybe what the opportunity set looks like with the existing teams in those geographies. Yes, Nate, this is Brad Peters from Minnesota. You know, there are opportunities in the marketplace. I think we have capacity in the markets that we serve to be able to take advantage of that. We already have to a certain degree, but I see continued opportunities in the future with, as you said, the M&A that's taken place and also the ongoing.
Speaker Change: Other offices or just kind of maybe what the opportunities that looks like with the existing teams in those geographies.
Uh, yes, Nate. This is Brad Peters. Um, from Minnesota, you know, there are opportunities in our in the marketplace.
Brad Peters: I guess opportunities by larger banks that have kind of abandoned the regional centers where we are. Okay, great. It's good to hear.
Speaker Change: Um, I think we have capacity in the markets that we serve to be able to take advantage of that. Um, we already have to a certain degree, but I see continued opportunities in the future with, uh, as you said the, the m&a that's taking place and, and also the ongoing, um, uh, I guess opportunities by larger Banks. If that have kind of abandoned the, uh, the regional centers where we, uh, are located.
Jane Funk: And then just going back to the balance sheet growth trajectory, Jane, I appreciate your comments that you had, you know, that municipal deposit flow in the quarter that helped drive the deposits up in the quarter. But it still seemed like you guys had pretty strong deposit growth, notwithstanding that inflow.
Speaker Change: Okay, great. Uh, it's good to hear, um,
Jane Funk: So just curious how you're thinking about deposit growth opportunities in the back half of the year as well, based on kind of the pipeline to client. Yeah, I mean, I think that that's, you know, our pipeline is, is just as focused on deposit relationships as it is, you know, credit relationships. So we, we continue to look for those strong customers in our, our regions in our locations, that, you know, can provide us to help build our strong balance sheets. So certainly, the focus is on growing deposits just as much as it is on the on the credit pipeline.
Speaker Change: And then just going back to the balance sheet, um, growth trajectory J. And I appreciate your comments that you had, you know, that Municipal uh, deposit flow in the core that helped Drive the, uh, deposits up in the quarter, but it still seemed like, you guys had pretty strong deposit growth, um, notwithstanding, um, that inflow. So, just curious how you're thinking about deposit growth opportunities in the back half of the year as well, based on kind of the pipeline to add clients.
Jane Funk: And that's what our bankers are working every day on. Great.
Speaker Change: Yeah, I mean, I think that that's, you know, our pipeline is, is just as focused on deposits relationships as it is, uh, you know, credit relationships. So, uh, we, we continue to, um, look for, um, those strong, uh, uh, customers in our, our regions, in our locations that uh, you know, can provide us to help build our strong balance sheets. So certainly the the focus is on growing deposits just as much as it is on the on the credit Pipeline and that's what our our Bankers are working every day on.
Jane Funk: And then is this run rate that we saw in 2Q for expenses a pretty good figure to use in the back half of this year, or have you guys seen some just general inflationary pressures that may drive it up slightly? I would say the second quarter is probably a good indicator. I don't see any significant items happening in the second half of the year.
Speaker Change: Great. And then um is this run rate that we saw in 2 Q for expenses? Uh pretty good figure to use in the back half of this year or do you guys seen some just general inflationary pressures that may drive it up slightly?
Um, I would say the second quarter is probably a good good indicator. I don't see any uh, significant items happening in the second half of the year.
Unknown Shareholder: Okay, great. I appreciate all the color.
Unknown Shareholder: Thank you everyone. Thanks, Nate.
Speaker Change: Okay, great. I appreciate all the color. Thank you, everyone.
Nate: Thanks Nate.
John: Again, as a reminder, if you have any questions, please press star 1 on your telephone keypad.
Speaker Change: again, as a reminder, if you have any questions, please press star 1 on your telephone keypad,
John: It seems that we have no further questions for today.
Jane Funk: I would like to turn the conference back over to Jane Funk for any closing remarks. All right, thank you. We just want to thank everyone for joining us today. We appreciate your interest in West Bank and have a good day. Thank you.
Speaker Change: It receives that we have no further questions for today. I would like to turn the conference back over to Jane funk for any closing remarks.
All right, thank you. We just want to thank everyone for joining us today. We appreciate your interest in Westbank and have a good day.
Jane Funk: Thank you.
John: Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect. Have a pleasant day, everyone.
Jane Funk: Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect have a pleasant day, everyone.