Operator: Hello, everyone. Thank you for joining us, and welcome to the West Bancorporation Inc Q3 earnings conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Jane Funk, CFO. Please go ahead.
Jane Funk: Thank you. Good afternoon, everybody. I am Jane Funk, the CFO at West Bancorporation Inc. I would 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, our Bank President; and Brad Peters, our Minnesota Group President. I will start by reading our fair disclosure statement.
Jane Funk: 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.
Jane Funk: Please see the forward-looking statement disclosure in our 2026 Q3 earnings release for more information about risks and uncertainties which may affect us. The information we provide today is accurate as of 30 September 2026, and we undertake no duty to update the information. With that, I will turn it over to Dave Nelson.
Dave Nelson: Thank you, Jane. Good afternoon, everyone. Thank you for joining us. We appreciate your interest in West Bank. I have a few general comments, and then we will turn the call over to others who will provide more details. West Bank had another strong quarter, and our EPS continues to increase as expected. Our board of directors approved a $0.26 per share quarterly dividend payable Wednesday, 25 November, to shareholders of record as of Wednesday, 11 November.
Dave Nelson: About the only thing that has not been enviable about West Bank this year has been our flat loan growth. We had good loan production, but our net loan growth was hampered by customers selling assets. There are likely a couple more coming sometime next year, but it is likely to subside during 2027. We did have some loan growth this past quarter, and we have a solid loan pipeline that is favorable.
Dave Nelson: West Bank does not have credit problems and has not had any for a very long time. Our calling efforts, market disruption, and asset repricing will all continue to favorably impact our margin. All of our performance metrics are good and continue to strengthen. Those are my prepared comments. I would now like to turn the call over to Mr. Harlee Olafson, our Chief Risk Officer.
Harlee Olafson: Thank you, Dave. Credit quality is very strong at West Bank. We have zero past dues over 30 days, no other real estate, and no non-accruals. Our watch list is only 0.6% of total loans. The majority of our watch list credits are in the transportation business. All are well-secured and properly structured. After going through a time when opportunities for new business seemed quite limited, we have now seen an acceleration in new closed business and have a very robust pipeline.
Harlee Olafson: We continue to maintain our underwriting standards, and they include strong balance sheets, strong global cash flow, and liquidity from our customers and prospects. Our diversified commercial real estate portfolio continues to perform as expected. After all our prepared remarks, I am available for questions, and I now turn it over to Brad Winterbottom, our Bank President.
Brad Winterbottom: Thanks, Harlee. For the quarter ended 30 September 2026, our loan portfolio increased 1.5% when compared to the Q2. We are right at $3 billion in outstandings. This is the Q1 in the past five quarters that we have experienced an increase in outstandings from quarter to quarter. We continue to experience notable payoffs as a result of secondary market refinancing and asset sales. We are not losing customers, but they are selling assets to gain liquidity.
Brad Winterbottom: We were able to add to our loan portfolio during the quarter due to existing customers adding to their asset base with new and/or improved assets. We still believe new activity is mild due to the economic and political issues we are facing. However, our pipeline going into the Q4 is very positive. As always, deposit gathering sales efforts continue to be an emphasis in the markets we serve, and they are extremely competitive. Those are my remarks. I'll turn it over to Brad Peters.
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 first full-service bank in Rochester opening 10 years ago. We grew our presence in Minnesota early in 2019 by expanding into St. Cloud, Mankato, and Owatonna. Each regional center has strong, vibrant markets with diverse businesses driving their respective economies.
Brad Peters: Although it has been nearly 8 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. Our clients like the fact that they can count on West Bank to be responsive with quick decisions and a predictable, common-sense approach to banking. Our disciplined calling approach has driven results.
Brad Peters: Our business banking focus and our seasoned team of bankers set us apart from the competition. We have also strategically invested in unique facilities, offering our teams the opportunity to entertain and engage in quality conversations with our clients and prospects. This relationship-building strategy has been a key in growing our commercial banking business. We are also winning the personal banking of our business owners, key executives, and high-value retail prospects in our communities.
Brad Peters: We continue to see our clients challenged with the uncertainty in the economy and interest rate volatility. Our bankers have been diligent in staying close with our clients and have increased calling activities to better manage relationships. Despite those challenges, we continue to see slight growth in both deposits and loans. Those are the end of my comments. I will now turn the call back over to Jane.
Jane Funk: Thanks, Brad. Net income was $11.6 million for Q3, and that compares to $9.3 million in Q3 2025 and represents a 25% increase in net income. Year to date, our net income is $33.3 million, which is 32% higher than the first 9 months of 2025. Net interest income continues to improve through improvement in our net interest margin. Net interest income increased $3.9 million or 17% compared to Q3 of last year, and our margin increased 8 basis points compared to the previous quarter and 41 basis points compared to Q3 of last year.
Jane Funk: Our cost of deposits increased 3 basis points compared to the previous quarter but has declined 41 basis points compared to Q3 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 a 3% increase from Q3 of last year. Year to date, non-interest expenses are up just 2.7% compared to the first 9 months of 2025. Those are the end of our prepared remarks, so we would open it up for questions.
Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brendan Nosal with Hovde. Brendan, your line is open. Please go ahead.
Brendan Nosal: Hey, good afternoon, everybody. Thanks for taking my questions.
Jane Funk: Hi, Brendan.
Brendan Nosal: Hey. Maybe starting off here on loan growth. As you folks noted, really strong quarter, probably one of the strongest you've had in several years. Maybe just to start off, can you talk about what changed during the quarter versus the past 12 months that allowed you to post more visible loan growth?
Brad Winterbottom: Well, entering into Q3, looking at our pipeline, which is kind of a. When we were talking to our bankers, we probably had known around $90 million in payoffs that were coming. They were getting refinanced or being sold. All of those things took place. Right now, we're sitting at about $30 million that we know that's going to pay off, supposed to pay off between now. The end of the year. I think that we've done a nice job covering up the payoffs production-wise, and obviously we've added a few more nice big transactions. Existing customers just expanding their asset base.
Brendan Nosal: Okay. All right. That's helpful. As we look forward from here, certainly sounds like pipelines are still strong. The known amount of payoffs is smaller than it was 90 days ago. That tells me that growth should be pretty robust in Q4, but I'm curious how you see the pace as we wrap up the year.
Brad Winterbottom: I would say that robust is a good word. We are not telling you what we think because there are still a lot of things that could happen with some of these transactions or relationships that we are chasing. But it does look good for us.
Brendan Nosal: Okay. Great. Maybe circling to the net interest margin. Nice margin expansion this quarter. Just curious now that the Fed has shifted to raising short-term rates again. Just talk about the near-term margin impact from the September rate hiking to the extent that we get additional rate hikes either later this year or early next year, what that would do to your margin.
Jane Funk: Yeah, I think the rate hikes certainly slow down our margin improvement. We have got a fairly high deposit beta. With each incremental increase, that will slow down our net interest margin improvement. We do still expect a lot of asset repricing over the next 12 months to help offset that. So we do not necessarily foresee a squeeze on margin, but just a probably slowdown in that improvement.
Brendan Nosal: Okay. That is really helpful, Jane. Maybe moving over to asset quality. Any updated thoughts on the small amount of criticized assets that you still have on the balance sheet and what resolution could look like in terms of ultimate outcome or timing?
Harlee Olafson: Sure. We have a few assets on our watch list. The ones that we have, our first approach is always to make sure that they are well-secured, and if we improve our security position, we generally give them some time to work a plan that they might have. Otherwise, if the plan doesn't go forward in an appropriate way, then we take further steps. Our general plan with our watch list type credits is to show continual improvement with them from a perspective of safety to the bank. They are all well-secured and all have good plans.
Brad Winterbottom: Not only that, they have not missed payments, scheduled payments. So they are still making their payments.
Brendan Nosal: Yep.
Brad Winterbottom: Just the balance sheet's weakened.
Brendan Nosal: Yeah. That's helpful. Last one for me before I step back here. Jane, I just noticed that the tax rate has been kind of creeping up over the past couple of quarters. Any thoughts as to what's a good run rate tax rate for us to use in our models?
Jane Funk: I would say probably this quarter's tax rate would be a good run rate.
Brendan Nosal: All right. Great. Thanks for taking my questions, everyone.
Operator: Your next question comes from the line of Adam Kroll with Piper Sandler. Adam, your line is open. Please go ahead.
Adam Kroll: Hey, I am on for Nate Race. Hope you are doing well, and thanks for taking my questions.
Jane Funk: Yeah, thanks, Adam.
Adam Kroll: Maybe starting out, going back to the loan growth discussion. It sounds like pipelines are pretty strong, but was curious if any one of your markets is really driving that growth.
Brad Winterbottom: I would say no. Des Moines or the central Iowa is about half of our portfolio, and I would say our pipeline is kind of equally spread between all of our markets.
Harlee Olafson: In the last closed transactions, of the larger closed transactions, $25 million came from Des Moines, $23 million came from Iowa City, and $22 million came from the Minnesota market.
Adam Kroll: Got it. Okay. Jane, I was wondering if you could update us on the fixed rate loan repricings that you have over maybe the next year or so.
Jane Funk: Yeah. So over the next 12 months, we have about $550 million in fixed rate loans that will reprice, and I think the weighted average rate is somewhere around 450-ish.
Adam Kroll: Okay. Going back to the margin discussion for maybe just slower expansion than if we would have not gotten a hike. I guess, what are your deposit beta assumptions if we were to get another hike or two through the cycle, and maybe compare it to the last hiking cycle, if there is any chance for different performance there?
Jane Funk: Well, it is probably pretty similar. When rates were going down, we were pretty aggressive, and our down beta was pretty high also. So with rates now, in the last three, four months, everybody before that was kind of still expecting rates to go down. So with the reversal of the market, we are seeing a lot of pressure on deposit pricing, and so our betas are going up, are going to be very similar to what they were last time.
Adam Kroll: Got it. I appreciate the color there. One last one for me. You have managed expenses very well over the past few years. I would be curious, maybe an expense run rate expectation for Q4 and just generally how you are thinking about balancing tech investments, potential hires, and managing the expense growth rate in 2027.
Jane Funk: Yeah. I would expect Q4 to be similar to what we have been doing throughout this year. I think we are getting into some planning for 2027 and 2028, and certainly the tech area, technology, some product stuff is where we will be looking to see if and how much we want to increase spending there. We know that there will be some increase, but we have not determined specifics yet. We know that that will be the area that is going to be most sensitive to increases that exceed what we have had the last couple of years.
Adam Kroll: Got it. I appreciate you for taking my questions.
Jane Funk: Thank you.
Operator: Your next question is from the line of Brendan Nosal with Hovde. Brendan, your line is open. Please go ahead.
Brendan Nosal: Hey, thanks. Just wanted to circle back on a few things here. I think you folks said $550 million is fixed-rate loans coming off at 4.5% over the next 12 months. Just kind of curious related to that, where is new loan production coming on sheet at? What is like a blended average new loan yield?
Brad Winterbottom: High 6s.
Brendan Nosal: On the other side of the sheet for kind of funding, can you just speak to the competitive environment for core deposits and perhaps more importantly, how that has changed since the Fed took rates higher in September?
Jane Funk: The competition has certainly heated back up quite a bit the last couple of months. As soon as the market started responding to any indication of rate hikes, deposit competition, deposit pricing has been really intense. That is why we think our deposit beta is going to be on the higher side and similar to what happened last time rates increased. That is what we are focused on right now just as much as loans is sensitivity of deposits and both retaining and growing the deposit base.
Brendan Nosal: Okay. I appreciate you taking my questions. Thanks.
Jane Funk: Thank you.
Operator: If you would like to ask a question, just a reminder to please press star one to raise your hand. There are no more questions at this time, which will conclude our Q&A. I will now turn the call back to Jane Funk for closing remarks.
Jane Funk: We just want to thank everybody for joining us today, and thank you for your interest in West Bank. We will talk again next quarter. Thank you.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
