West Bancorporation, Inc. (WTBA) Earnings

Management highlights

- Overall Financial Performance * The firm reported another strong quarter, with 37% year-over-year net income growth year-to-date. Return on average equity year-to-date is just over 16%, with a strong, liquid balance sheet. * The Board of Directors approved a quarterly dividend increase to $0.26 per common share, the highest dividend in company history, payable August 19 to shareholders of record August 5. - Credit Quality * Credit quality remains pristine: as of June 30, 2026, there are 0 loans past due over 30 days, no OREO (Other Real Estate Owned) holdings, and no nonaccrual loans. * The firm's credit watch list declined 50% quarter-over-quarter from March 31, 2026, and currently totals $0.7 million, representing a very small percentage of total loan balances. * Aggressive proactive credit management addresses at-risk credits to either shore up their position, move them to alternate financing, or sell assets as needed to protect the firm. - Central Iowa Operations * Average loan outstandings increased slightly in Q2 2026 compared to Q1 2026, even with a few large loan payoffs from customer asset sales and refinancing into the secondary market; no customers were lost in these transactions, and most paid off assets were priced below current market rates. * Deposit gathering is a key ongoing focus, and the firm successfully attracted new depositors in the quarter. Proactive prospecting has grown the new business pipeline, with disciplined underwriting supporting growth in the competitive market. - Minnesota Expansion Operations * The firm entered Minnesota in 2016 with its first full-service location in Rochester, expanding to St. Cloud, Mankato, and Owatonna in 2019; all locations are in strong, diverse regional economic centers. * The relationship-based, business-focused banking model allows steady growth with a small employee base. Strategic investments in client-facing facilities support relationship building. * The firm is capturing new business as national banks reduce local presence and market consolidation from M&A activity creates new customer opportunities. It also captures personal retail deposit accounts from business owners and executives, with expectations for continued core deposit growth and business banking market share gains as the economy improves. - Margin and Expense Management * Deposit costs declined 2 basis points quarter-over-quarter and 46 basis points year-over-year. No provision for credit losses was recorded in the quarter due to strong credit quality. Noninterest expenses remain well controlled with low single-digit year-over-year growth.

Guidance

- The firm expects net interest margin to maintain an upward bias, supported by loan repricing tailwinds, though the pace of expansion will be slower than the significant growth seen in Q2 2026. No large net interest margin decline is expected. - Approximately $600 million in loans are scheduled to reprice to higher rates over the next 12 months, with most of this repricing concentrated in the first half of 2027 rather than the second half of 2026. The weighted average original rate of these repricing loans is in the low to mid 4s. - Management expects elevated large loan payoffs to continue into the third quarter of 2026, with payoff activity expected to moderate after Q3. Strong new loan pipeline activity will offset remaining payoffs, and period-end loan balances are expected to start growing again in the near term. - No significant unexpected increases to noninterest expenses are expected for the remainder of 2026, with no large projects or investments planned that would meaningfully impact expense levels this year. Potential major investments (including core technology updates) are not expected until 2027 or 2028 at the earliest. - Management anticipates potential lower short-term interest rates, which it expects would act as a catalyst to increase loan demand, aligning with the firm's positioning to capture new growth.

Segment performance

West Bancorporation operates two primary geographic segments: the Central Iowa market and the Minnesota expansion market, as well as overall core lines of business including lending and deposit gathering. No separate absolute revenue or net income figures are provided for individual segments. For the overall firm, Q2 2026 net income was $11.1 million, a 39% increase from $8.0 million in Q2 2025. Year-to-date net income through the first half of 2026 is 37% higher than the same period in 2025. Net interest income increased 19% year-over-year by $4.1 million, with a net interest margin up 10 basis points quarter-over-quarter and 42 basis points year-over-year. Noninterest expenses increased 2% year-over-year, with a 2.6% increase year-to-date, and no unusual items impacted results in the quarter.

Risks & headwinds

- Intense competition exists for core deposits across all markets, with pricing pressure on transactional accounts, money market accounts, and certificates of deposit. Pricing competition for deposits is increasing, and management does not expect near-term relief from elevated deposit cost pressure. - Commercial real estate development activity remains cautious, as developers hold back on new projects due to current elevated interest rates that prevent acceptable cash flow margins. Many developers delayed projects anticipating rate cuts in 2026 that have not materialized, leading to a decline in the commercial real estate development loan portfolio. - There is ongoing uncertainty regarding Federal Reserve monetary policy changes and their impact on interest rates, money supply, and overall economic conditions that could affect loan demand and net interest margins. - Two small credits experienced sufficient deterioration to be downgraded to substandard during the quarter; while both are well secured and no losses are expected, they are currently facing cash flow difficulties.

Analyst Q&A

• Q: How has the competitive environment for loans and core deposits evolved in 2026, and what is the outlook for underlying loan demand and the return to period-end loan growth? /

  A: Deposit competition is extremely fierce across all product types from all competitors, though the firm’s relationship-focused model with seasoned bankers helps it attract new deposits. On the lending side, commercial real estate development demand remains weak, as developers delayed projects waiting for 2026 rate cuts that did not materialize, leading to a decline in the development loan portfolio after $200 million in development loan payoffs/sales in the first half of 2026. Management notes the firm has a strong pipeline of commercial and industrial (C&I) loan opportunities, and expects period-end loan growth to resume soon, though the exact timing of inflection is uncertain.

• Q: How much loan repricing to higher yields remains over the coming quarters, and can net interest margin continue to grind higher despite intense deposit competition? /

  A: Approximately $600 million in loans will reprice higher over the next 12 months, with most repricing occurring in the first half of 2027 rather than the second half of 2026. Management confirms it is fair to expect net interest margin will maintain an upward bias, as the repricing benefit from fixed-rate loans will offset steady deposit costs, even though the pace of margin growth will be slower than what was seen in the second quarter.

• Q: What is the outlook for large loan payoffs over the next few quarters, and when will payoff activity moderate? /

  A: Management expects additional large loan payoffs from customer asset sales and secondary market refinancing will continue into the third quarter, with most of the remaining elevated payoff activity occurring in Q3 depending on Treasury rate movements. Payoff volume is expected to slow after the third quarter, and the strong new loan pipeline is already positioned to offset these payoffs.

• Q: What is the outlook for noninterest expenses for the second half of 2026, and are there any major upcoming investments that will increase expenses? /

  A: Management does not expect any significant unexpected fluctuations or large increases in noninterest expenses for the remainder of 2026, with no major projects or investments planned that would meaningfully impact expense levels this year. Potential large investments (such as core banking system updates) are not expected to impact expenses until 2027 or 2028.

• Q: How does management view potential upcoming changes to Federal Reserve monetary policy and their impact on the firm? /

  A: Management anticipates the policy shift could lead to lower short-term interest rates, which would likely act as a catalyst for increased loan demand, a result management views as positive. The firm has proactively positioned its balance sheet to remain balanced and maintain margins regardless of whether rates rise or fall, allowing it to continue operating and growing in any rate environment.