WEST BANCORPORATION INC Q3 FY2026 earnings call

• Loan Growth & Pipeline: West Bank experienced its first loan growth in five quarters, with the portfolio increasing 1.5% to approximately $3 billion. While net growth was previously hampered by customer asset sales and secondary market refinancing, the pipeline is described as robust and favorable for the fourth quarter.
• Credit Quality: Credit quality remains pristine with zero past-due loans over 30 days, no non-accruals, and no real estate owned. The watch list comprises only 0.6% of total loans, primarily in the transportation sector, all of which are well-secured and making scheduled payments.
• Deposit Strategy & Competition: Deposit gathering remains a key emphasis. Management notes that deposit competition has intensified significantly following recent Federal Reserve rate hikes, leading to higher deposit betas similar to previous hiking cycles.
• Minnesota Expansion: The Minnesota division continues to grow through a relationship-based model focusing on business banking. Despite economic uncertainty, the region sees slight growth in both deposits and loans, supported by disciplined calling activities and strong local markets like Rochester, St. Cloud, Mankato, and Owatonna.

The provided transcript does not break down financial performance by specific product segments (e.g., Commercial vs. Retail). The firm reports consolidated Net Income of $11.6 million for the third quarter of 2026, representing a 25% increase from $9.3 million in the same period of 2025. Year-to-date net income is $33.3 million, up 32% compared to the first nine months of 2025. Net interest income increased 17% ($3.9 million) year-over-year, driven by an 8 basis point improvement in net interest margin from the previous quarter and a 41 basis point improvement from the prior year. Non-interest expenses increased only 3% year-over-year.

• Loan Growth: Management anticipates robust loan growth in the fourth quarter, noting that known payoffs have decreased from $90 million to $30 million, suggesting stronger net additions.
• Net Interest Margin (NIM): While asset repricing is expected to continue helping margins, future Federal Reserve rate hikes are anticipated to slow the pace of NIM improvement due to rising deposit costs (higher beta).
• Expense Management: Fourth-quarter non-interest expenses are expected to remain stable relative to recent quarters. However, management indicates that technology investments will likely see increased spending in 2027 and 2028, though specific budget details are still being finalized.
• Tax Rate: Management suggests using the most recent quarterly effective tax rate as a reasonable run-rate assumption for modeling purposes.

• Interest Rate Volatility: Rising short-term rates increase deposit pricing pressure, potentially compressing net interest margin improvements despite asset repricing benefits.
• Economic Uncertainty: Ongoing economic and political issues contribute to mild new activity levels and force clients to sell assets for liquidity, impacting loan growth.
• Competitive Pressure: Intense competition in core deposits has heated up significantly, requiring aggressive retention strategies.
• Concentration Risk: A portion of the portfolio and pipeline is concentrated in Des Moines (approximately half), though recent transactions show diversification across Iowa City and Minnesota.

Q: Analyst Brendan Nassal asked about the drivers behind the recent loan growth after a period of stagnation, specifically inquiring if pipelines remained strong and how the pace of growth would look for the remainder of the year given the reduction in known upcoming payoffs.

A: Brad Winterbottom explained that while $90 million in payoffs had been identified earlier in the quarter, many were executed, leaving only $30 million remaining through year-end. He characterized the outlook for Q4 as 'robust,' citing a strong pipeline, although he cautioned that external factors could still influence transaction outcomes.

Q: Jane Funk addressed questions regarding the impact of Federal Reserve rate hikes on the net interest margin, asking whether additional hikes would squeeze margins or merely slow their expansion, particularly given the bank's high-beta deposit base.

A: Funk stated that rate hikes would slow the pace of margin improvement rather than cause a squeeze. She noted that while asset repricing over the next 12 months would provide offsetting benefits, the bank's high-beta deposit base means that every incremental rate increase brings significant cost pressures, normalizing the margin trajectory.

Q: Adam Kroll inquired about the geographic distribution of new loan production to identify if any single market was driving growth, and requested details on fixed-rate loan repricing volumes and yield assumptions for the coming year.

A: Winterbottom clarified that growth is evenly distributed across markets, with Des Moines comprising roughly half the portfolio but new activity spread broadly. Olafson added that recent large transactions came from Des Moines ($25M), Iowa City ($23M), and Minnesota ($22M). Funk specified that approximately $550 million in fixed-rate loans will reprice over the next 12 months at a weighted average rate of around 4.5%, while new loan yields are in the high sixes.

Q: Kroll also asked about expense run-rates for Q4 and how management plans to balance technology investments against hiring needs while maintaining controlled expense growth in 2027.

A: Funk indicated that Q4 expenses should remain consistent with current trends. However, she highlighted that technology and product development are the primary areas where spending increases are planned for 2027 and 2028. Specific budget allocations are still under review, but tech investment is identified as the main sensitivity point for exceeding historical expense growth rates.