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DATE
Thursday, Oct. 23, 2025, at 3 p.m. ET
CALL PARTICIPANTS
- Chief Executive Officer — David Nelson
- Chief Risk Officer — Harlee Olafson
- Banking Manager and Chief Credit Officer — Todd Mather
- Minnesota Group President — Bradley Peters
- Chief Financial Officer — Jane Funk
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RISKS
- Core Deposit Decline -- Core deposit balances decreased by approximately $82 million, primarily in the third quarter of 2025, primarily attributed to expected fluctuations in public fund deposits.
- Loan Pipeline Caution -- Bradley Peters stated the loan pipeline in Minnesota "it's not as robust as it has been in the past," highlighting a selective approach that may constrain future growth opportunities.
- Deposit Pricing Pressure -- Jane Funk noted, "there's still a lot of pricing pressure on deposits," suggesting future deposit beta may be less aggressive due to competitive factors discussed during the third quarter 2025 earnings call.
TAKEAWAYS
- Net Income -- Reported net income of $9.3 million for the third quarter of 2025, Net income increased by 16% compared to the second quarter of 2025. Net income increased by 55% compared to the third quarter of the previous year.
- Net Interest Margin -- Net interest margin improved by 9 basis points compared to the second quarter of 2025, driven by loan repricing and declining deposit costs.
- Loan Portfolio -- Outstandings increased by approximately $43 million during the third quarter of 2025, with total loans exceeding $3 billion.
- Loan Yield -- Loan yield was 5.66%, up from 5.59% in the second quarter of 2025 and 5.52% in the first quarter.
- Deposit Cost -- Declined by 2 basis points from the prior quarter.
- Credit Quality -- No past dues, no OREO, no nonaccruals, no doubtful accounts, and no substandard loans; no provision for credit losses was recorded.
- Dividend -- $0.25 per share declared, payable November 19, 2025, to shareholders of record as of November 5, 2025.
- Core Deposits -- Decreased by $82 million due to anticipated cash flow changes in public fund deposits.
- Effective Tax Rate -- The effective tax rate was 19%, lowered by a change in estimate related to an energy investment tax credit.
- Loan Repricing Opportunity -- Approximately $550 million in fixed-rate loans eligible to reprice over the next 12 months, with a current weighted average rate of 4.86%.
- Minnesota Market Contribution -- Minnesota accounts for roughly one-third of total company operations, with each market contributing to the bottom line.
- Noninterest Items -- No significant one-time items in noninterest income or expense for the quarter.
- Deposit Funding Plans -- Some short-term usage of wholesale or brokered deposits may occur to supplement cash flows as needed.
SUMMARY
West Bancorporation (WTBA +1.17%) management reported significant sequential and annual earnings growth in net income, attributing gains to improved interest margin and disciplined credit practices. The company maintained pristine credit quality, with no past due, nonaccrual, or substandard loans, and recorded no credit loss provision. Strategic focus includes organic loan growth and selective deposit gathering amid competition and deposit cost pressures, while deposit balances declined primarily due to expected outflows from public funds. The effective tax rate dropped to 19% due to a tax credit adjustment, though it is expected to return to historical levels. Management emphasized ongoing margin tailwinds from repricing $550 million in fixed-rate loans over the next 12 months, and highlighted Minnesota operations now constitute about one-third of total activities.
- Jane Funk detailed that the temporary reduction in tax rate resulted from "a change in estimate on an energy-related investment tax credit," with normal rates projected to resume.
- Harlee Olafson described the credit environment as characterized by "no past dues, no OREO, no nonaccruals, no doubtful accounts and no substandard loans."
- Bradley Peters confirmed that Minnesota’s share of company business has "exceeded expectations."
- Jane Funk outlined that supporting mid-single-digit loan growth may "be a little bit of wholesale funding or broker deposits that we need to backfill that for a short period of time, but we expect to be able to manage that cash flow."
- Jane Funk stated deposit beta may be "a little bit lower than what we were able to do a year ago," citing market competition.
INDUSTRY GLOSSARY
- OREO: Other Real Estate Owned; foreclosed properties held by banks pending sale or disposition.
- Loan Yield: Average effective interest rate earned on the loan portfolio, expressed as an annualized percentage.
- Deposit Beta: The sensitivity of deposit rates to changes in benchmark interest rates, specifically reflecting how quickly and fully banks pass on rate moves to depositors.
Full Conference Call Transcript
David Nelson: Thank you, Jane, and good afternoon, everyone. Thank you for joining us, and thank you for your interest in our company. I have a few general comments, and then we'll turn the call over to others for more details. West Banc had another solid quarter with a 16% earnings increase over the prior quarter and 55% increase over third quarter of last year. Our financial performance metrics continue to improve, primarily driven by an expanding margin. The future Fed rate cuts will also be favorable to our margin as well as loan renewal repricing is also helping our margin, and this will continue into enduring 2026.
West Banc credit quality continues to be very strong with essentially no problem loans or any 30-day past due loans. Yesterday, our Board declared a $0.25 per share quarterly dividend to common stockholders payable Wednesday, November 19, 2025, to shareholders of record as of Wednesday, November 5, 2025. Those are my prepared remarks, and I would now turn the call over to Mr. Harlee Olafson, our Chief Risk Officer.
Harlee Olafson: Thank you, Dave. My remarks are going to be pretty short because credit quality hasn't changed much here. So credit quality at West Banc for the third quarter of 2025 remains very strong. We have no past dues, no OREO, no nonaccruals, no doubtful accounts and no substandard loans. We have a small watch list that is mainly in the transportation industry. These credits are well secured, but the entities are having cash flow issues. Our commercial real estate portfolio is well diversified and is performing as expected. Having strong customers with liquidity and strong cash flows has served us well. We remain committed to our past underwriting disciplines and expect credit quality to remain pristine.
After our prepared remarks, I'm available for questions. I now turn it over to Todd Mather, our Banking Manager and Chief Credit Officer.
Todd Mather: Thank you, Harlee. For the quarter ended 9/30/25, our loan outstandings were up slightly at just over $3 billion. We experienced a few larger payoffs from asset sales and refinance activity. The majority of those assets were priced below the current environment. We replaced those assets with quality new assets at better interest rates. Our depositing gather efforts continue to be an emphasis, and we have been successful in attracting new customers and depositors. 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.
Bradley Peters: Thanks, Todd. Good afternoon, everyone. I'm going to provide a brief update on our Minnesota banks. We continue to see a slowdown with the majority of our manufacturing clients. The economic uncertainty has created a cautious environment in each of our Minnesota regional centers. Our bankers have been diligent in staying close with our clients and have increased calling activities to better manage relationships. We are seeing new business opportunities with the recent M&A activity from competitors in our markets. Our bankers have targeted calling plans and each market has had success bringing new business to West Banc. Our calling is focused on deposit-rich business banking opportunities.
We have a disciplined calling approach that has enabled our team to be successful in attracting new business. Our seasoned group of bankers and our business banking focus set us apart from the competition. 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 are also attracting new deposits from high-earning individuals in our communities. We do not have specific production goals for our bankers, but rather measure our bankers on doing the right activities that will drive results.
This method of performance management is more difficult to manage, but our local leaders are fully engaged with our activity-based expectations, and we have established specific activity expectations, which we coach our bankers on consistently. This method has proven to be successful as we expand our market share in our communities. Our facilities are designed to host client and prospect entertaining. These unique facilities align perfectly with our strategy of building business based on strong relationships. Our team has embraced this and have done an outstanding job of leveraging our buildings to grow our business. Those are the end of my comments. I will now turn it back over to Jane.
Jane Funk: Thanks, Brad. I'll make just a few comments on the financial performance for the quarter, and then we'll open it up for questions. So our loan balances increased approximately $43 million in the third quarter, but were relatively flat year-to-date. Core deposit balances decreased approximately $82 million in the third quarter. This decline was primarily due to normal and anticipated cash flow fluctuations in core public fund deposits. Net income was $9.3 million in the third quarter compared to $8 million in the second quarter of 2025 and $6 million in the third quarter of last year.
Net income and net interest income continued to improve through improvement in net interest margin, and our margin improved 9 basis points compared to last quarter. The yield on the loan portfolio continues to improve as fixed rate assets reprice into higher yields. In the third quarter, loan yield was 5.66% compared to 5.59% in the second quarter and 5.52% in the first quarter of this year. The cost of deposits declined 2 basis points in the third quarter compared to second quarter. As described earlier, credit quality remains pristine and no provision for credit losses was recorded this quarter. There were no significant onetime items in noninterest income or noninterest expense in the third quarter.
And our effective tax rate this quarter was a bit lower than prior quarters this year due to a change in estimate on an energy-related investment tax credit. The effective tax rate was around 19% this quarter compared to 22% to 23% in the first 2 quarters of the year. Those are my final comments on the financials. So now we'll open it up for questions.
Operator: [Operator Instructions] Your first question comes from the line of Nathan Race from Piper Sandler.
Nathan Race: Maybe just to start in terms of where the pipeline stands from a loan growth perspective, nice growth in the quarter, nearly 6% annualized. So just be curious to get an update there. I know Brad indicated there are some opportunities to pull some market share in Minnesota, just given some of the M&A-related disruption there. So I would love to just get an update in terms of where pipelines stand and how you're thinking about growth over the balance of this year and then into 2026 as well, please?
Bradley Peters: Thanks, Nate. Yes, I would say in Minnesota, our pipeline is good, but it's not as robust as it has been in the past, and that's probably because we're really being more selective around what we're trying to attract from a credit perspective. But I think we can expect to continue to maintain the pace that we're at today.
Nathan Race: Okay. So it sounds like mid-single digits is doable going forward?
Bradley Peters: I think so.
Nathan Race: Okay. Great. And then, Jane, I think the $50 million municipal deposit that you flagged last quarter, it looked like that came out based on the end-of-period balances. So just curious, is the expectation that you guys can fund that mid-single-digit growth outlook with deposit gathering from here and maybe a little bit as welcome cash flow off the securities portfolio?
Jane Funk: Yes, that would be the objective. As we look at the cash flows off the investment portfolio and our opportunities for deposit gathering, that would be our objective. There may be a little bit of wholesale funding or broker deposits that we need to backfill that for a short period of time, but we expect to be able to manage that cash flow.
Nathan Race: Okay. Great. And Jane, it seems like you guys have still a decent amount of margin tailwinds at your back in terms of -- I believe you have around $550 million of fixed rate loans repricing over the next 12 months or so. And then if you could just update us on your deposit beta assumptions as we get additional Fed rate cuts going forward?
Jane Funk: Yes. On the loan side, yes, we do still see a lot of repricing opportunities. So like in our fixed rate loan portfolio, the average -- weighted average rate of that portfolio is currently like 4.86%. So there's still plenty of room there. And what we look at for maturities and repricing into 2026, we feel there's good opportunity there to continue to improve the yield on the loan portfolio. As far as deposit betas looking forward, I know that a year ago when the Fed did their rate changes, the rate declines, we were able to be pretty aggressive with our betas at that time on deposits.
Should the Fed reduce rates another 25, 50 basis points this year and into next year, it's probably still questionable as to whether our betas can be as aggressive as they were a year ago. Just from a competitive standpoint, there's still a lot of pricing pressure on deposits. So I would expect it to maybe be a little bit lower than what we were able to do a year ago.
Nathan Race: Okay. And Jane, maybe one last one for you. I appreciate the commentary on the tax rate impacts in the third quarter. Any thoughts on the go-forward tax rate?
Jane Funk: I would say the go-forward tax rate is probably similar to what we had the first half of the year. In the third quarter, it's just the anomaly.
Nathan Race: Okay. Got you. And then just curious if there's any update in terms of capital management or deployment priorities. You built capital at a pretty nice clip this quarter, and I imagine that should continue to unfold. But just curious if there's any kind of strategic priorities, whether it's additional location build-outs, adding team members to maybe accelerate the pace of organic growth. But I would just love to hear any updated thoughts on just how you're thinking about excess capital management.
Jane Funk: We don't have any specific plans necessarily, but I think being able to take advantage of good loan opportunities, organic growth is really what we're looking for.
Nathan Race: Okay. Great. Congrats on a great quarter.
Jane Funk: Thank you.
Operator: [Operator Instructions] Your next question comes from the line of David Welch, private investor.
David Welch: This is coming from a guy who grew up in Iowa and then has lived in Minnesota for 20 years. I know you're not a direct ag lender, but soybean prices, corn prices, I'm seeing an incredible amount of press about the distress in the farming community. Is that going to have a knock-off or knock-on effect to West Banc in your opinion?
Harlee Olafson: Obviously , the dollars generated off of farm ground is going to be less. Our direct impact will -- it will have some impact on some of our customers, but most of our customers are not specific ag manufacturers. We have some customers that specifically provide pieces and parts to places like John Deere. But overall, we're a little bit insulated from that in our customer base.
David Welch: Okay. That's kind of what I figured, but I thought I should ask. And it's been quite a few years now, and it might be a little unfair for me to ask it this way, but what's the medium-term assessment of how the Minnesota growth venture has gone thus far?
Bradley Peters: I think it's -- I mean, we never put together a specific projection, but I think I can say with confidence we've exceeded expectations to this point. Each of the markets have contributed to the bottom line, we continue to grow at a reasonable pace. I think at this point, company-wide, it accounts for about 1/3 of our company. So we're pleased.
Operator: There are no further questions at this time. I'd like to turn the call back over to Jane Funk for any closing remarks.
Jane Funk: All right. We just want to thank everybody for joining us today, and we appreciate your interest in our company, and have a good day. Thank you.
Operator: This concludes today's conference call. You may now disconnect.