Thank you for standing by. At this time, I would like to welcome everyone to the West Bancorporation, Inc. First Quarter 2026 Earnings Conference Call. All lines have been placed on 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. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jane Funk, Chief Financial Officer. Please go ahead.
Thank you. Good afternoon, everyone. I'm Jane Funk, the CFO of West Bancorporation, Inc. 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 Winterbottom, Bank President, and Brad Peters, our Minnesota Group President. I'll start out by reading 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 disclosure in our 2026 first quarter earnings release for more information about risks and uncertainties which may affect us.
The information we provide today is accurate as of March 31st, 2026, and we undertake no duty to update the information. With that, I'll turn it over to Dave Nelson.
Thank you, Jane. Welcome everyone, and thank you for joining us this afternoon. I have a few general comments and then others will provide additional detail. We had a very strong quarter and look forward to continued earnings growth. As the COVID era five-year duration assets reprice, our margin is expected to continue to improve. Our loan balances have been flat, but we have had growth in our deposits. When loan demand increases, we will definitely find it. We have several attractive credit opportunities in our pipeline. Once again, at quarter end, March 31st of this year, our credit quality remains pristine, and we did not have a single loan past due 30 days. West Bank continues to make investments in technology to better serve our customers and to create efficiencies in our operations.
Our board of directors declare a $0.25 quarterly dividend with a May 20th payment date to shareholders of record as of May 6th. Those are the extent of my prepared remarks, and I would now turn the call over to our Chief Risk Officer, Mr. Harlee Olafson.
Thank you, Dave. For the quarter ended March 31st, 2026, credit quality is very strong. As Dave mentioned, we have no past dues over 30 days, no OREO, no non-accruals, no substandard loans. Our watch list is down 20% from year-end and is at a very low 1.4% of total loans. 90% of our watch list is related to the trucking industry. The trucking industry continues to suffer through low freight, excess capacity and high price of diesel. The industry has a history of going through cyclical times. Our portfolio is well secured, and we believe the businesses in our portfolio are making good decisions to remain viable. We expect resolution of a large credit within that group before the end of the second quarter. Our commercial real estate portfolio continues to perform very well.
We are diversified in both the type of commercial real estate we have and by location. Our stress tests continues to show lower loan to values and good strong cash flow on a majority of the credit. Our commitment to strong underwriting is the foundation of our credit quality. Customer relationships with multiple sources of repayment and liquidity are sought after. Our credit pipeline consists of numerous strong relationships, and the total pipeline volume has increased substantially in the last two months. Our portfolio is strong because we have chosen good customers that have the financial characteristics that align with our underwriting. After all prepared remarks, I'm available for questions. I now turn it over to Brad Winterbottom, our Bank President.
Thanks, Harlee. For the quarter ended, our loan portfolio was flat compared to the year-end 12/31/2025. At the end of the first quarter, we were at $3 billion in outstandings. We continue to experience notable loan payoffs as a result of secondary market refinancing and asset sales. The change in loan mix, primarily due to reclassifications resulting from completed construction projects moving to permanent financing and commercial loan restructurings adding real estate as collateral. As we enter the second quarter, this trend will continue. However, we continue to backfill these payoffs with new opportunities at better interest rates. We are not losing customers. Rather, they are restructuring their asset portfolios with longer-term interest rates through the secondary markets.
We still believe the new activity is mild due to economic and political issues we face, but we are still finding new and good opportunities due to our calling activities. Deposit gathering sales efforts continue to be an emphasis in the markets we serve, a very competitive market today. We remain selective in obtaining new loan opportunities, looking for relationships versus transactional or participation opportunities. We remain confident in our ability to create and maintain positive relationships with our customers and prospects that we are pursuing in this highly competitive markets we serve. That ends my comments. I would now like to turn it over to 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 full-service bank in Rochester, opening in 2016. We added the St. Cloud, Mankato, and Owatonna markets early in 2019, with our final building being completed last year in Owatonna. Although it has been over seven years since our 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 efficiently grow while maintaining a small number of employees. We also have strategically invested in unique facilities, offering our teams the opportunity to entertain and engage in quality conversations with our clients and prospects. The disruption in our markets due to the recent M&A activity has provided ample targets to pursue. Our disciplined culling approach has driven results.
Our business banking focus and our seasoned group of bankers set us apart from the competition. We are also capturing the personal business of our business owners and key executives, along with high-value retail deposit opportunities in our communities. We expect to see continued core deposit and loan growth and are well-positioned to grow our business banking market share as the economy improves. Those are the end of my comments. I will now turn the call back over to Jane.
Thanks, Brad. Just a couple of comments about the financial performance, and then we'll open it up for questions. Our net income for the quarter was $10.6 million, compared to $7.8 million in the first quarter of 2025, representing a 35% increase in net income. Net interest income continues to improve through improvement in our net interest margin. Net interest income increased $3.5 million or 17% compared to first quarter of last year. Our margin has increased 12 basis points compared to the previous quarter, and 31 basis points compared to the first quarter of last year. Cost of deposits has declined 14 basis points compared to the previous quarter and 40 basis points compared to the first quarter of last year. As described earlier, credit quality remains pristine and there was no provision for credit losses recorded this quarter.
Non-interest expenses remained well controlled with a 3% increase from first quarter of last year and no unusual items to identify in this quarter. Our core deposit balances were down a little bit this quarter compared to year-end, primarily as a result of just normal fluctuations that we experience through our customers' normal cash flow fluctuations, a little bit of seasonality there. That's the primary driver of the deposit fluctuations. We've talked about the loan portfolio already. Those are the completion of our comments, and we would open it up for questions.
At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Brendan Nosal with Hovde Group. Please go ahead.
Hey, good afternoon, everybody. Hope you're doing well.
Hi, Brendan.
Just starting off here on funding, specifically that municipal depositor from last year that put $243 million of bond proceeds on your balance sheet. Just kind of curious where those outstanding balances sit today.
Yeah. There's probably 75% remaining, I think, in our deposits on the balance sheet. Somewhere around 75% of that. Still a fair amount that's still sitting there.
Okay. That's helpful. Maybe pivoting to loan growth. Appreciate all the comments that you all made in the prep remarks. Just kind of curious, what do you think takes it to get loan demand in your markets higher and then translate that into your own near-term loan growth expectations?
Well, I would say that we've had a very active new business opportunity, but we've had a lot of customers, and it's going to continue into the second quarter that we have some loan payoffs, and they are coming because they're moving them to the secondary markets. We still have them as customers. We're backfilling those, and we have a very large prospect list that we're chasing and with opportunities. That's the balance. It's pretty hard to tell you when we think that that's going to stop and we're going to grow the portfolio. We've been adding new assets to our loan portfolio.
I think just a little bit of additional.
Color to that is that when rates were relatively high, like over 1% higher than they are right now, new construction projects for different types of property came close to a standstill. What has happened during that period of time is that new construction projects haven't ramped up and provided new dollars onto the loan balances, while other projects got completed and then stabilized, and then the investor borrower is able to take it to non-recourse financing or sell. There is a little bit of a gap area there that I think is starting to see some signs of borrowers and developers starting to fill in that gap again with new projects.
Okay. All right. I appreciate the color on that topic. Maybe sticking with the theme of the balance sheet. Just on capital ratio, saw a nice bump this quarter as the balance sheet contracted a little bit. Just kind of curious for your updated thoughts on how you think about capital needs versus deployment opportunities over the course of the year.
Yeah. I think capital is something that you're always talking about and always planning for. I think our earnings improvement in 2025 and the continuation of that earnings improvement will help us with our capital as we have a little bit of lag in loan growth. We're just trying to manage what our expectations are for loan growth with our income and our retention of earnings. Nothing different than the way you would manage it over a normal course of business.
I'd just add, when business picks up, our bankers are out busy. They are out busy talking to folks. When the new opportunities come, we're going to be in the front row.
Perfect. I'm going to try and sneak one more in here before I step back. Just turning to the net interest margin. A lot of nice margin expansion this quarter. Can you just update us on the outlook for the NIM if the Fed is on hold here for the rest of the year?
Yeah. If the Fed rates don't change, we've still got pretty fair amount of cash flow coming off the fixed rate portfolio that will mature in 2026 and 2027 that are at rates that are still in the fours, some in the threes. We've got a fair amount of opportunity with asset repricing. We'll have about, I think it's projected about $38 million rolling off of the investment portfolio over the next 12 months, and that's a 2% or sub 2% rate that that's rolling off of. We believe if rates are steady and deposit and funding costs are steady, we've got plenty of opportunity on the asset side in repricing to improve margin.
Okay, perfect. All right. Well, thank you for taking my questions, everyone. I appreciate it.
Thank you.
Again, if you would like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Nathan Race with Piper Sandler. Please go ahead.
Hi, everyone. Good afternoon. Hope you're all doing well.
Hey, Nathan.
Just going back to the margin discussion, Jane, I was wondering if you could maybe help just kind of triangulate where maybe the margin could shake out over the next few quarters, assuming the Fed's on pause and just based on that Fed repricing. I'm sorry, that fixed rate loan repricing that you had mentioned. Are we talking something in like the 2.70% range, or do you think that's too aggressive at this point?
Well, I would say that over the next 12 months, we've probably got between loans and investments that'll be repricing. There's probably $250 million, somewhere around there, that will be repricing, and again, those are at a blended rate, maybe below 4%. That's where we're getting our confidence in the net interest margin improving. We don't have a specific number or target.
Got you. Okay. Just going back to some of the balance sheet dynamics. I appreciate the cash flow coming off the bottom book in terms of what the yield pickup could be there. Just curious, as you're thinking about hopefully some stronger loan growth coming through later this year as payoffs hopefully moderate, is the expectation that you'll have some excess liquidity that you can fund that loan growth? Or do you think deposit growth can keep up with the pace of loan growth that will hopefully develop as 2026 progresses?
Yeah. We'll certainly allocate investment cash flows to the loan portfolio as needed. We haven't been purchasing securities the last few years, and so a lot of the liquidity that we're building, the short-term liquidity is really for that anticipation of loan activity, so.
Got you. Okay, great. One last one. Expenses were really well managed in the quarter as they typically are with you guys. Just curious if you're still budgeting for similar expense growth than what we saw last year in that 4%-5% range, or if there's any initiatives or any kind of de novo plans or opportunities to add some additional commercial bankers, particularly in Minnesota in light of the M&A really disruption there that could cause some expenses to be front-loaded as you're maybe investing for growth.
Yeah. Our expectation at this time is expense management will be ordinary course of business, and we're not expecting any anomalies or additional items.
Yeah. Nate, we're always on the lookout for opportunities in the marketplace. We know the individuals that we would like to potentially bring on board, and those conversations are ongoing, but the timing of that has not, I would say, been established.
Got you. Brad, if I could just sneak one more in for you. Just curious as you're on the ground there in those markets where there's that disruption going on. Any sense or how long of a tail some of these opportunities could present in terms of bringing over clients or potentially some relationship managers? Is this like a one-year process, or do you think it's going to unfold over the next maybe two or three years?
Oh, I think it's several years. Just looking at sales cycles, all of this takes time. I think our focus now is to work to get in second place and position ourselves to win the business, and that's kind of what we've been doing all along. I see that continuing, and I think the ramp up, it's over a course of years.
Okay, great. Well, I appreciate all the color. Thanks, everyone.
Thank you.
There are no further questions at this time. I'll now turn the call back over to Jane Funk for closing remarks.
All right. Thank you. We appreciate everyone's interest in our company today. Thank you for joining us, and have a good day.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.