Thank you for your patience. My name is Joel, and I will be your conference operator today. I would like to welcome everyone to the West Bancorporation, Inc. Fourth Quarter 2024 Earnings Conference Call. All lines have been muted to minimize background noise. There will be a question-and-answer session after the speaker’s remarks. I would now like to turn the conference over to Jane Funk, Chief Financial Officer. You may begin.

Good afternoon. I'm Jane Funk, the CFO of West Bancorporation, Inc., and I'd like to welcome the participants on the call today, and thank you for joining us. With me today, I've got Dave Nelson, our CEO; Harlee Olafson, our Chief Risk Officer; and Brad Peters, our Minnesota Group President. Now I will read the 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 2024 fourth quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is accurate as of December 31, 2024, and we undertake no duty to update the information. And with that, I'll turn it over to Dave Nelson.

Thank you, Jane, and thank you, everyone, who has dialed in to join us. We appreciate your interest and support of our company. We had an excellent fourth quarter. From an earnings standpoint, it was our best quarter during the previous seven quarters. And during 2022, we knew and forecasted that 2023 and 2024 were going to be challenging due to margin compression, and they were. We also had forecasted that 2025 would be better, and it will. We believe the 2025 improvement is already underway and reflected within our fourth quarter 2024 performance. We believe our forecasted 2025 improvement was accelerated by our tremendous deposit gathering success during 2024, which then allowed for the corresponding reduction in wholesale deposits. We will continue to benefit from further short-term rate reductions and significant asset repricing opportunities during 2025 and 2026. Our credit quality remains pristine, and the economies of the communities in which we do business are strong, and our loan and deposit pipelines remain solid. Based upon our fourth quarter performance, we have declared a $0.25 dividend to common shareholders of record as of February 5 and payable February 19. Those are the extent of my prepared remarks. I will now turn the call over to our Chief Risk Officer, Mr. Harlee Olafson.

Thank you, Dave. As Dave stated earlier, credit quality remains a strength at West Bank. Highlights are included at quarter end; we had zero past dues over 30 days, and our watch list represents only 0.26% of total loans. Our $2.4 billion commercial real estate portfolio continues to perform very well. We have a small amount of multi-tenant office properties that are performing as expected with good long-term tenants. In our markets, office properties are dealing with significant vacancies. Our other types of commercial real estate such as multifamily, warehouses, mixed-use, and hotels are performing very well. Our $500 million C&I portfolio is also strong. We received interim financials on most borrowers and are not aware of any significant deterioration in financial strength. Of course, we will begin receiving most year-end financials in the coming months. The uncommon strength of our loan portfolio is due to doing business with customers with proven track records, good balance sheets, and strong and diverse payment abilities. Our banks are located in thriving communities. From a lending perspective, half of our outstanding loans are originated in our Des Moines market, 27% in Minnesota locations, and 23% in Iowa City Coralville. Des Moines, St. Cloud, Mankato, and Owatonna have strong business climates and diverse businesses. The Rochester economy is dependent on the health and growth of Mayo Clinic, and all the services they require to support a significant portion of the city's total employment. Iowa City Coralville is dominated by the University of Iowa, and most of the business there supports a major university student and faculty population, along with a major medical facility. We have a seasoned team of bankers that continue to prospect for comprehensive banking relationships. This has been a focus of the group, and as you can see in our significant deposit growth, their efforts have been rewarded. They are succeeding in capturing new business relationships and expanding our market share with our existing customers. Interest rates will affect the level of new projects and expansions. I expect that we will continue to see moderate growth in 2025, and I am available for any questions after our prepared remarks. I will now turn it over to Brad Peters, our Minnesota Group President.

Thanks, Harlee. Good afternoon, everyone. I'm going to provide a brief update on our progress in Minnesota. Our new credit opportunities have slowed somewhat, and we are also very selective in where we are focusing our efforts. We continue to proactively call on C&I prospects, and many of those prospects have no credit needs, but our bankers are spending their time winning new relationships with core deposits. We are also working closely with our existing business banking client base to win the high-value retail deposits of business owners, key executives, and employees of the businesses we bank. We do not have specific production goals for our bankers, but instead measure our bankers on the right activities that will drive results. We have a seasoned group of bankers that have proven this strategy to be effective. Deposit growth has been strong in each of our Minnesota regional centers. Our superior service and high-touch retail banking have driven the positive results. The final construction project in Owatonna is now complete. The new facility opened for business this week. This facility, like the others in Minnesota, was designed with well-appointed entertainment areas that allow our teams to host client and prospect events and quality small group meetings. These facilities align perfectly with our strategy of building our business based on strong relationships. Our team has embraced this, and we have done an outstanding job of leveraging our buildings to grow our business. Those are the end of my comments. I will now turn the call back over to Jane.

Thanks, Brad. I'll just make a few comments on our financial performance. So net income was $7.1 million in the fourth quarter, compared to $6 million in the third quarter of 2024, and $4.5 million in the fourth quarter of 2023. Net income was $24.1 million for both 2024 and 2023. We recorded a $1 million provision for credit losses in the fourth quarter of 2024. This provision was primarily due to an increase in certain qualitative factors in our methodology and was not the result of any specifically identified credit deterioration in the loan portfolio. In December, we sold approximately $12 million of investment securities and recorded a $1.2 million loss. Those funds will be reinvested in the loan portfolio, and we expect the earn-back period to be approximately two years. In the fourth quarter, we also recorded a $1.8 million income tax benefit from an energy-related investment tax credit associated with the construction of our new headquarters building. Core deposit balances increased 15.8% in 2024, with an 8.3% increase in the fourth quarter. The core deposit growth is a mix of public funds, commercial, and retail activity, reflecting our focused efforts on deposit relationships. Deposit growth facilitated a reduction in expensive wholesale funding of over $200 million in the fourth quarter of 2024, which has helped to reduce our cost of funding. We have now had four consecutive quarters of increases in net interest income, and net interest margin increased seven basis points this quarter compared to the third quarter. With the 100 basis point reduction in the Fed rate since September, we've been able to lower deposit rates on our highest costing sectors, resulting in noticeable improvements in our cost of funds and net interest margin. The impact of any future rate changes is dependent on multiple variables, including, but not limited to, the rate sensitivity of depositors, the mix of deposits, and the ongoing repricing opportunities from loan investments and deposit cash flows and maturities. That completes the prepared comments, so now we will open it up for questions.

Thank you. Your first question comes from Andrew Liesch of Piper Sandler. Your line is open.

Hi, good afternoon everyone. Just want to touch on the provision. You mentioned qualitative factors in commercial real estate. Would that be like the vacancy rate at other properties? Just curious what these qualitative factors might be?

It really was more of a recognition of, as loans reprice higher and debt service coverage ratios may decline a little bit, and the impact of that on the economics of the property and the values of properties. It's really just kind of a broad-based acknowledgment, but nothing necessarily specific to the portfolio.

Got it. Yes, makes sense. And it sounds like loan pipelines are pretty solid here to start the year. I guess by type, is it construction, commercial real estate where you're seeing the most activity?

Most of the activity that we're seeing right now is C&I activity. We've had business purchases by the group. We've had other opportunities that have been more in the relationship of C&I business. There isn't a huge pipeline of new commercial real estate projects that are on the docket right now, but it is a good pipeline.

Got it. That's great to hear about the C&I. On expenses, it looked like I think the third quarter might have been a little bit undersized. But as we look into 2025, is this a good jumping-off point for costs but recognizing there could be some seasonal upticks in the first quarter?

Yes. I would say fourth quarter would have included probably some accrual adjustments as it relates to incentive bonuses and some discretionary compensation pieces. And then also some true-up of, I would say, depreciation costs with the new buildings that we've got coming online. So December was actually probably a little bit elevated.

Got it. Okay. That's helpful. And then on the non-interest income side, trust services are up nicely. Was there any one-time benefit there? I guess what's the - or is this the new run rate going forward?

It's probably close to the new run rate. I mean there are some one-time estate fees, but we seem to have recurring experiences with estate work. So it's an increase in the value of assets and the fees related to that. So nothing really large one time that wouldn't reoccur.

Great. And then just lastly, cost of deposits down pretty nicely here, full quarter effect of the November and December rate cuts. Do you think there's more improvement just to be had naturally on that front in the first quarter?

I think that's a fair assessment.

Got it. And maybe that could help with the margin, but not to the same pace as in the fourth quarter.

Well, part of that is going to be dependent, again, on - we still got a lot of assets repricing. So some of the timing of maturities and cash flows on the asset side will be as big of an impact as kind of the full repricing of the deposits for a full quarter.

Got it, got it. That covers all my questions. Thanks so much for the time today.

Thanks, Andrew.

Thank you. With no further questions, that concludes our Q&A session. I will now turn the conference back over to CFO, Jane Funk, for closing remarks.

Yes. Again, we just want to thank everybody for your interest in our company, and thank you for joining us today, and we will talk to you again next quarter. Thank you.

This concludes today's conference call. You may now disconnect.