Executive Summary / Key Takeaways

• West Bancorporation (NASDAQ:WTBA) delivered robust financial performance in Q3 2025, with net income increasing 55% year-over-year, signaling a strong recovery from prior challenging periods.
• The company's net interest margin (FTE) expanded significantly to 2.36% in Q3 2025, driven by effective asset repricing, particularly in its fixed-rate loan portfolio, and disciplined management of deposit costs.
• WTBA maintains pristine credit quality, characterized by zero non-performing assets and a conservative underwriting philosophy, providing a solid foundation amidst broader economic uncertainties.
• A relationship-centric banking model, supported by strategic talent acquisition and modern facilities, underpins its competitive positioning and drives targeted deposit and loan growth in its Midwest markets.
• Management anticipates continued margin improvement and mid-single-digit loan growth into 2026, fueled by ongoing asset repricing opportunities and a focused deposit-gathering strategy.

A Midwest Banking Powerhouse Reclaims Momentum

West Bancorporation, Inc., founded in 1893, stands as a venerable financial holding company providing essential community banking and trust services across central Iowa, eastern Iowa, and southern Minnesota. The company's core business revolves around delivering loan and deposit products to individuals and small- to medium-sized businesses, underpinned by a philosophy that emphasizes comprehensive client relationships over transactional lending. This approach has been crucial as the company navigates a dynamic banking landscape marked by shifting interest rates and evolving economic conditions.

The company's strategic journey has seen it emerge from challenging periods in 2023 and 2024, which were characterized by margin compression. However, West Bancorporation anticipated and has now realized a significant improvement in 2025, a turnaround accelerated by its successful deposit-gathering initiatives in 2024. These efforts allowed for a substantial reduction in expensive wholesale funding, directly contributing to an improved cost of funding and an expanding net interest margin. The company's commitment to its regional markets is further evidenced by recent infrastructure investments, including a new headquarters in West Des Moines opened in April 2024, and a new branch in Owatonna, Minnesota, operational in January 2025. These facilities are designed to foster strong client relationships, aligning with WTBA's core strategy.

While West Bancorporation is not a technology innovator in the traditional sense, its strategic adoption and integration of banking technologies are fundamental to its relationship-based model. The company offers robust online and mobile banking, comprehensive treasury management services—including cash management, client-generated automated clearing house (ACH) transactions, remote deposit, and fraud protection—along with merchant credit card processing and corporate credit cards. These technologies are crucial for efficient service delivery and maintaining competitive offerings. WTBA consistently invests in information technology and security solutions, a necessary commitment to support its service levels and mitigate cybersecurity risks in an increasingly digital financial world. The company acknowledges the broader industry shift towards advanced digital capabilities and artificial intelligence, recognizing that larger competitors may possess more extensive resources for rapid innovation.

Strategic Pillars and Competitive Standing

West Bancorporation's competitive strategy is deeply rooted in its "bankers, not lenders" philosophy, which prioritizes building comprehensive relationships by offering a multitude of services beyond just traditional lending. This approach fosters strong customer loyalty and differentiates WTBA from larger, more transactional institutions. The company's "lift-out strategy" in Minnesota has been particularly successful, attracting key personnel from competitors and significantly contributing to the company's growth, with Minnesota operations now accounting for approximately one-third of the company's overall business.

WTBA's geographic footprint provides a diversified economic base. Its operations in Des Moines, St. Cloud, Mankato, and Owatonna benefit from strong, diverse business climates. The Rochester economy is closely tied to the Mayo Clinic, while Iowa City and Coralville are influenced by the University of Iowa and its associated medical facilities. This regional focus allows WTBA to leverage local market knowledge and provide personalized services that larger, national banks often struggle to replicate.

In the competitive landscape, West Bancorporation stands out against major regional and national players like U.S. Bancorp (USB) and Wells Fargo (WFC). While USB and WFC boast superior scale, broader product offerings, and often more rapid digital innovation, WTBA's agility and deep community ties enable it to cultivate stronger customer relationships and maintain efficient operational execution. WTBA's price-to-book ratio of 1.36 is comparable to USB's 1.21 and WFC's 1.52, suggesting a reasonable valuation relative to its tangible assets in the market. Against KeyCorp (KEY), WTBA's localized approach often translates into more intimate client engagement, particularly in its niche markets. Compared to MidWestOne Financial Group (MOFG), a direct community banking peer, WTBA's diversified trust services and strategically located branch network provide a competitive edge. The company actively capitalizes on market disruptions, such as M&A activity among competitors in its Minnesota markets, to attract new business and expand its market share.

Financial Resurgence and Operational Strength

West Bancorporation's financial performance in 2025 reflects a compelling turnaround. For the third quarter ended September 30, 2025, net income reached $9.31 million, marking a substantial 55% increase compared to $5.95 million in the same period of 2024. Year-to-date, net income for the nine months ended September 30, 2025, was $25.14 million, a robust 48.26% increase from $16.95 million in the prior year. This strong earnings growth translated into an annualized return on average assets of 0.92% and a return on average equity of 15.25% for Q3 2025.

A primary driver of this improved profitability is the significant expansion of the net interest margin. Net interest income for Q3 2025 increased by 25.30% year-over-year to $22.50 million, contributing to a nine-month total of $64.78 million, up 24.70% from 2024. The net interest margin on a fully taxable equivalent (FTE) basis rose to 2.36% in Q3 2025, a notable 45 basis point improvement from Q3 2024. This expansion is largely attributable to the repricing of fixed-rate loans into higher yields, with the average weighted rate of the fixed-rate loan portfolio at approximately 4.86% in Q3 2025, offering substantial room for future yield improvement. Concurrently, the company has effectively managed its cost of deposits, which declined by 2 basis points in Q3 2025. The efficiency ratio also saw significant improvement, reaching 54.06% in Q3 2025, down from 63.28% in Q3 2024, indicating enhanced operational effectiveness.

The loan portfolio stood at $3.01 million as of September 30, 2025, showing a slight increase of 0.10% year-to-date. The yield on the loan portfolio continues its upward trend, reaching 5.66% in Q3 2025, up from 5.59% in Q2 2025. Deposit gathering remains a strategic emphasis, though core deposit balances decreased by approximately $82 million in Q3 2025 due to anticipated fluctuations in public fund deposits. However, excluding brokered deposits, deposits increased by $10.51 million during the first nine months of 2025, reflecting the success of targeted efforts.

WTBA maintains a strong liquidity position, with $232.93 million in cash and cash equivalents as of September 30, 2025. The company also has substantial additional borrowing capacity, including approximately $545 million from the Federal Home Loan Bank (FHLB), $53 million through the Federal Reserve discount window, and $75 million in unsecured federal funds lines of credit. Capital levels are robust, with total stockholders' equity increasing to $255.13 million and a tangible common equity to tangible assets ratio of 6.40% as of September 30, 2025, up from 5.68% at year-end 2024, indicating a well-capitalized institution.

Outlook and Key Risks

Management's outlook for West Bancorporation remains positive, with expectations for continued margin and earnings improvement into 2026. CEO David Nelson stated that "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." The company anticipates mid-single-digit loan growth, supported by a robust pipeline and selective underwriting. Deposit costs are expected to remain relatively static in the near term, with competitive pressures potentially limiting aggressive rate reductions even if the Federal Reserve cuts rates. The effective tax rate is projected to normalize to approximately 22-23% going forward, consistent with the first half of 2025.

Despite the positive outlook, several risks warrant investor attention. Interest rate risk remains a primary concern, particularly the sensitivity of deposit betas in a declining rate environment. While the commercial real estate portfolio is well-diversified and performing as expected, the distress in multi-tenant office properties in the Des Moines market is being closely monitored. Economic uncertainties, including a slowdown in manufacturing clients and potential impacts from tariffs on imported products, could affect commercial and industrial (C&I) borrowers. Chief Risk Officer Harlee Olafson noted that "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." However, these broader economic factors could still pose challenges. Furthermore, the evolving landscape of technological changes, including the development of artificial intelligence and the persistent threat of cybersecurity incidents, presents ongoing operational and financial risks.

Conclusion

West Bancorporation has demonstrated a compelling financial revival, effectively transitioning from a period of margin compression to one of expanding profitability and operational efficiency. The company's disciplined, relationship-driven banking model, coupled with strategic investments in its physical and technological infrastructure, provides a strong competitive foundation in its Midwest markets. With pristine credit quality, a robust capital position, and a clear strategy for continued asset repricing and targeted deposit growth, WTBA is well-positioned for sustained performance. The outlook for further margin expansion and moderate loan growth reinforces a compelling investment thesis, making West Bancorporation an attractive consideration for discerning investors seeking a resilient regional banking opportunity.