West Bancorporation, Inc. (WTBA) is a financial holding company headquartered in West Des Moines, Iowa, with its primary subsidiary being West Bank, a state-chartered community bank founded in 1893. The company has a long history of serving its local markets in central and eastern Iowa, as well as southern Minnesota, through a focus on building strong relationships with small- to medium-sized businesses.
Company History and Growth
The company's roots trace back to 1893 when West Bank was founded in West Des Moines. Over the decades, the bank has expanded its footprint, opening offices in the Des Moines metropolitan area, Coralville, Iowa, and several cities in southern Minnesota, including Rochester, Owatonna, Mankato, and St. Cloud. In 1984, West Bancorporation, Inc. was formed as the bank's holding company. The company currently operates 10 branch offices, with four locations in the Des Moines, Iowa metropolitan area, one in Coralville, Iowa, and four in southern Minnesota.
Overcoming Industry Challenges
Throughout its history, West Bancorporation has faced various challenges common to publicly traded, regulated financial institutions. In the early 2000s, the company successfully navigated the impacts of the global financial crisis, which put strains on asset quality and profitability across the banking industry. By maintaining disciplined underwriting and a diversified loan portfolio, West Bancorporation was able to weather this downturn effectively.
In 2016, West Bancorporation made a strategic decision to operate as a financial holding company, providing additional flexibility to respond to market developments and opportunities. This status has allowed the company to focus on expanding customer relationships while maintaining strong credit quality. Throughout this period, West Bancorporation has also contended with increasing competition from non-bank competitors, such as fintech firms and credit unions, that have disrupted traditional banking services.
Current Operations
Today, West Bancorporation operates 11 branch locations and prides itself on providing personalized service and financial expertise to its customers. The company has a diverse loan portfolio, with commercial real estate, construction, and commercial and industrial loans making up the majority of its $3.01 billion in total loans as of December 31, 2024. West Bancorporation has maintained strong credit quality, with a nonperforming asset ratio of 0.00% as of the same date.
Business Segments
West Bancorporation's primary business segment is community banking, which encompasses its lending and deposit-taking activities. The loan portfolio includes several major categories:
1. Commercial loans: These are primarily loans to small- and medium-sized businesses for various purposes, such as revolving lines of credit to finance current operations, inventory and accounts receivable, and capital expenditure loans for equipment and other fixed assets. These loans generally have short maturities and either adjustable or fixed interest rates, secured by inventory, accounts receivable, and/or fixed assets.
2. Real estate loans: This category includes construction, land and land development, 1-4 family residential first mortgages, and home equity loans. These loans are typically structured to mature or reprice every 5-10 years, with payments based on amortization periods up to 30 years. Construction, land, and land development loans are primarily to contractors and developers for commercial buildings or residential real estate, with maturities of up to 24 months.
3. Consumer and other loans: This portfolio mainly comprises loans to individuals for household, family, and other personal expenditures not secured by real estate, such as vehicle loans, debt consolidation loans, and home improvement loans. Repayment generally comes from the borrower's wages.
Financials
Financially, West Bancorporation has demonstrated resilience in the face of industry headwinds. For the full year 2024, the company reported net income of $24.1 million, or $1.42 per diluted share, consistent with its 2023 results. The company's net interest margin decreased to 1.91% in 2024, down from 2.01% in 2023, due to increases in the average rate paid on interest-bearing liabilities outpacing the increases in the average yield on interest-earning assets.
In the fourth quarter of 2024, West Bancorporation reported revenue of $20.7 million and net income of $7.1 million, compared to $6 million in the previous quarter and $4.5 million in the fourth quarter of 2023. The improved performance was driven by an increase in net interest income and a decrease in income tax expense.
As of December 31, 2024, West Bancorporation had total assets of $4.01 billion, total loans of $3.00 billion, and total deposits of $3.36 billion. The loan portfolio grew 2.6% in 2024 compared to 2023. The allowance for credit losses was $30.43 million, or 1.01% of outstanding loans, up from $28.34 million, or 0.97% of loans, at the end of 2023. The company's efficiency ratio was 63.25% in 2024, compared to 60.73% in 2023.
Liquidity
West Bancorporation's deposit base grew 12.9% in 2024 to $3.36 billion, with core deposit growth of 15.8% for the year. This strong deposit gathering enabled the company to reduce its reliance on more expensive wholesale funding, which declined by over $200 million in the fourth quarter of 2024. The company's capital ratios remain well above regulatory requirements, with a tangible common equity ratio of 5.68% as of December 31, 2024.
As of December 31, 2024, the company had $243.48 million in cash and cash equivalents. West Bancorporation also had $610 million in additional borrowing capacity available from the FHLB, as well as $116.84 million available through the Federal Reserve discount window and $75 million in unsecured federal funds lines of credit.
The company's debt/equity ratio stood at 1.72, with a current ratio of 1.06 and a quick ratio of 0.64 as of December 31, 2024.
Risk Factors
In terms of risk factors, West Bancorporation's loan portfolio is concentrated in commercial real estate, which accounted for 78.8% of total loans as of the end of 2024. While the company's underwriting standards and portfolio diversification have helped maintain credit quality thus far, this concentration exposes the bank to potential risks should economic conditions deteriorate in its markets. Additionally, the company faces competition from larger regional and national banks, as well as emerging financial technology firms, which could pressure margins and growth.
Future Outlook
Looking ahead, West Bancorporation's management has expressed optimism about the company's prospects in 2025, citing the potential for further improvements in net interest margin as assets continue to reprice and deposit costs decline. The company has also highlighted its strong loan and deposit pipelines, as well as the overall strength of the economies in its markets, as positive factors going forward.
West Bancorporation had previously forecasted that 2023 and 2024 would be challenging due to margin compression, which proved to be accurate. The company believes that the improvement they had forecasted for 2025 is already underway and reflected in their Q4 2024 performance. This improvement was accelerated by their successful deposit gathering efforts during 2024, which allowed for a reduction in wholesale deposits.
The company expects to continue benefiting from further short-term rate reductions and significant asset repricing opportunities during 2025 and 2026. West Bancorporation also anticipates moderate loan growth in 2025, although specific quantitative guidance was not provided.
Geographic Markets
West Bancorporation operates primarily in central Iowa, eastern Iowa, and southern Minnesota. These markets have diverse and growing economies, with major industries including financial services, healthcare, education, technology, and agribusiness.
Industry Trends
The banking industry has been experiencing challenges due to margin compression and the interest rate environment. However, West Bancorporation is forecasting an improvement in its performance in 2025, driven by its successful deposit gathering efforts and the corresponding reduction in wholesale funding.
Conclusion
Overall, West Bancorporation appears to be a well-managed community bank that has weathered industry challenges relatively well. Its focus on building deep customer relationships, conservative underwriting, and diversified business lines have helped the company maintain solid financial performance. While risks remain, particularly around its commercial real estate concentration, the company's history of resilience and its positive outlook for the future suggest it is well-positioned to continue serving its local markets.