West Bancorp's Q1 Surge: A Banker's Dream or a Risky Gamble?

West Bancorporation (NASDAQ: WTBA) has thrown down the gauntlet with its first-quarter 2025 results, showing a 35% year-over-year jump in net income to $7.8 million and an earnings per share (EPS) of $0.46 that crushed analyst estimates of $0.38. But here’s the thing: banking stocks are like roller coasters—sudden climbs can be followed by abrupt drops. Let’s dissect the numbers, the risks, and whether this dividend-paying regional bank is worth a second look.

The Good: A Profitability Makeover

West Bancorp’s Q1 report is a masterclass in cost-cutting and margin expansion. Its net interest margin (NIM) surged to 2.28%, up from 1.98% in Q4 2024, thanks to lower deposit rates as the Fed slashed rates. That’s a big win for a bank reliant on the spread between lending and borrowing costs. Meanwhile, the efficiency ratio—a key metric for operational health—dropped to 56.37%, a sharp improvement from 60.79% last quarter.

CEO David Nelson called the results a “significant improvement,” and he’s right. The company also maintained zero significant past-due loans, a rare feat in an economy where small businesses are twitchy. With a tangible common equity ratio of 5.97%, West Bancorp is well-capitalized, giving it room to weather storms.

The Dividend: A Steady Hand in Volatile Waters

Investors love dividends, and West Bancorp isn’t shy about rewarding shareholders. The company declared a $0.25-per-share quarterly dividend, maintaining its 5% annualized yield—a juicy payout for a bank stock. This consistency matters:

But here’s the catch: dividends are only sustainable if profits keep flowing. West Bancorp’s net income growth is real, but its net interest income fell short of estimates by $0.71 million, a red flag. Plus, deposits dropped by $33.1 million, signaling customers are pulling cash elsewhere. That’s a problem—banks need deposits to fund loans.

The Ugly: Deposits on the Rocks, Loans Lagging

While loan growth inched up by $11.6 million, it’s not enough. The gains came from commercial and commercial real estate (CRE) lending, but construction loans declined, a sign businesses are hesitating to expand. Meanwhile, the $33.1 million deposit drop—attributed to “cash flow fluctuations”—isn’t just a blip.

Deposits are the lifeblood of banks. If customers keep fleeing, West Bancorp will have to rely more on costly brokered deposits, which rose by $69.1 million. That’s a trade-off: more deposits mean more loans, but brokered deposits can eat into margins if rates stay volatile.

The Analysts Are Split—But the Stock Isn’t Buying It

Spark’s AI analysis (via TipRanks) gave WTBA an “Outperform” rating, praising its strong revenue growth and “robust balance sheet.” Yet the stock is down 8.17% year-to-date, and technical indicators are screaming “Hold.” Why the disconnect?

Investors are worried about two things:
1. Deposit instability: Can the bank retain core deposits without hiking rates?
2. Loan demand: Will businesses and consumers borrow more as the economy stabilizes?

The Verdict: Hold for Now—But Watch the Deposits

West Bancorp’s Q1 was a win, but it’s not a “Buy” just yet. The dividend is safe, and profitability is trending upward, but the deposit exodus and tepid loan growth are speed bumps.

Bottom Line: If you’re a long-term income investor, WTBA’s 5% yield and improving margins make it worth holding. But if you’re chasing quick gains, wait for clearer signs of deposit stabilization and loan growth.

Final Call: Hold. The fundamentals are improving, but this isn’t a “hot stock”—it’s a slow burn. Stick with it if you’re in it for the dividend, but don’t expect fireworks unless those deposits turn around.

Disclosure: The information provided is for educational purposes only. Always consult a financial advisor before making investment decisions.