West Bancorporation's Margin Expansion and Deposit Strategy: A Compelling Case for 2025–2026 Growth

In the ever-shifting landscape of commercial banking, West Bancorporation (WTBA) has emerged as a standout performer in 2025, leveraging a dual strategy of disciplined credit risk management and aggressive cost optimization to drive net interest margin (NIM) expansion. With a NIM of 2.27% in Q2 2025—a 41-basis-point improvement year-over-year—the company has demonstrated a rare combination of operational discipline and strategic foresight. For investors, this signals a compelling opportunity to capitalize on a bank that is not only navigating macroeconomic headwinds but actively reshaping its cost structure to outperform peers.

The Power of Low-Cost Funding

West Bancorporation's ability to reduce funding costs has been the cornerstone of its margin expansion. The company's cost of deposits fell by 51 basis points in Q2 2025 compared to the same period in 2024, while the cost of borrowed funds dropped by 46 basis points. This was achieved through a deliberate shift away from high-cost liabilities. Brokered deposits, once a significant portion of the balance sheet, declined by $127.2 million in Q2 alone, reflecting a strategic pivot toward organic, low-cost deposit growth.

The most striking example of this strategy came in the form of a $243 million municipal deposit from a local government bond program. While this inflow is temporary (expected to be withdrawn over 24 months), it provided a critical buffer to reduce reliance on expensive borrowed funds. By pairing this with a 6.5% year-over-year increase in non-brokered deposits, the company has created a more stable, diversified funding base. This approach not only lowers interest expense but also insulates the balance sheet from volatile market conditions.

Credit Risk as a Competitive Advantage

While many banks have struggled with asset quality during the post-pandemic credit cycle, West Bancorporation has maintained a pristine record. As of June 30, 2025, the company reported zero nonaccrual loans and zero loans past due more than 90 days—a rare feat in the industry. The allowance for credit losses, at 1.03% of total loans, is conservative yet efficient, avoiding over-reservation that could erode profitability.

This disciplined approach to credit underwriting has allowed the company to maintain a high-risk-adjusted return. Even as loan balances declined year-over-year due to customer-driven payoffs and refinancing activity, the quality of the portfolio remained robust. Management's emphasis on “best-in-class credit metrics” has positioned the bank to selectively pursue growth opportunities without compromising safety.

Operational Efficiency and Shareholder Value

The financial results speak for themselves. West Bancorporation's efficiency ratio plummeted from 67.14% in Q2 2024 to 56.45% in Q2 2025, reflecting a sharp reduction in overhead costs relative to revenue. This improvement, coupled with a 13.65% return on average equity (ROAE), highlights the company's ability to convert cost savings into shareholder returns.

The tangible common equity ratio of 5.94% as of June 2025 further underscores the bank's capital strength. This metric, up from 5.65% in the same period of 2024, indicates a growing ability to absorb losses while maintaining flexibility for future growth. Meanwhile, the company's consistent dividend of $0.25 per share—paid to shareholders on August 20, 2025—demonstrates a commitment to returning capital without overextending the balance sheet.

A Roadmap for 2026 and Beyond

Looking ahead, West Bancorporation's strategy is poised to compound its advantages. As the temporary municipal deposit unwinds, the bank's focus on organic deposit growth and cost discipline will be critical. However, the company's progress in reducing brokered deposits and borrowed funds—down $135.2 million year-over-year—provides a strong foundation for continued margin expansion.

Investors should also watch for opportunities in loan growth. While Q2 2025 saw a $50.1 million decline in total loans due to customer payoffs, the bank's conservative credit standards and strong liquidity position make it well-equipped to capitalize on a potential upturn in commercial lending demand.

Why This Matters for Investors

For those seeking long-term value, West Bancorporation's combination of low-cost funding, disciplined risk management, and operational efficiency creates a rare flywheel effect. The company is not only improving its NIM but doing so in a way that enhances capital returns and shareholder confidence. With a ROAE of 13.65% and a tangible common equity ratio above 5.9%, the bank is well-positioned to outperform in a low-growth, high-competition banking environment.

Conclusion: A Buy for the Patient Investor

West Bancorporation's 2025 performance validates its strategy of balancing risk and reward. The company's ability to expand margins while maintaining top-tier credit quality is a testament to its leadership's foresight. For investors with a 2026 time horizon, WTBA offers a compelling case: a well-capitalized regional bank with a clear path to sustainable growth. While the stock may not offer explosive short-term gains, its fundamentals suggest a strong likelihood of outperforming the S&P 500's financial sector over the next 12–18 months.

In a market where many banks are struggling to adapt to shifting rates and credit cycles, West Bancorporation stands out as a model of disciplined execution. For those willing to look beyond the headlines and focus on the numbers, the case for ownership is clear.