West Bancorporation Projects Stronger Margins After Robust 2025

West Bancorporation ((WTBA)) has held its Q4 earnings call. Read on for the main highlights of the call.

West Bancorporation Highlights Robust 2025 Earnings Momentum Amid Tactical Balance-Sheet Moves

West Bancorporation’s latest earnings call painted a largely upbeat picture, with management emphasizing strong full-year performance and improving fundamentals despite a softer fourth quarter headline number. Net income jumped 35% year over year, net interest margin expanded materially, core deposits surged, and credit quality remained exceptionally clean. Short-term pressure from a one-time securities loss, modest loan balance declines and a concentrated watch list in the trucking sector were openly acknowledged, but management framed these as manageable, transitory issues within an otherwise strengthening operating profile.

Strong Full-Year Net Income Growth

Net income for fiscal 2025 climbed to $32.6 million from $24.1 million in 2024, a 35% increase that underscores the company’s improved earnings power in a still-choppy rate environment. Fourth-quarter net income came in at $7.4 million, up modestly from $7.1 million in the prior-year quarter but down from $9.3 million in Q3 2025. Management stressed that the quarter’s results were distorted by a pretax $4 million securities loss; without that hit, Q4 net income would have exceeded $10 million, reinforcing the view that underlying profitability remains strong.

Net Interest Margin Expansion and Lower Deposit Costs

A key theme of the call was margin expansion, driven largely by lower funding costs. Net interest margin improved by 11 basis points sequentially and 49 basis points year over year, from a reported starting point around 2.5%. The cost of deposits fell 28 basis points versus the previous quarter and 64 basis points from a year ago, reflecting successful repricing of deposits and a more favorable funding mix. Management signaled that there is still room for further improvement as deposit costs continue to reset and asset yields benefit from upcoming repricing, positioning the bank for additional net interest income growth.

Material Core Deposit Growth

West Bancorporation delivered notable deposit growth, particularly in core balances, which exclude brokered funds. Core deposits increased by roughly $212 million in the fourth quarter and $223 million for the full year, indicating sustained success in gathering stable, relationship-based funding. Total deposits rose just over $162 million during Q4, supported by broad-based increases across retail, commercial and public fund customers. This strong deposit performance enhances liquidity, supports balance-sheet flexibility, and provides a solid base for future loan growth when demand normalizes.

Pristine Credit Quality

Credit quality remains a standout strength. The bank reported no loans past due more than 30 days, no other real estate owned, no nonaccrual loans and no substandard credits. The watch list is modest at 1.7% of total loans, and management did not record any provision for credit losses during the quarter, reflecting confidence in the portfolio’s performance. In an environment where many peers are grappling with rising credit costs, West Bancorporation’s clean credit metrics offer a meaningful competitive advantage and support a stable earnings outlook.

Securities Repositioning to Boost Flexibility

Management used the quarter to proactively reposition the securities portfolio, selling $64 million of available-for-sale securities at a pretax net loss of $4 million. While this move weighed heavily on Q4 reported earnings, the company described it as a strategic trade intended to improve balance-sheet flexibility. Proceeds can be redeployed into higher-yielding assets or used to retire more expensive funding, which could enhance earnings over time. Executives indicated they are continuing to evaluate additional repositioning opportunities, signaling a willingness to absorb near-term noise in favor of longer-term value creation.

Dividend and Positive 2026 Outlook

The board’s decision to declare a $0.25 dividend underscores confidence in capital strength and future cash flow. On the call, management described 2026 as a year with meaningful upside potential for core earnings, supported by expected margin expansion and an eventual pickup in loan growth as economic conditions improve. The combination of rising core profitability, strong capital and a consistent dividend suggests management is comfortable returning capital to shareholders while still investing for growth.

Loan Repricing Opportunity in 2026

One of the most significant earnings levers discussed was the upcoming repricing of nearly $400 million of fixed-rate loans in 2026. These loans are expected to roll off at low-4% yields and reset higher, with an anticipated yield pickup of roughly 1.5% to 2%, lifting them into the mid-4% range. This repricing should provide a direct boost to net interest income and margin, particularly when combined with lower deposit costs and the balance-sheet repositioning already underway. For investors, this built-in asset reprice offers a relatively visible near-term catalyst for earnings growth.

Quarterly Net Income Dip From One-Time Loss

Despite the strong full-year trajectory, the quarter-to-quarter comparison showed a decline in net income, which fell to $7.4 million in Q4 2025 from $9.3 million in Q3. Management attributed this almost entirely to the $4 million pretax loss on the securities sale. On an adjusted basis, Q4 net income would have surpassed $10 million, indicating that the underlying business improved sequentially. The message to investors was clear: the weaker headline number masks strengthening core trends, and the drag is not expected to recur at the same magnitude.

Loan Balances Ease on Large Payoffs

Loan balances ended the year just under $3.0 billion, down slightly due to several outsized payoffs and refinance activities. These included the payoff of a single medical office sale exceeding $50 million, along with other loans being sold or refinanced into secondary markets and multifamily structures. While this temporarily pressured loan outstandings, the activity reflects healthy borrower liquidity and capital markets access rather than underlying credit stress. Management framed the decline as a volume timing issue rather than a structural challenge to the franchise’s lending capabilities.

Watch List Concentration in Trucking Industry

The call highlighted one area of specific risk: concentration within the trucking sector. Although the overall watch list is only 1.7% of loans, roughly 70% of that exposure relates to trucking, a segment currently facing weak freight rates and excess capacity. This introduces cyclicality and sector concentration risk into an otherwise clean portfolio. Management’s comments suggested they are closely monitoring this book, but given the limited absolute size, they view it as manageable against the backdrop of strong overall asset quality and robust capital.

Public Fund Deposit Volatility

Not all of the recent deposit growth is expected to stick. A portion of the quarterly increase came from public fund bond proceeds, which management warned are likely to flow out in 2026. This means deposit balances may show some volatility in the coming year, and investors should not assume all of the recent surge represents permanent funding. Even so, the underlying growth in core deposits remains solid, and the bank appears well-positioned to backfill any runoff through its retail and commercial franchises.

Muted Loan Pipeline and Selective Growth Strategy

Management described the current loan pipeline as muted relative to prior years and emphasized a deliberately selective approach to new originations. They are prioritizing credit quality and pricing discipline over volume, which could restrain near-term loan growth but should protect returns through the cycle. Broader loan expansion is expected to hinge on a more robust economic expansion, suggesting that any acceleration in lending is more likely to occur once macro conditions improve rather than in the immediate quarters ahead.

Guidance and 2026 Outlook: Positioned for Margin-Driven Growth

Looking ahead, the company guided to being well-positioned for growth and margin expansion in 2026. The key building blocks are already visible: a 35% jump in full-year 2025 net income, improving net interest margin, falling deposit costs, and strong deposit growth, alongside a pristine credit profile and no current need for provisioning. About $400 million of fixed-rate loans are set to reprice with an expected 1.5–2 percentage-point yield lift, while the recent securities sale and any future repositioning should enable redeployment into higher-yield assets or repayment of expensive funding. Management expects these factors, coupled with eventual loan growth as the economy expands, to drive higher core earnings, even as they remain mindful of potential deposit runoff from public funds and sector-specific risks like trucking.

In sum, West Bancorporation’s earnings call balanced near-term noise with a convincing longer-term growth narrative. While reported quarterly profits were clipped by a one-time securities loss and loan balances ticked down on large payoffs, the underlying story is one of stronger margins, expanding core deposits, and exceptionally clean credit. With a clear line of sight to margin tailwinds in 2026, a conservative stance on new lending, and a continued dividend, the bank appears set up for solid shareholder returns, provided it navigates deposit volatility and sector concentrations with the same discipline it has shown to date.