WEST BANCORPORATION INC (WTBA) stock intrinsic value fair value estimate & owner earnings analysis

West Bancorporation owns West Bank, a commercial-focused community bank with six offices in the Des Moines, Iowa metro area, one in Coralville (Iowa City area) and one each in Rochester, Owatonna, Mankato and St. Cloud, Minnesota. It lends mostly to privately owned businesses and commercial real estate owners: loans secured by commercial real estate, including construction, were $2.36 billion, or 78% of loans, at the end of 2025. It funds itself with about $3.3 billion of deposits and has an unusually clean recent credit record: nonperforming loans were $0 at the end of 2025 and the bank booked no loan-loss provision in 2025 or the first half of 2026. How earnings are measured. We start from the cash the bank's operations generate, strip out short-term swings in accrued interest and other payables and receivables, subtract stock compensation as a real cost, and subtract the capital spending needed to keep the franchise running. The 2022-2024 construction of the new West Des Moines headquarters (about $84 million over three years) is treated as a one-time project rather than recurring upkeep; normal upkeep runs about $2.5 million a year, and 2025 spending of $3.3 million is consistent with that. On that basis owner earnings per share were $2.61 (2020), $2.55 (2021), $2.77 (2022), $1.59 (2023), $1.92 (2024) and $2.40 (2025). That span covers a full interest-rate cycle - near-zero rates, the 2022-2023 rate shock that pushed deposit costs up faster than loan yields, and the recovery - and its median, about $2.48 per share, is our normal earnings level. Because this measure adds back loan-loss provisions as a non-cash charge, we deduct an ongoing credit cost separately in every case: about $0.13 per share a year in the base and bull cases (roughly 0.1% of loans a year after tax), and a full credit cycle in the bear case. What has changed. First-half 2026 net income was $21.6 million ($1.26 per share) versus $15.8 million ($0.93) a year earlier, driven by cheaper deposits (interest expense fell to $46.0 million from $51.8 million) rather than more lending; the loan book was about $2.95 billion at mid-2026, essentially where it has been since the end of 2023. That supports a slightly higher next-year earnings figure than before. Against that, our bear case now uses the bank's own 2008-2010 losses as the yardstick for a credit downturn, which is more severe than the cycle we assumed previously and lowers the bear value and the margin-of-safety price. Base case. Earnings before credit costs of about $2.70 per share next year (owner earnings growth of about 7% over 2025's $2.40, well below the 25% recovery in 2025, as most of the cheaper-funding benefit has already shown up), less the $0.13 credit cost, gives $2.57. Per-share earnings then grow 1.5% a year through year ten - far below the bank's 2015-2023 loan growth, because loans have been flat for two and a half years and commercial real estate lending at 398% of risk-based capital, well above the 300% level at which regulators apply extra scrutiny, limits how fast the bank can add more. The capital the bank must retain to support that growth is subtracted (about 12% of earnings in growth years, based on the bank's roughly 13% return on equity in 2025). After year ten earnings hold flat at about $2.94: a long-established commercial deposit franchise in stable Midwestern markets is the reason they persist, but nothing we can evidence supports further growth. Value: $45.32 per share. Bear case. Built on what this bank actually went through in 2008-2010, when loan-loss provisions totaled $47 million on a loan book of about $1.05 billion (about 4.5% of loans), the bank lost $16.9 million in 2009, also wrote off goodwill, and cut its quarterly dividend from $0.16 to nothing. Applied to today's $2.95 billion book, the same loss rate is about $133 million before tax, or roughly $5.94 per share after tax, spread 25%/50%/25% over years two to four. In those years earnings before credit costs also fall to $1.80, near the 2023 trough, because about half of deposits ($1.74 billion of $3.47 billion at the end of 2025) are above the insured limit and would demand higher rates. Year one is $2.27; years two to four are $0.31, a loss of $1.17, and $0.31; earnings then settle at $2.07 with no growth. The cumulative loss over the downturn is small relative to equity of $16.49 per share at mid-2026, so the bank would not need to issue shares at the bottom; it did not in 2009 either, relying instead on preferred stock sold to the U.S. Treasury. Value: $29.01 per share. This is above tangible book value because the bank's deposit franchise has demonstrated it earns well above its cost of capital in normal years and survived its worst modern credit cycle with only one losing year. Bull case. Next-year earnings before credit costs of about $2.85, slightly above the first-half 2026 pace, less the $0.13 credit cost, then 3% annual growth through year ten as loan growth resumes at well under a third of its 2015-2023 rate, again net of the capital retained to fund it, then flat. Value: $50.89 per share. Debt. For a bank, deposits and borrowings are the raw material of the business and interest is an operating cost, so all three values are already what is left for shareholders after every lender is paid; subtracting the debt again would count it twice. At the holding company level the bank owes $60 million of 5.25% subordinated notes due 2032, which switch to a floating rate of three-month SOFR plus 2.41% on June 15, 2027 (the company may redeem them from that date), and $20.6 million of variable-rate junior subordinated debentures due 2033, part of which was fixed at 4.81% through an interest rate swap. These are paid from bank dividends, and none of the cases depends on refinancing them on unusual terms. What would make this wrong. A commercial real estate downturn in central Iowa or southern Minnesota worse than 2008-2010, or a deposit run that forces a sharp rise in funding costs, would push results below the bear case. If ongoing credit costs settle nearer 0.25% of loans rather than 0.1%, the base value falls to about $41.79; if per-share earnings simply stay flat, about $42.83. A return to steady loan growth at today's funding costs would support the bull case. Margin-of-safety price. We are reasonably confident in the normal earnings level: six years spanning a full rate cycle range from $1.59 to $2.77 per share with a median near $2.48. Less certain is credit: the near-zero losses of the past decade are not the long-run norm for a bank this concentrated in commercial real estate, with equity of about 7% of assets and half its deposits uninsured. The worst plausible outcome is a repeat of 2009 at today's scale, which the bear case models; the bank survived that once with a dividend cut and government preferred capital. If we are wrong on credit costs and growth together, the shares are worth roughly $42, and in the bear case about $29. At $25, the shares are priced near ten times our base-case earnings, the current $1.00 annual dividend equals about 4% a year of that price, and a move toward the base value within three years implies roughly 25% a year; the bear case implies a modest gain from that price. The margin-of-safety price is $25, not higher, because the range of credit outcomes is wide and the bear value leaves only a thin cushion above that price.