What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-28 compared with 2021-10-28 · 151 added, 273 removed, 337 unchanged (56% of the section changed)

7 unchanged sentences

Risks and uncertainties that may affect future results include:

the effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic;

the effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, including due to supply chain disruptions, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic;

interest rate risk;

competitive pressures;

competitive pressures, including from non-bank competitors such as "fintech" companies;

pricing pressures on loans and deposits;

changes in credit and other risks posed by the Company’s loan and investment portfolios, including declines in commercial or residential real estate values or changes in the allowance for loan losses dictated by new market conditions, accounting standards (including as a result of the future implementation of the current expected credit loss (CECL) accounting standard) or regulatory requirements;

actions of bank and nonbank competitors;

changes in local, national and international economic conditions;

changes in local, national and international economic conditions, including rising rates of inflation;

changes in legal and regulatory requirements, limitations and costs;

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the monetary, trade and other regulatory policies of the U.S.

acts of war or terrorism, widespread disease or pandemics, such as the COVID-19 pandemic, or other adverse external events;

government, including anticipated rate increases;

acts of war or terrorism, including the Russian invasion of Ukraine, widespread disease or pandemics, such as the COVID-19 pandemic, or other adverse external events;

developments and uncertainty related to the future use and availability of some reference rates, such as the London Interbank Offered Rate, as well as other alternative reference rates;

1 unchanged sentence

tax laws, regulations and guidance;

liquidity risk due to excess liquidity at the Company's bank subsidiary;

talent and labor shortages;

and any other risks described in the “Risk Factors” sections of this and other reports filed by the Company with the SEC.

5 unchanged sentences

Actual results may differ from these estimates under different assumptions or conditions.

The estimates and judgments that management believes involve the most complex and subjective estimates and judgments and have the most effect on the Company's reported financial position and results of operations are described as critical accounting policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 1, 2021.

There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2021.

11 unchanged sentences

The following table reconciles the non-GAAP financial measures of net interest income and net interest margin on a fully taxable equivalent basis, efficiency ratio on an adjusted and FTE basis, loans, net of PPP loans and allowance for loan losses ratio, excluding PPP loans to their most directly comparable measures under GAAP.

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Reconciliation of net interest income and net interest margin on a FTE basis to GAAP:

1 unchanged sentence

Tax-equivalent adjustment (1)

306 144 805 516

Net interest income on a FTE basis (non-GAAP) 24,157 23,350

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Noninterest income

2,401 3,203 7,381 7,498

Adjustment for realized securities gains, net — (4)

6 unchanged sentences

40.14 % 39.75 %

March 31, 2022 December 31, 2021 March 31, 2021

Reconciliation of allowance for loan losses ratio, excluding PPP loans:

September 30, 2021 December 31, 2020 September 30, 2020

Loans outstanding (GAAP) $ 2,485,366 $ 2,456,196 $ 2,303,999

15 unchanged sentences

The following discussion describes the consolidated operations and financial condition of the Company, West Bank and West Bank's special purpose subsidiaries (which are invested in new markets tax credit activities).

Results of operations for the three and nine months ended September 30, 2021 are compared to the results for the same periods in 2020, and the consolidated financial condition of the Company as of September 30, 2021 is compared to that as of December 31, 2020.

This discussion and analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 1, 2021.

Results of operations for the three months ended March 31, 2022 are compared to the results for the same period in 2021, and the consolidated financial condition of the Company as of March 31, 2022 is compared to that as of December 31, 2021.

The Company conducts business from its main office in West Des Moines, Iowa and through its branch offices in central Iowa, which is generally the greater Des Moines metropolitan area;

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and southern Minnesota, which includes the cities of Rochester, Owatonna, Mankato and St.

IMPACT OF COVID-19

We continue to monitor the impact COVID-19 is having on the local economies we operate in and the uncertainty of the long-term ramifications to our customers and operations.

Within our markets, vaccinations have become readily available, infection positivity rates are at moderate levels, and the restrictions on businesses have generally been fully lifted.

However, the lasting effects of government aid programs are uncertain as stimulus packages taper, and the ultimate long-term impact of the business shutdowns that occurred as a result of COVID-19 remains uncertain in many sectors of the economy.

In the third quarter of 2021, COVID-19 positivity rates and hospitalizations in our markets rose due to the impact of the Delta variant.

The Federal Reserve, in response to the economic risks resulting from the COVID-19 pandemic, returned to a zero-interest rate policy in March 2020.

This was after most broader market rates decreased significantly in response to evolving news about the COVID-19 pandemic.

Many areas of consumer and business spending have rebounded in recent months, but there remains uncertainty about the longer lasting impact on local businesses as well as the travel, hospitality and entertainment industries resulting from the COVID-19 pandemic.

This could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain those recoveries in the long run.

Inflation and supply shortages also pose risks to the economic recovery.

At the onset of the COVID-19 pandemic, the Bank lowered its offered rates on all deposit products and experienced an immediate positive impact on our cost of deposits.

We responded to lower market rates for lending by lowering rates offered on our loan products.

Given current rates offered by the Bank on new loans and prepayments on existing loans, the yield on the total loan portfolio is likely to continue to decrease.

With significant cash inflows realized from growth in deposit balances and forgiveness of PPP loans, the current yields on reinvested funds into new securities are lower than existing portfolio yields.

Considering the low market interest rates and the ongoing economic uncertainty, our net interest margin could decrease in future periods.

Net income for the three months ended September 30, 2021 was $ 12,706 , or $ 0.76 per diluted common share, compared to $8,100, or $ 0.49 per diluted common share, for the three months ended September 30, 2020.

The Company's annualized return on average assets and return on average equity for the three months ended September 30, 2021 were 1.52 percent and 20.02 percent, respectively, compared to 1.16 percent and 15.20 percent, respectively, for the three months ended September 30, 2020.

The increase in net income for the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to a decrease in the provision for loan losses and an increase in net interest income, partially offset by a decrease in noninterest income and an increase in noninterest expense.

Net interest income for the three months ended September 30, 2021 grew $3,354, or 15.9 percent, compared to the three months ended September 30, 2020.

The increase in net interest income was primarily due to the increase in interest income on loans and securities and the decrease in interest expense on borrowed funds.

The Company recorded no provision for loan losses during the three months ended September 30, 2021, compared to a provision of $ 4,000 for the three months ended September 30, 2020.

The provision in 2020 was due to uncertainty surrounding economic conditions as a result of the COVID-19 pandemic.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Noninterest income decreased $802 during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to a decrease in loan swap fees.

Noninterest expense increased $653 during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to increases in salaries and employee benefits and FDIC insurance expense.

Net income for the nine months ended September 30, 2021 was $ 37,697 , or $ 2.25 per diluted common share, compared to $ 24,158 , or $ 1.46 per diluted common share, for the nine months ended September 30, 2020.

The Company's annualized return on average assets and return on average equity for the nine months ended September 30, 2021 were 1.56 percent and 20.98 percent, respectively, compared to 1.21 percent and 15.47 percent, respectively, for the first nine months of 2020.

The increase in net income for the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to a decrease in the provision for loan losses and an increase in net interest income, partially offset by an increase in noninterest expense.

Net interest income for the nine months ended September 30, 2021 grew $10,114, or 16.8 percent, compared to the nine months ended September 30, 2020.

The increase in net interest income was primarily due to the increase in interest income on loans and securities and the decrease in interest expense on deposits and borrowed funds.

The Company recorded a negative provision for loan losses of $1,500 during the nine months ended September 30, 2021, compared to a provision of $8,000 for the nine months ended September 30, 2020.

The provision in 2020 was due primarily to uncertainty surrounding economic conditions as a result of the COVID-19 pandemic.

The negative provision in 2021 was due primarily to the improvement in economic conditions and removal of pandemic-related restrictions on businesses in our market areas.

Noninterest income decreased $117 during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to a decrease in loan swap fees, partially offset by increases in trust revenue and increase in cash value of bank-owned life insurance.

Noninterest expense increased $2,370 for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to increases in salaries and employee benefits and FDIC insurance expense.

Total loans outstanding increased $78,992, or 3.5 percent, during the first nine months of 2021.

Excluding the impact of PPP loan activity, total loans outstanding increased $212,333, or 10.1 percent, during the first nine months of 2021.

As of September 30, 2021, the allowance for loan losses was 1.19 percent of outstanding loans, compared to 1.29 percent as of December 31, 2020.

At September 30, 2021, the allowance for loan losses was 1.22 percent of outstanding loans, excluding $47,416 of PPP loans (a non-GAAP financial measure), which are 100 percent guaranteed by the SBA, compared to 1.40 percent of outstanding loans, excluding $180,757 of PPP loans, as of December 31, 2020.

Management believed the allowance for loan losses at September 30, 2021 was adequate to absorb any losses inherent in the loan portfolio as of that date.

Net income for the three months ended March 31, 2022 was $13,184, or $0.78 per diluted common share, compared to $11,752, or $0.70 per diluted common share, for the three months ended March 31, 2021.

The Company's annualized return on average assets and return on average equity for the three months ended March 31, 2022 were 1.51 percent and 20.96 percent, respectively, compared to 1.53 percent and 20.77 percent, respectively, for the three months ended March 31, 2021.

The increase in net income for the three months ended March 31, 2022 compared to the same period in 2021 was primarily due to a decrease in the provision for loan losses and an increase in net interest income, partially offset by an increase in noninterest expense.

Net interest income for the three months ended March 31, 2022 grew $707, or 3.1 percent, compared to the three months ended March 31, 2021.

The increase in net interest income was primarily due to the increase in interest income on securities and the decrease in interest expense on FHLB advances, partially offset by a decrease in interest income on loans and increase in interest expense on deposits and long-term debt.

The Company recorded a negative provision for loan losses of $750 during the three months ended March 31, 2022, compared to a provision of $500 for the three months ended March 31, 2021.

The provision in 2021 was due to uncertainty surrounding economic conditions as a result of the COVID-19 pandemic and an increase in loan balances.

The negative provision in 2022 was due to the sustained performance of loans after the expiration of COVID modifications and sustained improvement in classified loans.

Noninterest expense increased $391 during the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to an increase in salaries and employee benefits expense.

Total loans outstanding increased $29,170, or 1.2 percent, during the first three months of 2022.

Excluding the impact of PPP loan activity, total loans outstanding increased $41,978, or 1.7 percent, during the first three months of 2022.

As of March 31, 2022, the allowance for loan losses was 1.11 percent of outstanding loans, compared to 1.15 percent as of December 31, 2021.

At March 31, 2022, the allowance for loan losses was 1.12 percent of outstanding loans, excluding $9,398 of PPP loans (a non-GAAP financial measure), which are 100 percent guaranteed by the SBA, compared to 1.17 percent of outstanding loans, excluding $22,206 of PPP loans, as of December 31, 2021.

Management believed the allowance for loan losses at March 31, 2022 was adequate to absorb any losses inherent in the loan portfolio as of that date.

West Bancorporation, Inc.

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On a quarterly basis, the Company compares three key performance metrics to those of our identified peer group.

The peer group for 2021 consists of 21 Midwestern, publicly traded financial institutions including Bank First Corporation, Civista Bancshares, Inc., CrossFirst Bankshares, Inc., Equity Bancshares, Inc., Farmers National Banc Corp., Farmers & Merchants Bancorp., First Business Financial Services, Inc., First Financial Corp., First Mid Bancshares, Inc., German American Bancorp, Inc., Hills Bancorporation, Isabella Bank Corporation, LCNB Corp., Level One Bancorp, Inc., Macatawa Bank Corporation, Mackinac Financial Corporation, Mercantile Bank Corporation, MidWestOne Financial Group, Inc., Nicolet Bankshares, Inc., Peoples Bancorp, Inc., and Southern Missouri Bancorp, Inc.

The peer group for 2022 consists of 20 Midwestern, publicly traded financial institutions including Bank First Corporation, Civista Bancshares, Inc., CrossFirst Bankshares, Inc., Equity Bancshares, Inc., Farmers National Banc Corp., Farmers & Merchants Bancorp., First Business Financial Services, Inc., First Financial Corp., First Mid Bancshares, Inc., German American Bancorp, Inc., Hills Bancorporation, Isabella Bank Corporation, LCNB Corp., Level One Bancorp, Inc., Macatawa Bank Corporation, Mercantile Bank Corporation, MidWestOne Financial Group, Inc., Nicolet Bankshares, Inc., Peoples Bancorp, Inc., and Southern Missouri Bancorp, Inc.

The Company is in the middle of the group in terms of asset size.

The Company's goal is to perform at or near the top of this peer group relative to what we consider to be three key metrics:

return on average equity, efficiency ratio and Texas ratio.

return on average equity, efficiency ratio and nonperforming assets to total assets.

We believe these measures encompass the factors that define the performance of a community bank.

2 unchanged sentences

Peer Group Range (2)

As of and for the nine months ended September 30, 2021 As of and for the six months ended June 30, 2021 As of and for the six months ended June 30, 2021

As of and for the three months ended March 31, 2022 As of and for the year ended December 31, 2021 As of and for the year ended December 31, 2021

Return on average equity 20.96% 20.33% 7.24% - 17.69%

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40.14% 40.91% 43.01% - 64.81%

Texas ratio (2)

3.24% 5.31% 1.92% - 16.74%

Nonperforming assets to total assets 0.25% 0.26% 0.17% - 1.32%

(1) The efficiency ratio is a non-GAAP financial measure.

For further information, refer to the Non-GAAP Financial Measures section of this report.

(2) A lower ratio is more desirable.

(2) Latest data available.

At its meeting on October 27, 2021, the Company's Board of Directors declared a quarterly cash dividend of $0.24 per common share.

The dividend is payable on November 24, 2021, to stockholders of record on November 10, 2021.

At its meeting on April 27, 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per common share.

The dividend is payable on May 25, 2022, to stockholders of record on May 11, 2022.

West Bancorporation, Inc.

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RESULTS OF OPERATIONS

The following table shows selected financial results and measures for the three and nine months ended September 30, 2021 compared with the same periods in 2020.

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 Change Change % 2021 2020 Change Change %

The following table shows selected financial results and measures for the three months ended March 31, 2022 compared with the same period in 2021.

Three Months Ended March 31,

2022 2021 Change Change %

Net income $ 13,184 $ 11,752 $ 1,432 12.19 %

10 unchanged sentences

7.20 % 7.38 % (0.18) %

As of September 30,

As of March 31,

2022 2021 Change

Texas ratio (2)

Nonperforming assets to total assets (2)

0.25 % 0.78 % (0.53) %

12 unchanged sentences

• Average equity to average assets ratio - average equity divided by average assets.

• Texas ratio - total nonperforming assets divided by tangible common equity plus the allowance for loan losses.

• Nonperforming assets to total assets - total nonperforming assets divided by total assets.

• Equity to assets ratio - equity divided by assets.

4 unchanged sentences

Net Interest Income

The following tables present average balances and related interest income or interest expense, with the resulting annualized average yield or rate by category of interest-earning assets or interest-bearing liabilities.

The following table presents average balances and related interest income or interest expense, with the resulting annualized average yield or rate by category of interest-earning assets or interest-bearing liabilities.

Interest income and the resulting net interest income are shown on a FTE basis.

Three Months Ended September 30,

Average Balance Interest Income/Expense Yield/Rate

2021 2020 Change Change-

% 2021 2020 Change Change-

% 2021 2020 Change

Interest-earning assets:

Commercial $ 496,485 $ 635,577 $ (139,092) (21.88) % $ 5,687 $ 5,549 $ 138 2.49 % 4.54 % 3.47 % 1.07 %

Real estate (3)

1,837,251 1,589,000 248,251 15.62 % 18,632 16,934 1,698 10.03 % 4.02 % 4.24 % (0.22) %

Consumer and other 3,619 6,031 (2,412) (39.99) % 39 64 (25) (39.06) % 4.30 % 4.19 % 0.11 %

Total loans 2,337,355 2,230,608 106,747 4.79 % 24,358 22,547 1,811 8.03 % 4.13 % 4.02 % 0.11 %

Taxable 506,746 294,545 212,201 72.04 % 2,412 1,728 684 39.58 % 1.90 % 2.35 % (0.45) %

Tax-exempt (3)

155,806 57,839 97,967 169.38 % 940 465 475 102.15 % 2.41 % 3.22 % (0.81) %

Total securities 662,552 352,384 310,168 88.02 % 3,352 2,193 1,159 52.85 % 2.02 % 2.49 % (0.47) %

Federal funds sold 212,376 56,540 155,836 275.62 % 82 15 67 446.67 % 0.15 % 0.10 % 0.05 %

Total interest-earning assets (3)

$ 3,212,283 $ 2,639,532 $ 572,751 21.70 % 27,792 24,755 3,037 12.27 % 3.43 % 3.73 % (0.30) %

Interest-bearing liabilities:

Interest-bearing demand,

savings and money

market $ 1,935,286 $ 1,482,705 $ 452,581 30.52 % 1,660 1,355 305 22.51 % 0.34 % 0.36 % (0.02) %

Time deposits 210,465 188,828 21,637 11.46 % 361 591 (230) (38.92) % 0.68 % 1.25 % (0.57) %

Total deposits 2,145,751 1,671,533 474,218 28.37 % 2,021 1,946 75 3.85 % 0.37 % 0.46 % (0.09) %

Other borrowed funds 169,183 225,995 (56,812) (25.14) % 978 1,532 (554) (36.16) % 2.29 % 2.70 % (0.41) %

Total interest-bearing

liabilities $ 2,314,934 $ 1,897,528 $ 417,406 22.00 % 2,999 3,478 (479) (13.77) % 0.51 % 0.73 % (0.22) %

Net interest income (FTE) (4)

$ 24,793 $ 21,277 $ 3,516 16.52 %

Net interest spread (FTE) 2.92 % 3.00 % (0.08) %

Net interest margin (FTE) (4)

3.06 % 3.21 % (0.15) %

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Nine Months Ended September 30,

Three Months Ended June 30

Three Months Ended March 31,

Average Balance Interest Income/Expense Yield/Rate

17 unchanged sentences

Interest-bearing demand $ 546,237 $ 452,426 $ 93,811 20.74 % 250 169 81 47.93 % 0.19 % 0.15 % 0.04 %

savings and money

market $ 1,841,642 $ 1,450,279 $ 391,363 26.99 % 4,680 6,308 (1,628) (25.81) % 0.34 % 0.58 % (0.24) %

Savings and money market 1,610,639 1,306,886 303,753 23.24 % 1,620 1,315 305 23.19 % 0.41 % 0.41 % — %

Time deposits 195,638 187,192 8,446 4.51 % 281 393 (112) (28.50) % 0.58 % 0.85 % (0.27) %

Total deposits 2,352,514 1,946,504 406,010 20.86 % 2,151 1,877 274 14.60 % 0.37 % 0.39 % (0.02) %

Other borrowed funds 190,832 229,431 (38,599) (16.82) % 3,266 4,801 (1,535) (31.97) % 2.29 % 2.80 % (0.51) %

Borrowed funds:

Federal funds purchased 1,506 5,387 (3,881) (72.04) % — 1 (1) (100.00) % 0.05 % 0.10 % (0.05) %

Subordinated notes, net 20,467 20,453 14 0.07 % 248 249 (1) (0.40) % 4.91 % 4.93 % (0.02) %

Federal Home Loan Bank

advances 125,000 175,000 (50,000) (28.57) % 630 983 (353) (35.91) % 2.04 % 2.28 % (0.24) %

Long-term debt 51,497 21,164 30,333 143.32 % 258 79 179 226.58 % 2.03 % 1.51 % 0.52 %

Total borrowed funds 198,470 222,004 (23,534) (10.60) % 1,136 1,312 (176) (13.41) % 2.32 % 2.40 % (0.08) %

Total interest-bearing

11 unchanged sentences

For further information, refer to the Non-GAAP Financial Measures section of this report.

The Company's largest component of net income is net interest income, which is the difference between interest earned on interest-earning assets, consisting primarily of loans and securities, and interest paid on interest-bearing liabilities, consisting of deposits and borrowings.

Fluctuations in net interest income can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates.

Interest rates earned and paid are affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities.

The Federal Reserve decreased the targeted federal funds interest rate by a total of 150 basis points in March 2020, reaching its current range of 0.0 - 0.25 percent.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

Fluctuations in net interest income can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates.

Net interest margin on a FTE basis, a non-GAAP financial measure, is a measure of the net return on interest-earning assets and is computed by dividing annualized tax-equivalent net interest income by total average interest-earning assets for the period.

The net interest margin for the three and nine months ended September 30, 2021 decreased by 15 and 12 basis points, respectively, compared to the three and nine months ended September 30, 2020.

The primary driver of the decrease in the net interest margin was a decrease in yield on securities, partially offset by a decrease in the interest rates paid on deposits and other borrowed funds.

The higher average balances of federal funds sold also contributed to a lower net interest margin.

Tax-equivalent net interest income for the three and nine months ended September 30, 2021 increased $3,516 and $10,404, respectively, compared to the same time periods in 2020.

The increase in net interest income for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 was primarily due to increases in average loans and securities balances and decreases in deposit interest rates, partially offset by increases in average deposit balances and decreases in yields on securities.

Tax-equivalent interest income on loans increased $1,811 for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Included in commercial loans were PPP loans with interest income of $1,590 and $1,365 and yields of 9.28 percent and 2.42 percent for the three months ended September 30, 2021 and September 30, 2020, respectively.

For the nine months ended September 30, 2021, tax-equivalent interest income on loans increased $4,317 compared to the same period in 2020.

Included in commercial loans were PPP loans with interest income of $5,819 and $2,438 and yields of 6.46 percent and 2.44 percent for the nine months ended September 30, 2021 and September 30, 2020, respectively.

The PPP loan interest income in 2021 included accelerated origination fees recognized at the time of loan forgiveness.

Exclusive of the PPP loans, the yield on loans was 3.98 percent and 4.20 percent for the three months ended September 30, 2021 and September 30, 2020, respectively, and 4.03 percent and 4.38 percent for the nine months ended September 30, 2021 and September 30, 2020, respectively.

Management believes interest income on loans and the yield on loans could decline in future periods if the low interest rate environment and strong competition persist.

Average loan balances, exclusive of PPP loans, increased $263,086 and $205,062, or 13.1 percent and 10.3 percent for the three and nine months ended September 30, 2021, respectively, compared to the same time periods in 2020.

The net interest margin for the three months ended March 31, 2022 decreased by 32 basis points compared to the three months ended March 31, 2021.

The primary driver of the decrease in the net interest margin was a decrease in yield on loans and securities, partially offset by a decrease in the interest rates paid on deposits and borrowed funds.

The higher average balances of securities also contributed to a lower net interest margin.

Tax-equivalent net interest income for the three months ended March 31, 2022 increased $807 compared to the same time period in 2021.

Tax-equivalent interest income on loans decreased $720 for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Included in commercial loans were PPP loans with interest income of $439 and $2,842 and yields of 12.60 percent and 7.41 percent for the three months ended March 31, 2022 and March 31, 2021, respectively.

This decrease in interest income from PPP loans was the largest driver of the overall decrease of interest income from loans.

The PPP loan interest income in 2022 and 2021 included accelerated origination fees recognized at the time of loan forgiveness.

Exclusive of the PPP loans, the yield on loans was 3.83 percent and 4.07 percent for the three months ended March 31, 2022 and March 31, 2021, respectively.

The decrease in loan yield was due to lower rates on new and renewed loans resulting from low market rates and competitive pressures on loan pricing.

The Company continues to focus on expanding existing and entering into new customer relationships while maintaining strong credit quality.

1 unchanged sentence

The political and economic environments can also influence the volume of new loan originations and the mix of variable-rate versus fixed-rate loans.

We anticipate that our interest income could be adversely affected in future periods as a result of the long-term impact of the COVID-19 pandemic, including the possibility of decreases in the size of our loan portfolio and declining credit quality, the effect of lower interest rates, and the potential for an increase in nonaccrual loans.

The average balance of interest-bearing demand, savings and money market deposits increased for the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020, primarily due to an increase in average balances of money market and interest-bearing demand accounts.

The increase in average balances was primarily due to changes in customer behavior as a result of the COVID-19 pandemic and our customers' desire to retain liquidity, as well as a result of additional funds provided to individuals and businesses by government relief programs.

The average rate paid on interest-bearing demand, savings and money market deposits for the three and nine months ended September 30, 2021 decreased 2 and 24 basis points, respectively, compared to the three and nine months ended September 30, 2020.

The average rate paid on time deposits decreased 57 and 101 basis points, respectively, for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020.

The decreases were primarily due to decreasing interest rates on all deposit products in response to the unprecedented decrease in the targeted federal funds rate that occurred in March 2020.

The average balance of other borrowed funds decreased $56,812 and $38,599, respectively, for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020.

The rate paid on borrowed funds declined by 41 and 51 basis points, respectively, for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020.

These declines were primarily due to the repayment of $50,000 of FHLB advances in the second quarter of 2021 and the maturity of long-term, high rate FHLB advances in the second and third quarters of 2020.

As a result of the historically low interest rate environment, we expect that our net interest income and net interest margin could decrease in future periods.

The average balance of securities available for sale was $376,827 higher for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

This was the result of securities purchased during 2021 and 2022 to improve the yield on excess liquidity.

Due to the interest rate environment during 2021 and the first three months of 2022, securities added to the portfolio have been at significantly lower yields than the existing portfolio holdings, resulting in an overall decline in the securities portfolio yield.

The average balance of deposits increased $406,010 for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

The increase was primarily due to an increase in the average balance of money market accounts.

The growth in these deposit balances was primarily due to customers' desire to retain liquidity, as well as a result of additional funds provided to individuals and businesses by government relief programs in 2021.

The average balance of borrowed funds decreased $23,534 for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The rate paid on borrowed funds declined to 2.32 percent for the three months ended March 31, 2022 from 2.40 percent for the three months ended March 31, 2021.

These declines were primarily due to the repayment of $50,000 of FHLB advances in the second quarter of 2021, partially offset by the $34,500 increase in variable-rate long-term debt in December 2021.

In March 2022, the Federal Reserve increased the target federal funds rate by 25 basis points, and is expected to make additional rate increases throughout 2022.

These rate increases could improve reinvestment rates on loans and securities, but could also increase the Company's cost of deposits and borrowed funds and increase the unrealized losses in the Company's securities portfolio.

West Bancorporation, Inc.

5 unchanged sentences

The allowance for loan losses is management's best estimate of probable losses inherent in the loan portfolio as of the balance sheet date.

The provisions for loan losses were zero and negative $1,500 for the three and nine months ended September 30, 2021, compared to a provision of $4,000 and $8,000 for the three and nine months ended September 30, 2020.

The provisions in 2020 were due primarily to uncertainty surrounding economic conditions as a result of the COVID-19 pandemic, while the negative provision recorded in 2021 was primarily due to the improvement in economic conditions.

In 2021, reductions in certain qualitative factors used in the allowance for loan losses calculation related to economic improvement were partially offset by loan growth.

The provision for loan losses was negative $750 for the three months ended March 31, 2022, compared to a provision of $500 for the three months ended March 31, 2021.

The provision in 2021 was due primarily to uncertainty surrounding economic conditions as a result of the COVID-19 pandemic and an increase in loan balances, while the negative provision recorded in 2022 was due to the sustained performance of loans after the expiration of COVID modifications and sustained improvement in classified loans.

Factors management considers in establishing an appropriate allowance include:

4 unchanged sentences

and a review of delinquent and classified loans.

In response to COVID-19, the Company increased its monitoring efforts of certain segments of the loan portfolio that management believed were under increased stress, including hotel exposures.

Ongoing communication with customers regarding revenue and cash flow expectations continue to be used to monitor risks and stress in the loan portfolio.

For example, customers in the hotel industry provide monthly updates on occupancy rates.

The quarterly evaluation of the allowance focuses on factors such as specific loan reviews, changes in the components of the loan portfolio given the current and forecasted economic conditions, and historical loss experience.

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Commercially reasonable efforts are made to maximize subsequent recoveries.

The following table summarizes the activity in the Company's allowance for loan losses for the three and nine months ended September 30, 2021 and 2020 and related ratios.

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 Change 2021 2020 Change

The following table summarizes the activity in the Company's allowance for loan losses for the three months ended March 31, 2022 and 2021 and related ratios.

Three Months Ended March 31,

2022 2021 Change

Balance at beginning of period $ 28,364 $ 29,436 $ (1,072)

7 unchanged sentences

Ratio of annualized net (charge-offs) recoveries during the period to average loans outstanding

0.01 % 0.01 % 0.01 % 0.01 %

Ratio of allowance for loan losses to average loans outstanding

6 unchanged sentences

For further information, refer to the Non-GAAP Financial Measures section of this report.

In 2020, the U.S.

economy deteriorated rapidly and significantly as a result of the COVID-19 pandemic and the impact of economic uncertainties.

The national unemployment rate jumped from 4.4 percent in March 2020 to 14.8 percent in April 2020 amid nationwide shutdowns and other restrictions in the interest of public health and safety.

In 2021, the economy has begun to recover;

however some economic measures still lag pre-pandemic levels.

Additionally, certain industries, including travel, hospitality and entertainment, have been particularly impacted by shutdowns, capacity restrictions, and social distancing requirements that occurred in response to COVID-19.

There remains uncertainty about recovery times and the long term impact on local businesses as well as the travel, hospitality and entertainment industries.

The Company increased certain qualitative factors used in the allowance for loan losses evaluation in 2020 in response to the COVID-19 pandemic.

Based on the continued improvement in national and local economic performances measures, the relative success of vaccination efforts and the lifting of pandemic-related restrictions in the Company's market areas, the Company decreased certain qualitative factors used in the allowance for loan losses evaluation in the second and third quarters of 2021.

However, the qualitative factors overall remain higher at September 30, 2021 than they were prior to the 2020 COVID-19 pandemic related adjustments.

economy continues to be affected by the Federal Reserve's accommodative monetary policies initiated during the COVID-19 pandemic.

Current economic concerns include inflationary trends, continuing supply chain issues and labor shortages, and anticipated increases in the Federal Reserve targeted federal funds rate.

Monthly job growth for the first three months of 2022 averaged approximately 562,000 based on preliminary estimates and the national unemployment rate decreased to 3.6 percent, which is only 0.1 percent higher than the rate in February 2020, prior to the COVID-19 pandemic.

Gross domestic product increased at an annual rate of 6.9 percent in the fourth quarter of 2021.

In response to increasing inflation rates, the Federal Reserve increased the targeted federal funds rate by 25 basis points in March 2022.

It is expected that additional rate increases will occur throughout 2022.

The Company decreased certain qualitative factors used in the allowance for loan losses evaluation in the first quarter of 2022 based upon the sustained performance of loans after the expiration of COVID modifications and sustained improvement in classified loans, resulting in a negative provision for the quarter.

Management believes the resulting allowance for loan losses as of March 31, 2022 was adequate to absorb any losses inherent in the loan portfolio at the end of the quarter.

West Bancorporation, Inc.

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Noninterest Income

The following tables show the variance from the prior year in the noninterest income categories shown in the Consolidated Statements of Income.

Three Months Ended September 30,

Noninterest income:

2021 2020 Change Change %

Service charges on deposit accounts $ 589 $ 609 $ (20) (3.28) %

Debit card usage fees 490 432 58 13.43 %

Trust services 695 553 142 25.68 %

Increase in cash value of bank-owned life insurance 230 133 97 72.93 %

Loan swap fees — 983 (983) (100.00) %

Realized securities gains, net 11 156 (145) (92.95) %

Other income:

All other income 386 337 49 14.54 %

Total other income 386 337 49 14.54 %

Total noninterest income $ 2,401 $ 3,203 $ (802) (25.04) %

Nine Months Ended September 30,

The following table shows the variance from the prior year in the noninterest income categories shown in the Consolidated Statements of Income.

Three Months Ended March 31,

Noninterest income:

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Increase in cash value of bank-owned life insurance 227 220 7 3.18 %

Loan swap fees 42 1,572 (1,530) (97.33) %

Realized securities gains, net — 4 (4) (100.00) %

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Total noninterest income $ 2,389 $ 2,465 $ (76) (3.08) %

Debit card usage fees increased for the three and nine months months ended September 30, 2021 when compared to the same periods ended September 30, 2020, due to an increase in transaction volume as consumers responded to the reopening of the economy.

Revenue from trust services increased for the three and nine months ended September 30, 2021 when compared to the same periods ended September 30, 2020, primarily as a result of an increase in the value of trust assets in 2021 compared to 2020.

The increase in cash value of bank-owned life insurance was driven by the purchase of additional life insurance in the third quarter of 2020, increasing total life insurance investments for the three and nine months ended September 30, 2021 in comparison to the three and nine months ended September 30, 2020.

The Company offers loan level interest rate swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a swap counterparty (back-to-back swap program).

Loan swap fees consist of fees earned in the back-to-back swap program at contract origination and are dependent on the timing and volume of customer activity.

The increase in other income for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily due to the recognition of net swap termination gains totaling $181 in March 2021.

The decrease in other income for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to the recognition of net swap termination gains totaling $181 in March 2021.

Interest rate swaps with a total notional amount of $150,000 were terminated and the pre-tax gains and losses were recorded in other noninterest income.

Refer to Note 5 to the financial statements for additional information.

In the first quarter of 2022, the Company also recognized other income of $97 related to the purchase of discounted transferable state income tax credits.

West Bancorporation, Inc.

2 unchanged sentences

Noninterest Expense

The following tables show the variance from the prior year in the noninterest expense categories shown in the Consolidated Statements of Income.

The following table shows the variance from the prior year in the noninterest expense categories shown in the Consolidated Statements of Income.

In addition, accounts within the “other expenses” category that represent a significant portion of the total or a significant variance are shown below.

Three Months Ended September 30,

Three Months Ended March 31,

Noninterest expense:

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Other expenses:

Marketing 54 57 (3) (5.26) %

Business development 229 158 71 44.94 %

Insurance expense 127 110 17 15.45 %

Charitable contributions 60 45 15 33.33 %

Subscriptions and service contracts 476 378 98 25.93 %

Trust 181 117 64 54.70 %

Consulting fees 70 67 3 4.48 %

Low income housing projects amortization 203 110 93 84.55 %

New markets tax credit project amortization and management

fees 230 230 — — %

All other 381 792 (411) (51.89) %

Total other expenses 1,959 2,037 (78) (3.83) %

Total noninterest expense $ 10,712 $ 10,059 $ 653 6.49 %

Nine Months Ended September 30,

Noninterest expense:

2021 2020 Change Change %

Salaries and employee benefits $ 17,298 $ 16,014 $ 1,284 8.02 %

Occupancy 3,630 3,651 (21) (0.58) %

Data processing 1,835 1,756 79 4.50 %

FDIC insurance 1,358 880 478 54.32 %

Professional fees 763 669 94 14.05 %

Director fees 581 664 (83) (12.50) %

Other expenses:

Marketing 156 145 11 7.59 %

Business development 236 186 50 26.88 %

Insurance expense 151 121 30 24.79 %

Charitable contributions 180 135 45 33.33 %

Subscriptions and service contracts 1,269 982 287 29.23 %

Trust 137 141 (4) (2.84) %

Marketing 54 45 9 20.00 %

Consulting fees 50 75 (25) (33.33) %

Charitable contributions — 60 (60) (100.00) %

Low income housing projects amortization 142 134 8 5.97 %

4 unchanged sentences

Total noninterest expense $ 10,662 $ 10,271 $ 391 3.81 %

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Salaries and employee benefits increased for the three and nine months ended September 30, 2021 when compared to the three and nine months ended September 30, 2020, primarily due to an increase in expense related to restricted stock units and the addition of three commercial bankers in the Des Moines market in the third quarter of 2021.

FDIC insurance expense increased during the three and nine months ended September 30, 2021 when compared to the same time periods in 2020 due to increases in both the Company's average assets and assessment rate.

Business development expense increased for the three and nine months ended September 30, 2021 in comparison to the three and nine months ended September 30, 2020.

Business development activities were significantly limited as a result of COVID-19 shutdowns and social distancing guidelines that began in the second quarter of 2020.

Business development activities have increased in the second and third quarters of 2021 as local economies return to normal activities.

Salaries and employee benefits increased for the three months ended March 31, 2022 when compared to the three months ended March 31, 2021, primarily due to an increase in expense related to restricted stock units, the addition of four commercial bankers in the third quarter of 2021 and first quarter of 2022, and normal operating increases.

FDIC insurance expense decreased during the three months ended March 31, 2022 when compared to the same time period in 2021 primarily due to reductions in the assessment rate.

Occupancy expense decreased primarily due to the closure of leased branches.

Subscriptions and service contracts increased primarily due to increases in information technology and information security solutions.

All other expenses were lower for the three and nine months ended September 30, 2021 when compared to the three and nine months ended September 30, 2020, due primarily to losses in 2020 from a check fraud incident.

All other expenses were lower for the three months ended March 31, 2022 when compared to the three months ended March 31, 2021, due primarily to the settlement of a loss on a check fraud scheme in 2021.

Income Tax Expense

The Company recorded income tax expense of $3,469 (21.4 percent of pre-tax income) and $10,132 (21.2 percent of pre-tax income) for the three and nine months ended September 30, 2021, compared with $2,176 (21.2 percent of pre-tax income) and $6,544 (21.3 percent of pre-tax income) for the three and nine months ended September 30, 2020.

The Company recorded income tax expense of $3,121 (19.1 percent of pre-tax income) for the three months ended March 31, 2022, compared with $3,063 (20.7 percent of pre-tax income) for the three months ended March 31, 2021.

The Company's consolidated income tax rate differs from the federal statutory income tax rate in each period, primarily due to tax-exempt interest income, the tax-exempt increase in cash value of bank-owned life insurance, disallowed interest expense, and state income taxes.

In addition, for the nine months ended September 30, 2021, a tax benefit of $233 was recorded as a result of the increase in fair value of restricted stock over the vesting period.

Comparatively, for the nine months ended September 30, 2020, a tax expense of $116 was recorded as a result of the decrease in fair value of restricted stock over the vesting period.

The tax rates for the first nine months of 2021 and 2020 were also impacted by year-to-date federal low income housing tax credits and a new markets tax credit of approximately $1,026 and $930, respectively.

In addition, for the three months ended March 31, 2022 and 2021, a tax benefit of $377 and $199, respectively, was recorded as a result of the increase in fair value of restricted stock over the vesting period.

The tax rates for the first three months of 2022 and 2021 were also impacted by year-to-date federal low income housing tax credits and a new markets tax credit of approximately $367 and $310, respectively.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

FINANCIAL CONDITION

The Company had total assets of $3,249,700 as of September 30, 2021, compared to total assets of $3,185,744 as of December 31, 2020.

Fluctuations in the balance sheet included increases in securities, loans, deposits, federal funds purchased and other liabilities and decreases in Federal Home Loan Bank advances, federal funds sold and long-term debt.

The balance of securities available for sale increased by $342,826 during the nine months ended September 30, 2021.

In the first nine months of 2021, securities were purchased to improve the yield on excess liquidity.

As of September 30, 2021, approximately 62 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities.

Management currently believes these securities provide relatively good yields, have little to no credit risk and provide fairly consistent cash flows.

The Company had total assets of $3,547,069 as of March 31, 2022, compared to total assets of $3,500,201 as of December 31, 2021.

Fluctuations in the balance sheet included increases in securities, loans, deposits, deferred tax assets, and other assets and decreases in federal funds sold.

Securities available for sale increased by $39,090 during the three months ended March 31, 2022.

In the first three months of 2022, the Company continued to grow the securities portfolio, purchasing securities to improve the yield on excess liquidity while monitoring duration and interest rate risk.

Additionally, in the first quarter of 2022, the fair value of the securities portfolio declined $54,594.

The decline in fair value was the result of increases in market interest rates and is not an indication of declining credit quality.

These are unrealized losses that are recorded in accumulated other comprehensive loss, net of tax.

Future increases in market interest rates could result in an increase of the unrealized losses in the securities portfolio.

As of March 31, 2022, approximately 66 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities.

Management currently believes these securities provide acceptable yields, have little to no credit risk and provide fairly consistent cash flows.

Loans and Nonperforming Assets

Loans outstanding increased $78,992 from $2,280,575 as of December 31, 2020 to $2,359,567 as of September 30, 2021.

Changes in the loan portfolio during the first nine months of 2021 included increases of $98,163 in commercial real estate loans and $89,562 in construction, land and land development loans.

Loans outstanding increased $29,170 from $2,456,196 as of December 31, 2021 to $2,485,366 as of March 31, 2022.

Changes in the loan portfolio during the first three months of 2022 included increases of $24,783 in commercial real estate loans and $29,166 in construction, land and land development loans.

Commercial loans declined $25,941, which included a $12,808 decline in PPP loans.

As of September 30, 2021, PPP loans outstanding totaled $47,416, which was made up of $6,812 from round one of the program in 2020 and $40,604 from round two in 2021.

As of March 31, 2022, PPP loans outstanding totaled $9,398.

The Company continues to focus on business development efforts in all of its markets.

Exclusive of PPP loans, loan growth in the first nine months of 2021 was 10.1 percent.

Nonaccrual loans decreased $7,114 from December 31, 2020 to September 30, 2021 due to payments received on outstanding balances.

The Company's Texas ratio, which is computed by dividing total nonperforming assets by tangible common equity plus the allowance for loan losses, was 3.24 percent as of September 30, 2021, compared to 6.40 percent as of December 31, 2020.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

The watch classification of loans increased to $91,325 as of September 30, 2021 from $26,715 as of December 31, 2020.

The increase was primarily due to the addition of $69,078 of hotel, restaurant and other commercial real estate loans related to one borrowing group.

This relationship was downgraded to watch classification in the first quarter of 2021 primarily due to a slower rebound in its hotel occupancy rates compared to other market data.

The loans in this downgraded borrowing group are considered well collateralized with a weighted average loan to value ratio of 70 percent.

Even though we have seen improvement in economic conditions, we believe the COVID-19 pandemic could have further adverse affects on the credit quality of our loan portfolio.

The duration of business disruptions to our customers in the hotel, restaurant and movie theater industries could result in increased loan delinquencies and defaults.

Management believes impaired loans could increase in the future as a result of the long-term economic effects of the COVID-19 pandemic, including the risk of future shutdowns in response to new COVID-19 variants.

No credit issues are anticipated with PPP loans at this time, as they are 100 percent guaranteed by the SBA.

Exclusive of PPP loans, loan growth in the first three months of 2022 was $41,978, or 1.7 percent.

In accordance with regulatory guidelines, the Company exercises heightened risk management practices when non-owner occupied commercial real estate lending exceeds 300 percent of total risk-based capital or construction, land development, and other land loans exceed 100 percent of total risk-based capital.

Although the Company's loan portfolio is heavily concentrated in real estate and its real estate portfolio levels exceed these regulatory guidelines, it has established risk management policies and procedures to regularly monitor the commercial real estate portfolio.

An analysis of the Company's non-owner occupied commercial real estate portfolio as of December 31, 2020 was presented in the Company's Form 10-K filed with the SEC on March 1, 2021, and the Company has not experienced any material changes to that analysis since December 31, 2020.

An analysis of the Company's non-owner occupied commercial real estate portfolio as of December 31, 2021 was presented in the Company's Form 10-K filed with the SEC on February 24, 2022, and the Company has not experienced any material changes to that portfolio since December 31, 2021.

The following table sets forth the amount of nonperforming assets held by the Company and common ratio measurements of those assets as of the dates shown.

September 30, 2021 December 31, 2020 Change

March 31, 2022 December 31, 2021 Change

Nonaccrual loans $ 8,800 $ 8,948 $ (148)

8 unchanged sentences

TDR loans on nonaccrual status are categorized as nonaccrual.

There were six TDR loans related to one borrower as of September 30, 2021 categorized as nonaccrual.

There were no TDR loans as of December 31, 2020 categorized as nonaccrual.

Deposits increased $35,929 during the first nine months of 2021.

Savings accounts, which include money market accounts, increased by a total of $105,067 from December 31, 2020 to September 30, 2021.

Interest-bearing demand accounts decreased a total of $95,716 from December 31, 2020 to September 30, 2021.

Balance fluctuations were primarily due to normal customer activity, as corporate customers' liquidity needs vary at any given time.

We believe that deposit levels could decrease in future periods as a result of the end of broad government stimulus programs relating to the COVID-19 pandemic and low interest rates.

Borrowed Funds

The Company had $125,000 of short-term FHLB advances outstanding at September 30, 2021, compared to $175,000 as of December 31, 2020.

The Company repaid $50,000 of FHLB advances at maturity in the second quarter of 2021 to reduce unneeded funding as a result of high deposit balances and excess liquidity.

Federal funds balances fluctuate based on customer loan and deposit activity and the Company's balance sheet management objectives.

There were six TDR loans related to one borrower as of March 31, 2022 and December 31, 2021, categorized as nonaccrual.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

At September 30, 2021 and December 31, 2020, the Company had interest rate swap contracts associated with borrowed funds and deposits with a total notional amount of $255,000 and $305,000, respectively.

The fair value of these derivative contracts, which is reported in other liabilities on the balance sheet, increased $12,974 from December 31, 2020 to September 30, 2021 due to the increases in projected long-term market interest rates.

In March 2021, the Company terminated interest rate swaps with a total notional amount of $150,000.

Of the total notional amount of $150,000, $100,000 were forward-starting interest rate swaps originated in January 2021 and $50,000 were interest rate swaps hedging the interest cash flows of FHLB advances.

The net termination gains were recorded in other noninterest income.

Other Liabilities

Other liabilities at September 30, 2021 included $30,151 of pending security settlements.

Premises and Equipment

In 2020, the Company began construction of a new office for its St.

Cloud, Minnesota branch.

Construction was completed in the first quarter of 2022 and the new building opened in March.

At that time, the previously leased location was vacated.

Additionally, the Company purchased land in the first quarter of 2022 for its new corporate headquarters to be located in West Des Moines, Iowa and development planning is underway.

Construction of a new office in Mankato, Minnesota began in the first quarter of 2022.

Deposits increased $75,247 during the first three months of 2022.

Savings accounts, which include money market accounts, increased by a total of $82,054 from December 31, 2021 to March 31, 2022.

Interest-bearing demand accounts increased $5,993 from December 31, 2021 to March 31, 2022, while noninterest-bearing demand accounts decreased $9,439 during the same period.

Balance fluctuations were primarily due to normal customer activity, as corporate customers' liquidity needs vary at any given time.

We believe that deposit balances could decrease in 2022 as a result of the end of broad government stimulus programs related to the COVID-19 pandemic and increasing inflation.

At March 31, 2022 and December 31, 2021, the Company had interest rate swap contracts associated with loans, borrowed funds and deposits with a total notional amount of $425,992 and $427,008, respectively.

The fair value of these derivative contracts are reported in other assets or other liabilities on the balance sheet.

Changes in the fair values of the interest rate swap contracts resulted in a $8,574 increase in other assets and $3,008 decrease in other liabilities from December 31, 2021 to March 31, 2022 due to projected increases in long-term interest rates.

Liquidity and Capital Resources

4 unchanged sentences

Investments in liquid assets are adjusted based on expected loan demand, projected loan and securities maturities and payments, expected deposit flows and the objectives set by the Company's asset-liability management policy.

The Company had liquid assets (cash and cash equivalents) of $32,469 as of September 30, 2021 compared with $396,435 as of December 31, 2020.

As of September 30, 2021, West Bank had additional borrowing capacity available from the FHLB of approximately $553,000, as well as approximately $18,000 through the Federal Reserve discount window and $67,000 through unsecured federal funds lines of credit with correspondent banks.

Net cash from operating activities contributed $72,585 to liquidity for the nine months ended September 30, 2021.

Management believed that the combination of high levels of potentially liquid assets, cash flows from operations, and additional borrowing capacity provided the Company with strong liquidity as of September 30, 2021.

The Company's total stockholders' equity increased to $252,376 at September 30, 2021 from $223,695 at December 31, 2020.

The increase was primarily the result of net income less dividends paid and an increase in fair value of derivatives, partially offset by a decrease in the fair value of securities.

At September 30, 2021, the Company's tangible common equity as a percent of tangible assets was 7.77 percent compared to 7.02 percent as of December 31, 2020.

The Company had remaining commitments to invest in qualified affordable housing projects totaling $3,992 and $3,505 as of September 30, 2021 and December 31, 2020, respectively.

During 2020, the Company began construction on a new office in Sartell, Minnesota, which had a remaining construction commitment of $3,477 and $8,324 as of September 30, 2021 and December 31, 2020, respectively.

The Company had liquid assets (cash and cash equivalents) of $144,255 as of March 31, 2022 compared with $192,825 as of December 31, 2021.

As of March 31, 2022, West Bank had additional borrowing capacity available from the FHLB of approximately $548,000, as well as approximately $15,000 through the Federal Reserve discount window and $67,000 through unsecured federal funds lines of credit with correspondent banks.

Net cash from operating activities contributed $15,519 to liquidity for the three months ended March 31, 2022.

The Company's total stockholders' equity decreased to $236,480 at March 31, 2022 from $260,328 at December 31, 2021.

The decrease was primarily the result of the increase in accumulated other comprehensive loss, partially offset by net income less dividends paid.

At March 31, 2022, the Company's tangible common equity as a percent of tangible assets was 6.67 percent compared to 7.44 percent as of December 31, 2021.

The increase in accumulated other comprehensive loss of $32,131, resulting primarily from the decline in fair value of securities during the first quarter of 2022, reduced tangible common equity, however it has no impact on regulatory capital.

The Company had remaining commitments to invest in qualified affordable housing projects totaling $3,947 and $3,986 as of March 31, 2022 and December 31, 2021, respectively.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

The Company and West Bank are subject to various regulatory capital requirements administered by federal and state banking agencies.

2 unchanged sentences

The Company's and West Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Management believed the Company and West Bank met all capital adequacy requirements to which they were subject as of September 30, 2021.

Management believed the Company and West Bank met all capital adequacy requirements to which they were subject as of March 31, 2022.

West Bancorporation, Inc.

6 unchanged sentences

Amount Ratio Amount Ratio Amount Ratio Amount Ratio

As of September 30, 2021:

As of March 31, 2022:

Total Capital (to Risk-Weighted Assets)

26 unchanged sentences

A banking organization with a capital conservation buffer of less than the required amount will be subject to limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers.

At September 30, 2021, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer.

At March 31, 2022, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis