What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 230 added, 118 removed, 370 unchanged (48% 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, 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;

the continuing 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;

8 unchanged sentences

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

government, including anticipated rate increases;

government, including recent and anticipated interest 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;

2 unchanged sentences

tax laws, regulations and guidance;

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

talent and labor shortages;

20 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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

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

1 unchanged sentence

Tax-equivalent adjustment (1)

326 270 655 499

Net interest income on a FTE basis (non-GAAP) 24,565 23,120 48,722 46,470

Average interest-earning assets 3,362,313 3,102,649 3,397,021 3,041,519

3,432,114 2,979,710

Net interest margin on a FTE basis (non-GAAP) 2.93 % 2.99 % 2.89 % 3.08 %

5 unchanged sentences

Adjusted income 26,852 25,604 53,416 51,439

26,564 25,835

Noninterest expense 11,266 10,526 21,928 20,797

10,662 10,271

Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2)

41.96 % 41.11 % 41.05 % 40.43 %

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

June 30, 2022 December 31, 2021 June 30, 2021

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

7 unchanged sentences

Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results, as it enhances the comparability of income arising from taxable and nontaxable sources.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

(2) The efficiency ratio expresses noninterest expense as a percent of fully taxable equivalent net interest income and noninterest income, excluding specific noninterest income and expenses.

7 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 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.

Results of operations for the three and six months ended June 30, 2022 are compared to the results for the same periods in 2021, and the consolidated financial condition of the Company as of June 30, 2022 is compared to that as of December 31, 2021.

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, 2021, filed with the SEC on February 24, 2022.

2 unchanged sentences

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

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.

Net income for the three months ended June 30, 2022 was $12,667, or $0.75 per diluted common share, compared to $13,239, or $0.79 per diluted common share, for the three months ended June 30, 2021.

The Company's annualized return on average assets and return on average equity for the three months ended June 30, 2022 were 1.45 percent and 22.81 percent, respectively, compared to 1.65 percent and 22.20 percent, respectively, for the three months ended June 30, 2021.

The decrease in net income for the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to a one-time increase in state income tax expense, a smaller negative provision for loan losses and an increase in salaries and employee benefits, partially offset by an increase in net interest income.

Net interest income for the three months ended June 30, 2022 grew $1,389, or 6.1 percent, compared to the three months ended June 30, 2021.

The increase in net interest income was primarily due to the increase in interest income on securities and loans, partially offset by an increase in interest expense on deposits and borrowed funds.

The Company recorded a negative provision for loan losses of $1,750 during the three months ended June 30, 2022, compared to a negative provision of $2,000 for the three months ended June 30, 2021.

The negative provision recorded in 2021 was due to improvements in economic conditions and removal of pandemic-related restrictions for businesses, in addition to lack of loan losses for the Company since the onset of the COVID-19 pandemic.

The negative provision in 2022 was due primarily to the reversal of a specific reserve on an impaired loan.

Noninterest expense increased $740 during the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to an increase in salaries and employee benefits expense.

Income tax expense increased due to the revaluation of net deferred tax assets as a result of enacted changes in Iowa bank franchise tax rates.

Net income for the six months ended June 30, 2022 was $25,851, or $1.54 per diluted common share, compared to $24,991, or $1.49 per diluted common share, for the six months ended June 30, 2021.

The Company's annualized return on average assets and return on average equity for the six months ended June 30, 2022 were 1.48 percent and 21.83 percent, respectively, compared to 1.59 percent and 21.50 percent, respectively, for the six months ended June 30, 2021.

The increase in net income for the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to a larger negative provision for loan losses and an increase in net interest income, partially offset by an increase in noninterest expense.

Net interest income for the six months ended June 30, 2022 grew $2,096, or 4.6 percent, compared to the six months ended June 30, 2021.

The increase in net interest income was primarily due to the increase in interest income on securities and loans and the decrease in interest expense on FHLB advances, partially offset by an increase in interest expense on deposits and other borrowings.

The Company recorded a negative provision for loan losses of $2,500 during the six months ended June 30, 2022, compared to a negative provision of $1,500 for the six months ended June 30, 2021.

The negative provision in 2021 was due to the improvement in economic conditions and removal of pandemic-related restrictions on businesses, along with the lack of loan losses for the Company since the onset of the COVID-19 pandemic.

The negative provision in 2022 was due to the reversal of a specific reserve on an impaired loan and the sustained performance of loans after the expiration of COVID modifications and sustained improvement in classified loans.

Noninterest expense increased $1,131 during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to an increase in salaries and employee benefits expense, partially offset by a decrease in FDIC insurance expense.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

Total loans outstanding increased $116,933, or 4.8 percent, during the first six months of 2022.

Excluding the impact of PPP loan activity, total loans outstanding increased $135,944, or 5.6 percent, during the first six months of 2022.

As of June 30, 2022, the allowance for loan losses was 0.99 percent of total outstanding loans, compared to 1.15 percent as of December 31, 2021.

At June 30, 2022, the allowance for loan losses was 0.99 percent of total outstanding loans, excluding $3,196 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 June 30, 2022 was adequate to absorb any losses inherent in the loan portfolio as of that date.

On June 14, 2022, the Company issued $60,000 of subordinated notes.

The net proceeds were used to make a capital injection into West Bank.

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

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 peer group for 2022 consists of 19 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., Macatawa Bank Corporation, Mercantile Bank Corporation, MidWestOne Financial Group, Inc., Nicolet Bankshares, Inc., Peoples Bancorp, Inc., and Southern Missouri Bancorp, Inc.

Level One Bancorp, Inc., previously included in the peer group, was acquired in April 2022.

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

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Peer Group Range (2)

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

As of and for the six months ended June 30, 2022 As of and for the three months ended March 31, 2022 As of and for the three months ended March 31, 2022

Return on average equity 21.83% 20.96% 4.88% - 15.16%

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(2) Latest data available.

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.

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

The dividend is payable on August 24, 2022, to stockholders of record on August 10, 2022.

West Bancorporation, Inc.

2 unchanged sentences

RESULTS OF OPERATIONS

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 %

The following table shows selected financial results and measures for the three and six months ended June 30, 2022 compared with the same periods in 2021.

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 Change Change % 2022 2021 Change Change %

Net income $ 12,667 $ 13,239 $ (572) (4.32) % $ 25,851 $ 24,991 $ 860 3.44 %

10 unchanged sentences

6.36 % 7.42 % (1.06) % 6.78 % 7.40 % (0.62) %

As of March 31,

As of June 30,

2022 2021 Change

21 unchanged sentences

Net Interest Income

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.

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.

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

Three Months Ended June 30

Three Months Ended March 31,

Data for the three months ended June 30:

Average Balance Interest Income/Expense Yield/Rate

34 unchanged sentences

2.93 % 2.99 % (0.06) %

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Data for the six months ended June 30:

Average Balance Interest Income/Expense Yield/Rate

2022 2021 Change Change-

% 2022 2021 Change Change-

% 2022 2021 Change

Interest-earning assets:

Commercial $ 470,296 $ 559,975 $ (89,679) (16.01) % $ 9,607 $ 12,193 $ (2,586) (21.21) % 4.12 % 4.39 % (0.27) %

Real estate (3)

2,019,017 1,727,198 291,819 16.90 % 38,697 35,080 3,617 10.31 % 3.87 % 4.10 % (0.23) %

Consumer and other 4,266 4,744 (478) (10.08) % 87 107 (20) (18.69) % 4.09 % 4.55 % (0.46) %

Total loans 2,493,579 2,291,917 201,662 8.80 % 48,391 47,380 1,011 2.13 % 3.91 % 4.17 % (0.26) %

Taxable 625,333 351,584 273,749 77.86 % 5,979 3,540 2,439 68.90 % 1.91 % 2.01 % (0.10) %

Tax-exempt (3)

163,804 121,519 42,285 34.80 % 2,148 1,566 582 37.16 % 2.62 % 2.58 % 0.04 %

Total securities 789,137 473,103 316,034 66.80 % 8,127 5,106 3,021 59.17 % 2.06 % 2.16 % (0.10) %

Federal funds sold 114,305 276,499 (162,194) (58.66) % 149 144 5 3.47 % 0.26 % 0.11 % 0.15 %

Total interest-earning assets (3)

$ 3,397,021 $ 3,041,519 $ 355,502 11.69 % 56,667 52,630 4,037 7.67 % 3.36 % 3.49 % (0.13) %

Interest-bearing liabilities:

Interest-bearing demand $ 531,893 $ 462,189 $ 69,704 15.08 % 574 353 221 62.61 % 0.22 % 0.15 % 0.07 %

Savings and money market 1,596,257 1,331,855 264,402 19.85 % 4,059 2,667 1,392 52.19 % 0.51 % 0.40 % 0.11 %

Time deposits 200,221 214,239 (14,018) (6.54) % 664 852 (188) (22.07) % 0.67 % 0.80 % (0.13) %

Total deposits 2,328,371 2,008,283 320,088 15.94 % 5,297 3,872 1,425 36.80 % 0.46 % 0.39 % 0.07 %

Borrowed funds:

Federal funds purchased 23,026 4,739 18,287 385.88 % 157 2 155 7,750.00 % 1.38 % 0.10 % 1.28 %

Subordinated notes, net 25,998 20,455 5,543 27.10 % 642 500 142 28.40 % 4.98 % 4.93 % 0.05 %

Federal Home Loan Bank

advances 125,000 155,801 (30,801) (19.77) % 1,265 1,632 (367) (22.49) % 2.04 % 2.11 % (0.07) %

Long-term debt 51,492 20,841 30,651 147.07 % 584 154 430 279.22 % 2.29 % 1.49 % 0.80 %

Total borrowed funds 225,516 201,836 23,680 11.73 % 2,648 2,288 360 15.73 % 2.37 % 2.29 % 0.08 %

Total interest-bearing

liabilities $ 2,553,887 $ 2,210,119 $ 343,768 15.55 % 7,945 6,160 1,785 28.98 % 0.63 % 0.56 % 0.07 %

Net interest income (FTE) (4)

$ 48,722 $ 46,470 $ 2,252 4.85 %

Net interest spread (FTE) 2.73 % 2.93 % (0.20) %

Net interest margin (FTE) (4)

2.89 % 3.08 % (0.19) %

(1) Average loan balances include nonaccrual loans.

10 unchanged sentences

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 increased the target federal funds interest rate by a total of 150 basis points in the first six months of 2022 and is expected to continue to raise the target federal funds rate throughout the rest of 2022.

These increases will have an impact on the Company's net interest income and net interest margin and will impact the comparability of net interest income between 2022 and 2021.

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 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 net interest margin for the three and six months ended June 30, 2022 decreased by 6 and 19 basis points, respectively, compared to the three and six months ended June 30, 2021.

The primary driver of the decrease in the net interest margin was a decrease in yield on loans and increase in rates paid on deposits and borrowed funds.

Tax-equivalent net interest income for the three and six months ended June 30, 2022 increased $1,444 and $2,252, respectively, compared to the same time periods in 2021.

The increase in net interest income for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 was primarily due to increases in loans and securities balances, partially offset by decreases in yields on loans and increases in rates paid on deposits and borrowed funds.

Tax-equivalent interest income on loans increased $1,731 and $1,011 for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.

This increase in interest income was primarily driven by the increase in the average balance of commercial real estate loans.

The comparability of the net interest margin between 2022 and 2021 is also impacted by the interest income from PPP loans, which is included in commercial loans.

Included in commercial loans were PPP loans with interest income of $213 and $1,387 and yields of 16.10 percent and 4.00 percent for the three months ended June 30, 2022 and June 30, 2021, respectively.

PPP loan interest income was $653 and $4,229 with yields of 13.56 percent and 5.80 percent for the six months ended June 30, 2022 and June 30, 2021, respectively.

Exclusive of the PPP loans, the yield on loans was 3.91 percent and 4.00 percent for the three months ended June 30, 2022 and June 30, 2021, respectively, and 3.86 percent and 4.06 percent for the six months ended June 30, 2022 and June 30, 2021, respectively.

The decrease in loan yields was due to lower rates on new and renewed loans in 2021 and first quarter 2022 resulting from lower market rates and competitive pressures on loan pricing, partially offset by rate increases in variable-rate loans in response to federal funds rate increases in 2022.

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.

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.

The average balance of deposits increased $235,113 and $320,088 for the three and six months months ended June 30, 2022, compared to the three and six months months ended June 30, 2021.

The rate paid on deposits increased 16 and 7 basis points for the three and six months ended June 30, 2022 compared to the same periods in 2021.

The increases were primarily due to increases in certain deposit rates in response to the increases in the target federal funds rate.

The average balance of borrowed funds increased $70,374 and $23,680 for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.

The rate paid on borrowed funds increased 25 and 8 basis points for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.

These increases were primarily due to increases in subordinated notes and long-term debt.

The increase in long-term debt was due to the Company's long-term debt borrowing of $40,000 in December 2021 which bears interest at a variable rate.

The cost of borrowed funds may increase in the second half of 2022 as the variable rate on long-term debt may increase if market rates increase, and due to the addition of the subordinated notes in June 2022.

In the first six months of 2022, the Federal Reserve increased the target federal funds rate by a total of 150 basis points, and they are expected to make additional rate increases throughout the remainder of 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.

6 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 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.

The negative provisions for loan losses were $1,750 and $2,500 for the three and six months ended June 30, 2022, respectively, compared to negative provisions of $2,000 and $1,500 for the three and six months ended June 30, 2021, respectively.

The negative provisions recorded in 2021 were due to improvements in economic conditions and removal of pandemic-related restrictions for businesses, in addition to lack of loan losses for the Company since the onset of the COVID-19 pandemic.

The negative provisions in 2022 were due to the sustained performance of loans after the expiration of the COVID modifications, continued improvement in classified loans and the reversal of a specific reserve on an impaired loan.

The impaired loan had a specific reserve of $2,500 and settled in the second quarter of 2022, resulting in a charge-off of $451.

Factors management considers in establishing an appropriate allowance include:

27 unchanged sentences

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 months ended March 31, 2022 and 2021 and related ratios.

Three Months Ended March 31,

2022 2021 Change

The following table summarizes the activity in the Company's allowance for loan losses for the three and six months ended June 30, 2022 and 2021 and related ratios.

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 Change 2022 2021 Change

Balance at beginning of period $ 27,623 $ 30,008 $ (2,385) $ 28,364 $ 29,436 $ (1,072)

1 unchanged sentence

Recoveries 12 34 (22) 21 106 (85)

Net recoveries 9 72 (63)

Net (charge-offs) recoveries (439) 34 (473) (430) 106 (536)

Provision for loan losses charged to operations (1,750) (2,000) 250 (2,500) (1,500) (1,000)

(750) 500 (1,250)

Balance at end of period $ 25,434 $ 28,042 $ (2,608) $ 25,434 $ 28,042 $ (2,608)

2 unchanged sentences

Ratio of allowance for loan losses to average loans outstanding 1.00 % 1.22 % 1.02 % 1.22 %

1.13 % 1.32 %

Ratio of allowance for loan losses to total loans at end of period 0.99 % 1.21 % 0.99 % 1.21 %

1.11 % 1.30 %

Ratio of allowance for loan losses to total loans at end of period, excluding PPP loans (1)

3 unchanged sentences

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.

Current economic concerns include inflationary trends, continuing supply chain issues and labor shortages, wage pressures, and expectations of further increases in the Federal Reserve target federal funds rate.

In response to increasing inflation rates, the Federal Reserve increased the target federal funds rate by a total of 150 basis points in the first six months of 2022.

It is expected that additional rate increases will occur throughout the second half of 2022.

The Company decreased certain qualitative factors used in the allowance for loan losses evaluation in the first six months of 2022 based upon the sustained performance of loans after the expiration of COVID modifications and sustained improvement in classified loans, no past due loans over 30 days, and the settlement of an impaired loan in June 2022 that previously had a $2,500 specific reserve.

This resulted in a negative provision for the three and six months ended June 30, 2022.

Management believes the resulting allowance for loan losses as of June 30, 2022 was adequate to absorb any losses inherent in the loan portfolio at the end of the quarter.

West Bancorporation, Inc.

2 unchanged sentences

Noninterest Income

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,

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 June 30,

Noninterest income:

4 unchanged sentences

Increase in cash value of bank-owned life insurance 236 240 (4) (1.67) %

Loan swap fees — 42 (42) (100.00) %

Realized securities gains, net — 36 (36) (100.00) %

3 unchanged sentences

Total noninterest income $ 2,278 $ 2,515 $ (237) (9.42) %

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.

Six Months Ended June 30,

Noninterest income:

2022 2021 Change Change %

Service charges on deposit accounts $ 1,165 $ 1,160 $ 5 0.43 %

Debit card usage fees 979 953 26 2.73 %

Trust services 1,251 1,343 (92) (6.85) %

Increase in cash value of bank-owned life insurance 463 460 3 0.65 %

Loan swap fees — 42 (42) (100.00) %

Realized securities gains, net — 40 (40) (100.00) %

Other income:

All other income 809 982 (173) (17.62) %

Total other income 809 982 (173) (17.62) %

Total noninterest income $ 4,667 $ 4,980 $ (313) (6.29) %

The decrease in other income for the six months ended June 30, 2022 compared to the six months ended June 30, 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.

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Noninterest Expense

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

The following tables show 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 March 31,

Three Months Ended June 30,

Noninterest expense:

11 unchanged sentences

Trust 138 137 1 0.73 %

Consulting fees 125 78 47 60.26 %

Marketing 70 57 13 22.81 %

Charitable contributions — 60 (60) (100.00) %

Low income housing projects amortization 130 192 (62) (32.29) %

New markets tax credit project amortization and management

fees 229 229 — — %

All other 614 526 88 16.73 %

Total other expenses 2,245 2,130 115 5.40 %

Total noninterest expense $ 11,266 $ 10,526 $ 740 7.03 %

Six Months Ended June 30,

Noninterest expense:

2022 2021 Change Change %

Salaries and employee benefits $ 12,708 $ 11,280 $ 1,428 12.66 %

Occupancy 2,328 2,427 (99) (4.08) %

Data processing 1,280 1,219 61 5.00 %

FDIC insurance 626 830 (204) (24.58) %

Professional fees 419 551 (132) (23.96) %

Director fees 390 405 (15) (3.70) %

Other expenses:

Subscriptions and service contracts 968 845 123 14.56 %

Business development 527 447 80 17.90 %

Insurance expense 307 244 63 25.82 %

Trust 275 278 (3) (1.08) %

Consulting fees 175 153 22 14.38 %

Marketing 124 102 22 21.57 %

Charitable contributions — 120 (120) (100.00) %

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Total noninterest expense $ 21,928 $ 20,797 $ 1,131 5.44 %

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 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.

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 six months ended June 30, 2022 when compared to the three and six months ended June 30, 2021, primarily due to an increase in expense related to restricted stock units, the addition of two commercial bankers in the third quarter of 2021 and two commercial bankers in the first quarter of 2022, and normal operating increases.

FDIC insurance expense decreased during the three and six months ended June 30, 2022 when compared to the same time periods in 2021 primarily due to reductions in the assessment rate resulting from capital injections into the Bank in December 2021 and June 2022.

Occupancy expense increased for the three months ended June 30, 2022 compared to the same period in 2021 due primarily to depreciation expense related to the new bank building in St.

Cloud, Minnesota that opened in March 2022, partially offset by a reduction in rent expenses.

Occupancy expense decreased for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to the reduction in rent expense from the consolidation of leased branches in the Des Moines market, partially offset by the increase in depreciation expense related to the new building in St.

Cloud, Minnesota.

Subscriptions and service contracts increased for the three and six months ended June 30, 2022 when compared to the same time periods in 2021, primarily due to increases in information technology and information security solutions.

Business development expenses increased in 2022 as business development efforts have normalized with increased in person activities, and the addition of four commercial bankers.

Income Tax Expense

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 recorded income tax expense of $4,334 (25.5 percent of pre-tax income) and $7,455 (22.4 percent of pre-tax income) for the three and six months months ended June 30, 2022, compared with $3,600 (21.4 percent of pre-tax income) and $6,663 (21.0 percent of pre-tax income) for the three and six months ended June 30, 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 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.

For the three and six months ended June 30, 2022, income tax expense included a one-time increase in state income tax expense related to the June 2022 enactment of changes in the Iowa bank franchise tax rates.

This legislation reduces the Iowa bank franchise tax rate applied to apportioned income for 2023 and future years.

This future reduction in the state tax rate required the Company to reduce net deferred tax assets as of June 30, 2022 by $671 and in turn caused the one-time increase in 2022 tax expense.

Additionally, for the six months ended June 30, 2022 and 2021, a tax benefit of $385 and $233, 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 six 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 $734 and $684, respectively.

West Bancorporation, Inc.

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FINANCIAL CONDITION

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 Company had total assets of $3,474,791 as of June 30, 2022, compared to total assets of $3,500,201 as of December 31, 2021.

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

Securities available for sale decreased by $26,852 during the six months ended June 30, 2022.

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

The impact of these purchases was offset by principal paydowns and the decline in the fair value of the portfolio, which declined $99,008 in the first six months of 2022.

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

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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.

As of June 30, 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 $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.

Loans outstanding increased $116,933 from $2,456,196 as of December 31, 2021 to $2,573,129 as of June 30, 2022.

Changes in the loan portfolio during the first six months of 2022 included increases of $96,932 in commercial real estate loans and $30,879 in construction, land and land development loans.

Commercial loans declined $17,111, which included a $19,010 decline in PPP loans.

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

As of June 30, 2022, PPP loans outstanding totaled $3,196.

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

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

Exclusive of PPP loans, loan growth in the first six months of 2022 was $135,944, or 5.6 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.

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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.

March 31, 2022 December 31, 2021 Change

June 30, 2022 December 31, 2021 Change

Nonaccrual loans $ 335 $ 8,948 $ (8,613)

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TDR loans on nonaccrual status are categorized as nonaccrual.

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

There were no TDR loans categorized as nonaccrual as of June 30, 2022.

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

West Bancorporation, Inc.

6 unchanged sentences

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.

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 construction began in the second quarter of 2022.

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.

Deposits decreased $173,554 during the first six months of 2022.

Deposit inflows and outflows are influenced by prevailing market interest rates, competition, local and national economic conditions, and fluctuations in our business customers' own liquidity needs.

The decline in deposit balances was not due to the loss of significant customer relationships, but was primarily attributable to customers using their own liquidity to fund business transactions, instead of using debt, and customers seeking higher yielding investment options.

During the second quarter of 2022, a large corporate customer completed a significant business transaction that was funded by existing cash balances, accounting for a significant portion of the decrease in deposits.

At June 30, 2022, the Company had $196,477 in brokered deposits, compared to $130,032 at December 31, 2021.

Brokered deposits included overnight funding, fixed rate deposits with terms through December 2022 and variable rate deposits with terms through February 2024.

Subordinated Debt

On June 14, 2022, the Company issued $60,000 of subordinated notes (the "Notes").

The Notes initially bear interest at 5.25 percent per annum, with interest payable semi-annually for the first five years of the Notes.

Beginning June 15, 2027, the interest rate will reset quarterly to a floating rate per annum that is expected to be three-month term Secured Overnight Financing Rate (SOFR) plus 241 basis points, with payments due quarterly.

The Company may redeem the Notes, in whole or in part, on and after June 15, 2027 at a price equal to 100 percent of the principal amount of the Notes being redeemed plus accrued and unpaid interest.

The Notes will mature on June 15, 2032 if they are not earlier redeemed.

Proceeds from this debt issuance were used to make a $58,650 capital injection into West Bank, the Company's subsidiary.

At June 30, 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 $425,001 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

Changes in the fair values of the interest rate swap contracts resulted in a $16,126 increase in other assets and $163 decrease in other liabilities from December 31, 2021 to June 30, 2022 due to projected increases in long-term interest rates.

The objectives of liquidity management are to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for profitable business expansion.

3 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 $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.

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 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.

The Company had liquid assets (cash and cash equivalents) of $26,940 as of June 30, 2022 compared with $192,825 as of December 31, 2021.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

Our deposit growth strategy emphasizes core deposit growth.

Deposit inflows and outflows can vary widely and are influenced by prevailing market interest rates, competition, local and national economic conditions and fluctuations in our corporate customers' and municipal customers' own liquidity needs.

The Company may utilize brokered deposits to supplement core deposit fluctuations.

Brokered deposits are obtained through various programs administered by IntraFi, including IntraFi Network Deposits and IntraFi Funding, and through other third parties.

At June 30, 2022, the Company had $196,477 in brokered deposits, which included overnight funding, fixed rate deposits with terms through December 2022 and variable rate deposits with terms through February 2024.

As of June 30, 2022, West Bank had additional borrowing capacity available from the FHLB of approximately $490,000, as well as approximately $4,000 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 $33,645 to liquidity for the six months ended June 30, 2022.

Management believed that the combination of high levels of potentially liquid assets, cash flows from operations, and additional borrowing capacity are sufficient to meet our liquidity and capital needs.

The Company had remaining commitments to invest in qualified affordable housing projects totaling $3,720 and $3,986 as of June 30, 2022 and December 31, 2021, respectively.

The Company's total stockholders' equity decreased to $216,189 at June 30, 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 June 30, 2022, the Company's tangible common equity as a percent of tangible assets was 6.22 percent compared to 7.44 percent as of December 31, 2021.

The increase in accumulated other comprehensive loss is primarily the result of the negative effect that rising interest rates have had on the unrealized market value adjustment of our available for sale investment portfolio.

While accumulated other comprehensive losses reduce tangible common equity, it has no impact on regulatory capital.

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 March 31, 2022.

Management believed the Company and West Bank met all capital adequacy requirements to which they were subject as of June 30, 2022.

West Bancorporation, Inc.

6 unchanged sentences

Amount Ratio Amount Ratio Amount Ratio Amount Ratio

As of March 31, 2022:

As of June 30, 2022:

Total Capital (to Risk-Weighted Assets)

23 unchanged sentences

West Bank 326,482 9.53 % 137,011 4.00 % 137,011 4.00 % 171,264 5.00 %

The Company and West Bank are subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act.

The rules include the implementation of a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes.

The Company and West Bank are subject to a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes.

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

At June 30, 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