What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-24 · 149 added, 156 removed, 1341 unchanged (19% of the section changed)

27 unchanged sentences

The allowance consists of two components:

the valuation allowance for loans individually evaluated for impairment (“specific component”), which represents $2.5 million at December 31, 2021, and the valuation allowance for loans collectively evaluated for impairment (“general component”), which represents $25.9 million at December 31, 2021.

the valuation allowance for loans individually evaluated for impairment (“specific component”), which represents none of the allowance at December 31, 2022, and the valuation allowance for loans collectively evaluated for impairment (“general component”), which represents $25.5 million at December 31, 2022.

The Company’s general component was developed based on historical loss ratios adjusted for qualitative factors not reflected in the historical loss experience.

50 unchanged sentences

Cash and due from banks $ 24,896 $ 17,555

Federal funds sold 175,270 318,742

Interest-bearing deposits 1,643 175,270

Cash and cash equivalents 26,539 192,825

13 unchanged sentences

Interest-bearing demand 536,226 548,242

Savings 1,550,636 1,274,254

Time of $250 or more 53,019 46,907

Other time 143,972 129,221

Savings and money market 1,237,954 1,550,636

Time 412,665 196,991

Total deposits 2,880,408 3,016,005

Federal funds purchased 2,880 5,375

Federal funds purchased and other short-term borrowings 200,000 2,880

Subordinated notes, net 79,369 20,465

28 unchanged sentences

Tax-exempt 3,527 2,861 1,443

Federal funds sold 292 304 1,110

Interest-bearing deposits 203 292 304

Total interest income 123,349 107,280 100,233

1 unchanged sentence

Deposits 22,629 7,948 11,256

Federal funds purchased 5 23 241

Federal funds purchased and other short-term borrowings 1,764 5 23

Subordinated notes 2,867 1,008 1,016

11 unchanged sentences

Loan swap fees 835 66 1,572

Realized securities gains (losses), net 51 77 ( 87 )

Realized securities gains, net — 51 77

Other income 1,537 1,718 1,290

4 unchanged sentences

Data processing 2,597 2,465 2,331

Subscriptions and service contracts 2,137 1,777 1,333

FDIC insurance 996 1,818 1,210

20 unchanged sentences

Unrealized holding gains (losses) arising during the period ( 132,009 ) ( 14,684 ) 6,681

reclassification adjustment for net (gains) losses realized in net income

( 51 ) ( 77 ) 87

reclassification adjustment for net gains realized in net income — ( 51 ) ( 77 )

Other ( 22 ) — —

Income tax (expense) benefit 33,372 3,720 ( 1,667 )

2 unchanged sentences

Unrealized holding gains (losses) arising during the period 23,595 8,047 ( 22,278 )

reclassification adjustment for net (gains) losses realized in net income

8,284 4,156 ( 235 )

reclassification adjustment for net losses realized in net income 206 8,284 4,156

reclassification adjustment for amortization of derivative termination costs — — 31

2 unchanged sentences

Total other comprehensive income (loss) ( 80,834 ) 1,209 ( 8,585 )

Comprehensive income $ 50,816 $ 24,127 $ 32,243

Comprehensive income (loss) $ ( 34,435 ) $ 50,816 $ 24,127

See Notes to Consolidated Financial Statements.

10 unchanged sentences

Net income — — — — 32,712 — 32,712

Other comprehensive income, net of tax — — — — — 3,553 3,553

Other comprehensive loss, net of tax — — — — — ( 8,585 ) ( 8,585 )

Cash dividends declared, $ 0.84 per common share

5 unchanged sentences

Net income — — — — 49,607 — 49,607

Other comprehensive loss, net of tax — — — — — ( 8,585 ) ( 8,585 )

Other comprehensive income, net of tax — — — — — 1,209 1,209

Cash dividends declared, $ 0.94 per common share

5 unchanged sentences

Net income — — — — 46,399 — 46,399

Other comprehensive income, net of tax — — — — — 1,209 1,209

Other comprehensive loss, net of tax — — — — — ( 80,834 ) ( 80,834 )

Cash dividends declared, $ 1.00 per common share

18 unchanged sentences

Net amortization and accretion 2,965 2,111 1,892

Securities (gains) losses, net ( 51 ) ( 77 ) 87

Securities gains, net — ( 51 ) ( 77 )

Stock-based compensation 3,357 2,573 2,312

Increase in cash value of bank-owned life insurance ( 964 ) ( 923 ) ( 593 )

Gain on sale of premises — — ( 307 )

Depreciation 1,498 1,504 1,499

14 unchanged sentences

Purchases of premises and equipment ( 21,311 ) ( 8,743 ) ( 2,319 )

Proceeds from sale of premises — — 604

Net cash used in investing activities ( 357,831 ) ( 537,211 ) ( 367,163 )

Cash Flows from Financing Activities:

Net increase in deposits 315,011 686,238 120,227

Net increase (decrease) in deposits ( 135,597 ) 315,011 686,238

Net increase (decrease) in federal funds purchased 197,120 ( 2,495 ) 2,715

Net increase (decrease) in Federal Home Loan Bank advances 30,000 ( 50,000 ) ( 5,000 )

Proceeds from subordinated notes 58,756 — —

Proceeds from long-term debt — 34,500 —

11 unchanged sentences

Income taxes 10,630 13,380 11,190

Supplemental Disclosure of Noncash Investing Activities:

Establishment of lease liabilities and right-of-use assets $ — $ — $ 10,435

See Notes to Consolidated Financial Statements.

7 unchanged sentences

operates in the commercial banking industry through its wholly-owned subsidiary, West Bank.

West Bank is a state chartered bank and has its main office in West Des Moines, Iowa, with six additional offices located in the Des Moines, Iowa, metropolitan area, one office located in Coralville, Iowa, and four offices located in Minnesota, in the cities of Rochester, Owatonna, Mankato and St.

West Bank is a state chartered bank and has its main office in West Des Moines, Iowa, with five additional offices located in the Des Moines, Iowa, metropolitan area, one office located in Coralville, Iowa, and four offices located in Minnesota, in the cities of Rochester, Owatonna, Mankato and St.

As used herein, the term “Company” refers to West Bancorporation, Inc., or if the context dictates, West Bancorporation, Inc.

24 unchanged sentences

Cash and cash equivalents and cash flows :

For statement of cash flow purposes, the Company considers cash, due from banks and federal funds sold to be cash and cash equivalents.

Cash inflows and outflows from loans, deposits, federal funds purchased and FHLB advances are reported on a net basis.

For statement of cash flow purposes, the Company considers cash, due from banks and interest-bearing deposits to be cash and cash equivalents.

Cash inflows and outflows from loans, deposits, federal funds purchased and short-term borrowings and FHLB advances are reported on a net basis.

Securities Available for Sale :

37 unchanged sentences

TDR loans may also be reported as nonaccrual or 90 days past due if they are not performing per the restructured terms.

The CARES Act provided financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time in certain circumstances.

This temporary suspension was only applicable to modifications of loans that were not more than 30 days past due as of December 31, 2019 and was not applicable to modifications that were not related to the COVID-19 pandemic.

The temporary suspension was applied to eligible modifications executed during the period beginning on March 1, 2020 and, as extended by the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, ending on January 1, 2022.

In 2020, federal banking regulators, in consultation with FASB, issued interagency statements that included similar guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic that provided that short-term modifications and additional accommodations made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief were not TDRs.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Based upon its ongoing assessment of credit quality within the loan portfolio, the Company maintains a Watch List, which includes loans classified as Doubtful, Substandard and Watch according to the Company’s classification criteria.

3 unchanged sentences

The amount of impairment, if any, and any subsequent changes are included in the specific component of the allowance for loan losses.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Allowance for loan losses :

92 unchanged sentences

The dilutive effect is computed using the treasury stock method, which assumes all stock-based awards were exercised and the hypothetical proceeds from exercise were used by the Company to purchase common stock at the average market price during the period.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Current accounting developments :

11 unchanged sentences

Credit losses relating to available for sale debt securities should be recorded through an allowance for credit losses.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

The FASB has also issued multiple updates to ASU No.

2016-13 as codified in Topic 326, including ASU No.

2019-04, ASU No.

2019-05, ASU No.

2019-11, ASU No.

2020-02, and ASU No.

These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters.

In December 2019, the FASB issued ASU No.

2 unchanged sentences

2016-13 for certain entities, including smaller reporting companies, until fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods.

Early adoption is permitted.

The one-time determination date for identifying as a smaller reporting company was November 15, 2019.

The Company met the definition of a smaller reporting company as of this date and plans to adopt the standard with the amended effective date.

The Company does not plan to early adopt this standard, but continues to work through implementation.

The Company continues collecting and retaining loan and credit data and evaluating various loss estimation models.

While we currently cannot reasonably estimate the impact of adopting this standard, we expect the impact will be influenced by the composition, characteristics and quality of our loan and securities portfolios, as well as the general economic conditions and forecasts as of the adoption date.

In April 2019, the FASB issued ASU No.

2019-04, Codification Improvements to Financial Instruments - Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Financial Instruments (ASC 825) .

The amendments in the ASU improve the Codification by eliminating inconsistencies and providing clarifications.

The amended guidance in this ASU related to the credit losses will be effective for the Company for fiscal years and interim periods beginning after December 15, 2022.

The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.

The Company met the definition of a smaller reporting company as of this date and will adopt the standard effective January 1, 2023.

In March 2022, the FASB issued ASU No.

2022-02, Financial Instruments - Credit Losses ( ASC 326 ):

Troubled Debt Restructurings and Vintage Disclosures .

The amendments in this ASU improve the usefulness of information provided to investors about certain loan refinancings, restructurings, and write-offs.

The amendments eliminate the accounting guidance for troubled debt restructurings (TDRs) by creditors that have adopted ASU No.

It also enhances disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty.

Lastly, the amendments require that a public business entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases.

The Company is finalizing the processes and assumptions related to the CECL model, including validations and determining the implementation impact as of January 1, 2023.

The Company has made preliminary estimates of the implementation impact based on the current status of the CECL model, which are subject to change based on continued finalization of procedures and implementation efforts including execution of internal control framework.

The Company expects to recognize a one-time cumulative adjustment to the allowance for credit losses in the first quarter of 2023.

Based on the preliminary estimates, the Company is expecting an increase to its allowance for credit losses, including the allowance for unfunded commitments, of between $4,500 and $5,500 upon adoption.

The ongoing impact of CECL is dependent on various factors, including credit quality, macroeconomic forecasts and conditions, composition of our loans and securities portfolios, and other management judgments.

The transition adjustment to record the allowance for credit losses, which remains subject to further review and analysis by the Company’s management team, may fall outside of the estimated range based on material changes to these factors.

The Company does not expect a material allowance for credit losses to be recorded on the available for sale securities portfolio under the newly codified CECL model.

The Company performs a quarterly analysis of the risk of credit losses on the available for sale portfolio.

Based on this assessment, we deemed the risk of loss to be minimal.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

1 unchanged sentence

The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

They provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.

The Company is currently evaluating the impact of the reference rate reform on the Company’s consolidated financial statements.

In January 2021, the FASB issued ASU No.

2021-01, Reference Rate Reform (Topic 848):

The amendments in this update refine the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to apply to derivative contracts and certain hedging relationships affected by the discounting transition.

The amendments in this update refined the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to apply to derivative contracts and certain hedging relationships affected by the discounting transition.

The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.

The Company is currently evaluating the impact of the reference rate reform on the Company’s consolidated financial statements.

In December 2022, the FASB issued ASU No.

2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 .

The amendment in this update extends the period of time preparers can utilize reference rate reform relief guidance in Topic 848, discussed above.

2022-06 defers the sunset date from December 31, 2022 to December 31, 2024.

The Company does not expect the updates within Topic 848 to have a material impact on our financial statements.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Earnings per Common Share

34 unchanged sentences

Collateralized loan obligations 37,880 59 ( 157 ) 37,782

Corporate notes 12,750 62 ( 52 ) 12,760

$ 765,546 $ 5,076 $ ( 11,800 ) $ 758,822

41 unchanged sentences

Collateralized loan obligations 22,821 ( 157 ) — — 22,821 ( 157 )

Corporate notes 4,198 ( 52 ) — — 4,198 ( 52 )

$ 530,081 $ ( 10,295 ) $ 36,246 $ ( 1,505 ) $ 566,327 $ ( 11,800 )

As of December 31, 2021, securities available for sale with unrealized losses included 43 state and political subdivisions, 31 collateralized mortgage obligations, 19 mortgage-backed securities, three collateralized loan obligations and four corporate notes.

Collateralized loan obligation securities are debt securities backed by pools of senior secured commercial loans to a diverse group of companies across a broad spectrum of industries.

As of December 31, 2022, securities available for sale with unrealized losses included 117 state and political subdivisions, 79 collateralized mortgage obligations, 27 mortgage-backed securities, six collateralized loan obligations and eight corporate notes.

Collateralized loan obligations are debt securities backed by pools of senior secured commercial loans to a diverse group of companies across a broad spectrum of industries.

At December 31, 2022, the Company only owned collateralized loan obligations that were rated AAA or AA.

23 unchanged sentences

The loan portfolio included $ 1,919,948 and $ 1,719,109 of fixed-rate loans and $ 827,027 and $ 741,617 of variable-rate loans as of December 31, 2022 and 2021, respectively.

Real estate loans of approximately $ 1,190,000 and $ 1,010,000 were pledged as security for FHLB advances as of December 31, 2021 and 2020, respectively.

Real estate loans of approximately $ 1,190,000 were pledged as security for FHLB advances as of December 31, 2022 and 2021.

The Company has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, executive officers, their immediate families, and affiliated companies in which they are principal stockholders or executive officers (commonly referred to as related parties), all of which have been originated, in the opinion of management, on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties.

5 unchanged sentences

Repayments ( 20,650 ) ( 11,282 )

Effect of change in composition of related parties — ( 13,322 )

Effect of change in classification ( 9,700 ) —

Balance, end of year $ 155,789 $ 143,768

33 unchanged sentences

Total impaired loans $ 322 $ 322 $ — $ 8,948 $ 8,948 $ 2,500

The balance of impaired loans was composed of loans to the same two borrowers as of both December 31, 2021 and 2020.

The balance of impaired loans was composed of loans to one and two borrowers as of December 31, 2022 and 2021, respectively.

The Company has no commitments to advance additional funds on any of the impaired loans.

63 unchanged sentences

TDR loans totaled $ 0 and $ 8,599 as of December 31, 2022 and December 31, 2021, respectively, and were included in the nonaccrual category.

There were six loan modifications related to one borrower considered to be TDR that occurred during the year ended December 31, 2021.

The modifications included significant payment delays.

A specific reserve of $ 2,500 and $ 3,000 related to these loans was recorded at December 31, 2021 and December 31, 2020, respectively.

There were no loan modifications considered to be TDR that occurred during the years ended December 31, 2022 and 2020.

There were six loan modifications considered to be TDR that occurred during the year ended December 31, 2021 related to one borrower.

A specific reserve of $ 2,500 related to these loans was recorded at December 31, 2021.

The pre- and post-modification recorded investment in TDR loans that have occurred during the years ended December 31, 2022, 2021 and 2020, totaled $ 0 , $ 14,044 and $ 0 , respectively.

5 unchanged sentences

(dollars in thousands, except per share data)

The CARES Act provided financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time in certain circumstances.

This temporary suspension only applied to modifications of loans that were not more than 30 days past due as of December 31, 2019 and could not be applied to modifications that were not related to the COVID-19 pandemic.

If elected, this temporary suspension applied to eligible modifications executed during the period beginning on March 1, 2020 and, as extended by the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, ending on January 1, 2022.

In 2020, federal banking regulators in consultation with FASB issued interagency statements that included similar guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic that provided that short-term modifications and additional accommodations made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief were not TDRs.

At December 31, 2021, there were no COVID-19-related loan modifications.

At December 31, 2020, COVID-19-related loan modifications totaled $ 139,940 .

The modifications primarily included a deferral of principal and/or interest payments.

Modified loans continued to accrue interest and were evaluated for past due status based on the revised payment terms, except for one borrower relationship classified as impaired.

All COVID-19-related modifications expired during 2021 and these loans returned to regular payment status.

The following tables show the recorded investment in loans by credit quality indicator and loan segment as of December 31, 2022 and 2021.

17 unchanged sentences

Total $ 2,387,638 $ 64,025 $ 9,063 $ — $ 2,460,726

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

All loans are subject to the assessment of a credit quality indicator.

24 unchanged sentences

The loan may be reliant on secondary sources of repayment, including liquidation of collateral and guarantor support.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Risk rating 7:

16 unchanged sentences

The risk of declining collateral values is present for most types of loans.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Commercial loans consist primarily of loans to businesses for various purposes, including revolving lines to finance current operations, inventory and accounts receivable, and capital expenditure loans to finance equipment and other fixed assets.

9 unchanged sentences

The repayment source for consumer loans, including 1-4 family residential mortgages and home equity loans, is typically wages.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

The following tables detail changes in the allowance for loan losses by segment for the years ended December 31, 2022, 2021 and 2020.

66 unchanged sentences

Operating Leases

The Company leases real estate for its main office, eight branch offices and office space for operations departments under various operating lease agreements.

The Company leases real estate for its main office, six branch offices and office space for operations departments under various operating lease agreements.

The lease agreements have maturity dates ranging from May 2023 to February 2033, some of which include options to renew at the Company's discretion.

18 unchanged sentences

Subordinated Notes

On July 18, 2003, the Company issued $ 20,619 in junior subordinated debentures to the Company’s subsidiary trust, West Bancorporation Capital Trust I.

In July 2003, the Company issued $ 20,619 in junior subordinated debentures to the Company’s subsidiary trust, West Bancorporation Capital Trust I.

The junior subordinated debentures are senior to the Company’s common stock.

12 unchanged sentences

In addition, the junior subordinated debentures qualify as additional Tier 1 capital of the Company for regulatory purposes.

In June 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 in June 2027, the interest rate will be reset quarterly to a floating rate per annum that is expected to be three-month term Secured Overnight Financing Rate (SOFR) plus 2.41 percent with payments due quarterly .

The Company may redeem the Notes, in whole or in part, on or 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 the Company’s subsidiary, West Bank.

The Notes were reported net of unamortized debt issuance costs of $ 1,109 as of December 31, 2022.

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

Federal Home Loan Bank and Other Borrowings

Federal Home Loan Bank Advances and Other Borrowings

The Company had fixed-rate FHLB advances totaling $ 155,000 and $ 125,000 as of December 31, 2022 and December 31, 2021, respectively.

The weighted average contractual rates on these advances were 0.32 percent and 0.35 percent as of December 31, 2021 and December 31, 2020, respectively, while the weighted average effective rate for these advances were 2.09 percent and 2.27 percent as of December 31, 2021 and December 31, 2020, respectively.

The effective interest rate on these advances includes adjustments for discount amortization and interest rate swaps, if applicable.

Fixed-rate advances are short-term advances with maturities of one to three months.

The Company has interest rate swaps related to the interest cash flows of these rolling short-term FHLB advances.

These advances have maturities of one month and are part of a rolling funding program associated with long-term interest rate swaps related to the interest cash flows of the rolling advances.

The weighted average contractual rates on these advances were 4.47 percent and 0.32 percent as of December 31, 2022 and December 31, 2021, respectively.

The weighted average effective rate for these advances, which includes adjustments for the interest rate swaps, were 2.32 percent and 2.09 percent as of December 31, 2022 and December 31, 2021, respectively.

See Note 11 for additional information on interest rate swaps hedging FHLB advances.

Previous long-term FHLB advances had modification-related discounts being amortized and recognized as interest expense over the terms of those advances.

For the years ended December 31, 2021, 2020 and 2019, the Company recognized $ 0 , $ 635 and $ 1,486 , respectively, of interest expense related to the discount.

The Company had overnight and other short-term FHLB advances totaling $ 200,000 as of December 31, 2022, which are included in federal funds purchased and other short-term borrowings.

The FHLB advances are collateralized by FHLB stock and real estate loans, as required by the FHLB’s collateral policy.

3 unchanged sentences

As of December 31, 2022, there were no amounts outstanding under these arrangements.

West Bank also pledges securities as collateral at the Federal Reserve Bank discount window for overnight borrowings.

At December 31, 2021, approximately $ 16,258 of collateral was available to be pledged against potential borrowings at the Federal Reserve Bank discount window.

There were no balances outstanding at December 31, 2021.

At December 31, 2022, West Bank also had approximately $ 3,830 of securities pledged for available borrowings at the Federal Reserve Bank discount window.

There were no balances outstanding at the Federal Reserve Bank discount window at December 31, 2022.

Long-Term Debt

O n December 15, 2021, the Company entered into a credit agreement with a commercial bank and borrowed $ 40,000 .

This credit agreement replaced a prior credit agreement with the same commercial bank that had a remaining outstanding balance of $ 5,500 .

The additional borrowings were used to make a capital injection into the Company’s subsidiary, West Bank.

Interest under the term note is payable quarterly over five years with the first payment due February 2022.

The borrowing was used to make a capital injection into the Company’s subsidiary, West Bank.

Interest under the term note is payable quarterly over five years.

Required quarterly princip al payments of $ 1,250 begin May 2023, with the remaining balance due February 2027.

2 unchanged sentences

In the event of default, the unaffiliated commercial bank may accelerate payment of the loan.

The outstanding balance was $ 40,000 as of December 31, 2021.

The outstanding balance was $ 40,000 as of both December 31, 2022 and 2021 .

The note is secured by 100 percent of West Bank’s stock.

The prior note that was replaced by this credit agreement had an outstanding balance of $ 10,000 as of December 31, 2020 .

West Bank’s special purpose subsidiary has a credit agreement for $ 11,486 .

4 unchanged sentences

Thereafter 10,589

The Company has entered into various interest rate swap agreements as part of its interest rate risk management strategy.

The Company uses interest rate swaps to manage its interest rate risk exposure on certain loans, variable-rate and short-term borrowings, and deposits due to interest rate movements.

The notional amounts of the interest rate swaps do not represent amounts exchanged by the counterparties, but rather, the notional amount is used to determine, along with other terms of the derivative, the amounts to be exchanged between the counterparties.

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

The Company has entered into various interest rate swap agreements as part of its interest rate risk management strategy.

The Company uses interest rate swaps to manage its interest rate risk exposure on certain loans, variable-rate and short-term borrowings, and deposits due to interest rate movements.

Interest Rate Swaps Designated as a Cash Flow Hedge:

2 unchanged sentences

As of December 31, 2022, the Company had swaps with a total notional amount of $ 180,000 that hedge the interest payments of rolling fixed-rate one-month funding consisting of FHLB advances or brokered deposits.

One of these swaps with a total notional amount of $ 25,000 is a forward-starting swap with a starting date in September 2023.

Also, as of December 31, 2022, the Company had a swap with a total notional amount of $ 20,000 that effectively converts variable-rate junior subordinated notes to fixed-rate debt and swaps with a total notional amount of $ 110,000 that hedge the interest payments of certain deposit accounts.

18 unchanged sentences

These swaps were terminated in March 2021, and the resulting gains of $ 3,781 were recorded in noninterest income.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

The table below identifies the balance sheet category and fair values of the Company’s derivative instruments as of December 31, 2022 and 2021.

2 unchanged sentences

Gross notional amount $ 310,000 $ 255,000

Fair value in other assets 16,284 —

Fair value in other liabilities — ( 7,517 )

6 unchanged sentences

Fair value in other liabilities ( 15,309 ) ( 3,887 )

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

The following table identifies the pretax gains or losses recognized on the Company’s derivative instruments designated as cash flow hedges for the years ended December 31, 2022, 2021 and 2020.

2 unchanged sentences

Reclassification from AOCI into income:

(Increase) decrease in interest expense $ ( 4,684 ) $ ( 4,187 ) $ 142

Increase in interest expense $ ( 206 ) $ ( 4,684 ) $ ( 4,187 )

Decrease in noninterest income, swap termination fees — ( 3,600 ) —

The Company estimates there will be approximately $ 4,337 reclassified from accumulated other comprehensive income to interest expense through December 31, 2022 related to cash flow hedges.

The Company estimates there will be approximately $ 6,477 reclassified from accumulated other comprehensive income to reduce interest expense through December 31, 2023 related to cash flow hedges.

The Company will continue to assess the effectiveness of hedges on a quarterly basis.

2 unchanged sentences

These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration.

As of December 31, 2021 and 2020, the Company pledged $ 4,500 and $ 24,100 , respectively, of collateral to the counterparties in the form of cash on deposit with third parties.

As of December 31, 2022 and 2021, the Company pledged $ 0 and $ 4,500 , respectively, of collateral to the counterparties in the form of cash on deposit.

As of December 31, 2022 and 2021, the Company’s counterparties pledged $ 31,560 and $ 0 , respectively, of collateral to the Company in the form of cash on deposit.

The interest rate swap product with the borrowers is cross-collateralized with the underlying loan and therefore there is no pledged cash collateral under swap contracts with customers.

29 unchanged sentences

Stock compensation ( 320 ) ( 0.6 ) ( 195 ) ( 0.3 ) 97 0.2

Enactment of state tax reform 649 1.1 — — — —

Federal income tax credits ( 1,468 ) ( 2.5 ) ( 1,368 ) ( 2.2 ) ( 1,239 ) ( 3.0 )

1 unchanged sentence

Income taxes $ 12,998 21.9 % $ 13,301 21.2 % $ 8,669 20.9 %

In 2022, the Company recorded 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 by $ 671 and in turn caused a one-time increase in 2022 tax expense.

The effective tax rate for 2022 was 21.9 percent.

Excluding this one-time state tax expense, the effective tax rate for 2022 would have been 20.8 percent.

West Bancorporation, Inc.

11 unchanged sentences

State net operating loss carryforward 1,476 1,276

Other 156 139

45,036 14,913

2 unchanged sentences

Deferred loan costs 249 247

Net unrealized gains on securities available for sale — 2,019

Net unrealized gains on interest rate swaps 4,003 —

Premises and equipment 1,219 809

27 unchanged sentences

RSUs granted to employees prior to 2021 vest 20 percent per year over a five year period, and RSUs granted to directors vest after one year.

In 2021, the Company granted time-based and performance-based RSU awards.

The time-based RSU awards granted to employees vest 20 percent per year over a five year period and have a one year post-vesting holding period.

The time-based RSU awards granted to directors vest after one year and have a one year post-vesting holding period.

The performance based RSU awards granted to employees cliff vest at the end of a three year performance period based upon the Company meeting certain performance metrics and have a one year post-vesting holding period.

Beginning in 2021, the Company has granted time-based and performance-based RSU awards.

The time-based RSU awards granted to employees vest 20 percent per year over a five year period and have a one to three year post-vesting holding period.

The time-based RSU awards granted to directors vest after one year and have a one to three year post-vesting holding period.

The following table includes a summary of nonvested RSU activity for the years ended December 31, 2022, 2021 and 2020.

92 unchanged sentences

A banking organization with a 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 December 31, 2021, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer.

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

The ability of the Company to pay dividends to its stockholders is dependent upon dividends paid by its subsidiary, West Bank.

7 unchanged sentences

As of December 31, 2022 and 2021, the Company had no intangible assets or preferred stock.

The decrease in the tangible common equity ratio was primarily due to the increase in accumulated other comprehensive loss related to the decline in market value of the securities portfolio, which has no impact on regulatory capital.

Commitments and Contingencies

Required reserve balances :

Prior to March 26, 2020, West Bank was required to maintain an average reserve balance with the Federal Reserve Bank.

On March 26, 2020, in response to the COVID-19 pandemic, the reserve requirement was reduced to zero , and remained at zero as of December 31, 2021.

Financial instruments with off-balance sheet risk :

29 unchanged sentences

The Company had commitments to invest in qualified affordable housing projects totaling $ 3,431 and $ 3,986 as of December 31, 2022 and 2021, respectively.

During 2020, the Company began construction on a new office in Sartell, Minnesota, which had a remaining commitment of $ 1,578 and $ 8,324 as of December 31, 2021 and December 31, 2020, respectively.

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

West Bank entered into a construction contract for the construction of a new headquarters building in West Des Moines, Iowa in 2022.

West Bank will pay the contractor a contract price consisting of the cost of work plus a fee, subject to a guaranteed maximum price of $ 42,309 , with anticipated construction completed in 2024.

As of December 31, 2022, there was a remaining commitment of $ 34,938 under this contract.

West Bank also began construction on a new office in Mankato, Minnesota in 2022, which had a remaining commitment of $ 6,520 as of December 31, 2022.

Concentrations of credit risk :

54 unchanged sentences

Collateralized loan obligations 37,782 — 37,782 —

Corporate notes 12,760 — 12,760 —

Derivative instrument, interest rate swaps 3,887 — 3,887 —

3 unchanged sentences

That is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Impaired loans with a net book value of $ 6,099 and $ 12,817 for which a fair value adjustment was recorded were classified as Level 3 as of December 31, 2021 and December 31, 2020, respectively.

As of December 31, 2021, impaired loans with a carrying value of $ 8,599 were reduced by a specific reserve of $ 2,500 , resulting in a reported fair value of $ 6,099 .

Impaired loans with a net book value of $ 6,099 for which a fair value adjustment was recorded were classified as Level 3 as of December 31, 2021.

As of December 31, 2021, impaired loans with a carrying value of $ 8,599 were reduced by a specific reserve of $ 2,500 , resulting in a reporting fair value of $ 6,099 .

As of December 31, 2022, there were no loans for which a fair value adjustment was recorded.

In determining the estimated net realizable value of the underlying collateral of impaired loans, the Company primarily uses third-party appraisals or broker opinions which may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

9 unchanged sentences

December 31, 2022

Impaired loans Appraisal of collateral Appraisal adjustment 50%, including selling costs

Impaired loans — — —

December 31, 2021

Impaired loans Appraisal of collateral Appraisal adjustment 7% selling costs

Impaired loans Appraisal of collateral Appraisal adjustment 50%, including selling costs

GAAP requires disclosure of the fair value of financial assets and liabilities, including those that are not measured and reported at fair value on a recurring or nonrecurring basis.

5 unchanged sentences

Cash and due from banks $ 24,896 $ 24,896 $ 24,896 $ — $ —

Federal funds sold 175,270 175,270 175,270 — —

Interest-bearing deposits 1,643 1,643 1,643 — —

Securities available for sale 664,115 664,115 — 664,115 —

5 unchanged sentences

Deposits $ 2,880,408 $ 2,880,495 $ — $ 2,880,495 $ —

Federal funds purchased 2,880 2,880 2,880 — —

Federal funds purchased and short-term borrowings 200,000 200,000 200,000 — —

Subordinated notes, net 79,369 68,047 — 68,047 —

15 unchanged sentences

Cash and due from banks $ 17,555 $ 17,555 $ 17,555 $ — $ —

Federal funds sold 318,742 318,742 318,742 — —

Interest-bearing deposits 175,270 175,270 175,270 — —

Securities available for sale 758,822 758,822 — 758,822 —

5 unchanged sentences

Deposits $ 3,016,005 $ 3,016,305 $ — $ 3,016,305 $ —

Federal funds purchased 5,375 5,375 5,375 — —

Federal funds purchased and short-term borrowings 2,880 2,880 2,880 — —

Subordinated notes, net 20,465 17,122 — 17,122 —

Federal Home Loan Bank advances 125,000 125,000 — 125,000 —

Long-term debt, net 21,558 21,556 — 21,556 —

Long-term debt 51,521 51,521 — 51,521 —

Accrued interest payable 519 519 519 — —

Interest rate swap 24,340 24,340 — 24,340 —

Interest rate swaps 11,404 11,404 — 11,404 —

Off-balance-sheet financial instruments:

61 unchanged sentences

Change in assets and liabilities:

Increase (decrease) in other assets ( 20 ) ( 3 ) 28

Decrease in other assets ( 116 ) ( 20 ) ( 3 )

Increase (decrease) in accrued expenses and other liabilities 440 5 ( 49 )

13 unchanged sentences

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Selected Quarterly Financial Data (unaudited)

Three months ended March 31 June 30 September 30 December 31

Interest income $ 26,310 $ 25,821 $ 27,485 $ 27,664

Interest expense 3,189 2,971 2,999 3,062

Net interest income 23,121 22,850 24,486 24,602

Provision for loan losses 500 ( 2,000 ) — —

Net interest income after provision for loan losses 22,621 24,850 24,486 24,602

Noninterest income 2,465 2,515 2,401 2,348

Noninterest expense 10,271 10,526 10,712 11,871

Income before income taxes 14,815 16,839 16,175 15,079

Income taxes 3,063 3,600 3,469 3,169

Net income $ 11,752 $ 13,239 $ 12,706 $ 11,910

Basic earnings per common share $ 0.71 $ 0.80 $ 0.77 $ 0.72

Diluted earnings per common share $ 0.70 $ 0.79 $ 0.76 $ 0.71

Three months ended March 31 June 30 September 30 December 31

Interest income $ 25,220 $ 24,657 $ 24,610 $ 25,746

Interest expense 6,756 3,910 3,478 3,256

Net interest income 18,464 20,747 21,132 22,490

Provision for loan losses 1,000 3,000 4,000 4,000

Net interest income after provision for loan losses 17,464 17,747 17,132 18,490

Noninterest income 2,520 1,775 3,203 2,104

Noninterest expense 9,663 9,417 10,059 9,915

Income before income taxes 10,321 10,105 10,276 10,679

Income taxes 2,232 2,136 2,176 2,125

Net income $ 8,089 $ 7,969 $ 8,100 $ 8,554

Basic earnings per common share $ 0.49 $ 0.48 $ 0.49 $ 0.52

Diluted earnings per common share $ 0.49 $ 0.48 $ 0.49 $ 0.52

West Bancorporation, Inc.

and Subsidiary

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

1 unchanged sentence

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-K

Item 8. Financial Statements and Supplementary Data