What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-04-27 compared with 2022-10-27 · 183 added, 298 removed, 306 unchanged (61% of the section changed)

3 unchanged sentences

Forward-looking statements may appear throughout this report.

These forward-looking statements are generally identified by the words “believes,” “expects,” “intends,” “anticipates,” “projects,” “future,” “may,” “should,” “will,” “strategy,” “plan,” “opportunity,” “will be,” “will likely result,” “will continue” or similar references, or references to estimates, predictions or future events.

These forward-looking statements are generally identified by the words “believes,” “expects,” “intends,” “anticipates,” “projects,” “future,” “confident,” “may,” “should,” “will,” “strategy,” “plan,” “opportunity,” “will be,” “will likely result,” “will continue” or similar references, or references to estimates, predictions or future events.

Such forward-looking statements are based upon certain underlying assumptions, risks and uncertainties.

2 unchanged sentences

interest rate risk, including the effects of recent rate increases by the Federal Reserve;

fluctuations in the values of the securities held in our investment portfolio, including as a result of rising interest rates;

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

fluctuations in the values of the securities held in our investment portfolio, including as a result of rising interest rates, which has resulted in unrealized losses in our portfolio;

competitive pressures, including from non-bank competitors such as "fintech" companies and digital asset service providers;

pricing pressures on loans and deposits;

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

our ability to successfully manage liquidity risk;

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

the concentration of large deposits from certain clients, who have balances above current FDIC insurance limits and may withdraw deposits to diversify their exposure;

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

changes in legal and regulatory requirements, limitations and costs;

the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time at Silicon Valley Bank and Signature Bank that resulted in failure of those institutions;

changes in legal and regulatory requirements, limitations and costs, including in response to the recent failures of Silicon Valley Bank and Signature Bank;

changes in customers’ acceptance of the Company’s products and services;

3 unchanged sentences

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

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

risks related to climate change and the negative impact it may have on our customers and their business;

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

changes to U.S.

1 unchanged sentence

talent and labor shortages;

the new 1% excise tax on stock buybacks by publicly traded companies;

the new 1 percent excise tax on stock buybacks by publicly traded companies;

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

6 unchanged sentences

The estimates and judgments that management believes involve the most complex and subjective estimates and judgments and have the most effect on the Company's reported financial position and results of operations are described as critical accounting policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 23, 2023.

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

The Company adopted ASU 2016-13 on January 1, 2023 and replaced the allowance for loan losses "incurred loss" model discussed in the Form 10-K for the year ended December 31, 2022 with the allowance for credit losses "current expected credit loss" model, referred to as the CECL model.

Refer to Note 1 and 4 for additional information and accounting policies related to the CECL model.

West Bancorporation, Inc.

3 unchanged sentences

This report contains references to financial measures that are not defined in GAAP.

Such non-GAAP financial measures include the Company’s presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, the presentation of the efficiency ratio on an adjusted and FTE basis, excluding certain income and expenses, loans, net of PPP loans, and the presentation of the allowance for loan losses ratio, excluding PPP loans.

Such non-GAAP financial measures include the Company’s presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, and the presentation of the efficiency ratio on an adjusted and FTE basis, excluding certain income and expenses.

Management believes these non-GAAP financial measures provide useful information to both management and investors to analyze and evaluate the Company’s financial performance.

3 unchanged sentences

These non-GAAP disclosures should not be considered an alternative to the Company’s GAAP results.

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

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

2022 2021 2022 2021

The following table reconciles the non-GAAP financial measures of net interest income and net interest margin on a FTE basis and efficiency ratio on an adjusted and FTE basis to their most directly comparable measures under GAAP.

Three Months Ended March 31,

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

1 unchanged sentence

Tax-equivalent adjustment (1)

270 306 925 805

Net interest income on a FTE basis (non-GAAP) 18,856 24,157

4 unchanged sentences

Noninterest income 2,957 2,389

Adjustment for realized securities gains, net — (11) — (51)

Adjustment for losses on disposal of premises and equipment, net — 18

3 unchanged sentences

55.34 % 40.14 %

September 30, 2022 December 31, 2021 September 30, 2021

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

Loans outstanding (GAAP) $ 2,614,145 $ 2,456,196 $ 2,359,567

PPP loans (1,119) (22,206) (47,416)

Loans, net of PPP loans (non-GAAP) 2,613,026 2,433,990 2,312,151

Allowance for loan losses 25,418 28,364 28,098

Allowance for loan losses ratio, excluding PPP loans (non-GAAP) (3)

0.97 % 1.17 % 1.22 %

(1) Computed on a tax-equivalent basis using a federal income tax rate of 21 percent, adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans.

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.

2 unchanged sentences

A lower ratio is more desirable.

(3) Management believes that presenting the allowance for loan losses as a percentage of total loans excluding PPP loans is useful in assessing the credit quality of the Company's core portfolio.

West Bancorporation, Inc.

2 unchanged sentences

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

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

Results of operations for the three months ended March 31, 2023 are compared to the results for the same period in 2022, and the consolidated financial condition of the Company as of March 31, 2023 is compared to that as of December 31, 2022.

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, 2022, filed with the SEC on February 23, 2023.

2 unchanged sentences

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

Net income for the three months ended September 30, 2022 was $11,602, or $0.69 per diluted common share, compared to $12,706, or $0.76 per diluted common share, for the three months ended September 30, 2021.

The Company's annualized return on average assets and return on average equity for the three months ended September 30, 2022 were 1.32 percent and 21.01 percent, respectively, compared to 1.52 percent and 20.02 percent, respectively, for the three months ended September 30, 2021.

The decrease in net income for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to a decrease in net interest income and an increase in salaries and employee benefits, partially offset by an increase in loan swap fees and a decrease in FDIC insurance expense.

Net interest income for the three months ended September 30, 2022 decreased $1,482, or 6.1 percent, compared to the three months ended September 30, 2021.

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

Noninterest income increased for the three months ended September 30, 2022 compared to the same period in 2021 due to loan swap fees earned in the third quarter of 2022.

Noninterest expense increased $746 during the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to an increase in salaries and employee benefits and occupancy expense, partially offset by a decrease in FDIC insurance expense.

Net income for the nine months ended September 30, 2022 was $37,453, or $2.23 per diluted common share, compared to $37,697, or $2.25 per diluted common share, for the nine months ended September 30, 2021.

The Company's annualized return on average assets and return on average equity for the nine months ended September 30, 2022 were 1.43 percent and 21.57 percent, respectively, compared to 1.56 percent and 20.98 percent, respectively, for the nine months ended September 30, 2021.

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

Income tax expense for the nine months ended September 30, 2022 included a one-time increase in state income tax expense of $671 for the reduction in deferred tax assets upon the enactment of changes in the Iowa bank franchise tax rates.

Net interest income for the nine months ended September 30, 2022 grew $614, or 0.9 percent, compared to the nine months ended September 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 due to rising interest rates.

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

The negative provision in 2021 was due to the improvement in economic conditions and removal of pandemic-related restrictions on 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 to the reversal of a specific reserve on an impaired loan and the sustained performance of loans after the expiration of COVID modifications and continued improvement in classified loans.

Net income for the three months ended March 31, 2023 was $7,844, or $0.47 per diluted common share, compared to $13,184, or $0.78 per diluted common share, for the three months ended March 31, 2022.

The Company's annualized return on average assets and return on average equity for the three months ended March 31, 2023 were 0.88 percent and 14.77 percent, respectively, compared to 1.51 percent and 20.96 percent, respectively, for the three months ended March 31, 2022.

The decrease in net income for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to a decrease in net interest income and increase in salaries and employee benefits, partially offset by an increase in gain from bank-owned life insurance.

Net interest income for the three months ended March 31, 2023 declined $5,133, or 21.5 percent, compared to the three months ended March 31, 2022.

The decrease in net interest income was primarily due to the increase in interest expense on deposits and other borrowings resulting from rapidly rising interest rates and inverted yield curve, and changes in funding mix, partially offset by an increase in interest income on loans and securities.

Noninterest income increased $568 for the three months ended March 31, 2023 compared to the same period in 2022 due to a gain from bank-owned life insurance.

Noninterest expense increased $1,409 during the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to increases in salaries and employee benefits and occupancy and equipment expense.

Total loans outstanding increased $13,349, or 0.5 percent, during the first three months of 2023.

The credit quality of the loan portfolio remained strong, as evidenced by the Company's ratio of nonperforming loans to total assets of 0.01 percent as of both March 31, 2023 and December 31, 2022.

As of March 31, 2023, the allowance for credit losses was 1.01 percent of total outstanding loans, compared to 0.93 percent as of December 31, 2022.

Management believed the allowance for credit losses at March 31, 2023 was adequate to absorb expected losses in the loan portfolio as of that date.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

Noninterest income increased for the nine months ended September 30, 2022 compared to the same period in 2021 due to the loan swap fees earned in the third quarter of 2022.

Noninterest expense increased $1,877 during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to an increase in salaries and employee benefits expense, partially offset by a decrease in FDIC insurance expense.

Total loans outstanding increased $157,949, or 6.4 percent, during the first nine months of 2022.

Excluding the impact of PPP loan activity, total loans outstanding increased $179,036, or 7.4 percent, during the first nine months of 2022.

As of September 30, 2022, the allowance for loan losses was 0.97 percent of total outstanding loans, compared to 1.15 percent as of December 31, 2021.

At September 30, 2022, the allowance for loan losses was 0.97 percent of total outstanding loans, excluding $1,119 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 September 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 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 peer group for 2023 consists of 22 Midwestern, publicly traded financial institutions, including Bank First Corporation, Bridgewater Bancshares Inc., ChoiceOne Financial Services, Inc., 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., HBT Financial 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.

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

5 unchanged sentences

Peer Group Range (2)

As of and for the nine months ended September 30, 2022 As of and for the six months ended June 30, 2022 As of and for the six months ended June 30, 2022

As of and for the three months ended March 31, 2023 As of and for the year ended December 31, 2022 As of and for the year ended ended December 31, 2022

Return on average equity 14.77% 20.71% 9.97% - 17.24%

5 unchanged sentences

(2) Latest data available.

At its meeting on October 26, 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per common share.

The dividend is payable on November 23, 2022, to stockholders of record on November 9, 2022.

At its meeting on April 26, 2023, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per common share.

The dividend is payable on May 24, 2023, to stockholders of record on May 10, 2023.

West Bancorporation, Inc.

2 unchanged sentences

RESULTS OF OPERATIONS

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

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

2022 2021 Change Change % 2022 2021 Change Change %

The following table shows selected financial results and measures for the three months ended March 31, 2023 compared with the same period in 2022.

Three Months Ended March 31,

2023 2022 Change Change %

Net income $ 7,844 $ 13,184 $ (5,340) (40.50) %

10 unchanged sentences

5.95 % 7.20 % (1.25) %

As of September 30,

As of March 31,

2023 2022 Change

21 unchanged sentences

Net Interest Income

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

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

Data for the three months ended September 30:

Average Balance Interest Income/Expense Yield/Rate

2022 2021 Change Change-

% 2022 2021 Change Change-

% 2022 2021 Change

Interest-earning assets:

Commercial $ 498,268 $ 496,485 $ 1,783 0.36 % $ 6,144 $ 5,687 $ 457 8.04 % 4.89 % 4.54 % 0.35 %

Real estate (3)

2,074,692 1,837,251 237,441 12.92 % 21,981 18,632 3,349 17.97 % 4.20 % 4.02 % 0.18 %

Consumer and other 6,902 3,619 3,283 90.72 % 86 39 47 120.51 % 5.01 % 4.30 % 0.71 %

Total loans 2,579,862 2,337,355 242,507 10.38 % 28,211 24,358 3,853 15.82 % 4.34 % 4.13 % 0.21 %

Taxable 584,721 506,746 77,975 15.39 % 3,147 2,412 735 30.47 % 2.15 % 1.90 % 0.25 %

Tax-exempt (3)

153,187 155,806 (2,619) (1.68) % 1,051 940 111 11.81 % 2.74 % 2.41 % 0.33 %

Total securities 737,908 662,552 75,356 11.37 % 4,198 3,352 846 25.24 % 2.28 % 2.02 % 0.26 %

Federal funds sold 4,751 212,376 (207,625) (97.76) % 30 82 (52) (63.41) % 2.51 % 0.15 % 2.36 %

Total interest-earning assets (3)

$ 3,322,521 $ 3,212,283 $ 110,238 3.43 % 32,439 27,792 4,647 16.72 % 3.87 % 3.43 % 0.44 %

Interest-bearing liabilities:

Interest-bearing demand $ 476,145 $ 490,653 $ (14,508) (2.96) % 679 208 471 226.44 % 0.57 % 0.17 % 0.40 %

Savings and money market 1,327,935 1,444,633 (116,698) (8.08) % 4,461 1,452 3,009 207.23 % 1.33 % 0.40 % 0.93 %

Time deposits 343,862 210,465 133,397 63.38 % 1,149 361 788 218.28 % 1.33 % 0.68 % 0.65 %

Total deposits 2,147,942 2,145,751 2,191 0.10 % 6,289 2,021 4,268 211.18 % 1.16 % 0.37 % 0.79 %

Borrowed Funds:

Federal funds purchased 105,431 5,069 $ 100,362 1,979.92 % 655 2 653 32,650.00 % 2.46 % 0.12 % 2.34 %

Subordinated notes, net 79,285 20,460 58,825 287.51 % 1,106 254 852 335.43 % 5.54 % 4.93 % 0.61 %

Federal Home Loan Bank

advances 125,000 125,000 — — % 649 656 (7) (1.07) % 2.06 % 2.08 % (0.02) %

Long-term debt 51,486 18,654 32,832 176.01 % 466 66 400 606.06 % 3.60 % 1.40 % 2.20 %

Total borrowed funds 361,202 169,183 192,019 113.50 % 2,876 978 1,898 194.07 % 3.16 % 2.29 % 0.87 %

Total interest-bearing

liabilities $ 2,509,144 $ 2,314,934 $ 194,210 8.39 % 9,165 2,999 8,064 205.60 % 1.45 % 0.51 % 0.94 %

Net interest income (FTE) (4)

$ 23,274 $ 24,793 $ (1,519) (6.13) %

Net interest spread (FTE) 2.42 % 2.92 % (0.50) %

Net interest margin (FTE) (4)

2.78 % 3.06 % (0.28) %

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Data for the nine months ended September 30:

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

Interest income and the resulting net interest income

are shown on a FTE basis.

Data for the three months ended March 31:

Average Balance Interest Income/Expense Yield/Rate

12 unchanged sentences

Total securities 688,469 804,552 (116,083) (14.43) % 4,290 3,945 345 8.75 % 2.49 % 1.96 % 0.53 %

Federal funds sold 77,386 254,890 (177,504) (69.64) % 179 226 (47) (20.80) % 0.31 % 0.12 % 0.19 %

Interest-bearing deposits 2,138 178,041 (175,903) (98.80) % 25 82 (57) (69.51) % 4.81 % 0.19 % 4.62 %

Total interest-earning assets (3)

3 unchanged sentences

Savings and money market 1,277,676 1,610,639 (332,963) (20.67) % 8,655 1,620 7,035 434.26 % 2.75 % 0.41 % 2.34 %

Time deposits 248,628 212,967 35,661 16.74 % 1,813 1,213 600 49.46 % 0.97 % 0.76 % 0.21 %

Time 417,427 195,638 221,789 113.37 % 3,114 281 2,833 1,008.19 % 3.03 % 0.58 % 2.45 %

Total deposits 2,195,495 2,352,514 (157,019) (6.67) % 13,339 2,151 11,188 520.13 % 2.46 % 0.37 % 2.09 %

Borrowed funds:

Federal funds purchased 50,796 4,850 45,946 947.34 % 812 4 808 20,200.00 % 2.14 % 0.11 % 2.03 %

Federal funds purchased and

other short-term borrowings 186,333 1,506 184,827 12,272.71 % 2,079 — 2,079 N/A 4.53 % 0.05 % 4.48 %

Subordinated notes, net 79,400 20,467 58,933 287.94 % 1,106 248 858 345.97 % 5.65 % 4.91 % 0.74 %

21 unchanged sentences

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

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

The Federal Reserve increased the target federal funds interest rate by a total of 300 basis points during the first nine months of 2022 and is expected to continue to raise the target federal funds rate into 2023.

These increases have had 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.

Interest rates earned and paid are also 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 425 basis points in 2022 and 50 basis points during the first three months of 2023.

At this time it is unknown whether additional target federal funds interest rate changes will occur during the remainder of 2023.

The increases that occurred throughout 2022 and 2023 will have an impact on the comparability of net interest income between 2023 and 2022.

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

The net interest margin for the three and nine months ended September 30, 2022 decreased by 28 and 22 basis points, respectively, compared to the three and nine months ended September 30, 2021.

The primary driver of the decrease in the net interest margin was an increase in rates paid on deposits and borrowed funds and an increase in average borrowed funds balances.

Tax-equivalent net interest income decreased $1,519 for the three months ended September 30, 2022 compared to the same time period in 2021.

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

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

Tax-equivalent interest income on loans increased $3,853 and $4,864 for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.

This increase in interest income was primarily driven by the increase in the average balance of commercial real estate loans and, for the three months ended September 30, 2022 compared to the same period in 2021, the increase in loan yields.

The comparability of net interest income and net interest margin between 2022 and 2021 is 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 $101 and $1,590 and yields of 17.89 percent and 9.28 percent for the three months ended September 30, 2022 and September 30, 2021, respectively.

PPP loan interest income was $753 and $5,819 with yields of 14.02 percent and 6.46 percent for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Exclusive of the PPP loans, the yield on loans was 4.33 percent and 3.98 percent for the three months ended September 30, 2022 and September 30, 2021, respectively, and 4.03 percent for both the nine months ended September 30, 2022 and September 30, 2021.

The net interest margin for the three months ended March 31, 2023 decreased by 62 basis points compared to the three months ended March 31, 2022.

The primary driver of the decrease in the net interest margin was an increase in rates paid on deposits and borrowed funds, which have repriced faster than loans and securities, and an increase in average borrowed funds balances.

Tax-equivalent net interest income decreased $5,301 for the three months ended March 31, 2023 compared to the same time period in 2022.

Tax-equivalent interest income on loans increased $9,603 for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

This increase in interest income on loans was driven by a combination of an increase in the average balance of loans and an increase in loan yields.

The average balance of loans for the three months ended March 31, 2023 increased $295,860 compared to the three months ended March 31, 2022, while loan yields increased 100 basis points.

Rising market interest rates have resulted in increasing rates on variable-rate loans and higher interest rates on renewed and originated loans.

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

2 unchanged sentences

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 deposits increased $2,191 and $212,959 for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021.

The rates paid on deposits increased 79 and 30 basis points for the three and nine months ended September 30, 2022 compared to the same periods in 2021.

The increases in the cost of deposits were primarily due to changes in deposit mix, and increases in certain deposit rates in response to the increases in the target federal funds rate and market interest rate competition.

The cost of deposits could increase further in a rising rate environment.

The average balance of borrowed funds increased $192,019 and $80,409 for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.

The Company increased variable-rate long-term debt by $34,500 in December 2021 and issued subordinated debt of $60,000 in June 2022.

Average balances of federal funds purchased increased $100,362 and $45,946 for the three and nine months ended September 30, 2022 compared to the same periods in 2021.

The average rate paid on borrowed funds increased 87 and 43 basis points for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.

The cost of borrowed funds may continue to increase as the variable rate on long-term debt and federal funds purchased may increase if market rates continue to increase.

The average balance of deposits decreased $157,019 for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The rates paid on deposits increased 209 basis points for the three months ended March 31, 2023 compared to the same period in 2022.

The increase in the cost of deposits was primarily due to higher deposit interest rates in response to increases in the target federal funds rate and market interest rates, increased competition for deposit balances, and changes in deposit mix.

The Federal Reserve increased the target federal funds rate by a total of 425 basis points in 2022 and 50 basis points in the first three months of 2023.

These increases have had a direct impact on the cost of deposits and market competition.

Interest expense on borrowed funds increased $4,009 for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

The average balance of borrowed funds increased $322,471 for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

The Company issued $60,000 of subordinated debt in June 2022.

Additionally, average balances of federal funds purchased and other short-term borrowings increased $184,827 for the three months ended March 31, 2023 compared to the same period in 2022.

The average rate of the federal funds purchased and other short-term borrowings increased by 448 basis points in the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

This increase in average rates paid on federal funds purchased and other short-term borrowings was driven by the increases in the target federal funds rate by the Federal Reserve.

Credit Loss Expense and the Related Allowance for Credit Losses

The Company adopted ASU No.

2016-13 using the modified retrospective method for financial assets measured at amortized cost and off-balance-sheet credit exposures.

See Notes 1 and 4 to the Financial Statements for additional information.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

In the first nine months of 2022, the Federal Reserve increased the target federal funds rate by a total of 300 basis points, and it is expected to make additional rate increases into 2023.

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

Provision for Loan Losses and the Related Allowance for Loan Losses

The provision for loan losses represents a charge made to earnings to maintain an adequate allowance for loan losses.

The adequacy of the allowance for loan losses is evaluated quarterly by management and reviewed by the Board of Directors.

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

There was no provision for loan losses for the three months ended September 30, 2022 and September 30, 2021.

The negative provisions for loan losses were $2,500 for the nine months ended September 30, 2022, compared to negative provisions of $1,500 for the nine months ended September 30, 2021.

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, which had a specific reserve of $2,500, was settled in the second quarter of 2022 resulting in a charge-off of $451.

The credit loss expense recorded on the income statement represents a charge made to earnings to maintain an adequate allowance for credit losses.

The adequacy of the allowance for credit losses is evaluated quarterly by management and reviewed by the Board of Directors.

The allowance for credit losses is management's estimate of expected lifetime losses in the loan portfolio as of the balance sheet date.

There was no provision for credit losses for the three months ended March 31, 2023.

The credit loss expense was negative $750 for the three months ended March 31, 2022.

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

Factors management considers in establishing an appropriate allowance include:

20 unchanged sentences

Identifiable sectors within the general economy are subject to additional volatility, which at any time may have a substantial impact on the loan portfolio.

In addition, regulatory agencies, as integral parts of their examination processes, periodically review the credit quality of the loan portfolio and the level of the allowance for loan losses.

Such agencies may require West Bank to recognize additional charge-offs or provision for loan losses based on such agencies' review of information available to them at the time of their examinations.

In addition, regulatory agencies, as integral parts of their examination processes, periodically review the credit quality of the loan portfolio and the level of the allowance for credit losses.

Such agencies may require West Bank to recognize additional charge-offs or provision for credit losses based on such agencies' review of information available to them at the time of their examinations.

West Bancorporation, Inc.

3 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 and nine months ended September 30, 2022 and 2021 and related ratios.

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

2022 2021 Change 2022 2021 Change

The following table summarizes the activity in the Company's allowance for credit losses on loans for the three months ended March 31, 2023 and 2022 and related ratios.

Three Months Ended March 31,

2023 2022 Change

Balance at beginning of period $ 25,473 $ 28,364 $ (2,891)

Adoption of CECL 2,458 — 2,458

Charge-offs — — —

1 unchanged sentence

Net (charge-offs) recoveries 10 9 1

Provision for loan losses charged (credited) to operations — — — (2,500) (1,500) (1,000)

Provision for credit losses charged (credited) to operations — (750) 750

Balance at end of period $ 27,941 $ 27,623 $ 318

1 unchanged sentence

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

Ratio of allowance for loan losses to average loans outstanding 0.99 % 1.20 % 1.01 % 1.22 %

Ratio of allowance for loan losses to total loans at end of period 0.97 % 1.19 % 0.97 % 1.19 %

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

0.97 % 1.22 % 0.97 % 1.22 %

(1) A non-GAAP financial measure.

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

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

Current economic concerns include the impact of sharp increases in interest rates, inflationary trends, continuing supply chain issues and labor shortages, wage pressures, and expectations of additional 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 300 basis points in the first nine months of 2022.

It is expected that additional rate increases will occur into 2023.

The Company decreased certain qualitative factors used in the allowance for loan losses evaluation in the first nine months of 2022 based upon the sustained performance of loans after the expiration of COVID modifications and continued 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 nine months ended September 30, 2022.

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

Ratio of allowance for credit losses for loans to average loans outstanding 1.02 % 1.13 %

Ratio of allowance for credit losses for loans to total loans at end of period 1.01 % 1.11 %

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

Current economic concerns include the impact of sharp increases in interest rates as the Federal Reserve responds to inflationary trends, labor shortages and wage pressures, and the uncertainty of additional 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 425 basis points in 2022 and 50 basis points in the first three months of 2023.

The forecast for future rate increases is uncertain at this time.

Management believed the allowance for credit losses at March 31, 2023 was adequate to absorb expected losses in the loan portfolio as of that date.

West Bancorporation, Inc.

2 unchanged sentences

Noninterest Income

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

Three Months Ended September 30,

Noninterest income:

2022 2021 Change Change %

Service charges on deposit accounts $ 553 $ 589 $ (36) (6.11) %

Debit card usage fees 498 490 8 1.63 %

Trust services 780 695 85 12.23 %

Increase in cash value of bank-owned life insurance 246 230 16 6.96 %

Loan swap fees 835 — 835 N/A

Realized securities gains, net — 11 (11) (100.00) %

Other income:

All other income 364 386 (22) (5.70) %

Total other income 364 386 (22) (5.70) %

Total noninterest income $ 3,276 $ 2,401 $ 875 36.44 %

Nine Months Ended September 30,

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

Three Months Ended March 31,

Noninterest income:

4 unchanged sentences

Increase in cash value of bank-owned life insurance 257 227 30 13.22 %

Loan swap fees 835 42 793 1,888.10 %

Realized securities gains, net — 51 (51) (100.00) %

Gain from bank-owned life insurance 691 — 691 N/A

Other income:

2 unchanged sentences

Total noninterest income $ 2,957 $ 2,389 $ 568 23.78 %

The increase in noninterest income for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 was primarily due to loan swap fees of $835 earned in the third quarter of 2022.

Additionally, revenue from trust services increased for the three months ended September 30, 2022 when compared to the same period in 2021, primarily due to one-time estate fees earned in 2022.

The decrease in other income for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to the recognition of net swap termination gains totaling $181 in March 2021.

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

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

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Revenue from trust services was higher for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to an increase in one-time estate fees.

An increase in trust assets and accounts since March 31, 2022 also contributed to the increase in trust service fees.

The gain from bank-owned life insurance was from a death benefit claim.

The decrease in other income was primarily due to $97 of income recognized in the three months ended March 31, 2022 related to the purchase of discounted transferable state income tax credits.

Noninterest Expense

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

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

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

Three Months Ended September 30,

Noninterest expense:

2022 2021 Change Change %

Salaries and employee benefits $ 6,578 $ 6,018 $ 560 9.31 %

Occupancy 1,315 1,203 112 9.31 %

Data processing 644 616 28 4.55 %

FDIC insurance 127 528 (401) (75.95) %

Professional fees 250 212 38 17.92 %

Director fees 209 176 33 18.75 %

Other expenses:

Subscriptions and service contracts 651 424 227 53.54 %

Business development 305 229 76 33.19 %

Insurance expense 198 127 71 55.91 %

Trust 137 181 (44) (24.31) %

Consulting fees 66 70 (4) (5.71) %

Marketing 60 54 6 11.11 %

Charitable contributions — 60 (60) (100.00) %

Low income housing projects amortization 116 203 (87) (42.86) %

New markets tax credit project amortization and management

fees 230 230 — — %

All other 572 381 191 50.13 %

Total other expenses 2,335 1,959 376 19.19 %

Total noninterest expense $ 11,458 $ 10,712 $ 746 6.96 %

Nine Months Ended September 30,

Three Months Ended March 31,

Noninterest expense:

1 unchanged sentence

Salaries and employee benefits $ 6,867 $ 6,298 $ 569 9.03 %

Occupancy 3,643 3,630 13 0.36 %

Occupancy and equipment 1,327 1,086 241 22.19 %

Data processing 635 624 11 1.76 %

Technology and software 513 476 37 7.77 %

FDIC insurance 416 337 79 23.44 %

2 unchanged sentences

Other expenses:

Subscriptions and service contracts 1,619 1,269 350 27.58 %

Business development 333 236 97 41.10 %

1 unchanged sentence

Trust 165 137 28 20.44 %

Charitable contributions 60 — 60 N/A

Consulting fees 49 50 (1) (2.00) %

Marketing 41 54 (13) (24.07) %

Charitable contributions — 180 (180) (100.00) %

Low income housing projects amortization 161 142 19 13.38 %

7 unchanged sentences

(in thousands, except share and per share data)

Salaries and employee benefits increased for the three and nine months ended September 30, 2022 when compared to the three and nine months ended September 30, 2021, primarily due to an increase in expense related to restricted stock units, the addition of five commercial bankers from third quarter of 2021 through the third quarter of 2022, and normal operating increases.

FDIC insurance expense decreased during the three and nine months ended September 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 September 30, 2022 compared to the same period in 2021 primarily due to the increase in depreciation expense related to the new building in St.

Cloud, Minnesota.

Subscriptions and service contracts increased for the three and nine months ended September 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 following the initial period of the pandemic with increased in-person activities, and the addition of five commercial bankers.

Salaries and employee benefits increased for the three months ended March 31, 2023 when compared to the three months ended March 31, 2022, due to wage increases that have been higher than recent historical averages in response to market conditions and competition in retaining and recruiting talent.

Additionally, there has been an increase in full-time equivalent employees with growth in our commercial banking team and information technology department.

Occupancy and equipment expense increased for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to an increase in depreciation expense related to the new building in St.

Cloud, Minnesota which opened in March 2022 and scheduled increases in rent expense on existing leases.

FDIC insurance expense increased during the three months ended March 31, 2023 when compared to the same time period in 2022 primarily due to the FDIC's increase in the minimum assessment rate, announced in 2022 and effective for the first quarter of 2023.

Business development expenses increased in 2023 compared to 2022 due to an increase in the size of our commercial banking team and a general increase in sponsorships and business development activity.

Insurance expense increased for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to insurance costs related to bank buildings that are under construction.

Income Tax Expense

The Company recorded income tax expense of $3,220 (21.7 percent of pre-tax income) and $10,675 (22.2 percent of pre-tax income) for the three and nine months ended September 30, 2022, compared with $3,469 (21.4 percent of pre-tax income) and $10,132 (21.2 percent of pre-tax income) for the three and nine months ended September 30, 2021.

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.

For the nine months ended September 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 by $671 and in turn caused the one-time increase in 2022 tax expense.

Additionally, for the nine months ended September 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 nine 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 $1,101 and $1,026, respectively.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

The Company recorded income tax expense of $1,737 (18.1 percent of pre-tax income) for the three months ended March 31, 2023, compared with $3,121 (19.1 percent of pre-tax income) for the three months ended March 31, 2022.

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, gain from bank-owned life insurance, disallowed interest expense, and state income taxes.

Additionally, for the three months ended March 31, 2023 and 2022, a tax benefit of $11 and $377, 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 2023 and 2022 were also impacted by year-to-date federal low income housing tax credits and a new markets tax credit of approximately $375 and $367, respectively.

FINANCIAL CONDITION

The Company had total assets of $3,517,517 as of September 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 $87,070 during the nine months ended September 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 change in the fair value of the portfolio, which declined $141,629 in the first nine 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.

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

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

As of September 30, 2022, approximately 65 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.

The Company had total assets of $3,624,943 as of March 31, 2023, compared to total assets of $3,613,218 as of December 31, 2022.

Fluctuations in the balance sheet included increases in loans, premises and equipment, and borrowed funds and a decrease in deposits.

Securities available for sale increased by $1,243 during the three months ended March 31, 2023.

This slight increase was primarily attributable to the decrease in unrealized losses in the securities portfolio, partially offset by principal paydowns on securities.

In the first three months of 2023, net unrealized losses on the available for sale securities portfolio decreased by $11,667.

This was primarily due to falling market yields since December 31, 2022.

Management concluded the unrealized losses are primarily attributed to increases in risk-free market interest rates since these securities were purchased and were not credit-related losses.

Unrealized losses are recorded in accumulated other comprehensive loss, net of tax.

The Company expects the securities portfolio as a percentage of total assets to decrease over time as the proceeds from paydowns and maturities may be used for loan growth or repayment of borrowed funds.

As of March 31, 2023, approximately 63 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities.

These securities have little to no credit risk and provide cash flows for liquidity and repricing opportunities.

Loans and Nonperforming Assets

Loans outstanding increased $157,949 from $2,456,196 as of December 31, 2021 to $2,614,145 as of September 30, 2022.

Changes in the loan portfolio during the first nine months of 2022 included increases of $131,689 in commercial real estate loans and $33,521 in commercial loans and a decrease of $17,709 in construction, land and land development loans.

Included in the change in commercial loans was a decline of $21,087 in PPP loans.

As of September 30, 2022, PPP loans outstanding totaled $1,119.

Loans outstanding increased $13,349 from $2,742,836 as of December 31, 2022 to $2,756,185 as of March 31, 2023.

Changes in the loan portfolio during the first three months of 2023 included an increase of $38,218 in commercial real estate loans and a decrease of $26,275 in construction, land and land development loans.

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

Exclusive of PPP loans, loan growth in the first nine months of 2022 was $179,036, or 7.4 percent.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

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

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

Although the commercial real estate portfolio exceeds these regulatory guidelines, they are within the Company's established policy limits and the Company has appropriate risk management policies and procedures to regularly monitor the commercial real estate portfolio.

An analysis of the Company's non-owner occupied commercial real estate portfolio as of December 31, 2022 was presented in the Company's Form 10-K filed with the SEC on February 23, 2023, and the Company has not experienced any material changes to that portfolio since December 31, 2022.

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

September 30, 2022 December 31, 2021 Change

March 31, 2023 December 31, 2022 Change

Nonaccrual loans $ 316 $ 322 $ (6)

Loans past due 90 days and still accruing interest — — —

Troubled debt restructured loans (1)

Loan restructurings (1)

Total nonperforming loans 316 322 (6)

3 unchanged sentences

Nonperforming assets to total assets 0.01 % 0.01 % — %

(1) While TDR loans are commonly reported by the industry as nonperforming, those not classified in the nonaccrual category are accruing interest due to payment performance.

TDR loans on nonaccrual status are categorized as nonaccrual.

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

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

(1) While loan restructurings made to borrowers experiencing financial difficulty (loan restructurings) are commonly reported by the industry as nonperforming, those not classified in the nonaccrual category are accruing interest due to payment performance.

Loan restructurings on nonaccrual status are categorized as nonaccrual.

There were no loan restructurings categorized as nonaccrual as of March 31, 2023 or December 31, 2022.

Premises and Equipment

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 is expected to be completed in 2024.

Additionally, construction of a new office in Mankato, Minnesota also began in the first quarter of 2022 and is expected to be completed in 2023.

Deposits decreased $82,015, or 2.8 percent, during the first three months of 2023.

A large part of this decrease was attributbale to a decrease in brokered deposits.

Brokered deposits decreased to $234,213 at March 31, 2023, from $272,691 at December 31, 2022.

Excluding brokered deposits, deposits decreased $43,537, or 1.5 percent, during the first three months of 2023.

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 and may also be influenced by recent developments in the financial services industry.

Significant competition for deposits driven by high interest rate alternatives for depositors is currently impacting deposit fluctuations and increasing our cost of deposits.

West Bank participates in the IntraFi® ICS and CDARS reciprocal deposit network which enables depositors to receive FDIC insurance coverage on deposits otherwise exceeding the maximum insurable amount.

As of March 31, 2023, estimated uninsured deposits, which excludes deposits in the IntraFi® reciprocal network and public funds protected by state programs, were approximately 33.3 percent of total deposits, compared to approximately 34.9 percent as of December 31, 2022.

Borrowed Funds

Federal funds purchased and other short-term borrowings increased from $200,000 at December 31, 2022 to $229,290 as of March 31, 2023.

The fluctuations in the balances of federal funds purchased and other short-term borrowings is based on customer loan and deposit activity and the Company's balance sheet management objectives, which from time to time may require the Company to draw on the federal funds purchased lines with our correspondent banks or FHLB advances.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

Premises and Equipment

The Company completed construction of a new office for its St.

Cloud, Minnesota branch which opened in March 2022.

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 construction began in the second quarter of 2022.

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

Deposits decreased $193,158 during the first nine 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.

A large corporate customer completed significant business transactions during 2022 that were funded by existing cash balances, accounting for a significant portion of the decrease in deposits.

Also, large depositors who had accumulated excess discretionary balances sought higher yields in Treasury securities and other investment options primarily as a result of the sharp increase in shorter term interest rates.

At September 30, 2022, the Company had $258,080 in brokered deposits, compared to $130,032 at December 31, 2021.

Brokered deposits included fixed-rate deposits with terms through September 2024 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 2.41 percent, 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 September 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 $535,733 and $427,008, respectively.

The fair values 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 $29,335 increase in other assets and a $4,669 increase in other liabilities from December 31, 2021 to September 30, 2022 due to changes in forecasted yield curves.

The Company had $220,000 of short-term FHLB advances outstanding at March 31, 2023 associated with long-term interest rate swaps, which is an increase of $65,000 from December 31, 2022.

In the first quarter of 2023, the Company entered into four additional long-term interest rate swap agreements with a total notional amount of $65,000.

As of March 31, 2023, the Company has long-term interest rate swap agreements with a total notional amount of $220,000 to hedge the interest payments of one-month rolling funding consisting of FHLB advances or brokered deposits.

These interest rate swaps have maturity dates ranging from September 2023 through June 2029 and fixed rates ranging from 1.63 percent to 3.64 percent.

This strategy of hedging short-term rolling funding effectively provides fixed cost wholesale funding through the maturity dates of the various interest rate swaps.

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.

The Company's principal source of funds is deposits.

Other sources include loan principal repayments, proceeds from the maturity and sale of securities, principal payments on collateralized mortgage obligations and mortgage-backed securities, federal funds purchased, advances from the FHLB, and funds provided by operations.

Other sources include loan principal repayments, proceeds from the maturity and sale of securities, principal payments on amortizing securities, federal funds purchased, advances from the FHLB, other wholesale funding and funds provided by operations.

Liquidity management is conducted on both a daily and a long-term basis.

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 $59,391 as of September 30, 2022 compared with $192,825 as of December 31, 2021.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

The Company had liquid assets (cash and cash equivalents) of $22,480 as of March 31, 2023 compared with $26,539 as of December 31, 2022.

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 and loan 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 business customers' own liquidity needs and may also be influenced by recent developments in the financial services industry.

The Company utilizes brokered deposits to supplement core deposit fluctuations and loan growth.

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

At September 30, 2022, the Company had $258,080 in brokered deposits, which included fixed-rate deposits with terms through September 2024 and variable-rate deposits with terms through February 2024.

As of September 30, 2022, West Bank had additional borrowing capacity available from the FHLB of approximately $430,000, 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 $48,921 to liquidity for the nine months ended September 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 $3,707 and $3,986 as of September 30, 2022 and December 31, 2021, respectively.

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

At March 31, 2023, the Company had $234,213 in brokered deposits, which included fixed-rate deposits with terms through September 2024 and variable-rate deposits with terms through February 2024.

As of March 31, 2023, West Bank had additional borrowing capacity available from the FHLB of approximately $434,000, as well as approximately $3,000 through the Federal Reserve discount window, $35,000 through unsecured federal funds lines of credit with correspondent banks, and $14,067 through the new Federal Reserve Bank Term Funding Program.

The Bank Term Funding Program was established by the Federal Reserve in March 2023 to provide an additional source of liquidity against high-quality securities.

As of March 31, 2023, West Bank had pledged $14,067 in eligible securities to facilitate participation in the program.

No funds were borrowed from the Federal Reserve discount window or Bank Term Funding Program during the three months ended March 31, 2023.

Net cash from operating activities contributed $2,494 to liquidity for the three months ended March 31, 2023.

Management believed that the combination of high levels of potentially liquid assets, unencumbered securities, 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 $3,012 and $3,431 as of March 31, 2023 and December 31, 2022, respectively.

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

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 September 30, 2022, $1,499 has been paid under this construction contract.

The Company's total stockholders' equity decreased to $198,764 at September 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 September 30, 2022, the Company's tangible common equity as a percent of tangible assets was 5.65 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.

As of March 31, 2023, there was a remaining commitment of $30,415 under this contract.

West Bank is also building a new office in Mankato, Minnesota to be completed in the fall of 2023, which had a remaining commitment of $5,426 as of March 31, 2023.

The Company's total stockholders' equity increased to $216,992 at March 31, 2023 from $211,112 at December 31, 2022.

The increase was primarily the result of the decrease in accumulated other comprehensive loss and net income less dividends paid, partially offset by the adjustment made upon the adoption of ASU 2016-13.

The decrease in accumulated other comprehensive loss is primarily the result of falling market yields since December 31, 2022.

At March 31, 2023, the Company's tangible common equity as a percent of tangible assets was 5.99 percent compared to 5.84 percent as of December 31, 2022.

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

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

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

2 unchanged sentences

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

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

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Management believed the Company and West Bank met all capital adequacy requirements to which they were subject as of March 31, 2023.

The Company's and West Bank's capital amounts and ratios are presented in the following table.

3 unchanged sentences

Amount Ratio Amount Ratio Amount Ratio Amount Ratio

As of September 30, 2022:

As of March 31, 2023:

Total Capital (to Risk-Weighted Assets)

23 unchanged sentences

West Bank 416,155 11.37 % 146,367 4.00 % 146,367 4.00 % 182,958 5.00 %

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

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 September 30, 2022, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer.

At March 31, 2023, 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