What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-04-27 · 211 added, 121 removed, 368 unchanged (47% of the section changed)

8 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, which has resulted in unrealized losses in our portfolio;

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

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

2 unchanged sentences

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;

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;

the concentration of large deposits from certain clients, who have balances above current FDIC insurance limits;

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

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, Signature Bank and First Republic 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, Signature Bank and First Republic Bank;

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

cyber-attacks;

the occurrence of fraudulent activity, breaches or failures of our information security controls or cyber-security related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools;

unexpected outcomes of existing or new litigation involving the Company;

2 unchanged sentences

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.

24 unchanged sentences

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,

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

2023 2022 2023 2022

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

1 unchanged sentence

Tax-equivalent adjustment (1)

122 326 283 655

Net interest income on a FTE basis (non-GAAP) 17,463 24,565 36,319 48,722

19 unchanged sentences

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

Results of operations for the three months ended March 31, 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.

Results of operations for the three and six months ended June 30, 2023 are compared to the results for the same periods in 2022, and the consolidated financial condition of the Company as of June 30, 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 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.

Net income for the three months ended June 30, 2023 was $5,862, or $0.35 per diluted common share, compared to $12,667, or $0.75 per diluted common share, for the three months ended June 30, 2022.

The Company's annualized return on average assets and return on average equity for the three months ended June 30, 2023 were 0.64 percent and 11.03 percent, respectively, compared to 1.45 percent and 22.81 percent, respectively, for the three months ended June 30, 2022.

The decrease in net income for the three months ended June 30, 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.

Net interest income for the three months ended June 30, 2023 decreased $6,898, or 28.5 percent, compared to the three months ended June 30, 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 short-term interest rates and an inverted yield curve, and changes in funding mix, partially offset by an increase in interest income on loans and securities.

Noninterest income increased $111 for the three months ended June 30, 2023, compared to the same period in 2022 primarily due to an increase in trust services revenue.

Noninterest expense increased $1,208 during the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to increases in salaries and employee benefits and FDIC insurance expense.

Net income for the six months ended June 30, 2023 was $13,706, or $0.82 per diluted common share, compared to $25,851, or $1.54 per diluted common share, for the six months ended June 30, 2022.

The Company's annualized return on average assets and return on average equity for the six months ended June 30, 2023 were 0.76 percent and 12.90 percent, respectively, compared to 1.48 percent and 21.83 percent, respectively, for the six months ended June 30, 2022.

The decrease in net income for the six months ended June 30, 2023 compared to the same period in 2022 was primarily due to a decrease in net interest income and an increase in salaries and employee benefits and occupancy costs, partially offset by an increase in trust services revenue and a gain from bank-owned life insurance.

Net interest income for the six months ended June 30, 2023 declined $12,031, or 25.0 percent, compared to the six months ended June 30, 2022.

Noninterest income increased $679 for the six months ended June 30, 2023 compared to the same period in 2022 primarily due to a gain from bank-owned life insurance and an increase in trust services revenue.

Noninterest expense increased $2,617 during the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to increases in salaries and employee benefits, occupancy and equipment expense and FDIC insurance expense.

Total loans outstanding increased $64,239, or 2.3 percent, during the first six 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 June 30, 2023 and December 31, 2022.

As of June 30, 2023, the allowance for credit losses was 1.00 percent of total outstanding loans, compared to 0.93 percent as of December 31, 2022.

Management believed the allowance for credit losses at June 30, 2023 was adequate to absorb expected losses in the loan portfolio as of that date.

West Bancorporation, Inc.

10 unchanged sentences

Peer Group Range (2)

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

As of and for the six months ended June 30, 2023 As of and for the three months ended March 31, 2023 As of and for the three months ended March 31, 2023

Return on average equity 12.90% 14.77% (3.67%) - 19.19%

5 unchanged sentences

(2) Latest data available.

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.

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

The dividend is payable on August 23, 2023, to stockholders of record on August 9, 2023.

West Bancorporation, Inc.

2 unchanged sentences

RESULTS OF OPERATIONS

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

Three Months Ended March 31,

2023 2022 Change Change %

The following table shows selected financial results and measures for the three and six months ended June 30, 2023 compared with the same periods in 2022.

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

2023 2022 Change Change % 2023 2022 Change Change %

Net income $ 5,862 $ 12,667 $ (6,805) (53.72) % $ 13,706 $ 25,851 $ (12,145) (46.98) %

10 unchanged sentences

5.85 % 6.36 % (0.51) % 5.90 % 6.78 % (0.88) %

As of March 31,

As of June 30,

2023 2022 Change

21 unchanged sentences

Net Interest Income

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

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

Interest income and the resulting net interest income

are shown on a FTE basis.

Data for the three months ended March 31:

Data for the three months ended June 30:

Average Balance Interest Income/Expense Yield/Rate

18 unchanged sentences

Savings and money market 1,390,584 1,582,033 (191,449) (12.10) % 10,979 2,439 8,540 350.14 % 3.17 % 0.62 % 2.55 %

Time deposits 416,455 204,755 211,700 103.39 % 3,666 383 3,283 857.18 % 3.53 % 0.75 % 2.78 %

Total deposits 2,290,909 2,304,495 (13,586) (0.59) % 16,277 3,146 13,131 417.39 % 2.85 % 0.55 % 2.30 %

Borrowed Funds:

Federal funds purchased and

other short-term borrowings 186,024 44,309 $ 141,715 319.83 % 2,264 157 2,107 1,342.04 % 4.88 % 1.42 % 3.46 %

Subordinated notes, net 79,466 31,469 47,997 152.52 % 1,109 394 715 181.47 % 5.60 % 5.02 % 0.58 %

Federal Home Loan Bank

advances 240,110 125,000 115,110 92.09 % 1,621 635 986 155.28 % 2.71 % 2.04 % 0.67 %

Long-term debt 50,703 51,486 (783) (1.52) % 739 326 413 126.69 % 5.84 % 2.54 % 3.30 %

Total borrowed funds 556,303 252,264 304,039 120.52 % 5,733 1,512 4,221 279.17 % 4.13 % 2.40 % 1.73 %

Total interest-bearing

liabilities $ 2,847,212 $ 2,556,759 $ 290,453 11.36 % 22,010 4,658 17,352 372.52 % 3.10 % 0.73 % 2.37 %

Net interest income (FTE) (4)

$ 17,463 $ 24,565 $ (7,102) (28.91) %

Net interest spread (FTE) 1.47 % 2.76 % (1.29) %

Net interest margin (FTE) (4)

2.02 % 2.93 % (0.91) %

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Data for the six months ended June 30:

Average Balance Interest Income/Expense Yield/Rate

2023 2022 Change Change-

% 2023 2022 Change Change-

% 2023 2022 Change

Interest-earning assets:

Commercial $ 523,538 $ 470,296 $ 53,242 11.32 % $ 15,535 $ 9,607 $ 5,928 61.71 % 5.98 % 4.12 % 1.86 %

Real estate (3)

2,232,461 2,019,017 213,444 10.57 % 52,274 38,697 13,577 35.09 % 4.72 % 3.87 % 0.85 %

Consumer and other 8,529 4,266 4,263 99.93 % 280 87 193 221.84 % 6.61 % 4.09 % 2.52 %

Total loans 2,764,528 2,493,579 270,949 10.87 % 68,089 48,391 19,698 40.71 % 4.97 % 3.91 % 1.06 %

Taxable 532,242 625,333 (93,091) (14.89) % 6,748 5,979 769 12.86 % 2.54 % 1.91 % 0.63 %

Tax-exempt (3)

149,988 163,804 (13,816) (8.43) % 1,921 2,148 (227) (10.57) % 2.56 % 2.62 % (0.06) %

Total securities 682,230 789,137 (106,907) (13.55) % 8,669 8,127 542 6.67 % 2.54 % 2.06 % 0.48 %

Interest-bearing deposits 1,964 114,305 (112,341) (98.28) % 55 149 (94) (63.09) % 5.62 % 0.26 % 5.36 %

Total interest-earning assets (3)

$ 3,448,722 $ 3,397,021 $ 51,701 1.52 % 76,813 56,667 20,146 35.55 % 4.49 % 3.36 % 1.13 %

Interest-bearing liabilities:

Interest-bearing demand $ 492,086 $ 531,893 $ (39,807) (7.48) % 3,202 574 2,628 457.84 % 1.31 % 0.22 % 1.09 %

Savings and money market 1,334,442 1,596,257 (261,815) (16.40) % 19,634 4,059 15,575 383.72 % 2.97 % 0.51 % 2.46 %

Time 416,939 200,221 216,718 108.24 % 6,780 664 6,116 921.08 % 3.28 % 0.67 % 2.61 %

2 unchanged sentences

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 %

other short-term borrowings 186,178 23,026 163,152 708.56 % 4,343 157 4,186 2,666.24 % 4.70 % 1.38 % 3.32 %

Subordinated notes, net 79,433 25,998 53,435 205.54 % 2,215 642 1,573 245.02 % 5.62 % 4.98 % 0.64 %

22 unchanged sentences

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 Federal Reserve increased the target federal funds interest rate by a total of 425 basis points in 2022 and 75 basis points during the first half of 2023.

At this time the extent to which additional target federal funds interest rate changes may occur during the remainder of 2023 is unknown.

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 months ended March 31, 2023 decreased by 62 basis points compared to the three months ended March 31, 2022.

The net interest margin for the three and six months ended June 30, 2023 decreased by 91 and 77 basis points, respectively, compared to the three and six months ended June 30, 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.

Tax-equivalent net interest income for the three and six months ended June 30, 2023 decreased $7,102 and $12,403, respectively, compared to the same time periods in 2022.

The decrease in net interest income for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was primarily due to the increase in rates paid on deposits and borrowed funds and increases in average borrowed funds balances.

Tax-equivalent interest income on loans increased $10,095 and $19,698 for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 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.

The average balances of loans for the three and six months ended June 30, 2023 increased $246,310 and $270,949, respectively, compared to the three and six months ended June 30, 2022, while loan yields increased 110 and 106 basis points, respectively.

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

3 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 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 average balance of deposits decreased $13,586 and $84,904 for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022.

The rates paid on deposits increased 230 and 220 basis points for the three and six months ended June 30, 2023 compared to the same periods in 2022.

The increase in the cost of deposits was primarily due to increases in 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 75 basis points in the first six months of 2023.

These increases have had an adverse impact on the cost of deposits and have increased market competition.

Interest expense on borrowed funds increased $4,221 and $8,230 for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022.

The average balance of borrowed funds increased $304,039 and $313,204 for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 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.

Additionally, average balances of federal funds purchased and other short-term borrowings increased $141,715 and $163,152 for the three and six months ended June 30, 2023 compared to the same periods in 2022.

The average rate of federal funds purchased and other short-term borrowings increased by 346 and 332 basis points in the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 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.

The average balances of Federal Home Loan Bank advances increased by $115,110 and $97,017 for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022.

This increase in average balances was primarily due to additional rolling one-month FHLB advances added in the first six months of 2023 that are hedged with long-term interest rate swap agreements to provide fixed cost wholesale funding.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Credit Loss Expense and the Related Allowance for Credit Losses

2 unchanged sentences

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

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

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

1 unchanged sentence

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.

There was no provision for credit losses for the three and six months ended June 30, 2023.

The credit loss expense was negative $1,750 and negative $2,500 for the three and six months ended June 30, 2022, respectively.

The negative credit loss expenses recorded in 2022 were due to sustained improvement in the performance of loans after the expiration of COVID modifications.

Management believed the allowance for credit losses at June 30, 2023 was adequate to absorb expected losses in the loan portfolio as of that date.

Factors management considers in establishing an appropriate allowance include:

27 unchanged sentences

Commercially reasonable efforts are made to maximize subsequent recoveries.

The following table summarizes the activity in the Company's allowance for 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

The following table summarizes the activity in the Company's allowance for credit losses on loans for the three and six months ended June 30, 2023 and 2022 and related ratios.

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

2023 2022 Change 2023 2022 Change

Balance at beginning of period $ 27,941 $ 27,623 $ 318 $ 25,473 $ 28,364 $ (2,891)

9 unchanged sentences

Ratio of allowance for credit losses for loans to total loans at end of period 1.00 % 0.99 % 1.00 % 0.99 %

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

Three Months Ended March 31,

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

Three Months Ended June 30,

Noninterest income:

4 unchanged sentences

Increase in cash value of bank-owned life insurance 250 236 14 5.93 %

Other income:

All other income 421 328 93 28.35 %

Total other income 421 328 93 28.35 %

Total noninterest income $ 2,389 $ 2,278 $ 111 4.87 %

Six Months Ended June 30,

Noninterest income:

2023 2022 Change Change %

Service charges on deposit accounts $ 920 $ 1,165 $ (245) (21.03) %

Debit card usage fees 997 979 18 1.84 %

Trust services 1,455 1,251 204 16.31 %

Increase in cash value of bank-owned life insurance 507 463 44 9.50 %

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

3 unchanged sentences

Total noninterest income $ 5,346 $ 4,667 $ 679 14.55 %

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.

The decline in service charges on deposit accounts is primarily attributable to a higher earnings credit rate on commercial accounts.

Revenue from trust services was higher for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 primarily due to increases in one-time estate fees.

An increase in trust assets and accounts since June 30, 2022 also contributed to the increase in trust service fees.

The gain from bank-owned life insurance for the six months ended June 30, 2023 was from a death benefit claim.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Noninterest Expense

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

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

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

Three Months Ended March 31,

Three Months Ended June 30,

Noninterest expense:

11 unchanged sentences

Trust 138 138 — — %

Consulting fees 70 125 (55) (44.00) %

Marketing 40 70 (30) (42.86) %

Charitable contributions 60 — 60 N/A

Low income housing projects amortization 172 130 42 32.31 %

New markets tax credit project amortization and management

fees 229 229 — — %

All other 516 614 (98) (15.96) %

Total other expenses 1,857 1,753 104 5.93 %

Total noninterest expense $ 12,474 $ 11,266 $ 1,208 10.72 %

Six Months Ended June 30,

Noninterest expense:

2023 2022 Change Change %

Salaries and employee benefits $ 13,896 $ 12,708 $ 1,188 9.35 %

Occupancy and equipment 2,649 2,328 321 13.79 %

Data processing 1,364 1,280 84 6.56 %

Technology and software 1,092 968 124 12.81 %

FDIC insurance 836 626 210 33.55 %

Professional fees 537 419 118 28.16 %

Director fees 456 390 66 16.92 %

Other expenses:

Business development 748 527 221 41.94 %

Insurance expense 432 307 125 40.72 %

Trust 303 275 28 10.18 %

Charitable contributions 120 — 120 N/A

Consulting fees 119 175 (56) (32.00) %

9 unchanged sentences

(in thousands, except share and per share data)

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.

Salaries and employee benefits increased for the three and six months ended June 30, 2023 when compared to the three and six months ended June 30, 2022, due to wage increases 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.

Occupancy and equipment expense increased for the six months ended June 30, 2023 compared to the same period in 2022 primarily due to an increase in depreciation expense related to the new bank 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.

FDIC insurance expense increased during the three and six months ended June 30, 2023 when compared to the same time periods in 2022 primarily due to the FDIC's increase in the minimum assessment rate, which was announced in 2022 and effective for the first quarter of 2023.

Technology and software expenses increased for the three and six months ended June 30, 2023 due to inflationary pricing pressures and the addition of new technology, software and information security solutions.

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.

Insurance expense increased for the three and six months ended June 30, 2023 compared to the same periods 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 $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 recorded income tax expense of $1,394 (19.2 percent of pre-tax income) and $3,131 (18.6 percent of pre-tax income) for the three and six months ended June 30, 2023, compared with $4,334 (25.5 percent of pre-tax income) and $7,455 (22.4 percent of pre-tax income) for the three and six months ended June 30, 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.

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

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

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

Additionally, for the six months ended June 30, 2023 a tax expense of $5 was recorded as a result of the decrease in fair value of restricted stock over the vesting period.

For the six months ended June 30, 2022, a tax benefit of $385 was recorded as a result of the increase in fair value of restricted stock over the vesting period.

The tax rates for the first six months of 2023 and 2022 were also impacted by year-to-date federal low income housing tax credits and a new markets tax credit of approximately $749 and $734, respectively.

FINANCIAL CONDITION

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.

The Company had total assets of $3,678,555 as of June 30, 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.

Securities available for sale decreased by $19,024 during the six months ended June 30, 2023.

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

In the first six months of 2023, net unrealized losses on the available for sale securities portfolio decreased by $2,830.

This slight decrease in unrealized losses was due to a combination of lower amortized cost within the securities portfolio and decreases in 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.

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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 $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.

As of June 30, 2023, approximately 62 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities.

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

West Bancorporation, Inc.

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(in thousands, except share and per share data)

Loans and Nonperforming Assets

Loans outstanding increased $64,239 from $2,742,836 as of December 31, 2022 to $2,807,075 as of June 30, 2023.

Changes in the loan portfolio during the first six months of 2023 included increases of $48,778 in commercial real estate loans and $15,889 in commercial loans.

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

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

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

March 31, 2023 December 31, 2022 Change

June 30, 2023 December 31, 2022 Change

Nonaccrual loans $ 309 $ 322 $ (13)

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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.

There were no loan restructurings categorized as nonaccrual as of June 30, 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.

Construction is expected to be completed in the first half of 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 the fourth quarter of 2023.

Deposits decreased $44,083, or 1.5 percent, during the first six months of 2023.

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

Brokered deposits decreased to $230,701 at June 30, 2023, from $272,692 at December 31, 2022.

Excluding brokered deposits, deposits decreased $2,093, or 0.1 percent, during the first six 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.

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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.

As of June 30, 2023, estimated uninsured deposits, which excludes deposits in the IntraFi ® reciprocal network, brokered deposits and public funds protected by state programs, were approximately 27.5 percent of total deposits.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

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.

Borrowed Funds

Federal funds purchased and other short-term borrowings decreased from $200,000 at December 31, 2022 to $184,150 as of June 30, 2023.

The Company had $280,000 of short-term FHLB advances outstanding at June 30, 2023, $260,000 of which are associated with long-term interest rate swaps.

In the first six months of 2023, the Company entered into six additional long-term interest rate swap agreements hedging interest payments of one-month rolling funding with a total notional amount of $105,000.

As of June 30, 2023, the Company had long-term interest rate swap agreements with a total notional amount of $260,000 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 4.65 percent.

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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 $22,480 as of March 31, 2023 compared with $26,539 as of December 31, 2022.

The Company had liquid assets (cash and cash equivalents) of $31,744 as of June 30, 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 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.

The Company utilizes brokered deposits and other wholesale funding 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 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.

At June 30, 2023, the Company had $230,701 in brokered deposits, which included fixed-rate deposits with terms through September 2024 and variable-rate deposits with terms through February 2024.

As of June 30, 2023, West Bank had additional borrowing capacity available from the FHLB of approximately $549,000, 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 approximately $99,000 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.

As of June 30, 2023, West Bank had pledged approximately $99,000 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 six months ended June 30, 2023.

Net cash from operating activities contributed $10,264 to liquidity for the six months ended June 30, 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.

The Company had remaining commitments to invest in qualified affordable housing projects totaling $2,678 and $3,431 as of June 30, 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 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.

As of June 30, 2023, there was a remaining commitment of $24,511 under this contract.

West Bank is also building a new office in Mankato, Minnesota to be completed in the fourth quarter of 2023, which had a remaining commitment of $3,991 as of June 30, 2023.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

The Company's total stockholders' equity increased to $217,126 at June 30, 2023 from $211,112 at December 31, 2022.

The decrease in accumulated other comprehensive loss is due to a combination of the reduction in amortized cost of the securities portfolio and a decrease in market yields since December 31, 2022.

At June 30, 2023, the Company's tangible common equity as a percent of tangible assets was 5.90 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.

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

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

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

Management believed the Company and West Bank met all capital adequacy requirements to which they were subject as of June 30, 2023.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

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

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Amount Ratio Amount Ratio Amount Ratio Amount Ratio

As of March 31, 2023:

As of June 30, 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 March 31, 2023, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer.

At June 30, 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