What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-26 compared with 2023-07-27 · 128 added, 123 removed, 456 unchanged (36% of the section changed)

7 unchanged sentences

Risks and uncertainties that may affect future results include:

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

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

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

2 unchanged sentences

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;

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 CECL accounting standard) or regulatory requirements;

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

6 unchanged sentences

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

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;

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

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

25 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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

24 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 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.

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

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

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.

Net income for the three months ended September 30, 2023 was $5,906, or $0.35 per diluted common share, compared to $11,602, or $0.69 per diluted common share, for the three months ended September 30, 2022.

The Company's annualized return on average assets and return on average equity for the three months ended September 30, 2023 were 0.64 percent and 10.89 percent, respectively, compared to 1.32 percent and 21.01 percent, respectively, for the three months ended September 30, 2022.

The decrease in net income for the three months ended September 30, 2023 compared to the same period in 2022 was primarily due to a decrease in net interest income and loan swap fees and an increase in credit loss expense and FDIC insurance expense.

Net interest income for the three months ended September 30, 2023 decreased $6,370, or 27.7 percent, compared to the three months ended September 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 decreased $454 for the three months ended September 30, 2023, compared to the same period in 2022 primarily due to a decrease in loan swap fees, partially offset by an increase in trust services revenue.

Noninterest expense increased $447 during the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily due to increases in salaries and employee benefits and FDIC insurance expense.

Net income for the nine months ended September 30, 2023 was $19,612, or $1.17 per diluted common share, compared to $37,453, or $2.23 per diluted common share, for the nine months ended September 30, 2022.

The Company's annualized return on average assets and return on average equity for the nine months ended September 30, 2023 were 0.72 percent and 12.22 percent, respectively, compared to 1.43 percent and 21.57 percent, respectively, for the nine months ended September 30, 2022.

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

Net interest income for the nine months ended September 30, 2023 declined $18,401, or 25.9 percent, compared to the nine months ended September 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.

Noninterest income increased $225 for the nine months ended September 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, partially offset by a decrease in loan swap fees.

Noninterest expense increased $3,064 during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily due to increases in salaries and employee benefits, occupancy and equipment expense and FDIC insurance expense.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

Total loans outstanding increased $106,941, or 3.9 percent, during the first nine 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 September 30, 2023 and December 31, 2022.

As of September 30, 2023, the allowance for credit losses was 0.99 percent of total outstanding loans, compared to 0.93 percent as of December 31, 2022.

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

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

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 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, MidWest One 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.

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Peer Group Range (2)

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

As of and for the nine months ended September 30, 2023 As of and for the six months ended June 30, 2023 As of and for the six months ended June 30, 2023

Return on average equity 12.22% 12.90% 2.83% - 17.82%

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(2) Latest data available.

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.

At its meeting on October 25, 2023, the Company's Board of Directors declared a regular quarterly cash dividend of $0.25 per common share.

The dividend is payable on November 22, 2023, to stockholders of record on November 8, 2023.

West Bancorporation, Inc.

2 unchanged sentences

RESULTS OF OPERATIONS

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,

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

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

2023 2022 Change Change % 2023 2022 Change Change %

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5.85 % 6.30 % (0.45) % 5.88 % 6.62 % (0.74) %

As of June 30,

As of September 30,

2023 2022 Change

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are shown on a FTE basis.

Data for the three months ended June 30:

Data for the three months ended September 30:

Average Balance Interest Income/Expense Yield/Rate

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(in thousands, except share and per share data)

Data for the six months ended June 30:

Data for the nine months ended September 30:

Average Balance Interest Income/Expense Yield/Rate

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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 75 basis points during the first half of 2023.

The Federal Reserve increased the target federal funds interest rate by a total of 425 basis points in 2022 and an additional 100 basis points during the first nine months 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.

The increases that occurred throughout 2022 and 2023 have had a significant 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 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 net interest margin for the three and nine months ended September 30, 2023 decreased by 87 and 80 basis points, respectively, compared to the three and nine months ended September 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 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.

Tax-equivalent net interest income for the three and nine months ended September 30, 2023 decreased $6,527 and $18,930, respectively, compared to the same time periods in 2022.

The decrease in net interest income for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 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 $8,604 and $28,302 for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 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 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.

The average balances of loans for the three and nine months ended September 30, 2023 increased $233,351 and $258,278, respectively, compared to the three and nine months ended September 30, 2022, while loan yields increased 85 and 98 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.

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The yield on the Company's loan portfolio is affected by the portfolio's loan mix, the interest rate environment, the effects of competition, the level of nonaccrual loans and reversals of previously accrued interest on charged-off loans.

The yield on the loan portfolio is expected to increase in a rising rate environment as variable-rate loans and loan renewals reprice at higher rates.

The yield on the loan portfolio is expected to increase in flat and rising rate environments as variable-rate loans reprice at higher rates and renewals and new originations are priced at prevailing market rates, which exceed the roll-off rate of principal repayments on existing loans.

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 $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 average balance of deposits increased $44,215 for the three months ended September 30, 2023 compared to the same period in 2022, while the average balance of deposits for the nine months ended September 30, 2023 decreased $41,393 compared to the same period in 2022.

The rates paid on deposits increased 194 and 213 basis points for the three and nine months ended September 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.

The Federal Reserve increased the target federal funds rate by a total of 425 basis points in 2022 and an additional 100 basis points in the first nine 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.

Interest expense on borrowed funds increased $4,426 and $12,656 for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022.

The average balance of borrowed funds increased $317,963 and $314,808 for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 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 $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.

Additionally, average balances of federal funds purchased and other short-term borrowings increased $142,634 and $156,238 for the three and nine months ended September 30, 2023 compared to the same periods in 2022.

The average rate on federal funds purchased and other short-term borrowings increased by 260 and 271 basis points in the three and nine months ended September 30, 2023 compared to the three and nine months ended September 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.

The average balances of FHLB advances increased by $177,119 and $124,011 for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022.

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

West Bancorporation, Inc.

3 unchanged sentences

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.

2016-13 effective January 1, 2023 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.

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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 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.

There was a credit loss expense of $200 for the three and nine months ended September 30, 2023, compared to a credit loss expense of $0 and negative $2,500 for the three and nine months ended September 30, 2022.

The credit loss expense recorded in 2023 was directly associated with loan growth.

The negative credit loss expense recorded in 2022 was due to sustained improvement in the performance of loans.

Management believed the allowance for credit losses at September 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:

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Commercially reasonable efforts are made to maximize subsequent recoveries.

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

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

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

2023 2022 Change 2023 2022 Change

4 unchanged sentences

Net (charge-offs) recoveries 9 (16) 25 16 (446) 462

Provision for credit losses charged (credited) to operations — (1,750) 1,750 — (2,500) 2,500

Provision for credit losses charged

(credited) to operations 200 — 200 200 (2,500) 2,700

Balance at end of period $ 28,147 $ 25,418 $ 2,729 $ 28,147 $ 25,418 $ 2,729

Average loans outstanding $ 2,813,213 $ 2,579,862 $ 2,780,934 $ 2,522,656

Ratio of annualized net (charge-offs) recoveries during the period to average loans outstanding 0.00 % (0.07) % 0.00 % (0.03) %

Ratio of allowance for credit losses for loans to average loans outstanding 1.00 % 1.00 % 1.01 % 1.02 %

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

Ratio of annualized net (charge-offs)

recoveries during the period to average

loans outstanding 0.00 % 0.00 % 0.00 % (0.02) %

Ratio of allowance for credit losses for

loans to average loans outstanding 1.00 % 0.99 % 1.01 % 1.01 %

Ratio of allowance for credit losses for

for loans to total loans at end of period 0.99 % 0.97 % 0.99 % 0.97 %

West Bancorporation, Inc.

3 unchanged sentences

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,

Three Months Ended September 30,

Noninterest income:

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Increase in cash value of bank-owned life insurance 262 246 16 6.50 %

Loan swap fees 431 835 (404) (48.38) %

Other income:

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Total noninterest income $ 2,822 $ 3,276 $ (454) (13.86) %

Six Months Ended June 30,

Nine Months Ended September 30,

Noninterest income:

5 unchanged sentences

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

Loan swap fees 431 835 (404) (48.38) %

Other income:

2 unchanged sentences

Total noninterest income $ 8,168 $ 7,943 $ 225 2.83 %

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.

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

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

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

The gain from bank-owned life insurance for the nine months ended September 30, 2023 was the result of a death benefit claim.

Loan swap fees in 2023 and 2022 consist of fees earned in the back-to-back swap program.

West Bancorporation, Inc.

4 unchanged sentences

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 June 30,

Three Months Ended September 30,

Noninterest expense:

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Trust 159 137 22 16.06 %

Charitable contributions 60 — 60 N/A

Consulting fees 56 66 (10) (15.15) %

Marketing 34 60 (26) (43.33) %

Charitable contributions 60 — 60 N/A

Low income housing projects amortization 136 116 20 17.24 %

4 unchanged sentences

Total noninterest expense $ 11,905 $ 11,458 $ 447 3.90 %

Six Months Ended June 30,

Nine Months Ended September 30,

Noninterest expense:

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(in thousands, except share and per share data)

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.

Salaries and employee benefits increased for the three and nine months ended September 30, 2023 when compared to the three and nine months ended September 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 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.

Occupancy and equipment expense increased for the nine months ended September 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 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 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.

FDIC insurance expense increased during the three and nine months ended September 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 as of the first quarter of 2023.

Business development expenses increased for the nine months ended September 30, 2023 compared to the same time period in 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 nine months ended September 30, 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 $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.

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.

The Company recorded income tax expense of $1,445 (19.7 percent of pre-tax income) and $4,576 (18.9 percent of pre-tax income) for the three and nine months ended September 30, 2023, compared with $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.

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, tax-exempt gain from 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 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.

The 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, 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 nine months ended September 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 nine 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 $1,123 and $1,101, respectively.

FINANCIAL CONDITION

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 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.

The Company had total assets of $3,701,900 as of September 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 decreases in securities available for sale and deposits.

Securities available for sale decreased by $54,750 during the nine months ended September 30, 2023.

This decrease was due to principal paydowns on securities and the decline in fair value of the securities available for sale resulting from the increase in market interest rates since December 31, 2022.

Management concluded the unrealized losses are the result of increases in risk-free market interest rates since the securities were purchased and are not an indication of declining credit quality.

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 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.

As of September 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.

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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.

Loans outstanding increased $106,941 from $2,742,836 as of December 31, 2022 to $2,849,777 as of September 30, 2023.

Changes in the loan portfolio during the first nine months of 2023 included increases of $40,876 in commercial real estate loans and $36,239 in construction, land and land development 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.

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.

Although the commercial real estate portfolio exceeded these regulatory guidelines as of September 30, 2023, they were within the Company's established policy limits and management believes that 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.

June 30, 2023 December 31, 2022 Change

September 30, 2023 December 31, 2022 Change

Nonaccrual loans $ 303 $ 322 $ (19)

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Loan restructurings on nonaccrual status are categorized as nonaccrual.

There were no loan restructurings categorized as nonaccrual as of June 30, 2023 or December 31, 2022.

There were no loan restructurings categorized as nonaccrual as of September 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 the first half of 2024.

Construction is expected to be completed in the second quarter 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.

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

Deposits decreased $124,879, or 4.3 percent, during the first nine months of 2023.

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

Brokered deposits decreased to $237,047 at September 30, 2023, from $272,692 at December 31, 2022.

Excluding brokered deposits, deposits decreased $89,234, or 3.4 percent, during the first nine months of 2023.

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

In particular, 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 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.

As of September 30, 2023, estimated uninsured deposits, which excludes deposits in the IntraFi ® reciprocal network, brokered deposits and public funds protected by state programs, were approximately 28.0 percent of total deposits.

West Bancorporation, Inc.

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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.

Federal funds purchased and other short-term borrowings increased from $200,000 at December 31, 2022 to $261,510 as of September 30, 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, FHLB advances or other liquidity sources.

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.

The Company had $315,000 of FHLB advances outstanding at September 30, 2023, $295,000 of which are one-month rolling advances hedged with long-term interest rate swaps.

In the first nine months of 2023, the Company entered into seven additional long-term interest rate swap agreements hedging interest payments of one-month rolling funding with a total notional amount of $140,000.

As of September 30, 2023, the Company had long-term interest rate swap agreements with a total notional amount of $295,000 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 August 2024 through June 2029 and fixed rates ranging from 1.69 percent to 4.65 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.

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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 $31,744 as of June 30, 2023 compared with $26,539 as of December 31, 2022.

The Company had liquid assets (cash and cash equivalents) of $20,621 as of September 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.

Deposit inflows and outflows can vary widely and are influenced by prevailing market interest rates, competition, local and national economic conditions, fluctuations in our business customers' own liquidity needs and recent developments in the financial services industry.

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 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.

At September 30, 2023, the Company had $237,047 in brokered deposits, which included fixed-rate deposits with terms through September 2024 and variable-rate deposits with terms through February 2025.

As of September 30, 2023, West Bank had additional borrowing capacity available from the FHLB of approximately $408,000, 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 $97,000 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 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.

As of September 30, 2023, West Bank had pledged approximately $97,000 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 nine months ended September 30, 2023.

Net cash from operating activities contributed $18,044 to liquidity for the nine months ended September 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 $2,678 and $3,431 as of June 30, 2023 and December 31, 2022, respectively.

The Company had remaining commitments to invest in qualified affordable housing projects totaling $1,811 and $3,431 as of September 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 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.

As of September 30, 2023, there was a remaining commitment of $18,625 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 $2,023 as of September 30, 2023.

West Bancorporation, Inc.

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(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 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 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.

The Company's total stockholders' equity decreased to $203,933 at September 30, 2023 from $211,112 at December 31, 2022.

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

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

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

At September 30, 2023, the Company's tangible common equity as a percent of tangible assets was 5.51 percent compared to 5.84 percent as of December 31, 2022.

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 June 30, 2023.

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

West Bancorporation, Inc.

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Amount Ratio Amount Ratio Amount Ratio Amount Ratio

As of June 30, 2023:

As of September 30, 2023

Total Capital (to Risk-Weighted Assets)

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

At September 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