What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-22 compared with 2023-02-23 · 506 added, 329 removed, 1161 unchanged (42% of the section changed)

7 unchanged sentences

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 21, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Adoption of New Accounting Standard

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses on financial instruments in 2023 due to the adoption of Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (Credit Losses) .

Basis for Opinion

9 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

1 unchanged sentence

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matter or on the account or disclosures to which it relates.

Allowance for Loan Losses

As described in Note 1 and Note 4 to the consolidated financial statements, the Company’s allowance for loan losses (allowance) is an amount that management believes will be adequate to absorb probable losses on existing loans based on an evaluation of the collectability of loans and prior loss experience.

At December 31, 2022, the Company’s total loans were $2.7 billion and the associated allowance was $25.5 million.

Management estimates the allowance based on loan losses believed to be inherent in the Company’s loan portfolio at the balance sheet date.

The allowance consists of two components:

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

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

Historical loss ratios are an annualized rate based on the loss history.

The qualitative factors include the Company’s lending policies and procedures, nature and volume of the portfolio, experience, depth and ability of lending management, volume and severity of past due, nonaccrual and classified loans, quality of the Company’s loan review system, value of underlying collateral, trends in commercial real estate loans, existence and effect of any concentrations and effects of other external factors.

The evaluation of these qualitative factors requires that management make significant judgements regarding these factors, which may significantly impact the estimated reserve.

Allowance for Credit Losses for Loans

As described in Note 1 and Note 4 to the consolidated financial statements, the Company’s allowance for credit losses for loans (allowance) totaled $28.3 million at December 31, 2023.

On January 1, 2023 the Company adopted Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The allowance is a valuation account that is deducted from the amortized cost basis of loans to present the net amount of loans expected to be collected.

The Company’s allowance reflects losses expected over the remaining contractual life of the loans.

The Company’s allowance is measured on a collective (pool) basis when similar risk characteristics exist.

Loans that do not share similar risk characteristics are evaluated on an individual basis at the balance sheet date.

At December 31, 2023 the reserve on loans collectively evaluated totaled $28.3 million and there was no reserve on loans individually evaluated.

West Bancorporation, Inc.

and Subsidiary

We identified the qualitative factors applied to the general component of the allowance as a critical audit matter as auditing management’s determination of the qualitative factors involved a high degree of auditor judgement given the highly subjective nature of management’s judgments.

Our audit procedures related to the Company’s qualitative factors applied to the general component of the allowance included the following, among others:

• We obtained an understanding of the relevant controls related to the qualitative factors applied to the general component of the allowance and tested such controls for design and operating effectiveness, including controls over management’s establishment, review and approval of the qualitative factors and the data used in determining the qualitative factors.

• We tested management’s process and evaluated the reasonableness of their judgements and assumptions to develop the qualitative factors, which included:

◦ Testing the accuracy of the data inputs used by management as a basis for the adjustments for qualitative factors by comparing to internal and external source data and assessing the magnitude and directional consistency of the adjustments for qualitative factors.

The measurement of the reserve is based on relevant information about the collectability of cash flows, including information about past events, current conditions and reasonable and supportable forecasts.

The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about the future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical experience was observed.

The Company uses a cash flow-based model to estimate expected credit losses for all loan segments.

For each of the loan segments, the Company calculates a cash flow projection using contractual terms, estimated prepayment speeds, estimated curtailment rates and other relevant data.

The Company uses a regression analysis that links historical losses of the Company and its peer group to two economic metrics:

national unemployment rate and 10-year treasury rate over 2-year treasury rate spread to establish the loss rates applied to the projected cash flows.

For all loan segments, the Company uses a forecast period of four quarters and reverts to a historical rate after four quarters.

Qualitative factors are based on management’s judgment of the changes in underlying loan composition of specific portfolio, trends relating to credit quality and collateral values, company-specific data, or effects of other factors such as market competition or legal and regulatory requirements.

The evaluation of these qualitative factors and forecasts requires that management make significant judgments and includes significant estimation uncertainty.

We identified the qualitative factors applied to the allowance as a critical audit matter as auditing management’s determination of the qualitative factors and forecasts required significant auditor judgment as the estimate is highly sensitive to changes in significant assumptions.

Our audit procedures related to the Company’s qualitative factors and forecasts in the allowance included the following, among others:

• We obtained an understanding of the relevant controls related to management’s evaluation and establishment of the qualitative factors and forecasts of the allowance and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of the qualitative factors and forecasts and the underlying data used in determining those factors.

• We tested management’s process and evaluated the reasonableness of their judgements and assumptions to develop the qualitative factors and forecasts, which included:

◦ Testing the relevancy and consistency of the data inputs used by management as a basis for the adjustment for qualitative factors and forecasts by comparing to internal and external source data, including data related to current and forecasted periods.

◦ Evaluating whether management’s conclusions were consistent with Company provided internal data and external independently sourced data and agreeing the impact to the allowance calculation.

10 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2022 and 2021, and the consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes to the consolidated financial statements of the Company and our report dated February 22, 2023 expressed an unqualified opinion.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements of the Company and our report dated February 21, 2024 expressed an unqualified opinion.

Basis for Opinion

31 unchanged sentences

Loans 2,927,535 2,742,836

Allowance for loan losses ( 25,473 ) ( 28,364 )

Allowance for credit losses ( 28,342 ) ( 25,473 )

Loans, net 2,899,193 2,717,363

52 unchanged sentences

Net interest income 69,031 91,740 95,059

Provision for loan losses ( 2,500 ) ( 1,500 ) 12,000

Net interest income after provision for loan losses 94,240 96,559 70,833

Credit loss expense (benefit) 700 ( 2,500 ) ( 1,500 )

Net interest income after credit loss expense (benefit) 68,331 94,240 96,559

Noninterest income:

3 unchanged sentences

Increase in cash value of bank-owned life insurance 1,044 964 923

Gain from bank-owned life insurance 691 — —

Loan swap fees 431 835 66

Realized securities gains, net — 51 77

Realized securities gains (losses), net ( 431 ) — 51

Other income 1,424 1,537 1,718

2 unchanged sentences

Salaries and employee benefits 27,060 25,838 23,226

Occupancy 4,913 5,162 4,879

Occupancy and equipment 5,507 4,913 5,162

Data processing 2,790 2,597 2,465

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

Technology and software 2,341 2,137 1,777

FDIC insurance 1,750 996 1,818

20 unchanged sentences

Unrealized holding gains (losses) arising during the period 16,514 ( 132,009 ) ( 14,684 )

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

Other ( 22 ) — —

reclassification adjustment for net (gains) losses realized in net income 431 — ( 51 )

Income tax (expense) benefit ( 4,498 ) 33,350 3,720

1 unchanged sentence

Unrealized gains (losses) on derivatives:

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

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

reclassification adjustment for amortization of derivative termination costs — — 31

Unrealized holding gains arising during the period 4,291 23,595 8,047

reclassification adjustment for net (gains) losses realized in net income ( 10,249 ) 206 8,284

Income tax (expense) benefit 1,459 ( 5,976 ) ( 4,107 )

14 unchanged sentences

Net income — — — — 49,607 — 49,607

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

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

Cash dividends declared, $ 0.94 per common share

5 unchanged sentences

Net income — — — — 46,399 — 46,399

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

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

Cash dividends declared, $ 1.00 per common share

4 unchanged sentences

Balance, December 31, 2022 — 16,640,413 3,000 32,021 267,562 ( 91,471 ) 211,112

Cumulative effect of change in accounting principle (1)

— — — — ( 3,626 ) — ( 3,626 )

Net income — — — — 24,137 — 24,137

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

Other comprehensive income, net of tax — — — — — 7,948 7,948

Cash dividends declared, $ 1.00 per common share

4 unchanged sentences

Balance, December 31, 2023 $ — 16,725,094 $ 3,000 $ 34,197 $ 271,369 $ ( 83,523 ) $ 225,043

(1) Cumulative effect adjustment pursuant to adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

See Note 1 for additional information.

See Notes to Consolidated Financial Statements.

10 unchanged sentences

operating activities:

Provision for loan losses ( 2,500 ) ( 1,500 ) 12,000

Credit loss expense (benefit) 700 ( 2,500 ) ( 1,500 )

Net amortization and accretion 3,293 2,965 2,111

Securities gains, net — ( 51 ) ( 77 )

Securities (gains) losses, net 431 — ( 51 )

Stock-based compensation 3,111 3,357 2,573

Increase in cash value of bank-owned life insurance ( 1,044 ) ( 964 ) ( 923 )

Gain from bank-owned life insurance ( 691 ) — —

Depreciation 1,856 1,498 1,504

(Benefit) provision for deferred income taxes 1,583 82 ( 3,025 )

Provision for deferred income taxes 447 1,583 82

Change in assets and liabilities:

1 unchanged sentence

(Increase) decrease in other assets ( 2,794 ) 1,005 2,118

Increase in accrued expenses and other liabilities 9,194 16 152

Increase (decrease) in accrued expenses and other liabilities ( 2,604 ) 9,194 16

Net cash provided by operating activities 25,249 59,439 57,878

1 unchanged sentence

Proceeds from sales of securities available for sale 11,285 — 30,374

Proceeds from maturities and calls of securities available for sale 79,959 95,733 76,065

Proceeds from principal paydowns, maturities and calls of securities available for sale 42,370 79,959 95,733

Purchases of securities available for sale — ( 120,077 ) ( 481,140 )

2 unchanged sentences

Net increase in loans ( 184,788 ) ( 287,031 ) ( 175,193 )

Purchase of bank-owned life insurance — — ( 7,200 )

Proceeds of principal and earnings from bank-owned life insurance 2,458 — —

Purchases of premises and equipment ( 36,387 ) ( 21,311 ) ( 8,743 )

2 unchanged sentences

Net increase (decrease) in deposits 93,371 ( 135,597 ) 315,011

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

Net increase (decrease) in federal funds purchased and other short-term borrowings ( 49,730 ) 197,120 ( 2,495 )

Net increase (decrease) in Federal Home Loan Bank advances 160,000 30,000 ( 50,000 )

Proceeds from subordinated notes 58,756 — —

Proceeds from issuance of subordinated debt, net of issuance costs — 58,756 —

Proceeds from long-term debt — — 34,500

30 unchanged sentences

Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term are the fair value of financial instruments and the allowance for loan losses.

Material estimates that are particularly susceptible to significant change in the near term are the fair value of financial instruments and the allowance for credit losses.

Consolidation policy :

3 unchanged sentences

In accordance with GAAP, the results of the Trust are recorded on the books of the Company using the equity method of accounting and are not consolidated .

Reclassification :

Certain amounts in prior year financial statements have been reclassified, with no effect on net income, comprehensive income or stockholders’ equity, to conform with current period presentation.

Segment information:

4 unchanged sentences

Comprehensive income consists of net income and other comprehensive income (OCI).

OCI consists of the net change in unrealized gains and losses on the Company’s securities available for sale, including the noncredit-related portion of unrealized gains (losses) of other than temporarily impaired (OTTI) securities, if any, and the change in fair value of derivative instruments designated as hedges.

OCI also includes the amortization of derivative termination costs.

OCI consists of the net change in unrealized gains and losses on the Company’s securities available for sale and the change in fair value of derivative instruments designated as hedges.

Cash and cash equivalents and cash flows :

11 unchanged sentences

(dollars in thousands, except per share data)

The Company evaluates each of its securities whose value has declined below amortized cost to determine whether the decline in fair value is OTTI.

When determining whether a security is OTTI, management assesses the severity and duration of the decline in fair value, the length of time expected for recovery, the financial condition of the issuer and other qualitative factors, as well as whether:

(a) it has the intent to sell the security, and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery.

In instances when a determination is made that an OTTI exists but management does not intend to sell the security and it is not more likely than not that it will be required to sell the security prior to its anticipated repayment or maturity, the OTTI is separated into:

(a) the amount of the total OTTI related to a decrease in cash flows expected to be collected from the security (the credit loss);

and (b) the amount of the total OTTI related to all other factors.

The amount of the total OTTI related to the credit loss is recognized as a charge to earnings.

The amount of the total OTTI related to all other factors is recognized in OCI.

If the Company intends to sell or it is more likely than not that it will be required to sell a security with OTTI before recovery of its amortized cost basis, the OTTI is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date.

The Company evaluates each of its securities whose value has declined below amortized cost to determine if any of the decline is due to a credit loss.

If the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the security is written down to fair value through income.

Subsequent to this evaluation, the Company evaluates whether any individual securities in an unrealized loss position represent credit losses that require an allowance for credit loss.

Decreases in fair value attributable to credit losses would be recorded to earnings as a credit loss expense with a corresponding allowance for credit losses, limited by the amount the fair value is less than the amortized cost basis.

If the credit quality subsequently improves, the allowance would be reversed, up to a maximum of the previously recorded credit loss.

Accrued interest receivable is excluded from the estimate of credit losses.

Federal Home Loan Bank stock :

West Bank, as a member of the Federal Home Loan Bank (FHLB) system, is required to maintain an investment in capital stock of the FHLB in an amount equal to 0.12 percent of total assets plus 4.00 percent of outstanding advances from the FHLB and the outstanding principal balance of loans previously issued through the Mortgage Partnership Finance Program (MPF).

West Bank, as a member of the FHLB system, is required to maintain an investment in capital stock of the FHLB in an amount equal to 0.06 percent of total assets plus 4.50 percent of outstanding advances from the FHLB and the outstanding principal balance of loans previously issued through the Mortgage Partnership Finance Program (MPF).

No ready market exists for the FHLB stock, and it has no quoted market value.

7 unchanged sentences

The accrual of interest on past due and other impaired loans is generally discontinued at 90 days past due or when, in the opinion of management, the borrower may be unable to make all payments pursuant to contractual terms.

Unless considered collectible, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income, if accrued in the current year, or charged to the allowance for loan losses, if accrued in a prior year.

Generally, all payments received while a loan is on nonaccrual status are applied to the principal balance of the loan.

Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

A loan is classified as troubled debt restructured (TDR) when the Company separately concludes that a borrower is experiencing financial difficulties and a concession is granted that would not otherwise be considered.

Concessions may include a restructuring of the loan terms to alleviate the burden of the borrower’s cash requirements, such as an extension of the payment terms beyond the original maturity date or a change in the interest rate charged.

TDR loans with extended payment terms are accounted for as impaired until performance is established.

A change to the interest rate would change the classification of a loan to a TDR loan if the restructured loan yields a rate that is below a market rate for that of a new loan with comparable risk.

TDR loans with below-market rates are considered impaired until fully collected.

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

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

These loans involve the anticipated potential for payment defaults or collateral inadequacies.

A loan on the Watch List is considered impaired when management believes it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement.

Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.

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

If it is determined that a loan on the Watch List no longer shares risk characteristics with the pooled loans, it will be individually evaluated for credit losses.

For collateral dependent loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loans to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date.

The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.

Allowance for credit losses :

The allowance for credit losses is a valuation account estimated at each balance sheet date and deducted from the amortized cost basis of loans to present the net amount expected to be collected.

The Company estimates the ACL based on the underlying loans’ amortized cost basis, which is the amount at which the loan is originated or acquired, adjusted for collection of cash and charge-offs, as well as applicable accretion or amortization of premiums, discounts, and net deferred fees or costs.

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets.

When the Company deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount.

The Company applies judgment to determine when a loan is deemed uncollectible;

however, generally speaking, a loan will be considered uncollectible no later than when all efforts at collection have been exhausted.

Subsequent recoveries, if any, are credited to the ACL when received.

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

Allowance for loan losses :

The allowance for loan losses is established through a provision for loan losses charged to expense.

The allowance is an amount that management believes will be adequate to absorb probable losses on existing loans based on an evaluation of the collectability of loans and prior loss experience.

This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, the review of specific problem loans, and current economic conditions that may affect the borrowers’ ability to pay.

Loans are charged-off against the allowance for loan losses when management believes that collectability of the principal is unlikely.

While management uses the best information available to make its evaluations, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or the other factors relied upon.

The allowance for loan losses consists of specific and general components.

The specific component relates to loans that meet the definition of impaired.

The general component covers the remaining loans and is based on historical loss experience adjusted for qualitative factors such as delinquency trends, loan growth, economic elements and local market conditions.

These same policies are applied to all segments of loans.

In addition, regulatory agencies, as integral parts of their examination processes, periodically review the Company’s allowance for loan losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

The Company measures the ACL of loans on a collective (pool) basis when the loans share similar risk characteristics and uses a cash flow-based method to estimate expected credit losses for each of these pools.

The Company’s methodology for estimating the ACL considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts.

The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical experience was observed.

In addition to the historical loss information, the Company utilizes qualitative factors to adjust the ACL as appropriate.

Qualitative factors are based on management’s judgment of the changes in underlying loan composition of specific portfolios, trends relating to credit quality and collateral values, company-specific data, or effects of other factors such as market competition or legal and regulatory requirements.

Loans that do not share similar risk characteristics with the pooled loans are evaluated for credit losses on an individual basis.

In addition, regulatory agencies, as integral parts of their examination processes, periodically review the Company’s allowance for credit losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

Premises and equipment :

8 unchanged sentences

Fair value is determined by management by obtaining appraisals or other market value information at the time of foreclosure.

Any write-downs in value at the date of acquisition are charged to the allowance for loan losses.

Any write-downs in value at the date of acquisition are charged to the allowance for credit losses.

After foreclosure, valuations are periodically performed by management by obtaining updated appraisals or other market value information at least annually.

70 unchanged sentences

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

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Current accounting developments :

11 unchanged sentences

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

The FASB has also issued multiple updates to ASU No.

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

2019-04, ASU No.

2019-05, ASU No.

2019-11, ASU No.

2020-02, and ASU No.

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

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

In December 2019, the FASB issued ASU No.

2019-10, Financial Instruments-Credit Losses (Topic 326).

This update amends the effective date of ASU No.

This update amended the effective date of ASU No.

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

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

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

The Company met the definition of a smaller reporting company as of that date and was not required to adopt the standard until January 1, 2023.

In March 2022, the FASB issued ASU No.

5 unchanged sentences

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

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

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

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

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

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

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

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

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

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

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.

Results for the periods beginning after January 1, 2023 are presented under ASU No.

2016-13, while prior period amounts are reported in accordance with the previously applicable accounting standards.

The Company recorded a reduction to retained earnings of $3,626 upon adoption of ASU No.

The transition adjustment included an increase to the allowance for credit losses on loans of $2,458 and established an allowance for credit losses on off-balance sheet credit exposures of $2,344.

There was no allowance for credit losses recorded for available-for-sale debt securities.

The transition adjustment included corresponding increases in deferred tax assets of $ 1,176 .

The following table illustrates the impact of ASC 326 adoption.

January 1, 2023

Pre-ASC 326 Adoption Impact of ASC 326 Adoption As Reported Under ASC 326

Commercial $ 4,804 $ 677 $ 5,481

Construction, land and land development 3,548 ( 234 ) 3,314

1-4 family residential first mortgages 357 121 478

Home equity 101 ( 8 ) 93

Commercial 16,575 1,911 18,486

Consumer and other 88 ( 9 ) 79

Allowance for credit losses on loans $ 25,473 $ 2,458 $ 27,931

Liability for off-balance sheet credit exposures $ — $ 2,344 $ 2,344

West Bancorporation, Inc.

7 unchanged sentences

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

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

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

In January 2021, the FASB issued ASU No.

1 unchanged sentence

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

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

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

In December 2022, the FASB issued ASU No.

4 unchanged sentences

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

In March 2023, the FASB issued ASU No.

2023-02, Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using Proportional Amortization Method .

The ASU is intended to improve the accounting and disclosures for investments in tax credit structures.

It allows reporting entities to elect to adopt for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

The Company does not expect the ASU to have a material impact on the Company’s consolidated financial statements.

In October 2023, the FASB issued ASU No.

2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative .

The ASU incorporates certain SEC disclosure requirements into the FASB A ccounting Standards Codification TM.

The amendments in the ASU are expected to clarify or improve disclosure presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations.

For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules.

For all other entities, the amendments will be effective two years later.

However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity.

These amendments have not had an impact to the Company as of December 31, 2023.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023.

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

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

The ASU is intended to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation table and income taxes paid to be disaggregated by jurisdiction.

It also includes certain amendments to improve the effectiveness of income tax disclosures.

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2024.

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

West Bancorporation, Inc.

41 unchanged sentences

(1) Collateralized mortgage obligations and mortgage-backed securities consist of residential and commercial mortgage pass-through securities and collateralized mortgage obligations guaranteed by FNMA, FHLMC, GNMA and SBA.

Securities with an amortized cost of approximately $ 293,017 and $ 295,961 as of December 31, 2022 and 2021, respectively, were pledged to secure access to the Federal Reserve discount window, for public fund deposits, and for other purposes as required or permitted by law or regulation.

Securities with an amortized cost of approximately $ 447,074 and $ 293,017 as of December 31, 2023 and 2022, respectively, were pledged to secure access to FHLB advances and Federal Reserve credit programs, for public fund deposits, and for other purposes as required or permitted by law or regulation.

The amortized cost and fair value of securities available for sale as of December 31, 2023, by contractual maturity, are shown below.

20 unchanged sentences

Value Gross Unrealized

of Securities Fair

Value Gross Unrealized

of Securities Fair

Value Gross Unrealized

8 unchanged sentences

Value Gross Unrealized

of Securities Fair

Value Gross Unrealized

of Securities Fair

Value Gross Unrealized

6 unchanged sentences

$ 237,128 $ ( 32,391 ) 138 $ 426,795 $ ( 106,345 ) 99 $ 663,923 $ ( 138,736 )

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

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

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

The Company believes the unrealized losses on securities available for sale as of December 31, 2022 were due to market conditions rather than reduced estimated cash flows.

At December 31, 2022, the Company did not intend to sell these securities, did not anticipate that these securities will be required to be sold before anticipated recovery, and expected full principal and interest to be collected.

Therefore, the Company does not consider these securities to have other than temporary impairment as of December 31, 2022.

The Company adopted ASU No.

2016-13 effective January 1, 2023 which requires credit losses on available-for-sale securities to be recorded in an allowance for credit losses.

As of December 31, 2023, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the securities in an unrealized loss position prior to recovery.

As of December 31, 2023, the Company also determined that no individual securities in an unrealized loss position represented credit losses that would require an allowance for credit losses.

The Company concluded that the unrealized losses were primarily attributable to increases in market interest rates since these securities were purchased and other market conditions.

Accrued interest receivable is not included in available-for-sale security balances and is presented in the “Accrued interest receivable” line of the Consolidated Balance Sheets.

Interest receivable on securities was $ 3,271 as of December 31, 2023, and was excluded from the estimate of credit losses.

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

Loans and Allowance for Loan Losses

As of December 31, 2022, the Company believed the unrealized losses on securities available for sale were due to market conditions rather than reduced estimated cash flows.

At December 31, 2022, the Company did not intend to sell the securities, did not anticipate these securities will be required to be sold before anticipated recovery, and expected full principal and interest to be collected.

Therefore, under the accounting principles effective at December 31, 2022, the Company did not consider these securities to have other than temporary impairment as of December 31, 2022.

Loans and Allowance for Credit Losses

Loans consisted of the following segments as of December 31, 2023 and 2022.

8 unchanged sentences

$ 2,927,535 $ 2,742,836

Included in commercial loans at December 31, 2022 and 2021, were $ 1,117 and $ 22,206 , respectively, of loans originated in the Paycheck Protection Program (PPP).

The PPP was established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted on March 27, 2020, and expanded by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, enacted on December 27, 2020 and the American Rescue Plan Act, enacted on March 11, 2021, in response to the Coronavirus Disease 2019 (COVID-19) pandemic.

The PPP is administered by the Small Business Administration (SBA).

PPP loans may be forgiven by the SBA and are 100 percent guaranteed by the SBA.

Therefore, no allowance for loan losses is allocated to PPP loans.

The loan portfolio included $ 2,003,699 and $ 1,919,948 of fixed-rate loans and $ 928,118 and $ 827,027 of variable-rate loans as of December 31, 2023 and 2022, respectively.

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

Real estate loans of approximately $ 1,420,000 and $ 1,190,000 were pledged as security for FHLB advances as of December 31, 2023 and 2022.

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

2 unchanged sentences

Loan transactions with related parties were as follows for the years ended December 31, 2023, 2022 and 2021.

2023 2022 2021

Balance, beginning of year $ 155,789 $ 143,768 119,600

1 unchanged sentence

Repayments ( 16,513 ) ( 20,650 ) ( 11,282 )

Effect of change in classification ( 9,700 ) —

Effect of change in director status ( 30,682 ) ( 9,700 ) —

Balance, end of year $ 110,293 $ 155,789 $ 143,768

3 unchanged sentences

(dollars in thousands, except per share data)

The following table summarizes the recorded investment in impaired loans by segment, broken down by loans with no related allowance and loans with a related allowance and the amount of that allowance as of December 31, 2022 and 2021.

December 31, 2022 December 31, 2021

Investment Unpaid

Balance Related

Allowance Recorded

Investment Unpaid

Balance Related

With no related allowance recorded:

Commercial $ — $ — $ — $ — $ — $ —

Construction, land and land development — — — — — —

1-4 family residential first mortgages 322 322 — 349 349 —

Home equity — — — — — —

Commercial — — — — — —

Consumer and other — — — — — —

Allowance for Credit Losses for Loans

The Company adopted ASU No.

2016-13 on January 1, 2023, at which time the Company implemented the CECL model in estimating the ACL valuation account.

The following table details the changes in the ACL by loan segment for the year ended December 31, 2023.

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Beginning balance $ 4,804 $ 3,548 $ 357 $ 101 $ 16,575 $ 88 $ 25,473

Adoption of CECL 677 ( 234 ) 121 ( 8 ) 1,911 ( 9 ) 2,458

Charge-offs ( 55 ) ( 39 ) ( 40 ) — — — ( 134 )

Recoveries 36 2 2 5 — — 45

Provision for credit loss expense (1)

( 171 ) 391 264 44 ( 66 ) 38 500

With an allowance recorded:

Commercial — — — — — —

Construction, land and land development — — — — — —

1-4 family residential first mortgages — — — — — —

Home equity — — — — — —

Commercial — — — 8,599 8,599 2,500

Consumer and other — — — — — —

Ending balance $ 5,291 $ 3,668 $ 704 $ 142 $ 18,420 $ 117 $ 28,342

(1) The negative provisions for the various segments are related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed, improvement in qualitative risk factors related to those portfolio segments and/or changes in economic forecasts.

Prior to the adoption of ASU No.

2016-13 on January 1, 2023, the Company calculated the allowance for loan losses using the incurred loss methodology.

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

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Beginning balance $ 4,776 $ 3,646 $ 339 $ 91 $ 19,466 $ 46 $ 28,364

Charge-offs — — ( 31 ) — ( 451 ) — ( 482 )

Recoveries 29 — 33 4 25 — 91

Provision for loan losses (1)

( 1 ) ( 98 ) 16 6 ( 2,465 ) 42 ( 2,500 )

Commercial — — — — — —

Construction, land and land development — — — — — —

1-4 family residential first mortgages 322 322 — 349 349 —

Home equity — — — — — —

Commercial — — — 8,599 8,599 2,500

Consumer and other — — — — — —

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

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

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

Ending balance $ 4,804 $ 3,548 $ 357 $ 101 $ 16,575 $ 88 $ 25,473

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Beginning balance $ 4,718 $ 2,634 $ 360 $ 114 $ 21,535 $ 75 $ 29,436

Charge-offs — — — — — — —

Recoveries 404 — 2 4 13 5 428

Provision for loan losses (1)

( 346 ) 1,012 ( 23 ) ( 27 ) ( 2,082 ) ( 34 ) ( 1,500 )

Ending balance $ 4,776 $ 3,646 $ 339 $ 91 $ 19,466 $ 46 $ 28,364

(1) The negative provisions for the various segments are related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed and/or improvement in the credit quality factors related to those portfolio segments

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

The following table summarizes the average recorded investment and interest income recognized on impaired loans by segment for the years ended December 31, 2022, 2021 and 2020.

December 31, 2022 December 31, 2021 December 31, 2020

Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized

With no related allowance recorded:

Commercial $ — $ — $ — $ — $ 42 $ 2

Construction, land and

land development — — — — — —

1-4 family residential first mortgages 336 — 363 — 392 5

Home equity — — — — 2 —

Commercial — — — — 3,659 17

Consumer and other — — — — — —

336 — 363 — 4,095 24

With an allowance recorded:

Commercial — — — 339 —

Construction, land and

land development — — — — — —

1-4 family residential first mortgages — — — — — —

Home equity — — — — — —

Commercial 3,915 — 13,002 — 1,217 —

Consumer and other — — — — — —

3,915 — 13,002 — 1,556 —

The following tables present a breakdown of the allowance for credit losses by segment, disaggregated based on the evaluation method as of December 31, 2023 and 2022.

December 31, 2023

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Ending balance:

Individually evaluated for credit losses $ — $ — $ — $ — $ — $ — $ —

Collectively evaluated for credit losses 5,291 3,668 704 142 18,420 117 28,342

Total $ 5,291 $ 3,668 $ 704 $ 142 $ 18,420 $ 117 $ 28,342

December 31, 2022

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Ending balance:

Individually evaluated for impairment $ — $ — $ — $ — $ — $ — $ —

Collectively evaluated for impairment 4,804 3,548 357 101 16,575 88 25,473

Total $ 4,804 $ 3,548 $ 357 $ 101 $ 16,575 $ 88 $ 25,473

The following tables present the recorded investment in loans, exclusive of unamortized fees and costs, disaggregated based on the evaluation method by segment as of December 31, 2023 and 2022.

December 31, 2023

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Ending balance:

Individually evaluated for credit losses $ — $ — $ 296 $ — $ — $ — $ 296

Collectively evaluated for credit losses 531,594 413,477 106,392 14,618 1,854,510 10,930 2,931,521

Total $ 531,594 $ 413,477 $ 106,688 $ 14,618 $ 1,854,510 $ 10,930 $ 2,931,817

December 31, 2022

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Ending balance:

Individually evaluated for impairment $ — $ — $ 322 $ — $ — $ — $ 322

Collectively evaluated for impairment 519,196 363,014 74,889 10,322 1,771,940 7,292 2,746,653

Total $ 519,196 $ 363,014 $ 75,211 $ 10,322 $ 1,771,940 $ 7,292 $ 2,746,975

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Under the CECL model, the ACL is a valuation account estimated at each balance sheet date and deducted from the amortized cost basis of loans to present the net amount expected to be collected.

The Company estimates the ACL based on the underlying loans' amortized cost basis, which is the amount at which the loan is originated or acquired, adjusted for collection of cash and charge-offs, as well as applicable accretion or amortization of premiums, discounts, and net deferred fees or costs.

The Company's estimate of the ACL reflects losses expected over the remaining contractual life of the assets.

The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected restructuring.

In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner.

Therefore, the Company has made a policy election to exclude accrued interest from the measurement of the ACL.

Accrued interest on loans of $ 10,292 and $ 8,665 at December 31, 2023 and 2022, respectively, was included in accrued interest receivable on the balance sheet and was excluded from the estimate of credit losses.

Expected credit losses are reflected in the allowance for credit losses through a charge to credit loss expense.

When the Company deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount.

The Company applies judgment to determine when a loan is deemed uncollectible;

however, generally speaking, a loan will be considered uncollectible no later than when all efforts at collection have been exhausted.

Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of loans on a collective (pool) basis when the loans share similar risk characteristics and uses a cash flow-based method to estimate expected credit losses for each of these pools.

The Company's methodology for estimating the ACL considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts.

In addition to the historical loss information, the Company utilizes qualitative factors to adjust the ACL as appropriate.

The Company uses a cash flow-based model to estimate expected credit losses for all loan segments.

For each of the loan segments, the Company calculates a cash flow projection using contractual terms, estimated prepayment speeds, estimated curtailment rates, and other relevant data.

The Company uses regression analysis that links historical losses of the Company and a peer group to two economic metrics:

national unemployment rate and 10-year treasury rate over 2-year treasury rate spread to establish the loss rates applied to the projected cash flows.

For all loan segments, the Company uses a forecast period of four quarters and reverts to a historical rate after four quarters.

When estimating prepayment speed and curtailment rates, the modeling is based on historical internal data.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Nonaccrual Loans and Delinquency Status

Delinquencies are determined based on the payment terms of the individual loan agreements.

The accrual of interest on past due and other individually evaluated loans is generally discontinued at 90 days past due or when, in the opinion of management, the borrower may be unable to make all payments pursuant to contractual terms.

Unless considered collectible, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income.

Generally, all payments received while a loan is on nonaccrual status are applied to the principal balance of the loan.

Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following table presents the amortized cost basis of loans on nonaccrual status, loans on nonaccrual status with no allowance for credit losses recorded, and loans past due 90 days or more and still accruing by loan segment.

Total Nonaccrual Nonaccrual with no Allowance for Credit Losses 90 Days or More Past Due and Accruing

December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022

Commercial $ — $ — $ — $ — $ — $ —

Construction, land and

land development — — — — — —

1-4 family residential first mortgages 336 — 363 — 392 5

Construction, land and land

development — — — — — —

1-4 family residential first

mortgages 296 322 296 322 — —

Home equity — — — — — —

1 unchanged sentence

Consumer and other — — — — — —

Total impaired loans $ 4,251 $ — $ 13,365 $ — $ 5,651 $ 24

Interest income forgone on impaired loans was $ 144 , $ 534 and $ 235 , respectively, during the years ended December 31, 2022, 2021 and 2020.

Total $ 296 $ 322 $ 296 $ 322 $ — $ —

There was no interest income recognized on loans that were on nonaccrual for the years ended December 31, 2023 and 2022.

Interest income forgone on nonaccrual loans was $ 15 , $ 144 and $ 534 , respectively, during the years ended December 31, 2023, 2022 and 2021.

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

The following tables provide an analysis of the payment status of the recorded investment in loans as of December 31, 2022 and 2021.

The following tables provide an analysis of the delinquency status of the amortized cost of loans as of December 31, 2023 and 2022.

December 31, 2023

Due 60-89 Days Past Due 90 Days or More Past Due Total

Past Due Current Nonaccrual Loans Total Loans

Past Due Current Total Loans

Commercial $ — $ — $ — $ — $ 531,594 $ 531,594

9 unchanged sentences

Due 60-89 Days Past Due 90 Days or More Past Due Total

Past Due Current Nonaccrual Loans Total Loans

Past Due Current Total Loans

Commercial $ — $ — $ — $ — $ 519,196 $ 519,196

7 unchanged sentences

Total $ — $ — $ — $ — $ 2,746,975 $ 2,746,975

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

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

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

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

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

There were no TDR loans that have been modified within the twelve months ended December 31, 2022, 2021 and 2020 that have subsequently had a payment default.

A TDR loan is considered to have a payment default when it is past due 30 days or more.

Loan Restructurings Made to Borrowers Experiencing Financial Difficulty

As of December 31, 2023 and 2022, the Company had no loan restructurings made to borrowers experiencing financial difficulty.

There were no loan restructurings made to borrowers experiencing financial difficulty for which there was a payment default within twelve months following the modification during the twelve months ended December 31, 2023, 2022 and 2021.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

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

December 31, 2022

Pass Watch Substandard Doubtful Total

Commercial $ 519,196 $ — $ — $ — $ 519,196

Construction, land and land development 362,967 47 — — 363,014

1-4 family residential first mortgages 74,653 148 410 — 75,211

Home equity 10,322 — — — 10,322

Commercial 1,717,904 54,036 — — 1,771,940

Consumer and other 7,292 — — — 7,292

Total $ 2,692,334 $ 54,231 $ 410 $ — $ 2,746,975

December 31, 2021

Pass Watch Substandard Doubtful Total

Commercial $ 492,545 $ 270 $ — $ — $ 492,815

Construction, land and land development 359,203 55 — — 359,258

1-4 family residential first mortgages 65,596 156 464 — 66,216

Home equity 8,422 — — — 8,422

Commercial 1,458,075 63,544 8,599 — 1,530,218

Consumer and other 3,797 — — — 3,797

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

Credit Quality Indicators

These loans involve the anticipated potential for payment defaults or collateral inadequacies.

A loan on the Watch List is analyzed individually to categorize the loan to the appropriate credit risk category.

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

1 unchanged sentence

The Company utilizes a 9-point risk rating scale as shown below, with ratings 1 - 5 included in the Pass column, rating 6 included in the Watch column, ratings 7 - 8 included in the Substandard column and rating 9 included in the Doubtful column.

All loans classified as impaired that are included in the specific evaluation of the allowance for loan losses are included in the Substandard column along with all other loans with ratings of 7 - 8.

Risk rating 1:

11 unchanged sentences

The borrower's financial condition is less than satisfactory.

The loan is still generally paying as agreed, but strained cash flow may cause some slowness in payments.

The loan is still generally paying as agreed, but strained cash flows may cause some slowness in payments.

The collateral values adequately preclude loss on the loan.

6 unchanged sentences

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

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Risk rating 7:

10 unchanged sentences

Risk ratings are updated as circumstances that could affect the repayment of an individual loan are brought to management's attention through an established monitoring process.

Individual lenders initiate changes as appropriate for ratings 1 through 5, and changes for ratings 6 through 9 are initiated via communications with management.

Individual bankers initiate changes as appropriate for ratings 1 through 5, and changes for ratings 6 through 9 are initiated by management.

The likelihood of loss increases as the risk rating increases and is generally preceded by a loan appearing on the Watch List, which consists of all loans with a risk rating of 6 or worse.

Written action plans with firm target dates for resolution of identified problems are maintained and reviewed on a quarterly basis for all segments of loans included on the Watch List.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

In addition to the Company’s internal credit monitoring practices and procedures, an outsourced independent credit review function is in place to further assess assigned internal risk classifications and monitor compliance with internal lending policies and procedures.

In all portfolio segments, the primary risks are that a borrower’s income stream diminishes to the point that it is not able to make scheduled principal and interest payments and any collateral securing the loan declines in value.

In all portfolio segments, the primary risks are that a borrower's income stream diminishes to the point that the borrower is not able to make scheduled principal and interest payments and any collateral securing the loan declines in value.

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

3 unchanged sentences

Real estate loans include various types of loans for which the Company holds real property as collateral, and consist of loans on commercial properties and single and multifamily residences.

Real estate loans are typically structured to mature or reprice every 5 to 10 years with payments based on amortization periods up to 30 years.

Real estate loans are typically structured to mature or reprice every five to ten years with payments based on amortization periods up to 30 years.

The majority of construction loans are to contractors and developers for construction of commercial buildings or residential real estate.

3 unchanged sentences

The majority of the Company's consumer lending is for vehicles, consolidation of personal debts and household improvements.

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

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

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

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

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Beginning balance $ 4,776 $ 3,646 $ 339 $ 91 $ 19,466 $ 46 $ 28,364

Charge-offs — — ( 31 ) — ( 451 ) — ( 482 )

Recoveries 29 — 33 4 25 — 91

Provision (1)

( 1 ) ( 98 ) 16 6 ( 2,465 ) 42 ( 2,500 )

Ending balance $ 4,804 $ 3,548 $ 357 $ 101 $ 16,575 $ 88 $ 25,473

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Beginning balance $ 4,718 $ 2,634 $ 360 $ 114 $ 21,535 $ 75 $ 29,436

Charge-offs — — — — — — —

Recoveries 404 — 2 4 13 5 428

Provision (1)

( 346 ) 1,012 ( 23 ) ( 27 ) ( 2,082 ) ( 34 ) ( 1,500 )

Ending balance $ 4,776 $ 3,646 $ 339 $ 91 $ 19,466 $ 46 $ 28,364

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Beginning balance $ 3,875 $ 2,375 $ 216 $ 127 $ 10,565 $ 77 $ 17,235

Charge-offs — — — ( 1 ) — — ( 1 )

Recoveries 103 — 72 4 12 11 202

Provision (1)

740 259 72 ( 16 ) 10,958 ( 13 ) 12,000

Ending balance $ 4,718 $ 2,634 $ 360 $ 114 $ 21,535 $ 75 $ 29,436

(1) The negative provisions for the various segments are either related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed and/or improvement in the credit quality factors related to those portfolio segments.

The following tables present the amortized cost basis of loans by loan segment, credit quality indicator and origination year, and the current period gross write-off by loan segment and origination year, based on the analysis performed as of December 31, 2023 and 2022.

Term Loans by Origination Year

As of December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Total

Pass $ 147,971 $ 110,228 $ 48,291 $ 31,423 $ 6,510 $ 44,146 $ 143,025 $ 531,594

Watch — — — — — — — —

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total $ 147,971 $ 110,228 $ 48,291 $ 31,423 $ 6,510 $ 44,146 $ 143,025 $ 531,594

Current period gross writeoffs $ 37 $ — $ — $ — $ 18 $ — $ — $ 55

Construction, land and land development

Pass $ 126,608 $ 114,176 $ 64,797 $ 20,210 $ 1,458 $ — $ 86,228 $ 413,477

Watch — — — — — — — —

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total $ 126,608 $ 114,176 $ 64,797 $ 20,210 $ 1,458 $ — $ 86,228 $ 413,477

Current period gross writeoffs $ — $ 39 $ — $ — $ — $ — $ — $ 39

1-4 family residential first mortgages

Pass $ 46,766 $ 20,531 $ 19,670 $ 11,779 $ 3,663 $ 3,176 $ 663 $ 106,248

Watch 144 — — — — — — 144

Substandard — — — — 296 — — 296

Doubtful — — — — — — — —

Total $ 46,910 $ 20,531 $ 19,670 $ 11,779 $ 3,959 $ 3,176 $ 663 $ 106,688

Current period gross writeoffs $ — $ 40 $ — $ — $ — $ — $ — $ 40

Pass $ 2,804 $ 288 $ 508 $ 98 $ 138 $ 16 $ 10,766 $ 14,618

Watch — — — — — — — —

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total $ 2,804 $ 288 $ 508 $ 98 $ 138 $ 16 $ 10,766 $ 14,618

Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ —

Pass $ 212,772 $ 519,783 $ 463,750 $ 359,032 $ 84,995 $ 195,967 $ 18,211 $ 1,854,510

Watch — — — — — — — —

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total $ 212,772 $ 519,783 $ 463,750 $ 359,032 $ 84,995 $ 195,967 $ 18,211 $ 1,854,510

Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ —

Consumer and other

Pass $ 1,740 $ 211 $ 392 $ 51 $ 17 $ 126 $ 8,393 $ 10,930

Watch — — — — — — — —

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total $ 1,740 $ 211 $ 392 $ 51 $ 17 $ 126 $ 8,393 $ 10,930

Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ —

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

The following tables show a breakdown of the allowance for loan losses disaggregated on the basis of impairment analysis method by segment as of December 31, 2022 and 2021.

December 31, 2022

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Ending balance:

Individually evaluated for impairment $ — $ — $ — $ — $ — $ — $ —

Collectively evaluated for impairment 4,804 3,548 357 101 16,575 88 25,473

Term Loans by Origination Year

As of December 31, 2022 2022 2021 2020 2019 2018 Prior Revolving Loans Total

Pass $ 166,177 $ 65,148 $ 64,103 $ 9,926 $ 23,771 $ 24,103 $ 165,968 $ 519,196

Watch — — — — — — — —

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total $ 166,177 $ 65,148 $ 64,103 $ 9,926 $ 23,771 $ 24,103 $ 165,968 $ 519,196

December 31, 2021

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Ending balance:

Individually evaluated for impairment $ — $ — $ — $ — $ 2,500 $ — $ 2,500

Collectively evaluated for impairment 4,776 3,646 339 91 16,966 46 25,864

Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ —

Construction, land and land development

Pass $ 151,963 $ 96,486 $ 39,604 $ 1,562 $ 196 $ — $ 73,156 $ 362,967

Watch 47 — — — — — — 47

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total $ 152,010 $ 96,486 $ 39,604 $ 1,562 $ 196 $ — $ 73,156 $ 363,014

The following tables show the recorded investment in loans, exclusive of unamortized fees and costs, disaggregated on the basis of impairment analysis method by segment as of December 31, 2022 and 2021.

December 31, 2022

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Ending balance:

Individually evaluated for impairment $ — $ — $ 322 $ — $ — $ — $ 322

Collectively evaluated for impairment 519,196 363,014 74,889 10,322 1,771,940 7,292 2,746,653

Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ —

1-4 family residential first mortgages

Pass $ 24,777 $ 24,042 $ 14,879 $ 4,229 $ 1,283 $ 4,267 $ 1,176 $ 74,653

Watch — 148 — — — — — 148

Substandard 88 — — 322 — — — 410

Doubtful — — — — — — — —

Total $ 24,865 $ 24,190 $ 14,879 $ 4,551 $ 1,283 $ 4,267 $ 1,176 $ 75,211

December 31, 2021

Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total

Ending balance:

Individually evaluated for impairment $ — $ — $ 349 $ — $ 8,599 $ — $ 8,948

Collectively evaluated for impairment 492,815 359,258 65,867 8,422 1,521,619 3,797 2,451,778

Current period gross writeoffs $ — $ — $ — $ — $ — $ 31 $ — $ 31

Pass $ 413 $ 613 $ 512 $ 130 $ 169 $ — $ 8,485 $ 10,322

Watch — — — — — — — —

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total $ 413 $ 613 $ 512 $ 130 $ 169 $ — $ 8,485 $ 10,322

Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ —

Pass $ 543,138 $ 440,150 $ 405,935 $ 92,304 $ 54,723 $ 169,055 $ 12,599 $ 1,717,904

Watch 22,553 30,573 — 910 — — — 54,036

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total $ 565,691 $ 470,723 $ 405,935 $ 93,214 $ 54,723 $ 169,055 $ 12,599 $ 1,771,940

Current period gross writeoffs $ — $ 451 $ — $ — $ — $ — $ — $ 451

Consumer and other

Pass $ 1,176 $ 1,082 $ 136 $ 86 $ 272 $ 72 $ 4,468 $ 7,292

Watch — — — — — — — —

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total $ 1,176 $ 1,082 $ 136 $ 86 $ 272 $ 72 $ 4,468 $ 7,292

Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ —

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

Collateral Dependent Loans

Loans that do not share risk characteristics are evaluated on an individual basis.

When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of collateral.

When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the fair value of the underlying collateral less estimated cost to sell.

The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.

The following table presents the amortized cost basis of collateral dependent loans, by primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans.

As of December 31, 2023

Primary Type of Collateral

Real Estate Equipment Other Total ACL Allocation

1-4 family residential first mortgages $ 296 $ — $ — $ 296 $ —

Total $ 296 $ — $ — $ 296 $ —

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Impaired Loans

2016-13 on January 1, 2023.

December 31, 2022

Investment Unpaid

Balance Related

With no related allowance recorded:

Commercial $ — $ — $ —

Construction, land and land development — — —

1-4 family residential first mortgages 322 322 —

Home equity — — —

Commercial — — —

Consumer and other — — —

With an allowance recorded:

Commercial — — —

Construction, land and land development — — —

1-4 family residential first mortgages — — —

Home equity — — —

Commercial — — —

Consumer and other — — —

Commercial — — —

Construction, land and land development — — —

1-4 family residential first mortgages 322 322 —

Home equity — — —

Commercial — — —

Consumer and other — — —

Total impaired loans $ 322 $ 322 $ —

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

The following table summarizes the average recorded investment and interest income recognized on impaired loans by segment for the years ended December 31, 2022 and 2021.

December 31, 2022 December 31, 2021

Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized

With no related allowance recorded:

Commercial $ — $ — $ — $ —

Construction, land and land development — — — —

1-4 family residential first mortgages 336 — 363 —

Home equity — — — —

Commercial — — — —

Consumer and other — — — —

With an allowance recorded:

Commercial — — — —

Construction, land and land development — — — —

1-4 family residential first mortgages — — — —

Home equity — — — —

Commercial 3,915 — 13,002 —

Consumer and other — — — —

3,915 — 13,002 —

Commercial — — — —

Construction, land and land development — — — —

1-4 family residential first mortgages 336 — 363 —

Home equity — — — —

Commercial 3,915 — 13,002 —

Consumer and other — — — —

Total impaired loans $ 4,251 $ — $ 13,365 $ —

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life using the same models for the Company’s other loan portfolio segments described above.

The Company's allowance for credit losses for unfunded commitments was $ 2,544 as of December 31, 2023.

The allowance for credit losses for off-balance-sheet credit exposures is presented in the “Accrued expenses and other liabilities” line of the Consolidated Balance Sheets.

Changes in the allowance for credit losses for off-balance-sheet credit exposures is reflected in the “Credit loss expense” line of the Consolidated Statements of Income.

During the year ended December 31, 2023, the Company recorded a credit loss expense of $200 associated with off-balance sheet credit exposures.

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

Premises and Equipment, Net

9 unchanged sentences

Operating Leases

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

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

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

The lease agreements have maturity dates ranging from April 2024 to February 2033, some of which include options to renew at the Company's discretion.

If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the measurement of the right-of-use asset and lease liability.

22 unchanged sentences

The junior subordinated debentures have a 30-year term, do not require any principal amortization, and are callable at the issuer’s option.

The interest rate is a variable rate based on the 3-month LIBOR plus 3.05 percent.

The interest rate is a variable rate based on the 3-month term Secured Overnight Financing Rate (SOFR) plus 0.26161 percent tenor spread adjustment plus 3.05 percent.

At December 31, 2023, the interest rate was 8.64 percent.

9 unchanged sentences

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

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

Beginning in June 2027, the interest rate will be reset quarterly to a floating rate per annum that is expected to be three-month term SOFR plus 2.41 percent with payments due quarterly .

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

1 unchanged sentence

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

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

The Notes were reported net of unamortized debt issuance costs of $ 860 and $ 1,109 as of December 31, 2023 and 2022, respectively.

West Bancorporation, Inc.

3 unchanged sentences

Federal Home Loan Bank Advances and Other Borrowings

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

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

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

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

The Company had fixed-rate FHLB advances totaling $ 315,000 and $ 155,000 as of December 31, 2023 and 2022, respectively.

Advances with a total of $ 295,000 have maturities of one month and are part of a rolling funding program associated with long-term interest rate swaps related to the interest cash flows of the rolling advances.

The Company also had one FHLB advance totaling $ 20,000 with a maturity date of November 2024 as of December 31, 2023.

The weighted average contractual rates on FHLB advances were 5.54 percent and 4.47 percent as of December 31, 2023 and December 31, 2022, respectively.

The weighted average effective rate for these advances, which includes adjustments for the interest rate swaps, when applicable, were 3.44 percent and 2.32 percent as of December 31, 2023 and 2022, respectively.

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

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

The Company had overnight and other short-term borrowings, including FHLB advances totaling $ 150,270 and $ 200,000 as of December 31, 2023 and 2022, respectively, which are included in federal funds purchased and other short-term borrowings.

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

5 unchanged sentences

There were no balances outstanding at the Federal Reserve Bank discount window at December 31, 2023.

West Bank had borrowing capacity of approximately $ 89,000 through the BTFP.

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

As of December 31, 2023, West Bank had pledged approximately $ 89,000 in eligible securities to facilitate participation in the program and no funds were borrowed from the BTFP.

The Federal Reserve has announced that it is ending the BTFP and will cease making new loans under this program on March 11, 2024.

Long-Term Debt

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

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

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

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

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

Required quarterly principal payments of $ 1,250 began in May 2023, with the remaining balance due February 2027.

The Company may make additional principal payments without penalty.

The interest rate is variable at the Wall Street Journal Prime Rate minus 1.00 percent, which totaled 7.50 percent as of December 31, 2023.

The Company has an interest rate swap contract that effectively converts $ 20,000 of the borrowings to a fixed rate of 6.40 percent.

See Note 11 for additional information on the interest rate swap.

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

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

The outstanding balance was $ 36,250 and $ 40,000 as of December 31, 2023 and 2022, respectively.

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

5 unchanged sentences

Thereafter 10,134

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

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

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

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

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

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

Interest Rate Swaps Designated as a Cash Flow Hedge :

The Company had interest rate swaps designated as cash flow hedges with

total notional amounts of $ 310,000 and $ 255,000 at December 31, 2022 and 2021, respectively.

The Company had interest rate swaps designated as cash flow hedges with total notional amounts of $ 445,000 and $ 310,000 at December 31, 2023 and 2022, respectively.

As of December 31, 2023, the Company had swaps with a total notional amount of $ 295,000 that hedge the interest payments of rolling fixed-rate one-month funding consisting of FHLB advances or brokered deposits.

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

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

Also, as of December 31, 2023, the Company had swaps with a total notional amount of $ 40,000 that effectively converts variable-rate long-term debt to fixed-rate debt and swaps with a total notional amount of $ 110,000 that hedge the interest payments of certain deposit accounts.

In March 2021, the Company terminated interest rate swaps with a total notional amount of $ 50,000 .

17 unchanged sentences

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

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

The table below identifies the balance sheet category and fair values of the Company’s derivative instruments as of December 31, 2023 and 2022.

11 unchanged sentences

Fair value in other liabilities ( 14,114 ) ( 15,309 )

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

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

The following table identifies the pre-tax gains or losses recognized on the Company’s derivative instruments designated as cash flow hedges for the years ended December 31, 2023, 2022 and 2021.

2023 2022 2021

Pre-tax gain (loss) recognized in other comprehensive income $ 23,595 $ 8,047 $ ( 22,278 )

Pre-tax gain recognized in other comprehensive income $ 4,291 $ 23,595 $ 8,047

Reclassification from AOCI into income:

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

Increase (decrease) in interest expense $ ( 10,249 ) $ 206 $ 4,684

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

4 unchanged sentences

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

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

As of both December 31, 2023 and 2022, the Company pledged $ 0 of collateral to the counterparties in the form of cash on deposit.

As of December 31, 2023 and 2022, the Company’s counterparties pledged $ 22,340 and $ 31,560 , respectively, of collateral to the Company in the form of cash on deposit.

45 unchanged sentences

Deferred tax assets:

Allowance for loan losses $ 6,241 $ 7,176

Allowance for credit losses $ 7,598 $ 6,241

Net unrealized losses on securities available for sale 30,081 34,544

Net unrealized losses on interest rate swaps — 1,903

Lease liabilities 837 1,147

9 unchanged sentences

Premises and equipment 1,657 1,219

Other 381 312

New markets tax credit loan 389 303

Net deferred tax assets before valuation allowance 36,066 38,085

26 unchanged sentences

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

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

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

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

The time-based RSU awards granted to employees vest 20 percent per year over a five year period and have a one to three year post-vesting holding period, applicable to 50 percent of the shares.

The time-based RSU awards granted to directors vest after one year and have a one to three year post-vesting holding period, applicable to 50 percent of the shares.

The following table includes a summary of nonvested RSU activity for the years ended December 31, 2023, 2022 and 2021.

12 unchanged sentences

Total compensation costs, including director compensation, recorded for the RSUs were $ 3,111 , $ 3,357 and $ 2,573 for the years ended December 31, 2023, 2022 and 2021, respectively.

The tax expense related to vesting of RSUs totaled $ 5 for the year ended December 31, 2023.

The tax benefit related to vesting of RSUs totaled $ 385 and $ 233 for the years ended December 31, 2022 and 2021, respectively.

The tax expense related to the vesting of RSUs totaled $ 116 for the year ended December 31, 2020.

As of December 31, 2023, there was $ 3,882 of unrecognized compensation cost related to nonvested RSUs, and the weighted average period over which these remaining costs are expected to be recognized was approximately 1.2 years.

1 unchanged sentence

The Company has a defined contribution plan covering substantially all of its employees.

Matching and discretionary contributions are determined annually by the Board of Directors.

The Company matched 100 percent of the first six percent of employee deferrals and made an annual discretionary contribution of four percent of eligible employee compensation for the years ended December 31, 2022, 2021 and 2020.

Matching and discretionary contributions are determined annually by the Board.

The Company matched 100 percent of the first six percent of employee deferrals and made an annual discretionary contribution of two percent of eligible employee compensation for the year ended December 31, 2023, and four percent of eligible employee compensation for the years ended December 31, 2022 and 2021.

Total matching and discretionary contribution expense for the years ended December 31, 2023, 2022 and 2021, totaled $ 1,207 , $ 1,395 and $ 1,319 , respectively.

23 unchanged sentences

Balance, December 31, 2022 ( 103,680 ) 12,209 ( 91,471 )

Other comprehensive income (loss) before reclassifications ( 98,637 ) 17,739 ( 80,898 )

Other comprehensive income before reclassifications 12,158 3,221 15,379

Amounts reclassified from accumulated other

55 unchanged sentences

As of December 31, 2023 and 2022, the Company had no intangible assets or preferred stock.

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

Commitments and Contingencies

6 unchanged sentences

Commitments to lend are subject to borrowers’ continuing compliance with existing credit agreements.

The Company’s commitments consisted of the following approximate amounts as of December 31, 2022 and 2021.

The Company adopted ASU No.

2016-13 effective January 1, 2023 which requires an allowance for credit losses on off-balance sheet credit exposure.

See Note 4 for additional information.

The Company’s commitments consisted of the following amounts as of December 31, 2023 and 2022.

Commitments to fund real estate construction loans $ 385,846 $ 336,900

3 unchanged sentences

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and generally expire within one year.

Commitments to extend credit of approximately $ 196,447 at December 31, 2022, expire beyond one year.

Commitments to extend credit of approximately $ 174,298 at December 31, 2023, had terms expiring beyond one year.

Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

15 unchanged sentences

The Company had commitments to invest in qualified affordable housing projects totaling $ 1,649 and $ 3,431 as of December 31, 2023 and 2022, respectively.

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

West Bank will pay the contractor a contract price consisting of the cost of work plus a fee, with anticipated construction completed in 2024.

As of December 31, 2023, there was a remaining commitment of $ 13,019 under this contract.

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

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

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

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

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

Concentrations of credit risk :

21 unchanged sentences

Management obtains the fair value of securities at the end of each reporting period via a third-party pricing service.

Management reviewed the valuation process used by the third party and believed that process was valid.

On a quarterly basis, management corroborates the fair values of a randomly selected sample of securities by obtaining pricing from an independent financial market data provider and compares the two sets of fair values.

Management reviewed the valuation process used by the third party and believed the process was valid as of December 31, 2023.

On a quarterly basis, management corroborates the fair values of the portfolio by obtaining pricing from an independent financial market data provider and compares the two sets of fair values.

Any significant variances are reviewed and investigated.

35 unchanged sentences

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

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

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

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

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

As of both December 31, 2023 and 2022, there were no individually evaluated loans with a fair value adjustment.

Individually evaluated loans are classified within Level 3 of the fair value hierarchy and are evaluated and valued at the lower of cost or fair value when the loan is individually evaluated.

Fair value is based on the value of the collateral securing these loans.

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

Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available and include consideration of variations in location, size, and income production capacity of the property.

Additionally, the appraisals are periodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and are based on management’s historical knowledge, changes in business factors and changes in market conditions.

Because of the high degree of judgment required in estimating the fair value of collateral underlying impaired loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of impaired loans to be highly sensitive to changes in market conditions.

Because of the high degree of judgment required in estimating the fair value of collateral underlying individually evaluated loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of individually evaluated loans to be highly sensitive to changes in market conditions.

West Bancorporation, Inc.

2 unchanged sentences

(dollars in thousands, except per share data)

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis.

Valuation Technique Unobservable Inputs Range (Weighted Average)

December 31, 2022

Impaired loans — — —

December 31, 2021

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

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

13 unchanged sentences

Deposits $ 2,973,779 $ 2,971,562 $ — $ 2,971,562 $ —

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

Federal funds purchased and other short-term borrowings 150,270 150,270 150,270 — —

Subordinated notes, net 79,631 65,039 — 65,039 —

3 unchanged sentences

Interest rate swaps 15,102 15,102 — 15,102 —

Off-balance-sheet financial instruments:

Commitments to extend credit — — — — —

Standby letters of credit — — — — —

West Bancorporation, Inc.

and Subsidiary

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

December 31, 2022

11 unchanged sentences

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

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

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

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

3 unchanged sentences

Interest rate swaps 15,309 15,309 — 15,309 —

Off-balance-sheet financial instruments:

Commitments to extend credit — — — — —

Standby letters of credit — — — — —

West Bancorporation, Inc.

30 unchanged sentences

Equity in net income of West Bancorporation Capital Trust I 52 30 21

Other income — — 3

Total operating income 30,107 50,215 50,901

25 unchanged sentences

Change in assets and liabilities:

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

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

(Increase) decrease in other assets 189 ( 116 ) ( 20 )

Increase in accrued expenses and other liabilities 4 440 5

Net cash provided by operating activities 19,738 17,678 20,226

7 unchanged sentences

Net cash provided by (used in) financing activities ( 20,454 ) 42,137 14,457

Net increase in cash 1,165 183 341

Net increase (decrease) in cash ( 716 ) 1,165 183

Beginning 5,811 4,646 4,463

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data