What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-10-26 · 120 added, 252 removed, 332 unchanged (53% of the section changed)

7 unchanged sentences

Risks and uncertainties that may affect future results include:

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

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

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

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

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

1 unchanged sentence

our ability to successfully manage liquidity risk;

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

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

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

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

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

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

the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in recent bank failures;

changes in legal and regulatory requirements, limitations and costs, including in response to the recent bank failures;

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

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

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

unexpected outcomes of existing or new litigation involving the Company;

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

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

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

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

1 unchanged sentence

tax laws, regulations and guidance;

potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election;

talent and labor shortages;

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

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

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

5 unchanged sentences

Actual results may differ from these estimates under different assumptions or conditions.

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

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

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

The estimates and judgments that management believes involve the most complex and subjective estimates and judgments and have the most effect on the Company's reported financial position and results of operations are described as critical accounting policies in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2023, as filed with the SEC on February 23, 2024.

There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2023.

West Bancorporation, Inc.

10 unchanged sentences

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

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

2023 2022 2023 2022

Three Months Ended March 31,

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

1 unchanged sentence

Tax-equivalent adjustment (1)

113 270 396 925

Net interest income on a FTE basis (non-GAAP) 16,832 18,856

4 unchanged sentences

Noninterest income 2,299 2,957

Adjustment for losses on disposal of premises and equipment, net 3 — 5 27

Adjusted income 19,131 21,813

12 unchanged sentences

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

Results of operations for the three and nine months ended September 30, 2023 are compared to the results for the same periods in 2022, and the consolidated financial condition of the Company as of September 30, 2023 is compared to that as of December 31, 2022.

This discussion and analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 23, 2023.

Results of operations for the three months ended March 31, 2024 are compared to the results for the same period in 2023, and the consolidated financial condition of the Company as of March 31, 2024 is compared to that as of December 31, 2023.

This discussion and analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2023, filed with the SEC on February 23, 2024.

The Company conducts business from its main office in West Des Moines, Iowa and through its branch offices in central Iowa, which is generally the greater Des Moines metropolitan area;

1 unchanged sentence

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

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

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

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

Net interest income for the three months ended September 30, 2023 decreased $6,370, or 27.7 percent, compared to the three months ended September 30, 2022.

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

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

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

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

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

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

Net interest income for the nine months ended September 30, 2023 declined $18,401, or 25.9 percent, compared to the nine months ended September 30, 2022.

Noninterest income increased $225 for the nine months ended September 30, 2023 compared to the same period in 2022 primarily due to a gain from bank-owned life insurance and an increase in trust services revenue, partially offset by a decrease in loan swap fees.

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

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Total loans outstanding increased $106,941, or 3.9 percent, during the first nine months of 2023.

The credit quality of the loan portfolio remained strong, as evidenced by the Company's ratio of nonperforming loans to total assets of 0.01 percent as of both September 30, 2023 and December 31, 2022.

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

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

Net income for the three months ended March 31, 2024 was $5,809, or $0.35 per diluted common share, compared to $7,844, or $0.47 per diluted common share, for the three months ended March 31, 2023.

The Company's annualized return on average assets and return on average equity for the three months ended March 31, 2024 were 0.61 percent and 10.63 percent, respectively, compared to 0.88 percent and 14.77 percent, respectively, for the three months ended March 31, 2023.

The decrease in net income for the three months ended March 31, 2024 compared to the same period in 2023 was primarily due to decreases in net interest income and gain from bank-owned life insurance and an increase in technology and software costs, partially offset by a decrease in salaries and employee benefits.

Net interest income for the three months ended March 31, 2024 declined $1,945, or 10.4 percent, compared to the three months ended March 31, 2023.

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

Noninterest income decreased $658 for the three months ended March 31, 2024 compared to the same period in 2023 primarily due to a gain from bank-owned life insurance in 2023, partially offset by an increase in trust services revenue in 2024.

Noninterest expense decreased $203 during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to a decrease in salaries and employee benefits and business development expenses, partially offset by increases in occupancy and equipment, technology and software expense and FDIC insurance.

Total loans outstanding increased $52,598, or 1.8 percent, during the first three months of 2024.

The credit quality of the loan portfolio remained strong, as evidenced by the Company's ratio of nonperforming loans to total assets of 0.01 percent as of both March 31, 2024 and December 31, 2023.

As of March 31, 2024, the allowance for credit losses was 0.95 percent of total outstanding loans, compared to 0.97 percent as of December 31, 2023.

Management believed the allowance for credit losses at March 31, 2024 was adequate to absorb expected losses in the loan portfolio as of that date.

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

6 unchanged sentences

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

West Bancorporation, Inc.

Peer Group Range (2)

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

As of and for the three months ended March 31, 2024 As of and for the year ended December 31, 2023 As of and for the year ended December 31, 2023

Return on average equity 10.63% 11.42% 1.85% - 17.24%

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(2) Latest data available.

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

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

At its meeting on April 24, 2024, the Company's Board of Directors declared a regular quarterly cash dividend of $0.25 per common share.

The dividend is payable on May 22, 2024, to stockholders of record on May 8, 2024.

West Bancorporation, Inc.

2 unchanged sentences

RESULTS OF OPERATIONS

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

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

2023 2022 Change Change % 2023 2022 Change Change %

The following table shows selected financial results and measures for the three months ended March 31, 2024 compared with the same period in 2023.

Three Months Ended March 31,

2024 2023 Change Change %

Net income $ 5,809 $ 7,844 $ (2,035) (25.94) %

10 unchanged sentences

5.77 % 5.95 % (0.18) %

As of September 30,

As of March 31,

2024 2023 Change

21 unchanged sentences

Net Interest Income

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

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

Interest income and the resulting net interest income

are shown on a FTE basis.

Data for the three months ended September 30:

Average Balance Interest Income/Expense Yield/Rate

2023 2022 Change Change-

% 2023 2022 Change Change-

% 2023 2022 Change

Interest-earning assets:

Commercial $ 525,596 $ 498,268 $ 27,328 5.48 % $ 8,332 $ 6,144 $ 2,188 35.61 % 6.29 % 4.89 % 1.40 %

Real estate (3)

2,278,129 2,074,692 203,437 9.81 % 28,310 21,981 6,329 28.79 % 4.93 % 4.20 % 0.73 %

Consumer and other 9,488 6,902 2,586 37.47 % 173 86 87 101.16 % 7.24 % 5.01 % 2.23 %

Total loans 2,813,213 2,579,862 233,351 9.05 % 36,815 28,211 8,604 30.50 % 5.19 % 4.34 % 0.85 %

Taxable 514,488 584,721 (70,233) (12.01) % 3,427 3,147 280 8.90 % 2.66 % 2.15 % 0.51 %

Tax-exempt (3)

148,531 153,187 (4,656) (3.04) % 934 1,051 (117) (11.13) % 2.52 % 2.74 % (0.22) %

Total securities 663,019 737,908 (74,889) (10.15) % 4,361 4,198 163 3.88 % 2.63 % 2.28 % 0.35 %

Interest-bearing deposits 1,821 4,751 (2,930) (61.67) % 29 30 (1) (3.33) % 6.36 % 2.51 % 3.85 %

Total interest-earning assets (3)

$ 3,478,053 $ 3,322,521 $ 155,532 4.68 % 41,205 32,439 8,766 27.02 % 4.70 % 3.87 % 0.83 %

Interest-bearing liabilities:

Interest-bearing demand $ 434,649 $ 476,145 $ (41,496) (8.71) % 1,680 679 1,001 147.42 % 1.53 % 0.57 % 0.96 %

Savings and money market 1,329,963 1,327,935 2,028 0.15 % 11,080 4,461 6,619 148.37 % 3.31 % 1.33 % 1.98 %

Time deposits 427,545 343,862 83,683 24.34 % 4,396 1,149 3,247 282.59 % 4.08 % 1.33 % 2.75 %

Total deposits 2,192,157 2,147,942 44,215 2.06 % 17,156 6,289 10,867 172.79 % 3.10 % 1.16 % 1.94 %

Borrowed Funds:

Federal funds purchased and

other short-term borrowings 248,065 105,431 142,634 135.29 % 3,165 655 2,510 383.21 % 5.06 % 2.46 % 2.60 %

Subordinated notes, net 79,533 79,285 248 0.31 % 1,113 1,106 7 0.63 % 5.55 % 5.54 % 0.01 %

Federal Home Loan Bank

advances 302,119 125,000 177,119 141.70 % 2,329 649 1,680 258.86 % 3.06 % 2.06 % 1.00 %

Long-term debt 49,448 51,486 (2,038) (3.96) % 695 466 229 49.14 % 5.57 % 3.60 % 1.97 %

Total borrowed funds 679,165 361,202 317,963 88.03 % 7,302 2,876 4,426 153.89 % 4.27 % 3.16 % 1.11 %

Total interest-bearing

liabilities $ 2,871,322 $ 2,509,144 $ 362,178 14.43 % 24,458 9,165 15,293 166.86 % 3.38 % 1.45 % 1.93 %

Net interest income (FTE) (4)

$ 16,747 $ 23,274 $ (6,527) (28.04) %

Net interest spread (FTE) 1.32 % 2.42 % (1.10) %

Net interest margin (FTE) (4)

1.91 % 2.78 % (0.87) %

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Data for the nine months ended September 30:

Data for the three months ended March 31:

Average Balance Interest Income/Expense Yield/Rate

47 unchanged sentences

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

The Federal Reserve increased the target federal funds interest rate by a total of 425 basis points in 2022 and an additional 100 basis points during the first nine months of 2023.

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

The increases that occurred throughout 2022 and 2023 have had a significant impact on the comparability of net interest income between 2023 and 2022.

The Federal Reserve increased the target federal funds interest rate by a total of 425 basis points in 2022 and an additional 100 basis points in 2023.

The Federal Reserve has signaled that it is at the end of this rate hiking cycle.

However, at this time the extent to which target federal funds interest rate changes may occur during 2024 is unknown.

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

The net interest margin for the three and nine months ended September 30, 2023 decreased by 87 and 80 basis points, respectively, compared to the three and nine months ended September 30, 2022.

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

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

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

Tax-equivalent interest income on loans increased $8,604 and $28,302 for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022.

The net interest margin for the three months ended March 31, 2024 decreased by 35 basis points compared to the three months ended March 31, 2023.

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

The increases in deposit rates have outpaced the benefits of loan repricings and growth in average loan balances when comparing the three months ended March 31, 2024 to the three months ended March 31, 2023.

Tax-equivalent net interest income for the three months ended March 31, 2024 decreased $2,024 compared to the same time period in 2023.

Tax-equivalent interest income on loans increased $7,216 for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

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

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

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

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

The average balance of loans for the three months ended March 31, 2024 increased $204,291 compared to the three months ended March 31, 2023, while loan yields increased 61 basis points.

Rising market interest rates have resulted in increasing rates on variable-rate loans in the portfolio and loan originations and renewals priced at higher prevailing market rates compared to current portfolio rates.

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

1 unchanged sentence

The political and economic environments can also influence the volume of new loan originations and the mix of variable-rate versus fixed-rate loans.

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

The rates paid on deposits increased 194 and 213 basis points for the three and nine months ended September 30, 2023 compared to the same periods in 2022.

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

The Federal Reserve increased the target federal funds rate by a total of 425 basis points in 2022 and an additional 100 basis points in the first nine months of 2023.

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

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

The average balance of borrowed funds increased $317,963 and $314,808 for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022.

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

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

The average rate on federal funds purchased and other short-term borrowings increased by 260 and 271 basis points in the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022.

The average balance of deposits increased $231,543 for the three months ended March 31, 2024 compared to the same period in 2023.

The rate paid on deposits increased 111 basis points for the three months ended March 31, 2024 compared to the same period in 2023.

The increase in the cost of deposits was primarily due to increases in deposit interest rates in response to increases in the target federal funds rate that occurred throughout 2022 and 2023, increased competition for deposit balances, and changes in deposit mix.

The Federal Reserve increases of the target federal funds rate in 2022 and 2023 have had an adverse impact on the cost of deposits and have increased market competition.

Interest expense on borrowed funds increased $1,116 for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The average balance of borrowed funds increased $77,219 for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The average balance of federal funds purchased and other short-term borrowings decreased $29,799 for the three months ended March 31, 2024 compared to the same period in 2023.

The average rate on federal funds purchased and other short-term borrowings increased by 108 basis points in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

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

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

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

The average balance of FHLB advances increased by $111,278 for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

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

West Bancorporation, Inc.

2 unchanged sentences

Credit Loss Expense and the Related Allowance for Credit Losses

The Company adopted ASU No.

2016-13 effective January 1, 2023 using the modified retrospective method for financial assets measured at amortized cost and off-balance-sheet credit exposures.

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

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

1 unchanged sentence

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

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

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

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

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

The Company recorded no credit loss expense for both the three months ended March 31, 2024 and March 31, 2023.

Management believed the allowance for credit losses at March 31, 2024 was adequate to absorb expected losses in the loan portfolio as of that date.

Factors management considers in establishing an appropriate allowance include:

27 unchanged sentences

Commercially reasonable efforts are made to maximize subsequent recoveries.

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

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

2023 2022 Change 2023 2022 Change

The following table summarizes the activity in the Company's allowance for credit losses on loans for the three months ended March 31, 2024 and 2023 and related ratios.

Three Months Ended March 31,

2024 2023 Change

Balance at beginning of period $ 28,342 $ 25,473 $ 2,869

3 unchanged sentences

Net (charge-offs) recoveries 31 10 21

Provision for credit losses charged

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

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

Balance at end of period $ 28,373 $ 27,941 $ 432

Average loans outstanding $ 2,949,672 $ 2,745,381

Ratio of annualized net (charge-offs)

recoveries during the period to average

Ratio of annualized net (charge-offs) recoveries during the period to average

loans outstanding 0.00 % 0.00 %

Ratio of allowance for credit losses for

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

Ratio of allowance for credit losses for

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

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Noninterest Income

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

Three Months Ended September 30,

Ratio of allowance for credit losses for loans to average loans outstanding 0.96 % 1.02 %

Ratio of allowance for credit losses for loans to total loans at end of period 0.95 % 1.01 %

Noninterest Income

2023 2022 Change Change %

Service charges on deposit accounts $ 463 $ 553 $ (90) (16.27) %

Debit card usage fees 495 498 (3) (0.60) %

Trust services 831 780 51 6.54 %

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

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

Other income:

All other income 340 364 (24) (6.59) %

Total other income 340 364 (24) (6.59) %

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

Nine Months Ended September 30,

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

Three Months Ended March 31,

Noninterest income:

4 unchanged sentences

Increase in cash value of bank-owned life insurance 274 257 17 6.61 %

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

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

Gain from bank-owned life insurance — 691 (691) (100.00) %

Other income 331 355 (24) (6.76) %

All other income 1,116 1,173 (57) (4.86) %

Total other income 1,116 1,173 (57) (4.86) %

Total noninterest income $ 2,299 $ 2,957 $ (658) (22.25) %

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

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

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

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

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

Revenue from trust services was higher for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to increases in one-time estate fees.

The gain from bank-owned life insurance that occurred in the three months ended March 31, 2023 was the result of a death benefit claim.

West Bancorporation, Inc.

2 unchanged sentences

Noninterest Expense

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

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

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

Three Months Ended September 30,

Noninterest expense:

2023 2022 Change Change %

Salaries and employee benefits $ 6,696 $ 6,578 $ 118 1.79 %

Occupancy and equipment 1,359 1,315 44 3.35 %

Data processing 703 644 59 9.16 %

Technology and software 573 651 (78) (11.98) %

FDIC insurance 439 127 312 245.67 %

Professional fees 254 250 4 1.60 %

Director fees 196 209 (13) (6.22) %

Other expenses:

Business development 287 305 (18) (5.90) %

Insurance expense 178 198 (20) (10.10) %

Trust 159 137 22 16.06 %

Charitable contributions 60 — 60 N/A

Consulting fees 56 66 (10) (15.15) %

Marketing 34 60 (26) (43.33) %

Low income housing projects amortization 136 116 20 17.24 %

New markets tax credit project amortization and management

fees 230 230 — — %

All other 545 572 (27) (4.72) %

Total other expenses 1,685 1,684 1 0.06 %

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

Nine Months Ended September 30,

Three Months Ended March 31,

Noninterest expense:

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Trust 170 165 5 3.03 %

Charitable contributions 180 — 180 N/A

Consulting fees 61 49 12 24.49 %

Marketing 36 41 (5) (12.20) %

Charitable contributions — 60 (60) (100.00) %

Low income housing projects amortization 165 161 4 2.48 %

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All other 480 604 (124) (20.53) %

Total other expenses 5,400 4,893 507 10.36 %

Total other 1,543 1,858 (315) (16.95) %

Total noninterest expense $ 11,868 $ 12,071 $ (203) (1.68) %

Salaries and employee benefits decreased for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to a reduction in incentive compensation.

Occupancy and equipment expense increased for the three months ended March 31, 2024 compared to the same period in 2023 primarily due to an increase in depreciation expense related to new bank buildings and scheduled increases in rent expense on existing leases.

Technology and software expenses increased for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to the addition of new technology, product updates and information security solutions.

Income Tax Expense

The Company recorded income tax expense of $1,372 (19.1 percent of pre-tax income) for the three months ended March 31, 2024, compared with $1,737 (18.1 percent of pre-tax income) for the three months ended March 31, 2023.

The Company's consolidated income tax rate differs from the federal statutory income tax rate in each period, primarily due to tax-exempt interest income, the tax-exempt increase in cash value of bank-owned life insurance, tax-exempt gain from bank-owned life insurance, disallowed interest expense, and state income taxes.

Additionally, for the three months ended March 31, 2024 a tax expense of $5 was recorded as a result of the decrease in fair value of restricted stock over the vesting period.

For the three months ended March 31, 2023, a tax benefit of $11 was recorded as a result of the increase in fair value of restricted stock over the vesting period.

The tax rates for the first three months of 2024 and 2023 were also impacted by year-to-date federal low income housing tax credits and a new markets tax credit of approximately $377 and $375, respectively.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

Salaries and employee benefits increased for the three and nine months ended September 30, 2023 when compared to the three and nine months ended September 30, 2022, due to wage increases in response to market conditions and competition in retaining and recruiting talent.

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

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

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

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

Business development expenses increased for the nine months ended September 30, 2023 compared to the same time period in 2022 due to an increase in the size of our commercial banking team and a general increase in sponsorships and business development activity.

Insurance expense increased for the nine months ended September 30, 2023 compared to the same period in 2022 primarily due to insurance costs related to bank buildings that are under construction.

Income Tax Expense

The Company recorded income tax expense of $1,445 (19.7 percent of pre-tax income) and $4,576 (18.9 percent of pre-tax income) for the three and nine months ended September 30, 2023, compared with $3,220 (21.7 percent of pre-tax income) and $10,675 (22.2 percent of pre-tax income) for the three and nine months ended September 30, 2022.

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

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

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

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

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

The tax rates for the first nine months of 2023 and 2022 were also impacted by year-to-date federal low income housing tax credits and a new markets tax credit of approximately $1,123 and $1,101, respectively.

FINANCIAL CONDITION

The Company had total assets of $3,701,900 as of September 30, 2023, compared to total assets of $3,613,218 as of December 31, 2022.

Fluctuations in the balance sheet included increases in loans, premises and equipment, and borrowed funds and decreases in securities available for sale and deposits.

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

The Company had total assets of $3,962,692 as of March 31, 2024, compared to total assets of $3,825,758 as of December 31, 2023.

Changes in the balance sheet included increases in interest-bearing deposits, loans, premises and equipment and deposits and a decrease in securities available for sale.

Securities available for sale decreased by $18,184 during the three months ended March 31, 2024.

This decrease was due to principal paydowns on securities and the decline in fair value of the securities available for sale resulting from the increase in market interest rates since December 31, 2023.

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

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

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

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

As of March 31, 2024, approximately 61 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities.

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

Loans and Nonperforming Assets

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

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

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

Loans outstanding increased $52,598 from $2,927,535 as of December 31, 2023 to $2,980,133 as of March 31, 2024.

Changes in the loan portfolio during the first three months of 2024 included increases of $51,770 in construction, land and land development loans and $12,699 in commercial loans and a decrease of $14,930 in commercial real estate loans.

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

Although the commercial real estate portfolio exceeded these regulatory guidelines as of September 30, 2023, they were within the Company's established policy limits and management believes that the Company has appropriate risk management policies and procedures to regularly monitor the commercial real estate portfolio.

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

Although the commercial real estate portfolio exceeded these regulatory guidelines as of March 31, 2024, they were within the Company's established policy limits and management believes that the Company has appropriate risk management policies and procedures to regularly monitor the commercial real estate portfolio.

An analysis of the Company's non-owner occupied commercial real estate portfolio as of December 31, 2023 was presented in the Company's Form 10-K, as amended, filed with the SEC on February 23, 2024, and the Company has not experienced any material changes to that portfolio since December 31, 2023.

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

September 30, 2023 December 31, 2022 Change

March 31, 2024 December 31, 2023 Change

Nonaccrual loans $ 289 $ 296 $ (7)

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Loan restructurings on nonaccrual status are categorized as nonaccrual.

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

Premises and Equipment

The Company purchased land in the first quarter of 2022 for its new corporate headquarters to be located in West Des Moines, Iowa and construction began in the second quarter of 2022.

Construction is expected to be completed in the second quarter of 2024.

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

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

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

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

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

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

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

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

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

There were no loan restructurings categorized as nonaccrual as of March 31, 2024 or December 31, 2023.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

Deposits increased $91,251, or 3.1 percent, during the first three months of 2024.

Brokered deposits increased to $396,363 at March 31, 2024, from $305,411 at December 31, 2023.

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

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

As of March 31, 2024, estimated uninsured deposits, which excludes deposits in the IntraFi ® reciprocal network, brokered deposits and public funds protected by state programs, were approximately 27.2 percent of total deposits.

Borrowed Funds

Federal funds purchased and other short-term borrowings increased from $200,000 at December 31, 2022 to $261,510 as of September 30, 2023.

Federal funds purchased and other short-term borrowings increased from $150,270 at December 31, 2023 to $198,500 as of March 31, 2024.

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

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

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

As of September 30, 2023, the Company had long-term interest rate swap agreements with a total notional amount of $295,000 to hedge the interest payments of one-month rolling funding consisting of FHLB advances or brokered deposits.

These interest rate swaps have maturity dates ranging from August 2024 through June 2029 and fixed rates ranging from 1.69 percent to 4.65 percent.

The Company had $315,000 of FHLB advances outstanding at March 31, 2024, $295,000 of which are one-month rolling advances hedged with long-term interest rate swaps.

The interest rate swaps that hedge the interest rates on these FHLB advances have maturity dates ranging from August 2024 through June 2029 and fixed rates ranging from 1.69 percent to 4.65 percent.

Additionally, the Company has one interest rate swap with a total notional amount of $20,000 that is a forward-starting interest rate swap with a starting date of August 2024.

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

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Investments in liquid assets are adjusted based on expected loan demand, projected loan and securities maturities and payments, expected deposit flows and the objectives set by the Company's asset-liability management policy.

The Company had liquid assets (cash and cash equivalents) of $20,621 as of September 30, 2023 compared with $26,539 as of December 31, 2022.

The Company had liquid assets (cash and cash equivalents) of $148,017 as of March 31, 2024 compared with $65,357 as of December 31, 2023.

Our deposit growth strategy emphasizes core deposit growth.

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

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

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

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

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

As of September 30, 2023, West Bank had additional borrowing capacity available from the FHLB of approximately $408,000, as well as approximately $3,000 through the Federal Reserve discount window, $35,000 through unsecured federal funds lines of credit with correspondent banks, and approximately $97,000 through the new Federal Reserve Bank Term Funding Program.

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

As of September 30, 2023, West Bank had pledged approximately $97,000 in eligible securities to facilitate participation in the program.

No funds were borrowed from the Federal Reserve discount window or Bank Term Funding Program during the nine months ended September 30, 2023.

Net cash from operating activities contributed $18,044 to liquidity for the nine months ended September 30, 2023.

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

At March 31, 2024, the Company had $396,363 in brokered deposits, which included fixed-rate deposits with terms through February 2029 and variable-rate deposits with terms through February 2025.

As of March 31, 2024, West Bank had additional borrowing capacity available from the FHLB of approximately $479,000, as well as approximately $73,000 through the Federal Reserve discount window and $75,000 through unsecured federal funds lines of credit with correspondent banks.

No funds were borrowed from the Federal Reserve discount window during the three months ended March 31, 2024.

Net cash from operating activities contributed $6,121 to liquidity for the three months ended March 31, 2024.

Management believed that the combination of high levels of potentially liquid assets, unencumbered securities, cash flows from operations, and additional borrowing capacity are sufficient to meet our liquidity and capital needs.

The Company had remaining commitments to invest in qualified affordable housing projects totaling $1,811 and $3,431 as of September 30, 2023 and December 31, 2022, respectively.

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

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

As of September 30, 2023, there was a remaining commitment of $18,625 under this contract.

West Bank is also building a new office in Mankato, Minnesota to be completed in the fourth quarter of 2023, which had a remaining commitment of $2,023 as of September 30, 2023.

The Company had remaining commitments to invest in qualified affordable housing projects totaling $1,525 and $1,649 as of March 31, 2024 and December 31, 2023, respectively.

West Bancorporation, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

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

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

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

The Company's total stockholders' equity decreased to $223,756 at March 31, 2024 from $225,043 at December 31, 2023.

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

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

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

At March 31, 2024, the Company's tangible common equity as a percent of tangible assets was 5.65 percent compared to 5.88 percent as of December 31, 2023.

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

2 unchanged sentences

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

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

Management believed the Company and West Bank met all capital adequacy requirements to which they were subject as of March 31, 2024.

West Bancorporation, Inc.

6 unchanged sentences

Amount Ratio Amount Ratio Amount Ratio Amount Ratio

As of September 30, 2023

As of March 31, 2024

Total Capital (to Risk-Weighted Assets)

25 unchanged sentences

A banking organization with a capital conservation buffer of less than the required amount will be subject to limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers.

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

At March 31, 2024, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis