WEST BANCORPORATION INC 10-Q

Item 1. Financial Statements West Bancorporation, Inc. and Subsidiary Consolidated Balance Sheet (unaudited) (in thousands, except share and per share data) March 31, 2024 December 31, 2023 ASSETS Cash and due from banks $ 27,071 $ 33,245 Interest-bearing deposits 120,946 32,112 Cash and cash equivalents 148,017 65,357 Securities available for sale, at fair value 605,735 623,919 Federal Home Loan Bank stock, at cost 26,181 22,957 Loans 2,980,133 2,927,535 Allowance for credit losses ( 28,373 ) ( 28,342 ) Loans, net 2,951,760 2,899,193 Premises and equipment, net 95,880 86,399 Accrued interest receivable 15,270 13,581 Bank-owned life insurance 44,138 43,864 Deferred tax assets, net 34,552 34,303 Other assets 41,159 36,185 Total assets $ 3,962,692 $ 3,825,758 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Noninterest-bearing demand $ 521,377 $ 548,726 Interest-bearing demand 449,946 481,207 Savings and money market 1,435,538 1,440,076 Time 658,169 503,770 Total deposits 3,065,030 2,973,779 Federal funds purchased and other short-term borrowings 198,500 150,270 Subordinated notes, net 79,697 79,631 Federal Home Loan Bank advances 315,000 315,000 Long-term debt 46,486 47,736 Accrued expenses and other liabilities 34,223 34,299 Total liabilities 3,738,936 3,600,715 COMMITMENTS AND CONTINGENCIES (NOTE 8) STOCKHOLDERS' EQUITY Preferred stock, $ 0.01 par value; authorized 50,000,000 shares; no shares issued and outstanding at March 31, 2024 and December 31, 2023 — — Common stock, no par value; authorized 50,000,000 shares; 16,813,952 and 16,725,094 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively 3,000 3,000 Additional paid-in capital 33,685 34,197 Retained earnings 272,997 271,369 Accumulated other comprehensive loss ( 85,926 ) ( 83,523 ) Total stockholders' equity 223,756 225,043 Total liabilities and stockholders' equity $ 3,962,692 $ 3,825,758 See Notes to Consolidated Financial Statements. 4 Table of Contents West Bancorporation, Inc. and Subsidiary Consolidated Statements of Income (unaudited) Three Months Ended March 31, (in thousands, except per share data) 2024 2023 Interest income: Loans, including fees $ 40,196 $ 32,948 Securities: Taxable 3,416 3,316 Tax-exempt 810 885 Interest-bearing deposits 148 30 Total interest income 44,570 37,179 Interest expense: Deposits 21,559 13,339 Federal funds purchased and other short-term borrowings 2,183 2,079 Subordinated notes 1,108 1,106 Federal Home Loan Bank advances 2,325 1,262 Long-term debt 645 698 Total interest expense 27,820 18,484 Net interest income 16,750 18,695 Credit loss expense (benefit) — — Net interest income after credit loss expense (benefit) 16,750 18,695 Noninterest income: Service charges on deposit accounts 460 462 Debit card usage fees 458 486 Trust services 776 706 Increase in cash value of bank-owned life insurance 274 257 Gain from bank-owned life insurance — 691 Other income 331 355 Total noninterest income 2,299 2,957 Noninterest expense: Salaries and employee benefits 6,489 6,867 Occupancy and equipment 1,447 1,327 Data processing 714 635 Technology and software 700 513 FDIC insurance 519 416 Professional fees 257 250 Director fees 199 205 Other expenses 1,543 1,858 Total noninterest expense 11,868 12,071 Income before income taxes 7,181 9,581 Income taxes 1,372 1,737 Net income $ 5,809 $ 7,844 Basic earnings per common share $ 0.35 $ 0.47 Diluted earnings per common share $ 0.35 $ 0.47 See Notes to Consolidated Financial Statements. 5 Table of Contents West Bancorporation, Inc. and Subsidiary Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three Months Ended March 31, (in thousands) 2024 2023 Net income $ 5,809 $ 7,844 Other comprehensive income (loss): Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period ( 7,758 ) 11,667 Income tax (expense) benefit 1,910 ( 2,911 ) Other comprehensive income (loss) on securities ( 5,848 ) 8,756 Unrealized gains on derivatives: Unrealized holding gains (losses) arising during the period 7,489 ( 1,634 ) Plus: reclassification adjustment for net gains realized in net income ( 2,915 ) ( 1,958 ) Income tax (expense) benefit ( 1,129 ) 882 Other comprehensive income (loss) on derivatives 3,445 ( 2,710 ) Total other comprehensive income (loss) ( 2,403 ) 6,046 Comprehensive income $ 3,406 $ 13,890 See Notes to Consolidated Financial Statements. 6 Table of Contents West Bancorporation, Inc. and Subsidiary Consolidated Statements of Stockholders' Equity (unaudited) (in thousands, except share and per share data) Three Months Ended March 31, 2024 Accumulated Additional Other Preferred Common Stock Paid-In Retained Comprehensive Stock Shares Amount Capital Earnings Income (Loss) Total Balance, December 31, 2023 $ — 16,725,094 $ 3,000 $ 34,197 $ 271,369 $ ( 83,523 ) $ 225,043 Net income — — — — 5,809 — 5,809 Other comprehensive loss, net of tax — — — — — ( 2,403 ) ( 2,403 ) Cash dividends declared, $ 0.25 per common share — — — — ( 4,181 ) — ( 4,181 ) Stock-based compensation costs — — — 575 — — 575 Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes — 88,858 — ( 1,087 ) — — ( 1,087 ) Balance, March 31, 2024 $ — 16,813,952 $ 3,000 $ 33,685 $ 272,997 $ ( 85,926 ) $ 223,756 Three Months Ended March 31, 2023 Accumulated Additional Other Preferred Common Stock Paid-In Retained Comprehensive Stock Shares Amount Capital Earnings Income (Loss) Total 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 — — — — 7,844 — 7,844 Other comprehensive income, net of tax — — — — — 6,046 6,046 Cash dividends declared, $ 0.25 per common share — — — — ( 4,160 ) — ( 4,160 ) Stock-based compensation costs — — — 711 — — 711 Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes — 71,844 — ( 935 ) — — ( 935 ) Balance, March 31, 2023 $ — 16,712,257 $ 3,000 $ 31,797 $ 267,620 $ ( 85,425 ) $ 216,992 (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. 7 Table of Contents West Bancorporation, Inc. and Subsidiary Consolidated Statements of Cash Flows (unaudited) Three Months Ended March 31, (in thousands) 2024 2023 Cash Flows from Operating Activities: Net income $ 5,809 $ 7,844 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization and accretion 797 829 Stock-based compensation 575 711 Increase in cash value of bank-owned life insurance ( 274 ) ( 257 ) Depreciation 525 404 Provision for deferred income taxes 532 635 Change in assets and liabilities: Increase in accrued interest receivable ( 1,689 ) ( 296 ) (Increase) decrease in other assets 262 ( 1,322 ) Decrease in accrued expenses and other liabilities ( 416 ) ( 6,054 ) Net cash provided by operating activities 6,121 2,494 Cash Flows from Investing Activities: Proceeds from principal paydowns, maturities and calls of securities available for sale 9,695 9,661 Purchases of Federal Home Loan Bank stock ( 34,193 ) ( 31,595 ) Proceeds from redemption of Federal Home Loan Bank stock 30,969 28,705 Net increase in loans ( 52,567 ) ( 13,340 ) Purchases of premises and equipment ( 10,328 ) ( 7,164 ) Net cash used in investing activities ( 56,424 ) ( 13,733 ) Cash Flows from Financing Activities: Net increase (decrease) in deposits 91,251 ( 82,015 ) Net increase in federal funds purchased and other short-term borrowings 48,230 29,290 Net increase in Federal Home Loan Bank advances — 65,000 Principal payments on long-term debt ( 1,250 ) — Common stock dividends paid ( 4,181 ) ( 4,160 ) Restricted stock units withheld for payroll taxes ( 1,087 ) ( 935 ) Net cash provided by financing activities 132,963 7,180 Net increase (decrease) in cash and cash equivalents 82,660 ( 4,059 ) Cash and Cash Equivalents: Beginning 65,357 26,539 Ending $ 148,017 $ 22,480 Supplemental Disclosures of Cash Flow Information: Cash payments for: Interest $ 25,588 $ 16,515 Income taxes — — See Notes to Consolidated Financial Statements. 8 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared by West Bancorporation, Inc. (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. Although management believes that the disclosures are adequate to make the information presented understandable, it is suggested that these interim consolidated financial statements be read in conjunction with 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. In the opinion of management, the accompanying consolidated financial statements of the Company contain all adjustments necessary to fairly present its financial position as of March 31, 2024 and December 31, 2023, and net income, comprehensive income (loss), changes in stockholders' equity and cash flows for the three months ended March 31, 2024 and 2023. The results for these interim periods may not be indicative of results for the entire year or for any other period. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) established by the Financial Accounting Standards Board (FASB). References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification™ , sometimes referred to as the Codification or ASC. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting period. 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 credit losses . The accompanying unaudited consolidated financial statements include the accounts of the Company, West Bank and West Bank's special purpose subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In accordance with GAAP, West Bancorporation Capital Trust I is recorded on the books of the Company using the equity method of accounting and is not consolidated. Current accounting developments : In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. 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 were effective for all entities as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope . The amendments in this update refine the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to apply to derivative contra cts and certain hedging relationships affected by the discounting transition. T he 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. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendment in this update extends the period of time preparers can utilize reference rate reform relief guidance in Topic 848, discussed above. ASU No. 2022-06 defers the sunset date from December 31, 2022 to December 31, 2024. 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 ASU does not have a material impact on the Company's financial statements. 9 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) 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 March 31, 2024. 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 and interim periods within fiscal years beginning after December 15, 2024. 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. 2. Earnings per Common Share Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflect the potential dilution that could occur if the Company's outstanding restricted stock units were vested. The dilutive effect was 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. The incremental shares, to the extent they would have been dilutive, were included in the denominator of the diluted earnings per common share calculation. The calculations of earnings per common share and diluted earnings per common share for the three months ended March 31, 2024 and 2023 are presented in the following table. Three Months Ended March 31, (in thousands, except per share data) 2024 2023 Net income $ 5,809 $ 7,844 Weighted average common shares outstanding 16,732 16,645 Weighted average effect of restricted stock units outstanding 54 160 Diluted weighted average common shares outstanding 16,786 16,805 Basic earnings per common share $ 0.35 $ 0.47 Diluted earnings per common share $ 0.35 $ 0.47 Number of anti-dilutive common stock equivalents excluded from diluted earnings per share computation 464 249 10 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) 3. Securities Available for Sale The following tables show the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale, by security type as of March 31, 2024 and December 31, 2023. March 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value Securities available for sale: State and political subdivisions $ 230,801 $ 4 $ ( 41,452 ) $ 189,353 Collateralized mortgage obligations (1) 298,786 — ( 58,724 ) 240,062 Mortgage-backed securities (1) 155,222 — ( 27,386 ) 127,836 Collateralized loan obligations 36,721 24 — 36,745 Corporate notes 13,750 — ( 2,011 ) 11,739 $ 735,280 $ 28 $ ( 129,573 ) $ 605,735 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value Securities available for sale: State and political subdivisions $ 231,413 $ 19 $ ( 38,427 ) $ 193,005 Collateralized mortgage obligations (1) 305,200 — ( 55,267 ) 249,933 Mortgage-backed securities (1) 157,711 — ( 25,873 ) 131,838 Collateralized loan obligations 37,632 — ( 96 ) 37,536 Corporate notes 13,750 — ( 2,143 ) 11,607 $ 745,706 $ 19 $ ( 121,806 ) $ 623,919 (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 $ 442,363 and $ 447,074 as of March 31, 2024 and December 31, 2023, respectively, were pledged to secure access to Federal Home Loan Bank (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 March 31, 2024, by contractual maturity, are shown below. Certain securities have call features that allow the issuer to call the securities prior to maturity. Expected maturities may differ from contractual maturities for collateralized mortgage obligations and mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, collateralized mortgage obligations and mortgage-backed securities are not included in the maturity categories within the following maturity summary. March 31, 2024 Amortized Cost Fair Value Due after five years through ten years $ 74,307 $ 69,076 Due after ten years 206,965 168,761 281,272 237,837 Collateralized mortgage obligations and mortgage-backed securities 454,008 367,898 $ 735,280 $ 605,735 11 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) There were no sales of securities available for sale during the three months ended March 31, 2024 and 2023. The following tables show the fair value and gross unrealized losses, aggregated by investment type and length of time that individual securities have been in a continuous loss position, as of March 31, 2024 and December 31, 2023. March 31, 2024 Less than 12 months 12 months or longer Total Fair Value Gross Unrealized (Losses) No. of Securities Fair Value Gross Unrealized (Losses) No. of Securities Fair Value Gross Unrealized (Losses) Securities available for sale: State and political subdivisions $ 4,059 $ ( 58 ) 10 $ 184,004 $ ( 41,394 ) 95 $ 188,063 $ ( 41,452 ) Collateralized mortgage obligations — — — 240,062 ( 58,724 ) 72 240,062 ( 58,724 ) Mortgage-backed securities — — — 127,836 ( 27,386 ) 27 127,836 ( 27,386 ) Corporate notes — — — 11,739 ( 2,011 ) 8 11,739 ( 2,011 ) $ 4,059 $ ( 58 ) 10 $ 563,641 $ ( 129,515 ) 202 $ 567,700 $ ( 129,573 ) December 31, 2023 Less than 12 months 12 months or longer Total Fair Value Gross Unrealized (Losses) No. of Securities Fair Value Gross Unrealized (Losses) No. of Securities Fair Value Gross Unrealized (Losses) Securities available for sale: State and political subdivisions $ 3,353 $ ( 89 ) 5 $ 184,522 $ ( 38,338 ) 92 $ 187,875 $ ( 38,427 ) Collateralized mortgage obligations — — — 249,933 ( 55,267 ) 72 249,933 ( 55,267 ) Mortgage-backed securities — — — 131,838 ( 25,873 ) 27 131,838 ( 25,873 ) Collateralized loan obligations — — — 37,536 ( 96 ) 6 37,536 ( 96 ) Corporate notes — — — 11,607 ( 2,143 ) 8 11,607 ( 2,143 ) $ 3,353 $ ( 89 ) 5 $ 615,436 $ ( 121,717 ) 205 $ 618,789 $ ( 121,806 ) 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. As of March 31, 2024 and 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 March 31, 2024 and 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 $ 3,443 and $ 3,271 as of March 31, 2024 and December 31, 2023, respectively, and was excluded from the estimate of credit losses. 12 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) 4. Loans and Allowance for Credit Losses Loans consisted of the following segments as of March 31, 2024 and December 31, 2023. March 31, 2024 December 31, 2023 Commercial $ 544,293 $ 531,594 Real estate: Construction, land and land development 465,247 413,477 1-4 family residential first mortgages 108,065 106,688 Home equity 14,020 14,618 Commercial 1,839,580 1,854,510 Consumer and other 12,844 10,930 2,984,049 2,931,817 Net unamortized fees and costs ( 3,916 ) ( 4,282 ) $ 2,980,133 $ 2,927,535 Real estate loans of approximately $ 1,460,000 and $ 1,420,000 were pledged as security for FHLB advances as of March 31, 2024 and December 31, 2023, respectively. Loans are stated at the principal amounts outstanding, net of unamortized loan fees and costs, with interest income recognized on the interest method based upon the terms of the loan. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Loans are reported by the portfolio segments identified above and are analyzed by management on this basis. All loan policies identified below apply to all segments of the loan portfolio. Allowance for Credit Losses for Loans The following tables detail the changes in the allowance for credit losses (ACL) by loan segment for the three months ended March 31, 2024 and 2023. Three Months Ended March 31, 2024 Real Estate Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total Beginning balance $ 5,291 $ 3,668 $ 704 $ 142 $ 18,420 $ 117 $ 28,342 Charge-offs — — — — — — — Recoveries 26 3 1 1 — — 31 Provision for credit loss expense (1) 9 374 123 ( 3 ) ( 529 ) 26 — Ending balance $ 5,326 $ 4,045 $ 828 $ 140 $ 17,891 $ 143 $ 28,373 13 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) Three Months Ended March 31, 2023 Real Estate 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 — — — — — — — Recoveries 8 — 1 1 — — 10 Provision for credit loss expense (1) 8 ( 148 ) ( 13 ) ( 6 ) 159 — — Ending balance $ 5,497 $ 3,166 $ 466 $ 88 $ 18,645 $ 79 $ 27,941 (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. The following tables present a breakdown of the ACL by segment, disaggregated based on the evaluation method as of March 31, 2024 and December 31, 2023. March 31, 2024 Real Estate 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 5,326 4,045 828 140 17,891 143 28,373 Total $ 5,326 $ 4,045 $ 828 $ 140 $ 17,891 $ 143 $ 28,373 December 31, 2023 Real Estate 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 14 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) 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 March 31, 2024 and December 31, 2023. March 31, 2024 Real Estate Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total Ending balance: Individually evaluated for credit losses $ — $ — $ 289 $ — $ — $ — $ 289 Collectively evaluated for credit losses 544,293 465,247 107,776 14,020 1,839,580 12,844 2,983,760 Total $ 544,293 $ 465,247 $ 108,065 $ 14,020 $ 1,839,580 $ 12,844 $ 2,984,049 December 31, 2023 Real Estate 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 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 $ 11,709 and $ 10,292 at March 31, 2024 and December 31, 2023, respectively, was included in the "Accrued interest receivable" line of the Consolidated Balance Sheets and was excluded from the estimate of credit losses. Expected credit losses are reflected in the ACL 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. 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. 15 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) The Company uses the 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 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. When estimating prepayment speed and curtailment rates, the modeling is based on historical internal 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 ACL 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 March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 Commercial $ — $ — $ — $ — $ — $ — Real estate: Construction, land and land development — — — — — — 1-4 family residential first mortgages 289 296 289 296 — — Home equity — — — — — — Commercial — — — — — — Consumer and other — — — — — — Total $ 289 $ 296 $ 289 $ 296 $ — $ — There was no interest income recognized on loans that were on nonaccrual for the three months ended March 31, 2024 and March 31, 2023. 16 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) The following tables provide an analysis of the delinquency status of the amortized cost of loans as of March 31, 2024 and December 31, 2023. March 31, 2024 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Commercial $ — $ — $ — $ — $ 544,293 $ 544,293 Real estate: Construction, land and land development — — — — 465,247 465,247 1-4 family residential first mortgages — — — — 108,065 108,065 Home equity — — — — 14,020 14,020 Commercial — — — — 1,839,580 1,839,580 Consumer and other — — — — 12,844 12,844 Total $ — $ — $ — $ — $ 2,984,049 $ 2,984,049 December 31, 2023 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Commercial $ — $ — $ — $ — $ 531,594 $ 531,594 Real estate: Construction, land and land development — — — — 413,477 413,477 1-4 family residential first mortgages — — — — 106,688 106,688 Home equity — — — — 14,618 14,618 Commercial — — — — 1,854,510 1,854,510 Consumer and other — — — — 10,930 10,930 Total $ — $ — $ — $ — $ 2,931,817 $ 2,931,817 17 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) Loan Restructurings Made to Borrowers Experiencing Financial Difficulty As of March 31, 2024 and December 31, 2023, 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 three months ended March 31, 2024 and 2023. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. Credit Quality Indicators 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 analyzed individually to categorize the loan to the appropriate credit risk category. All loans are subject to the assessment of a credit quality indicator. Risk ratings are assigned for each loan at the time of approval, and they change as circumstances dictate during the term of the loan. 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. Risk rating 1: The loan is secured by cash equivalent collateral. Risk rating 2: The loan is secured by properly margined marketable securities, bonds or cash surrender value of life insurance. Risk rating 3: The borrower is in strong financial condition and has strong debt service capacity. The loan is performing as agreed, and the financial characteristics and trends of the borrower exceed industry statistics. Risk rating 4: The borrower's financial condition is satisfactory and stable. The borrower has satisfactory debt service capacity, and the loan is well secured. The loan is performing as agreed, and the financial characteristics and trends fall in line with industry statistics. Risk rating 5: The borrower's financial condition is less than satisfactory. 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. Financial characteristics and trends lag industry statistics. There may be noncompliance with loan covenants. Risk rating 6: The borrower's financial condition is deficient. Payment delinquencies may be more common. Collateral values still protect from loss, but margins are narrow. The loan may be reliant on secondary sources of repayment, including liquidation of collateral and guarantor support. Risk rating 7: The loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Well-defined weaknesses exist that jeopardize the liquidation of the debt. The Company is inadequately protected by the valuation or paying capacity of the collateral pledged. If deficiencies are not corrected, there is a distinct possibility that a loss will be sustained. Risk rating 8: All the characteristics of rating 7 exist with the added condition that the loan is past due more than 90 days or there is reason to believe the Company will not receive its principal and interest according to the terms of the loan agreement. Risk rating 9: All the weaknesses inherent in risk ratings 7 and 8 exist with the added condition that collection or liquidation, on the basis of currently known facts, conditions and values, is highly questionable and improbable. A loan reaching this category would most likely be charged off. 18 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) Credit quality indicators for all loans and the Company's risk rating process are dynamic and updated on a continuous basis. 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 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. 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 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. Commercial loans consist primarily of loans to businesses for various purposes, including revolving lines to finance current operations, inventory and accounts receivable, and capital expenditure loans to finance equipment and other fixed assets. These loans generally have short maturities, have either adjustable or fixed interest rates, and are either unsecured or secured by inventory, accounts receivable and/or fixed assets. For commercial loans, the primary source of repayment is from the operation of the business. 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 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. These loans typically have maturities of up to 24 months. The Company's loan policy includes minimum appraisal and other credit guidelines. Consumer loans include loans extended to individuals for household, family and other personal expenditures not secured by real estate. 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 and home equity loans, is typically wages. 19 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) 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 March 31, 2024 and December 31, 2023. Term Loans by Origination Year As of March 31, 2024 2024 2023 2022 2021 2020 Prior Revolving Loans Total Commercial Pass $ 36,649 $ 130,459 $ 104,541 $ 46,283 $ 28,261 $ 48,969 $ 149,131 $ 544,293 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 36,649 $ 130,459 $ 104,541 $ 46,283 $ 28,261 $ 48,969 $ 149,131 $ 544,293 Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — Real estate: Construction, land and land development Pass $ 36,406 $ 132,400 $ 122,137 $ 57,514 $ 20,050 $ 1,431 $ 95,309 $ 465,247 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 36,406 $ 132,400 $ 122,137 $ 57,514 $ 20,050 $ 1,431 $ 95,309 $ 465,247 Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — 1-4 family residential first mortgages Pass $ 4,262 $ 45,845 $ 19,797 $ 19,472 $ 11,318 $ 6,372 $ 568 $ 107,634 Watch — 142 — — — — — 142 Substandard — — — — — 289 — 289 Doubtful — — — — — — — — Total $ 4,262 $ 45,987 $ 19,797 $ 19,472 $ 11,318 $ 6,661 $ 568 $ 108,065 Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — Home equity Pass $ 116 $ 2,870 $ 272 $ 497 $ 93 $ 132 $ 10,040 $ 14,020 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 116 $ 2,870 $ 272 $ 497 $ 93 $ 132 $ 10,040 $ 14,020 Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — Commercial Pass $ 36,911 $ 205,983 $ 503,555 $ 455,058 $ 347,805 $ 264,512 $ 25,756 $ 1,839,580 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 36,911 $ 205,983 $ 503,555 $ 455,058 $ 347,805 $ 264,512 $ 25,756 $ 1,839,580 Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — Consumer and other Pass $ 383 $ 1,599 $ 183 $ 323 $ 38 $ 69 $ 10,249 $ 12,844 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 383 $ 1,599 $ 183 $ 323 $ 38 $ 69 $ 10,249 $ 12,844 Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — 20 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) Term Loans by Origination Year As of December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Total Commercial 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 Real estate: 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 Home equity 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 $ — $ — $ — $ — $ — $ — $ — $ — Commercial 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 $ — $ — $ — $ — $ — $ — $ — $ — 21 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) Collateral Dependent Loans Loans that do not share risk characteristics are evaluated on an individual basis. 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. 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 March 31, 2024 Primary Type of Collateral Real Estate Equipment Other Total ACL Allocation 1-4 family residential first mortgages $ 289 $ — $ — $ 289 $ — Total $ 289 $ — $ — $ 289 $ — 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 $ — 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. The Company's allowance for credit losses for unfunded commitments was $ 2,544 as of March 31, 2024 and 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. There were no changes to the allowance for credit losses for off-balance-sheet credit exposures during the three months ended March 31, 2024 and March 31, 2023. 5. Derivatives 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. 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. 22 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) 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 $ 515,000 and $ 445,000 at March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024, the Company had swaps with a total notional amount of $ 315,000 that hedge the interest payments of rolling one-month funding consisting of FHLB advances or brokered deposits. One of these swaps with a total notional amount of $ 20,000 is a forward-starting swap with a starting date in August 2024. Also as of March 31, 2024, the Company had swaps with a total notional amount of $ 40,000 that effectively convert variable-rate long-term debt to fixed-rate debt and swaps with a total notional amount of $ 160,000 that hedge the interest payments of certain deposit accounts. Two swaps with a total notional amount of $ 50,000 are forward-starting swaps with a starting date in July 2024 and will replace $ 50,000 of the swaps hedging interest payments on deposit accounts upon maturity. Derivatives Not Designated as Accounting Hedges: To accommodate customer needs, the Company on occasion offers loan level interest rate swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a swap counterparty (back-to-back swap program). The interest rate swaps are free-standing derivatives and are recorded at fair value. The Company enters into a floating-rate loan and a fixed-rate swap with our customer. Simultaneously, the Company enters into an offsetting fixed-rate swap with a swap counterparty. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay a swap counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customers to effectively convert variable-rate loans to fixed-rate loans. The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge accounting. The table below identifies the balance sheet category and fair values of the Company's derivative instruments as of March 31, 2024 and December 31, 2023. March 31, 2024 December 31, 2023 Cash Flow Hedges: Gross notional amount $ 515,000 $ 445,000 Fair value in other assets 14,942 11,313 Fair value in other liabilities ( 43 ) ( 988 ) Weighted-average floating rate received 5.63 % 5.64 % Weighted-average fixed rate paid 3.04 % 3.04 % Weighted-average maturity in years 2.5 2.6 Non-Hedging Derivatives: Gross notional amount $ 291,968 $ 293,400 Fair value in other assets 15,723 14,114 Fair value in other liabilities ( 15,723 ) ( 14,114 ) The following table identifies the pre-tax gains or losses recognized on the Company's derivative instruments designated as cash flow hedges for the three months ended March 31, 2024 and 2023. Three Months Ended March 31, 2024 2023 Pre-tax gain (loss) recognized in other comprehensive income (loss) $ 7,489 $ ( 1,634 ) Decrease in interest expense ( 2,915 ) ( 1,958 ) 23 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) The Company estimates there will be approximately $ 11,514 reclassified from accumulated other comprehensive income (loss) to decrease interest expense through the 12 months ending March 31, 2025 related to cash flow hedges. The Company is exposed to credit risk in the event of nonperformance by interest rate swap counterparties, which is minimized by collateral-pledging provisions in the agreements. Derivative contracts with swap counterparties are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings at established credit threshold levels. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration. As of both March 31, 2024 and December 31, 2023, the Company pledged $ 0 of collateral to the counterparties in the form of cash on deposit. As of March 31, 2024 and December 31, 2023, the Company's counterparties pledged $ 29,820 and $ 22,340 , respectively, of collateral to the Company in the form of cash on deposit. The interest rate swap product with the borrower is cross-collateralized with the underlying loan and therefore there is no pledged cash collateral under swap contracts with customers. 6. Income Taxes Net deferred tax assets consisted of the following as of March 31, 2024 and December 31, 2023. March 31, 2024 December 31, 2023 Deferred tax assets: Allowance for credit losses $ 7,606 $ 7,598 Net unrealized losses on securities available for sale 31,997 30,081 Lease liabilities 758 837 Accrued expenses 236 196 Restricted stock unit compensation 680 1,185 State net operating loss carryforward 1,820 1,763 Other 178 177 43,275 41,837 Deferred tax liabilities: Right-of-use assets 717 795 Deferred loan costs 256 258 Net unrealized gains on interest rate swaps 3,676 2,547 Premises and equipment 1,721 1,657 New markets tax credit loan 411 389 Other 122 125 6,903 5,771 Net deferred tax assets before valuation allowance 36,372 36,066 Valuation allowance ( 1,820 ) ( 1,763 ) Net deferred tax assets $ 34,552 $ 34,303 The Company has recorded a valuation allowance against the tax effect of the state net operating loss carryforwards, as management believes it is more likely than not that these carryforwards will expire without being utilized. The state net operating loss carryforwards expire in 2024 and thereafter. 24 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) 7 . Accumulated Other Comprehensive Income (Loss) The following table summarizes the changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2024 and 2023. Unrealized Unrealized Accumulated Gains Gains Other (Losses) on (Losses) on Comprehensive Securities Derivatives Income (Loss) Balance, December 31, 2023 $ ( 91,233 ) $ 7,710 $ ( 83,523 ) Other comprehensive income (loss) before reclassifications ( 5,842 ) 5,640 ( 202 ) Amounts reclassified from accumulated other comprehensive income (loss) ( 6 ) ( 2,195 ) ( 2,201 ) Net current period other comprehensive income (loss) ( 5,848 ) 3,445 ( 2,403 ) Balance, March 31, 2024 $ ( 97,081 ) $ 11,155 $ ( 85,926 ) Balance, December 31, 2022 $ ( 103,680 ) $ 12,209 $ ( 91,471 ) Other comprehensive income (loss) before reclassifications 8,762 ( 1,233 ) 7,529 Amounts reclassified from accumulated other comprehensive income (loss) ( 6 ) ( 1,477 ) ( 1,483 ) Net current period other comprehensive income (loss) 8,756 ( 2,710 ) 6,046 Balance, March 31, 2023 $ ( 94,924 ) $ 9,499 $ ( 85,425 ) 8. Commitments and Contingencies Financial instruments with off-balance-sheet risk : The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations that it uses for on-balance-sheet instruments. The Company's commitments consisted of the following amounts as of March 31, 2024 and December 31, 2023. March 31, 2024 December 31, 2023 Commitments to fund real estate construction loans $ 343,796 $ 385,846 Other commitments to extend credit 593,471 641,554 Standby letters of credit 17,766 15,972 $ 955,033 $ 1,043,372 West Bank previously executed Mortgage Partnership Finance (MPF) Master Commitments (Commitments) with the FHLB of Des Moines to deliver residential mortgage loans and to guarantee the payment of any realized losses that exceed the FHLB's first loss account for mortgages delivered under the Commitments. West Bank receives credit enhancement fees from the FHLB for providing this guarantee and continuing to assist with managing the credit risk of the MPF Program residential mortgage loans. The outstanding balance of mortgage loans sold under the MPF Program was $ 19,373 and $ 20,159 at March 31, 2024 and December 31, 2023, respectively. Contractual commitments : 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. 25 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) Concentrations of credit risk : Substantially all of the Company's loans, commitments to extend credit and standby letters of credit have been granted to customers in the Company's market areas. The concentrations of credit by type of loan are set forth in Note 4. The distribution by type of loan of commitments to extend credit approximates the distribution by type of loan outstanding. Standby letters of credit were granted primarily to commercial borrowers. Contingencies : Neither the Company nor West Bank is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to West Bank's business. The Company does not know of any proceeding contemplated by a governmental authority against the Company or West Bank. 9. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business. The Company's balance sheet contains securities available for sale and derivative instruments that are recorded at fair value on a recurring basis. The three-level valuation hierarchy for disclosure of fair value is as follows: Level 1 uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3 uses unobservable inputs that are not corroborated by market data. The Company's policy is to recognize transfers between levels at the end of each reporting period, if applicable. There were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2024. The following is a description of valuation methodologies used for financial assets and liabilities recorded at fair value on a recurring basis. Securities available for sale: When available, quoted market prices are used to determine the fair value of securities (Level 1). If quoted market prices are not available, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar bonds where a price for the identical bond is not observable (Level 2). The fair values of these securities are determined by pricing models that consider observable market data such as interest rate volatilities, yield curves, credit spreads, prices from market makers and live trading systems. 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 the process was valid. On a quarterly basis, management corroborates the fair values of securities by obtaining pricing from an independent financial market data vendor and comparing the two sets of fair values. Any significant variances are reviewed and investigated. For a sample of securities, prices are further validated by management by obtaining details of the inputs used by the pricing service. Those inputs were independently tested, and management concluded the fair values were consistent with GAAP requirements and the securities were properly classified in the fair value hierarchy. 26 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) Derivative instruments: The Company's derivative instruments consist of interest rate swaps accounted for as cash flow hedges, as well as interest rate swaps which are accounted for as non-hedging derivatives. The Company's derivative positions are classified within Level 2 of the fair value hierarchy and are valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility. The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis by level as of March 31, 2024 and December 31, 2023. March 31, 2024 Total Level 1 Level 2 Level 3 Financial assets: Securities available for sale: State and political subdivisions $ 189,353 $ — $ 189,353 $ — Collateralized mortgage obligations 240,062 — 240,062 — Mortgage-backed securities 127,836 — 127,836 — Collateralized loan obligations 36,745 — 36,745 — Corporate notes 11,739 — 11,739 — Derivative instruments, interest rate swaps 30,665 — 30,665 — Financial liabilities: Derivative instruments, interest rate swaps $ 15,766 $ — $ 15,766 $ — December 31, 2023 Total Level 1 Level 2 Level 3 Financial assets: Securities available for sale: State and political subdivisions $ 193,005 $ — $ 193,005 $ — Collateralized mortgage obligations 249,933 — 249,933 — Mortgage-backed securities 131,838 — 131,838 — Collateralized loan obligations 37,536 — 37,536 — Corporate notes 11,607 — 11,607 — Derivative instruments, interest rate swaps 25,427 — 25,427 — Financial liabilities: Derivative instruments, interest rate swaps $ 15,102 $ — $ 15,102 $ — 27 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) Certain assets are measured at fair value on a nonrecurring basis. That is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Individually evaluated loans that are deemed to have impairment are classified within Level 3 of the fair value hierarchy and are recorded at fair value, which is based on the value of the collateral securing these loans. As of both March 31, 2024 and December 31, 2023, there were no individually evaluated loans with a fair value adjustment. 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 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. GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring or nonrecurring basis . The following table presents the carrying amounts and approximate fair values of financial assets and liabilities as of March 31, 2024 and December 31, 2023. March 31, 2024 Carrying Amount Approximate Fair Value Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 27,071 $ 27,071 $ 27,071 $ — $ — Interest-bearing deposits 120,946 120,946 120,946 — — Securities available for sale 605,735 605,735 — 605,735 — Federal Home Loan Bank stock 26,181 26,181 26,181 — — Loans, net 2,951,760 2,845,995 — 2,845,995 — Accrued interest receivable 15,270 15,270 15,270 — — Interest rate swaps 30,665 30,665 — 30,665 — Financial liabilities: Deposits $ 3,065,030 $ 3,062,200 $ — $ 3,062,200 $ — Federal funds purchased and other short-term borrowings 198,500 198,500 198,500 — — Subordinated notes, net 79,697 64,836 — 64,836 — Federal Home Loan Bank advances 315,000 315,000 — 315,000 — Long-term debt 46,486 46,486 — 46,486 — Accrued interest payable 8,921 8,921 8,921 — — Interest rate swaps 15,766 15,766 — 15,766 — 28 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (unaudited) (dollars in thousands, except per share data) December 31, 2023 Carrying Amount Approximate Fair Value Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 33,245 $ 33,245 $ 33,245 $ — $ — Interest-bearing deposits 32,112 32,112 32,112 — — Securities available for sale 623,919 623,919 — 623,919 — Federal Home Loan Bank stock 22,957 22,957 22,957 — — Loans, net 2,899,193 2,813,188 — 2,813,188 — Accrued interest receivable 13,581 13,581 13,581 — — Interest rate swaps 25,427 25,427 — 25,427 — Financial liabilities: Deposits $ 2,973,779 $ 2,971,562 $ — $ 2,971,562 $ — Federal funds purchased and other short-term borrowings 150,270 150,270 150,270 — — Subordinated notes, net 79,631 65,039 — 65,039 — Federal Home Loan Bank advances 315,000 315,000 — 315,000 — Long-term debt 47,736 47,736 — 47,736 — Accrued interest payable 6,688 6,688 6,688 — — Interest rate swaps 15,102 15,102 — 15,102 — 29 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data)