What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-07-25 compared with 2024-04-25 · 188 added, 102 removed, 350 unchanged (45% of the section changed)

7 unchanged sentences

Risks and uncertainties that may affect future results include:

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

interest rate risk, including the effects of sustained high interest rates;

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

17 unchanged sentences

talent and labor shortages;

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, as amended, for the year ended December 31, 2023, as filed with the SEC on February 23, 2024.

The estimates and judgments that management believes involve the most complex and subjective estimates and judgments and have the greatest 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/A 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.

9 unchanged sentences

Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently.

These non-GAAP disclosures should not be considered an alternative to the Company’s GAAP results.

These non-GAAP disclosures should not be considered an alternative to the Company’s GAAP results for the periods indicated.

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

Three Months Ended March 31,

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

2024 2023 2024 2023

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

1 unchanged sentence

Tax-equivalent adjustment (1)

55 122 137 283

Net interest income on a FTE basis (non-GAAP) 17,285 17,463 34,117 36,319

4 unchanged sentences

Noninterest income 2,346 2,389 4,645 5,346

Adjustment for losses on disposal of premises and equipment, net 21 2 21 2

Adjusted income 19,652 19,854 38,783 41,667

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 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.

Results of operations for the three and six months ended June 30, 2024 are compared to the results for the same periods in 2023, and the consolidated financial condition of the Company as of June 30, 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/A 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 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.

Net income for the three months ended June 30, 2024 was $5,192, or $0.31 per diluted common share, compared to $5,862, or $0.35 per diluted common share, for the three months ended June 30, 2023.

The Company's annualized return on average assets and return on average equity for the three months ended June 30, 2024 were 0.53 percent and 9.50 percent, respectively, compared to 0.64 percent and 11.03 percent, respectively, for the three months ended June 30, 2023.

Net interest income for the three months ended June 30, 2024 declined $111, or 0.6 percent, compared to the three months ended June 30, 2023.

The decrease in net interest income was primarily due to the increase in interest expense on deposits, resulting from higher short-term interest rates and changes in deposit mix, partially offset by an increase in interest income on loans.

Noninterest income decreased $43 for the three months ended June 30, 2024 compared to the same period in 2023.

Noninterest expense increased $720 during the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to increases in occupancy and equipment, technology and software expense and FDIC insurance, partially offset by a decrease in business development expenses.

Net income for the six months ended June 30, 2024 was $11,001, or $0.65 per diluted common share, compared to $13,706, or $0.82 per diluted common share, for the six months ended June 30, 2023.

The Company's annualized return on average assets and return on average equity for the six months ended June 30, 2024 were 0.57 percent and 10.07 percent, respectively, compared to 0.76 percent and 12.90 percent, respectively, for the six months ended June 30, 2023.

Net interest income for the six months ended June 30, 2024 declined $2,056, or 5.7 percent, compared to the six months ended June 30, 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 changes in funding mix, partially offset by an increase in interest income on loans.

Noninterest income decreased $701 for the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a nonrecurring gain from bank-owned life insurance in 2023.

Noninterest expense increased $517 during the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to increases in occupancy and equipment, technology and software expense and FDIC insurance, partially offset by a decrease in business development expenses.

Total loans outstanding increased $71,239, or 2.4 percent, during the first six 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 June 30, 2024 and December 31, 2023.

As of June 30, 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 June 30, 2024 was adequate to absorb expected losses in the loan portfolio as of that date.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

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 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

As of and for the six months ended June 30, 2024 As of and for the three months ended March 31, 2024 As of and for the three months ended March 31, 2024

Return on average equity 10.07% 10.63% 2.48% - 16.36%

5 unchanged sentences

(2) Latest data available.

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.

At its meeting on July 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 August 21, 2024, to stockholders of record on August 7, 2024.

West Bancorporation, Inc.

2 unchanged sentences

RESULTS OF OPERATIONS

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

Three Months Ended March 31,

2024 2023 Change Change %

The following table shows selected financial results and measures for the three and six months ended June 30, 2024 compared with the same periods in 2023.

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

2024 2023 Change Change % 2024 2023 Change Change %

Net income $ 5,192 $ 5,862 $ (670) (11.43) % $ 11,001 $ 13,706 $ (2,705) (19.74) %

10 unchanged sentences

5.54 % 5.85 % (0.31) % 5.65 % 5.90 % (0.25) %

As of March 31,

As of June 30,

2024 2023 Change

21 unchanged sentences

Net Interest Income

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

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

Interest income and the resulting net interest income

are shown on a FTE basis.

Data for the three months ended March 31:

Data for the three months ended June 30:

Average Balance Interest Income/Expense Yield/Rate

18 unchanged sentences

Savings and money market 1,474,202 1,390,584 83,618 6.01 % 13,639 10,979 2,660 24.23 % 3.72 % 3.17 % 0.55 %

Time deposits 659,073 416,455 242,618 58.26 % 8,109 3,666 4,443 121.19 % 4.95 % 3.53 % 1.42 %

Total deposits 2,602,166 2,290,909 311,257 13.59 % 23,943 16,277 7,666 47.10 % 3.70 % 2.85 % 0.85 %

Borrowed Funds:

Federal funds purchased and

other short-term borrowings 139,853 186,024 (46,171) (24.82) % 1,950 2,264 (314) (13.87) % 5.61 % 4.88 % 0.73 %

Subordinated notes, net 79,726 79,466 260 0.33 % 1,105 1,109 (4) (0.36) % 5.57 % 5.60 % (0.03) %

Federal Home Loan Bank

advances 315,000 240,110 74,890 31.19 % 2,718 1,621 1,097 67.67 % 3.47 % 2.71 % 0.76 %

Long-term debt 45,662 50,703 (5,041) (9.94) % 622 739 (117) (15.83) % 5.48 % 5.84 % (0.36) %

Total borrowed funds 580,241 556,303 23,938 4.30 % 6,395 5,733 662 11.55 % 4.43 % 4.13 % 0.30 %

Total interest-bearing

liabilities $ 3,182,407 $ 2,847,212 $ 335,195 11.77 % 30,338 22,010 8,328 37.84 % 3.83 % 3.10 % 0.73 %

Net interest income (FTE) (4)

$ 17,285 $ 17,463 $ (178) (1.02) %

Net interest spread (FTE) 1.30 % 1.47 % (0.17) %

Net interest margin (FTE) (4)

1.86 % 2.02 % (0.16) %

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Data for the six months ended June 30:

Average Balance Interest Income/Expense Yield/Rate

2024 2023 Change Change-

% 2024 2023 Change Change-

% 2024 2023 Change

Interest-earning assets:

Commercial $ 535,345 $ 523,538 $ 11,807 2.26 % $ 17,752 $ 15,535 $ 2,217 14.27 % 6.67 % 5.98 % 0.69 %

Real estate (3)

2,423,369 2,232,461 190,908 8.55 % 63,717 52,274 11,443 21.89 % 5.29 % 4.72 % 0.57 %

Consumer and other 13,368 8,529 4,839 56.74 % 503 280 223 79.64 % 7.56 % 6.61 % 0.95 %

Total loans 2,972,082 2,764,528 207,554 7.51 % 81,972 68,089 13,883 20.39 % 5.55 % 4.97 % 0.58 %

Taxable 484,121 532,242 (48,121) (9.04) % 6,810 6,748 62 0.92 % 2.81 % 2.54 % 0.27 %

Tax-exempt (3)

141,426 149,988 (8,562) (5.71) % 1,679 1,921 (242) (12.60) % 2.37 % 2.56 % (0.19) %

Total securities 625,547 682,230 (56,683) (8.31) % 8,489 8,669 (180) (2.08) % 2.71 % 2.54 % 0.17 %

Interest-bearing deposits 66,185 1,964 64,221 3,269.91 % 1,814 55 1,759 3,198.18 % 5.51 % 5.62 % (0.11) %

Total interest-earning assets (3)

$ 3,663,814 $ 3,448,722 $ 215,092 6.24 % 92,275 76,813 15,462 20.13 % 5.06 % 4.49 % 0.57 %

Interest-bearing liabilities:

Interest-bearing demand $ 463,248 $ 492,086 $ (28,838) (5.86) % 4,383 3,202 1,181 36.88 % 1.90 % 1.31 % 0.59 %

Savings and money market 1,451,405 1,334,442 116,963 8.76 % 26,488 19,634 6,854 34.91 % 3.67 % 2.97 % 0.70 %

Time 599,949 416,939 183,010 43.89 % 14,631 6,780 7,851 115.80 % 4.90 % 3.28 % 1.62 %

28 unchanged sentences

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.

The extent and timing of future potential federal funds interest rate changes 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 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.

The net interest margin for the three and six months ended June 30, 2024 decreased by 16 and 25 basis points, respectively, compared to the three and six months ended June 30, 2023.

Tax-equivalent net interest income for the three and six months ended June 30, 2024 decreased $178 and $2,202, respectively, compared to the same time periods in 2023.

The primary driver of the decrease in the net interest margin and tax-equivalent net interest income was an increase in rates paid on deposits and borrowed funds, which have repriced faster than loans and securities, and an increase in average deposits and borrowed funds balances, partially offset by increases in loan yields and average loan balances.

Tax-equivalent interest income on loans increased $6,662 and $13,883 for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 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 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.

The average balance of loans for the three and six months ended June 30, 2024 increased $211,030 and $207,554, respectively, compared to the three and six months ended June 30, 2023, while loan yields increased 55 and 58 basis points, respectively.

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.

2 unchanged sentences

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

The average balance of deposits 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.

The average balance of deposits increased $311,257 and $271,135 for the three and six months ended June 30, 2024 compared to the same periods in 2023.

The rate paid on deposits increased 85 and 98 basis points for the three and six months ended June 30, 2024 compared to the same periods 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 in 2023, the inverted yield curve, increased competition for deposit balances, and changes in deposit mix.

Interest expense on borrowed funds increased $662 and $1,778 for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023.

The average balance of borrowed funds increased $23,938 and $50,481 for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023.

The average balance of federal funds purchased and other short-term borrowings decreased $46,171 and $37,984 for the three and six months ended June 30, 2024 compared to the same periods in 2023.

The average rate paid on federal funds purchased and other short-term borrowings increased 73 and 91 basis points in the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 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 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.

The average balance of FHLB advances increased by $74,890 and $92,983 for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023.

This increase in average balances was primarily due to an increase in rolling one-month FHLB advances that are hedged with long-term interest rate swap agreements to provide fixed cost wholesale funding.

West Bancorporation, Inc.

5 unchanged sentences

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

The Company recorded no credit loss expense for the three and six months ended June 30, 2024 and June 30, 2023.

Management believed the allowance for credit losses at June 30, 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 months ended March 31, 2024 and 2023 and related ratios.

Three Months Ended March 31,

2024 2023 Change

The following table summarizes the activity in the Company's allowance for credit losses on loans for the three and six months ended June 30, 2024 and 2023 and related ratios.

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

2024 2023 Change 2024 2023 Change

Balance at beginning of period $ 28,373 $ 27,941 $ 432 $ 28,342 $ 25,473 $ 2,869

3 unchanged sentences

Net (charge-offs) recoveries 49 (3) 52 80 7 73

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

Provision for credit losses charged

(credited) to operations — — — — — —

Balance at end of period $ 28,422 $ 27,938 $ 484 $ 28,422 $ 27,938 $ 484

Average loans outstanding $ 2,994,492 $ 2,783,463 $ 2,972,082 $ 2,764,527

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 0.01 % 0.00 % 0.01 % 0.00 %

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 %

Ratio of allowance for credit losses for

loans to average loans outstanding 0.95 % 1.00 % 0.96 % 1.01 %

Ratio of allowance for credit losses for

loans to total loans at end of period 0.95 % 1.00 % 0.95 % 1.00 %

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Noninterest Income

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

Three Months Ended March 31,

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

Three Months Ended June 30,

Noninterest income:

4 unchanged sentences

Increase in cash value of bank-owned life insurance 278 250 28 11.20 %

Other income 322 421 (99) (23.52) %

Total noninterest income $ 2,346 $ 2,389 $ (43) (1.80) %

Six Months Ended June 30,

Noninterest income:

2024 2023 Change Change %

Service charges on deposit accounts $ 922 $ 920 $ 2 0.22 %

Debit card usage fees 948 997 (49) (4.91) %

Trust services 1,570 1,455 115 7.90 %

Increase in cash value of bank-owned life insurance 552 507 45 8.88 %

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

1 unchanged sentence

Total noninterest income $ 4,645 $ 5,346 $ (701) (13.11) %

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.

Revenue from trust services was higher for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 primarily due to increases in one-time estate fees.

The gain from bank-owned life insurance that occurred in the six months ended June 30, 2023 was the result of a death benefit claim.

West Bancorporation, Inc.

2 unchanged sentences

Noninterest Expense

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

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

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

Three Months Ended March 31,

Three Months Ended June 30,

Noninterest expense:

18 unchanged sentences

All other 546 516 30 5.81 %

Total other expenses 1,577 1,857 (280) (15.08) %

Total noninterest expense $ 13,194 $ 12,474 $ 720 5.77 %

Six Months Ended June 30,

Noninterest expense:

2024 2023 Change Change %

Salaries and employee benefits $ 13,658 $ 13,896 $ (238) (1.71) %

Occupancy and equipment 3,299 2,649 650 24.54 %

Data processing 1,468 1,364 104 7.62 %

Technology and software 1,431 1,092 339 31.04 %

FDIC insurance 1,150 836 314 37.56 %

Professional fees 501 537 (36) (6.70) %

Director fees 435 456 (21) (4.61) %

Other expenses:

Business development 397 748 (351) (46.93) %

Insurance expense 395 432 (37) (8.56) %

Trust 327 303 24 7.92 %

Consulting fees 137 119 18 15.13 %

Marketing 63 81 (18) (22.22) %

Charitable contributions — 120 (120) (100.00) %

Low income housing projects amortization 316 333 (17) (5.11) %

New markets tax credit project amortization and management

fees 459 459 — — %

All other 1,026 1,120 (94) (8.39) %

Total other 3,120 3,715 (595) (16.02) %

Total noninterest expense $ 25,062 $ 24,545 $ 517 2.11 %

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.

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Occupancy and equipment expense increased for the three and six months ended June 30, 2024 compared to the same periods in 2023 primarily due to an increase in occupancy costs related to new bank buildings.

Technology and software expenses increased for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 due to the addition of new technology, product updates and information security solutions.

FDIC insurance expense increased for the three and six months ended June 30, 2024 compared to the same periods in 2023 primarily due to an increase in assessment rate.

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 recorded income tax expense of $1,190 (18.6 percent of pre-tax income) and $2,562 (18.9 percent of pre-tax income) for the three and six months ended June 30, 2024, compared with $1,394 (19.2 percent of pre-tax income) and $3,131 (18.6 percent of pre-tax income) for the three and six months ended June 30, 2023.

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.

The tax rates for the first six 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 $754 and $749, respectively.

West Bancorporation, Inc.

2 unchanged sentences

FINANCIAL CONDITION

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.

The Company had total assets of $3,965,115 as of June 30, 2024, compared to total assets of $3,825,758 as of December 31, 2023.

Changes in the balance sheet included increases in interest-bearing cash deposits, loans, premises and equipment and total deposits and decreases in securities available for sale and federal funds purchased and other short-term borrowings.

Securities available for sale decreased by $35,467 during the six months ended June 30, 2024.

This decrease was due to calls and 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.

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

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

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

As of June 30, 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 $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 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.

Loans outstanding increased $71,239 from $2,927,535 as of December 31, 2023 to $2,998,774 as of June 30, 2024.

Changes in the loan portfolio during the first six months of 2024 included an increase of $83,387 in construction, land and land development loans and a decrease of $14,458 in 1-4 family residential first mortgage 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 and land development loans exceed 100 percent of total risk-based capital.

Although the commercial real estate portfolio exceeded these regulatory guidelines as of June 30, 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/A, 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.

March 31, 2024 December 31, 2023 Change

June 30, 2024 December 31, 2023 Change

Nonaccrual loans $ 521 $ 296 $ 225

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Loan restructurings on nonaccrual status are categorized as nonaccrual.

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

There were no loan restructurings categorized as nonaccrual as of June 30, 2024 or December 31, 2023.

West Bancorporation, Inc.

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(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.

Deposits increased $207,143, or 7.0 percent, during the first six months of 2024.

Brokered deposits increased to $370,290 at June 30, 2024, from $305,411 at December 31, 2023.

Excluding brokered deposits, deposits increased $142,264, or 5.3 percent, during the first six months of 2024.

In the second quarter of 2024, a local municipal customer deposited approximately $120,000 of bond proceeds that are expected to be withdrawn over the next 12-18 months.

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.

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

As of March 31, 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.

As of June 30, 2024, estimated uninsured deposits, which excludes deposits in the IntraFi ® reciprocal network, brokered deposits and public funds protected by state programs, were approximately 26.3 percent of total deposits.

Borrowed Funds

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

Federal funds purchased and other short-term borrowings decreased from $150,270 at December 31, 2023 to $85,500 as of June 30, 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 March 31, 2024, $295,000 of which are one-month rolling advances hedged with long-term interest rate swaps.

The Company had $315,000 of FHLB advances outstanding at June 30, 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.

Additionally, the Company has one forward starting interest rate swap with a notional amount of $20,000 and a starting date in August 2024, which replaces a maturing swap.

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 $148,017 as of March 31, 2024 compared with $65,357 as of December 31, 2023.

The Company had liquid assets (cash and cash equivalents) of $149,819 as of June 30, 2024 compared with $65,357 as of December 31, 2023.

Our deposit growth strategy emphasizes core deposit growth.

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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 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 $1,525 and $1,649 as of March 31, 2024 and December 31, 2023, respectively.

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

At June 30, 2024, the Company had $370,290 in brokered deposits, which included fixed-rate deposits with terms through February 2029 and variable-rate deposits with terms through September 2025.

As of June 30, 2024, West Bank had additional borrowing capacity available from the FHLB of approximately $525,000, as well as approximately $72,000 through the Federal Reserve discount window and $75,000 through unsecured federal funds lines of credit with correspondent banks.

Net cash from operating activities contributed $16,123 to liquidity for the six months ended June 30, 2024.

Management believed that the combination of high levels of potentially liquid assets, unencumbered securities, cash flows from operations, and additional borrowing capacity were sufficient to meet our liquidity and capital needs as of June 30, 2024.

West Bancorporation, Inc.

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(in thousands, except share and per share data)

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.

The Company had remaining commitments to invest in qualified affordable housing projects totaling $1,468 and $1,649 as of June 30, 2024 and December 31, 2023, respectively.

The Company's total stockholders' equity decreased to $223,883 at June 30, 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 continue to have 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 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.

At June 30, 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.

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

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

Management believed the Company and West Bank met all capital adequacy requirements to which they were subject as of June 30, 2024.

West Bancorporation, Inc.

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Amount Ratio Amount Ratio Amount Ratio Amount Ratio

As of March 31, 2024

As of June 30, 2024

Total Capital (to Risk-Weighted Assets)

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

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

At June 30, 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