Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands, except per share amounts)
INTRODUCTION
The Company’s financial highlights and key performance measures are presented in the table below.
As of and for the Years Ended December 31,
2024 2023 2022
Performance Ratios
Return on average assets 0.61 % 0.66 % 1.32 %
Return on average equity 10.71 % 11.42 % 20.71 %
Efficiency ratio (1)(2)
63.25 % 60.73 % 43.70 %
Nonperforming assets/total assets (1)
0.00 % 0.01 % 0.01 %
Net interest margin (2)
1.91 % 2.01 % 2.76 %
Dividends and Per Share Data
Basic earnings per common share $ 1.43 $ 1.44 $ 2.79
Diluted earnings per common share 1.42 1.44 2.76
Cash dividends per common share 1.00 1.00 1.00
Dividend payout ratio 69.88 % 69.21 % 35.82 %
Dividend yield 4.62 % 4.72 % 3.91 %
Operating Results and Year-End Balances
Net income $ 24,050 $ 24,137 $ 46,399
Total assets 4,014,991 3,825,758 3,613,218
Securities available for sale 544,565 623,919 664,115
Loans 3,004,860 2,927,535 2,742,836
Deposits 3,357,596 2,973,779 2,880,408
Borrowings 392,629 592,637 485,855
Stockholders’ equity 227,875 225,043 211,112
Average equity to average assets ratio 5.65 % 5.77 % 6.39 %
Definition of ratios:
• Return on average assets - net income divided by average assets.
• Return on average equity - net income divided by average equity.
• Efficiency ratio - noninterest expense (excluding other real estate owned expense and write-down of premises) divided by noninterest income (excluding net securities gains/losses and gains/losses on disposition of premises and equipment) plus tax-equivalent net interest income.
• Nonperforming assets to total assets - total nonperforming assets divided by total assets.
• Net interest margin - tax-equivalent net interest income divided by average interest-earning assets.
• Dividend payout ratio - dividends paid to common stockholders divided by net income.
• Dividend yield - dividends per share paid to common stockholders divided by closing year-end stock price.
• Average equity to average assets ratio - average equity divided by average assets.
(1) A lower ratio is more desirable.
(2) As presented, this is a non-GAAP financial measure. For further information, refer to the section "Non-GAAP Financial Measures" of this item.
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(dollars in thousands, except per share amounts)
The Company’s 2024 net income was $24,050, compared to $24,137 in 2023. Basic and diluted earnings per common share for 2024 were $1.43 and $1.42, respectively, compared to $1.44 and $1.44, respectively, in 2023. During 2024, we paid our common stockholders $16,806 ($1.00 per common share) in dividends compared to $16,704 ($1.00 per common share) in 2023. The dividend declared and paid in the first quarter of 2025 was $0.25 per common share.
Total assets were $4,014,991 at December 31, 2024, compared to $3,825,758 at December 31, 2023, a 4.9 percent increase. Our loan portfolio grew to $3,004,860 as of December 31, 2024, from $2,927,535 as of December 31, 2023. Deposits increased to $3,357,596 as of December 31, 2024, from $2,973,779 as of December 31, 2023.
The Company compares three key performance metrics to those of an identified peer group for evaluating its results. The peer group for 2024 consists of 21 Midwestern, publicly traded financial institutions including Bank First Corporation, Bridgewater Bancshares, Inc., ChoiceOne Financial Services, Inc., Civista Bancshares, Inc., CrossFirst Bankshares, Inc., Equity Bancshares, Inc., Farmers National Banc Corp., Farmers & Merchants Bancorp., First Business Financial Services, Inc., First Financial Corp., First Mid Bancshares, Inc., German American Bancorp, Inc., HBT Financial, Inc., Hills Bancorporation, Isabella Bank Corporation, LCNB Corp., Mercantile Bank Corporation, MidWest One Financial Group, Inc., Nicolet Bankshares, Inc., Peoples Bancorp, Inc., and Southern Missouri Bancorp, Inc. The Company is in the middle of the group in terms of asset size. The Company's goal is to perform at or near the top of this peer group relative to what we consider to be three key metrics: return on average equity, efficiency ratio and nonperforming assets to total assets. We believe these measures encompass the factors that define the performance of a community bank. Company and peer results for the key financial performance measures are summarized below.
West Bancorporation, Inc. Peer Group Range
As of and for the year ended December 31, 2024 As of and for the year ended December 31, 2024
Return on average equity 10.71% (11.08%)-14.44%
Efficiency ratio (1)
63.25% 46.23%-73.19%
Nonperforming assets to total assets 0.00% 0.01%-0.80%
(1) The efficiency ratio is a non-GAAP financial measure. For further information, refer to the Non-GAAP Financial Measures section of this report.
The following discussion describes the consolidated operations and financial condition of the Company, including its subsidiary West Bank and West Bank’s special purpose subsidiaries. Results of operations for the year ended December 31, 2024 are compared to the results for the year ended December 31, 2023 and the consolidated financial condition of the Company as of December 31, 2024 is compared to December 31, 2023. Results of operations and financial condition for the year ended December 31, 2023 compared to the year ended December 31, 2022 can be found in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s 2023 annual report on Form 10-K/A filed with the SEC on February 23, 2024.
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(dollars in thousands, except per share amounts)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This report is based on the Company’s audited consolidated financial statements that have been prepared in accordance with GAAP established by the FASB. The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company’s significant accounting policies are described in the Notes to Consolidated Financial Statements. Based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments, management has identified its most critical accounting policies to be those related to the allowance for credit losses.
Expected credit losses on loans are reflected in the allowance for credit losses (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 on loans on a collective (pool) basis when the loans share similar risk characteristics and uses a cash flow based model 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 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. Loans that do not share risk characteristics are evaluated on an individual basis.
The Company uses a cash flow based model to estimate expected credit losses for all loan segments. For each of the loan segments, the Company calculates a cash flow projection using contractual terms, estimated prepayment speeds, estimated curtailment rates, and other relevant data. The Company uses regression analysis that links historical losses of the Company and a peer group to two economic metrics: national unemployment rate and 10-year treasury rate over 2-year treasury rate spread to establish the loss rates applied to the projected cash flows. For all loan segments, the Company uses a forecast period of four quarters and reverts to a historical loss rate after four quarters. When estimating prepayment speed and curtailment rates, the modeling is based on historical internal data. In addition to the historical loss information, the Company utilizes qualitative factors to adjust the ACL as appropriate. Qualitative factors are based on management’s judgment of the changes in underlying loan composition of specific portfolios, trends relating to credit quality and collateral values, company-specific data, or effects of other factors such as market competition or legal and regulatory requirements.
The allowance for credit losses as of December 31, 2024 was $30,432, or 1.01 percent of outstanding loans, compared to $28,342, or 0.97 percent of outstanding loans as of December 31, 2023.
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(dollars in thousands, except per share amounts)
NON-GAAP FINANCIAL MEASURES
This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the Company’s presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, and the presentation of the efficiency ratio on an adjusted and FTE basis, excluding certain income and expenses. Management believes these non-GAAP financial measures provide useful information to both management and investors to analyze and evaluate the Company’s financial performance. These measures are considered standard measures of comparison within the banking industry. Additionally, management believes providing measures on an FTE basis enhances the comparability of income arising from taxable and nontaxable sources. 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. The following table reconciles the non-GAAP financial measures of net interest income and net interest margin on a fully taxable equivalent basis and efficiency ratio on an adjusted and FTE basis, to their most directly comparable measures under GAAP.
As and for the Years Ended December 31
2024 2023 2022
Reconciliation of net interest income and net interest margin on an FTE basis to GAAP:
Net interest income (GAAP) $ 71,362 $ 69,031 $ 91,740
Tax-equivalent adjustment (1)
182 491 1,122
Net interest income on an FTE basis (non-GAAP)
71,544 69,522 92,862
Average interest-earning assets 3,747,528 3,465,964 3,361,091
Net interest margin on an FTE basis (non-GAAP) 1.91 % 2.01 % 2.76 %
Reconciliation of efficiency ratio on an FTE basis to GAAP:
Net interest income on an FTE basis (non-GAAP) $ 71,544 $ 69,522 $ 92,862
Noninterest income 8,434 10,066 10,208
Adjustment for realized securities losses, net 1,172 431 —
Adjustment for losses on disposal of premises and
equipment, net
47 29 29
Adjusted income 81,197 80,048 103,099
Noninterest expense 51,353 48,611 45,051
Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2)
63.25 % 60.73 % 43.70 %
(1) Computed on a tax-equivalent basis using a federal income tax rate of 21 percent, adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results, as it enhances the comparability of income arising from taxable and nontaxable sources.
(2) The efficiency ratio expresses noninterest expense as a percent of fully taxable equivalent net interest income and noninterest income, excluding specific noninterest income and expenses. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the Company’s financial performance. It is a standard measure of comparison within the banking industry. A lower ratio is more desirable.
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(dollars in thousands, except per share amounts)
RESULTS OF OPERATIONS - 2024 COMPARED TO 2023
OVERVIEW
Net income for the year ended December 31, 2024 was $24,050, compared to $24,137 for the year ended December 31, 2023. Basic and diluted earnings per common share for 2024 were $1.43 and $1.42, respectively, and for 2023 were $1.44 and $1.44, respectively.
The modest decrease in net income in 2024 compared to 2023 was primarily due to an increase in noninterest expense and decrease in noninterest income, partially offset by an increase in net interest income and decrease in income tax expense. Net interest income increased $2,331, or 3.4 percent, in 2024 compared to 2023. The increase in net interest income was primarily due to an increase in interest income on loans and interest-bearing deposits in other financial institutions, partially offset by an increase in interest expense on deposits.
The Company recorded a credit loss expense of $1,000 in 2024, compared to a credit loss expense of $700 in 2023. The credit loss expense recorded in 2024 included a $2,000 increase in the allowance for credit losses related to loans, which was offset by a $1,000 decrease to the allowance for credit losses related to unfunded commitments.
Noninterest income decreased $1,632, or 16.2 percent, in 2024 compared to 2023, primarily due to an increase in realized losses on the sales of securities, a decrease in loan swap fees, and a nonrecurring gain from bank-owned life insurance in 2023, partially offset by an increase in trust services revenue. Noninterest expense increased $2,742, or 5.6 percent, in 2024 compared to 2023, primarily due to increases in occupancy and equipment expense, technology and software expense and FDIC insurance, partially offset by a decrease in business development expenses.
The Company’s ratio of nonperforming assets to total assets was 0.00 percent and 0.01 percent as of December 31, 2024 and 2023, respectively. For more discussion on loan quality, see the “Loan Portfolio” and “Summary of the Allowance for Credit Losses” sections in this Item of this Form 10-K.
Net Interest Income
Net interest income increased to $71,362 for 2024 from $69,031 for 2023, as the impact of the growth of interest-earning assets and increases in average yields on interest-earning assets exceeded the effects of an increase in average balances of interest-bearing liabilities and increase in average rate paid on interest-bearing liabilities. The net interest margin for 2024 decreased 10 basis points to 1.91 percent, compared to 2.01 percent for 2023. The average yield on earning assets increased by 44 basis points, while the average rate paid on interest-bearing liabilities increased by 52 basis points. For additional analysis of net interest income, see the section captioned “Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates; and Interest Differential” in this Item of this Form 10-K.
Credit Loss Expense
A credit loss expense of $1,000 was recorded in 2024, compared to a credit loss expense of $700 in 2023. The credit loss expense recorded in 2024 included a $2,000 increase in the allowance for credit losses related to loans, which was offset by a $1,000 decrease to the allowance for credit losses related to unfunded commitments. The credit loss expense associated with loans recorded in 2024 was primarily due to changes in forecasted loss rates, driven by an increase in forecasted unemployment rate, and an adjustment to qualitative factors within the commercial real estate segment. The negative $1,000 credit loss expense recorded in 2024 related to unfunded commitments was primarily due to a decrease in the balance of unfunded commitments, primarily from the funding of construction loans. The credit loss expense recorded in 2023 included an allocation of $500 to the allowance for credit losses related to loans and $200 to the allowance for credit losses related to unfunded commitments. The credit loss expense in 2023 was primarily due to growth in loans and unfunded loan commitments. Management believed the allowance for credit losses at December 31, 2024 was adequate to absorb expected losses in the loan portfolio as of that date.
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(dollars in thousands, except per share amounts)
Noninterest Income
The following table shows the variance from the prior year in the noninterest income categories shown in the Consolidated Statements of Income.
Years ended December 31
Noninterest income: 2024 2023 Change Change %
Service charges on deposit accounts $ 1,843 $ 1,859 $ (16) (0.9) %
Debit card usage fees 1,919 1,980 (61) (3.1) %
Trust services 3,449 3,068 381 12.4 %
Increase in cash value of bank-owned life insurance 1,126 1,044 82 7.9 %
Gain from bank-owned life insurance — 691 (691) (100.0) %
Loan swap fees — 431 (431) (100.0) %
Realized securities losses, net (1,172) (431) (741) (171.9) %
Other income 1,269 1,424 (155) (10.9) %
Total noninterest income $ 8,434 $ 10,066 $ (1,632) (16.2) %
Revenue from trust services was higher in 2024 compared to 2023 primarily due to increases in one-time estate fees and the higher market value of trust assets. The gain from bank-owned life insurance that occurred in 2023 was the result of a death benefit claim. Loan swap fees in 2023 consisted of fees earned in the back-to-back swap program.
In 2024, the Company sold $11,841 of securities from the available for sale securities portfolio and realized a net loss of $1,172, compared to sales of $11,285 of securities available for sale and a realized net loss of $431 in 2023. The proceeds from both periods were reinvested in the loan portfolio. The estimated earn back period of the 2024 transaction is approximately two years.
Noninterest Expense
The following table shows the variance from the prior year 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.
Years ended December 31
Noninterest expense: 2024 2023 Change Change %
Salaries and employee benefits $ 27,588 $ 27,060 $ 528 2.0 %
Occupancy and equipment 7,320 5,507 1,813 32.9 %
Data processing 2,991 2,790 201 7.2 %
Technology and software 2,896 2,341 555 23.7 %
FDIC insurance 2,560 1,750 810 46.3 %
Professional fees 1,041 1,026 15 1.5 %
Director fees 828 892 (64) (7.2) %
Other expenses:
Insurance expense 821 793 28 3.5 %
Business development 803 1,263 (460) (36.4) %
Trust 663 622 41 6.6 %
Consulting fees 262 257 5 1.9 %
Marketing 97 163 (66) (40.5) %
Charitable contributions — 180 (180) (100.0) %
Low income housing projects amortization 571 589 (18) (3.1) %
New markets tax credit project amortization and management fees 919 919 — — %
All other 1,993 2,459 (466) (19.0) %
Total other 6,129 7,245 (1,116) (15.4) %
Total noninterest expense $ 51,353 $ 48,611 $ 2,742 5.6 %
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(dollars in thousands, except per share amounts)
Occupancy and equipment expense increased in 2024 compared to 2023 primarily due to an increase in occupancy costs related to bank buildings, including the Company’s new headquarters building. Technology and software expense increased in 2024 compared to 2023 due to the addition of new technology, product updates and fraud management and security solutions. FDIC insurance expense increased in 2024 compared to 2023 primarily due to increases in average assets and the assessment rate.
Income Taxes
The Company records a provision for income tax expense currently payable, along with a provision for those taxes payable or refundable in the future (deferred taxes). Deferred taxes arise from differences in the timing of certain items for financial statement reporting compared to income tax reporting and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Federal income tax expense for 2024 and 2023 was $1,928 and $3,711, respectively, while state income tax expense was $1,465 and $1,938, respectively. The effective rate of income tax expense as a percent of income before income taxes was 12.3 percent and 18.9 percent, respectively, for 2024 and 2023. In 2024, income tax expense included a $1,842 tax benefit for an energy-related investment tax credit associated with the construction of the Company’s new headquarters building.
The effective income tax rates differ from the federal statutory income tax rates 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, stock compensation, state income taxes and the investment tax credit mentioned above. The effective tax rate for both 2024 and 2023 was also impacted by federal income tax credits, including low income housing tax credits and a new markets tax credit from West Bank’s investment in a qualified community development entity, of approximately $1,508 and $1,498, respectively. The Company continues to maintain a valuation allowance against the tax effect of state net operating losses carryforwards as management believes it is likely that a portion of such carryforwards will expire without being utilized.
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(dollars in thousands, except per share amounts)
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY; INTEREST RATES; AND INTEREST DIFFERENTIAL
Average Balances and an Analysis of Average Rates Earned and Paid
The following table shows average balances and interest income or interest expense, with the resulting average yield or rate by category of average interest-earning assets or interest-bearing liabilities for the years indicated. Interest income and the resulting net interest income are shown on a fully taxable basis. Interest expense includes the effect of interest rate swaps, if applicable.
2024 2023 2022
Average
Balance Revenue/
Expense Yield/
Rate Average
Balance Revenue/
Expense Yield/
Rate Average
Balance Revenue/
Expense Yield/
Rate
Assets
Interest-earning assets:
Loans: (1) (2)
Commercial $ 519,568 $ 34,423 6.63 % $ 520,116 $ 32,067 6.17 % $ 487,151 $ 22,742 4.67 %
Real estate (3)
2,451,830 130,829 5.34 % 2,270,662 110,431 4.86 % 2,061,777 84,523 4.10 %
Consumer and other 14,425 1,065 7.38 % 9,478 665 7.02 % 5,748 282 4.91 %
Total loans 2,985,823 166,317 5.57 % 2,800,256 143,163 5.11 % 2,554,676 107,547 4.21 %
Securities:
Taxable 472,351 13,030 2.76 % 516,118 13,696 2.65 % 592,186 12,524 2.11 %
Tax-exempt (3)
141,033 3,306 2.34 % 146,734 3,768 2.57 % 155,803 4,197 2.69 %
Total securities 613,384 16,336 2.66 % 662,852 17,464 2.63 % 747,989 16,721 2.24 %
Interest-bearing deposits 148,321 7,595 5.12 % 2,856 169 5.94 % 58,426 203 0.35 %
Total interest-earning assets (3)
3,747,528 190,248 5.08 % 3,465,964 160,796 4.64 % 3,361,091 124,471 3.70 %
Noninterest-earning assets:
Cash and due from banks 23,699 23,139 23,842
Premises and equipment, net 101,413 67,281 43,299
Other, less allowance for
credit losses 99,110 106,194 80,553
Total noninterest-earning assets 224,222 196,614 147,694
Total assets $ 3,971,750 $ 3,662,578 $ 3,508,785
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $ 466,238 8,684 1.86 % $ 467,174 6,984 1.49 % $ 505,889 2,458 0.49 %
Savings and money market 1,560,136 57,140 3.66 % 1,357,675 43,569 3.21 % 1,452,034 15,814 1.09 %
Time 639,278 31,460 4.92 % 424,320 16,243 3.83 % 291,732 4,357 1.49 %
Total deposits 2,665,652 97,284 3.65 % 2,249,169 66,796 2.97 % 2,249,655 22,629 1.01 %
Borrowed funds:
Federal funds purchased and
other short-term borrowings 75,736 4,248 5.61 % 194,802 9,532 4.89 % 62,901 1,764 2.80 %
Subordinated notes, net 79,760 4,431 5.55 % 79,501 4,442 5.59 % 52,873 2,867 5.42 %
Federal Home Loan Bank
advances 312,363 10,313 3.30 % 265,644 7,694 2.90 % 128,863 2,669 2.07 %
Long-term debt 45,055 2,428 5.39 % 49,938 2,810 5.63 % 51,489 1,680 3.26 %
Total borrowed funds 512,914 21,420 4.18 % 589,885 24,478 4.15 % 296,126 8,980 3.03 %
Total interest-bearing liabilities 3,178,566 118,704 3.73 % 2,839,054 91,274 3.21 % 2,545,781 31,609 1.24 %
Noninterest-bearing liabilities:
Demand deposits 528,391 586,903 708,667
Other liabilities 40,308 25,218 30,284
Stockholders’ equity 224,485 211,403 224,053
Total liabilities and
stockholders’ equity $ 3,971,750 $ 3,662,578 $ 3,508,785
Net interest income (4) /net interest spread (3)
$ 71,544 1.35 % $ 69,522 1.43 % $ 92,862 2.46 %
Net interest margin (3) (4)
1.91 % 2.01 % 2.76 %
(1) Average loan balances include nonaccrual loans. Interest income recognized on nonaccrual loans has been included.
(2) Interest income on loans includes amortization of loan fees and costs and prepayment penalties collected, which are not material.
(3) Tax-exempt income has been adjusted to a tax-equivalent basis using a federal income tax rate of 21 percent and is adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans.
(4) Net interest income (FTE) and net interest margin (FTE) are non-GAAP financial measures. For further information, refer to the section “Non-GAAP Financial Measures” of this Item.
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(dollars in thousands, except per share amounts)
Net Interest Income
The Company’s largest component of net income is net interest income, which is the difference between interest earned on interest-earning assets, consisting primarily of loans and securities, and interest paid on interest-bearing liabilities, consisting of deposits and borrowings. Fluctuations in net interest income can result from the combination of changes in the balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are also affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and the actions of regulatory authorities. The Federal Reserve increased the target federal funds interest rate by a total of 425 basis points in 2022 and an additional 100 basis points in 2023. In 2024, the Federal Reserve decreased the target federal funds rate by a total of 100 basis points. The timing and extent of additional interest rate changes by the Federal Reserve is not known at this time.
Net interest margin on an 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. For the years ended December 31, 2024, 2023 and 2022, the Company’s net interest margin on a tax-equivalent basis was 1.91, 2.01 and 2.76 percent, respectively. Tax-equivalent net interest income increased $2,022 in 2024 compared to 2023.
Rate and Volume Analysis
The rate and volume analysis shown below, on a tax-equivalent basis, is used to determine how much of the change in interest income or expense is the result of a change in volume or a change in interest yield or rate. The change in interest that is due to both volume and rate has been allocated to the change due to volume and the change due to rate in proportion to the absolute value of the change in each.
2024 Compared to 2023 2023 Compared to 2022
Volume Rate Total Volume Rate Total
Interest Income
Loans: (1)
Commercial $ (34) $ 2,390 $ 2,356 $ 1,625 $ 7,700 $ 9,325
Real estate (2)
9,197 11,201 20,398 9,125 16,783 25,908
Consumer and other 364 36 400 230 153 383
Total loans (including fees) 9,527 13,627 23,154 10,980 24,636 35,616
Securities:
Taxable (1,193) 527 (666) (1,746) 2,918 1,172
Tax-exempt (2)
(142) (320) (462) (238) (191) (429)
Total securities (1,335) 207 (1,128) (1,984) 2,727 743
Interest-bearing deposits 7,452 (26) 7,426 (366) 332 (34)
Total interest income (2)
15,644 13,808 29,452 8,630 27,695 36,325
Interest Expense
Deposits:
Interest-bearing demand (14) 1,714 1,700 (202) 4,728 4,526
Savings and money market 6,969 6,602 13,571 (1,092) 28,847 27,755
Time 9,731 5,486 15,217 2,677 9,209 11,886
Total deposits 16,686 13,802 30,488 1,383 42,784 44,167
Borrowed funds:
Federal funds purchased and
other short-term borrowings (6,514) 1,230 (5,284) 5,732 2,036 7,768
Subordinated debt, net 14 (25) (11) 1,485 90 1,575
Federal Home Loan Bank advances 1,459 1,160 2,619 3,654 1,371 5,025
Long-term debt (267) (115) (382) (52) 1,182 1,130
Total borrowed funds (5,308) 2,250 (3,058) 10,819 4,679 15,498
Total interest expense 11,378 16,052 27,430 12,202 47,463 59,665
Net interest income (2) (3)
$ 4,266 $ (2,244) $ 2,022 $ (3,572) $ (19,768) $ (23,340)
(1) Average balances of nonaccrual loans were included for computational purposes.
(2) Tax-exempt income has been converted to a tax-equivalent basis using a federal income tax rate of 21 percent and is adjusted for the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans.
(3) Net interest income (FTE) is a non-GAAP financial measure. For further information, refer to the section “Non-GAAP Financial Measures” of this Item.
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(dollars in thousands, except per share amounts)
Tax-equivalent interest income and fees on loans increased $23,154 for the year ended December 31, 2024, compared to 2023. The improvement was driven by a combination of an increase in the average balance of loans and an increase in loan yields in 2024 compared to 2023. The average balance of loans increased $185,567 in 2024 compared to 2023, while loan yields increased by 46 basis points in 2024 compared to 2023. Loan originations and renewals in 2024 continued to reprice at prevailing market rates which exceeded the current weighted average portfolio rate.
The yield on the Company’s loan portfolio is affected by the portfolio’s loan mix, the interest rate environment, the effects of competition, the level of nonaccrual loans and reversals of previously accrued interest on charged-off loans. The yield on the loan portfolio is expected to increase in flat and rising rate environments as variable-rate loans reprice at higher rates and renewals and new originations are priced at prevailing market rates, which exceed the roll-off rate of principal repayments and maturities of existing loans. In a declining rate environment, the yield on variable-rate loans will decline; however, as long as market rates remain higher than the yield on the fixed-rate portfolio, renewals and originations will continue to increase the yield on the fixed-rate portfolio. The political and economic environments can also influence the volume of new loan originations and the mix of variable-rate versus fixed-rate loans.
Tax-equivalent interest income on securities decreased $1,128 for the year ended December 31, 2024, compared to 2023. The average balance of securities available for sale in 2024 was $49,468 lower than in 2023, primarily due to principal paydowns on securities, sales of securities, and the decline in fair value of available for sale securities during 2024 resulting from the increase in market interest rates during 2024. The yield on available for sale securities increased by 3 basis points in 2024 compared to 2023.
Interest income on interest-bearing deposits in other financial institutions increased $7,426 in 2024 compared to 2023. This was primarily due to the increase in the average balance of interest-bearing deposits in other financial institutions, which was driven by the impact that the increase in average customer deposit balances had on the Company’s cash liquidity.
Interest expense on deposits increased $30,488 for the year ended December 31, 2024, compared to 2023. The average balance of interest bearing deposits increased $416,483 in 2024 compared to 2023, while the rates paid on deposits increased 68 basis points in 2024 compared to 2023. The increase in interest expense on deposits was primarily due to the increase in deposit balances, higher deposit rates resulting from higher market rates and increased competition for deposit balances, and changes in deposit mix.
Interest expense on borrowed funds decreased $3,058 for the year ended December 31, 2024, compared to 2023. The average balance of borrowed funds decreased $76,971 in 2024 compared to 2023. The average balance of federal funds purchased and other short-term borrowings decreased $119,066 in 2024 compared to 2023 primarily due to increases in deposits. The average balance of FHLB advances increased by $46,719 in 2024 compared to 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. The average rate paid on FHLB advances increased 40 basis points in 2024 compared to 2023.
SECURITIES PORTFOLIO
The balance of securities available for sale decreased by $79,354 as of December 31, 2024, compared to December 31, 2023. This decrease was primarily due to principal paydowns on securities, a decline in fair value of securities during 2024 resulting from the increase in market interest rates and the sale of $11,841 of securities in the fourth quarter of 2024. The proceeds from this sale were reinvested into the loan portfolio. 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 December 31, 2024, approximately 62 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities. We believe those securities have little to no credit risk and provide cash flows for liquidity and repricing opportunities. All collateralized mortgage obligations and mortgage-backed securities consist of residential and commercial mortgage pass-through securities and collateralized mortgage obligations guaranteed by the Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA), or the Small Business Administration (SBA). The securities issued by state and political subdivisions are diversified among municipalities in 26 states.
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(dollars in thousands, except per share amounts)
The following table sets forth the weighted average yield by contractual maturity by security type as of December 31, 2024. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. The collateralized mortgage obligations and mortgage-backed securities have monthly paydowns that are not reflected in the table.
Within one
year After one year
but within five
years After five years
but within ten
years After ten years Total
Securities available for sale:
State and political subdivisions (1)
— % — % 1.73 % 2.06 % 2.03 %
Collateralized mortgage obligations — — 2.27 1.64 1.64
Mortgage-backed securities — 1.36 1.61 1.55 1.55
Collateralized loan obligations — — 6.53 — 6.53
Corporate notes — — 3.26 — 3.26
— % 1.36 % 3.09 % 1.77 % 1.92 %
(1) Yields on tax-exempt obligations have been computed on a tax-equivalent basis using a federal income tax rate of 21 percent and are adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt investment securities.
Total gross unrealized losses in the securities available for sale portfolio were $128,838 at December 31, 2024 compared to $121,806 at December 31, 2023. As of December 31, 2024, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the securities in an unrealized loss position prior to recovery. As of December 31, 2024, the Company also determined that no individual securities in an unrealized loss position represented credit losses that would require an allowance for credit losses. Management concluded that the unrealized losses in the portfolio are the result of increases in risk-free market interest rates since the securities were purchased and are not an indication of declining credit quality. Unrealized losses are recorded in accumulated other comprehensive loss, net of tax.
For additional information regarding the Company’s securities portfolio, see Note 3 and Note 18 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
LOAN PORTFOLIO
The Company seeks to create growth in commercial lending, which primarily includes commercial real estate, multi-family, and commercial and industrial lending, by offering customer-focused products and competitive pricing and by capitalizing on the positive trends in its market areas. It is the objective of the Company’s credit policies to diversify the commercial loan portfolio to limit concentrations in any single industry. As of December 31, 2024, total loans were approximately 89.5 percent of total deposits and 74.8 percent of total assets.
Loans outstanding at the end of 2024 increased 2.6 percent compared to the end of 2023. Changes in the loan portfolio during 2024 included an increase of $94,670 in construction, land and land development loans and decreases of $18,830 in 1-4 family residential first mortgage loans and $17,362 in commercial and industrial loans. The Company continues to focus on business development efforts in all of its markets. The political and economic environments could influence the volume of future loan originations and the mix of variable-rate versus fixed-rate loans.
For a description of the loan segments, see Note 4 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. The interest rates charged on loans vary with the degree of risk and the amount and terms of the loan. Competitive pressures, the creditworthiness of the borrower, market interest rates, the availability of funds, and government regulations further influence the rate charged on a loan.
The Company follows a loan policy approved by West Bank’s Board of Directors. The loan policy is reviewed at least annually and is updated as considered necessary. The policy establishes lending limits, review criteria and other guidelines for loan administration and the allowance for credit losses, among other things. Loans are approved in accordance with the applicable guidelines and underwriting policies. Loans to any one borrower are limited by state banking laws. Loan officer lending authorities vary according to the individual loan officer’s experience and expertise.
As of December 31, 2024 and 2023, there were no loans that were past due 30 days or more.
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(dollars in thousands, except per share amounts)
Nonperforming loans declined to $133 at December 31, 2024, compared to $296 at December 31, 2023. The decrease was due to a payoff on the single loan included in nonperforming loans as of December 31, 2023, partially offset by the addition of one loan as of December 31, 2024.
The watch classification of loans increased to $8,349 as of December 31, 2024 from $144 as of December 31, 2023. Commercial loans for three borrowers with a total balance of $7,768 were added to the watchlist in 2024 due to a decline in financial performance at the companies. These loans are considered well collateralized and no required payments are past due.
Loans Secured by Real Estate
The commercial real estate market continues to be a significant source of business for West Bank. Management places a strong emphasis on monitoring the composition of the Company’s commercial real estate loan portfolio. The Company has an established lending policy which includes a number of underwriting factors to be considered in making a commercial real estate loan, including, but not limited to, location, loan-to-value ratio (LTV), cash flow and debt service coverage, collateral and the credit history and expertise of the borrower. The lending policy also includes guidelines for real estate appraisals and evaluations, including minimum appraisal and evaluation standards.
Although repayment risk exists on all loans, different factors influence repayment risk for each type of loan. The primary risks associated with commercial real estate loans are the quality of the borrower’s management and the health of the national and regional economies. Underwriting on commercial properties is primarily based on the economic viability of the project with heavy consideration given to the creditworthiness and experience of the borrower. Recognizing that debt is paid via cash flow, the projected cash flows of the project are critical in underwriting because these determine the ultimate value of the property and the ability to service debt. Therefore, in most commercial real estate projects, we generally require a minimum stabilized debt service coverage ratio of 1.20 to 1.35, depending on the real estate type. Exceptions to this policy can be made for certain borrowers that exhibit other credit quality strengths. Exceptions to the policy are monitored by management. Our strategy with respect to the management of these types of risks is to consistently follow prudent loan policies and underwriting practices.
The Company recognizes that a diversified loan portfolio contributes to reducing risk. The specific loan portfolio mix is subject to change based on loan demand, the business environment and various economic factors. The Company actively monitors concentrations within the loan portfolio to ensure appropriate diversification is maintained. In addition, management tracks the level of owner occupied commercial real estate loans versus non-owner occupied commercial real estate loans. Owner occupied commercial real estate loans are generally considered to have less risk than non-owner occupied 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 Company’s loan portfolio is heavily concentrated in real estate and its real estate portfolio levels exceed these regulatory guidelines, it has established risk management policies and procedures to regularly monitor the commercial real estate portfolio.
The Bank’s Executive Loan Committee (ELC), which is made up of the Chief Executive Officer, Bank President, Chief Risk Officer, Minnesota Group President, Chief Credit Officer and Credit Department Manager, approves all commercial loan relationships in excess of $500 in total credit exposure and annually reviews all commercial loan relationships of $1,000 and greater. Credit approval authorities for individual officers are reviewed, at least annually, by the ELC and approved by the Board of Directors.
Executive management regularly reviews available market data. Commercial real estate portfolio monitoring practices include quarterly stress testing and quarterly trend analysis of underwriting exceptions, average loan-to-value and average debt service coverage for significant real estate segments.
The Company maintains an annual independent loan review program. The Company engages a third party to evaluate credit quality, assigned risk ratings, underwriting standards and collateral documentation. The review covers a significant portion of the loan portfolio and is carried out on a semi-annual basis. Findings are reported to the ELC and the Board of Directors. The Company also maintains an internal loan audit department that performs certain pre- and post-closing procedural and documentation reviews. The internal findings are reported quarterly to the ELC.
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(dollars in thousands, except per share amounts)
Commercial loans secured by real estate, including construction, land and land development, totaled $2,369,342, or 78.8 percent of total loans, at December 31, 2024. Non-owner occupied commercial real estate loan concentrations and the weighted average LTV by property type as of December 31, 2024 and 2023 are shown in the following table. LTV is determined using the maximum credit exposure of the loan compared to the most recent appraisal data on the property obtained in accordance with the Company’s lending policies.
As of December 31
2024 2023
Balance % of Non-owner Occupied CRE Weighted Average LTV Balance % of Non-owner Occupied CRE Weighted Average LTV
Non-owner occupied:
Multifamily $ 542,322 28.5 % 69 % $ 453,958 24.2 % 69 %
Medical & senior care facilities 180,144 9.5 64 225,314 12.0 63
Warehouse & trucking 160,783 8.4 60 167,030 8.9 63
Hotels 253,939 13.3 64 251,497 13.4 66
Mixed use 98,988 5.2 67 96,488 5.2 67
Offices 126,270 6.6 68 137,468 7.4 70
Land for development 89,974 4.7 56 110,874 5.9 64
All other 452,772 23.8 not available 430,515 23.0 not available
$ 1,905,192 100.0 % $ 1,873,144 100.0 %
The following table summarizes non-owner occupied commercial real estate loans by property type and risk rating as of December 31, 2024. Risk ratings are defined in Note 4 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
As of December 31, 2024
Risk Rating
Total 1-3 4 5 6 7 8
Non-owner occupied:
Multifamily $ 542,322 $ 49,934 $ 371,917 $ 120,471 $ — $ — $ —
Medical & senior care facilities 180,144 34,418 125,745 19,981 — — —
Warehouse & trucking 160,783 101,404 47,274 12,105 — — —
Hotel 253,939 — 183,344 70,595 — — —
Mixed use 98,988 28,588 42,745 27,655 — — —
Offices 126,270 12,127 107,539 6,604 — — —
Land for development 89,974 5,566 78,276 6,132 — — —
All other 452,772 81,813 304,735 66,224 — — —
$ 1,905,192 $ 313,850 $ 1,261,575 $ 329,767 $ — $ — $ —
As of December 31, 2024, there were no non-owner occupied commercial real estate loans that were past due 30 days or more.
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(dollars in thousands, except per share amounts)
Maturities of Loans
The contractual maturities of the Company’s loan portfolio are shown in the following tables. Actual repayments may differ from contractual maturities because individual borrowers may have the right to prepay loans with or without prepayment penalties.
As of December 31, 2024
Within one
year After one but
within five years After five but
within 15 years After 15 years Total
Commercial $ 201,447 $ 249,014 $ 63,771 $ — $ 514,232
Real estate:
Construction, land and land development 306,670 195,102 6,375 — 508,147
1-4 family residential first mortgages 19,370 67,664 824 — 87,858
Home equity 6,990 12,279 25 — 19,294
Commercial 218,987 1,150,390 462,122 29,696 1,861,195
Consumer and other 12,764 1,923 2,600 — 17,287
$ 766,228 $ 1,676,372 $ 535,717 $ 29,696 $ 3,008,013
After one but
within five years After five but
within 15 years After 15 years
Loan maturities after one year with:
Fixed rates
Commercial $ 186,232 $ 17,080 $ —
Real estate:
Construction, land and land development 64,803 470 —
1-4 family residential first mortgages 65,022 794 —
Home equity 3,211 — —
Commercial 1,091,090 236,309 5,946
Consumer and other 1,226 — —
Total fixed-rate loans 1,411,584 254,653 5,946
Variable rates
Commercial 62,782 46,691 —
Real estate:
Construction, land and land development 130,299 5,905 —
1-4 family residential first mortgages 2,642 30 —
Home equity 9,068 25 —
Commercial 59,300 225,813 23,750
Consumer and other 697 2,600 —
Total variable-rate loans 264,788 281,064 23,750
$ 1,676,372 $ 535,717 $ 29,696
SUMMARY OF THE ALLOWANCE FOR CREDIT LOSSES
The credit loss expense recorded on the income statement includes charges made to earnings to maintain an adequate allowance for credit losses. The adequacy of the allowance for credit losses is evaluated quarterly by management and reviewed by the Board. The allowance for credit losses is management’s estimate of expected lifetime losses in the loan portfolio as of the balance sheet date.
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Factors considered by management in establishing an appropriate allowance include: the borrower’s financial condition; the value and adequacy of loan collateral; the condition of the local economy and the borrower’s specific industry; the levels and trends of loans by segment; and a review of delinquent and classified loans. The quarterly evaluation focuses on factors such as specific loan reviews, changes in the components of the loan portfolio given economic conditions, and historical loss experience. Any one of the following conditions may result in the review of a specific loan: concern about whether the borrower’s cash flow or net worth is sufficient to repay the loan; delinquency status; criticism of the loan in a regulatory examination; the suspension of interest accrual; or other factors, including whether the loan has other special or unusual characteristics that suggest special monitoring is warranted. The Company’s concentration risks include geographic concentration in central and eastern Iowa and southern Minnesota. The local economies are composed primarily of major financial services companies, healthcare providers, educational institutions, technology and agribusiness companies, and state and local governments.
West Bank has a significant portion of its loan portfolio in commercial real estate loans, commercial lines of credit, commercial term loans, and construction and land development loans. West Bank’s typical commercial borrower is a small- or medium-sized, privately owned business entity. Compared to residential mortgages or consumer loans, commercial loans typically have larger balances and repayment usually depends on the borrowers’ successful business operations. Commercial loans also generally are not fully repaid over the loan period and, thus, may require refinancing or a large payoff at maturity. When the general economy turns downward, commercial borrowers may not be able to repay their loans, and the value of their assets, which are usually pledged as collateral, may decrease rapidly and significantly.
While management uses available information to recognize credit losses, further reduction in the carrying amounts of loans may be necessary based on changes in circumstances, changes in the overall economy in the markets we currently serve, or later acquired information. Identifiable sectors within the general economy are subject to additional volatility, which at any time may have a substantial impact on the loan portfolio. In addition, regulatory agencies, as integral parts of their examination processes, periodically review the credit quality of the loan portfolio and the level of the allowance for credit losses. Such agencies may require West Bank to recognize additional charge-offs or provisions for credit losses based on such agencies’ review of information available to them at the time of their examinations.
The following table shows the ratio of net (charge-offs) recoveries to loans outstanding, broken out by loan segment, along with ratios of the allowance and nonaccrual loans to total loans at the end of the period.
Analysis of the Allowance for Credit Losses for the Years Ended December 31
2024 2023 2022
Ratio of net (charge-offs) recoveries during the
period to average loans outstanding by segment:
Commercial — % — % — %
Real estate:
Construction, land and land development — — —
1-4 family residential first mortgages — — —
Home equity — — —
Commercial — — (0.02) %
Consumer and other — — —
Total 0.00 % 0.00 % (0.02) %
Ratio of allowance for credit losses to total
loans at the end of period 1.01 % 0.97 % 0.93 %
Ratio of nonaccrual loans to total loans at
end of period 0.00 % 0.01 % 0.01 %
Ratio of allowance for credit losses to total
nonaccrual loans at the end of period 22,881.20 % 9,575.00 % 7,910.87 %
Ratio of net (charge-offs) recoveries to total
loans at end of period 0.00 % 0.00 % (0.01) %
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(dollars in thousands, except per share amounts)
Nonperforming loans at December 31, 2024 totaled $133, or 0.00 percent of total loans, a slight decrease from $296, or 0.01 percent of total loans, at December 31, 2023. The decrease in nonperforming loans at December 31, 2024, compared to December 31, 2023, was due a payoff on the single loan included in the nonaccrual balance on December 31, 2023, partially offset by the addition of one loan as of December 31, 2024. Nonperforming loans include loans on nonaccrual status, loans past due 90 days or more and still accruing interest, and loans that have been considered to be loan restructurings made to borrowers experiencing financial difficulty. The Company held no other real estate owned properties as of December 31, 2024 or 2023.
The following table sets forth information concerning the Company’s allocation of the allowance for credit losses by loan segment as of the dates indicated.
As of December 31
2024 2023 2022
Amount %* Amount %* Amount %*
Balance at end of
period applicable to:
Commercial $ 5,489 17.10 % $ 5,291 18.13 % $ 4,804 18.90 %
Real estate:
Construction, land
and land development 4,354 16.89 3,668 14.11 3,548 13.21
1-4 family residential
first mortgages 650 2.92 704 3.64 357 2.74
Home equity 200 0.64 142 0.50 101 0.38
Commercial 19,544 61.88 18,420 63.25 16,575 64.50
Consumer and other 195 0.57 117 0.37 88 0.27
$ 30,432 100.00 % $ 28,342 100.00 % $ 25,473 100.00 %
* Percent of loans in each category to total loans.
As of December 31, 2024 and 2023 there was no allowance for credit losses related to loans individually evaluated for credit losses. The portion of the allowance for credit losses related to loans collectively evaluated for credit losses increased to $30,432, or 1.01 percent of outstanding loans as of December 31, 2024, compared to $28,342, or 0.97 percent of outstanding loans as of December 31, 2023. The increase was primarily due to the credit loss expense of $2,000 for the year ended December 31, 2024. The credit loss expense for loans in 2024 was primarily due to changes in forecasted loss rates, driven by an increase in forecasted unemployment rate, and an adjustment to qualitative factors within the commercial real estate segment. The Company recorded a credit loss expense related to loans of $500 in 2023. The credit loss expense in 2023 was primarily due to growth in loans. Management believed the allowance for credit losses as of December 31, 2024 was adequate to absorb the expected losses in the portfolio as of that date.
DEPOSITS
Deposits totaled $3,357,596 as of December 31, 2024, which was an increase of 12.9 percent compared to December 31, 2023. Deposit growth in 2024 included a mix of public funds and commercial and consumer deposits. 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.
At December 31, 2024, the Company had $266,418 in brokered deposits, compared to $305,411 at December 31, 2023. Brokered deposits included fixed-rate time deposits with maturities through September 2025 and variable-rate deposits with terms through February 2026. The decrease in brokered deposits during 2024 was primarily due to core deposit growth. When necessary, brokered deposits are utilized, along with other wholesale funding sources, to fund loan growth and offset core deposit outflows.
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(dollars in thousands, except per share amounts)
The following table sets forth the average balances for each major category of deposits and the weighted average interest rate paid for those deposits during the years indicated.
Years ended December 31
2024 2023 2022
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Noninterest-bearing demand $ 528,391 — % $ 586,903 — % $ 708,667 — %
Interest-bearing demand:
Insured cash sweep 150,774 3.44 137,027 2.48 139,807 0.80
Other interest-bearing demand 315,464 1.11 330,147 1.09 366,082 0.37
Money market:
Insured cash sweep 241,444 4.00 249,574 3.58 323,970 1.01
Other money market 1,161,566 3.85 973,853 3.47 967,953 1.26
Savings 157,126 1.73 134,248 0.61 160,111 0.24
Time 639,278 4.92 424,320 3.83 291,732 1.49
$ 3,194,043 $ 2,836,072 $ 2,958,322
Management reduced interest rates on deposits in the fourth quarter of 2024 as a result of the reductions in the target federal funds rate by the Federal Reserve. Any deposit rate changes in 2025 will be dependent on market rates, liquidity needs and competition for deposit balances. To limit the Company’s exposure to market interest rate changes, interest rate swaps are in place on $110,000 of deposit balances that effectively convert certain customer deposits with variable rates to fixed-rate instruments.
Approximately 99 percent of the total time deposits issued by West Bank mature in the next year, including brokered time deposits. It is anticipated that a significant portion of the core time deposits will be renewed. In the event a substantial volume of core time deposits are not renewed, management believes the Company has sufficient liquid assets and funding sources to offset the potential runoff.
The following table shows the amounts and remaining maturities of time deposits with balances of $100 or more as of December 31, 2024.
3 months or less $ 246,691
Over 3 through 6 months 166,024
Over 6 through 12 months 183,137
Over 12 months 2,038
$ 597,890
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. We consider these reciprocal deposits to be in-market deposits as distinguished from traditional out-of-market brokered deposits. Time deposits as of December 31, 2024 and 2023, included $162,148 and $152,160, respectively, of reciprocal deposits. Included in total deposits as of December 31, 2024 and 2023, were $220,627 and $165,858, respectively, of reciprocal interest-bearing checking and $273,126 and $254,504, respectively, of reciprocal money market deposits.
Total estimated uninsured deposits were $1,562,981, $1,435,406 and $1,412,955 as of December 31, 2024, 2023 and 2022, respectively. The uninsured deposit amounts are estimated based on the methodologies and assumptions used for regulatory reporting requirements and include collateralized public unit deposits. The following table shows the amount of time deposits in excess of the insurance limit by maturity.
3 months or less $ 103,813
Over 3 through 6 months 65,597
Over 6 through 12 months 97,033
Over 12 months 810
$ 267,253
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BORROWED FUNDS
The fluctuation 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 or FHLB advances. Federal funds purchased and other short-term borrowings decreased from $150,270 as of December 31, 2023 to $0 as of December 31, 2024. This decrease was primarily due to the increase in customer deposits.
The Company had $270,000 of FHLB advances outstanding at December 31, 2024, compared to $315,000 at December 31, 2023. This decrease was due to two FHLB advances that matured in 2024 and were not renewed. One advance, with a balance of $20,000, was a term advance and the other advance, with a balance of $25,000, was part of the Company’s rolling funding program and associated with a corresponding interest rate swap agreement that also matured. As of December 31, 2024, all FHLB advances were hedged with long-term interest rate swaps as part of the Company’s rolling funding program. These interest rate swaps have maturity dates ranging from July 2026 through June 2029 and fixed rates ranging from 1.86 percent to 4.32 percent. This strategy of hedging short-term rolling funding effectively provides fixed cost wholesale funding through the maturity dates of the various interest rate swaps.
The Company has a credit agreement with an unaffiliated commercial bank. As of December 31, 2024, this borrowing had a balance of $31,250. Interest is payable quarterly. Required quarterly principal payments are $1,250, with the remaining balance due February 2027. The Company may make additional principal payments without penalty. The interest rate is variable at the Wall Street Journal Prime Rate minus 1.00 percent, which was 6.50 percent as of December 31, 2024. The Company has an interest rate swap contract that effectively converts $20,000 of this borrowing to a fixed rate of 6.40 percent through its maturity date.
In June 2022, the Company issued $60,000 of subordinated notes (Notes). The Notes initially bear interest at 5.25 percent per annum, with interest payable semi-annually for the first five years of the Notes. Beginning June 15, 2027, the interest rate will reset quarterly to a floating rate per annum that will be three-month term Secured Overnight Financing Rate (SOFR) plus 2.41 percent, with payments due quarterly. The Company may redeem the Notes, in whole or in part, on and after June 15, 2027 at a price equal to 100 percent of the principal amount of the Notes being redeemed plus accrued and unpaid interest. The Notes will mature on June 15, 2032 if they are not earlier redeemed. Proceeds from this debt issuance were used to make a $58,650 capital injection into West Bank, the Company’s subsidiary to fund organic growth.
The Company has an interest rate swap with a notional amount of $20,000 which converts variable-rate subordinated debentures to fixed-rate debt. The interest rate is a variable rate based on the 3-month term SOFR plus 0.26161 percent tenor spread adjustment plus 3.05 percent. This interest rate swap has a fixed rate of 4.81 percent and matures in September 2026.
West Bank’s new markets tax credit special purpose subsidiary has a credit agreement for $11,486 as of December 31, 2024. Interest is payable monthly over the term of the agreement with an interest rate of 1.00 percent. Monthly principal payments begin in January 2026, and the agreement matures in December 2048.
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, West Bank commits to extend credit in the form of loan commitments and standby letters of credit in order to meet the financing needs of its customers. These commitments expose West Bank to varying degrees of credit and market risks in excess of the amounts recognized in the consolidated balance sheets and are subject to the same credit policies as are the loans recorded on the balance sheets.
West Bank’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. West Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to lend are subject to borrowers’ continuing compliance with existing credit agreements. Off-balance sheet commitments are more fully discussed in Note 17 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
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As of December 31, 2024, the allowance for credit losses related to off-balance sheet commitments was $1,544. In 2024, the Company recorded a credit loss expense of negative $1,000 for unfunded commitments. The negative credit loss expense was primarily due to the decrease in the balance of unfunded commitments resulting from the funding of construction loans. 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.
LIQUIDITY AND CAPITAL RESOURCES
The objectives of liquidity management are to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for profitable business expansion. The Company’s principal source of funds is deposits. Other sources include loan principal repayments, proceeds from the maturity and sale of securities, principal payments on amortizing securities, federal funds purchased, advances from the FHLB and Federal Reserve Bank, other wholesale funding and funds provided by operations. Liquidity management is conducted on both a daily and a long-term basis. 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 West Bank’s asset-liability management policy. The Company had liquid assets (cash and cash equivalents) of $243,478 as of December 31, 2024 compared with $65,357 as of December 31, 2023.
Our deposit growth strategy emphasizes core deposit growth. Deposit inflows and outflows can vary widely and are influenced by prevailing market interest rates, competition, local and national economic conditions, and fluctuations in our business customers’ and municipal customers’ own liquidity needs. The Company utilizes brokered deposits and other wholesale funding to supplement core deposit fluctuations and loan growth. Brokered deposits are obtained through various programs administered by IntraFi® and through other third party brokers. At December 31, 2024, the Company had $266,418 in brokered deposits, which included fixed-rate time deposits with maturities through September 2025 and variable-rate deposits with terms through February 2026.
As of December 31, 2024, West Bank had additional borrowing capacity available from the FHLB of approximately $610,000, as well as approximately $116,840 through the Federal Reserve discount window and $75,000 through unsecured federal funds lines of credit. Net cash from continuing operating activities contributed $39,808, $25,249 and $59,439 to liquidity for the years ended December 31, 2024, 2023 and 2022, respectively. Management believed that the combination of high levels of potentially liquid assets, unencumbered securities, cash flows from operations and additional borrowing capacity provided the Company with sufficient liquidity as of December 31, 2024.
The Company’s total stockholders’ equity increased to $227,875 as of December 31, 2024 from $225,043 as of December 31, 2023. The increase was primarily due to retained income, partially offset by an increase in accumulated other comprehensive loss. At December 31, 2024, tangible common equity as a percent of tangible assets was 5.68 percent compared to 5.88 percent as of December 31, 2023. The increase in accumulated other comprehensive loss was driven by the increase in net unrealized losses on available for sale securities between December 31, 2023 and December 31, 2024, due to the increase in market interest rates. While accumulated other comprehensive losses reduce tangible common equity, they have no impact on regulatory capital. As of December 31, 2024 and 2023, the Company had no intangible assets.
The Company and West Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Capital requirements are more fully discussed under the heading “Supervision and Regulation” included in Item 1 and in Note 16 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. As of December 31, 2024, the Company and West Bank met all capital adequacy requirements to which they were subject, and the Company’s and West Bank’s capital ratios were in excess of the requirements to be considered well-capitalized under capital regulations. Also, as of December 31, 2024, the ratios for the Company and West Bank were sufficient to meet the capital conservation buffer.
EFFECTS OF NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
A discussion of the effects of new financial accounting standards and developments as they relate to the Company is located in Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
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