WEST BANCORPORATION INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of West Bancorporation, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of West Bancorporation, Inc. and its subsidiary (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 19, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 55 Table of Contents West Bancorporation, Inc. and Subsidiary Allowance for Credit Losses for Loans As described in Note 1 and Note 4 to the consolidated financial statements, the allowance for credit losses for loans (allowance) totaled $30.4 million at December 31, 2024. The allowance is a valuation account that is deducted from the amortized cost basis of loans to present the net amount of loans expected to be collected. The Company’s allowance reflects losses expected over the remaining contractual life of the loans. The Company’s allowance is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share similar risk characteristics are evaluated on an individual basis at the balance sheet date. At December 31, 2024 the reserve on loans collectively evaluated totaled $30.4 million and there was no reserve on loans individually evaluated. The measurement of the reserve is based on relevant information about the collectability of cash flows, including information about past events, current conditions and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about the future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical experience was observed. The Company uses a cash flow-based model to estimate expected credit losses for all loan segments. For each of the loan segments, the Company calculates a cash flow projection using contractual terms, estimated prepayment speeds, estimated curtailment rates and other relevant data. The Company uses a regression analysis that links historical losses of the Company and its peer group to two economic metrics: national unemployment rate and 10-year treasury rate over 2-year treasury rate spread to establish the loss rates applied to the projected cash flows. For all loan segments, the Company uses a forecast period of four quarters and reverts to a historical rate after four quarters. Qualitative factors are based on management’s judgment of the changes in underlying loan composition of specific portfolio, trends relating to credit quality and collateral values, company-specific data, or effects of other factors such as market competition or legal and regulatory requirements. The evaluation of these qualitative factors and forecasts requires that management make significant judgments and are highly sensitive to changes in significant assumptions. We identified the qualitative factors and forecasts applied to the allowance as a critical audit matter as auditing management’s determination of the qualitative factors and forecasts required significant auditor judgment as the estimate is highly sensitive to changes in significant assumptions. Our audit procedures related to the Company’s qualitative factors and forecasts in the allowance included the following, among others: • We obtained an understanding of the relevant controls related to management’s evaluation and establishment of the qualitative factors and forecasts of the allowance and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of the qualitative factors and forecasts and the underlying data used in determining those factors. • We tested management’s process and evaluated the reasonableness of their judgements and assumptions to develop the qualitative factors and forecasts, which included: ◦ Testing the relevancy and consistency of the data inputs used by management as a basis for the adjustments for qualitative factors and forecasts by comparing to internal and external, independently sourced data, including data related to current and forecasted periods. ◦ Evaluating the magnitude and directional consistency of the adjustments with trends in the loan portfolio, economy and various other relevant measures. ◦ Evaluating whether management’s conclusions were consistent with Company provided internal data and external, independently sourced data and agreeing the impact to the allowance calculation. /s/ RSM US LLP We have served as the Company’s auditor since 1998. Des Moines, Iowa February 19, 2025 56 Table of Contents West Bancorporation, Inc. and Subsidiary Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of West Bancorporation, Inc. Opinion on the Internal Control Over Financial Reporting We have audited West Bancorporation, Inc.’s (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2024 and 2023, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes to the consolidated financial statements of the Company and our report dated February 19, 2025 expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Managements’ Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ RSM US LLP Des Moines, Iowa February 19, 2025 57 Table of Contents West Bancorporation, Inc. and Subsidiary West Bancorporation, Inc. and Subsidiary Consolidated Balance Sheets December 31, 2024 and 2023 (dollars in thousands, except per share data) 2024 2023 ASSETS Cash and due from banks $ 28,750 $ 33,245 Interest-bearing deposits 214,728 32,112 Cash and cash equivalents 243,478 65,357 Securities available for sale, at fair value 544,565 623,919 Federal Home Loan Bank stock, at cost 15,129 22,957 Loans 3,004,860 2,927,535 Allowance for credit losses ( 30,432 ) ( 28,342 ) Loans, net 2,974,428 2,899,193 Premises and equipment, net 109,985 86,399 Accrued interest receivable 12,825 13,581 Bank-owned life insurance 44,990 43,864 Deferred tax assets, net 33,202 34,303 Other assets 36,389 36,185 Total assets $ 4,014,991 $ 3,825,758 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits: Noninterest-bearing demand $ 541,053 $ 548,726 Interest-bearing demand 543,855 481,207 Savings and money market 1,643,891 1,440,076 Time 628,797 503,770 Total deposits 3,357,596 2,973,779 Federal funds purchased and other short-term borrowings — 150,270 Subordinated notes, net 79,893 79,631 Federal Home Loan Bank advances 270,000 315,000 Long-term debt 42,736 47,736 Accrued expenses and other liabilities 36,891 34,299 Total liabilities 3,787,116 3,600,715 COMMITMENTS AND CONTINGENCIES (Note 17) STOCKHOLDERS’ EQUITY Preferred stock, $ 0.01 par value; authorized 50,000,000 shares; no shares issued and outstanding at December 31, 2024 and 2023 — — Common stock, no par value; authorized 50,000,000 shares; 16,832,632 and 16,725,094 shares issued and outstanding at December 31, 2024 and 2023, respectively 3,000 3,000 Additional paid-in capital 35,619 34,197 Retained earnings 278,613 271,369 Accumulated other comprehensive loss ( 89,357 ) ( 83,523 ) Total stockholders’ equity 227,875 225,043 Total liabilities and stockholders’ equity $ 4,014,991 $ 3,825,758 See Notes to Consolidated Financial Statements. 58 Table of Contents West Bancorporation, Inc. and Subsidiary West Bancorporation, Inc. and Subsidiary Consolidated Statements of Income Years Ended December 31, 2024, 2023 and 2022 (dollars in thousands, except per share data) 2024 2023 2022 Interest income: Loans, including fees $ 166,222 $ 142,923 $ 107,095 Securities: Taxable 13,030 13,696 12,524 Tax-exempt 3,219 3,517 3,527 Interest-bearing deposits 7,595 169 203 Total interest income 190,066 160,305 123,349 Interest expense: Deposits 97,284 66,796 22,629 Federal funds purchased and other short-term borrowings 4,248 9,532 1,764 Subordinated notes 4,431 4,442 2,867 Federal Home Loan Bank advances 10,313 7,694 2,669 Long-term debt 2,428 2,810 1,680 Total interest expense 118,704 91,274 31,609 Net interest income 71,362 69,031 91,740 Credit loss expense (benefit) 1,000 700 ( 2,500 ) Net interest income after credit loss expense (benefit) 70,362 68,331 94,240 Noninterest income: Service charges on deposit accounts 1,843 1,859 2,194 Debit card usage fees 1,919 1,980 1,969 Trust services 3,449 3,068 2,709 Increase in cash value of bank-owned life insurance 1,126 1,044 964 Gain from bank-owned life insurance — 691 — Loan swap fees — 431 835 Realized securities losses, net ( 1,172 ) ( 431 ) — Other income 1,269 1,424 1,537 Total noninterest income 8,434 10,066 10,208 Noninterest expense: Salaries and employee benefits 27,588 27,060 25,838 Occupancy and equipment 7,320 5,507 4,913 Data processing 2,991 2,790 2,597 Technology and software 2,896 2,341 2,137 FDIC insurance 2,560 1,750 996 Professional fees 1,041 1,026 874 Director fees 828 892 814 Other expenses 6,129 7,245 6,882 Total noninterest expense 51,353 48,611 45,051 Income before income taxes 27,443 29,786 59,397 Income taxes 3,393 5,649 12,998 Net income $ 24,050 $ 24,137 $ 46,399 Basic earnings per common share $ 1.43 $ 1.44 $ 2.79 Diluted earnings per common share $ 1.42 $ 1.44 $ 2.76 See Notes to Consolidated Financial Statements. 59 Table of Contents West Bancorporation, Inc. and Subsidiary West Bancorporation, Inc. and Subsidiary Consolidated Statements of Comprehensive Income Years Ended December 31, 2024, 2023 and 2022 (dollars in thousands) 2024 2023 2022 Net income $ 24,050 $ 24,137 $ 46,399 Other comprehensive income (loss): Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period ( 8,190 ) 16,514 ( 132,009 ) Plus: reclassification adjustment for net losses realized in net income 1,172 431 — Income tax (expense) benefit 1,687 ( 4,498 ) 33,350 Other comprehensive income (loss) on securities ( 5,331 ) 12,447 ( 98,659 ) Unrealized gains (losses) on derivatives: Unrealized holding gains arising during the period 9,759 4,291 23,595 Plus: reclassification adjustment for net (gains) losses realized in net income ( 10,456 ) ( 10,249 ) 206 Income tax (expense) benefit 194 1,459 ( 5,976 ) Other comprehensive income (loss) on derivatives ( 503 ) ( 4,499 ) 17,825 Total other comprehensive income (loss) ( 5,834 ) 7,948 ( 80,834 ) Comprehensive income (loss) $ 18,216 $ 32,085 $ ( 34,435 ) See Notes to Consolidated Financial Statements. 60 Table of Contents West Bancorporation, Inc. and Subsidiary West Bancorporation, Inc. and Subsidiary Consolidated Statements of Stockholders’ Equity Years Ended December 31, 2024, 2023 and 2022 Accumulated Additional Other Preferred Common Stock Paid-in Retained Comprehensive (in thousands, except share and per share data) Stock Shares Amount Capital Earnings Income (Loss) Total Balance, December 31, 2021 $ — 16,554,846 $ 3,000 $ 30,183 $ 237,782 $ ( 10,637 ) $ 260,328 Net income — — — — 46,399 — 46,399 Other comprehensive loss, net of tax — — — — — ( 80,834 ) ( 80,834 ) Cash dividends declared, $ 1.00 per common share — — — — ( 16,619 ) — ( 16,619 ) Stock-based compensation costs — — — 3,357 — — 3,357 Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes — 85,567 — ( 1,519 ) — — ( 1,519 ) Balance, December 31, 2022 — 16,640,413 3,000 32,021 267,562 ( 91,471 ) 211,112 Cumulative effect of change in accounting principle (1) — — — — ( 3,626 ) — ( 3,626 ) Net income — — — — 24,137 — 24,137 Other comprehensive income, net of tax — — — — — 7,948 7,948 Cash dividends declared, $ 1.00 per common share — — — — ( 16,704 ) — ( 16,704 ) Stock-based compensation costs — — — 3,111 — — 3,111 Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes — 84,681 — ( 935 ) — — ( 935 ) Balance, December 31, 2023 — 16,725,094 3,000 34,197 271,369 ( 83,523 ) 225,043 Net income — — — — 24,050 — 24,050 Other comprehensive loss, net of tax — — — — — ( 5,834 ) ( 5,834 ) Cash dividends declared, $ 1.00 per common share — — — — ( 16,806 ) — ( 16,806 ) Stock-based compensation costs — — — 2,509 — — 2,509 Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes — 107,538 — ( 1,087 ) — — ( 1,087 ) Balance, December 31, 2024 $ — 16,832,632 $ 3,000 $ 35,619 $ 278,613 $ ( 89,357 ) $ 227,875 (1) Cumulative effect adjustment pursuant to adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. See Note 1 for additional information. See Notes to Consolidated Financial Statements. 61 Table of Contents West Bancorporation, Inc. and Subsidiary West Bancorporation, Inc. and Subsidiary Consolidated Statements of Cash Flows Years Ended December 31, 2024, 2023 and 2022 (dollars in thousands) 2024 2023 2022 Cash Flows from Operating Activities: Net income $ 24,050 $ 24,137 $ 46,399 Adjustments to reconcile net income to net cash provided by operating activities: Credit loss expense (benefit) 1,000 700 ( 2,500 ) Net amortization and accretion 3,200 3,293 2,965 Securities losses, net 1,172 431 — Stock-based compensation 2,509 3,111 3,357 Increase in cash value of bank-owned life insurance ( 1,126 ) ( 1,044 ) ( 964 ) Gain from bank-owned life insurance — ( 691 ) — Depreciation 3,723 1,856 1,498 Provision for deferred income taxes 2,982 447 1,583 Change in assets and liabilities: (Increase) decrease in accrued interest receivable 756 ( 1,593 ) ( 3,098 ) (Increase) decrease in other assets ( 1,450 ) ( 2,794 ) 1,005 Increase (decrease) in accrued expenses and other liabilities 2,992 ( 2,604 ) 9,194 Net cash provided by operating activities 39,808 25,249 59,439 Cash Flows from Investing Activities: Proceeds from sales of securities available for sale 11,841 11,285 — Proceeds from principal paydowns, maturities and calls of securities available for sale 56,361 42,370 79,959 Purchases of securities available for sale — — ( 120,077 ) Purchases of Federal Home Loan Bank stock ( 57,683 ) ( 115,480 ) ( 75,092 ) Proceeds from redemption of Federal Home Loan Bank stock 65,511 111,859 65,721 Net increase in loans ( 77,235 ) ( 184,788 ) ( 287,031 ) Proceeds of principal and earnings from bank-owned life insurance — 2,458 — Purchases of premises and equipment ( 26,136 ) ( 36,387 ) ( 21,311 ) Net cash used in investing activities ( 27,341 ) ( 168,683 ) ( 357,831 ) Cash Flows from Financing Activities: Net increase (decrease) in deposits 383,817 93,371 ( 135,597 ) Net increase (decrease) in federal funds purchased and other short-term borrowings ( 150,270 ) ( 49,730 ) 197,120 Net increase (decrease) in Federal Home Loan Bank advances ( 45,000 ) 160,000 30,000 Proceeds from issuance of subordinated debt, net of issuance costs — — 58,756 Principal payments on long-term debt ( 5,000 ) ( 3,750 ) ( 35 ) Common stock dividends paid ( 16,806 ) ( 16,704 ) ( 16,619 ) Restricted stock units withheld for payroll taxes ( 1,087 ) ( 935 ) ( 1,519 ) Net cash provided by financing activities 165,654 182,252 132,106 Net increase (decrease) in cash and cash equivalents 178,121 38,818 ( 166,286 ) Cash and Cash Equivalents: Beginning 65,357 26,539 192,825 Ending $ 243,478 $ 65,357 $ 26,539 Supplemental Disclosure of Cash Flow Information: Cash payments for: Interest $ 116,996 $ 87,846 $ 28,868 Income taxes 1,480 5,720 10,630 See Notes to Consolidated Financial Statements. 62 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 1. Organization and Nature of Business and Summary of Significant Accounting Policies Organization and nature of business : West Bancorporation, Inc. operates in the commercial banking industry through its wholly-owned subsidiary, West Bank. West Bank is a state chartered bank and has its main office in West Des Moines, Iowa, with five additional offices located in the Des Moines, Iowa, metropolitan area, one office located in Coralville, Iowa, and four offices located in Minnesota, in the cities of Rochester, Owatonna, Mankato and St. Cloud. As used herein, the term “Company” refers to West Bancorporation, Inc., or if the context dictates, West Bancorporation, Inc. and its subsidiary. Significant accounting policies : Accounting estimates and assumptions : The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) established by the Financial Accounting Standards Board (FASB). References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification TM , sometimes referred to as the Codification or ASC. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term are the allowance for credit losses. Consolidation policy : The consolidated financial statements include the accounts of the Company, West Bank and West Bank’s special purpose subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In addition, the Company owns an unconsolidated subsidiary, West Bancorporation Capital Trust I (the Trust), which was formed for the purpose of issuing trust preferred securities. In accordance with GAAP, the results of the Trust are recorded on the books of the Company using the equity method of accounting and are not consolidated . Segment information: An operating segment is generally defined as a component of a business for which discrete financial information is available and whose operating results are regularly reviewed by the chief operating decision maker. As a community-oriented financial institution, substantially all of West Bank’s operations involve the delivery of loan and deposit products to customers. The chief operating decision maker makes operating decisions and assesses performance based on an ongoing review of the community banking activities, which constitutes the Company’s only operating segment for financial reporting purposes. The Company’s single segment is managed on a consolidated basis by the chief operating decision maker who is the Company’s chief executive officer. The accounting policies of this segment are the same as those described throughout these significant accounting policies. The chief operating decision maker assesses performance of the segment and determines the allocation of resources based on consolidated net income, which is reported in the Consolidated Statements of Income. Consolidated net income is used in deciding where to deploy capital and to monitor budget vs. actual results. It is also used in benchmarking performance measures to Company peers for compensation related analysis. The measure of segment assets is reported on the Consolidated Balance Sheets as total consolidated assets. Comprehensive income : Comprehensive income consists of net income and other comprehensive income (OCI). OCI consists of the net change in unrealized gains and losses on the Company’s securities available for sale and the change in fair value of derivative instruments designated as hedges. Cash and cash equivalents and cash flows : For statement of cash flow purposes, the Company considers cash, due from banks and interest-bearing deposits to be cash and cash equivalents. Cash inflows and outflows from loans, deposits, federal funds purchased and short-term borrowings and FHLB advances are reported on a net basis. Securities Available for Sale : Securities that may be sold for general liquidity needs, in response to market interest rate fluctuations, implementation of asset-liability management strategies, funding loan demand, changes in securities prepayment risk or other similar factors are classified as available for sale and reported at fair value, with unrealized gains and losses reported as a separate component of accumulated other comprehensive income (AOCI), net of deferred income taxes. Realized gains and losses on sales of securities are computed on a specific identification basis based on amortized cost. 63 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The amortized cost of securities available for sale is adjusted for accretion of discounts to maturity and amortization of premiums over the estimated life of each security or, in the case of callable securities, through the first call date, using the effective yield method. Such amortization and accretion is included in interest income. Interest income on securities is recognized using the interest method according to the terms of the security. The Company evaluates each of its securities whose value has declined below amortized cost to determine if any of the decline is due to a credit loss. If the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the security is written down to fair value through income. Subsequent to this evaluation, the Company evaluates whether any individual securities in an unrealized loss position represent credit losses that require an allowance for credit loss. Decreases in fair value attributable to credit losses would be recorded to earnings as a credit loss expense with a corresponding allowance for credit losses, limited by the amount the fair value is less than the amortized cost basis. If the credit quality subsequently improves, the allowance would be reversed, up to a maximum of the previously recorded credit loss. Accrued interest receivable is excluded from the estimate of credit losses. Federal Home Loan Bank stock : West Bank, as a member of the FHLB system, is required to maintain an investment in capital stock of the FHLB according to a predetermined formula as required to support borrowing activities. No ready market exists for the FHLB stock, and it has no quoted market value. The Company evaluates this asset for impairment on a quarterly basis and determined there was no impairment as of December 31, 2024. All shares of FHLB stock are issued and redeemed at par value. Loans : Loans are stated at the principal amounts outstanding, net of unamortized loan fees and costs, with interest income recognized on the interest method based upon the terms of the loan. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Loans are reported by the portfolio segments identified and are analyzed by management on this basis. All loan policies identified below apply to all segments of the loan portfolio. Delinquencies are determined based on the payment terms of the individual loan agreements. The accrual of interest on past due and other impaired loans is generally discontinued at 90 days past due or when, in the opinion of management, the borrower may be unable to make all payments pursuant to contractual terms. Unless considered collectible, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income, if accrued in the current year, or charged to the allowance for credit losses, if accrued in a prior year. Generally, all payments received while a loan is on nonaccrual status are applied to the principal balance of the loan. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Based upon its ongoing assessment of credit quality within the loan portfolio, the Company maintains a Watch List, which includes loans classified as Doubtful, Substandard and Watch according to the Company’s classification criteria. These loans involve the anticipated potential for payment defaults or collateral inadequacies. If it is determined that a loan on the Watch List no longer shares risk characteristics with the pooled loans, it will be individually evaluated for credit losses. For collateral dependent loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loans to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan. Allowance for credit losses : The allowance for credit losses is a valuation account estimated at each balance sheet date and deducted from the amortized cost basis of loans to present the net amount expected to be collected. The Company estimates the ACL based on the underlying loans’ amortized cost basis, which is the amount at which the loan is originated or acquired, adjusted for collection of cash and charge-offs, as well as applicable accretion or amortization of premiums, discounts, and net deferred fees or costs. The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. When the Company deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a loan is deemed uncollectible; however, generally speaking, a loan will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received. 64 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The Company measures the ACL of loans on a collective (pool) basis when the loans share similar risk characteristics and uses a cash flow-based 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 future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical experience was observed. In addition to the historical loss information, the Company utilizes qualitative factors to adjust the ACL as appropriate. Qualitative factors are based on management’s judgment of the changes in underlying loan composition of specific portfolios, trends relating to credit quality and collateral values, company-specific data, or effects of other factors such as market competition or legal and regulatory requirements. Loans that do not share similar risk characteristics with the pooled loans are evaluated for credit losses on an individual basis. In addition, regulatory agencies, as integral parts of their examination processes, periodically review the Company’s allowance for credit losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations. Premises and equipment : Premises and equipment are stated at cost less accumulated depreciation. The straight-line method of depreciation and amortization is used for calculating expense. The estimated useful lives of premises and equipment range up to 40 years for buildings, up to 10 years for furniture and equipment, and the shorter of the estimated useful life or lease term for leasehold improvements. The Company reviews its property and equipment whenever events indicate that the carrying amount of an asset group may not be recoverable. An impairment loss is recorded when the sum of the undiscounted future cash flows is less than the carrying amount of the asset group. An impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its fair value. Other real estate owned : Real estate properties acquired through or in lieu of foreclosure are initially recorded at fair value less estimated selling cost at the date of foreclosure, establishing a new cost basis. Fair value is determined by management by obtaining appraisals or other market value information at the time of foreclosure. Any write-downs in value at the date of acquisition are charged to the allowance for credit losses. After foreclosure, valuations are periodically performed by management by obtaining updated appraisals or other market value information at least annually. Any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the updated fair value less estimated selling cost. Net costs related to the holding of properties are included in noninterest expense. As of December 31, 2024 and 2023, the Company had no other real estate owned. Trust assets : Assets held by West Bank in fiduciary or agency capacities, other than trust cash on deposit at West Bank, are not included in the consolidated balance sheets of the Company, as such assets are not assets of West Bank. The Company managed or administered accounts with assets totaling $ 640,069 and $ 612,190 as of December 31, 2024 and 2023, respectively. Bank-owned life insurance : The carrying amount of bank-owned life insurance consists of the initial premium paid, plus increases in cash value, less the carrying amount associated with any death benefit received. Death benefits paid in excess of the applicable carrying amount are recognized as income. Increases in cash value and the portion of death benefits recognized as income are exempt from income taxes. 65 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Derivatives: The Company uses derivative financial instruments, which consist of interest rate swaps, to assist in its interest rate risk management. All derivatives are measured and reported at fair value on the Company’s consolidated balance sheet as other assets or other liabilities. The Company records cash flow hedges at the inception of the derivative contract based on the Company’s intentions and belief as to likely effectiveness as a hedge. The Company documents the strategy for entering into the transactions and the method of assessing ongoing effectiveness. Cash flow hedges represent a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability. For a cash flow hedge that is effective, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. The changes in the fair value of derivatives that are not highly effective in hedging the changes in expected cash flows of the hedged item are recognized immediately in current earnings. All of the Company’s cash flow hedges qualify for hedge accounting and are considered highly effective. Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged. To determine fair value, the Company uses third-party pricing models that incorporate assumptions about market conditions and risks that are current at the reporting date. The Company does not use derivative instruments for trading or speculative purposes. The Company formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended. When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods in which the hedged transactions will affect earnings. To accommodate customer needs, the Company on occasion offers loan level interest rate swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a swap counterparty (back-to-back swap program). The interest rate swaps are free-standing derivatives and are recorded at fair value. The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge accounting. Stock-based compensation: Compensation expense for stock-based awards is recorded over the vesting period, or until the participant reaches full retirement age if less than the vesting period, at the fair value of the award at the time of grant. Certain grants of restricted stock units (RSUs) are subject to performance-based vesting and cliff vest based on those conditions. Compensation expense is recognized over the service period to the extent restricted stock awards are expected to vest. The fair value of RSUs granted under the Company’s incentive plans is equal to the fair market value of the underlying stock at the grant date, adjusted for dividends and required post vesting holding periods where applicable. The Company has elected to record forfeitures as they occur . See Note 13 Stock Compensation Plans for further information. Deferred compensation: The West Bancorporation, Inc. Deferred Compensation Plan (the Deferred Compensation Plan) provides certain individuals with additional deferral opportunities in planning for retirement. Eligible participants, including directors and key officers of the Company, may choose to voluntarily defer receipt of a portion of their respective cash compensation. The Deferred Compensation Plan is an unfunded, nonqualified deferred compensation plan intended to conform to the requirements of Section 409A of the Internal Revenue Code. Liabilities accrued under the Deferred Compensation Plan totaled $ 1,404 and $ 1,021 as of December 31, 2024 and 2023, respectively. 66 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Income taxes : The Company files a consolidated federal income tax return. Income tax expense is generally allocated as if the Company and its subsidiary file separate income tax returns. Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, capital losses and net operating losses, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. When tax returns are filed, it is highly certain that some tax positions taken will be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the positions taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and is not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. Management does not believe the Company has any material uncertain tax positions to disclose. Interest and penalties, if any, related to income taxes are recorded as other noninterest expense in the consolidated income statements in the year assessed. Revenue recognition : Revenue from deposit account-related fees, including general service fees charged for deposit account maintenance and activity and transaction-based fees charged for certain services, such as debit card, wire transfer or overdraft activities, is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services. Trust services, which include periodic fees earned from trusts and investment management agency accounts, estate administration, custody accounts, individual retirement accounts, and other related services, are charged based on standard agreements or by statute and are recognized over the period of time the Company provides the contracted services. Earnings per common share : Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflect the potential dilution that could occur if the Company’s outstanding RSUs were vested. The dilutive effect is computed using the treasury stock method, which assumes all stock-based awards were exercised and the hypothetical proceeds from exercise were used by the Company to purchase common stock at the average market price during the period. Current accounting developments : In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. They provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update were effective for all entities as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope . The amendments in this update refined the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to apply to derivative contracts and certain hedging relationships affected by the discounting transition. The amendments in this update were effective for all entities as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 . The amendment in this update extended the period of time preparers could utilize reference rate reform relief guidance in Topic 848, discussed above. ASU No. 2022-06 deferred the sunset date from December 31, 2022 to December 31, 2024. This update did not have a material impact on the Company’s financial statements. 67 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) In March 2023, the FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using Proportional Amortization Method . The ASU is intended to improve the accounting and disclosures for investments in tax credit structures. It allows reporting entities to elect to adopt for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The implementation of this ASU did not have a material impact on the Company’s financial statements. In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative . The ASU incorporates certain SEC disclosure requirements into the FASB A ccounting Standards Codification TM. . The amendments in the ASU are expected to clarify or improve disclosure presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. These amendments have not had an impact to the Company as of December 31, 2024. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company adopted this guidance effective December 31, 2024. Refer to “Segment information” section of Note 1 for additional information regarding segments. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The ASU is intended to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation table and income taxes paid to be disaggregated by jurisdiction. It also includes certain amendments to improve the effectiveness of income tax disclosures. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2024. The Company adopted this guidance effective January 1, 2025 and will provide the required disclosures in the Company’s 2025 filings. In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses . The amendments in this ASU require public companies to disclose, in the notes to the financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Additionally, in January 2025, the FASB issued ASU No. 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date . This ASU amends the effective date of ASU No. 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU No. 2024-03 is permitted. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements. 68 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 2. Earnings per Common Share The calculation of earnings per common share and diluted earnings per common share is presented below for the years ended December 31, 2024, 2023 and 2022. (in thousands, except per share data) 2024 2023 2022 Net income $ 24,050 $ 24,137 $ 46,399 Weighted average common shares outstanding 16,806 16,704 16,620 Weighted average effect of restricted stock units outstanding 89 46 178 Diluted weighted average common shares outstanding 16,895 16,750 16,798 Basic earnings per common share $ 1.43 $ 1.44 $ 2.79 Diluted earnings per common share $ 1.42 $ 1.44 $ 2.76 Number of anti-dilutive common stock equivalents excluded from diluted earnings per share computation 293 412 152 69 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 3. Securities Available for Sale The following tables show the amortized cost, gross unrealized gains and losses and fair value of securities available for sale, by security type as of December 31, 2024 and 2023. 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities available for sale: State and political subdivisions $ 215,942 $ — $ ( 41,797 ) $ 174,145 Collateralized mortgage obligations (1) 278,754 — ( 59,490 ) 219,264 Mortgage-backed securities (1) 145,992 — ( 26,173 ) 119,819 Collateralized loan obligations 18,932 33 — 18,965 Corporate notes 13,750 — ( 1,378 ) 12,372 $ 673,370 $ 33 $ ( 128,838 ) $ 544,565 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities available for sale: State and political subdivisions $ 231,413 $ 19 $ ( 38,427 ) $ 193,005 Collateralized mortgage obligations (1) 305,200 — ( 55,267 ) 249,933 Mortgage-backed securities (1) 157,711 — ( 25,873 ) 131,838 Collateralized loan obligations 37,632 — ( 96 ) 37,536 Corporate notes 13,750 — ( 2,143 ) 11,607 $ 745,706 $ 19 $ ( 121,806 ) $ 623,919 (1) Collateralized mortgage obligations and mortgage-backed securities consist of residential and commercial mortgage pass-through securities and collateralized mortgage obligations guaranteed by FNMA, FHLMC, GNMA and SBA. Securities with an amortized cost of approximately $ 572,491 and $ 447,074 as of December 31, 2024 and 2023, respectively, were pledged to secure access to FHLB advances and Federal Reserve credit programs, for public fund deposits, and for other purposes as required or permitted by law or regulation. The amortized cost and fair value of securities available for sale as of December 31, 2024, by contractual maturity, are shown below. Certain securities have call features that allow the issuer to call the securities prior to maturity. Expected maturities may differ from contractual maturities for collateralized mortgage obligations and mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, collateralized mortgage obligations and mortgage-backed securities are not included in the maturity categories within the following maturity summary. 2024 Amortized Cost Fair Value Due after five years through ten years $ 53,979 $ 49,488 Due after ten years 194,645 155,994 248,624 205,482 Collateralized mortgage obligations and mortgage-backed securities 424,746 339,083 $ 673,370 $ 544,565 70 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The details of the sales of securities available for sale for the years ended December 31, 2024, 2023 and 2022 are summarized in the following table. 2024 2023 2022 Proceeds from sales $ 11,841 $ 11,285 $ — Gross gains on sales — — — Gross losses on sales 1,172 431 — The following tables show the fair value and gross unrealized losses, aggregated by investment type and length of time that individual securities have been in a continuous loss position, as of December 31, 2024 and 2023. 2024 Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses No. of Securities Fair Value Gross Unrealized Losses No. of Securities Fair Value Gross Unrealized Losses Securities available for sale: State and political subdivisions $ 4,485 $ ( 271 ) 7 $ 169,650 $ ( 41,526 ) 90 $ 174,135 $ ( 41,797 ) Collateralized mortgage obligations — — — 219,264 ( 59,490 ) 69 219,264 ( 59,490 ) Mortgage-backed securities 610 ( 3 ) 1 119,209 ( 26,170 ) 25 119,819 ( 26,173 ) Corporate notes — — — 12,372 ( 1,378 ) 8 12,372 ( 1,378 ) $ 5,095 $ ( 274 ) 8 $ 520,495 $ ( 128,564 ) 192 $ 525,590 $ ( 128,838 ) 2023 Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses No. of Securities Fair Value Gross Unrealized Losses No. of Securities Fair Value Gross Unrealized Losses Securities available for sale: State and political subdivisions $ 3,353 $ ( 89 ) 5 $ 184,522 $ ( 38,338 ) 92 $ 187,875 $ ( 38,427 ) Collateralized mortgage obligations — — — 249,933 ( 55,267 ) 72 249,933 ( 55,267 ) Mortgage-backed securities — — — 131,838 ( 25,873 ) 27 131,838 ( 25,873 ) Collateralized loan obligations — — — 37,536 ( 96 ) 6 37,536 ( 96 ) Corporate notes — — — 11,607 ( 2,143 ) 8 11,607 ( 2,143 ) $ 3,353 $ ( 89 ) 5 $ 615,436 $ ( 121,717 ) 205 $ 618,789 $ ( 121,806 ) If the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the security is written down to fair value through income. As of December 31, 2024 and December 31, 2023, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the securities in an unrealized loss position prior to recovery. As of December 31, 2024 and December 31, 2023, the Company also determined that no individual securities in an unrealized loss position represented credit losses that would require an allowance for credit losses. The Company concluded that the unrealized losses were primarily attributable to increases in market interest rates since these securities were purchased and other market conditions. Accrued interest receivable is not included in available-for-sale security balances and is presented in the “Accrued interest receivable” line of the Consolidated Balance Sheets. Interest receivable on securities was $ 2,842 and $ 3,271 as of December 31, 2024 and December 31, 2023, respectively, and was excluded from the estimate of credit losses. 71 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 4. Loans and Allowance for Credit Losses Loans consisted of the following segments as of December 31, 2024 and 2023. 2024 2023 Commercial $ 514,232 $ 531,594 Real estate: Construction, land and land development 508,147 413,477 1-4 family residential first mortgages 87,858 106,688 Home equity 19,294 14,618 Commercial 1,861,195 1,854,510 Consumer and other 17,287 10,930 3,008,013 2,931,817 Net unamortized fees and costs ( 3,153 ) ( 4,282 ) $ 3,004,860 $ 2,927,535 The loan portfolio included $ 1,878,063 and $ 2,003,699 of fixed-rate loans and $ 1,129,950 and $ 928,118 of variable-rate loans as of December 31, 2024 and 2023, respectively. Real estate loans of approximately $ 1,470,000 and $ 1,420,000 were pledged as security for FHLB advances as of December 31, 2024 and 2023, respectively. The Company has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, executive officers, their immediate families, and affiliated companies in which they are principal stockholders or executive officers (commonly referred to as related parties), all of which have been originated, in the opinion of management, on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties. None of these loans are past due, on nonaccrual status or restructured to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. There were no loans to a related party that the Company considered adversely classified at December 31, 2024 or 2023. Loan transactions with related parties were as follows for the years ended December 31, 2024, 2023 and 2022. 2024 2023 2022 Balance, beginning of year $ 110,293 $ 155,789 $ 143,768 New loans 6 1,699 42,371 Repayments ( 22,398 ) ( 16,513 ) ( 20,650 ) Effect of change in director status — ( 30,682 ) ( 9,700 ) Balance, end of year $ 87,901 $ 110,293 $ 155,789 72 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Allowance for Credit Losses for Loans The following tables detail the changes in the ACL by loan segment for the years ended December 31, 2024 and 2023. 2024 Real Estate Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total Beginning balance $ 5,291 $ 3,668 $ 704 $ 142 $ 18,420 $ 117 $ 28,342 Charge-offs ( 20 ) — — — — — ( 20 ) Recoveries 51 13 42 4 — — 110 Provision for credit loss expense (1) 167 673 ( 96 ) 54 1,124 78 2,000 Ending balance $ 5,489 $ 4,354 $ 650 $ 200 $ 19,544 $ 195 $ 30,432 2023 Real Estate Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total Beginning balance $ 4,804 $ 3,548 $ 357 $ 101 $ 16,575 $ 88 $ 25,473 Adoption of CECL 677 ( 234 ) 121 ( 8 ) 1,911 ( 9 ) 2,458 Charge-offs ( 55 ) ( 39 ) ( 40 ) — — — ( 134 ) Recoveries 36 2 2 5 — — 45 Provision for credit loss expense (1) ( 171 ) 391 264 44 ( 66 ) 38 500 Ending balance $ 5,291 $ 3,668 $ 704 $ 142 $ 18,420 $ 117 $ 28,342 (1) The negative provisions for the various segments are related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed, improvement in qualitative risk factors related to those portfolio segments and/or changes in economic forecasts. Prior to the adoption of ASU No. 2016-13 on January 1, 2023, the Company calculated the allowance for loan losses using the incurred loss methodology. The following table presents the activity in the allowance for loan losses by segment for the year ended December 31, 2022. 2022 Real Estate Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total Beginning balance $ 4,776 $ 3,646 $ 339 $ 91 $ 19,466 $ 46 $ 28,364 Charge-offs — — ( 31 ) — ( 451 ) — ( 482 ) Recoveries 29 — 33 4 25 — 91 Provision for loan losses (1) ( 1 ) ( 98 ) 16 6 ( 2,465 ) 42 ( 2,500 ) Ending balance $ 4,804 $ 3,548 $ 357 $ 101 $ 16,575 $ 88 $ 25,473 (1) The negative provisions for the various segments are related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed and/or improvement in the credit quality factors related to those portfolio segments 73 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The following tables present a breakdown of the allowance for credit losses by segment, disaggregated based on the evaluation method as of December 31, 2024 and 2023. December 31, 2024 Real Estate Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total Ending balance: Individually evaluated for credit losses $ — $ — $ — $ — $ — $ — $ — Collectively evaluated for credit losses 5,489 4,354 650 200 19,544 195 30,432 Total $ 5,489 $ 4,354 $ 650 $ 200 $ 19,544 $ 195 $ 30,432 December 31, 2023 Real Estate Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total Ending balance: Individually evaluated for credit losses $ — $ — $ — $ — $ — $ — $ — Collectively evaluated for credit losses 5,291 3,668 704 142 18,420 117 28,342 Total $ 5,291 $ 3,668 $ 704 $ 142 $ 18,420 $ 117 $ 28,342 The following tables present the recorded investment in loans, exclusive of unamortized fees and costs, disaggregated based on the evaluation method by segment as of December 31, 2024 and 2023. December 31, 2024 Real Estate Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total Ending balance: Individually evaluated for credit losses $ — $ — $ 133 $ — $ — $ — $ 133 Collectively evaluated for credit losses 514,232 508,147 87,725 19,294 1,861,195 17,287 3,007,880 Total $ 514,232 $ 508,147 $ 87,858 $ 19,294 $ 1,861,195 $ 17,287 $ 3,008,013 December 31, 2023 Real Estate Commercial Construction and Land 1-4 Family Residential Home Equity Commercial Consumer and Other Total Ending balance: Individually evaluated for credit losses $ — $ — $ 296 $ — $ — $ — $ 296 Collectively evaluated for credit losses 531,594 413,477 106,392 14,618 1,854,510 10,930 2,931,521 Total $ 531,594 $ 413,477 $ 106,688 $ 14,618 $ 1,854,510 $ 10,930 $ 2,931,817 74 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The ACL is a valuation account estimated at each balance sheet date and deducted from the amortized cost basis of loans to present the net amount expected to be collected. The Company estimates the ACL based on the underlying loans' amortized cost basis, which is the amount at which the loan is originated or acquired, adjusted for collection of cash and charge-offs, as well as applicable accretion or amortization of premiums, discounts, and net deferred fees or costs. The Company's estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected restructuring. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of the ACL. Accrued interest on loans of $ 9,835 and $ 10,292 at December 31, 2024 and 2023, respectively, was included in accrued interest receivable on the balance sheet and was excluded from the estimate of credit losses. Expected credit losses are reflected in the allowance for credit losses through a charge to credit loss expense. When the Company deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a loan is deemed uncollectible; however, generally speaking, a loan will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received. The Company measures expected credit losses of loans on a collective (pool) basis when the loans share similar risk characteristics and uses a cash flow-based 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 future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical experience was observed. In addition to the historical loss information, the Company utilizes qualitative factors to adjust the ACL as appropriate. Qualitative factors are based on management’s judgment of the changes in underlying loan composition of specific portfolios, trends relating to credit quality and collateral values, company-specific data, or effects of other factors such as market competition or legal and regulatory requirements. The Company uses a cash flow-based model to estimate expected credit losses for all loan segments. For each of the loan segments, the Company calculates a cash flow projection using contractual terms, estimated prepayment speeds, estimated curtailment rates, and other relevant data. The Company uses regression analysis that links historical losses of the Company and a peer group to two economic metrics: national unemployment rate and 10-year treasury rate over 2-year treasury rate spread to establish the loss rates applied to the projected cash flows. For all loan segments, the Company uses a forecast period of four quarters and reverts to a historical rate after four quarters. When estimating prepayment speed and curtailment rates, the modeling is based on historical internal data. 75 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Nonaccrual Loans and Delinquency Status Delinquencies are determined based on the payment terms of the individual loan agreements. The accrual of interest on past due and other individually evaluated loans is generally discontinued at 90 days past due or when, in the opinion of management, the borrower may be unable to make all payments pursuant to contractual terms. Unless considered collectible, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Generally, all payments received while a loan is on nonaccrual status are applied to the principal balance of the loan. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. The following table presents the amortized cost basis of loans on nonaccrual status, loans on nonaccrual status with no allowance for credit losses recorded, and loans past due 90 days or more and still accruing by loan segment. Total Nonaccrual Nonaccrual with no Allowance for Credit Losses 90 Days or More Past Due and Accruing December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 Commercial $ — $ — $ — $ — $ — $ — Real estate: Construction, land and land development — — — — — — 1-4 family residential first mortgages 133 296 133 296 — — Home equity — — — — — — Commercial — — — — — — Consumer and other — — — — — — Total $ 133 $ 296 $ 133 $ 296 $ — $ — There was $ 91 and $ 0 interest income recognized on loans that were on nonaccrual for the years ended December 31, 2024 and 2023, respectively. Interest income forgone on nonaccrual loans was $ 19 , $ 15 and $ 144 , respectively, during the years ended December 31, 2024, 2023 and 2022. 76 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The following tables provide an analysis of the delinquency status of the amortized cost of loans as of December 31, 2024 and 2023. December 31, 2024 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Commercial $ — $ — $ — $ — $ 514,232 $ 514,232 Real estate: Construction, land and land development — — — — 508,147 508,147 1-4 family residential first mortgages — — — — 87,858 87,858 Home equity — — — — 19,294 19,294 Commercial — — — — 1,861,195 1,861,195 Consumer and other — — — — 17,287 17,287 Total $ — $ — $ — $ — $ 3,008,013 $ 3,008,013 December 31, 2023 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Commercial $ — $ — $ — $ — $ 531,594 $ 531,594 Real estate: Construction, land and land development — — — — 413,477 413,477 1-4 family residential first mortgages — — — — 106,688 106,688 Home equity — — — — 14,618 14,618 Commercial — — — — 1,854,510 1,854,510 Consumer and other — — — — 10,930 10,930 Total $ — $ — $ — $ — $ 2,931,817 $ 2,931,817 Loan Restructurings Made to Borrowers Experiencing Financial Difficulty As of December 31, 2024 and 2023, the Company had no loan restructurings made to borrowers experiencing financial difficulty. There were no loan restructurings made to borrowers experiencing financial difficulty for which there was a payment default within twelve months following the modification during the twelve months ended December 31, 2024, 2023 and 2022. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. 77 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Credit Quality Indicators Based upon its ongoing assessment of credit quality within the loan portfolio, the Company maintains a Watch List, which includes loans classified as Doubtful, Substandard and Watch according to the Company’s classification criteria. These loans involve the anticipated potential for payment defaults or collateral inadequacies. A loan on the Watch List is analyzed individually to categorize the loan to the appropriate credit risk category. All loans are subject to the assessment of a credit quality indicator. Risk ratings are assigned for each loan at the time of approval, and they change as circumstances dictate during the term of the loan. The Company utilizes a 9-point risk rating scale as shown below, with ratings 1 - 5 included in the Pass column, rating 6 included in the Watch column, ratings 7 - 8 included in the Substandard column and rating 9 included in the Doubtful column. Risk rating 1: The loan is secured by cash equivalent collateral. Risk rating 2: The loan is secured by properly margined marketable securities, bonds or cash surrender value of life insurance. Risk rating 3: The borrower is in strong financial condition and has strong debt service capacity. The loan is performing as agreed, and the financial characteristics and trends of the borrower exceed industry statistics. Risk rating 4: The borrower’s financial condition is satisfactory and stable. The borrower has satisfactory debt service capacity, and the loan is well secured. The loan is performing as agreed, and the financial characteristics and trends fall in line with industry statistics. Risk rating 5: The borrower's financial condition is less than satisfactory. The loan is still generally paying as agreed, but strained cash flows may cause some slowness in payments. The collateral values adequately preclude loss on the loan. Financial characteristics and trends lag industry statistics. There may be noncompliance with loan covenants. Risk rating 6: The borrower's financial condition is deficient. Payment delinquencies may be more common. Collateral values still protect from loss, but margins are narrow. The loan may be reliant on secondary sources of repayment, including liquidation of collateral and guarantor support. Risk rating 7: The loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Well-defined weaknesses exist that jeopardize the liquidation of the debt. The Company is inadequately protected by the valuation or paying capacity of the collateral pledged. If deficiencies are not corrected, there is a distinct possibility that a loss will be sustained. Risk rating 8: All the characteristics of rating 7 exist with the added condition that the loan is past due more than 90 days or there is reason to believe the Company will not receive its principal and interest according to the terms of the loan agreement. Risk rating 9: All the weaknesses inherent in risk ratings 7 and 8 exist with the added condition that collection or liquidation, on the basis of currently known facts, conditions and values, is highly questionable and improbable. A loan reaching this category would most likely be charged off. Credit quality indicators for all loans and the Company's risk rating process are dynamic and updated on a continuous basis. Risk ratings are updated as circumstances that could affect the repayment of an individual loan are brought to management's attention through an established monitoring process. Individual bankers initiate changes as appropriate for ratings 1 through 5, and changes for ratings 6 through 9 are initiated by management. The likelihood of loss increases as the risk rating increases and is generally preceded by a loan appearing on the Watch List, which consists of all loans with a risk rating of 6 or worse. Written action plans with firm target dates for resolution of identified problems are maintained and reviewed on a quarterly basis for all segments of loans included on the Watch List. 78 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) In addition to the Company’s internal credit monitoring practices and procedures, an outsourced independent credit review function is in place to further assess assigned internal risk classifications and monitor compliance with internal lending policies and procedures. In all portfolio segments, the primary risks are that a borrower's income stream diminishes to the point that the borrower is not able to make scheduled principal and interest payments and any collateral securing the loan declines in value. The risk of declining collateral values is present for most types of loans. Commercial loans consist primarily of loans to businesses for various purposes, including revolving lines to finance current operations, inventory and accounts receivable, and capital expenditure loans to finance equipment and other fixed assets. These loans generally have short maturities, have either adjustable or fixed interest rates, and are either unsecured or secured by inventory, accounts receivable and/or fixed assets. For commercial loans, the primary source of repayment is from the operation of the business. Real estate loans include various types of loans for which the Company holds real property as collateral, and consist of loans on commercial properties and single and multifamily residences. Real estate loans are typically structured to mature or reprice every five to ten years with payments based on amortization periods up to 30 years. The majority of construction loans are to contractors and developers for construction of commercial buildings or residential real estate. These loans typically have maturities of up to 24 months. The Company's loan policy includes minimum appraisal and other credit guidelines. Consumer loans include loans extended to individuals for household, family and other personal expenditures not secured by real estate. The majority of the Company's consumer lending is for vehicles, consolidation of personal debts and household improvements. The repayment source for consumer loans, including 1-4 family residential and home equity loans, is typically wages. 79 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The following tables present the amortized cost basis of loans by loan segment, credit quality indicator and origination year, and the current period gross charge-off by loan segment and origination year, based on the analysis performed as of December 31, 2024 and 2023. Term Loans by Origination Year As of December 31, 2024 2024 2023 2022 2021 2020 Prior Revolving Loans Total Commercial Pass $ 97,976 $ 80,842 $ 77,087 $ 33,698 $ 17,460 $ 41,006 $ 158,395 $ 506,464 Watch 4,223 116 2,747 620 — 62 — 7,768 Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 102,199 $ 80,958 $ 79,834 $ 34,318 $ 17,460 $ 41,068 $ 158,395 $ 514,232 Current period gross charge-offs $ 16 $ — $ 4 $ — $ — $ — $ — $ 20 Real estate: Construction, land and land development Pass $ 168,579 $ 144,604 $ 84,281 $ 27,584 $ 805 $ — $ 82,294 $ 508,147 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 168,579 $ 144,604 $ 84,281 $ 27,584 $ 805 $ — $ 82,294 $ 508,147 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — 1-4 family residential first mortgages Pass $ 12,573 $ 24,889 $ 17,803 $ 16,283 $ 10,251 $ 3,986 $ 1,940 $ 87,725 Watch — — — — — — — — Substandard — 133 — — — — — 133 Doubtful — — — — — — — — Total $ 12,573 $ 25,022 $ 17,803 $ 16,283 $ 10,251 $ 3,986 $ 1,940 $ 87,858 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Home equity Pass $ 425 $ 2,721 $ 175 $ 443 $ 32 $ — $ 15,498 $ 19,294 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 425 $ 2,721 $ 175 $ 443 $ 32 $ — $ 15,498 $ 19,294 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial Pass $ 228,197 $ 141,894 $ 467,411 $ 431,448 $ 342,828 $ 218,440 $ 30,396 $ 1,860,614 Watch — — 332 249 — — — 581 Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 228,197 $ 141,894 $ 467,743 $ 431,697 $ 342,828 $ 218,440 $ 30,396 $ 1,861,195 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Consumer and other Pass $ 4,114 $ 600 $ 108 $ 214 $ 13 $ 113 $ 12,125 $ 17,287 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 4,114 $ 600 $ 108 $ 214 $ 13 $ 113 $ 12,125 $ 17,287 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — 80 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Term Loans by Origination Year December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Total Commercial Pass $ 147,971 $ 110,228 $ 48,291 $ 31,423 $ 6,510 $ 44,146 $ 143,025 $ 531,594 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 147,971 $ 110,228 $ 48,291 $ 31,423 $ 6,510 $ 44,146 $ 143,025 $ 531,594 Current period gross charge-offs $ 37 $ — $ — $ — $ 18 $ — $ — $ 55 Real estate: Construction, land and land development Pass $ 126,608 $ 114,176 $ 64,797 $ 20,210 $ 1,458 $ — $ 86,228 $ 413,477 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 126,608 $ 114,176 $ 64,797 $ 20,210 $ 1,458 $ — $ 86,228 $ 413,477 Current period gross charge-offs $ — $ 39 $ — $ — $ — $ — $ — $ 39 1-4 family residential first mortgages Pass $ 46,766 $ 20,531 $ 19,670 $ 11,779 $ 3,663 $ 3,176 $ 663 $ 106,248 Watch 144 — — — — — — 144 Substandard — — — — 296 — — 296 Doubtful — — — — — — — — Total $ 46,910 $ 20,531 $ 19,670 $ 11,779 $ 3,959 $ 3,176 $ 663 $ 106,688 Current period gross charge-offs $ — $ 40 $ — $ — $ — $ — $ — $ 40 Home equity Pass $ 2,804 $ 288 $ 508 $ 98 $ 138 $ 16 $ 10,766 $ 14,618 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 2,804 $ 288 $ 508 $ 98 $ 138 $ 16 $ 10,766 $ 14,618 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial Pass $ 212,772 $ 519,783 $ 463,750 $ 359,032 $ 84,995 $ 195,967 $ 18,211 $ 1,854,510 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 212,772 $ 519,783 $ 463,750 $ 359,032 $ 84,995 $ 195,967 $ 18,211 $ 1,854,510 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Consumer and other Pass $ 1,740 $ 211 $ 392 $ 51 $ 17 $ 126 $ 8,393 $ 10,930 Watch — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 1,740 $ 211 $ 392 $ 51 $ 17 $ 126 $ 8,393 $ 10,930 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — 81 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Collateral Dependent Loans Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loans to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan. The following table presents the amortized cost basis of collateral dependent loans, by primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans as of December 31, 2024 and 2023. As of December 31, 2024 Primary Type of Collateral Real Estate Equipment Other Total ACL Allocation 1-4 family residential first mortgages $ 133 $ — $ — $ 133 $ — Total $ 133 $ — $ — $ 133 $ — As of December 31, 2023 Primary Type of Collateral Real Estate Equipment Other Total ACL Allocation 1-4 family residential first mortgages $ 296 $ — $ — $ 296 $ — Total $ 296 $ — $ — $ 296 $ — 82 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The following table summarizes the average recorded investment and interest income recognized on impaired loans by segment for the year ended December 31, 2022. December 31, 2022 Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial $ — $ — Real estate: Construction, land and land development — — 1-4 family residential first mortgages 336 — Home equity — — Commercial — — Consumer and other — — 336 — With an allowance recorded: Commercial — — Real estate: Construction, land and land development — — 1-4 family residential first mortgages — — Home equity — — Commercial 3,915 — Consumer and other — — 3,915 — Total: Commercial — — Real estate: Construction, land and land development — — 1-4 family residential first mortgages 336 — Home equity — — Commercial 3,915 — Consumer and other — — Total impaired loans $ 4,251 $ — Allowance for Credit Losses on Off-Balance Sheet Credit Exposures The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life using the same models for the Company’s other loan portfolio segments described above. The Company's allowance for credit losses for unfunded commitments was $ 1,544 and $ 2,544 as of December 31, 2024 and 2023, respectively. The allowance for credit losses for off-balance-sheet credit exposures is presented in the “Accrued expenses and other liabilities” line of the Consolidated Balance Sheets. Changes in the allowance for credit losses for off-balance sheet credit exposures is reflected in the “Credit loss expense” line of the Consolidated Statements of Income. During the year ended December 31, 2024, the Company recorded a negative credit loss expense of $ 1,000 associated with off-balance sheet credit exposures compared to a credit loss expense of $ 200 for the year ended December 31, 2023. 83 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 5. Premises and Equipment, Net Premises and equipment consisted of the following as of December 31, 2024 and 2023. 2024 2023 Land $ 11,049 $ 11,049 Buildings 91,022 69,693 Right-of-use assets under operating leases 4,405 3,231 Leasehold improvements 2,401 3,557 Furniture and equipment 13,750 11,880 122,627 99,410 Accumulated depreciation ( 12,642 ) ( 13,011 ) $ 109,985 $ 86,399 Note 6. Operating Leases The Company leases real estate for four branch offices and office space for operations departments under various operating lease agreements. The lease agreements have maturity dates ranging from September 2030 to September 2036, some of which include options to renew at the Company's discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the measurement of the right-of-use asset and lease liability. The weighted average remaining lives of the lease terms used in the measurement of the operating lease liability were 9.6 years and 6.7 years as of December 31, 2024 and 2023, respectively. The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption of this accounting standard and as of the lease commencement date for leases entered into subsequent to January 1, 2019. For leases that have been extended subsequent to January 1, 2019, the discount rate used was the FHLB fixed rate advance rate which corresponded with the remaining lease term as of the lease extension date. The weighted average discount rates used in the measurement of the operating lease liabilities were 4.06 percent and 3.42 percent as of December 31, 2024 and 2023, respectively. Operating lease right-of-use assets are included in premises and equipment. Operating lease liabilities of $ 4,551 and $ 3,402 were included in other liabilities as of December 31, 2024 and 2023, respectively. Rent expense related to these leases was $ 972 , $ 1,510 and $ 1,395 , for the years ended December 31, 2024, 2023 and 2022, respectively. Total estimated rental commitments for the operating leases were as follows as of December 31, 2024. 2025 $ 588 2026 593 2027 600 2028 610 2029 611 Thereafter 2,543 Total lease payments 5,545 Less: present value discount ( 994 ) Present value of lease liabilities $ 4,551 84 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 7. Deposits The scheduled maturities of time deposits were as follows as of December 31, 2024. 2025 $ 622,366 2026 3,371 2027 1,639 2028 948 2029 473 $ 628,797 Note 8. Subordinated Notes In July 2003, the Company issued $ 20,619 in junior subordinated debentures to the Company’s subsidiary trust, West Bancorporation Capital Trust I. The junior subordinated debentures are senior to the Company’s common stock. As a result, the Company must make payments on the junior subordinated debentures (and the related trust preferred securities) before any dividends can be paid on its common stock, and, in the event of the Company’s bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any distribution can be made to the holders of the common stock. The Company has the right to defer distributions on the junior subordinated debentures (and the related trust preferred securities) for up to five years , during which time no dividends may be paid to holders of the Company’s common stock. The junior subordinated debentures have a 30-year term, do not require any principal amortization, and are callable at the issuer’s option. The interest rate is a variable rate based on the 3-month term Secured Overnight Financing Rate (SOFR) plus 0.26161 percent tenor spread adjustment plus 3.05 percent. At December 31, 2024, the interest rate was 7.64 percent. Interest is payable quarterly , unless deferred. The Company has never deferred an interest payment. The effective cost of the junior subordinated debentures at December 31, 2024, including amortization of issuance costs, was 7.70 percent. Holders of the trust preferred securities associated with the junior subordinated debentures have no voting rights, are unsecured, and rank junior in priority to all the Company’s indebtedness and senior to the Company’s common stock. The junior subordinated debentures were reported net of unamortized debt issuance costs of $ 114 and $ 127 as of December 31, 2024 and 2023, respectively. The Company has an interest rate swap contract that effectively converts $ 20,000 of the variable-rate junior subordinated debentures to a fixed rate of 4.81 percent. See Note 11 for additional information on the interest rate swap. In addition, the junior subordinated debentures qualify as additional Tier 1 capital of the Company for regulatory purposes. In June 2022, the Company issued $ 60,000 of subordinated notes (the 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 in June 2027, the interest rate will be reset quarterly to a floating rate per annum that is expected to be three-month term SOFR plus 2.41 percent with payments due quarterly . The Company may redeem the Notes, in whole or in part, on or after June 15, 2027 at a price equal to 100 percent of the principal amount of the Notes being redeemed plus accrued and unpaid interest. 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 the Company’s subsidiary, West Bank to support organic growth. The Notes were reported net of unamortized debt issuance costs of $ 612 and $ 860 as of December 31, 2024 and 2023, respectively. 85 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 9. Federal Home Loan Bank Advances and Other Borrowings The Company had fixed-rate FHLB advances totaling $ 270,000 and $ 315,000 as of December 31, 2024 and 2023, respectively. As of December 31, 2024, all advances had maturities of one month and are part of a rolling funding program associated with long-term interest rate swaps related to the interest cash flows of the rolling advances. The weighted average contractual rates on FHLB advances were 4.62 percent and 5.54 percent as of December 31, 2024 and December 31, 2023, respectively. The weighted average effective rate for these advances, which includes adjustments for the interest rate swaps, when applicable, were 3.39 percent and 3.44 percent as of December 31, 2024 and 2023, respectively. See Note 11 for additional information on interest rate swaps hedging FHLB advances. The Company had overnight and other short-term borrowings, including FHLB advances totaling $ 0 and $ 150,270 as of December 31, 2024 and 2023, respectively, which are included in federal funds purchased and other short-term borrowings. The FHLB advances are collateralized by FHLB stock and real estate loans, as required by the FHLB’s collateral policy. West Bank had additional borrowing capacity of approximately $ 610,000 at the FHLB as of December 31, 2024. As of December 31, 2024, West Bank had arrangements that would allow it to borrow $ 75,000 in unsecured federal funds lines of credit at correspondent banks that are available under the correspondent banks’ normal terms. The lines have no stated expiration dates. As of December 31, 2024, there were no amounts outstanding under these arrangements. At December 31, 2024, West Bank also had approximately $ 116,840 of securities pledged for available borrowings at the Federal Reserve Bank discount window. There were no balances outstanding at the Federal Reserve Bank discount window at December 31, 2024. Note 10. Long-Term Debt In December 2021, the Company entered into a credit agreement with a commercial bank and borrowed $ 40,000 . The borrowing was used to make a capital injection into the Company’s subsidiary, West Bank. Interest under the term note is payable quarterly over five years. Required quarterly 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 totaled 6.50 percent as of December 31, 2024. The Company has an interest rate swap contract that effectively converts $ 20,000 of the borrowings to a fixed rate of 6.40 percent. See Note 11 for additional information on the interest rate swap. In the event of default, the unaffiliated commercial bank may accelerate payment of the loan. The outstanding balance was $ 31,250 and $ 36,250 as of December 31, 2024 and 2023, respectively. The note is secured by 100 percent of West Bank’s stock. West Bank’s special purpose subsidiary has a credit agreement for $ 11,486 . Interest is payable monthly over the term of the agreement with an interest rate of one percent. Monthly principal payments begin in January 2026 and the agreement matures in December 2048. The outstanding balance was $ 11,486 as of December 31, 2024 and 2023. Future required principal payments for long-term debt as of December 31, 2024 are shown in the table below. 2025 $ 5,000 2026 5,446 2027 21,701 2028 455 2029 460 Thereafter 9,674 $ 42,736 86 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 11. Derivatives The Company has entered into various interest rate swap agreements as part of its interest rate risk management strategy. The Company uses interest rate swaps to manage its interest rate risk exposure on certain loans, borrowings, and deposits due to interest rate movements. The notional amounts of the interest rate swaps do not represent amounts exchanged by the counterparties, but rather, the notional amount is used to determine, along with other terms of the derivative, the amounts to be exchanged between the counterparties. Interest Rate Swaps Designated as Cash Flow Hedges : The Company had interest rate swaps designated as cash flow hedges with total notional amounts of $ 420,000 and $ 445,000 at December 31, 2024 and 2023, respectively. As of December 31, 2024, the Company had swaps with a total notional amount of $ 270,000 that hedge the interest payments of rolling fixed-rate one-month funding consisting of FHLB advances or brokered deposits. Also, as of December 31, 2024, the Company had swaps with a total notional amount of $ 40,000 that effectively convert variable-rate long-term debt to fixed-rate debt and swaps with a total notional amount of $ 110,000 that hedge the interest payments of certain deposit accounts. At the inception of each hedge transaction, the Company represented that the underlying principal balance would remain outstanding throughout the hedge transaction, making it probable that sufficient interest payments would exist through the maturity date of the swaps. The cash flow hedges were determined to be fully effective during the remaining terms of the swaps. Therefore, the aggregate fair value of the swaps is recorded in other assets or other liabilities with changes in market value recorded in OCI, net of deferred taxes. See Note 18 for additional fair value information and disclosures. The amounts included in AOCI will be reclassified to interest expense should the hedge no longer be considered effective. Derivatives Not Designated as Accounting Hedges : To accommodate customer needs, the Company on occasion offers loan level interest rate swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a swap counterparty (back-to-back swap program). The interest rate swaps are free-standing derivatives and are recorded at fair value. The Company enters into a floating-rate loan and a fixed-rate swap with our customer. Simultaneously, the Company enters into an offsetting fixed-rate swap with a swap counterparty. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay a swap counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customers to effectively convert variable-rate loans to fixed-rate loans. The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments, which do not qualify for hedge accounting. The table below identifies the balance sheet category and fair values of the Company’s derivative instruments as of December 31, 2024 and 2023. December 31, 2024 December 31, 2023 Cash Flow Hedges: Gross notional amount $ 420,000 $ 445,000 Fair value in other assets 9,897 11,313 Fair value in other liabilities ( 270 ) ( 988 ) Weighted-average floating rate received 4.84 % 5.64 % Weighted-average fixed rate paid 3.30 % 3.04 % Weighted-average maturity in years 2.4 2.6 Non-Hedging Derivatives: Gross notional amount $ 287,235 $ 293,400 Fair value in other assets 14,284 14,114 Fair value in other liabilities ( 14,284 ) ( 14,114 ) 87 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The following table identifies the pre-tax gains or losses recognized on the Company’s derivative instruments designated as cash flow hedges for the years ended December 31, 2024, 2023 and 2022. 2024 2023 2022 Pre-tax gain recognized in other comprehensive income $ 9,759 $ 4,291 $ 23,595 Increase (decrease) in interest expense ( 10,456 ) ( 10,249 ) 206 The Company estimates there will be approximately $ 6,487 reclassified from accumulated other comprehensive income to reduce interest expense through December 31, 2025 related to cash flow hedges. The Company will continue to assess the effectiveness of hedges on a quarterly basis. The Company is exposed to credit risk in the event of nonperformance by interest rate swap counterparties, which is minimized by collateral-pledging provisions in the agreements. Derivative contracts with swap counterparties are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings at established credit threshold levels. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration. As of December 31, 2024 and 2023, the Company pledged $ 30 and $ 0 , respectively, of collateral to the counterparties in the form of cash on deposit. As of December 31, 2024 and 2023, the Company’s counterparties pledged $ 24,160 and $ 22,340 , respectively, of collateral to the Company in the form of cash on deposit. The interest rate swap product with the borrowers is cross-collateralized with the underlying loan and therefore there is no pledged cash collateral under swap contracts with customers. 88 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 12. Income Taxes The Company files income tax returns in the U.S. federal and various state jurisdictions. Income tax returns for the years 2021 through 2024 remain open to examination by federal and state taxing authorities. No material income tax related interest or penalties were recognized during the years ended December 31, 2024, 2023 or 2022. The following table shows the components of income taxes for the years ended December 31, 2024, 2023 and 2022. 2024 2023 2022 Current: Federal $ ( 645 ) $ 3,485 $ 8,194 State 1,056 1,717 3,221 Deferred: Federal 2,573 226 971 State 409 221 612 Income taxes $ 3,393 $ 5,649 $ 12,998 Total income taxes for the years ended December 31, 2024, 2023 and 2022 differed from the amount computed by applying the U.S. federal income tax rate of 21 percent to income before income taxes, as shown in the following table. 2024 2023 2022 Amount Percent of Pretax Income Amount Percent of Pretax Income Amount Percent of Pretax Income Computed expected tax expense $ 5,763 21.0 % $ 6,255 21.0 % $ 12,473 21.0 % State income tax expense, net of federal income tax benefit 1,267 4.6 1,395 4.7 2,729 4.6 Tax-exempt interest income ( 1,404 ) ( 5.1 ) ( 1,445 ) ( 4.9 ) ( 1,240 ) ( 2.1 ) Nondeductible interest expense to own tax-exempt securities 1,261 4.6 1,057 3.5 354 0.6 Tax-exempt increase in cash value of life insurance and gains ( 236 ) ( 0.9 ) ( 364 ) ( 1.2 ) ( 203 ) ( 0.3 ) Stock compensation ( 2 ) — 5 — ( 320 ) ( 0.6 ) Enactment of state tax reform — — — — 649 1.1 Federal income tax credits ( 3,350 ) ( 12.2 ) ( 1,498 ) ( 5.0 ) ( 1,468 ) ( 2.5 ) Other, net 94 0.3 244 0.8 24 0.1 Income taxes $ 3,393 12.3 % $ 5,649 18.9 % $ 12,998 21.9 % In 2024, the Company recorded a tax benefit of $ 1,842 for an energy-related investment tax credit associated with the construction of the Company’s new headquarters building. The Company accounted for the investment tax credit using the flow-through method, recognizing the full benefit in 2024. In 2022, the Company recorded a one-time increase in state income tax expense related to the June 2022 enactment of changes in the Iowa bank franchise tax rates. This legislation reduces the Iowa bank franchise tax rate applied to apportioned income for 2023 and future years. This future reduction in the state tax rate required the Company to reduce net deferred tax assets by $ 671 and in turn caused a one-time increase in 2022 tax expense. The effective tax rate for 2022 was 21.9 percent. Excluding this one-time state tax expense, the effective tax rate for 2022 would have been 20.8 percent. 89 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Net deferred tax assets consisted of the following components as of December 31, 2024 and 2023. 2024 2023 Deferred tax assets: Allowance for credit losses $ 7,866 $ 7,598 Net unrealized losses on securities available for sale 31,814 30,081 Lease liabilities 1,120 837 Accrued expenses 220 196 Restricted stock unit compensation 1,077 1,185 State net operating loss carryforward 2,042 1,763 Other 494 177 44,633 41,837 Deferred tax liabilities: Right-of-use assets 1,083 795 Deferred loan costs 224 258 Net unrealized gains on interest rate swaps 2,375 2,547 Premises and equipment 5,095 1,657 New markets tax credit loan 474 389 Other 138 125 9,389 5,771 Net deferred tax assets before valuation allowance 35,244 36,066 Valuation allowance for deferred tax assets ( 2,042 ) ( 1,763 ) Net deferred tax assets $ 33,202 $ 34,303 As of December 31, 2024, the Company had approximately $ 51,049 of Iowa net operating loss carryforwards available to offset future Iowa taxable income. The Company has recorded a valuation allowance against the tax effect of the Iowa net operating loss carryforwards, as management believes it is more likely than not that a portion of such carryforwards will expire without being utilized. Iowa net operating loss carryforwards of $ 502 expired in 2024 and the remainder will expire thereafter. Note 13. Stock Compensation Plans The West Bancorporation, Inc. 2021 Equity Incentive Plan (as amended, the 2021 Plan) was originally approved by the stockholders in April 2021. The 2021 Plan replaced the West Bancorporation, Inc. 2017 Equity Incentive Plan (the 2017 Plan). Upon approval of the 2021 Plan, the 2017 Plan was frozen and no new grants will be made under that plan. Outstanding awards under the 2017 Plan will continue pursuant to their terms and provisions. The 2021 and 2017 Plans are administered by the Compensation Committee of the Board of Directors, which determines the specific individuals who will be granted awards under the 2021 Plan and the type and amount of any such awards. The 2021 Plan was originally approved at the April 2021 annual stockholders’ meeting and authorized 625,000 shares, and at the April 2024 annual stockholders’ meeting, the Company obtained stockholder approval to increase the number of shares of common stock authorized for issuance under the 2021 Plan by 550,000 shares, from 625,000 shares to 1,175,000 shares. All employees and directors of the Company and its subsidiary are eligible to become participants in the 2021 Plan. Under the terms of the 2021 Plan, the Company may grant a total of 1,175,000 shares of the Company’s common stock as stock awards and cash incentive awards. As of December 31, 2024, 665,758 shares of the Company’s common stock remained available for future awards under the 2021 Plan. 90 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Under the 2021 Plan, the Company may grant RSU awards, as determined by the Compensation Committee, that vest upon the completion of future service requirements or specified performance criteria. All RSUs granted through December 31, 2024 under the 2021 and 2017 Plans were at no cost to the participants, and the participants will not be entitled to receive or accrue dividends until the RSUs have vested. Each RSU entitles the participant to receive, to the extent earned, one share of common stock on the vesting date or upon the participant’s termination due to death or disability, for time-based RSUs, upon a change in control of the Company if the RSUs are not fully assumed or if the RSUs are assumed and the participant’s employment is thereafter terminated by the Company without cause or by the participant for good reason, or, for performance-based RSUs, upon a change in control of the Company. If a participant terminates employment prior to the end of the continuous service period other than due to death, disability or retirement, the award is forfeited. If a participant terminates service due to retirement, the RSUs will continue to vest, subject to provisions of the 2021 and 2017 Plans. The Company grants time-based and performance-based RSU awards. The time-based RSU awards granted to employees vest 20 percent per year over a five year period and have a one to three year post-vesting holding period, applicable to 50 percent of the shares. The time-based RSU awards granted to directors vest after one year and have a three year post-vesting holding period, applicable to 50 percent of the shares. The performance based RSU awards granted to employees cliff vest at the end of a three year performance period based upon the Company meeting certain performance metrics and have a three year post-vesting holding period applicable to 50 percent of the shares. The following table includes a summary of nonvested RSU activity for the years ended December 31, 2024, 2023 and 2022. 2024 2023 2022 Weighted Weighted Weighted Average Average Average Grant Date Grant Date Grant Date Fair Value Fair Value Fair Value (actual amounts, not in thousands) Shares Per Share Shares Per Share Shares Per Share Nonvested shares, beginning balance 479,480 $ 19.33 438,237 $ 20.87 408,800 $ 20.07 Granted 163,950 13.90 175,680 16.79 169,357 23.26 Vested ( 171,080 ) 19.00 ( 134,437 ) 20.96 ( 139,920 ) 21.38 Forfeited ( 12,745 ) 17.63 — — — — Nonvested shares, ending balance 459,605 $ 17.55 479,480 $ 19.33 438,237 $ 20.87 The fair value of RSU awards that vested during 2024, 2023 and 2022 was $ 2,916 , $ 2,509 and $ 3,889 , respectively. Total compensation costs, including director compensation, recorded for the RSUs were $ 2,509 , $ 3,111 and $ 3,357 for the years ended December 31, 2024, 2023 and 2022, respectively. The tax benefit related to vesting of RSUs totaled $ 2 and $ 385 for the years ended December 31, 2024 and 2022, respectively. The tax expense related to vesting of RSUs totaled $ 5 for the year ended December 31, 2023. As of December 31, 2024, there was $ 3,458 of unrecognized compensation cost related to nonvested RSUs, and the weighted average period over which these remaining costs are expected to be recognized was approximately 1.5 years. Note 14. 401(k) Retirement Plan and Employee Stock Ownership Plan The Company has a combined defined contribution plan and employee stock ownership plan covering substantially all of its employees. Matching and discretionary contributions are determined annually by the Board. The Company matched 100 percent of the first six percent of employee deferrals and made an annual discretionary contribution of two percent of eligible employee compensation for the years ended December 31, 2024 and 2023, and four percent of eligible employee compensation for the year ended December 31, 2022. Total matching and discretionary contribution expense for the years ended December 31, 2024, 2023 and 2022, totaled $ 1,273 , $ 1,207 and $ 1,395 , respectively. As of December 31, 2024 and 2023, the plan held 326,523 and 324,569 shares, respectively, of the Company’s common stock. These shares are included in the computation of earnings per share. Dividends on shares held in the plan may be reinvested in Company common stock or paid in cash to the participants, at the election of the participants. 91 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 15. Accumulated Other Comprehensive Income (Loss) The following table summarizes the changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2024, 2023 and 2022. Unrealized Accumulated Unrealized Gains Other Gains (Losses) (Losses) on Comprehensive on Securities Derivatives Income (Loss) Balance, December 31, 2021 $ ( 5,021 ) $ ( 5,616 ) $ ( 10,637 ) Other comprehensive income (loss) before reclassifications ( 98,637 ) 17,739 ( 80,898 ) Amounts reclassified from accumulated other comprehensive income ( 22 ) 86 64 Net current period other comprehensive income (loss) ( 98,659 ) 17,825 ( 80,834 ) Balance, December 31, 2022 ( 103,680 ) 12,209 ( 91,471 ) Other comprehensive income before reclassifications 12,158 3,221 15,379 Amounts reclassified from accumulated other comprehensive income 289 ( 7,720 ) ( 7,431 ) Net current period other comprehensive income (loss) 12,447 ( 4,499 ) 7,948 Balance, December 31, 2023 ( 91,233 ) 7,710 ( 83,523 ) Other comprehensive income (loss) before reclassifications ( 6,167 ) 7,373 1,206 Amounts reclassified from accumulated other comprehensive income 836 ( 7,876 ) ( 7,040 ) Net current period other comprehensive loss ( 5,331 ) ( 503 ) ( 5,834 ) Balance, December 31, 2024 $ ( 96,564 ) $ 7,207 $ ( 89,357 ) Note 16. Regulatory Capital Requirements The Company and West Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements (as shown in the following table) can result in certain mandatory and possibly additional discretionary actions by regulators which, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and West Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory requirements. 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 December 31, 2024. 92 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The Company’s and West Bank’s capital ratios are presented in the following table as of December 31, 2024 and 2023. Actual For Capital Adequacy Purposes For Capital Adequacy Purposes With Capital Conservation Buffer To Be Well-Capitalized Amount Ratio Amount Ratio Amount Ratio Amount Ratio As of December 31, 2024: Total Capital (to Risk-Weighted Assets) Consolidated $ 429,208 12.11 % $ 283,628 8.00 % $ 372,261 10.50 % $ 354,535 10.00 % West Bank 455,572 12.86 % 283,468 8.00 % 372,051 10.50 % 354,335 10.00 % Tier 1 Capital (to Risk-Weighted Assets) Consolidated 337,232 9.51 % 212,721 6.00 % 301,354 8.50 % 283,628 8.00 % West Bank 423,596 11.95 % 212,601 6.00 % 301,184 8.50 % 283,468 8.00 % Common Equity Tier 1 Capital (to Risk-Weighted Assets) Consolidated 317,232 8.95 % 159,541 4.50 % 248,174 7.00 % 230,447 6.50 % West Bank 423,596 11.95 % 159,451 4.50 % 248,034 7.00 % 230,317 6.50 % Tier 1 Capital (to Average Assets) Consolidated 337,232 7.93 % 170,113 4.00 % 170,113 4.00 % 212,641 5.00 % West Bank 423,596 9.97 % 170,029 4.00 % 170,029 4.00 % 212,537 5.00 % As of December 31, 2023: Total Capital (to Risk-Weighted Assets) Consolidated $ 419,452 11.88 % $ 282,508 8.00 % $ 370,791 10.50 % $ 353,135 10.00 % West Bank 450,444 12.76 % 282,307 8.00 % 370,527 10.50 % 352,883 10.00 % Tier 1 Capital (to Risk-Weighted Assets) Consolidated 328,566 9.30 % 211,881 6.00 % 300,164 8.50 % 282,508 8.00 % West Bank 419,558 11.89 % 211,730 6.00 % 299,951 8.50 % 282,307 8.00 % Common Equity Tier 1 Capital (to Risk-Weighted Assets) Consolidated 308,566 8.74 % 158,911 4.50 % 247,194 7.00 % 229,537 6.50 % West Bank 419,558 11.89 % 158,797 4.50 % 247,018 7.00 % 229,374 6.50 % Tier 1 Capital (to Average Assets) Consolidated 328,566 8.50 % 154,628 4.00 % 154,628 4.00 % 193,285 5.00 % West Bank 419,558 10.86 % 154,571 4.00 % 154,571 4.00 % 193,213 5.00 % The Company and West Bank are subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules include the implementation of a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. A banking organization with a 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 December 31, 2024, the capital ratios for the Company and West Bank were sufficient to meet the capital conservation buffer. The ability of the Company to pay dividends to its stockholders is dependent upon dividends paid by its subsidiary, West Bank. There are currently no additional restrictions on such dividends other than the general restrictions imposed on all Iowa state-chartered banks by applicable law. 93 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The Company’s tangible common equity ratio was 5.68 percent and 5.88 percent at December 31, 2024 and 2023, respectively. The tangible common equity ratio is computed by dividing total equity less preferred stock and intangible assets by total assets less intangible assets. As of December 31, 2024 and 2023, the Company had no intangible assets or preferred stock. Note 17. Commitments and Contingencies Financial instruments with off-balance sheet risk : The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations that it uses for on-balance sheet instruments. Commitments to lend are subject to borrowers’ continuing compliance with existing credit agreements. The Company’s commitments consisted of the following amounts as of December 31, 2024 and 2023. 2024 2023 Commitments to fund real estate construction loans $ 180,986 $ 385,846 Other commitments to extend credit 598,510 641,554 Standby letters of credit 10,734 15,972 $ 790,230 $ 1,043,372 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and generally expire within one year. Commitments to extend credit of approximately $ 112,526 at December 31, 2024, had terms expiring beyond one year. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, equipment, and residential and commercial real estate. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party and generally expire within one year. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances the Company deems necessary. In the event the customer does not perform in accordance with the terms of the third-party agreement, West Bank would be required to fund the commitment. The maximum potential amount of future payments West Bank could be required to make is represented by the contractual amount for letters of credit shown in the table above. If the commitment is funded, West Bank would be entitled to seek recovery from the customer. At December 31, 2024 and 2023, no amounts have been recorded as liabilities for West Bank’s potential obligations under these guarantees. West Bank previously executed MPF Master Commitments (Commitments) with the FHLB of Des Moines to deliver residential mortgage loans and to guarantee the payment of any realized losses that exceed the FHLB’s first loss account for mortgages delivered under the Commitments. West Bank receives credit enhancement fees from the FHLB for providing this guarantee and continuing to assist with managing the credit risk of the MPF Program residential mortgage loans. The term of the most recent Commitment was through January 16, 2015 and was not renewed. The outstanding balance of mortgage loans sold under the MPF Program was $ 17,032 and $ 20,159 at December 31, 2024 and 2023, respectively. The Company had commitments to invest in qualified affordable housing projects totaling $ 861 and $ 1,649 as of December 31, 2024 and 2023, respectively. Concentrations of credit risk : Substantially all of the Company’s loans, commitments to extend credit and standby letters of credit have been granted to customers in the Company’s market areas. The concentrations of credit by type of loan are set forth in Note 4. The distribution by type of loan of commitments to extend credit approximates the distribution by type of loan of loans outstanding. Standby letters of credit were granted primarily to commercial borrowers. 94 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Contingencies : Neither the Company nor West Bank is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to West Bank’s business. The Company does not know of any proceeding contemplated by a governmental authority against the Company or West Bank. Note 18. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business. The Company’s balance sheet contains securities available for sale and derivative instruments that are recorded at fair value on a recurring basis. The three-level valuation hierarchy for disclosure of fair value is as follows: Level 1 uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3 uses unobservable inputs that are not corroborated by market data. The Company’s policy is to recognize transfers between levels at the end of each reporting period, if applicable. There were no transfers between levels of the fair value hierarchy during 2024 or 2023. The following is a description of valuation methodologies used for financial assets and liabilities recorded at fair value on a recurring basis. Securities available for sale: When available, quoted market prices are used to determine the fair value of securities (Level 1). If quoted market prices are not available, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar bonds where a price for the identical bond is not observable (Level 2). The fair values of these securities are determined by pricing models that consider observable market data such as interest rate volatilities, yield curves, credit spreads, prices from market makers and live trading systems. Management obtains the fair value of securities at the end of each reporting period via a third-party pricing service. Management reviewed the valuation process used by the third party and believed the process was valid as of December 31, 2024. On a quarterly basis, management corroborates the fair values of the portfolio by obtaining pricing from an independent financial market data vendor and compares the two sets of fair values. Any significant variances are reviewed and investigated. For a sample of securities, the fair values are further validated by management, by obtaining details of the inputs used by the pricing service. Those inputs were independently tested, and management concluded the fair values were consistent with GAAP requirements and the securities were properly classified in the fair value hierarchy. Derivative instruments: The Company’s derivative instruments consist of interest rate swaps accounted for as cash flow hedges, as well as interest rate swaps which are accounted for as non-hedging derivatives. The Company’s derivative positions are classified within Level 2 of the fair value hierarchy and are valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or nonbinding broker-dealer quotations. The fair value of the derivatives are determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility. 95 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis by level as of December 31, 2024 and 2023. 2024 Description Total Level 1 Level 2 Level 3 Financial assets: Securities available for sale: State and political subdivisions $ 174,145 $ — $ 174,145 $ — Collateralized mortgage obligations 219,264 — 219,264 — Mortgage-backed securities 119,819 — 119,819 — Collateralized loan obligations 18,965 — 18,965 — Corporate notes 12,372 — 12,372 — Derivative instruments, interest rate swaps 24,181 — 24,181 — Financial liabilities: Derivative instruments, interest rate swaps $ 14,554 $ — $ 14,554 $ — 2023 Description Total Level 1 Level 2 Level 3 Financial assets: Securities available for sale: State and political subdivisions $ 193,005 $ — $ 193,005 $ — Collateralized mortgage obligations 249,933 — 249,933 — Mortgage-backed securities 131,838 — 131,838 — Collateralized loan obligations 37,536 — 37,536 — Corporate notes 11,607 — 11,607 — Derivative instruments, interest rate swaps 25,427 — 25,427 — Financial liabilities: Derivative instruments, interest rate swaps $ 15,102 $ — $ 15,102 $ — Certain assets are measured at fair value on a nonrecurring basis. That is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Individually evaluated loans that are deemed to have impairment are classified within Level 3 of the fair value hierarchy and are recorded at fair value, which is based on the value of the collateral securing these loans. As of both December 31, 2024 and 2023, there were no individually evaluated loans with a fair value adjustment. In determining the estimated net realizable value of the underlying collateral of individually evaluated loans, the Company primarily uses third-party appraisals or broker opinions which may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available and include consideration of variations in location, size, and income production capacity of the property. Additionally, the appraisals are periodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and are based on management’s historical knowledge, changes in business factors and changes in market conditions. Because of the high degree of judgment required in estimating the fair value of collateral underlying individually evaluated loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of individually evaluated loans to be highly sensitive to changes in market conditions. 96 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) GAAP requires disclosure of the fair value of financial assets and liabilities, including those that are not measured and reported at fair value on a recurring or nonrecurring basis. The following table presents the carrying amounts and approximate fair values of financial assets and liabilities as of December 31, 2024 and 2023. December 31, 2024 Carrying Amount Approximate Fair Value Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 28,750 $ 28,750 $ 28,750 $ — $ — Interest-bearing deposits 214,728 214,728 214,728 — — Securities available for sale 544,565 544,565 — 544,565 — Federal Home Loan Bank stock 15,129 15,129 — 15,129 — Loans, net 2,974,428 2,905,574 — 2,905,574 — Accrued interest receivable 12,825 12,825 12,825 — — Interest rate swaps 24,181 24,181 — 24,181 — Financial liabilities: Deposits $ 3,357,596 $ 3,357,219 $ — $ 3,357,219 $ — Federal funds purchased and other short-term borrowings — — — — — Subordinated notes, net 79,893 68,522 — 68,522 — Federal Home Loan Bank advances 270,000 270,000 — 270,000 — Long-term debt 42,736 42,736 — 42,736 — Accrued interest payable 8,396 8,396 8,396 — — Interest rate swaps 14,554 14,554 — 14,554 — December 31, 2023 Carrying Amount Approximate Fair Value Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 33,245 $ 33,245 $ 33,245 $ — $ — Interest-bearing deposits 32,112 32,112 32,112 — — Securities available for sale 623,919 623,919 — 623,919 — Federal Home Loan Bank stock 22,957 22,957 — 22,957 — Loans, net 2,899,193 2,813,188 — 2,813,188 — Accrued interest receivable 13,581 13,581 13,581 — — Interest rate swaps 25,427 25,427 — 25,427 — Financial liabilities: Deposits $ 2,973,779 $ 2,971,562 $ — $ 2,971,562 $ — Federal funds purchased and other short-term borrowings 150,270 150,270 150,270 — — Subordinated notes, net 79,631 65,039 — 65,039 — Federal Home Loan Bank advances 315,000 315,000 — 315,000 — Long-term debt 47,736 47,736 — 47,736 — Accrued interest payable 6,688 6,688 6,688 — — Interest rate swaps 15,102 15,102 — 15,102 — 97 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 19. West Bancorporation, Inc. (Parent Company Only) Condensed Financial Statements Balance Sheets December 31, 2024 and 2023 2024 2023 ASSETS Cash $ 4,133 $ 5,095 Investment in West Bank 333,679 335,422 Investment in West Bancorporation Capital Trust I 619 619 Other assets 1,598 1,210 Total assets $ 340,029 $ 342,346 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Accrued expenses and other liabilities $ 1,011 $ 1,422 Subordinated notes, net 79,893 79,631 Long-term debt 31,250 36,250 Total liabilities 112,154 117,303 STOCKHOLDERS’ EQUITY Preferred stock — — Common stock 3,000 3,000 Additional paid-in capital 35,619 34,197 Retained earnings 278,613 271,369 Accumulated other comprehensive loss ( 89,357 ) ( 83,523 ) Total stockholders’ equity 227,875 225,043 Total liabilities and stockholders’ equity $ 340,029 $ 342,346 Statements of Income Years Ended December 31, 2024, 2023 and 2022 2024 2023 2022 Operating income: Equity in net income of West Bank $ 29,614 $ 30,055 $ 50,185 Equity in net income of West Bancorporation Capital Trust I 53 52 30 Total operating income 29,667 30,107 50,215 Operating expenses: Interest on subordinated notes 4,431 4,442 2,867 Interest on long-term debt 2,313 2,695 1,565 Other expenses 613 657 576 Total operating expenses 7,357 7,794 5,008 Income before income taxes 22,310 22,313 45,207 Income tax benefit ( 1,740 ) ( 1,824 ) ( 1,192 ) Net income $ 24,050 $ 24,137 $ 46,399 98 Table of Contents West Bancorporation, Inc. and Subsidiary Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Statements of Cash Flows Years Ended December 31, 2024, 2023 and 2022 2024 2023 2022 Cash Flows from Operating Activities: Net income $ 24,050 $ 24,137 $ 46,399 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net income of West Bank ( 29,614 ) ( 30,055 ) ( 50,185 ) Equity in net income of West Bancorporation Capital Trust I ( 53 ) ( 52 ) ( 30 ) Dividends received from West Bank 27,000 25,200 21,000 Dividends received from West Bancorporation Capital Trust I 53 52 30 Amortization 262 262 148 Deferred income taxes — 1 ( 8 ) Change in assets and liabilities: (Increase) decrease in other assets ( 778 ) 189 ( 116 ) Increase (decrease) in accrued expenses and other liabilities ( 76 ) 4 440 Net cash provided by operating activities 20,844 19,738 17,678 Cash Flows from Investing Activities: Capital contribution to West Bank — — ( 58,650 ) Net cash used in investing activities — — ( 58,650 ) Cash Flows from Financing Activities: Proceeds from long-term debt — — 58,756 Principal payments on long-term debt ( 5,000 ) ( 3,750 ) — Common stock cash dividends ( 16,806 ) ( 16,704 ) ( 16,619 ) Net cash provided by (used in) financing activities ( 21,806 ) ( 20,454 ) 42,137 Net increase (decrease) in cash ( 962 ) ( 716 ) 1,165 Cash: Beginning 5,095 5,811 4,646 Ending $ 4,133 $ 5,095 $ 5,811 99 Table of Contents West Bancorporation, Inc. and Subsidiary ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Within the two years prior to the date of the most recent financial statements, there have been no changes in or disagreements with accountants of the Company.