WEST BANCORPORATION INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. "SAFE HARBOR" CONCERNING FORWARD-LOOKING STATEMENTS Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to the Company’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements may appear throughout this report. These forward-looking statements are generally identified by the words “believes,” “expects,” “intends,” “anticipates,” “projects,” “future,” “confident,” “may,” “should,” “will,” “strategy,” “plan,” “opportunity,” “will be,” “will likely result,” “will continue” or similar references, or references to estimates, predictions or future events. Such forward-looking statements are based upon certain underlying assumptions, risks and uncertainties. Because of the possibility that the underlying assumptions are incorrect or do not materialize as expected in the future, actual results could differ materially from these forward-looking statements. Risks and uncertainties that may affect future results include: interest rate risk, including the effects of changes in interest rates; fluctuations in the values of the securities held in our investment portfolio, including as a result of rising interest rates; competitive pressures, including from non-bank competitors such as credit unions, "fintech" companies and digital asset service providers; pricing pressures on loans and deposits; our ability to successfully manage liquidity risk; changes in credit and other risks posed by the Company’s loan portfolio, including declines in commercial or residential real estate values or changes in the allowance for credit losses dictated by new market conditions, accounting standards or regulatory requirements; the concentration of large deposits from certain clients, including those who have balances above current FDIC insurance limits; the imposition of domestic or foreign tariffs or other governmental policies impacting the global supply chain and the value of products produced by our commercial borrowers; changes in local, national and international economic conditions, including the level and impact of inflation, and future monetary policies of the Federal Reserve in response thereto, and possible recession; the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in recent bank failures; changes in legal and regulatory requirements, limitations and costs, including in response to the recent bank failures; changes in customers’ acceptance of the Company’s products and services; the occurrence of fraudulent activity, breaches or failures of our or our third-party partners' information security controls or cyber-security related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools; unexpected outcomes of existing or new litigation involving the Company; the monetary, trade and other regulatory policies of the U.S. government; acts of war or terrorism, including the ongoing Israeli-Palestinian conflict and the Russian invasion of Ukraine, widespread disease or pandemics, or other adverse external events; risks related to climate change and the negative impact it may have on our customers and their business; changes to U.S. tax laws, regulations and guidance; potential changes in federal policy and at regulatory agencies; talent and labor shortages; and any other risks described in the “Risk Factors” sections of this and other reports filed by the Company with the SEC. The Company undertakes no obligation to revise or update such forward-looking statements to reflect current or future events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. CRITICAL ACCOUNTING POLICIES The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's consolidated financial statements that have been prepared in accordance with GAAP. The preparation of the Company's financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes involve the most complex and subjective estimates and judgments and have the greatest effect on the Company's reported financial position and results of operations are described as critical accounting policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on February 20, 2025. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2024. 30 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) NON-GAAP FINANCIAL MEASURES This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the Company’s presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, and the presentation of the efficiency ratio on an adjusted and FTE basis, excluding certain income and expenses. Management believes these non-GAAP financial measures provide useful information to both management and investors to analyze and evaluate the Company’s financial performance. These measures are considered standard measures of comparison within the banking industry. Additionally, management believes providing measures on a FTE basis enhances the comparability of income arising from taxable and nontaxable sources. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently. These non-GAAP disclosures should not be considered an alternative to the Company’s GAAP results for the periods indicated. The following table reconciles the non-GAAP financial measures of net interest income and net interest margin on a FTE basis and efficiency ratio on an adjusted and FTE basis to their most directly comparable measures under GAAP. Three Months Ended March 31, 2025 2024 Reconciliation of net interest income and net interest margin on a FTE basis to GAAP: Net interest income (GAAP) $ 20,855 $ 16,750 Tax-equivalent adjustment (1) 66 82 Net interest income on a FTE basis (non-GAAP) 20,921 16,832 Average interest-earning assets 3,717,441 3,595,954 Net interest margin on a FTE basis (non-GAAP) 2.28 % 1.88 % Reconciliation of efficiency ratio on an adjusted and FTE basis to GAAP: Net interest income on a FTE basis (non-GAAP) $ 20,921 $ 16,832 Noninterest income 2,243 2,299 Adjustment for losses on disposal of premises and equipment, net 8 — Adjusted income 23,172 19,131 Noninterest expense 13,063 11,868 Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2) 56.37 % 62.04 % (1) Computed on a tax-equivalent basis using a federal income tax rate of 21 percent, adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results, as it enhances the comparability of income arising from taxable and nontaxable sources. (2) The efficiency ratio expresses noninterest expense as a percent of fully taxable equivalent net interest income and noninterest income, excluding specific noninterest income and expenses. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the Company's financial performance. It is a standard measure of comparison within the banking industry. A lower ratio is more desirable. 31 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) OVERVIEW The following discussion describes the consolidated operations and financial condition of the Company, West Bank and West Bank's special purpose subsidiaries (which are invested in new markets tax credit activities). Results of operations for the three months ended March 31, 2025 are compared to the results for the same period in 2024, and the consolidated financial condition of the Company as of March 31, 2025 is compared to that as of December 31, 2024. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 20, 2025. The Company conducts business from its headquarters building in West Des Moines, Iowa and through its branch offices in central Iowa, which is generally the greater Des Moines metropolitan area; eastern Iowa, which is the area including and surrounding Iowa City and Coralville; and southern Minnesota, which includes the cities of Rochester, Owatonna, Mankato and St. Cloud. Net income for the three months ended March 31, 2025 was $7,842, or $0.46 per diluted common share, compared to $5,809, or $0.35 per diluted common share, for the three months ended March 31, 2024. The Company's annualized return on average assets and return on average equity for the three months ended March 31, 2025 were 0.81 percent and 13.84 percent, respectively, compared to 0.61 percent and 10.63 percent, respectively, for the three months ended March 31, 2024. Net interest income for the three months ended March 31, 2025 increased $4,105, or 24.5 percent, compared to the three months ended March 31, 2024. The increase in net interest income was primarily due to increases in interest income on loans and interest-bearing deposits at other financial institutions and a decrease in interest expense on short term borrowed funds. Growth in average deposit balances provided for a reduction in average short term borrowings and an increase in average interest bearing deposits in other financial institutions. Interest expense on deposits declined slightly, as growth in deposit balances was offset by a reduction in deposit interest rates. A reduction in the interest rates on interest bearing cash deposits, short term borrowings and deposits have been driven by the Federal Reserve's 100 basis point reduction of the federal funds rate in September through December of 2024. Noninterest income decreased $56 for the three months ended March 31, 2025 compared to the same period in 2024. Noninterest expense increased $1,195 during the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to increases in salaries and employee benefits and occupancy and equipment expense. Total loans outstanding increased $11,611, or 0.4 percent, to $3,016,471 during the first three months of 2025. The credit quality of the loan portfolio remained strong, as evidenced by the Company's ratio of nonperforming loans to total assets of 0.00 percent as of both March 31, 2025 and December 31, 2024. As of both March 31, 2025 and December 31, 2024, the allowance for credit losses was 1.01 percent of total outstanding loans. Management believed the allowance for credit losses at March 31, 2025 was adequate to absorb expected losses in the loan portfolio as of that date. 32 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) On a quarterly basis, the Company compares three key performance metrics to those of our identified peer group. The peer group for 2025 consists of 20 Midwestern, publicly traded financial institutions, including Bank First Corporation, Bridgewater Bancshares Inc., ChoiceOne Financial Services, Inc., Civista Bancshares, Inc., Equity Bancshares, Inc., Farmers National Banc Corp., Farmers & Merchants Bancorp., First Business Financial Services, Inc., First Financial Corp., First Mid Bancshares, Inc., German American Bancorp, Inc., HBT Financial Inc., Hills Bancorporation, Isabella Bank Corporation, LCNB Corp., Mercantile Bank Corporation, MidWest One Financial Group, Inc., Nicolet Bankshares, Inc., Peoples Bancorp, Inc., and Southern Missouri Bancorp, Inc. The Company is in the middle of the group in terms of asset size. The Company's goal is to perform at or near the top of this peer group relative to what we consider to be three key metrics: return on average equity, efficiency ratio and nonperforming assets to total assets. We believe these measures encompass the factors that define the performance of a community bank. Company and peer results for the key financial performance measures are summarized below. West Bancorporation, Inc. Peer Group Range (2) As of and for the three months ended March 31, 2025 As of and for the year ended December 31, 2024 As of and for the year ended December 31, 2024 Return on average equity 13.84% 10.71% (11.08%) - 14.44% Efficiency ratio (1) 56.37% 63.25% 46.23% - 73.19% Nonperforming assets to total assets 0.00% 0.00% 0.01% - 0.80% (1) The efficiency ratio is a non-GAAP financial measure. For further information, refer to the Non-GAAP Financial Measures section of this report. (2) Latest data available. At its meeting on April 23, 2025, the Company's Board of Directors declared a regular quarterly cash dividend of $0.25 per common share. The dividend is payable on May 21, 2025, to stockholders of record on May 7, 2025. 33 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) RESULTS OF OPERATIONS The following table shows selected financial results and measures for the three months ended March 31, 2025 compared with the same period in 2024. Three Months Ended March 31, 2025 2024 Change Change % Net income $ 7,842 $ 5,809 $ 2,033 35.00 % Average assets 3,944,789 3,812,199 132,590 3.48 % Average stockholders' equity 229,874 219,835 10,039 4.57 % Return on average assets 0.81 % 0.61 % 0.20 % Return on average equity 13.84 % 10.63 % 3.21 % Net interest margin (1) 2.28 % 1.88 % 0.40 % Efficiency ratio (1) (2) 56.37 % 62.04 % (5.67) % Dividend payout ratio 53.66 % 71.59 % (17.93) % Average equity to average assets ratio 5.83 % 5.77 % 0.06 % As of March 31, 2025 2024 Change Nonperforming assets to total assets (2) 0.00 % 0.01 % (0.01) % Equity to assets ratio 5.97 % 5.65 % 0.32 % Tangible common equity ratio 5.97 % 5.65 % 0.32 % (1) Amounts are presented on a FTE basis. These are non-GAAP financial measures. For further information, refer to the Non-GAAP Financial Measures section of this report. (2) A lower ratio is more desirable. Definitions of ratios: • Return on average assets - annualized net income divided by average assets. • Return on average equity - annualized net income divided by average stockholders' equity. • Net interest margin - annualized tax-equivalent net interest income divided by average interest-earning assets. • Efficiency ratio - noninterest expense (excluding other real estate owned expense and write-down of premises) divided by noninterest income (excluding net securities gains/losses and gains/losses on disposition of premises and equipment) plus tax-equivalent net interest income. • Dividend payout ratio - dividends paid to common stockholders divided by net income. • Average equity to average assets ratio - average equity divided by average assets. • Nonperforming assets to total assets - total nonperforming assets divided by total assets. • Equity to assets ratio - equity divided by assets. • Tangible common equity ratio - common equity less intangible assets (none held) divided by tangible assets. 34 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) Net Interest Income The following table presents average balances and related interest income or interest expense, with the resulting annualized average yield or rate by category of interest-earning assets or interest-bearing liabilities. Interest income and the resulting net interest income are shown on a FTE basis. Data for the three months ended March 31: Average Balance Interest Income/Expense Yield/Rate 2025 2024 Change Change- % 2025 2024 Change Change- % 2025 2024 Change Interest-earning assets: Loans: (1) (2) Commercial $ 534,533 $ 534,000 $ 533 0.10 % $ 8,484 $ 8,781 $ (297) (3.38) % 6.44 % 6.61 % (0.17) % Real estate (3) 2,462,036 2,403,536 58,500 2.43 % 32,213 31,231 982 3.14 % 5.31 % 5.23 % 0.08 % Consumer and other 19,549 12,136 7,413 61.08 % 322 229 93 40.61 % 6.68 % 7.60 % (0.92) % Total loans 3,016,118 2,949,672 66,446 2.25 % 41,019 40,241 778 1.93 % 5.52 % 5.49 % 0.03 % Securities: Taxable 430,762 492,689 (61,927) (12.57) % 2,788 3,416 (628) (18.38) % 2.59 % 2.77 % (0.18) % Tax-exempt (3) 126,096 143,009 (16,913) (11.83) % 778 847 (69) (8.15) % 2.47 % 2.37 % 0.10 % Total securities 556,858 635,698 (78,840) (12.40) % 3,566 4,263 (697) (16.35) % 2.56 % 2.68 % (0.12) % Interest-bearing deposits 144,465 10,584 133,881 1,264.94 % 1,617 148 1,469 992.57 % 4.54 % 5.64 % (1.10) % Total interest-earning assets (3) $ 3,717,441 $ 3,595,954 $ 121,487 3.38 % 46,202 44,652 1,550 3.47 % 5.04 % 4.99 % 0.05 % Interest-bearing liabilities: Deposits: Interest-bearing demand $ 535,848 $ 457,605 $ 78,243 17.10 % 2,251 2,188 63 2.88 % 1.70 % 1.92 % (0.22) % Savings and money market 1,601,019 1,428,609 172,410 12.07 % 12,454 12,849 (395) (3.07) % 3.15 % 3.62 % (0.47) % Time 625,414 540,824 84,590 15.64 % 6,718 6,522 196 3.01 % 4.36 % 4.85 % (0.49) % Total deposits 2,762,281 2,427,038 335,243 13.81 % 21,423 21,559 (136) (0.63) % 3.15 % 3.57 % (0.42) % Borrowed funds: Federal funds purchased and other short-term borrowings 1 156,534 (156,533) (100.00) % — 2,183 (2,183) (100.00) % 4.63 % 5.61 % (0.98) % Subordinated notes, net 79,923 79,659 264 0.33 % 1,105 1,108 (3) (0.27) % 5.61 % 5.60 % 0.01 % Federal Home Loan Bank advances 270,000 315,000 (45,000) (14.29) % 2,235 2,325 (90) (3.87) % 3.36 % 2.97 % 0.39 % Long-term debt 41,944 46,967 (5,023) (10.69) % 518 645 (127) (19.69) % 5.01 % 5.52 % (0.51) % Total borrowed funds 391,868 598,160 (206,292) (34.49) % 3,858 6,261 (2,403) (38.38) % 3.99 % 4.21 % (0.22) % Total interest-bearing liabilities $ 3,154,149 $ 3,025,198 $ 128,951 4.26 % 25,281 27,820 (2,539) (9.13) % 3.25 % 3.70 % (0.45) % Net interest income (FTE) (4) $ 20,921 $ 16,832 $ 4,089 24.29 % Net interest spread (FTE) 1.79 % 1.29 % 0.50 % Net interest margin (FTE) (4) 2.28 % 1.88 % 0.40 % (1) Average loan balances include nonaccrual loans. Interest income recognized on nonaccrual loans has been included. (2) Interest income on loans includes amortization of loan fees and costs and prepayment penalties collected, which are not material. (3) Tax-exempt income has been adjusted to a tax-equivalent basis using a federal income tax rate of 21 percent and is adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans. (4) Net interest income (FTE) and net interest margin (FTE) are non-GAAP financial measures. For further information, refer to the Non-GAAP Financial Measures section of this report. 35 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) The Company's largest component of net income is net interest income, which is the difference between interest earned on interest-earning assets, consisting primarily of loans and securities, and interest paid on interest-bearing liabilities, consisting of deposits and borrowings. Fluctuations in net interest income can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are also affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities. The Federal Reserve decreased the target federal funds interest rate by a total of 100 basis points from September through December of 2024, which impacted the comparability of the net interest margin between the three months ended March 31, 2025 and three months ended March 31, 2024. The timing and extent of additional interest rate changes by the Federal Reserve is not known at this time. Net interest margin on a FTE basis, a non-GAAP financial measure, is a measure of the net return on interest-earning assets and is computed by dividing annualized tax-equivalent net interest income by total average interest-earning assets for the period. The net interest margin for the three months ended March 31, 2025 increased by 40 basis points compared to the three months ended March 31, 2024. Tax-equivalent net interest income for the three months ended March 31, 2025 increased $4,089 when compared to the same period in 2024. Tax-equivalent interest income on loans increased $778 for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase in interest income on loans was driven primarily by an increase in the average balance of loans. The average balance of loans for the three months ended March 31, 2025 increased $66,446 compared to the three months ended March 31, 2024. The yield on the loan portfolio increased by 3 basis points for the three months ended March 31, 2025 compared to the same period in 2024. While the fixed-rate loan portfolio has benefited from higher prevailing market rates for originations and renewals compared to the roll off rates, the yield on the variable-rate loan portfolio has decreased due to reductions in the prime rate and SOFR rates driven by the reductions in the federal funds rate from September through December 2024. The yield on the Company's loan portfolio is affected by the portfolio's loan mix, the interest rate environment, the effects of competition, the level of nonaccrual loans and reversals of previously accrued interest on charged-off loans. The political and economic environments can also influence the volume of new loan originations and the mix of variable-rate versus fixed-rate loans. The yield on the loan portfolio is expected to increase in flat and rising rate environments as variable-rate loans reprice at higher rates and renewals and new originations are priced at prevailing market rates, which exceed the roll-off rate of principal repayments on existing loans. In a declining rate environment, the yield on variable-rate loans will decline, however as long as market rates remain higher than the yield on the fixed-rate portfolio, renewals and originations will continue to increase the yield on the fixed-rate portfolio. Interest income on interest-bearing deposits in other financial institutions increased $1,469 for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase was primarily due to the increase in the average balance of interest-bearing deposits in other financial institutions. This increase in balance sheet liquidity was driven by the growth in average deposit balances. The average balance of deposits increased $335,243 for the three months ended March 31, 2025 compared to the same period in 2024. The rate paid on deposits decreased 42 basis points for the three months ended March 31, 2025 compared to the same period in 2024. Deposit growth included a mix of public funds and commercial and consumer deposits. The decrease in the cost of deposits was primarily driven by the reduction in the federal funds rate from September through December of 2024. Interest expense on borrowed funds decreased $2,403 for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The average balance of borrowed funds decreased $206,292 for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The average balance of federal funds purchased and other short-term borrowings decreased $156,533 for the three months ended March 31, 2025, compared to the same period in 2024 primarily due to increases in deposits. The average balance of FHLB advances decreased by $45,000 for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This decrease in average balances was due to the maturity of two FHLB advances with a total balance of $45,000 in the fourth quarter of 2024. One of these FHLB advances, with a balance of $25,000, was a one-month rolling advance that was hedged with a long-term interest rate swap agreement that matured. 36 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) Credit Loss Expense and the Related Allowance for Credit Losses The credit loss expense recorded on the income statement represents a charge made to earnings to maintain an adequate allowance for credit losses. The adequacy of the allowance for credit losses is evaluated quarterly by management and reviewed by the Board of Directors. The allowance for credit losses is management's estimate of expected lifetime losses in the loan portfolio as of the balance sheet date. The Company recorded no credit loss expense for loans for both the three months ended March 31, 2025 and March 31, 2024. Management believed the allowance for credit losses at March 31, 2025 was adequate to absorb expected losses in the loan portfolio as of that date. Factors management considers in establishing an appropriate allowance include: the borrower's financial condition; the value and adequacy of loan collateral; the condition of the local economy and the borrower's specific industry; the levels and trends of loans by segment; and a review of delinquent and classified loans. The quarterly evaluation of the allowance focuses on factors such as specific loan reviews, changes in the components of the loan portfolio given the current and forecasted economic conditions, and historical loss experience. Any one of the following conditions may result in the review of a specific loan: concern about whether the customer's cash flow or net worth is sufficient to repay the loan; delinquency status; criticism of the loan in a regulatory examination; the suspension of interest accrual; or other factors, including whether the loan has other special or unusual characteristics that suggest special monitoring is warranted. The Company's concentration risks include geographic concentrations in central and eastern Iowa and southern Minnesota. The local economies in those markets are composed primarily of major financial service companies, healthcare providers, educational institutions, technology and agribusiness companies, and state and local governments. West Bank has a significant portion of its loan portfolio in commercial real estate loans, commercial lines of credit, commercial term loans, and construction and land development loans. West Bank's typical commercial borrower is a small- or medium-sized, privately owned business entity. Compared to residential mortgages or consumer loans, commercial loans typically have larger balances and repayment usually depends on the borrowers' successful business operations. Commercial loans generally are not fully repaid over the loan period and may require refinancing or a large payoff at maturity. When the economy turns downward, commercial borrowers may not be able to repay their loans, and the value of their assets, which are usually pledged as collateral, may decrease rapidly and significantly. While management uses available information to recognize losses on loans, further reduction in the carrying amounts of loans may be necessary based on changes in circumstances, changes in the overall economy in the markets we currently serve, or later acquired information. Identifiable sectors within the general economy are subject to additional volatility, which at any time may have a substantial impact on the loan portfolio. In addition, regulatory agencies, as integral parts of their examination processes, periodically review the credit quality of the loan portfolio and the level of the allowance for credit losses. Such agencies may require West Bank to recognize additional charge-offs or provisions for credit losses based on such agencies' review of information available to them at the time of their examinations. 37 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) West Bank's policy is to charge off loans when, in management's opinion, a loan or a portion of a loan is deemed uncollectible. Commercially reasonable efforts are made to maximize subsequent recoveries. The following table summarizes the activity in the Company's allowance for credit losses on loans for the three months ended March 31, 2025 and 2024 and related ratios. Three Months Ended March 31, 2025 2024 Change Balance at beginning of period $ 30,432 $ 28,342 $ 2,090 Charge-offs — — — Recoveries 94 31 63 Net (charge-offs) recoveries 94 31 63 Provision for credit losses charged (credited) to operations — — — Balance at end of period $ 30,526 $ 28,373 $ 2,153 Average loans outstanding $ 3,016,119 $ 2,949,672 Ratio of annualized net (charge-offs) recoveries during the period to average loans outstanding 0.01 % 0.00 % Ratio of allowance for credit losses for loans to average loans outstanding 1.01 % 0.96 % Ratio of allowance for credit losses for loans to total loans at end of period 1.01 % 0.95 % 38 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) Noninterest Income The following table shows the variance from the prior year in the noninterest income categories shown in the Consolidated Statements of Income. Three Months Ended March 31, Noninterest income: 2025 2024 Change Change % Service charges on deposit accounts $ 471 $ 460 $ 11 2.39 % Debit card usage fees 446 458 (12) (2.62) % Trust services 777 776 1 0.13 % Increase in cash value of bank-owned life insurance 282 274 8 2.92 % Other income 267 331 (64) (19.34) % Total noninterest income $ 2,243 $ 2,299 $ (56) (2.44) % The decrease in other income was primarily due to a decrease in letter of credit and loan related fees during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Noninterest Expense The following table shows the variance from the prior year in the noninterest expense categories shown in the Consolidated Statements of Income. In addition, accounts within the “other expenses” category that represent a significant portion of the total or a significant variance are shown below. Three Months Ended March 31, Noninterest expense: 2025 2024 Change Change % Salaries and employee benefits $ 7,004 $ 6,489 $ 515 7.94 % Occupancy and equipment 1,963 1,447 516 35.66 % Data processing 617 714 (97) (13.59) % Technology and software 786 700 86 12.29 % FDIC insurance 587 519 68 13.10 % Professional fees 308 257 51 19.84 % Director fees 206 199 7 3.52 % Other expenses: Insurance expense 294 192 102 53.13 % Business development 215 209 6 2.71 % Trust 202 170 32 18.82 % Consulting fees 79 61 18 29.51 % Marketing 11 36 (25) (69.44) % Low income housing projects amortization 151 165 (14) (8.48) % New markets tax credit project amortization and management fees 76 230 (154) (66.96) % All other 564 480 84 17.50 % Total other 1,592 1,543 49 3.18 % Total noninterest expense $ 13,063 $ 11,868 $ 1,195 10.07 % Salaries and employee benefits increased for the three months ended March 31, 2025 compared to the same period in 2024 due primarily to an increase in incentive compensation related accruals. Occupancy and equipment expense increased for the three months ended March 31, 2025 compared to the three months March 31, 2024 primarily due to an increase in occupancy costs related to new bank buildings, including the Company's new headquarters building, which opened in April 2024, and the new branch building in Owatonna, Minnesota, which opened in January 2025. Insurance expense increased due to increased coverage related to these new bank buildings and general increases in insurance costs. 39 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) Technology and software expense increased for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 due to updates in information technology solutions. New market tax credit project amortization declined due to the expiration of the related tax credit. Income Tax Expense The Company recorded income tax expense of $2,193 (21.9 percent of pre-tax income) for the three months ended March 31, 2025, compared with $1,372 (19.1 percent of pre-tax income) for the three months ended March 31, 2024. The increase in effective tax rate was primarily due to the expiration of the new market tax credit at the end of 2024. The Company's consolidated income tax rate differs from the federal statutory income tax rate in each period, primarily due to tax-exempt interest income, the tax-exempt increase in cash value of bank-owned life insurance, disallowed interest expense, and state income taxes. Additionally, for the three months ended March 31, 2025, a tax benefit of $67 was recorded as a result of the increase in fair value of restricted stock over the vesting period. For the three months ended March 31, 2024, a tax expense of $5 was recorded as a result of the decrease in fair value of restricted stock over the vesting period. The tax rates for the first three months of 2025 and 2024 were also impacted by year-to-date tax credits of approximately $165 and $377, respectively. 40 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) FINANCIAL CONDITION The Company had total assets of $3,986,669 as of March 31, 2025, compared to total assets of $4,014,991 as of December 31, 2024. Changes in the balance sheet included increases in loans and stockholders' equity and decreases in interest-bearing cash deposits and total deposits. Securities Securities available for sale increased by $2,054 during the three months ended March 31, 2025. This increase was due to a decrease in unrealized losses on securities since December 31, 2024, partially offset by calls and principal paydowns on securities. Management concluded unrealized losses in the portfolio as of March 31, 2025 are the result of increases in risk-free market interest rates since the securities were purchased and are not an indication of declining credit quality. Unrealized losses are recorded in accumulated other comprehensive loss, net of tax. The Company expects the securities portfolio as a percentage of total assets to decrease over time as the proceeds from paydowns and maturities may be used for loan growth or repayment of borrowed funds. As of March 31, 2025, approximately 63 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities. Management believes these securities have little to no credit risk and provide cash flows for liquidity and repricing opportunities. Loans and Nonperforming Assets Loans outstanding increased $11,611 from $3,004,860 as of December 31, 2024 to $3,016,471 as of March 31, 2025. Changes in the loan portfolio during the first three months of 2025 included increases of $48,135 in commercial real estate loans and $17,035 in commercial loans and a decrease of $56,917 in construction, land and land development loans. In accordance with regulatory guidelines, the Company exercises heightened risk management practices when non-owner occupied commercial real estate lending exceeds 300 percent of total risk-based capital or construction, land and land development loans exceed 100 percent of total risk-based capital. Although the commercial real estate portfolio exceeded these regulatory guidelines as of March 31, 2025, they were within the Company's established policy limits and management believes that the Company has appropriate risk management policies and procedures to regularly monitor the commercial real estate portfolio. An analysis of the Company's non-owner occupied commercial real estate portfolio as of December 31, 2024 was presented in the Company's Form 10-K, filed with the SEC on February 20, 2025, and the Company has not experienced any material changes to that portfolio since December 31, 2024. The following table sets forth the amount of nonperforming assets held by the Company and common ratio measurements of those assets as of the dates shown. March 31, 2025 December 31, 2024 Change Nonaccrual loans $ 181 $ 133 $ 48 Loans past due 90 days and still accruing interest — — — Loan restructurings (1) — — — Total nonperforming loans 181 133 48 Other real estate owned — — — Total nonperforming assets $ 181 $ 133 $ 48 Nonperforming loans to total loans 0.01 % 0.00 % 0.01 % Nonperforming assets to total assets 0.00 % 0.00 % 0.00 % (1) While loan restructurings made to borrowers experiencing financial difficulty (loan restructurings) are commonly reported by the industry as nonperforming, those not classified in the nonaccrual category are accruing interest due to payment performance. Loan restructurings on nonaccrual status are categorized as nonaccrual. There were no loan restructurings categorized as nonaccrual as of March 31, 2025 or December 31, 2024. 41 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) Deposits Deposits decreased $33,078, or 1.0 percent, during the first three months of 2025. Brokered deposits increased to $335,494 at March 31, 2025, from $266,418 at December 31, 2024. Excluding brokered deposits, deposits decreased $102,154, or 3.3 percent, during the first three months of 2025. The decline in deposits was due to normal cash flow fluctuations of our core depositors. Deposit inflows and outflows can be influenced by prevailing market interest rates, competition, local and national economic conditions and fluctuations in our business customers' own liquidity needs. West Bank participates in the IntraFi ® ICS and CDARS reciprocal deposit network which enables depositors to receive FDIC insurance coverage on deposits otherwise exceeding the maximum insurable amount. As of March 31, 2025, estimated uninsured deposits, which exclude deposits in the IntraFi ® reciprocal network, brokered deposits and public funds protected by state programs, were approximately 28.0 percent of total deposits. Borrowed Funds The Company had $270,000 of FHLB advances outstanding at March 31, 2025, all of which are one-month rolling advances hedged with long-term interest rate swaps. The interest rate swaps that hedge the interest rates on these FHLB advances have maturity dates ranging from July 2026 through June 2029 and fixed rates ranging from 1.86 percent to 4.32 percent. This strategy of hedging short-term rolling funding provides cost effective fixed-rate wholesale funding through the maturity dates of the various interest rate swaps. Liquidity The objectives of liquidity management are to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for profitable business expansion. The Company's principal source of funds is deposits. Other sources include loan principal repayments, proceeds from the maturity and sale of securities, principal payments on amortizing securities, federal funds purchased, advances from the FHLB, other wholesale funding and funds provided by operations. Liquidity management is conducted on both a daily and a long-term basis. Investments in liquid assets are adjusted based on expected loan demand, projected loan and securities maturities and payments, expected deposit flows and the objectives set by the Company's asset-liability management policy. The Company had liquid assets (cash and cash equivalents) of $210,610 as of March 31, 2025 compared with $243,478 as of December 31, 2024. Our deposit growth strategy emphasizes core deposit growth. Deposit inflows and outflows can vary widely and are influenced by prevailing market interest rates, competition, local and national economic conditions and fluctuations in our business customers' own liquidity needs. The Company utilizes brokered deposits and other wholesale funding to supplement core deposit fluctuations and loan growth. Brokered deposits are obtained through various programs administered by IntraFi ® , and through other third party brokers. At March 31, 2025, the Company had $335,494 in brokered deposits, which included fixed-rate deposits with terms through September 2026 and variable-rate deposits with terms through February 2026. As of March 31, 2025, West Bank had additional borrowing capacity available from the FHLB of approximately $635,000, as well as approximately $119,000 through the Federal Reserve discount window and $75,000 through unsecured federal funds lines of credit with correspondent banks. Net cash from operating activities contributed $9,749 to liquidity for the three months ended March 31, 2025. Management believed that the combination of high levels of liquid assets, unencumbered securities, cash flows from operations, and additional borrowing capacity were sufficient to meet our liquidity needs as of March 31, 2025. The Company had remaining commitments to invest in qualified affordable housing projects totaling $663 and $861 as of March 31, 2025 and December 31, 2024, respectively. 42 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) Capital The Company's total stockholders' equity increased to $237,873 at March 31, 2025 from $227,875 at December 31, 2024. The increase was primarily the result of retained net income and the increase in the market value of our available for sale investment portfolio. While accumulated other comprehensive losses reduce tangible common equity, they have no impact on regulatory capital. At March 31, 2025, the Company's tangible common equity as a percent of tangible assets was 5.97 percent compared to 5.68 percent as of December 31, 2024. 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 accounting practices. The Company's and West Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Management believed the Company and West Bank met all capital adequacy requirements to which they were subject as of March 31, 2025. 43 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (in thousands, except share and per share data) The Company's and West Bank's capital amounts and ratios are presented in the following table. 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 March 31, 2025 Total Capital (to Risk-Weighted Assets) Consolidated $ 432,389 12.18 % $ 284,002 8.00 % $ 372,753 10.50 % $ 355,003 10.00 % West Bank 457,593 12.90 % 283,818 8.00 % 372,511 10.50 % 354,772 10.00 % Tier 1 Capital (to Risk-Weighted Assets) Consolidated 340,319 9.59 % 213,002 6.00 % 301,753 8.50 % 284,002 8.00 % West Bank 425,523 11.99 % 212,863 6.00 % 301,556 8.50 % 283,818 8.00 % Common Equity Tier 1 Capital (to Risk-Weighted Assets) Consolidated 320,319 9.02 % 159,751 4.50 % 248,502 7.00 % 230,752 6.50 % West Bank 425,523 11.99 % 159,647 4.50 % 248,341 7.00 % 230,602 6.50 % Tier 1 Capital (to Average Assets) Consolidated 340,319 8.36 % 162,848 4.00 % 162,848 4.00 % 203,560 5.00 % West Bank 425,523 10.46 % 162,771 4.00 % 162,771 4.00 % 203,464 5.00 % 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 % The Company and West Bank are subject to a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. A banking organization with a capital conservation buffer of less than the required amount will be subject to limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers. At March 31, 2025, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer. 44 Table of Contents