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 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"). The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may appear throughout this report. These forward-looking statements are generally identified by the words “believes,” “expects,” “intends,” “anticipates,” “projects,” “forecasts,” “plans,” “targets,” “future,” “confident,” “potentially,” “probably,” “outlook,” “may,” “should,” “would,” “could,” “will,” “strategy,” “plan,” “opportunity,” “will be,” “will likely result,” “will continue” or similar references, as well as the negative of such words, or references to estimates, predictions or future events. Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Such forward-looking statements are based upon certain underlying assumptions, known and unknown risks and uncertainties. Because of the possibility that the underlying assumptions are incorrect or do not materialize as expected in the future, actual results may differ, possibly materially, from these forward-looking statements. Risks and uncertainties that may affect future results include, but are not limited to: 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; technological changes implemented by us and other parties, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequences to us and our customers, including the development and implementation of tools incorporating artificial intelligence; 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 threat or 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; effects on the U.S. economy resulting from actions taken by the federal government, including executive orders and immigration enforcement; 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 impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry in general or investor and depositor sentiment regarding the stability and liquidity of banks; changes in legal and regulatory requirements, limitations and costs; 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; the effects of acts of war or terrorism, including the wars in Iran and Ukraine and the military conflict between Israel and Hamas in the Middle East; widespread disease, pandemics or epidemics, 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 cautions readers not to place undue reliance on any forward-looking statements. Moreover, any of the forward-looking statements that the Company makes in this report or the documents the Company files with or furnishes to the SEC are based only on information then actually known to the Company and upon management's beliefs and assumptions at the time they are made, which may turn out to be wrong because of inaccurate assumptions they might make, because of the factors described above or because of other factors that the Company cannot foresee. Forward-looking statements speak only as of the date they are made, and the Company does not undertake and specifically disclaims any 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. 31 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars in thousands, except share and per share data) 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, 2025, as filed with the SEC on February 26, 2026. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2025. 32 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars 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, 2026 2025 Reconciliation of net interest income and net interest margin on a FTE basis to GAAP: Net interest income (GAAP) $ 24,385 $ 20,855 Tax-equivalent adjustment (1) 72 66 Net interest income on a FTE basis (non-GAAP) 24,457 20,921 Average interest-earning assets 3,821,463 3,717,441 Net interest margin on a FTE basis (non-GAAP) 2.59 % 2.28 % Reconciliation of efficiency ratio on an adjusted and FTE basis to GAAP: Net interest income on a FTE basis (non-GAAP) $ 24,457 $ 20,921 Noninterest income 2,554 2,243 Adjustment for losses on disposal of premises and equipment, net 2 8 Adjusted income 27,013 23,172 Noninterest expense 13,465 13,063 Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2) 49.85 % 56.37 % (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. 33 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars 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. Results of operations for the three months ended March 31, 2026 are compared to the results for the same period in 2025, and the consolidated financial condition of the Company as of March 31, 2026 is compared to that as of December 31, 2025. 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, 2025, filed with the SEC on February 26, 2026. 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, 2026 was $10,572, or $0.61 per diluted common share, compared to $7,842, or $0.46 per diluted common share, for the three months ended March 31, 2025. The Company's annualized return on average assets and return on average equity for the three months ended March 31, 2026 were 1.06 percent and 15.91 percent, respectively, compared to 0.81 percent and 13.84 percent, respectively, for the three months ended March 31, 2025. Net interest income for the three months ended March 31, 2026 increased $3,530, or 16.9 percent, compared to the three months ended March 31, 2025. The increase in net interest income was primarily due to increases in interest income on deposits with banks and securities purchased under agreements to resell and decreases in interest expense on deposits and borrowed funds, partially offset by a decrease in interest income on securities. Noninterest income increased $311 for the three months ended March 31, 2026 compared to the same period in 2025, primarily due to an increase in trust services revenue. Noninterest expense increased $402 during the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to an increase in salaries and employee benefits, partially offset by a decrease in FDIC insurance expense. Total loans outstanding decreased $10,052, or 0.3 percent, to $2,991,638 during the first three months of 2026. The credit quality of the loan portfolio remained pristine, as evidenced by the Company's ratio of nonperforming loans to total assets of 0.00 percent as of both March 31, 2026 and December 31, 2025. As of both March 31, 2026 and December 31, 2025, the allowance for credit losses was 1.02 percent of total outstanding loans. Management believed the allowance for credit losses at March 31, 2026 was adequate to absorb expected losses in the loan portfolio as of that date. On a quarterly basis, the Company compares three key performance metrics to those of our identified peer group. The peer group for 2026 consists of 20 Midwestern, publicly traded financial institutions, including Ames National Corporation, Bank First Corporation, Bridgewater Bancshares Inc., CF Bankshares, 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., First Savings Financial Group, German American Bancorp, Inc., HBT Financial Inc., Hills Bancorporation, Isabella Bank Corporation, LCNB Corp., Mercantile Bank Corporation, and Southern Missouri Bancorp, Inc. The Company ranks in the middle of the peer group by total assets. 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, 2026 As of and for the year ended December 31, 2025 As of and for the year ended December 31, 2025 Return on average equity 15.91% 13.47% 3.40% - 14.45% Efficiency ratio (1) 49.85% 54.11% 44.26% - 68.65% Nonperforming assets to total assets 0.00% 0.00% 0.08% - 1.07% (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. 34 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars in thousands, except share and per share data) At its meeting on April 22, 2026, the Company's Board of Directors declared a regular quarterly cash dividend of $0.25 per common share. The dividend is payable on May 20, 2026, to stockholders of record on May 6, 2026. 35 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars 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, 2026 compared with the same period in 2025. Three Months Ended March 31, 2026 2025 Change Change % Net income $ 10,572 $ 7,842 $ 2,730 34.81 % Average assets 4,027,218 3,944,789 82,429 2.09 % Average stockholders' equity 269,453 229,874 39,579 17.22 % Return on average assets 1.06 % 0.81 % 0.25 % Return on average equity 15.91 % 13.84 % 2.07 % Net interest margin (1) 2.59 % 2.28 % 0.31 % Efficiency ratio (1) (2) 49.85 % 56.37 % (6.52) % Dividend payout ratio 39.51 % 53.66 % (14.15) % Average equity to average assets ratio 6.69 % 5.83 % 0.86 % As of March 31, 2026 2025 Change Nonperforming assets to total assets (2) 0.00 % 0.00 % 0.00 % Equity to assets ratio 6.75 % 5.97 % 0.78 % Tangible common equity ratio 6.75 % 5.97 % 0.78 % (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. 36 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars 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 2026 2025 Change Change- % 2026 2025 Change Change- % 2026 2025 Change Interest-earning assets: Loans: (1) (2) Commercial $ 478,939 $ 534,533 $ (55,594) (10.40) % $ 7,345 $ 8,484 $ (1,139) (13.43) % 6.22 % 6.44 % (0.22) % Real estate (3) 2,468,992 2,462,036 6,956 0.28 % 33,274 32,213 1,061 3.29 % 5.47 % 5.31 % 0.16 % Consumer and other 23,566 19,549 4,017 20.55 % 363 322 41 12.73 % 6.24 % 6.68 % (0.44) % Total loans 2,971,497 3,016,118 (44,621) (1.48) % 40,982 41,019 (37) (0.09) % 5.59 % 5.52 % 0.07 % Securities: Taxable 362,778 430,762 (67,984) (15.78) % 2,143 2,788 (645) (23.13) % 2.36 % 2.59 % (0.23) % Tax-exempt (3) 117,111 126,096 (8,985) (7.13) % 674 778 (104) (13.37) % 2.30 % 2.47 % (0.17) % Total securities 479,889 556,858 (76,969) (13.82) % 2,817 3,566 (749) (21.00) % 2.35 % 2.56 % (0.21) % Deposits with banks 224,234 144,465 79,769 55.22 % 2,047 1,617 430 26.59 % 3.70 % 4.54 % (0.84) % Securities purchased under agreements to resell 145,843 — 145,843 N/A 1,617 — 1,617 N/A 4.50 % — % 4.50 % Total interest-earning assets (3) $ 3,821,463 $ 3,717,441 $ 104,022 2.80 % 47,463 46,202 1,261 2.73 % 5.04 % 5.04 % 0.00 % Interest-bearing liabilities: Deposits: Interest-bearing demand $ 495,207 $ 535,848 $ (40,641) (7.58) % 1,906 2,251 (345) (15.33) % 1.56 % 1.70 % (0.14) % Savings and money market 1,827,564 1,601,019 226,545 14.15 % 12,651 12,454 197 1.58 % 2.81 % 3.15 % (0.34) % Time 519,318 625,414 (106,096) (16.96) % 4,704 6,718 (2,014) (29.98) % 3.67 % 4.36 % (0.69) % Total interest-bearing deposits 2,842,089 2,762,281 79,808 2.89 % 19,261 21,423 (2,162) (10.09) % 2.75 % 3.15 % (0.40) % Borrowed funds: Subordinated notes, net 80,187 79,924 263 0.33 % 1,104 1,105 (1) (0.09) % 5.58 % 5.61 % (0.03) % Federal Home Loan Bank advances 270,000 270,000 — — % 2,244 2,235 9 0.40 % 3.37 % 3.36 % 0.01 % Long-term debt 25,445 41,944 (16,499) (39.34) % 397 518 (121) (23.36) % 6.32 % 5.01 % 1.31 % Total borrowed funds 375,632 391,868 (16,236) (4.14) % 3,745 3,858 (113) (2.93) % 4.04 % 3.99 % 0.05 % Total interest-bearing liabilities $ 3,217,721 $ 3,154,149 $ 63,572 2.02 % 23,006 25,281 (2,275) (9.00) % 2.90 % 3.25 % (0.35) % Net interest income (FTE) (4) $ 24,457 $ 20,921 $ 3,536 16.90 % Net interest spread (FTE) 2.14 % 1.79 % 0.35 % Net interest margin (FTE) (4) 2.59 % 2.28 % 0.31 % (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. 37 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars 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 FOMC decreased the target federal funds interest rate by a total of 75 basis points from September through December of 2025, which will impact the comparability of net interest margin between 2026 and 2025. 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, 2026 increased 31 basis points compared to the three months ended March 31, 2025. Tax-equivalent net interest income for the three months ended March 31, 2026 increased $3,536, when compared to the same period in 2025. Tax-equivalent interest income on loans decreased $37 for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The decrease in tax-equivalent interest income on loans during the three months ended March 31, 2026 compared to the same period in 2025 was driven primarily by a decrease in the average loan balances, partially offset by an increase in loan yields. The average balance of loans for the three months ended March 31, 2026 decreased $44,621, compared to the three months ended March 31, 2025. The yield on the loan portfolio increased by 7 basis points for the three months ended March 31, 2026 compared to the same period in 2025. 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 since September 2025. 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. Tax-equivalent interest income on securities decreased $749 for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The decrease was primarily due to a decrease in average balances of securities. This decrease in average balances of securities was driven by a sale of securities in November 2025 and calls and principal paydowns on securities. Proceeds from the sale and principal paydowns have been reinvested in the loan portfolio, deposits with banks and securities purchased under agreements to resell. Interest income on deposits with banks increased $430 for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase was primarily due to the increase in the average balances of interest-bearing deposits with banks, partially offset by the decline in yield. This increase in balance sheet liquidity was driven by the growth in average deposit balances. Additionally, the Company began investing in securities purchased under agreements to resell in June 2025. These produced interest income of $1,617 for the three months ended March 31, 2026. Interest expense on deposits decreased $2,162 for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The decrease in the interest expense on deposits was primarily due to the decline in interest rates paid on deposits of 40 basis points for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The decrease in rates paid was primarily driven by the reductions in the federal funds rate since September of 2025. The decline in interest rates paid on deposits was partially offset by the increase in average deposit balances. The average balance of interest-bearing deposits increased $79,808 for the three months ended March 31, 2026 compared to the same period in 2025. 38 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars in thousands, except share and per share data) Interest expense on borrowed funds decreased $113 for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The average balance of borrowed funds decreased $16,236 for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The largest driver of the decrease in average borrowed funds balances was the decrease in average balances on long-term debt, which decreased by $16,499 for the three months ended March 31, 2026, compared to the same period in 2025. This decrease in average long-term debt balances was due to principal payments on the long-term debt. 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 or unfunded commitments for the three months ended March 31, 2026 and 2025. Management believed the allowance for credit losses at March 31, 2026 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. 39 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars 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, 2026 and 2025 and related ratios. Three Months Ended March 31, 2026 2025 Change Balance at beginning of period $ 30,525 $ 30,432 $ 93 Charge-offs (19) — (19) Recoveries 17 94 (77) Net (charge-offs) recoveries (2) 94 (96) Provision for credit losses charged (credited) to operations — — — Balance at end of period $ 30,523 $ 30,526 $ (3) Average loans outstanding $ 2,971,497 $ 3,016,119 Ratio of annualized net (charge-offs) recoveries during the period to average loans outstanding 0.00 % 0.01 % Ratio of allowance for credit losses for loans to average loans outstanding 1.03 % 1.01 % Ratio of allowance for credit losses for loans to total loans at end of period 1.02 % 1.01 % 40 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars 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: 2026 2025 Change Change % Service charges on deposit accounts $ 508 $ 471 $ 37 7.86 % Debit card interchange income 472 446 26 5.83 % Trust services 1,010 777 233 29.99 % Increase in cash value of bank-owned life insurance 308 282 26 9.22 % Other income 256 267 (11) (4.12) % Total noninterest income $ 2,554 $ 2,243 $ 311 13.87 % The increase in trust services revenue in the three months ended March 31, 2026 compared to the same period in 2025 was primarily due to the increase in trust assets and trust accounts since March 31, 2025. 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: 2026 2025 Change Change % Salaries and employee benefits $ 7,632 $ 7,004 $ 628 8.97 % Occupancy and equipment 2,006 1,963 43 2.19 % Data processing 596 617 (21) (3.40) % Technology and software 774 786 (12) (1.53) % FDIC insurance 473 587 (114) (19.42) % Professional fees 278 308 (30) (9.74) % Other expenses: Trust 243 202 41 20.30 % Insurance expense 239 294 (55) (18.81) % Business development 236 215 21 9.77 % Consulting fees 73 79 (6) (7.59) % Marketing 33 11 22 200.00 % Low income housing projects amortization 149 151 (2) (1.32) % New markets tax credit project amortization and management fees — 76 (76) (100.00) % All other 733 770 (37) (4.81) % Total other 1,706 1,798 (92) (5.12) % Total noninterest expense $ 13,465 $ 13,063 $ 402 3.08 % Salaries and employee benefits increased for the three months ended March 31, 2026 compared to the same period in 2025 due to the combination of normal merit increases and an increase in full-time equivalent employees since March 31, 2025. FDIC insurance expense decreased for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 primarily due to a decrease in the assessment rate. New markets tax credit project amortization declined with the expiration of the related tax credit. 41 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars in thousands, except share and per share data) Income Tax Expense The Company recorded income tax expense of $2,902 (21.5 percent of pre-tax income) for the three months ended March 31, 2026, compared with $2,193 (21.9 percent of pre-tax income) for the three months ended March 31, 2025. The tax rates for the first three months of 2026 and 2025 were impacted by total year-to-date tax credits of approximately $140 and $165, respectively. 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, 2026 and 2025, a tax benefit of $211 and $67, respectively, was recorded as a result of the increase in fair value of restricted stock over the vesting period. 42 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars in thousands, except share and per share data) FINANCIAL CONDITION The Company had total assets of $4,010,973 as of March 31, 2026, compared to total assets of $4,142,244 as of December 31, 2025. Changes in the balance sheet included increases in securities purchased under agreements to resell and stockholders' equity and decreases in interest-earning deposits in banks, securities available for sale, loans and deposits. Cash and Cash Equivalents As of March 31, 2026, the Company held securities purchased under agreements to resell of $141,742 compared to $121,413 at December 31, 2025. The Company uses these instruments as short-term secured investments which have monthly maturities. Balances will fluctuate based on the Company's liquidity and investment strategies. Securities Securities available for sale decreased by $12,037 during the three months ended March 31, 2026. This decrease was due to calls and principal paydowns on securities and an increase in unrealized losses on securities since December 31, 2025. Management concluded unrealized losses in the portfolio as of March 31, 2026 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. As of March 31, 2026, approximately 62 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 decreased $10,052 from $3,001,690 as of December 31, 2025 to $2,991,638 as of March 31, 2026. Changes in the loan portfolio during the first three months of 2026 included decreases of $50,774 in construction, land and land development loans and $33,636 in commercial loans and increases of $45,996 in 1-4 family residential first mortgage loans and $28,423 in commercial real estate loans. We continue to experience notable loan payoffs as a result of secondary market refinancings and asset and business sales. The change in loan mix is primarily due to reclassifications resulting from completed construction projects moving to permanent financing and commercial loan restructurings adding real estate collateral. 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, 2026, 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, 2025 was presented in the Company's Annual Report on Form 10-K, filed with the SEC on February 26, 2026, and the Company has not experienced any material changes to that portfolio since December 31, 2025. The Company had no nonaccrual loans or loans past due 90 days and still accruing interest as of March 31, 2026 and December 31, 2025. Additionally, the Company had no loan restructurings or other real estate owned as of March 31, 2026 and December 31, 2025. Deposits Deposits decreased $133,498, or 3.8 percent, during the first three months of 2026. Brokered deposits decreased to $116,476 at March 31, 2026, from $154,564 at December 31, 2025. Excluding brokered deposits, deposits decreased $95,410, or 2.9 percent, during the first three months of 2026. 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, normal operating cycles of public fund deposits and fluctuations in our business customers' own liquidity needs. 43 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars in thousands, except share and per share data) West Bank participates in a reciprocal deposit network which enables depositors to receive FDIC insurance coverage on deposits otherwise exceeding the maximum insurable amount. As of March 31, 2026, estimated uninsured deposits, which exclude deposits in reciprocal deposit networks, brokered deposits and public funds protected by state programs, were approximately 27.0 percent of total deposits. Borrowed Funds The Company had $270,000 of FHLB advances outstanding at March 31, 2026, 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 security 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 $361,978 as of March 31, 2026 compared with $471,086 as of December 31, 2025. 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, operating cycles of public fund deposits 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. At March 31, 2026, the Company had $116,476 in brokered deposits, which included fixed-rate deposits with terms through September 2026 and variable-rate deposits with terms through February 2027. As of March 31, 2026, West Bank had additional borrowing capacity available from the FHLB of approximately $674,000, as well as approximately $37,000 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 $12,885 to liquidity for the three months ended March 31, 2026. 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, 2026. The Company had remaining commitments to invest in qualified affordable housing projects totaling $1,329 and $1,383 as of March 31, 2026 and December 31, 2025, respectively. Capital The Company's total stockholders' equity increased to $270,743 at March 31, 2026 from $265,985 at December 31, 2025. The increase was primarily the result of growth in retained earnings. At March 31, 2026, the Company's tangible common equity as a percent of tangible assets was 6.75 percent, compared to 6.42 percent as of December 31, 2025. 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, 2026. 44 Table of Contents West Bancorporation, Inc. Management's Discussion and Analysis (dollars 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, 2026 Total Capital (to Risk-Weighted Assets) Consolidated $ 452,217 12.99 % $ 278,595 8.00 % $ 365,657 10.50 % $ 348,244 10.00 % West Bank 470,964 13.53 % 278,424 8.00 % 365,431 10.50 % 348,030 10.00 % Tier 1 Capital (to Risk-Weighted Assets) Consolidated 360,149 10.34 % 208,947 6.00 % 296,008 8.50 % 278,595 8.00 % West Bank 438,896 12.61 % 208,818 6.00 % 295,825 8.50 % 278,424 8.00 % Common Equity Tier 1 Capital (to Risk-Weighted Assets) Consolidated 340,149 9.77 % 156,710 4.50 % 243,771 7.00 % 226,359 6.50 % West Bank 438,896 12.61 % 156,613 4.50 % 243,621 7.00 % 226,219 6.50 % Tier 1 Capital (to Average Assets) Consolidated 360,149 8.74 % 164,770 4.00 % 164,770 4.00 % 205,962 5.00 % West Bank 438,896 10.66 % 164,735 4.00 % 164,735 4.00 % 205,918 5.00 % As of December 31, 2025 Total Capital (to Risk-Weighted Assets) Consolidated $ 446,560 12.77 % $ 279,756 8.00 % $ 367,180 10.50 % $ 349,695 10.00 % West Bank 466,888 13.35 % 279,703 8.00 % 367,110 10.50 % 349,629 10.00 % Tier 1 Capital (to Risk-Weighted Assets) Consolidated 354,490 10.14 % 209,817 6.00 % 297,241 8.50 % 279,756 8.00 % West Bank 434,818 12.44 % 209,777 6.00 % 297,184 8.50 % 279,703 8.00 % Common Equity Tier 1 Capital (to Risk-Weighted Assets) Consolidated 334,490 9.57 % 157,363 4.50 % 244,786 7.00 % 227,302 6.50 % West Bank 434,818 12.44 % 157,333 4.50 % 244,740 7.00 % 227,259 6.50 % Tier 1 Capital (to Average Assets) Consolidated 354,490 8.44 % 168,074 4.00 % 168,074 4.00 % 210,092 5.00 % West Bank 434,818 10.35 % 168,053 4.00 % 168,053 4.00 % 210,067 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, 2026, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer. 45 Table of Contents (dollars in thousands, except share and per share data)