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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number:  0-49677

WEST BANCORPORATION, INC.
(Exact Name of Registrant as Specified in its Charter)
Iowa42-1230603
(State of Incorporation)(I.R.S. Employer Identification No.)
1601 22nd Street, West Des Moines, Iowa
50266
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:  (515) 222-2300

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, no par valueWTBAThe Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒                      No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ☒                      No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐
Accelerated filer☒
Non-accelerated filer☐
Smaller reporting company☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐                      No  ☒

As of April 26, 2023, there were 16,712,257 shares of common stock, no par value, outstanding.


WEST BANCORPORATION, INC.
INDEX
Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
3

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
West Bancorporation, Inc. and Subsidiary
Consolidated Balance Sheet
(unaudited)


(in thousands, except share and per share data)March 31, 2023December 31, 2022
ASSETS
Cash and due from banks$21,579 $24,896 
Interest-bearing deposits901 1,643 
Cash and cash equivalents22,480 26,539 
Securities available for sale, at fair value665,358 664,115 
Federal Home Loan Bank stock, at cost22,226 19,336 
Loans2,756,185 2,742,836 
Allowance for credit losses(27,941)(25,473)
Loans, net2,728,244 2,717,363 
Premises and equipment, net59,565 53,124 
Accrued interest receivable12,284 11,988 
Bank-owned life insurance44,830 44,573 
Deferred tax assets, net35,122 36,609 
Other assets34,834 39,571 
Total assets$3,624,943 $3,613,218 
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand$605,666 $693,563 
Interest-bearing demand486,656 536,226 
Savings and money market1,295,280 1,237,954 
Time410,791 412,665 
Total deposits2,798,393 2,880,408 
Federal funds purchased and other short-term borrowings229,290 200,000 
Subordinated notes, net79,435 79,369 
Federal Home Loan Bank advances220,000 155,000 
Long-term debt51,486 51,486 
Accrued expenses and other liabilities29,347 35,843 
Total liabilities3,407,951 3,402,106 
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; authorized 50,000,000 shares; no shares issued and outstanding at March 31, 2023 and December 31, 2022
— — 
Common stock, no par value; authorized 50,000,000 shares; 16,712,257
    and 16,640,413 shares issued and outstanding at March 31, 2023
    and December 31, 2022, respectively
3,000 3,000 
Additional paid-in capital31,797 32,021 
Retained earnings267,620 267,562 
Accumulated other comprehensive loss(85,425)(91,471)
Total stockholders' equity216,992 211,112 
Total liabilities and stockholders' equity$3,624,943 $3,613,218 

See Notes to Consolidated Financial Statements.
4



West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Income
(unaudited)
 Three Months Ended March 31,
(in thousands, except per share data)20232022
Interest income:
Loans, including fees$32,948 $23,286 
Securities:
Taxable3,316 2,889 
Tax-exempt885 858 
Interest-bearing deposits 30 82 
Total interest income37,179 27,115 
Interest expense:  
Deposits13,339 2,151 
Federal funds purchased and other short-term borrowings2,079 — 
Subordinated notes1,106 248 
Federal Home Loan Bank advances1,262 630 
Long-term debt698 258 
Total interest expense18,484 3,287 
Net interest income18,695 23,828 
Credit loss expense (benefit)— (750)
Net interest income after credit loss expense (benefit)18,695 24,578 
Noninterest income:  
Service charges on deposit accounts462 580 
Debit card usage fees486 472 
Trust services706 629 
Increase in cash value of bank-owned life insurance257 227 
Gain from bank-owned life insurance691 — 
Other income355 481 
Total noninterest income2,957 2,389 
Noninterest expense:  
Salaries and employee benefits6,867 6,298 
Occupancy and equipment1,327 1,086 
Data processing635 624 
Technology and software513 476 
FDIC insurance416 337 
Professional fees250 217 
Director fees205 168 
Other expenses1,858 1,456 
Total noninterest expense12,071 10,662 
Income before income taxes9,581 16,305 
Income taxes1,737 3,121 
Net income$7,844 $13,184 
 
Basic earnings per common share$0.47 $0.80 
Diluted earnings per common share$0.47 $0.78 

See Notes to Consolidated Financial Statements.
5



West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
 Three Months Ended March 31,
(in thousands)20232022
Net income$7,844 $13,184 
Other comprehensive income (loss):  
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period11,667 (54,595)
Income tax (expense) benefit(2,911)13,813 
Other comprehensive income (loss) on securities8,756 (40,782)
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) arising during the period(1,634)10,536 
Plus: reclassification adjustment for net (gains) losses realized in net income(1,958)1,045 
Income tax (expense) benefit882 (2,930)
Other comprehensive income (loss) on derivatives(2,710)8,651 
Total other comprehensive income (loss)6,046 (32,131)
Comprehensive income (loss)$13,890 $(18,947)

See Notes to Consolidated Financial Statements.
 
6



West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(unaudited)
(in thousands, except share and per share data)
Three Months Ended March 31, 2023
Accumulated
AdditionalOther
PreferredCommon StockPaid-InRetainedComprehensive
StockSharesAmountCapitalEarningsIncome (Loss)Total
Balance, December 31, 2022$— 16,640,413 $3,000 $32,021 $267,562 $(91,471)$211,112 
Cumulative effect of change in accounting principle(1)
— — — — (3,626)— (3,626)
Net income
— — — — 7,844 — 7,844 
Other comprehensive income,
   net of tax
— — — — — 6,046 6,046 
Cash dividends declared, $0.25 per common share
— — — — (4,160)— (4,160)
Stock-based compensation costs
— — — 711 — — 711 
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes— 71,844 — (935)— — (935)
Balance, March 31, 2023$— 16,712,257 $3,000 $31,797 $267,620 $(85,425)$216,992 
Three Months Ended March 31, 2022
Accumulated
AdditionalOther
PreferredCommon StockPaid-InRetainedComprehensive
StockSharesAmountCapitalEarningsIncome (Loss)Total
Balance, December 31, 2021$— 16,554,846 $3,000 $30,183 $237,782 $(10,637)$260,328 
Net income
— — — — 13,184 — 13,184 
Other comprehensive loss, net of tax— — — — — (32,131)(32,131)
Cash dividends declared, $0.25 per common share
— — — — (4,139)— (4,139)
Stock-based compensation costs
— — — 757 — — 757 
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes
— 76,567 — (1,519)— — (1,519)
Balance, March 31, 2022$— 16,631,413 $3,000 $29,421 $246,827 $(42,768)$236,480 
(1)Cumulative effect adjustment pursuant to adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. See Note 1 for additional information.

See Notes to Consolidated Financial Statements.

7



West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended March 31,
(in thousands)20232022
Cash Flows from Operating Activities:
Net income$7,844 $13,184 
Adjustments to reconcile net income to net cash provided by operating activities:
Credit loss expense (benefit)— (750)
Net amortization and accretion829 666 
Stock-based compensation711 757 
Increase in cash value of bank-owned life insurance(257)(227)
Depreciation404 307 
Provision for deferred income taxes635 824 
Change in assets and liabilities:
Increase in accrued interest receivable(296)(1,193)
(Increase) decrease in other assets(1,322)249 
Increase (decrease) in accrued expenses and other liabilities(6,054)1,702 
Net cash provided by operating activities2,494 15,519 
Cash Flows from Investing Activities:  
Proceeds from principal paydowns, maturities and calls of securities available for sale9,661 25,730 
Purchases of securities available for sale— (120,077)
Purchases of Federal Home Loan Bank stock(31,595)(384)
Proceeds from redemption of Federal Home Loan Bank stock28,705 80 
Net increase in loans(13,340)(29,161)
Purchases of premises and equipment(7,164)(6,951)
Net cash used in investing activities(13,733)(130,763)
Cash Flows from Financing Activities:  
Net increase (decrease) in deposits(82,015)75,247 
Net increase (decrease) in federal funds purchased and other short-term borrowings29,290 (2,880)
Net increase in Federal Home Loan Bank advances65,000 — 
Principal payments on long-term debt— (35)
Common stock dividends paid(4,160)(4,139)
Restricted stock units withheld for payroll taxes (935)(1,519)
Net cash provided by financing activities7,180 66,674 
Net decrease in cash and cash equivalents(4,059)(48,570)
Cash and Cash Equivalents:
Beginning26,539 192,825 
Ending$22,480 $144,255 
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest$16,515 $3,218 
Income taxes— — 
See Notes to Consolidated Financial Statements.

8


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)

1.  Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by West Bancorporation, Inc. (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. Although management believes that the disclosures are adequate to make the information presented understandable, it is suggested that these interim consolidated financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 23, 2023. In the opinion of management, the accompanying consolidated financial statements of the Company contain all adjustments necessary to fairly present its financial position as of March 31, 2023 and December 31, 2022, and net income, comprehensive income (loss), changes in stockholders' equity and cash flows for the three months ended March 31, 2023 and 2022. The results for these interim periods may not be indicative of results for the entire year or for any other period.

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) established by the Financial Accounting Standards Board (FASB). References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification™, sometimes referred to as the Codification or ASC. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term are the fair value of financial instruments and the allowance for loan losses.

The accompanying unaudited consolidated financial statements include the accounts of the Company, West Bank and West Bank's special purpose subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In accordance with GAAP, West Bancorporation Capital Trust I is recorded on the books of the Company using the equity method of accounting and is not consolidated.

Current accounting developments:  In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326). The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net carrying value at the amount expected to be collected on the financial assets. Under the update, the income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount of financial assets. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Off-balance sheet arrangements such as commitments to extend credit, guarantees, and standby letters of credit that are not considered derivatives under ASC 815 and are not unconditionally cancellable are also within the scope of this update. Credit losses related to available for sale debt securities should be recorded through an allowance for credit losses.

In December 2019, the FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326). This update amended the effective date of ASU No. 2016-13 for certain entities, including smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption was permitted. The one-time determination date for identifying as a smaller reporting company was November 15, 2019. The Company met the definition of a smaller reporting company as of that date and was not required to adopt the standard until January 1, 2023.


9


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU improve the usefulness of information provided to investors about certain loan refinancings, restructurings, and write-offs. The amendments eliminate the accounting guidance for troubled debt restructurings (TDRs) by creditors that have adopted ASU No. 2016-13. It also enhances disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Lastly, the amendments require that a public business entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases.

The Company adopted ASU No. 2016-13 using the modified retrospective method for financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for the periods beginning after January 1, 2023 are presented under ASU No. 2016-13, while prior period amounts are reported in accordance with the previously applicable accounting standards. The Company recorded a reduction to retained earnings of $3,626 upon adoption of ASU No. 2016-13. The transition adjustment included an increase to the allowance for credit losses on loans of $2,458 and established an allowance for credit losses on off-balance sheet credit exposure of $2,344. There was no allowance for credit losses recorded for available-for-sale debt securities. The transition adjustment included corresponding increases in deferred tax assets of $1,176.

The following table illustrates the impact of ASC 326 adoption.

 January 1, 2023
Pre-ASC 326 AdoptionImpact of ASC 326 AdoptionAs Reported Under ASC 326
Assets:
    Commercial$4,804 $677 $5,481 
    Real estate:
    Construction, land and land development3,548 (234)3,314 
    1-4 family residential first mortgages357 121 478 
    Home equity101 (8)93 
    Commercial16,575 1,911 18,486 
    Consumer and other88 (9)79 
Allowance for credit losses on loans$25,473 $2,458 $27,931 
Liabilities:
  Liability for off-balance sheet credit exposures$— $2,344 $2,344 

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. They provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update were effective for all entities as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this update refine the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to apply to derivative contracts and certain hedging relationships affected by the discounting transition. The amendments in this update were effective for all entities as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendment in this update extends the period of time preparers can utilize reference rate reform relief guidance in Topic 848, discussed above. ASU No. 2022-06 defers the sunset date from December 31, 2022 to December 31, 2024. The Company does not expect the updates within Topic 848 to have a material impact on our financial statements.


10


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



In March 2023, the FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using Proportional Amortization Method. The ASU is intended to improve the accounting and disclosures for investments in tax credit structures. It allows reporting entities to elect to adopt for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact of the ASU on the Company's consolidated financial statements.

2.  Earnings per Common Share

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflect the potential dilution that could occur if the Company's outstanding restricted stock units were vested. The dilutive effect was computed using the treasury stock method, which assumes all stock-based awards were exercised and the hypothetical proceeds from exercise were used by the Company to purchase common stock at the average market price during the period. The incremental shares, to the extent they would have been dilutive, were included in the denominator of the diluted earnings per common share calculation. The calculations of earnings per common share and diluted earnings per common share for the three months ended March 31, 2023 and 2022 are presented in the following table.

Three Months Ended March 31,
(in thousands, except per share data)20232022
Net income$7,844 $13,184 
 
Weighted average common shares outstanding16,645 16,561 
Weighted average effect of restricted stock units outstanding
160 279 
Diluted weighted average common shares outstanding16,805 16,840 
   
Basic earnings per common share$0.47 $0.80 
Diluted earnings per common share$0.47 $0.78 
Number of anti-dilutive common stock equivalents excluded from diluted earnings per share computation249 18 
11


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



3.  Securities Available for Sale

The following tables show the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale, by security type as of March 31, 2023 and December 31, 2022.
 March 31, 2023
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
(Losses)		Fair
Value
Securities available for sale:
State and political subdivisions$242,202 $10 $(42,229)$199,983 
Collateralized mortgage obligations (1)
332,044 — (53,921)278,123 
Mortgage-backed securities (1)
166,479 — (26,889)139,590 
Collateralized loan obligations37,948 — (1,061)36,887 
Corporate notes13,750 — (2,975)10,775 
 $792,423 $10 $(127,075)$665,358 
 December 31, 2022
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
(Losses)		Fair
Value
Securities available for sale:
State and political subdivisions$242,823 $4 $(49,472)$193,355 
Collateralized mortgage obligations (1)
338,875 — (57,247)281,628 
Mortgage-backed securities (1)
169,451 — (29,171)140,280 
Collateralized loan obligations37,948 — (1,137)36,811 
Corporate notes13,750 — (1,709)12,041 
 $802,847 $4 $(138,736)$664,115 
(1)Collateralized mortgage obligations and mortgage-backed securities consist of residential and commercial mortgage pass-through securities and collateralized mortgage obligations guaranteed by FNMA, FHLMC, GNMA and SBA.

Securities with an amortized cost of approximately $381,622 and $293,017 as of March 31, 2023 and December 31, 2022, respectively, were pledged to secure access to FHLB advances and Federal Reserve credit programs, for public fund deposits, and for other purposes as required or permitted by law or regulation.

The amortized cost and fair value of securities available for sale as of March 31, 2023, by contractual maturity, are shown below. Certain securities have call features that allow the issuer to call the securities prior to maturity. Expected maturities may differ from contractual maturities for collateralized mortgage obligations and mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, collateralized mortgage obligations and mortgage-backed securities are not included in the maturity categories within the following maturity summary.
 March 31, 2023
 Amortized CostFair Value
Due after five years through ten years$72,528 $65,374 
Due after ten years221,372 182,271 
 293,900 247,645 
Collateralized mortgage obligations and mortgage-backed securities498,523 417,713 
 $792,423 $665,358 
12


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



There were no sales of securities available for sale during the three months ended March 31, 2023 and 2022.

The following tables show the fair value and gross unrealized losses, aggregated by investment type and length of time that individual securities have been in a continuous loss position, as of March 31, 2023 and December 31, 2022.
March 31, 2023
 Less than 12 months12 months or longerTotal
 Fair
Value		Gross
Unrealized
(Losses)		No. of SecuritiesFair
Value		Gross
Unrealized
(Losses)		No. of SecuritiesFair
Value		Gross
Unrealized
(Losses)
Securities available for sale:
State and political subdivisions$21,169 $(577)39$176,282 $(41,652)74$197,451 $(42,229)
Collateralized mortgage obligations6,033 (431)7272,090 (53,490)72278,123 (53,921)
Mortgage-backed securities1,306 (72)2138,284 (26,817)25139,590 (26,889)
Collateralized loan obligations— — —36,887 (1,061)636,887 (1,061)
Corporate notes901 (99)19,874 (2,876)710,775 (2,975)
 $29,409 $(1,179)49$633,417 $(125,896)184$662,826 $(127,075)
       
 December 31, 2022
 Less than 12 months12 months or longerTotal
 Fair
Value		Gross
Unrealized
(Losses)		No. of SecuritiesFair
Value		Gross
Unrealized
(Losses)		No. of SecuritiesFair
Value		Gross
Unrealized
(Losses)
Securities available for sale:
State and political subdivisions$74,676 $(11,556)74$118,487 $(37,916)43$193,163 $(49,472)
Collateralized mortgage obligations107,449 (14,484)48174,179 (42,763)31281,628 (57,247)
Mortgage-backed securities31,350 (4,556)8108,930 (24,615)19140,280 (29,171)
Collateralized loan obligations14,468 (480)322,343 (657)336,811 (1,137)
Corporate notes9,185 (1,315)52,856 (394)312,041 (1,709)
 $237,128 $(32,391)138$426,795 $(106,345)99$663,923 $(138,736)

The Company adopted ASU No. 2016-13 effective January 1, 2023 which requires credit losses on available-for-sale securities to be recorded in an allowance for credit losses. If the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the security is written down to fair value through income. As of March 31, 2023, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the securities in an unrealized loss position prior to recovery. As of March 31, 2023, the Company also determined that no individual securities in an unrealized loss position represented credit losses that would require an allowance for credit losses. The Company concluded that the unrealized losses were primarily attributed to increases in market interest rates since these securities were purchased and other market conditions. Accrued interest receivable is not included in available-for-sale security balances and is presented in the "Accrued interest receivable" line of the Consolidated Balance Sheets. Interest receivable on securities was $3,553 as of March 31, 2023, and is excluded from the estimate of credit losses.

As of December 31, 2022, the Company believed the unrealized losses on securities available for sale were due to market conditions rather than reduced estimated cash flows. At December 31, 2022, the Company did not intend to sell these securities, did not anticipate that these securities will be required to be sold before anticipated recovery, and expected full principal and interest to be collected. Therefore, under the accounting principles effective at December 31, 2022, the Company did not consider these securities to have other than temporary impairment as of December 31, 2022.
13


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)




4. Loans and Allowance for Credit Losses

Loans consisted of the following segments as of March 31, 2023 and December 31, 2022.
 March 31, 2023December 31, 2022
Commercial$520,894 $519,196 
Real estate:
Construction, land and land development336,739 363,014 
1-4 family residential first mortgages75,223 75,211 
Home equity9,726 10,322 
Commercial1,810,158 1,771,940 
Consumer and other7,381 7,292 
 2,760,121 2,746,975 
Net unamortized fees and costs(3,936)(4,139)
 $2,756,185 $2,742,836 

Real estate loans of approximately $1,300,000 and $1,190,000 were pledged as security for Federal Home Loan Bank (FHLB) advances as of March 31, 2023 and December 31, 2022, respectively.

Loans are stated at the principal amounts outstanding, net of unamortized loan fees and costs, with interest income recognized on the interest method based upon the terms of the loan. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Loans are reported by the portfolio segments identified above and are analyzed by management on this basis. All loan policies identified below apply to all segments of the loan portfolio.

Allowance for Credit Losses for Loans

The Company adopted ASU No. 2016-13 on January 1, 2023, at which time the Company implemented the current expected credit loss model in estimating the allowance for credit losses (ACL) valuation account. The following table details the changes in the ACL by loan segment for the three months ended March 31, 2023.

Three Months Ended March 31, 2023
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Beginning balance$4,804 $3,548 $357 $101 $16,575 $88 $25,473 
Adoption of CECL677 (234)121 (8)1,911 (9)2,458 
Charge-offs— — — — — — — 
Recoveries8 — 1 1 — — 10 
Provision for credit loss expense(1)
8 (148)(13)(6)159 — — 
Ending balance$5,497 $3,166 $466 $88 $18,645 $79 $27,941 
(1)The negative provisions for the various segments are related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed, improvement in qualitative risk factors related to those portfolio segments and/or changes in economic forecasts.



14


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



Prior to the adoption of ASU No. 2016-13 on January 1, 2023, the Company calculated the allowance for loan losses using the incurred loss methodology. The following table presents the activity in the allowance for loan losses by segment for the three months ended March 31, 2022.

Three Months Ended March 31, 2022
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Beginning balance$4,776 $3,646 $339 $91 $19,466 $46 $28,364 
Charge-offs— — — — — — — 
Recoveries4 — 1 1 3 — 9 
Provision for loan losses(1)
(72)352 8 9 (1,052)5 (750)
Ending balance$4,708 $3,998 $348 $101 $18,417 $51 $27,623 
(1)The negative provisions for the various segments are related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed and/or improvement in the credit quality factors related to those portfolio segments.

The following tables present a breakdown of the allowance for credit losses by segment, disaggregated based on the evaluation method as of March 31, 2023 and December 31, 2022.


March 31, 2023
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Ending balance:
Individually evaluated for credit losses$— $— $— $— $— $— $— 
Collectively evaluated for credit losses5,497 3,166 466 88 18,645 79 27,941 
Total$5,497 $3,166 $466 $88 $18,645 $79 $27,941 
December 31, 2022
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Ending balance:
Individually evaluated for impairment$— $— $— $— $— $— $— 
Collectively evaluated for impairment4,804 3,548 357 101 16,575 88 25,473 
Total$4,804 $3,548 $357 $101 $16,575 $88 $25,473 


15


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



The following tables present the recorded investment in loans, exclusive of unamortized fees and costs, disaggregated based on the evaluation method by segment as of March 31, 2023 and December 31, 2022.


March 31, 2023
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Ending balance:
Individually evaluated for credit losses$— $— $316 $— $— $— $316 
Collectively evaluated for credit losses520,894 336,739 74,907 9,726 1,810,158 7,381 2,759,805 
Total$520,894 $336,739 $75,223 $9,726 $1,810,158 $7,381 $2,760,121 
December 31, 2022
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Ending balance:
Individually evaluated for impairment$— $— $322 $— $— $— $322 
Collectively evaluated for impairment519,196 363,014 74,889 10,322 1,771,940 7,292 2,746,653 
Total$519,196 $363,014 $75,211 $10,322 $1,771,940 $7,292 $2,746,975 


Under the current expected credit loss model, the ACL is a valuation account estimated at each balance sheet date and deducted from the amortized cost basis of loans to present the net amount expected to be collected. The Company estimates the ACL based on the underlying loans' amortized cost basis, which is the amount at which the loan is originated or acquired, adjusted for collection of cash and charge-offs, as well as applicable accretion or amortization of premiums, discount, and net deferred fees or costs. The Company's estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected restructuring. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of the ACL.

Accrued interest on loans of $8,722 and $8,665 at March 31, 2023 and December 31, 2022, respectively, is included in accrued interest receivable on the balance sheet and is excluded from the estimate of credit losses.

Expected credit losses are reflected in the allowance for credit losses through a charge to credit loss expense. When the Company deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a loan is deemed uncollectible; however, generally speaking, a loan will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of loans on a collective (pool) basis when the loans share similar risk characteristics and uses a cash flow based method to estimate expected credit losses for each of these pools. The Company's methodology for estimating the ACL considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical experience was observed.


16


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



The Company uses the cash flow based model to estimate expected credit losses for all loan segments. For each of the loan segments, the Company calculates a cash flow projection using contractual terms, estimated prepayment speeds, estimated curtailment rates, and other relevant data. The Company uses regression analysis that links historical losses of the Company and its peer group to two economic metrics: national unemployment rate and 10-year treasury rate over 2-year treasury rate spread to establish the loss rates applied to the projected cash flows. For all loan segments, the Company uses a forecast period of four quarters and reverts to a historical rate after four quarters. When estimating prepayment speed and curtailment rates, the modeling is based on historical internal data.

Nonaccrual Loans and Delinquency Status

Delinquencies are determined based on the payment terms of the individual loan agreements. The accrual of interest on past due and other individually evaluated loans is generally discontinued at 90 days past due or when, in the opinion of management, the borrower may be unable to make all payments pursuant to contractual terms. Unless considered collectible, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Generally, all payments received while a loan is on nonaccrual status are applied to the principal balance of the loan. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. 

The following table presents the amortized cost basis of loans on nonaccrual status, loans on nonaccrual status with no allowance for credit losses recorded, and loans past due 90 days or more and still accruing by loan segment.

Total NonaccrualNonaccrual with no Allowance for Credit Losses90 Days or More Past Due and Accruing
March 31, 2023December 31, 2022March 31, 2023December 31, 2022March 31, 2023December 31, 2022
Commercial$— $— $— $— $— $— 
Real estate:
Construction, land and land development— — — — — — 
1-4 family residential first mortgages316 322 316 322 — — 
Home equity— — — — — — 
Commercial— — — — — — 
Consumer and other— — — — — — 
Total$316 $322 $316 $322 $— $— 

There was no interest income recognized on loans that were on nonaccrual for the three months ended March 31, 2023 and March 31, 2022.


17


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



The following tables provide an analysis of the delinquency status of the amortized cost of loans as of March 31, 2023 and December 31, 2022.


March 31, 2023
30-59
Days Past
Due		60-89
Days Past
Due		90 Days
or More
Past Due		Total
Past Due		CurrentTotal Loans
Commercial$— $— $— $— $520,894 $520,894 
Real estate:
Construction, land and
land development— — — — 336,739 336,739 
1-4 family residential
first mortgages— — — — 75,223 75,223 
Home equity— — — — 9,726 9,726 
Commercial— — — — 1,810,158 1,810,158 
Consumer and other— — — — 7,381 7,381 
Total$— $— $— $— $2,760,121 $2,760,121 

December 31, 2022
30-59
Days Past
Due		60-89
Days Past
Due		90 Days
or More
Past Due		Total
Past Due		CurrentTotal
Loans
Commercial$— $— $— $— $519,196 $519,196 
Real estate:
Construction, land and
land development— — — — 363,014 363,014 
1-4 family residential
first mortgages— — — — 75,211 75,211 
Home equity— — — — 10,322 10,322 
Commercial— — — — 1,771,940 1,771,940 
Consumer and other— — — — 7,292 7,292 
Total$— $— $— $— $2,746,975 $2,746,975 


18


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



Loan Restructurings Made to Borrowers Experiencing Financial Difficulty

As of March 31, 2023 and December 31, 2022 the Company had no loan restructurings made to borrowers experiencing financial difficulty. There were no loan restructurings made to borrowers experiencing financial difficulty for which there was a payment default within twelve months following the modification during the three months ended March 31, 2023 and 2022. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

Credit Quality Indicators

Based upon its ongoing assessment of credit quality within the loan portfolio, the Company maintains a Watch List, which includes loans classified as Doubtful, Substandard and Watch according to the Company's classification criteria. These loans involve the anticipated potential for payment defaults or collateral inadequacies. A loan on the Watch List is analyzed individually to categorize the loan to the appropriate credit risk category.

All loans are subject to the assessment of a credit quality indicator. Risk ratings are assigned for each loan at the time of approval, and they change as circumstances dictate during the term of the loan. The Company utilizes a 9-point risk rating scale as shown below, with ratings 1 - 5 included in the Pass column, rating 6 included in the Watch column, ratings 7 - 8 included in the Substandard column and rating 9 included in the Doubtful column.

Risk rating 1: The loan is secured by cash equivalent collateral.

Risk rating 2: The loan is secured by properly margined marketable securities, bonds or cash surrender value of life insurance.

Risk rating 3: The borrower is in strong financial condition and has strong debt service capacity. The loan is performing as agreed, and the financial characteristics and trends of the borrower exceed industry statistics.

Risk rating 4: The borrower's financial condition is satisfactory and stable. The borrower has satisfactory debt service capacity, and the loan is well secured. The loan is performing as agreed, and the financial characteristics and trends fall in line with industry statistics.

Risk rating 5: The borrower's financial condition is less than satisfactory. The loan is still generally paying as agreed, but strained cash flows may cause some slowness in payments. The collateral values adequately preclude loss on the loan. Financial characteristics and trends lag industry statistics. There may be noncompliance with loan covenants.

Risk rating 6: The borrower's financial condition is deficient. Payment delinquencies may be more common. Collateral values still protect from loss, but margins are narrow. The loan may be reliant on secondary sources of repayment, including liquidation of collateral and guarantor support.

Risk rating 7: The loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Well-defined weaknesses exist that jeopardize the liquidation of the debt. The Company is inadequately protected by the valuation or paying capacity of the collateral pledged. If deficiencies are not corrected, there is a distinct possibility that a loss will be sustained.

Risk rating 8: All the characteristics of rating 7 exist with the added condition that the loan is past due more than 90 days or there is reason to believe the Company will not receive its principal and interest according to the terms of the loan agreement.

Risk rating 9: All the weaknesses inherent in risk ratings 7 and 8 exist with the added condition that collection or liquidation, on the basis of currently known facts, conditions and values, is highly questionable and improbable. A loan reaching this category would most likely be charged off.


19


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



Credit quality indicators for all loans and the Company's risk rating process are dynamic and updated on a continuous basis. Risk ratings are updated as circumstances that could affect the repayment of an individual loan are brought to management's attention through an established monitoring process. Individual bankers initiate changes as appropriate for ratings 1 through 5, and changes for ratings 6 through 9 are initiated by management. The likelihood of loss increases as the risk rating increases and is generally preceded by a loan appearing on the Watch List, which consists of all loans with a risk rating of 6 or worse. Written action plans with firm target dates for resolution of identified problems are maintained and reviewed on a quarterly basis for all segments of loans included on the Watch List.

In addition to the Company's internal credit monitoring practices and procedures, an outsourced independent credit review function is in place to further assess assigned internal risk classifications and monitor compliance with internal lending policies and procedures.

In all portfolio segments, the primary risks are that a borrower's income stream diminishes to the point that the borrower is not able to make scheduled principal and interest payments and any collateral securing the loan declines in value. The risk of declining collateral values is present for most types of loans.

Commercial loans consist primarily of loans to businesses for various purposes, including revolving lines to finance current operations, inventory and accounts receivable, and capital expenditure loans to finance equipment and other fixed assets. These loans generally have short maturities, have either adjustable or fixed interest rates, and are either unsecured or secured by inventory, accounts receivable and/or fixed assets. For commercial loans, the primary source of repayment is from the operation of the business.
Real estate loans include various types of loans for which the Company holds real property as collateral, and consist of loans on commercial properties and single and multifamily residences. Real estate loans are typically structured to mature or reprice every five to ten years with payments based on amortization periods up to 30 years. The majority of construction loans are to contractors and developers for construction of commercial buildings or residential real estate. These loans typically have maturities of up to 24 months. The Company's loan policy includes minimum appraisal and other credit guidelines.

Consumer loans include loans extended to individuals for household, family and other personal expenditures not secured by real estate. The majority of the Company's consumer lending is for vehicles, consolidation of personal debts and household improvements. The repayment source for consumer loans, including 1-4 family residential and home equity loans, is typically wages.











20


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



The following tables present the amortized cost basis of loans by loan segment, credit quality indicator and origination year, and the current period gross write-off by loan segment and origination year, based on the analysis performed as of March 31, 2023 and December 31, 2022.


Term Loans by Origination Year
As of March 31, 202320232022202120202019PriorRevolving LoansTotal
Commercial
    Pass$64,257 $129,097 $60,612 $46,986 $8,937 $49,173 $161,832 $520,894 
    Watch— — — — — — — — 
    Substandard— — — — — — — — 
  Doubtful— — — — — — — — 
     Total$64,257 $129,097 $60,612 $46,986 $8,937 $49,173 $161,832 $520,894 
Current period gross writeoffs$— $— $— $— $— $— $— $— 
Real estate:
  Construction, land and land development
Pass$6,086 $53,833 $21,637 $2,389 $1,536 $193 $251,021 $336,695 
Watch— 44 — — — — — 44 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total$6,086 $53,877 $21,637 $2,389 $1,536 $193 $251,021 $336,739 
Current period gross writeoffs$— $— $— $— $— $— $— $— 
  1-4 family residential first mortgages
Pass$5,203 $22,187 $21,218 $13,459 $3,955 $4,614 $4,036 $74,672 
Watch147 — — — — — — 147 
Substandard— 88 — — 316 — — 404 
Doubtful— — — — — — — — 
Total$5,350 $22,275 $21,218 $13,459 $4,271 $4,614 $4,036 $75,223 
Current period gross writeoffs$— $— $— $— $— $— $— $— 
  Home equity
Pass$129 $401 $585 $488 $129 $162 $7,832 $9,726 
Watch— — — — — — — — 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total$129 $401 $585 $488 $129 $162 $7,832 $9,726 
Current period gross writeoffs$— $— $— $— $— $— $— $— 
  Commercial
Pass$43,243 $434,292 $416,913 $405,642 $90,607 $215,846 $151,040 $1,757,583 
Watch— 22,390 30,185 — — — — 52,575 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total$43,243 $456,682 $447,098 $405,642 $90,607 $215,846 $151,040 $1,810,158 
Current period gross writeoffs$— $— $— $— $— $— $— $— 
Consumer and other
    Pass$297 $623 $703 $85 $74 $203 $5,396 $7,381 
    Watch— — — — — — — — 
    Substandard— — — — — — — — 
    Doubtful— — — — — — — — 
          Total$297 $623 $703 $85 $74 $203 $5,396 $7,381 
Current period gross writeoffs$— $— $— $— $— $— $— $— 


21


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



Term Loans by Origination Year
As of December 31, 202220222021202020192018PriorRevolving LoansTotal
Commercial
    Pass$148,637 $64,984 $63,072 $9,873 $23,771 $24,103 $184,756 $519,196 
    Watch— — — — — — — — 
    Substandard— — — — — — — — 
  Doubtful— — — — — — — — 
     Total$148,637 $64,984 $63,072 $9,873 $23,771 $24,103 $184,756 $519,196 
Current period gross writeoffs$— $— $— $— $— $— $— $— 
Real estate:
  Construction, land and land development
Pass$75,946 $24,095 $2,501 $1,562 $196 $— $258,667 $362,967 
Watch47 — — — — — — 47 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total$75,993 $24,095 $2,501 $1,562 $196 $— $258,667 $363,014 
Current period gross writeoffs$— $— $— $— $— $— $— $— 
  1-4 family residential first mortgages
Pass$23,608 $23,460 $14,879 $4,229 $1,283 $4,267 $2,927 $74,653 
Watch— 148 — — — — — 148 
Substandard88 — — 322 — — — 410 
Doubtful— — — — — — — — 
Total$23,696 $23,608 $14,879 $4,551 $1,283 $4,267 $2,927 $75,211 
Current period gross writeoffs$— $— $— $— $— $31 $— $31 
  Home equity
Pass$413 $613 $512 $130 $169 $— $8,485 $10,322 
Watch— — — — — — — — 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total$413 $613 $512 $130 $169 $— $8,485 $10,322 
Current period gross writeoffs$— $— $— $— $— $— $— $— 
  Commercial
Pass$429,826 $421,283 $403,195 $92,304 $54,723 $169,055 $147,518 $1,717,904 
Watch22,553 30,573 — 910 — — — 54,036 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total$452,379 $451,856 $403,195 $93,214 $54,723 $169,055 $147,518 $1,771,940 
Current period gross writeoffs$— $451 $— $— $— $— $— $451 
Consumer and other
    Pass$1,176 $1,082 $136 $86 $272 $72 $4,468 $7,292 
    Watch— — — — — — — — 
    Substandard— — — — — — — — 
    Doubtful— — — — — — — — 
          Total$1,176 $1,082 $136 $86 $272 $72 $4,468 $7,292 
Current period gross writeoffs$— $— $— $— $— $— $— $— 







22


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



Collateral Dependent Loans

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loans to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.

The following table presents the amortized cost basis of collateral dependent loans, by primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans.

As of March 31, 2023
Primary Type of Collateral
Real EstateEquipmentOther TotalACL Allocation
Commercial$— $— $— $— $— 
Real estate:
Construction, land and land development— — — — — 
1-4 family residential first mortgages316 — — 316 — 
Home equity— — — — — 
Commercial— — — — — 
Consumer and other— — — — — 
Total$316 $— $— $316 $— 

As of December 31, 2022
Primary Type of Collateral
Real EstateEquipmentOther TotalACL Allocation
Commercial$— $— $— $— $— 
Real estate:
Construction, land and land development— — — — — 
1-4 family residential first mortgages322 — — 322 — 
Home equity— — — — — 
Commercial— — — — — 
Consumer and other— — — — — 
Total$322 $— $— $322 $— 


23


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The Company has recorded an allowance for credit losses for unfunded commitments of $2,344 as of March 31, 2023. The allowance for credit losses for off-balance-sheet credit exposures is presented in the "Accrued expenses and other liabilities" line of the Consolidated Balance Sheets. Changes in the allowance for credit losses for off-balance-sheet credit exposures is reflected in the "Credit loss expense " line of the Consolidated Statements of Income. There were no changes to the allowance for credit losses for off-balance-sheet credit exposures during the three months ended March 31, 2023.

5. Derivatives

The Company has entered into various interest rate swap agreements as part of its interest rate risk management strategy. The Company uses interest rate swaps to manage its interest rate risk exposure on certain loans, variable-rate and short-term borrowings, and deposits due to interest rate movements. The notional amounts of the interest rate swaps do not represent amounts exchanged by the counterparties, but rather, the notional amount is used to determine, along with other terms of the derivative, the amounts to be exchanged between the counterparties.

Interest Rate Swaps Designated as a Cash Flow Hedge: The Company had interest rate swaps designated as cash flow hedges with total notional amounts of $375,000 and $310,000 at March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023, the Company had swaps with a total notional amount of $245,000 that hedge the interest payments of rolling fixed-rate one-month funding consisting of FHLB advances or brokered deposits. One of these swaps with a total notional amount of $25,000 is a forward-starting swap with a starting date in September 2023. Also as of March 31, 2023, the Company had a swap with a total notional amount of $20,000 that effectively converts variable-rate junior subordinated notes to fixed-rate debt and swaps with a total notional amount of $110,000 that hedge the interest payments of certain deposit accounts.

Derivatives Not Designated as Accounting Hedges: To accommodate customer needs, the Company on occasion offers loan level interest rate swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a swap counterparty (back-to-back swap program). The interest rate swaps are free-standing derivatives and are recorded at fair value. The Company enters into a floating-rate loan and a fixed-rate swap with our customer. Simultaneously, the Company enters into an offsetting fixed-rate swap with a swap counterparty. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay a swap counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customers to effectively convert variable-rate loans to fixed-rate loans. The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge accounting.


24


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



The table below identifies the balance sheet category and fair values of the Company's derivative instruments as of March 31, 2023 and December 31, 2022.

March 31, 2023December 31, 2022
Cash Flow Hedges:
Gross notional amount$375,000 $310,000 
Fair value in other assets13,025 16,284 
Fair value in other liabilities(333)— 
Weighted-average floating rate received4.93 %4.53 %
Weighted-average fixed rate paid2.45 %2.25 %
Weighted-average maturity in years3.43.3
Non-Hedging Derivatives:
Gross notional amount$253,483 $254,369 
Fair value in other assets12,508 15,309 
Fair value in other liabilities(12,508)(15,309)

The following table identifies the pre-tax gains or losses recognized on the Company's derivative instruments designated as cash flow hedges for the three months ended March 31, 2023 and 2022.
Three Months Ended March 31,
20232022
Pre-tax gain (loss) recognized in other comprehensive income$(1,634)$10,536 
Reclassification from AOCI into income:
Increase (decrease) in interest expense$(1,958)$1,045 

The Company estimates there will be approximately $8,695 reclassified from accumulated other comprehensive income to reduce interest expense through the 12 months ending March 31, 2024 related to cash flow hedges.

The Company is exposed to credit risk in the event of nonperformance by interest rate swap counterparties, which is minimized by collateral-pledging provisions in the agreements. Derivative contracts with swap counterparties are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings at established credit threshold levels. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration. As of both March 31, 2023 and December 31, 2022, the Company pledged $0 of collateral to the counterparties in the form of cash on deposit. As of March 31, 2023 and December 31, 2022, the Company's counterparties pledged $26,280 and $31,560, respectively, of collateral to the Company in the form of cash on deposit. The interest rate swap product with the borrower is cross-collateralized with the underlying loan and therefore there is no pledged cash collateral under swap contracts with customers.
25


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)




6.  Income Taxes

Net deferred tax assets consisted of the following as of March 31, 2023 and December 31, 2022.
 March 31, 2023December 31, 2022
Deferred tax assets:
Allowance for credit losses$7,420 $6,241 
Net unrealized losses on securities available for sale31,639 34,544 
Lease liabilities1,069 1,147 
Accrued expenses213 434 
Restricted stock unit compensation663 1,038 
State net operating loss carryforward1,527 1,476 
Other 171 156 
42,702 45,036 
Deferred tax liabilities:
Right-of-use assets1,022 1,099 
Deferred loan costs260 249 
Net unrealized gains on interest rate swaps3,121 4,003 
Premises and equipment1,198 1,219 
New markets tax credit loan325 303 
Other127 78 
6,053 6,951 
Net deferred tax assets before valuation allowance36,649 38,085 
Valuation allowance(1,527)(1,476)
Net deferred tax assets$35,122 $36,609 

The Company has recorded a valuation allowance against the tax effect of the state net operating loss carryforwards, as management believes it is more likely than not that these carryforwards will expire without being utilized. The state net operating loss carryforwards expire in 2023 and thereafter.

26


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



7.  Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2023 and 2022.
UnrealizedUnrealizedAccumulated
GainsGainsOther
(Losses) on(Losses) onComprehensive
SecuritiesDerivativesIncome (Loss)
Balance, December 31, 2022$(103,680)$12,209 $(91,471)
Other comprehensive income (loss) before reclassifications8,762 (1,233)7,529 
Amounts reclassified from accumulated other comprehensive income(6)(1,477)(1,483)
Net current period other comprehensive income (loss)8,756 (2,710)6,046 
Balance, March 31, 2023$(94,924)$9,499 $(85,425)
Balance, December 31, 2021$(5,021)$(5,616)$(10,637)
Other comprehensive income (loss) before reclassifications(40,782)7,870 (32,912)
Amounts reclassified from accumulated other comprehensive income— 781 781 
Net current period other comprehensive income (loss)(40,782)8,651 (32,131)
Balance, March 31, 2022$(45,803)$3,035 $(42,768)

8.  Commitments and Contingencies

Financial instruments with off-balance-sheet risk: The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations that it uses for on-balance-sheet instruments. The Company adopted ASU No. 2016-13 effective January 1, 2023 which requires an allowance for credit losses on off-balance sheet credit exposure. See Note 4 for additional information. The Company's commitments consisted of the following amounts as of March 31, 2023 and December 31, 2022. 
 March 31, 2023December 31, 2022
Commitments to fund real estate construction loans$403,841 $336,900 
Other commitments to extend credit698,520 727,666 
Standby letters of credit19,819 20,557 
 $1,122,180 $1,085,123 


27


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



West Bank previously executed Mortgage Partnership Finance (MPF) Master Commitments (Commitments) with the FHLB of Des Moines to deliver residential mortgage loans and to guarantee the payment of any realized losses that exceed the FHLB's first loss account for mortgages delivered under the Commitments. West Bank receives credit enhancement fees from the FHLB for providing this guarantee and continuing to assist with managing the credit risk of the MPF Program residential mortgage loans. The outstanding balance of mortgage loans sold under the MPF Program was $22,720 and $23,337 at March 31, 2023 and December 31, 2022, respectively.

Contractual commitments: The Company had remaining commitments to invest in qualified affordable housing projects totaling $3,012 and $3,431 as of March 31, 2023 and December 31, 2022, respectively.

West Bank entered into a construction contract in 2022 for the construction of a new headquarters building in West Des Moines, Iowa. West Bank will pay the contractor a contract price consisting of the cost of work plus a fee, subject to a guaranteed maximum price of $42,309, with anticipated construction completed in 2024. As of March 31, 2023, there was a remaining commitment of $30,415 under this contract. West Bank is also building a new office in Mankato, Minnesota to be completed in the fall of 2023, which had a remaining commitment of $5,426 as of March 31, 2023.

Concentrations of credit risk: Substantially all of the Company's loans, commitments to extend credit and standby letters of credit have been granted to customers in the Company's market areas. The concentrations of credit by type of loan are set forth in Note 4. The distribution by type of loan of commitments to extend credit approximates the distribution by type of loan outstanding. Standby letters of credit were granted primarily to commercial borrowers.

Contingencies: Neither the Company nor West Bank is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to West Bank's business. The Company does not know of any proceeding contemplated by a governmental authority against the Company or West Bank.

9. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business. The Company's balance sheet contains securities available for sale and derivative instruments that are recorded at fair value on a recurring basis. The three-level valuation hierarchy for disclosure of fair value is as follows:

    Level 1 uses quoted market prices in active markets for identical assets or liabilities.

    Level 2 uses observable market-based inputs or unobservable inputs that are corroborated by market data.

    Level 3 uses unobservable inputs that are not corroborated by market data.

The Company's policy is to recognize transfers between levels at the end of each reporting period, if applicable. There were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2023.

The following is a description of valuation methodologies used for financial assets and liabilities recorded at fair value on a recurring basis.

Securities available for sale: When available, quoted market prices are used to determine the fair value of securities (Level 1). If quoted market prices are not available, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar bonds where a price for the identical bond is not observable (Level 2). The fair values of these securities are determined by pricing models that consider observable market data such as interest rate volatilities, yield curves, credit spreads, prices from market makers and live trading systems.


28


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



Management obtains the fair value of securities at the end of each reporting period via a third-party pricing service. Management reviewed the valuation process used by the third party and believed the process was valid. On a quarterly basis, management corroborates the fair values of a randomly selected sample of securities by obtaining pricing from an independent financial market data vendor and comparing the two sets of fair values. Any significant variances are reviewed and investigated. For a sample of securities, prices are further validated by management by obtaining details of the inputs used by the pricing service. Those inputs were independently tested, and management concluded the fair values were consistent with GAAP requirements and the securities were properly classified in the fair value hierarchy.

Derivative instruments: The Company's derivative instruments consist of interest rate swaps accounted for as cash flow hedges, as well as interest rate swaps which are accounted for as non-hedging derivatives. The Company's derivative positions are classified within Level 2 of the fair value hierarchy and are valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility.

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis by level as of March 31, 2023 and December 31, 2022.
 March 31, 2023
TotalLevel 1Level 2Level 3
Financial assets:
Securities available for sale:
State and political subdivisions$199,983 $— $199,983 $— 
Collateralized mortgage obligations278,123 — 278,123 — 
Mortgage-backed securities139,590 — 139,590 — 
Collateralized loan obligations36,887 — 36,887 — 
Corporate notes10,775 — 10,775 — 
Derivative instruments, interest rate swaps25,533 — 25,533 — 
Financial liabilities:
Derivative instruments, interest rate swaps$12,841 $— $12,841 $— 
 December 31, 2022
TotalLevel 1Level 2Level 3
Financial assets:
Securities available for sale:    
State and political subdivisions$193,355 $— $193,355 $— 
Collateralized mortgage obligations281,628 — 281,628 — 
Mortgage-backed securities140,280 — 140,280 — 
Collateralized loan obligations36,811 — 36,811 — 
Corporate notes12,041 — 12,041 — 
Derivative instruments, interest rate swaps31,593 — 31,593 — 
Financial liabilities:
Derivative instruments, interest rate swaps$15,309 $— $15,309 $— 


29


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



Certain assets are measured at fair value on a nonrecurring basis. That is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). As of both March 31, 2023 and December 31, 2022, there were no individually evaluated loans with a fair value adjustment. Individually evaluated loans are classified within Level 3 of the fair value hierarchy and are evaluated and valued at the lower of cost or fair value when the loan is individually evaluated. Fair value is based on the value of the collateral securing these loans.

In determining the estimated net realizable value of the underlying collateral of individually evaluated loans, the Company primarily uses third-party appraisals or broker opinions which may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available and include consideration of variations in location, size, and income production capacity of the property. Additionally, the appraisals are periodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and are based on management’s historical knowledge, changes in business factors and changes in market conditions. Because of the high degree of judgment required in estimating the fair value of collateral underlying individually evaluated loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of individually evaluated loans to be highly sensitive to changes in market conditions.

GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring or nonrecurring basis. The following table presents the carrying amounts and approximate fair values of financial assets and liabilities as of March 31, 2023 and December 31, 2022. 

March 31, 2023
 Carrying AmountApproximate Fair ValueLevel 1Level 2Level 3
Financial assets:
Cash and due from banks$21,579 $21,579 $21,579 $— $— 
Interest-bearing deposits901 901 901 — — 
Securities available for sale665,358 665,358 — 665,358 — 
Federal Home Loan Bank stock22,226 22,226 22,226 — — 
Loans, net2,728,244 2,623,471 — 2,623,471 — 
Accrued interest receivable12,284 12,284 12,284 — — 
Interest rate swaps25,533 25,533 — 25,533 — 
Financial liabilities:
Deposits$2,798,393 $2,798,370 $— $2,798,370 $— 
Federal funds purchased and other short-term borrowings229,290 229,290 229,290 — — 
Subordinated notes, net79,435 69,275 — 69,275 — 
Federal Home Loan Bank advances220,000 220,000 — 220,000 — 
Long-term debt51,486 51,486 — 51,486 — 
Accrued interest payable5,173 5,173 5,173 — — 
Interest rate swaps12,841 12,841 — 12,841 — 
Off-balance sheet financial instruments:
Commitments to extend credit— — — — — 
Standby letters of credit— — — — — 
30


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)



December 31, 2022
 Carrying AmountApproximate Fair ValueLevel 1Level 2Level 3
Financial assets:
Cash and due from banks$24,896 $24,896 $24,896 $— $— 
Interest-bearing deposits1,643 1,643 1,643 — — 
Securities available for sale664,115 664,115 — 664,115 — 
Federal Home Loan Bank stock19,336 19,336 19,336 — — 
Loans, net2,717,363 2,582,911 — 2,582,911 — 
Accrued interest receivable11,988 11,988 11,988 — — 
Interest rate swaps31,593 31,593 — 31,593 — 
Financial liabilities:
Deposits$2,880,408 $2,880,495 $— $2,880,495 $— 
Federal funds purchased and other short-term borrowings200,000 200,000 200,000 — — 
Subordinated notes, net79,369 68,047 — 68,047 — 
Federal Home Loan Bank advances155,000 155,000 — 155,000 — 
Long-term debt51,486 51,486 — 51,486 — 
Accrued interest payable3,260 3,260 3,260 — — 
Interest rate swaps15,309 15,309 — 15,309 — 
Off-balance sheet financial instruments:
Commitments to extend credit— — — — — 
Standby letters of credit— — — — — 
31


West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)

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 recent rate increases by the Federal Reserve; fluctuations in the values of the securities held in our investment portfolio, including as a result of rising interest rates, which has resulted in unrealized losses in our portfolio; competitive pressures, including from non-bank competitors such as "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 (including as a result of the implementation of the current expected credit loss (CECL) accounting standard) or regulatory requirements; the concentration of large deposits from certain clients, who have balances above current FDIC insurance limits and may withdraw deposits to diversify their exposure; changes in local, national and international economic conditions, including rising rates of inflation; the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time at Silicon Valley Bank and Signature Bank that resulted in failure of those institutions; changes in legal and regulatory requirements, limitations and costs, including in response to the recent failures of Silicon Valley Bank and Signature Bank; changes in customers’ acceptance of the Company’s products and services; cyber-attacks; 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 Russian invasion of Ukraine, widespread disease or pandemics, such as the COVID-19 pandemic, or other adverse external events; risks related to climate change and the negative impact it may have on our customers and their business; developments and uncertainty related to the future use and availability of some reference rates, such as the expected discontinuation of the London Interbank Offered Rate and the development of other alternative reference rates; changes to U.S. tax laws, regulations and guidance; talent and labor shortages; the new 1 percent excise tax on stock buybacks by publicly traded companies; and any other risks described in the “Risk Factors” sections of this and other reports filed by the Company with the SEC. 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 most effect on the Company's reported financial position and results of operations are described as critical accounting policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 23, 2023. The Company adopted ASU 2016-13 on January 1, 2023 and replaced the allowance for loan losses "incurred loss" model discussed in the Form 10-K for the year ended December 31, 2022 with the allowance for credit losses "current expected credit loss" model, referred to as the CECL model. Refer to Note 1 and 4 for additional information and accounting policies related to the CECL model.

32


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.

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,
20232022
Reconciliation of net interest income and net interest margin on a FTE basis to GAAP:
Net interest income (GAAP)$18,695 $23,828 
Tax-equivalent adjustment (1)
161 329 
Net interest income on a FTE basis (non-GAAP)18,856 24,157 
Average interest-earning assets3,435,988 3,432,114 
Net interest margin on a FTE basis (non-GAAP)2.23 %2.85 %
Reconciliation of efficiency ratio on an adjusted and FTE basis to GAAP:
Net interest income on a FTE basis (non-GAAP)$18,856 $24,157 
Noninterest income2,957 2,389 
Adjustment for losses on disposal of premises and equipment, net— 18 
Adjusted income21,813 26,564 
Noninterest expense12,071 10,662 
Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2)
55.34 %40.14 %

(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


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, 2023 are compared to the results for the same period in 2022, and the consolidated financial condition of the Company as of March 31, 2023 is compared to that as of December 31, 2022. 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, 2022, filed with the SEC on February 23, 2023.

The Company conducts business from its main office in West Des Moines, Iowa and through its branch offices in central Iowa, which is generally the greater Des Moines metropolitan area; 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, 2023 was $7,844, or $0.47 per diluted common share, compared to $13,184, or $0.78 per diluted common share, for the three months ended March 31, 2022. The Company's annualized return on average assets and return on average equity for the three months ended March 31, 2023 were 0.88 percent and 14.77 percent, respectively, compared to 1.51 percent and 20.96 percent, respectively, for the three months ended March 31, 2022.

The decrease in net income for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to a decrease in net interest income and increase in salaries and employee benefits, partially offset by an increase in gain from bank-owned life insurance.

Net interest income for the three months ended March 31, 2023 declined $5,133, or 21.5 percent, compared to the three months ended March 31, 2022. The decrease in net interest income was primarily due to the increase in interest expense on deposits and other borrowings resulting from rapidly rising interest rates and inverted yield curve, and changes in funding mix, partially offset by an increase in interest income on loans and securities.

Noninterest income increased $568 for the three months ended March 31, 2023 compared to the same period in 2022 due to a gain from bank-owned life insurance. Noninterest expense increased $1,409 during the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to increases in salaries and employee benefits and occupancy and equipment expense.

Total loans outstanding increased $13,349, or 0.5 percent, during the first three months of 2023. The credit quality of the loan portfolio remained strong, as evidenced by the Company's ratio of nonperforming loans to total assets of 0.01 percent as of both March 31, 2023 and December 31, 2022. As of March 31, 2023, the allowance for credit losses was 1.01 percent of total outstanding loans, compared to 0.93 percent as of December 31, 2022. Management believed the allowance for credit losses at March 31, 2023 was adequate to absorb expected losses in the loan portfolio as of that date.

34


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 2023 consists of 22 Midwestern, publicly traded financial institutions, including Bank First Corporation, Bridgewater Bancshares Inc., ChoiceOne Financial Services, Inc., Civista Bancshares, Inc., CrossFirst Bankshares, Inc., Equity Bancshares, Inc., Farmers National Banc Corp., Farmers & Merchants Bancorp., First Business Financial Services, Inc., First Financial Corp., First Mid Bancshares, Inc., German American Bancorp, Inc., HBT Financial Inc., Hills Bancorporation, Isabella Bank Corporation, LCNB Corp., Macatawa Bank Corporation, Mercantile Bank Corporation, MidWestOne 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, 2023As of and for the year ended December 31, 2022As of and for the year ended ended December 31, 2022
Return on average equity14.77%20.71%9.97% - 17.24%
Efficiency ratio(1)
55.34%43.70%41.14% - 63.37%
Nonperforming assets to total assets0.01%0.01%0.02% - 1.08%
(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 26, 2023, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per common share. The dividend is payable on May 24, 2023, to stockholders of record on May 10, 2023.

35


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, 2023 compared with the same period in 2022. 
 Three Months Ended March 31,
 20232022ChangeChange %
Net income$7,844 $13,184 $(5,340)(40.50)%
Average assets3,617,458 3,544,564 72,894 2.06 %
Average stockholders' equity215,391 255,130 (39,739)(15.58)%
Return on average assets0.88 %1.51 %(0.63)% 
Return on average equity14.77 %20.96 %(6.19)% 
Net interest margin (1)
2.23 %2.85 %(0.62)%
Efficiency ratio (1) (2)
55.34 %40.14 %15.20 %
Dividend payout ratio52.31 %31.39 %20.92 % 
Average equity to average assets ratio
5.95 %7.20 %(1.25)% 
As of March 31,
20232022Change
Nonperforming assets to total assets (2)
0.01 %0.25 %(0.24)%
Equity to assets ratio5.99 %6.67 %(0.68)% 
Tangible common equity ratio5.99 %6.67 %(0.68)% 
(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


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 BalanceInterest Income/ExpenseYield/Rate
 20232022ChangeChange-
%		20232022ChangeChange-
%		20232022Change
Interest-earning assets:
Loans: (1) (2)
Commercial$522,034 $470,105 $51,929 11.05 %$7,567 $4,658 $2,909 62.45 %5.88 %4.02 %1.86 %
Real estate (3)
2,215,355 1,975,858 239,497 12.12 %25,333 18,725 6,608 35.29 %4.64 %3.84 %0.80 %
Consumer and other7,992 3,558 4,434 124.62 %125 34 91 267.65 %6.35 %3.90 %2.45 %
Total loans2,745,381 2,449,521 295,860 12.08 %33,025 23,417 9,608 41.03 %4.88 %3.88 %1.00 %
           
Securities:           
Taxable538,158 633,654 (95,496)(15.07)%3,316 2,889 427 14.78 %2.46 %1.82 %0.64 %
Tax-exempt (3)
150,311 170,898 (20,587)(12.05)%974 1,056 (82)(7.77)%2.59 %2.47 %0.12 %
Total securities688,469 804,552 (116,083)(14.43)%4,290 3,945 345 8.75 %2.49 %1.96 %0.53 %
            
Interest-bearing deposits2,138 178,041 (175,903)(98.80)%25 82 (57)(69.51)%4.81 %0.19 %4.62 %
Total interest-earning assets (3)
$3,435,988 $3,432,114 $3,874 0.11 %37,340 27,444 9,896 36.06 %4.41 %3.24 %1.17 %
            
Interest-bearing liabilities:           
Deposits:           
Interest-bearing demand$500,392 $546,237 $(45,845)(8.39)%1,570 250 1,320 528.00 %1.27 %0.19 %1.08 %
Savings and money market1,277,676 1,610,639 (332,963)(20.67)%8,655 1,620 7,035 434.26 %2.75 %0.41 %2.34 %
Time417,427 195,638 221,789 113.37 %3,114 281 2,833 1,008.19 %3.03 %0.58 %2.45 %
Total deposits2,195,495 2,352,514 (157,019)(6.67)%13,339 2,151 11,188 520.13 %2.46 %0.37 %2.09 %
Borrowed funds:
Federal funds purchased and
other short-term borrowings186,333 1,506 184,827 12,272.71 %2,079 — 2,079 N/A4.53 %0.05 %4.48 %
Subordinated notes, net79,400 20,467 58,933 287.94 %1,106 248 858 345.97 %5.65 %4.91 %0.74 %
Federal Home Loan Bank
advances203,722 125,000 78,722 62.98 %1,262 630 632 100.32 %2.51 %2.04 %0.47 %
Long-term debt51,486 51,497 (11)(0.02)%698 258 440 170.54 %5.50 %2.03 %3.47 %
Total borrowed funds520,941 198,470 322,471 162.48 %5,145 1,136 4,009 352.90 %4.01 %2.32 %1.69 %
Total interest-bearing
liabilities$2,716,436 $2,550,984 $165,452 6.49 %18,484 3,287 15,197 462.34 %2.76 %0.52 %2.24 %
            
Net interest income (FTE) (4)
  $18,856 $24,157 $(5,301)(21.94)%   
Net interest spread (FTE)        1.65 %2.72 %(1.07)%
Net interest margin (FTE) (4)
       2.23 %2.85 %(0.62)%
(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


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 increased the target federal funds interest rate by a total of 425 basis points in 2022 and 50 basis points during the first three months of 2023. At this time it is unknown whether additional target federal funds interest rate changes will occur during the remainder of 2023. The increases that occurred throughout 2022 and 2023 will have an impact on the comparability of net interest income between 2023 and 2022.

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, 2023 decreased by 62 basis points compared to the three months ended March 31, 2022. The primary driver of the decrease in the net interest margin was an increase in rates paid on deposits and borrowed funds, which have repriced faster than loans and securities, and an increase in average borrowed funds balances. Tax-equivalent net interest income decreased $5,301 for the three months ended March 31, 2023 compared to the same time period in 2022.

Tax-equivalent interest income on loans increased $9,603 for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. This increase in interest income on loans was driven by a combination of an increase in the average balance of loans and an increase in loan yields. The average balance of loans for the three months ended March 31, 2023 increased $295,860 compared to the three months ended March 31, 2022, while loan yields increased 100 basis points. Rising market interest rates have resulted in increasing rates on variable-rate loans and higher interest rates on renewed and originated loans. The Company continues to focus on expanding existing and entering into new customer relationships while maintaining strong credit quality. The yield on the Company's loan portfolio is affected by the portfolio's loan mix, the interest rate environment, the effects of competition, the level of nonaccrual loans and reversals of previously accrued interest on charged-off loans. The yield on the loan portfolio is expected to increase in a rising rate environment as variable-rate loans and loan renewals reprice at higher rates. The political and economic environments can also influence the volume of new loan originations and the mix of variable-rate versus fixed-rate loans.

The average balance of deposits decreased $157,019 for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The rates paid on deposits increased 209 basis points for the three months ended March 31, 2023 compared to the same period in 2022. The increase in the cost of deposits was primarily due to higher deposit interest rates in response to increases in the target federal funds rate and market interest rates, increased competition for deposit balances, and changes in deposit mix. The Federal Reserve increased the target federal funds rate by a total of 425 basis points in 2022 and 50 basis points in the first three months of 2023. These increases have had a direct impact on the cost of deposits and market competition.

Interest expense on borrowed funds increased $4,009 for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The average balance of borrowed funds increased $322,471 for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The Company issued $60,000 of subordinated debt in June 2022. Additionally, average balances of federal funds purchased and other short-term borrowings increased $184,827 for the three months ended March 31, 2023 compared to the same period in 2022. The average rate of the federal funds purchased and other short-term borrowings increased by 448 basis points in the three months ended March 31, 2023 compared to the three months ended March 31, 2022. This increase in average rates paid on federal funds purchased and other short-term borrowings was driven by the increases in the target federal funds rate by the Federal Reserve.

Credit Loss Expense and the Related Allowance for Credit Losses

The Company adopted ASU No. 2016-13 using the modified retrospective method for financial assets measured at amortized cost and off-balance-sheet credit exposures. See Notes 1 and 4 to the Financial Statements for additional information.


38


West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
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. There was no provision for credit losses for the three months ended March 31, 2023. The credit loss expense was negative $750 for the three months ended March 31, 2022. The negative credit loss expense recorded in 2022 was due to the sustained performance of loans after the expiration of COVID modifications and improvement in classified loans.

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 provision for credit losses based on such agencies' review of information available to them at the time of their examinations.


39


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, 2023 and 2022 and related ratios.

 Three Months Ended March 31,
 20232022Change
Balance at beginning of period$25,473 $28,364 $(2,891)
Adoption of CECL2,458 — 2,458 
Charge-offs— — — 
Recoveries10 9 1 
Net (charge-offs) recoveries10 9 1 
Provision for credit losses charged (credited) to operations— (750)750 
Balance at end of period$27,941 $27,623 $318 
Average loans outstanding$2,745,381 $2,449,521 
Ratio of annualized net (charge-offs) recoveries during the period to average loans outstanding— %— %
Ratio of allowance for credit losses for loans to average loans outstanding1.02 %1.13 %
Ratio of allowance for credit losses for loans to total loans at end of period1.01 %1.11 %

The U.S. economy continues to be affected by federal government programs and the Federal Reserve's accommodative monetary policies initiated during the COVID-19 pandemic. Current economic concerns include the impact of sharp increases in interest rates as the Federal Reserve responds to inflationary trends, labor shortages and wage pressures, and the uncertainty of additional increases in the Federal Reserve target federal funds rate. In response to increasing inflation rates, the Federal Reserve increased the target federal funds rate by a total of 425 basis points in 2022 and 50 basis points in the first three months of 2023. The forecast for future rate increases is uncertain at this time. Management believed the allowance for credit losses at March 31, 2023 was adequate to absorb expected losses in the loan portfolio as of that date.



40


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:20232022ChangeChange %
Service charges on deposit accounts$462 $580 $(118)(20.34)%
Debit card usage fees486 472 14 2.97 %
Trust services706 629 77 12.24 %
Increase in cash value of bank-owned life insurance257 227 30 13.22 %
Gain from bank-owned life insurance691 — 691 N/A
Other income:  
All other income355 481 (126)(26.20)%
Total other income355 481 (126)(26.20)%
Total noninterest income$2,957 $2,389 $568 23.78 %

Revenue from trust services was higher for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to an increase in one-time estate fees. An increase in trust assets and accounts since March 31, 2022 also contributed to the increase in trust service fees. The gain from bank-owned life insurance was from a death benefit claim. The decrease in other income was primarily due to $97 of income recognized in the three months ended March 31, 2022 related to the purchase of discounted transferable state income tax credits.

Noninterest Expense

The following table shows the variance from the prior year period 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:20232022ChangeChange %
Salaries and employee benefits$6,867 $6,298 $569 9.03 %
Occupancy and equipment1,327 1,086 241 22.19 %
Data processing635 624 11 1.76 %
Technology and software513 476 37 7.77 %
FDIC insurance416 337 79 23.44 %
Professional fees250 217 33 15.21 %
Director fees205 168 37 22.02 %
Other expenses:  
Business development333 236 97 41.10 %
Insurance expense215 151 64 42.38 %
Trust165 137 28 20.44 %
Charitable contributions60 — 60 N/A
Consulting fees49 50 (1)(2.00)%
Marketing41 54 (13)(24.07)%
Low income housing projects amortization161 142 19 13.38 %
New markets tax credit project amortization and management
   fees		230 230 — — %
All other604 456 148 32.46 %
Total other expenses1,858 1,456 402 27.61 %
Total noninterest expense$12,071 $10,662 $1,409 13.22 %

41


West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Salaries and employee benefits increased for the three months ended March 31, 2023 when compared to the three months ended March 31, 2022, due to wage increases that have been higher than recent historical averages in response to market conditions and competition in retaining and recruiting talent. Additionally, there has been an increase in full-time equivalent employees with growth in our commercial banking team and information technology department. Occupancy and equipment expense increased for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to an increase in depreciation expense related to the new building in St. Cloud, Minnesota which opened in March 2022 and scheduled increases in rent expense on existing leases. FDIC insurance expense increased during the three months ended March 31, 2023 when compared to the same time period in 2022 primarily due to the FDIC's increase in the minimum assessment rate, announced in 2022 and effective for the first quarter of 2023.

Business development expenses increased in 2023 compared to 2022 due to an increase in the size of our commercial banking team and a general increase in sponsorships and business development activity. Insurance expense increased for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to insurance costs related to bank buildings that are under construction.

Income Tax Expense

The Company recorded income tax expense of $1,737 (18.1 percent of pre-tax income) for the three months ended March 31, 2023, compared with $3,121 (19.1 percent of pre-tax income) for the three months ended March 31, 2022. 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, gain from bank-owned life insurance, disallowed interest expense, and state income taxes. Additionally, for the three months ended March 31, 2023 and 2022, a tax benefit of $11 and $377, respectively, was recorded as a result of the increase in fair value of restricted stock over the vesting period. The tax rates for the first three months of 2023 and 2022 were also impacted by year-to-date federal low income housing tax credits and a new markets tax credit of approximately $375 and $367, respectively.

FINANCIAL CONDITION

The Company had total assets of $3,624,943 as of March 31, 2023, compared to total assets of $3,613,218 as of December 31, 2022. Fluctuations in the balance sheet included increases in loans, premises and equipment, and borrowed funds and a decrease in deposits.

Securities

Securities available for sale increased by $1,243 during the three months ended March 31, 2023. This slight increase was primarily attributable to the decrease in unrealized losses in the securities portfolio, partially offset by principal paydowns on securities. In the first three months of 2023, net unrealized losses on the available for sale securities portfolio decreased by $11,667. This was primarily due to falling market yields since December 31, 2022. Management concluded the unrealized losses are primarily attributed to increases in risk-free market interest rates since these securities were purchased and were not credit-related losses. 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, 2023, approximately 63 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities. These securities have little to no credit risk and provide cash flows for liquidity and repricing opportunities.

Loans and Nonperforming Assets

Loans outstanding increased $13,349 from $2,742,836 as of December 31, 2022 to $2,756,185 as of March 31, 2023. Changes in the loan portfolio during the first three months of 2023 included an increase of $38,218 in commercial real estate loans and a decrease of $26,275 in construction, land and land development loans. The Company continues to focus on business development efforts in all of its markets.


42


West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
In accordance with regulatory guidelines, the Company exercises heightened risk management practices when non-owner occupied commercial real estate lending exceeds 300 percent of total risk-based capital or construction, land development, and other land loans exceed 100 percent of total risk-based capital. Although the commercial real estate portfolio exceeds these regulatory guidelines, they are within the Company's established policy limits and 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, 2022 was presented in the Company's Form 10-K filed with the SEC on February 23, 2023, and the Company has not experienced any material changes to that portfolio since December 31, 2022.

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, 2023December 31, 2022Change
Nonaccrual loans$316 $322 $(6)
Loans past due 90 days and still accruing interest — — — 
Loan restructurings (1)
— — — 
Total nonperforming loans316 322 (6)
Other real estate owned— — — 
Total nonperforming assets$316 $322 $(6)
    
Nonperforming loans to total loans0.01 %0.01 %— %
Nonperforming assets to total assets0.01 %0.01 %— %
(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, 2023 or December 31, 2022.

Premises and Equipment

The Company purchased land in the first quarter of 2022 for its new corporate headquarters to be located in West Des Moines, Iowa and construction began in the second quarter of 2022. Construction is expected to be completed in 2024. Additionally, construction of a new office in Mankato, Minnesota also began in the first quarter of 2022 and is expected to be completed in 2023.

Deposits

Deposits decreased $82,015, or 2.8 percent, during the first three months of 2023. A large part of this decrease was attributbale to a decrease in brokered deposits. Brokered deposits decreased to $234,213 at March 31, 2023, from $272,691 at December 31, 2022. Excluding brokered deposits, deposits decreased $43,537, or 1.5 percent, during the first three months of 2023. Deposit inflows and outflows are influenced by prevailing market interest rates, competition, local and national economic conditions, and fluctuations in our business customers' own liquidity needs and may also be influenced by recent developments in the financial services industry. Significant competition for deposits driven by high interest rate alternatives for depositors is currently impacting deposit fluctuations and increasing our cost of deposits.

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, 2023, estimated uninsured deposits, which excludes deposits in the IntraFi® reciprocal network and public funds protected by state programs, were approximately 33.3 percent of total deposits, compared to approximately 34.9 percent as of December 31, 2022.

Borrowed Funds

Federal funds purchased and other short-term borrowings increased from $200,000 at December 31, 2022 to $229,290 as of March 31, 2023. The fluctuations in the balances of federal funds purchased and other short-term borrowings is based on customer loan and deposit activity and the Company's balance sheet management objectives, which from time to time may require the Company to draw on the federal funds purchased lines with our correspondent banks or FHLB advances.

43


West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
The Company had $220,000 of short-term FHLB advances outstanding at March 31, 2023 associated with long-term interest rate swaps, which is an increase of $65,000 from December 31, 2022. In the first quarter of 2023, the Company entered into four additional long-term interest rate swap agreements with a total notional amount of $65,000. As of March 31, 2023, the Company has long-term interest rate swap agreements with a total notional amount of $220,000 to hedge the interest payments of one-month rolling funding consisting of FHLB advances or brokered deposits. These interest rate swaps have maturity dates ranging from September 2023 through June 2029 and fixed rates ranging from 1.63 percent to 3.64 percent. This strategy of hedging short-term rolling funding effectively provides fixed cost wholesale funding through the maturity dates of the various interest rate swaps.

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 $22,480 as of March 31, 2023 compared with $26,539 as of December 31, 2022.

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 and may also be influenced by recent developments in the financial services industry. The Company utilizes brokered deposits to supplement core deposit fluctuations and loan growth. Brokered deposits are obtained through various programs administered by IntraFi, including IntraFi Network Deposits and IntraFi Funding, and through other third parties. At March 31, 2023, the Company had $234,213 in brokered deposits, which included fixed-rate deposits with terms through September 2024 and variable-rate deposits with terms through February 2024.

As of March 31, 2023, West Bank had additional borrowing capacity available from the FHLB of approximately $434,000, as well as approximately $3,000 through the Federal Reserve discount window, $35,000 through unsecured federal funds lines of credit with correspondent banks, and $14,067 through the new Federal Reserve Bank Term Funding Program. The Bank Term Funding Program was established by the Federal Reserve in March 2023 to provide an additional source of liquidity against high-quality securities. As of March 31, 2023, West Bank had pledged $14,067 in eligible securities to facilitate participation in the program. No funds were borrowed from the Federal Reserve discount window or Bank Term Funding Program during the three months ended March 31, 2023. Net cash from operating activities contributed $2,494 to liquidity for the three months ended March 31, 2023. Management believed that the combination of high levels of potentially liquid assets, unencumbered securities, cash flows from operations, and additional borrowing capacity are sufficient to meet our liquidity and capital needs.

The Company had remaining commitments to invest in qualified affordable housing projects totaling $3,012 and $3,431 as of March 31, 2023 and December 31, 2022, respectively.

West Bank entered into a construction contract in 2022 for the construction of a new headquarters building in West Des Moines, Iowa. West Bank will pay the contractor a contract price consisting of the cost of work plus a fee, subject to a guaranteed maximum price of $42,309, with anticipated construction completed in 2024. As of March 31, 2023, there was a remaining commitment of $30,415 under this contract. West Bank is also building a new office in Mankato, Minnesota to be completed in the fall of 2023, which had a remaining commitment of $5,426 as of March 31, 2023.

Capital

The Company's total stockholders' equity increased to $216,992 at March 31, 2023 from $211,112 at December 31, 2022. The increase was primarily the result of the decrease in accumulated other comprehensive loss and net income less dividends paid, partially offset by the adjustment made upon the adoption of ASU 2016-13. The decrease in accumulated other comprehensive loss is primarily the result of falling market yields since December 31, 2022. At March 31, 2023, the Company's tangible common equity as a percent of tangible assets was 5.99 percent compared to 5.84 percent as of December 31, 2022. While accumulated other comprehensive losses reduce tangible common equity, they have no impact on regulatory capital.
44


West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
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, 2023.

The Company's and West Bank's capital amounts and ratios are presented in the following table.
ActualFor Capital
Adequacy Purposes		For Capital
Adequacy Purposes With Capital Conservation Buffer		To Be Well-Capitalized
AmountRatioAmountRatioAmountRatioAmountRatio
As of March 31, 2023:
Total Capital (to Risk-Weighted Assets)
Consolidated$412,702 12.17 %$271,365 8.00 %$356,167 10.50 %$339,207 10.00 %
West Bank446,026 13.16 %271,226 8.00 %355,984 10.50 %339,032 10.00 %
       
Tier 1 Capital (to Risk-Weighted Assets)    
Consolidated322,417 9.51 %203,524 6.00 %288,326 8.50 %271,365 8.00 %
West Bank415,741 12.26 %203,419 6.00 %288,177 8.50 %271,226 8.00 %
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Consolidated302,417 8.92 %152,643 4.50 %237,445 7.00 %220,484 6.50 %
West Bank415,741 12.26 %152,564 4.50 %237,322 7.00 %220,371 6.50 %
       
Tier 1 Capital (to Average Assets)    
Consolidated322,417 8.60 %149,898 4.00 %149,898 4.00 %187,373 5.00 %
West Bank415,741 11.10 %149,816 4.00 %149,816 4.00 %187,270 5.00 %
       
As of December 31, 2022:      
Total Capital (to Risk-Weighted Assets)    
Consolidated$408,056 12.08 %$270,221 8.00 %$354,665 10.50 %$337,776 10.00 %
West Bank441,628 13.08 %270,053 8.00 %354,445 10.50 %337,566 10.00 %
       
Tier 1 Capital (to Risk-Weighted Assets)    
Consolidated322,583 9.55 %202,666 6.00 %287,110 8.50 %270,221 8.00 %
West Bank416,155 12.33 %202,540 6.00 %286,931 8.50 %270,053 8.00 %
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Consolidated302,583 8.96 %151,999 4.50 %236,443 7.00 %219,555 6.50 %
West Bank416,155 12.33 %151,905 4.50 %236,296 7.00 %219,418 6.50 %
Tier 1 Capital (to Average Assets)    
Consolidated322,583 8.81 %146,439 4.00 %146,439 4.00 %183,049 5.00 %
West Bank416,155 11.37 %146,367 4.00 %146,367 4.00 %182,958 5.00 %
45


West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
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, 2023, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer.
46

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s market risk is composed primarily of interest rate risk arising from its core banking activities of lending and deposit taking. Interest rate risk refers to the exposure arising from changes in interest rates. Fluctuations in interest rates have a significant impact not only upon net income, but also upon the cash flows and market values of assets and liabilities. Our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities. Management continually develops and applies strategies to mitigate this risk.

The Company’s objectives are to manage interest rate risk to foster consistent growth of earnings and capital. It is our policy to maintain an acceptable level of interest rate risk over a range of possible changes in interest rates while remaining responsive to market demand for loan and deposit products. To measure that risk, the Company uses an earnings simulation approach.

The Company has an Asset Liability Committee which meets quarterly to review the interest rate sensitivity position and to review and develop various strategies for managing interest rate risk. Measuring and maintaining interest rate risk is a dynamic process that management performs with the objective of maximizing net interest margin while maintaining interest rate risk within acceptable tolerances. This process relies primarily on the simulation of net interest income over multiple interest rate scenarios. The Company engages a third party that utilizes a modeling program to measure the Company’s exposure to potential interest rate changes. For various assumed hypothetical changes in market interest rates, this analysis measures the estimated change in net interest income. The simulations allow for ongoing assessment of interest rate sensitivity and can include the impact of potential new business strategies. The modeled scenarios begin with a base case in which rates are unchanged and include parallel and nonparallel rate shocks. The results of these shocks are measured in two forms: first, the impact on the net interest margin and earnings over one and two year time frames; and second, the impact on the market value of equity. The results of the simulation are compared against approved policy limits.

The following table presents the estimated change in net interest income for one year under several scenarios of assumed interest rate changes for the rate shock levels shown. The changes in each interest rate scenario represents the difference between estimated net interest income in the unchanged interest rate scenario, or the base case, and the estimated net interest income in each of the alternative interest rate scenarios. The net interest income in each scenario is based on parallel yield curve changes in the interest rates applied to a static balance sheet. These do not reflect earnings expectations of management.
Net Interest Income at March 31, 2023
Change in Interest RatesAmount% Change
300 basis points rising$77,792(9.12)%
200 basis points rising80,220(6.29)
100 basis points rising82,533(3.59)
Base85,602—
100 basis points falling88,8273.77
200 basis points falling96,42312.64
Computations of the prospective effects of hypothetical interest rate changes are based on numerous assumptions. The assumptions used in our interest rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates on net interest income. Actual results may differ from those projections set forth above due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and customer behavior. Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates.


Item 4. Controls and Procedures

a. Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) was performed under the supervision, and with the participation, of the Company's Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

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b. Changes in internal control over financial reporting. There were no changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Neither the Company nor West Bank is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to West Bank's business. The Company does not know of any proceeding contemplated by a governmental authority against the Company or West Bank.

Item 1A. Risk Factors

Management does not believe there have been any material changes in the risk factors that were disclosed in the Company's Form 10-K filed with the Securities and Exchange Commission on February 23, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed as part of this report:
ExhibitsDescription
3.1
Restatement of the Restated Articles of Incorporation of West Bancorporation, Inc. (incorporated herein by reference to Exhibit 3.1 filed with the Form 10-K on March 1, 2017)
3.2
Amended and Restated Bylaws of West Bancorporation, Inc. as of January 23, 2019 (incorporated herein by reference to Exhibit 3.1 filed with the Form 8-K on January 24, 2019)
31.1
31.2
32.1
32.2
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and combined in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

West Bancorporation, Inc. 
(Registrant)  
   
   
April 27, 2023By:/s/ David D. Nelson
Date David D. Nelson
  Chief Executive Officer and President
  (Principal Executive Officer)
April 27, 2023By:/s/ Jane M. Funk
DateJane M. Funk
Executive Vice President, Treasurer and Chief Financial Officer
  (Principal Financial and Accounting Officer)
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