WEST BANCORPORATION INC - Quarter Report: 2022 September (Form 10-Q)

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 September 30, 2022

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)


Iowa			42-1230603
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, no par value	WTBA	The 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 October 26, 2022, there were 16,640,413 shares of common stock, no par value, outstanding.

WEST BANCORPORATION, INC.

INDEX


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	4

	Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021	5

	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 and 2021	6

	Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022 and 2021	7

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	9

	Notes to Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32

	"Safe Harbor" Concerning Forward-Looking Statements	32

	Critical Accounting Policies	32

	Non-GAAP Financial Measures	33

	Overview	35

	Results of Operations	37

	Financial Condition	46

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	50

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Mine Safety Disclosures	51

Item 5.	Other Information	51

Item 6.	Exhibits	51

	Signatures	52

Table of Contents

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)	September 30, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	58,342	$	17,555
Federal funds sold	1,049		175,270
Cash and cash equivalents	59,391		192,825
Securities available for sale, at fair value	671,752		758,822
Federal Home Loan Bank stock, at cost	18,350		9,965
Loans	2,614,145		2,456,196
Allowance for loan losses	(25,418)		(28,364)
Loans, net	2,588,727		2,427,832
Premises and equipment, net	44,592		34,568
Accrued interest receivable	10,786		8,890
Bank-owned life insurance	44,318		43,609
Deferred tax assets, net	38,327		10,819
Other assets	41,274		12,871
Total assets	$	3,517,517	$	3,500,201

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand	$	712,722	$	720,136
Interest-bearing demand	469,257		548,242
Savings and money market	1,252,694		1,550,636
Time	388,174		196,991
Total deposits	2,822,847		3,016,005
Federal funds purchased	204,500		2,880
Subordinated notes, net	79,303		20,465
Federal Home Loan Bank advances	125,000		125,000
Long-term debt	51,486		51,521
Accrued expenses and other liabilities	35,617		24,002
Total liabilities	3,318,753		3,239,873
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; authorized 50,000,000 shares; no shares issued and outstanding at September 30, 2022 and December 31, 2021	—		—
Common stock, no par value; authorized 50,000,000 shares; 16,640,413 and 16,554,846 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	3,000		3,000
Additional paid-in capital	31,152		30,183
Retained earnings	262,776		237,782
Accumulated other comprehensive loss	(98,164)		(10,637)
Total stockholders' equity	198,764		260,328
Total liabilities and stockholders' equity	$	3,517,517	$	3,500,201

See Notes to Consolidated Financial Statements.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Consolidated Statements of Income

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2022		2021		2022		2021
Interest income:
Loans, including fees	$	28,102	$	24,229	$	76,236	$	71,406
Securities:
Taxable	3,147		2,412		9,126		5,952
Tax-exempt	890		762		2,640		2,032
Federal funds sold	30		82		179		226
Total interest income	32,169		27,485		88,181		79,616
Interest expense:
Deposits	6,289		2,021		11,586		5,893
Federal funds purchased	655		2		812		4
Subordinated notes	1,106		254		1,748		754
Federal Home Loan Bank advances	649		656		1,914		2,288
Long-term debt	466		66		1,050		220
Total interest expense	9,165		2,999		17,110		9,159
Net interest income	23,004		24,486		71,071		70,457
Provision for loan losses	—		—		(2,500)		(1,500)
Net interest income after provision for loan losses	23,004		24,486		73,571		71,957
Noninterest income:
Service charges on deposit accounts	553		589		1,718		1,749
Debit card usage fees	498		490		1,477		1,443
Trust services	780		695		2,031		2,038
Increase in cash value of bank-owned life insurance	246		230		709		690
Loan swap fees	835		—		835		42
Realized securities gains, net	—		11		—		51
Other income	364		386		1,173		1,368
Total noninterest income	3,276		2,401		7,943		7,381
Noninterest expense:
Salaries and employee benefits	6,578		6,018		19,286		17,298
Occupancy	1,315		1,203		3,643		3,630
Data processing	644		616		1,924		1,835
FDIC insurance	127		528		753		1,358
Professional fees	250		212		669		763
Director fees	209		176		599		581
Other expenses	2,335		1,959		6,512		6,044
Total noninterest expense	11,458		10,712		33,386		31,509
Income before income taxes	14,822		16,175		48,128		47,829
Income taxes	3,220		3,469		10,675		10,132
Net income	$	11,602	$	12,706	$	37,453	$	37,697

Basic earnings per common share	$	0.70	$	0.77	$	2.25	$	2.28
Diluted earnings per common share	$	0.69	$	0.76	$	2.23	$	2.25

See Notes to Consolidated Financial Statements.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
Net income	$	11,602	$	12,706	$	37,453	$	37,697
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding losses arising during the period	(42,621)		(6,172)		(141,629)		(10,462)
Plus: reclassification adjustment for net gains realized in net income	—		(11)		—		(51)

Other	(11)		—		(11)		—
Income tax benefit	10,569		1,558		35,618		2,649
Other comprehensive loss on securities	(32,063)		(4,625)		(106,022)		(7,864)
Unrealized gains (losses) on derivatives:
Unrealized holding gains arising during the period	8,637		359		23,239		5,801
Plus: reclassification adjustment for net (gains) losses realized in net income	(259)		1,105		1,428		7,173

Income tax expense	(2,051)		(369)		(6,172)		(3,269)
Other comprehensive income on derivatives	6,327		1,095		18,495		9,705
Total other comprehensive income (loss)	(25,736)		(3,530)		(87,527)		1,841
Comprehensive income (loss)	$	(14,134)	$	9,176	$	(50,074)	$	39,538

See Notes to Consolidated Financial Statements.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Consolidated Statements of Stockholders' Equity

(unaudited)


(in thousands, except share and per share data)

	Three Months Ended September 30, 2022
										Accumulated
						Additional				Other
	Preferred		Common Stock			Paid-In		Retained		Comprehensive
	Stock		Shares	Amount		Capital		Earnings		Income (Loss)		Total
Balance, June 30, 2022	$	—	16,640,413	$	3,000	$	30,283	$	255,334	$	(72,428)	$	216,189
Net income	—		—	—		—		11,602		—		11,602
Other comprehensive loss, net of tax	—		—	—		—		—		(25,736)		(25,736)
Cash dividends declared, $0.25 per common share	—		—	—		—		(4,160)		—		(4,160)
Stock-based compensation costs	—		—	—		869		—		—		869

Balance, September 30, 2022	$	—	16,640,413	$	3,000	$	31,152	$	262,776	$	(98,164)	$	198,764


	Three Months Ended September 30, 2021
										Accumulated
						Additional				Other
	Preferred		Common Stock			Paid-In		Retained		Comprehensive
	Stock		Shares	Amount		Capital		Earnings		Income (Loss)		Total
Balance, June 30, 2021	$	—	16,554,846	$	3,000	$	28,888	$	221,113	$	(6,475)	$	246,526
Net income	—		—	—		—		12,706		—		12,706
Other comprehensive loss, net of tax	—		—	—		—		—		(3,530)		(3,530)
Cash dividends declared, $0.24 per common share	—		—	—		—		(3,974)		—		(3,974)
Stock-based compensation costs	—		—	—		648		—		—		648

Balance, September 30, 2021	$	—	16,554,846	$	3,000	$	29,536	$	229,845	$	(10,005)	$	252,376

See Notes to Consolidated Financial Statements.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Consolidated Statements of Stockholders' Equity

(unaudited)


(in thousands, except share and per share data)

	Nine Months Ended September 30, 2022
										Accumulated
						Additional				Other
	Preferred		Common Stock			Paid-In		Retained		Comprehensive
	Stock		Shares	Amount		Capital		Earnings		Income (Loss)		Total
Balance, December 31, 2021	$	—	16,554,846	$	3,000	$	30,183	$	237,782	$	(10,637)	$	260,328
Net income	—		—	—		—		37,453		—		37,453
Other comprehensive loss, net of tax	—		—	—		—		—		(87,527)		(87,527)
Cash dividends declared, $0.75 per common share	—		—	—		—		(12,459)		—		(12,459)
Stock-based compensation costs	—		—	—		2,488		—		—		2,488
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes	—		85,567	—		(1,519)		—		—		(1,519)
Balance, September 30, 2022	$	—	16,640,413	$	3,000	$	31,152	$	262,776	$	(98,164)	$	198,764


	Nine Months Ended September 30, 2021
										Accumulated
						Additional				Other
	Preferred		Common Stock			Paid-In		Retained		Comprehensive
	Stock		Shares	Amount		Capital		Earnings		Income (Loss)		Total
Balance, December 31, 2020	$	—	16,469,272	$	3,000	$	28,823	$	203,718	$	(11,846)	$	223,695
Net income	—		—	—		—		37,697		—		37,697
Other comprehensive income, net of tax	—		—	—		—		—		1,841		1,841
Cash dividends declared, $0.70 per common share	—		—	—		—		(11,570)		—		(11,570)
Stock-based compensation costs	—		—	—		1,926		—		—		1,926
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes	—		85,574	—		(1,213)		—		—		(1,213)
Balance, September 30, 2021	$	—	16,554,846	$	3,000	$	29,536	$	229,845	$	(10,005)	$	252,376

See Notes to Consolidated Financial Statements.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(unaudited)


	Nine Months Ended September 30,
(in thousands)	2022		2021
Cash Flows from Operating Activities:
Net income	$	37,453	$	37,697
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	(2,500)		(1,500)
Net amortization and accretion	2,247		1,459
Securities gains, net	—		(51)
Stock-based compensation	2,488		1,926
Increase in cash value of bank-owned life insurance	(709)		(690)


Depreciation	1,091		1,143
Provision for deferred income taxes	1,928		380
Change in assets and liabilities:
Increase in accrued interest receivable	(1,896)		(541)
Decrease in other assets	930		2,299
Increase in accrued expenses and other liabilities	7,889		312
Net cash provided by operating activities	48,921		42,434
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale	—		30,374
Proceeds from maturities and calls of securities available for sale	63,353		65,784
Purchases of securities available for sale	(120,077)		(420,744)
Purchases of Federal Home Loan Bank stock	(46,884)		(2,325)
Proceeds from redemption of Federal Home Loan Bank stock	38,499		2,504
Net increase in loans	(158,395)		(78,830)


Purchases of premises and equipment	(12,056)		(6,410)

Net cash used in investing activities	(235,560)		(409,647)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits	(193,158)		35,929
Net increase in federal funds purchased	201,620		34,005
Proceeds from issuance of subordinated debt, net of issuance costs	58,756		—
Net decrease in Federal Home Loan Bank advances	—		(50,000)
Principal payments on long-term debt	(35)		(3,904)
Common stock dividends paid	(12,459)		(11,570)
Restricted stock units withheld for payroll taxes	(1,519)		(1,213)
Net cash provided by financing activities	53,205		3,247
Net decrease in cash and cash equivalents	(133,434)		(363,966)
Cash and Cash Equivalents:
Beginning	192,825		396,435
Ending	$	59,391	$	32,469

Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest	$	15,259	$	9,596
Income taxes	7,490		9,220
Supplemental Disclosure of Noncash Investing and Financing Activities:
Purchase of securities available for sale, pending settlement	$	—	$	30,151

See Notes to Consolidated Financial Statements.

Table of Contents

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, 2021 filed with the SEC on February 24, 2022. 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 September 30, 2022 and December 31, 2021, net income, comprehensive income (loss) and changes in stockholders' equity for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. 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 collectibility 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 relating to available for sale debt securities should be recorded through an allowance for credit losses. The FASB has also issued multiple updates to ASU No. 2016-13 as codified in Topic 326, including ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-11, ASU No. 2020-02, and ASU No. 2020-03. These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

In December 2019, the FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326). This update amends 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 is 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 plans to adopt the standard with the amended effective date. The Company continues to develop it's methodology and work through model validation and implementation considerations. While we currently cannot reasonably estimate the impact of adopting this standard, we expect the impact will be influenced by the composition, characteristics and quality of our loan and securities portfolios, as well as the general economic conditions and forecasts as of the adoption date.

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 is currently evaluating the impact of the ASU on the Company's consolidated financial statements.

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 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of the reference rate reform on the Company’s consolidated financial statements.

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 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of the reference rate reform on the Company's consolidated financial statements.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

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 and nine months ended September 30, 2022 and 2021 are presented in the following table.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2022		2021		2022		2021
Net income	$	11,602	$	12,706	$	37,453	$	37,697

Weighted average common shares outstanding	16,640		16,555		16,613		16,527
Weighted average effect of restricted stock units outstanding	154		248		200		245
Diluted weighted average common shares outstanding	16,794		16,803		16,813		16,772

Basic earnings per common share	$	0.70	$	0.77	$	2.25	$	2.28
Diluted earnings per common share	$	0.69	$	0.76	$	2.23	$	2.25
Number of anti-dilutive common stock equivalents excluded from diluted earnings per share computation	183		—		112		—

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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 September 30, 2022 and December 31, 2021.


	September 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
Securities available for sale:
State and political subdivisions	$	243,440	$	—	$	(58,322)	$	185,118
Collateralized mortgage obligations (1)	352,414		—		(55,462)		296,952
Mortgage-backed securities (1)	172,553		—		(31,319)		141,234
Collateralized loan obligations	37,948		—		(1,564)		36,384
Corporate notes	13,750		—		(1,686)		12,064
	$	820,105	$	—	$	(148,353)	$	671,752


	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
Securities available for sale:
State and political subdivisions	$	231,903	$	3,161	$	(2,617)	$	232,447
Collateralized mortgage obligations (1)	325,406		1,627		(6,260)		320,773
Mortgage-backed securities (1)	157,607		167		(2,714)		155,060

Collateralized loan obligations	37,880		59		(157)		37,782
Corporate notes	12,750		62		(52)		12,760
	$	765,546	$	5,076	$	(11,800)	$	758,822

(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 $299,397 and $295,961 as of September 30, 2022 and December 31, 2021, respectively, were pledged to secure access to the Federal Reserve discount window, 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 September 30, 2022, 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.


	September 30, 2022
	Amortized Cost		Fair Value


Due after five years through ten years	$	66,063	$	60,079
Due after ten years	229,075		173,487
	295,138		233,566
Collateralized mortgage obligations and mortgage-backed securities	524,967		438,186
	$	820,105	$	671,752

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

The details of the sales of securities available for sale for the three and nine months ended September 30, 2022 and 2021 are summarized in the following table.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Proceeds from sales	$	—	$	1,413	$	—	$	30,374
Gross gains on sales	—		11		—		283
Gross losses on sales	—		—		—		232

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 September 30, 2022 and December 31, 2021.


	September 30, 2022
	Less than 12 months				12 months or longer				Total
	Fair Value		Gross Unrealized (Losses)		Fair Value		Gross Unrealized (Losses)		Fair Value		Gross Unrealized (Losses)
Securities available for sale:
State and political subdivisions	$	82,826	$	(21,448)	$	102,292	$	(36,874)	$	185,118	$	(58,322)
Collateralized mortgage obligations	163,344		(24,668)		133,608		(30,794)		296,952		(55,462)
Mortgage-backed securities	55,118		(10,180)		86,116		(21,139)		141,234		(31,319)
Collateralized loan obligations	26,648		(1,300)		9,736		(264)		36,384		(1,564)
Corporate notes	10,272		(1,478)		1,792		(208)		12,064		(1,686)
	$	338,208	$	(59,074)	$	333,544	$	(89,279)	$	671,752	$	(148,353)


	December 31, 2021
	Less than 12 months				12 months or longer				Total
	Fair Value		Gross Unrealized (Losses)		Fair Value		Gross Unrealized (Losses)		Fair Value		Gross Unrealized (Losses)
Securities available for sale:
State and political subdivisions	$	121,574	$	(1,223)	$	33,894	$	(1,394)	$	155,468	$	(2,617)
Collateralized mortgage obligations	241,320		(6,149)		2,352		(111)		243,672		(6,260)
Mortgage-backed securities	140,168		(2,714)		—		—		140,168		(2,714)

Collateralized loan obligations	22,821		(157)		—		—		22,821		(157)
Corporate notes	4,198		(52)		—		—		4,198		(52)
	$	530,081	$	(10,295)	$	36,246	$	(1,505)	$	566,327	$	(11,800)

As of September 30, 2022, securities available for sale with unrealized losses included 118 state and political subdivision securities, 79 collateralized mortgage obligation securities, 27 mortgage-backed securities, six collateralized loan obligation securities and eight corporate notes. Collateralized loan obligation securities are debt securities backed by pools of senior secured commercial loans to a diverse group of companies across a broad spectrum of industries. At September 30, 2022, the Company only owned collateralized loan obligations that were AAA- or AA-rated. The Company believes the unrealized losses on securities available for sale as of September 30, 2022 were due to market interest rate conditions rather than reduced estimated cash flows. At September 30, 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, the Company did not consider these securities to have other than temporary impairment as of September 30, 2022.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

4. Loans and Allowance for Loan Losses

Loans consisted of the following segments as of September 30, 2022 and December 31, 2021.


	September 30, 2022		December 31, 2021
Commercial	$	526,336	$	492,815
Real estate:
Construction, land and land development	341,549		359,258
1-4 family residential first mortgages	69,991		66,216
Home equity	10,271		8,422
Commercial	1,661,907		1,530,218
Consumer and other	7,884		3,797
	2,617,938		2,460,726
Net unamortized fees and costs	(3,793)		(4,530)
	$	2,614,145	$	2,456,196

Included in commercial loans at September 30, 2022 and December 31, 2021, were $1,119 and $22,206, respectively, of loans originated in the Paycheck Protection Program (PPP). The PPP was established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted on March 27, 2020, and expanded by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, enacted on December 27, 2020 and the American Rescue Plan Act, enacted on March 11, 2021, in response to the Coronavirus Disease 2019 (COVID-19) pandemic. The PPP is administered by the Small Business Administration (SBA). PPP loans may be forgiven by the SBA and are 100 percent guaranteed by the SBA. Therefore, no allowance for loan losses is allocated to PPP loans.

Real estate loans of approximately $1,240,000 and $1,190,000 were pledged as security for Federal Home Loan Bank (FHLB) advances as of September 30, 2022 and December 31, 2021, 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.

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

A loan is classified as a TDR loan when the Company separately concludes that a borrower is experiencing financial difficulties and a concession is granted that would not otherwise be considered. Concessions may include a restructuring of the loan terms to alleviate the burden of the borrower's cash requirements, such as an extension of the payment terms beyond the original maturity date or a change in the interest rate charged. TDR loans with extended payment terms are accounted for as impaired until performance is established. A change to the interest rate would change the classification of a loan to a TDR loan if the restructured loan yields a rate that is below a market rate for that of a new loan with comparable risk. TDR loans with below-market rates are considered impaired until fully collected. TDR loans may also be reported as nonaccrual or 90 days past due if they are not performing per the restructured terms.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

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 considered impaired when management believes it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the specific component of the allowance for loan losses.

TDR loans totaled $0 and $8,599 as of September 30, 2022 and December 31, 2021, respectively, and were included in the nonaccrual category. There were no loan modifications considered to be TDR that occurred during the three and nine months ended September 30, 2022. There were six loan modifications related to one borrower considered to be TDR, with a pre- and post-modification recorded investment of $14,044, that occurred during the three and nine months ended September 30, 2021. A specific reserve of $0 and $2,500 related to TDR loans was recorded at September 30, 2022 and December 31, 2021, respectively. No TDR loans that were modified within the 12 months preceding September 30, 2022 and 2021 have subsequently had a payment default. A TDR loan is considered to have a payment default when it is past due 30 days or more.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

The following table summarizes the recorded investment in impaired loans by segment, broken down by loans with no related allowance for loan losses and loans with a related allowance and the amount of that allowance as of September 30, 2022 and December 31, 2021.


	September 30, 2022						December 31, 2021
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—	$	—
Real estate:
Construction, land and land development	—		—		—		—		—		—
1-4 family residential first mortgages	329		329		—		349		349		—
Home equity	—		—		—		—		—		—
Commercial	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
	329		329		—		349		349		—
With an allowance recorded:
Commercial	—		—		—		—		—		—
Real estate:
Construction, land and land development	—		—		—		—		—		—
1-4 family residential first mortgages	—		—		—		—		—		—
Home equity	—		—		—		—		—		—
Commercial	—		—		—		8,599		8,599		2,500
Consumer and other	—		—		—		—		—		—
	—		—		—		8,599		8,599		2,500
Total:
Commercial	—		—		—		—		—		—
Real estate:
Construction, land and land development	—		—		—		—		—		—
1-4 family residential first mortgages	329		329		—		349		349		—
Home equity	—		—		—		—		—		—
Commercial	—		—		—		8,599		8,599		2,500
Consumer and other	—		—		—		—		—		—
	$	329	$	329	$	—	$	8,948	$	8,948	$	2,500

The Company has no commitments to advance additional funds on any of the impaired loans.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

The following table summarizes the average recorded investment and interest income recognized on impaired loans by segment for the three and nine months ended September 30, 2022 and 2021.


	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate:
Construction, land and land development	—		—		—		—		—		—		—		—
1-4 family residential first mortgages	332		—		360		—		338		—		367		—
Home equity	—		—		—		—		—		—		—		—
Commercial	—		—		—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—		—		—
	332		—		360		—		338		—		367		—
With an allowance recorded:
Commercial	—		—		—		—		—		—		—		—
Real estate:
Construction, land and land development	—		—		—		—		—		—		—		—
1-4 family residential first mortgages	—		—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		—		—
Commercial	—		—		12,781		—		5,090		—		14,310		—
Consumer and other	—		—		—		—		—		—		—		—
	—		—		12,781		—		5,090		—		14,310		—
Total:
Commercial	—		—		—		—		—		—		—		—
Real estate:
Construction, land and land development	—		—		—		—		—		—		—		—
1-4 family residential first mortgages	332		—		360		—		338		—		367		—
Home equity	—		—		—		—		—		—		—		—
Commercial	—		—		12,781		—		5,090		—		14,310		—
Consumer and other	—		—		—		—		—		—		—		—
	$	332	$	—	$	13,141	$	—	$	5,428	$	—	$	14,677	$	—

Table of Contents

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 payment status of the recorded investment in loans as of September 30, 2022 and December 31, 2021.


	September 30, 2022
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
Commercial	$	—	$	—	$	—	$	—	$	526,336	$	—	$	526,336
Real estate:
Construction, land and
land development	—		—		—		—		341,549		—		341,549
1-4 family residential
first mortgages	—		—		—		—		69,662		329		69,991
Home equity	—		—		—		—		10,271		—		10,271
Commercial	—		—		—		—		1,661,907		—		1,661,907
Consumer and other	—		—		—		—		7,884		—		7,884
Total	$	—	$	—	$	—	$	—	$	2,617,609	$	329	$	2,617,938


	December 31, 2021
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
Commercial	$	—	$	—	$	—	$	—	$	492,815	$	—	$	492,815
Real estate:
Construction, land and
land development	—		—		—		—		359,258		—		359,258
1-4 family residential
first mortgages	—		—		—		—		65,867		349		66,216
Home equity	—		—		—		—		8,422		—		8,422
Commercial	—		—		—		—		1,521,619		8,599		1,530,218
Consumer and other	—		—		—		—		3,797		—		3,797
Total	$	—	$	—	$	—	$	—	$	2,451,778	$	8,948	$	2,460,726

Table of Contents

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 by credit quality indicator and loan segment as of September 30, 2022 and December 31, 2021.


	September 30, 2022
	Pass		Watch		Substandard		Doubtful		Total
Commercial	$	526,336	$	—	$	—	$	—	$	526,336
Real estate:
Construction, land and land development	341,500		49		—		—		341,549
1-4 family residential first mortgages	69,414		150		427		—		69,991
Home equity	10,271		—		—		—		10,271
Commercial	1,604,317		57,590		—		—		1,661,907
Consumer and other	7,884		—		—		—		7,884
Total	$	2,559,722	$	57,789	$	427	$	—	$	2,617,938


	December 31, 2021
	Pass		Watch		Substandard		Doubtful		Total
Commercial	$	492,545	$	270	$	—	$	—	$	492,815
Real estate:
Construction, land and land development	359,203		55		—		—		359,258
1-4 family residential first mortgages	65,596		156		464		—		66,216
Home equity	8,422		—		—		—		8,422
Commercial	1,458,075		63,544		8,599		—		1,530,218
Consumer and other	3,797		—		—		—		3,797
Total	$	2,387,638	$	64,025	$	9,063	$	—	$	2,460,726

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. All loans classified as impaired that are included in the specific evaluation of the allowance for loan losses are included in the Substandard column along with all other loans with ratings of 7 - 8.

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.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

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

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

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

Credit quality indicators for all loans and the Company's risk rating process are dynamic and updated on a continuous basis. Risk ratings are updated as circumstances that could affect the repayment of an individual loan are brought to management's attention through an established monitoring process. Individual bankers initiate changes as appropriate for ratings 1 through 5, and changes for ratings 6 through 9 are approved 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.

The allowance for loan losses is established through a provision for loan losses charged to expense. The allowance is an amount that management believes will be adequate to absorb probable losses on existing loans based on an evaluation of the collectability of loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, the review of specific problem loans, and the current economic conditions that may affect the borrower's ability to pay. Loans are charged-off against the allowance for loan losses when management believes that collectability of the principal is unlikely. While management uses the best information available to make its evaluations, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or the other factors relied upon.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

The allowance for loan losses consists of specific and general components. The specific component relates to loans that meet the definition of impaired. The general component covers the remaining loans and is based on historical loss experience adjusted for qualitative factors such as delinquency trends, loan growth, economic elements and local market conditions. These same policies are applied to all segments of loans. In addition, regulatory agencies, as an integral part of their examination processes, periodically review the Company's allowance for loan losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

The following tables detail the changes in the allowance for loan losses by segment for the three and nine months ended September 30, 2022 and 2021.


	Three Months Ended September 30, 2022
			Real Estate
	Commercial		Construction and Land		1-4 Family Residential		Home Equity		Commercial		Consumer and Other		Total
Beginning balance	$	4,661	$	4,043	$	373	$	95	$	16,189	$	73	$	25,434
Charge-offs	—		—		(31)		—		—		—		(31)
Recoveries	9		—		1		1		4		—		15
Provision (1)	429		(557)		20		9		82		17		—
Ending balance	$	5,099	$	3,486	$	363	$	105	$	16,275	$	90	$	25,418

	Three Months Ended September 30, 2021
			Real Estate
	Commercial		Construction and Land		1-4 Family Residential		Home Equity		Commercial		Consumer and Other		Total
Beginning balance	$	4,464	$	2,950	$	359	$	91	$	20,129	$	49	$	28,042
Charge-offs	—		—		—		—		—		—		—
Recoveries	45		—		1		1		4		5		56
Provision (1)	191		498		(5)		9		(686)		(7)		—
Ending balance	$	4,700	$	3,448	$	355	$	101	$	19,447	$	47	$	28,098

	Nine Months Ended September 30, 2022
			Real Estate
	Commercial		Construction and Land		1-4 Family Residential		Home Equity		Commercial		Consumer and Other		Total
Beginning balance	$	4,776	$	3,646	$	339	$	91	$	19,466	$	46	$	28,364
Charge-offs	—		—		(31)		—		(451)		—		(482)
Recoveries	21		—		2		3		10		—		36
Provision (1)	302		(160)		53		11		(2,750)		44		(2,500)
Ending balance	$	5,099	$	3,486	$	363	$	105	$	16,275	$	90	$	25,418

	Nine Months Ended September 30, 2021
			Real Estate
	Commercial		Construction and Land		1-4 Family Residential		Home Equity		Commercial		Consumer and Other		Total
Beginning balance	$	4,718	$	2,634	$	360	$	114	$	21,535	$	75	$	29,436
Charge-offs	—		—		—		—		—		—		—
Recoveries	142		—		2		3		10		5		162
Provision (1)	(160)		814		(7)		(16)		(2,098)		(33)		(1,500)
Ending balance	$	4,700	$	3,448	$	355	$	101	$	19,447	$	47	$	28,098

(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.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

The following tables present a breakdown of the allowance for loan losses disaggregated on the basis of impairment analysis method by segment as of September 30, 2022 and December 31, 2021.


	September 30, 2022
			Real Estate
	Commercial		Construction and Land		1-4 Family Residential		Home Equity		Commercial		Consumer and Other		Total
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	5,099		3,486		363		105		16,275		90		25,418
Total	$	5,099	$	3,486	$	363	$	105	$	16,275	$	90	$	25,418

	December 31, 2021
			Real Estate
	Commercial		Construction and Land		1-4 Family Residential		Home Equity		Commercial		Consumer and Other		Total
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	2,500	$	—	$	2,500
Collectively evaluated for impairment	4,776		3,646		339		91		16,966		46		25,864
Total	$	4,776	$	3,646	$	339	$	91	$	19,466	$	46	$	28,364

The following tables present the recorded investment in loans, exclusive of unamortized fees and costs, disaggregated on the basis of impairment analysis method by segment as of September 30, 2022 and December 31, 2021.


	September 30, 2022
			Real Estate
	Commercial		Construction and Land		1-4 Family Residential		Home Equity		Commercial		Consumer and Other		Total
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	329	$	—	$	—	$	—	$	329
Collectively evaluated for impairment	526,336		341,549		69,662		10,271		1,661,907		7,884		2,617,609
Total	$	526,336	$	341,549	$	69,991	$	10,271	$	1,661,907	$	7,884	$	2,617,938


	December 31, 2021
			Real Estate
	Commercial		Construction and Land		1-4 Family Residential		Home Equity		Commercial		Consumer and Other		Total
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	349	$	—	$	8,599	$	—	$	8,948
Collectively evaluated for impairment	492,815		359,258		65,867		8,422		1,521,619		3,797		2,451,778
Total	$	492,815	$	359,258	$	66,216	$	8,422	$	1,530,218	$	3,797	$	2,460,726

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

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 $280,000 and $255,000 at September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, the Company had swaps with a total notional amount of $150,000 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 September 30, 2022, 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. In March 2021, the Company terminated interest rate swaps with a total notional amount of $50,000. In the second quarter of 2021, the Company repaid $50,000 of FHLB advances related to these terminated swaps as a result of excess liquidity and in response to market conditions. Pre-tax losses of $3,600 were reclassified from accumulated other comprehensive income (AOCI) and recorded in noninterest income at termination.

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

The Company entered into forward-starting interest rate swaps with a total notional amount of $100,000 in January 2021 that were not accounting hedges. These swaps were terminated in March 2021, and the resulting gains of $3,781 were recorded in noninterest income.

The table below identifies the balance sheet category and fair values of the Company's derivative instruments as of September 30, 2022 and December 31, 2021.


	September 30, 2022			December 31, 2021
Cash Flow Hedges:
Gross notional amount	$	280,000		$	255,000
Fair value in other assets	17,149			—
Fair value in other liabilities	—			(7,517)
Weighted-average floating rate received	3.12		%	0.39		%
Weighted-average fixed rate paid	2.09		%	2.09		%
Weighted-average maturity in years	3.5			4.2

Non-Hedging Derivatives:
Gross notional amount	$	255,733		$	172,008
Fair value in other assets	16,073			3,887
Fair value in other liabilities	(16,073)			(3,887)

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

The following table identifies the pre-tax gains or losses recognized on the Company's derivative instruments designated as cash flow hedges for the three and nine months ended September 30, 2022 and 2021.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Pre-tax gain recognized in other comprehensive income	$	8,637	$	359	$	23,239	$	5,801
Reclassification from AOCI into income:
Increase (decrease) in interest expense	$	(259)	$	(1,105)	$	1,428	$	(3,573)
Decrease in noninterest income, swap termination fees	—		—		—		(3,600)

The Company estimates there will be approximately $2,615 reclassified from accumulated other comprehensive income to reduce interest expense through the 12 months ending September 30, 2023 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 September 30, 2022 and December 31, 2021, the Company pledged $0 and $4,500, respectively, of collateral to the counterparties in the form of cash on deposit. As of September 30, 2022 and December 31, 2021, the Company's counterparties pledged $32,390 and $0, 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.

Table of Contents

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 September 30, 2022 and December 31, 2021.


	September 30, 2022		December 31, 2021
Deferred tax assets:
Allowance for loan losses	$	6,202	$	7,176
Net unrealized losses on securities available for sale	36,790		1,701
Net unrealized losses on interest rate swaps	—		1,903
Lease liabilities	1,219		1,502
Accrued expenses	364		395
Restricted stock unit compensation	822		821
State net operating loss carryforward	1,401		1,276

Other	153		139
	46,951		14,913
Deferred tax liabilities:
Right-of-use assets	1,172		1,450
Net deferred loan fees and costs	246		247

Net unrealized gains on interest rate swaps	4,199		—
Premises and equipment	1,251		809
Other	355		312
	7,223		2,818
Net deferred tax assets before valuation allowance	39,728		12,095
Valuation allowance	(1,401)		(1,276)
Net deferred tax assets	$	38,327	$	10,819

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 2022 and thereafter.

In the second quarter of 2022, the Company recorded a one-time increase in state income tax expense related to the June 2022 enactment of changes in the Iowa bank franchise tax rates. This legislation reduces the Iowa bank franchise tax rate applied to apportioned income for 2023 and future years. This future reduction in the state tax rate required the Company to reduce net deferred tax assets as of June 30, 2022 by $671 and in turn caused the one-time increase in 2022 tax expense. The effective tax rate for the nine months ended September 30, 2022 was 22.18 percent. Excluding this one-time state tax expense, the effective tax rate for the nine months ended September 30, 2022 would have been 20.79 percent.

Table of Contents

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 nine months ended September 30, 2022 and 2021.


	Unrealized		Unrealized		Accumulated
	Gains		Gains		Other
	(Losses) on		(Losses) on		Comprehensive
	Securities		Derivatives		Income (Loss)
Balance, December 31, 2021	$	(5,021)	$	(5,616)	$	(10,637)
Other comprehensive income (loss) before reclassifications	(106,011)		17,486		(88,525)
Amounts reclassified from accumulated other comprehensive income	(11)		1,009		998
Net current period other comprehensive income (loss)	(106,022)		18,495		(87,527)
Balance, September 30, 2022	$	(111,043)	$	12,879	$	(98,164)

Balance, December 31, 2020	$	5,994	$	(17,840)	$	(11,846)
Other comprehensive income (loss) before reclassifications	(7,826)		4,340		(3,486)
Amounts reclassified from accumulated other comprehensive income	(38)		5,365		5,327
Net current period other comprehensive income (loss)	(7,864)		9,705		1,841
Balance, September 30, 2021	$	(1,870)	$	(8,135)	$	(10,005)

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's commitments consisted of the following amounts as of September 30, 2022 and December 31, 2021.


	September 30, 2022		December 31, 2021
Commitments to fund real estate construction loans	$	405,058	$	294,580
Other commitments to extend credit	697,725		585,678
Standby letters of credit	18,397		17,391
	$	1,121,180	$	897,649

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 $24,197 and $31,552 at September 30, 2022 and December 31, 2021, respectively.

Contractual commitments: The Company had remaining commitments to invest in qualified affordable housing projects totaling $3,707 and $3,986 as of September 30, 2022 and December 31, 2021, respectively.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

West Bank entered into a construction contract for the construction of a new headquarters building in West Des Moines, Iowa subsequent to quarter-end. 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 September 30, 2022, $1,499 has been paid under this construction contract.

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 nine months ended September 30, 2022.

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

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

Management obtains the fair value of securities at the end of each reporting period via a third-party pricing service. Management reviewed the valuation process used by the third party and believed the process was valid. 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.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis by level as of September 30, 2022 and December 31, 2021.


	September 30, 2022
	Total		Level 1		Level 2		Level 3
Financial assets:
Securities available for sale:
State and political subdivisions	$	185,118	$	—	$	185,118	$	—
Collateralized mortgage obligations	296,952		—		296,952		—
Mortgage-backed securities	141,234		—		141,234		—
Collateralized loan obligations	36,384		—		36,384		—
Corporate notes	12,064		—		12,064		—
Derivative instruments, interest rate swaps	33,222		—		33,222		—

Financial liabilities:
Derivative instruments, interest rate swaps	$	16,073	$	—	$	16,073	$	—


	December 31, 2021
	Total		Level 1		Level 2		Level 3
Financial assets:
Securities available for sale:
State and political subdivisions	$	232,447	$	—	$	232,447	$	—
Collateralized mortgage obligations	320,773		—		320,773		—
Mortgage-backed securities	155,060		—		155,060		—

Collateralized loan obligations	37,782		—		37,782		—
Corporate notes	12,760		—		12,760		—
Derivative instruments, interest rate swaps	3,887		—		3,887		—

Financial liabilities:
Derivative instruments, interest rate swaps	$	11,404	$	—	$	11,404	$	—

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). Impaired loans with a net book value of $6,099 for which a fair value adjustment was recorded were classified as Level 3 as of December 31, 2021. As of December 31, 2021, impaired loans with a carrying value of $8,599 were reduced by a specific reserve of $2,500, resulting in a reported fair value of $6,099. As of September 30, 2022, there were no loans for which a fair value adjustment was recorded.

In determining the estimated net realizable value of the underlying collateral of impaired 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 impaired loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of impaired loans to be highly sensitive to changes in market conditions.

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis.

Valuation Technique

Unobservable Inputs

Range (Weighted Average)

September 30, 2022

Impaired loans

—

December 31, 2021

Impaired loans

Appraisal of collateral

Appraisal adjustment

50%, including selling costs

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 September 30, 2022 and December 31, 2021.


	September 30, 2022
	Carrying Amount		Approximate Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	58,342	$	58,342	$	58,342	$	—	$	—
Federal funds sold	1,049		1,049		1,049		—		—
Securities available for sale	671,752		671,752		—		671,752		—
Federal Home Loan Bank stock	18,350		18,350		18,350		—		—
Loans, net	2,588,727		2,445,989		—		2,445,989		—
Accrued interest receivable	10,786		10,786		10,786		—		—
Interest rate swaps	33,222		33,222		—		33,222		—
Financial liabilities:
Deposits	$	2,822,847	$	2,822,099	$	—	$	2,822,099	$	—
Federal funds purchased	204,500		204,500		204,500		—		—
Subordinated notes, net	79,303		71,013		—		71,013		—
Federal Home Loan Bank advances	125,000		125,000		—		125,000		—
Long-term debt	51,486		51,486		—		51,486		—
Accrued interest payable	2,370		2,370		2,370		—		—
Interest rate swaps	16,073		16,073		—		16,073		—
Off-balance sheet financial instruments:
Commitments to extend credit	—		—		—		—		—
Standby letters of credit	—		—		—		—		—

Table of Contents

West Bancorporation, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

(dollars in thousands, except per share data)


	December 31, 2021
	Carrying Amount		Approximate Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	17,555	$	17,555	$	17,555	$	—	$	—
Federal funds sold	175,270		175,270		175,270		—		—
Securities available for sale	758,822		758,822		—		758,822		—
Federal Home Loan Bank stock	9,965		9,965		9,965		—		—
Loans, net	2,427,832		2,453,081		—		2,446,982		6,099
Accrued interest receivable	8,890		8,890		8,890		—		—
Interest rate swaps	3,887		3,887		—		3,887		—
Financial liabilities:
Deposits	$	3,016,005	$	3,016,305	$	—	$	3,016,305	$	—
Federal funds purchased	2,880		2,880		2,880		—		—
Subordinated notes, net	20,465		17,122		—		17,122		—
Federal Home Loan Bank advances	125,000		125,000		—		125,000		—
Long-term debt	51,521		51,521		—		51,521		—
Accrued interest payable	519		519		519		—		—
Interest rate swaps	11,404		11,404		—		11,404		—
Off-balance sheet financial instruments:
Commitments to extend credit	—		—		—		—		—
Standby letters of credit	—		—		—		—		—

10. Subordinated Notes

On June 14, 2022, the Company issued $60,000 of subordinated notes (the Notes). The Notes initially bear interest at 5.25 percent per annum, with interest payable semi-annually for the first five years of the Notes. Beginning June 15, 2027, the interest rate will reset quarterly to a floating rate per annum that is expected to be three-month term Secured Overnight Financing Rate (SOFR) plus 2.41 percent with payments due quarterly. The Company may redeem the Notes, in whole or in part, on and after June 15, 2027 at a price equal to 100 percent of the principal amount of the Notes being redeemed plus accrued and unpaid interest. The Notes will mature on June 15, 2032 if they are not earlier redeemed. Proceeds from this debt issuance were used to make a $58,650 capital injection into the Company's subsidiary, West Bank.

Table of Contents

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,” “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; competitive pressures, including from non-bank competitors such as "fintech" companies; pricing pressures on loans and deposits; 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 loan losses dictated by new market conditions, accounting standards (including as a result of the future implementation of the current expected credit loss (CECL) accounting standard) or regulatory requirements; changes in local, national and international economic conditions, including rising rates of inflation; changes in legal and regulatory requirements, limitations and costs; 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; developments and uncertainty related to the future use and availability of some reference rates, such as the London Interbank Offered Rate, as well as other alternative reference rates; changes to U.S. tax laws, regulations and guidance; talent and labor shortages; the new 1% 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, 2021, as filed with the SEC on February 24, 2022. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2021.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

NON-GAAP FINANCIAL MEASURES

This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the Company’s presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, the presentation of the efficiency ratio on an adjusted and FTE basis, excluding certain income and expenses, loans, net of PPP loans, and the presentation of the allowance for loan losses ratio, excluding PPP loans. 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 fully taxable equivalent basis, efficiency ratio on an adjusted and FTE basis, loans, net of PPP loans and allowance for loan losses ratio, excluding PPP loans to their most directly comparable measures under GAAP.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Reconciliation of net interest income and net interest margin on a FTE basis to GAAP:
Net interest income (GAAP)	$	23,004		$	24,486		$	71,071		$	70,457
Tax-equivalent adjustment (1)	270			306			925			805
Net interest income on a FTE basis (non-GAAP)	23,274			24,792			71,996			71,262
Average interest-earning assets	3,322,521			3,212,283			3,371,915			3,099,066
Net interest margin on a FTE basis (non-GAAP)	2.78		%	3.06		%	2.85		%	3.07		%

Reconciliation of efficiency ratio on an adjusted and FTE basis to GAAP:
Net interest income on a FTE basis (non-GAAP)	$	23,274		$	24,792		$	71,996		$	71,262
Noninterest income	3,276			2,401			7,943			7,381
Adjustment for realized securities gains, net	—			(11)			—			(51)
Adjustment for losses on disposal of premises and equipment, net	—			—			27			29
Adjusted income	26,550			27,182			79,966			78,621
Noninterest expense	11,458			10,712			33,386			31,509
Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2)	43.16		%	39.41		%	41.75		%	40.08		%

				September 30, 2022			December 31, 2021			September 30, 2021
Reconciliation of allowance for loan losses ratio, excluding PPP loans:
Loans outstanding (GAAP)				$	2,614,145		$	2,456,196		$	2,359,567
Less: PPP loans				(1,119)			(22,206)			(47,416)
Loans, net of PPP loans (non-GAAP)				2,613,026			2,433,990			2,312,151
Allowance for loan losses				25,418			28,364			28,098
Allowance for loan losses ratio, excluding PPP loans (non-GAAP) (3)				0.97		%	1.17		%	1.22		%

(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.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

(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.

(3) Management believes that presenting the allowance for loan losses as a percentage of total loans excluding PPP loans is useful in assessing the credit quality of the Company's core portfolio.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

OVERVIEW

The following discussion describes the consolidated operations and financial condition of the Company, West Bank and West Bank's special purpose subsidiaries (which are invested in new markets tax credit activities). Results of operations for the three and nine months ended September 30, 2022 are compared to the results for the same periods in 2021, and the consolidated financial condition of the Company as of September 30, 2022 is compared to that as of December 31, 2021. 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, 2021, filed with the SEC on February 24, 2022.

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 September 30, 2022 was $11,602, or $0.69 per diluted common share, compared to $12,706, or $0.76 per diluted common share, for the three months ended September 30, 2021. The Company's annualized return on average assets and return on average equity for the three months ended September 30, 2022 were 1.32 percent and 21.01 percent, respectively, compared to 1.52 percent and 20.02 percent, respectively, for the three months ended September 30, 2021.

The decrease in net income for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to a decrease in net interest income and an increase in salaries and employee benefits, partially offset by an increase in loan swap fees and a decrease in FDIC insurance expense.

Net interest income for the three months ended September 30, 2022 decreased $1,482, or 6.1 percent, compared to the three months ended September 30, 2021. The decrease in net interest income was primarily due to an increase in interest expense on deposits and borrowed funds due to rising interest rates, partially offset by an increase in interest income on securities and loans.

Noninterest income increased for the three months ended September 30, 2022 compared to the same period in 2021 due to loan swap fees earned in the third quarter of 2022. Noninterest expense increased $746 during the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to an increase in salaries and employee benefits and occupancy expense, partially offset by a decrease in FDIC insurance expense.

Net income for the nine months ended September 30, 2022 was $37,453, or $2.23 per diluted common share, compared to $37,697, or $2.25 per diluted common share, for the nine months ended September 30, 2021. The Company's annualized return on average assets and return on average equity for the nine months ended September 30, 2022 were 1.43 percent and 21.57 percent, respectively, compared to 1.56 percent and 20.98 percent, respectively, for the nine months ended September 30, 2021.

The decrease in net income for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to an increase in noninterest expense and income tax expense, partially offset by a larger negative provision for loan losses and increases in net interest income and noninterest income. Income tax expense for the nine months ended September 30, 2022 included a one-time increase in state income tax expense of $671 for the reduction in deferred tax assets upon the enactment of changes in the Iowa bank franchise tax rates.

Net interest income for the nine months ended September 30, 2022 grew $614, or 0.9 percent, compared to the nine months ended September 30, 2021. The increase in net interest income was primarily due to the increase in interest income on securities and loans and the decrease in interest expense on FHLB advances, partially offset by an increase in interest expense on deposits and other borrowings due to rising interest rates. The Company recorded a negative provision for loan losses of $2,500 during the nine months ended September 30, 2022, compared to a negative provision of $1,500 for the nine months ended September 30, 2021. The negative provision in 2021 was due to the improvement in economic conditions and removal of pandemic-related restrictions on businesses, in addition to lack of loan losses for the Company since the onset of the COVID-19 pandemic. The negative provision in 2022 was due to the reversal of a specific reserve on an impaired loan and the sustained performance of loans after the expiration of COVID modifications and continued improvement in classified loans.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Noninterest income increased for the nine months ended September 30, 2022 compared to the same period in 2021 due to the loan swap fees earned in the third quarter of 2022. Noninterest expense increased $1,877 during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to an increase in salaries and employee benefits expense, partially offset by a decrease in FDIC insurance expense.

Total loans outstanding increased $157,949, or 6.4 percent, during the first nine months of 2022. Excluding the impact of PPP loan activity, total loans outstanding increased $179,036, or 7.4 percent, during the first nine months of 2022. As of September 30, 2022, the allowance for loan losses was 0.97 percent of total outstanding loans, compared to 1.15 percent as of December 31, 2021. At September 30, 2022, the allowance for loan losses was 0.97 percent of total outstanding loans, excluding $1,119 of PPP loans (a non-GAAP financial measure), which are 100 percent guaranteed by the SBA, compared to 1.17 percent of outstanding loans, excluding $22,206 of PPP loans, as of December 31, 2021. Management believed the allowance for loan losses at September 30, 2022 was adequate to absorb any losses inherent in the loan portfolio as of that date.

On June 14, 2022, the Company issued $60,000 of subordinated notes. The net proceeds were used to make a capital injection into West Bank.

On a quarterly basis, the Company compares three key performance metrics to those of our identified peer group. The peer group for 2022 consists of 19 Midwestern, publicly traded financial institutions including Bank First Corporation, 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., 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. Level One Bancorp, Inc., previously included in the peer group, was acquired in April 2022. 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 nine months ended September 30, 2022	As of and for the six months ended June 30, 2022	As of and for the six months ended June 30, 2022
Return on average equity	21.57%	21.83%	9.41% - 16.90%
Efficiency ratio(1)	41.75%	41.05%	43.14% - 65.65%
Nonperforming assets to total assets	0.01%	0.01%	0.10% - 1.11%

(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 October 26, 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per common share. The dividend is payable on November 23, 2022, to stockholders of record on November 9, 2022.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

RESULTS OF OPERATIONS

The following table shows selected financial results and measures for the three and nine months ended September 30, 2022 compared with the same periods in 2021.


	Three Months Ended September 30,											Nine Months Ended September 30,
	2022			2021			Change			Change %		2022			2021			Change			Change %
Net income	$	11,602		$	12,706		$	(1,104)		(8.69)	%	$	37,453		$	37,697		$	(244)		(0.65)	%
Average assets	3,475,894			3,325,522			150,372			4.52	%	3,507,796			3,220,687			287,109			8.91	%
Average stockholders' equity	219,065			251,770			(32,705)			(12.99)	%	232,177			240,235			(8,058)			(3.35)	%

Return on average assets	1.32		%	1.52		%	(0.20)		%			1.43		%	1.56		%	(0.13)		%
Return on average equity	21.01		%	20.02		%	0.99		%			21.57		%	20.98		%	0.59		%
Net interest margin (1)	2.78		%	3.06		%	(0.28)		%			2.85		%	3.07		%	(0.22)		%
Efficiency ratio (1) (2)	43.16		%	39.41		%	3.75		%			41.75		%	40.08		%	1.67		%
Dividend payout ratio	35.86		%	31.27		%	4.59		%			33.27		%	30.69		%	2.58		%
Average equity to average assets ratio	6.30		%	7.57		%	(1.27)		%			6.62		%	7.46		%	(0.84)		%

												As of September 30,
												2022			2021			Change
Nonperforming assets to total assets (2)												0.01		%	0.28		%	(0.27)		%
Equity to assets ratio												5.65		%	7.77		%	(2.12)		%
Tangible common equity ratio												5.65		%	7.77		%	(2.12)		%

(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.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Net Interest Income

The following tables present 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 September 30:

	Average Balance								Interest Income/Expense								Yield/Rate
	2022		2021		Change		Change- %		2022		2021		Change		Change- %		2022		2021		Change
Interest-earning assets:
Loans: (1) (2)
Commercial	$	498,268	$	496,485	$	1,783	0.36	%	$	6,144	$	5,687	$	457	8.04	%	4.89	%	4.54	%	0.35	%
Real estate (3)	2,074,692		1,837,251		237,441		12.92	%	21,981		18,632		3,349		17.97	%	4.20	%	4.02	%	0.18	%
Consumer and other	6,902		3,619		3,283		90.72	%	86		39		47		120.51	%	5.01	%	4.30	%	0.71	%
Total loans	2,579,862		2,337,355		242,507		10.38	%	28,211		24,358		3,853		15.82	%	4.34	%	4.13	%	0.21	%

Securities:
Taxable	584,721		506,746		77,975		15.39	%	3,147		2,412		735		30.47	%	2.15	%	1.90	%	0.25	%
Tax-exempt (3)	153,187		155,806		(2,619)		(1.68)	%	1,051		940		111		11.81	%	2.74	%	2.41	%	0.33	%
Total securities	737,908		662,552		75,356		11.37	%	4,198		3,352		846		25.24	%	2.28	%	2.02	%	0.26	%

Federal funds sold	4,751		212,376		(207,625)		(97.76)	%	30		82		(52)		(63.41)	%	2.51	%	0.15	%	2.36	%
Total interest-earning assets (3)	$	3,322,521	$	3,212,283	$	110,238	3.43	%	32,439		27,792		4,647		16.72	%	3.87	%	3.43	%	0.44	%

Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	476,145	$	490,653	$	(14,508)	(2.96)	%	679		208		471		226.44	%	0.57	%	0.17	%	0.40	%
Savings and money market	1,327,935		1,444,633		(116,698)		(8.08)	%	4,461		1,452		3,009		207.23	%	1.33	%	0.40	%	0.93	%
Time deposits	343,862		210,465		133,397		63.38	%	1,149		361		788		218.28	%	1.33	%	0.68	%	0.65	%
Total deposits	2,147,942		2,145,751		2,191		0.10	%	6,289		2,021		4,268		211.18	%	1.16	%	0.37	%	0.79	%
Borrowed Funds:
Federal funds purchased	105,431		5,069		$	100,362	1,979.92	%	655		2		653		32,650.00	%	2.46	%	0.12	%	2.34	%
Subordinated notes, net	79,285		20,460		58,825		287.51	%	1,106		254		852		335.43	%	5.54	%	4.93	%	0.61	%
Federal Home Loan Bank
advances	125,000		125,000		—		—	%	649		656		(7)		(1.07)	%	2.06	%	2.08	%	(0.02)	%
Long-term debt	51,486		18,654		32,832		176.01	%	466		66		400		606.06	%	3.60	%	1.40	%	2.20	%
Total borrowed funds	361,202		169,183		192,019		113.50	%	2,876		978		1,898		194.07	%	3.16	%	2.29	%	0.87	%
Total interest-bearing
liabilities	$	2,509,144	$	2,314,934	$	194,210	8.39	%	9,165		2,999		8,064		205.60	%	1.45	%	0.51	%	0.94	%

Net interest income (FTE) (4)									$	23,274	$	24,793	$	(1,519)	(6.13)	%
Net interest spread (FTE)																	2.42	%	2.92	%	(0.50)	%
Net interest margin (FTE) (4)																	2.78	%	3.06	%	(0.28)	%

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)


Data for the nine months ended September 30:

	Average Balance								Interest Income/Expense								Yield/Rate
	2022		2021		Change		Change- %		2022		2021		Change		Change- %		2022		2021		Change
Interest-earning assets:
Loans: (1) (2)
Commercial	$	479,723	$	538,579	$	(58,856)	(10.93)	%	$	15,751	$	17,880	$	(2,129)	(11.91)	%	4.39	%	4.44	%	(0.05)	%
Real estate (3)	2,037,779		1,764,285		273,494		15.50	%	60,678		53,712		6,966		12.97	%	3.98	%	4.07	%	(0.09)	%
Consumer and other	5,154		4,365		789		18.08	%	173		146		27		18.49	%	4.50	%	4.48	%	0.02	%
Total loans	2,522,656		2,307,229		215,427		9.34	%	76,602		71,738		4,864		6.78	%	4.06	%	4.16	%	(0.10)	%

Securities:
Taxable	611,647		403,873		207,774		51.45	%	9,126		5,952		3,174		53.33	%	1.99	%	1.96	%	0.03	%
Tax-exempt (3)	160,226		133,074		27,152		20.40	%	3,199		2,506		693		27.65	%	2.66	%	2.51	%	0.15	%
Total securities	771,873		536,947		234,926		43.75	%	12,325		8,458		3,867		45.72	%	2.13	%	2.10	%	0.03	%

Federal funds sold	77,386		254,890		(177,504)		(69.64)	%	179		226		(47)		(20.80)	%	0.31	%	0.12	%	0.19	%
Total interest-earning assets (3)	$	3,371,915	$	3,099,066	$	272,849	8.80	%	89,106		80,422		8,684		10.80	%	3.53	%	3.47	%	0.06	%

Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	513,106	$	471,781	$	41,325	8.76	%	1,253		561		692		123.35	%	0.33	%	0.16	%	0.17	%
Savings and money market	1,505,834		1,369,861		135,973		9.93	%	8,520		4,119		4,401		106.85	%	0.76	%	0.40	%	0.36	%
Time deposits	248,628		212,967		35,661		16.74	%	1,813		1,213		600		49.46	%	0.97	%	0.76	%	0.21	%
Total deposits	2,267,568		2,054,609		212,959		10.36	%	11,586		5,893		5,693		96.61	%	0.68	%	0.38	%	0.30	%
Borrowed funds:
Federal funds purchased	50,796		4,850		45,946		947.34	%	812		4		808		20,200.00	%	2.14	%	0.11	%	2.03	%
Subordinated notes, net	43,955		20,457		23,498		114.87	%	1,748		754		994		131.83	%	5.32	%	4.93	%	0.39	%
Federal Home Loan Bank
advances	125,000		145,421		(20,421)		(14.04)	%	1,914		2,288		(374)		(16.35)	%	2.05	%	2.10	%	(0.05)	%
Long-term debt	51,490		20,104		31,386		156.12	%	1,050		220		830		377.27	%	2.73	%	1.46	%	1.27	%
Total borrowed funds	271,241		190,832		80,409		42.14	%	5,524		3,266		2,258		69.14	%	2.72	%	2.29	%	0.43	%
Total interest-bearing
liabilities	$	2,538,809	$	2,245,441	$	293,368	13.07	%	17,110		9,159		7,951		86.81	%	0.90	%	0.55	%	0.35	%

Net interest income (FTE) (4)									$	71,996	$	71,263	$	733	1.03	%
Net interest spread (FTE)																	2.63	%	2.92	%	(0.29)	%
Net interest margin (FTE) (4)																	2.85	%	3.07	%	(0.22)	%

(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.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

The Company's largest component of net income is net interest income, which is the difference between interest earned on interest-earning assets, consisting primarily of loans and securities, and interest paid on interest-bearing liabilities, consisting of deposits and borrowings. Fluctuations in net interest income can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are 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 300 basis points during the first nine months of 2022 and is expected to continue to raise the target federal funds rate into 2023. These increases have had an impact on the Company's net interest income and net interest margin and will impact the comparability of net interest income between 2022 and 2021.

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 and nine months ended September 30, 2022 decreased by 28 and 22 basis points, respectively, compared to the three and nine months ended September 30, 2021. The primary driver of the decrease in the net interest margin was an increase in rates paid on deposits and borrowed funds and an increase in average borrowed funds balances. Tax-equivalent net interest income decreased $1,519 for the three months ended September 30, 2022 compared to the same time period in 2021. The decrease in net interest income for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was primarily due to the increase in the average borrowed funds balances and increases in rates paid on deposits and borrowed funds, partially offset by increases in loans and securities average balances and yields on loans and securities. The increase in net interest income for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to increases in loans and securities average balances, partially offset by increases in average balances and rates paid on deposits and borrowed funds.

Tax-equivalent interest income on loans increased $3,853 and $4,864 for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. This increase in interest income was primarily driven by the increase in the average balance of commercial real estate loans and, for the three months ended September 30, 2022 compared to the same period in 2021, the increase in loan yields. The comparability of net interest income and net interest margin between 2022 and 2021 is impacted by the interest income from PPP loans, which is included in commercial loans. Included in commercial loans were PPP loans with interest income of $101 and $1,590 and yields of 17.89 percent and 9.28 percent for the three months ended September 30, 2022 and September 30, 2021, respectively. PPP loan interest income was $753 and $5,819 with yields of 14.02 percent and 6.46 percent for the nine months ended September 30, 2022 and September 30, 2021, respectively. Exclusive of the PPP loans, the yield on loans was 4.33 percent and 3.98 percent for the three months ended September 30, 2022 and September 30, 2021, respectively, and 4.03 percent for both the nine months ended September 30, 2022 and September 30, 2021.

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 increased $2,191 and $212,959 for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021. The rates paid on deposits increased 79 and 30 basis points for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The increases in the cost of deposits were primarily due to changes in deposit mix, and increases in certain deposit rates in response to the increases in the target federal funds rate and market interest rate competition. The cost of deposits could increase further in a rising rate environment.

The average balance of borrowed funds increased $192,019 and $80,409 for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The Company increased variable-rate long-term debt by $34,500 in December 2021 and issued subordinated debt of $60,000 in June 2022. Average balances of federal funds purchased increased $100,362 and $45,946 for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The average rate paid on borrowed funds increased 87 and 43 basis points for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The cost of borrowed funds may continue to increase as the variable rate on long-term debt and federal funds purchased may increase if market rates continue to increase.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

In the first nine months of 2022, the Federal Reserve increased the target federal funds rate by a total of 300 basis points, and it is expected to make additional rate increases into 2023. These rate increases could improve reinvestment rates on loans and securities, but also increase the Company's cost of deposits and borrowed funds and increase the unrealized losses in the Company's securities portfolio.

Provision for Loan Losses and the Related Allowance for Loan Losses

The provision for loan losses represents a charge made to earnings to maintain an adequate allowance for loan losses. The adequacy of the allowance for loan losses is evaluated quarterly by management and reviewed by the Board of Directors. The allowance for loan losses is management's best estimate of probable losses inherent in the loan portfolio as of the balance sheet date. There was no provision for loan losses for the three months ended September 30, 2022 and September 30, 2021. The negative provisions for loan losses were $2,500 for the nine months ended September 30, 2022, compared to negative provisions of $1,500 for the nine months ended September 30, 2021. The negative provisions recorded in 2021 were due to improvements in economic conditions and removal of pandemic-related restrictions for businesses, in addition to lack of loan losses for the Company since the onset of the COVID-19 pandemic. The negative provisions in 2022 were due to the sustained performance of loans after the expiration of the COVID modifications, continued improvement in classified loans and the reversal of a specific reserve on an impaired loan. The impaired loan, which had a specific reserve of $2,500, was settled in the second quarter of 2022 resulting in a charge-off of $451.

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 loan losses. Such agencies may require West Bank to recognize additional charge-offs or provision for loan losses based on such agencies' review of information available to them at the time of their examinations.

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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 loan losses for the three and nine months ended September 30, 2022 and 2021 and related ratios.


	Three Months Ended September 30,								Nine Months Ended September 30,
	2022			2021			Change		2022			2021			Change
Balance at beginning of period	$	25,434		$	28,042		$	(2,608)	$	28,364		$	29,436		$	(1,072)
Charge-offs	(31)			—			(31)		(482)			—			(482)
Recoveries	15			56			(41)		36			162			(126)
Net (charge-offs) recoveries	(16)			56			(72)		(446)			162			(608)
Provision for loan losses charged (credited) to operations	—			—			—		(2,500)			(1,500)			(1,000)
Balance at end of period	$	25,418		$	28,098		$	(2,680)	$	25,418		$	28,098		$	(2,680)

Average loans outstanding	$	2,579,862		$	2,337,355				$	2,522,656		$	2,307,229

Ratio of annualized net (charge-offs) recoveries during the period to average loans outstanding	0.00		%	0.01		%			(0.02)		%	0.01		%

Ratio of allowance for loan losses to average loans outstanding	0.99		%	1.20		%			1.01		%	1.22		%

Ratio of allowance for loan losses to total loans at end of period	0.97		%	1.19		%			0.97		%	1.19		%

Ratio of allowance for loan losses to total loans at end of period, excluding PPP loans(1)	0.97		%	1.22		%			0.97		%	1.22		%

(1) A non-GAAP financial measure. For further information, refer to the Non-GAAP Financial Measures section of this report.

The U.S. economy continues to be affected by 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, inflationary trends, continuing supply chain issues and labor shortages, wage pressures, and expectations 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 300 basis points in the first nine months of 2022. It is expected that additional rate increases will occur into 2023. The Company decreased certain qualitative factors used in the allowance for loan losses evaluation in the first nine months of 2022 based upon the sustained performance of loans after the expiration of COVID modifications and continued improvement in classified loans, no past due loans over 30 days, and the settlement of an impaired loan in June 2022 that previously had a $2,500 specific reserve. This resulted in a negative provision for the nine months ended September 30, 2022. Management believes the resulting allowance for loan losses as of September 30, 2022 was adequate to absorb any losses inherent in the loan portfolio at the end of the quarter.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Noninterest Income

The following tables show the variance from the prior year in the noninterest income categories shown in the Consolidated Statements of Income.


	Three Months Ended September 30,
Noninterest income:	2022		2021		Change		Change %
Service charges on deposit accounts	$	553	$	589	$	(36)	(6.11)	%
Debit card usage fees	498		490		8		1.63	%
Trust services	780		695		85		12.23	%
Increase in cash value of bank-owned life insurance	246		230		16		6.96	%
Loan swap fees	835		—		835		N/A
Realized securities gains, net	—		11		(11)		(100.00)	%
Other income:
All other income	364		386		(22)		(5.70)	%
Total other income	364		386		(22)		(5.70)	%
Total noninterest income	$	3,276	$	2,401	$	875	36.44	%

	Nine Months Ended September 30,
Noninterest income:	2022		2021		Change		Change %
Service charges on deposit accounts	$	1,718	$	1,749	$	(31)	(1.77)	%
Debit card usage fees	1,477		1,443		34		2.36	%
Trust services	2,031		2,038		(7)		(0.34)	%
Increase in cash value of bank-owned life insurance	709		690		19		2.75	%
Loan swap fees	835		42		793		1,888.10	%
Realized securities gains, net	—		51		(51)		(100.00)	%
Other income:
All other income	1,173		1,368		(195)		(14.25)	%
Total other income	1,173		1,368		(195)		(14.25)	%
Total noninterest income	$	7,943	$	7,381	$	562	7.61	%

The increase in noninterest income for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 was primarily due to loan swap fees of $835 earned in the third quarter of 2022. Additionally, revenue from trust services increased for the three months ended September 30, 2022 when compared to the same period in 2021, primarily due to one-time estate fees earned in 2022. The decrease in other income for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to the recognition of net swap termination gains totaling $181 in March 2021. Interest rate swaps with a total notional amount of $150,000 were terminated and the pre-tax gains and losses were recorded in other noninterest income. Refer to Note 5 to the financial statements for additional information.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Noninterest Expense

The following tables show the variance from the prior year in the noninterest expense categories shown in the Consolidated Statements of Income. In addition, accounts within the “other expenses” category that represent a significant portion of the total or a significant variance are shown below.


	Three Months Ended September 30,
Noninterest expense:	2022		2021		Change		Change %
Salaries and employee benefits	$	6,578	$	6,018	$	560	9.31	%
Occupancy	1,315		1,203		112		9.31	%
Data processing	644		616		28		4.55	%
FDIC insurance	127		528		(401)		(75.95)	%
Professional fees	250		212		38		17.92	%
Director fees	209		176		33		18.75	%
Other expenses:
Subscriptions and service contracts	651		424		227		53.54	%
Business development	305		229		76		33.19	%
Insurance expense	198		127		71		55.91	%
Trust	137		181		(44)		(24.31)	%
Consulting fees	66		70		(4)		(5.71)	%
Marketing	60		54		6		11.11	%
Charitable contributions	—		60		(60)		(100.00)	%
Low income housing projects amortization	116		203		(87)		(42.86)	%
New markets tax credit project amortization and management fees	230		230		—		—	%
All other	572		381		191		50.13	%
Total other expenses	2,335		1,959		376		19.19	%
Total noninterest expense	$	11,458	$	10,712	$	746	6.96	%

	Nine Months Ended September 30,
Noninterest expense:	2022		2021		Change		Change %
Salaries and employee benefits	$	19,286	$	17,298	$	1,988	11.49	%
Occupancy	3,643		3,630		13		0.36	%
Data processing	1,924		1,835		89		4.85	%
FDIC insurance	753		1,358		(605)		(44.55)	%
Professional fees	669		763		(94)		(12.32)	%
Director fees	599		581		18		3.10	%
Other expenses:
Subscriptions and service contracts	1,619		1,269		350		27.58	%
Business development	832		676		156		23.08	%
Insurance expense	505		371		134		36.12	%
Trust	412		459		(47)		(10.24)	%
Consulting fees	241		223		18		8.07	%
Marketing	184		156		28		17.95	%
Charitable contributions	—		180		(180)		(100.00)	%
Low income housing projects amortization	388		529		(141)		(26.65)	%
New markets tax credit project amortization and management fees	689		689		—		—	%
All other	1,642		1,492		150		10.05	%
Total other expenses	6,512		6,044		468		7.74	%
Total noninterest expense	$	33,386	$	31,509	$	1,877	5.96	%

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Salaries and employee benefits increased for the three and nine months ended September 30, 2022 when compared to the three and nine months ended September 30, 2021, primarily due to an increase in expense related to restricted stock units, the addition of five commercial bankers from third quarter of 2021 through the third quarter of 2022, and normal operating increases. FDIC insurance expense decreased during the three and nine months ended September 30, 2022 when compared to the same time periods in 2021 primarily due to reductions in the assessment rate resulting from capital injections into the Bank in December 2021 and June 2022. Occupancy expense increased for the three months ended September 30, 2022 compared to the same period in 2021 primarily due to the increase in depreciation expense related to the new building in St. Cloud, Minnesota.

Subscriptions and service contracts increased for the three and nine months ended September 30, 2022 when compared to the same time periods in 2021, primarily due to increases in information technology and information security solutions. Business development expenses increased in 2022 as business development efforts have normalized following the initial period of the pandemic with increased in-person activities, and the addition of five commercial bankers.

Income Tax Expense

The Company recorded income tax expense of $3,220 (21.7 percent of pre-tax income) and $10,675 (22.2 percent of pre-tax income) for the three and nine months ended September 30, 2022, compared with $3,469 (21.4 percent of pre-tax income) and $10,132 (21.2 percent of pre-tax income) for the three and nine months ended September 30, 2021. The Company's consolidated income tax rate differs from the federal statutory income tax rate in each period, primarily due to tax-exempt interest income, the tax-exempt increase in cash value of bank-owned life insurance, disallowed interest expense, and state income taxes. For the nine months ended September 30, 2022, income tax expense included a one-time increase in state income tax expense related to the June 2022 enactment of changes in the Iowa bank franchise tax rates. This legislation reduces the Iowa bank franchise tax rate applied to apportioned income for 2023 and future years. This future reduction in the state tax rate required the Company to reduce net deferred tax assets by $671 and in turn caused the one-time increase in 2022 tax expense.

Additionally, for the nine months ended September 30, 2022 and 2021, a tax benefit of $385 and $233, 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 nine months of 2022 and 2021 were also impacted by year-to-date federal low income housing tax credits and a new markets tax credit of approximately $1,101 and $1,026, respectively.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

FINANCIAL CONDITION

The Company had total assets of $3,517,517 as of September 30, 2022, compared to total assets of $3,500,201 as of December 31, 2021. Fluctuations in the balance sheet included increases in loans, deferred tax assets, other assets, federal funds purchased and subordinated debt and decreases in federal funds sold, securities and deposits.

Securities

Securities available for sale decreased by $87,070 during the nine months ended September 30, 2022. In the first three months of 2022, the Company purchased securities to improve the yield on excess liquidity while monitoring duration and interest rate risk. The impact of these purchases was offset by principal paydowns and the change in the fair value of the portfolio, which declined $141,629 in the first nine months of 2022. The decline in fair value was the result of increases in market interest rates and is not an indication of declining credit quality. These unrealized losses are recorded in accumulated other comprehensive loss, net of tax. Future increases in market interest rates could result in a further increase of the unrealized losses in the securities portfolio.

As of September 30, 2022, approximately 65 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities. Management currently believes these securities provide acceptable yields, have little to no credit risk and provide fairly consistent cash flows.

Loans and Nonperforming Assets

Loans outstanding increased $157,949 from $2,456,196 as of December 31, 2021 to $2,614,145 as of September 30, 2022. Changes in the loan portfolio during the first nine months of 2022 included increases of $131,689 in commercial real estate loans and $33,521 in commercial loans and a decrease of $17,709 in construction, land and land development loans. Included in the change in commercial loans was a decline of $21,087 in PPP loans. As of September 30, 2022, PPP loans outstanding totaled $1,119. The Company continues to focus on business development efforts in all of its markets. Exclusive of PPP loans, loan growth in the first nine months of 2022 was $179,036, or 7.4 percent.

In accordance with regulatory guidelines, the Company exercises heightened risk management practices when non-owner occupied commercial real estate lending exceeds 300 percent of total risk-based capital or construction, land development, and other land loans exceed 100 percent of total risk-based capital. Although the Company's loan portfolio is heavily concentrated in real estate and its real estate portfolio levels exceed these regulatory guidelines, it has established risk management policies and procedures to regularly monitor the commercial real estate portfolio. An analysis of the Company's non-owner occupied commercial real estate portfolio as of December 31, 2021 was presented in the Company's Form 10-K filed with the SEC on February 24, 2022, and the Company has not experienced any material changes to that portfolio since December 31, 2021.

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.


	September 30, 2022			December 31, 2021			Change
Nonaccrual loans	$	329		$	8,948		$	(8,619)
Loans past due 90 days and still accruing interest	—			—			—
Troubled debt restructured loans (1)	—			—			—
Total nonperforming loans	329			8,948			(8,619)
Other real estate owned	—			—			—
Total nonperforming assets	$	329		$	8,948		$	(8,619)

Nonperforming loans to total loans	0.01		%	0.36		%	(0.35)		%
Nonperforming assets to total assets	0.01		%	0.26		%	(0.25)		%

(1)While TDR loans are commonly reported by the industry as nonperforming, those not classified in the nonaccrual category are accruing interest due to payment performance. TDR loans on nonaccrual status are categorized as nonaccrual. There were no TDR loans categorized as nonaccrual as of September 30, 2022. There were six TDR loans related to one borrower as of December 31, 2021, categorized as nonaccrual.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

Premises and Equipment

The Company completed construction of a new office for its St. Cloud, Minnesota branch which opened in March 2022. At that time, the previously leased location was vacated. Additionally, 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 of a new office in Mankato, Minnesota began in the first quarter of 2022.

Deposits

Deposits decreased $193,158 during the first nine months of 2022. 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. The decline in deposit balances was not due to the loss of significant customer relationships, but was primarily attributable to customers using their own liquidity to fund business transactions, instead of using debt, and customers seeking higher yielding investment options. A large corporate customer completed significant business transactions during 2022 that were funded by existing cash balances, accounting for a significant portion of the decrease in deposits. Also, large depositors who had accumulated excess discretionary balances sought higher yields in Treasury securities and other investment options primarily as a result of the sharp increase in shorter term interest rates.

At September 30, 2022, the Company had $258,080 in brokered deposits, compared to $130,032 at December 31, 2021. Brokered deposits included fixed-rate deposits with terms through September 2024 and variable-rate deposits with terms through February 2024.

Subordinated Debt

On June 14, 2022, the Company issued $60,000 of subordinated notes (the Notes). The Notes initially bear interest at 5.25 percent per annum, with interest payable semi-annually for the first five years of the Notes. Beginning June 15, 2027, the interest rate will reset quarterly to a floating rate per annum that is expected to be three-month term Secured Overnight Financing Rate (SOFR) plus 2.41 percent, with payments due quarterly. The Company may redeem the Notes, in whole or in part, on and after June 15, 2027 at a price equal to 100 percent of the principal amount of the Notes being redeemed plus accrued and unpaid interest. The Notes will mature on June 15, 2032 if they are not earlier redeemed. Proceeds from this debt issuance were used to make a $58,650 capital injection into West Bank, the Company's subsidiary.

Derivatives

At September 30, 2022 and December 31, 2021, the Company had interest rate swap contracts associated with loans, borrowed funds and deposits with a total notional amount of $535,733 and $427,008, respectively. The fair values of these derivative contracts are reported in other assets or other liabilities on the balance sheet. Changes in the fair values of the interest rate swap contracts resulted in a $29,335 increase in other assets and a $4,669 increase in other liabilities from December 31, 2021 to September 30, 2022 due to changes in forecasted yield curves.

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 collateralized mortgage obligations and mortgage-backed securities, federal funds purchased, advances from the FHLB, 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 $59,391 as of September 30, 2022 compared with $192,825 as of December 31, 2021.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

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 corporate customers' and municipal customers' own liquidity needs. The Company may utilize 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 September 30, 2022, the Company had $258,080 in brokered deposits, which included fixed-rate deposits with terms through September 2024 and variable-rate deposits with terms through February 2024.

As of September 30, 2022, West Bank had additional borrowing capacity available from the FHLB of approximately $430,000, as well as approximately $4,000 through the Federal Reserve discount window and $67,000 through unsecured federal funds lines of credit with correspondent banks. Net cash from operating activities contributed $48,921 to liquidity for the nine months ended September 30, 2022. Management believed that the combination of high levels of potentially liquid assets, 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 $3,707 and $3,986 as of September 30, 2022 and December 31, 2021, respectively.

West Bank has entered into a construction contract 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 September 30, 2022, $1,499 has been paid under this construction contract.

Capital

The Company's total stockholders' equity decreased to $198,764 at September 30, 2022 from $260,328 at December 31, 2021. The decrease was primarily the result of the increase in accumulated other comprehensive loss, partially offset by net income less dividends paid. At September 30, 2022, the Company's tangible common equity as a percent of tangible assets was 5.65 percent compared to 7.44 percent as of December 31, 2021. The increase in accumulated other comprehensive loss is primarily the result of the negative effect that rising interest rates have had on the unrealized market value adjustment of our available for sale investment portfolio. While accumulated other comprehensive losses reduce tangible common equity, they have no impact on regulatory capital.

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 September 30, 2022.

Table of Contents

West Bancorporation, Inc.

Management's Discussion and Analysis

(in thousands, except share and per share data)

The Company's and West Bank's capital amounts and ratios are presented in the following table.


	Actual				For Capital Adequacy Purposes				For Capital Adequacy Purposes With Capital Conservation Buffer				To Be Well-Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2022:
Total Capital (to Risk-Weighted Assets)
Consolidated	$	402,346	12.34	%	$	260,881	8.00	%	$	342,407	10.50	%	$	326,102	10.00	%
West Bank	436,158		13.38	%	260,716		8.00	%	342,189		10.50	%	325,894		10.00	%

Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	316,928		9.72	%	195,661		6.00	%	277,187		8.50	%	260,881		8.00	%
West Bank	410,740		12.60	%	195,537		6.00	%	277,010		8.50	%	260,716		8.00	%

Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	296,928		9.11	%	146,746		4.50	%	228,271		7.00	%	211,966		6.50	%
West Bank	410,740		12.60	%	146,652		4.50	%	228,126		7.00	%	211,831		6.50	%

Tier 1 Capital (to Average Assets)
Consolidated	316,928		8.85	%	143,286		4.00	%	143,286		4.00	%	179,108		5.00	%
West Bank	410,740		11.47	%	143,221		4.00	%	143,221		4.00	%	179,026		5.00	%

As of December 31, 2021:
Total Capital (to Risk-Weighted Assets)
Consolidated	$	319,329	10.89	%	$	234,670	8.00	%	$	308,004	10.50	%	$	293,337	10.00	%
West Bank	354,846		12.10	%	234,621		8.00	%	307,941		10.50	%	293,277		10.00	%

Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	290,965		9.92	%	176,002		6.00	%	249,337		8.50	%	234,670		8.00	%
West Bank	326,482		11.13	%	175,966		6.00	%	249,284		8.50	%	234,621		8.00	%

Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	270,965		9.24	%	132,002		4.50	%	205,336		7.00	%	190,669		6.50	%
West Bank	326,482		11.13	%	131,975		4.50	%	205,294		7.00	%	190,630		6.50	%

Tier 1 Capital (to Average Assets)
Consolidated	290,965		8.49	%	137,065		4.00	%	137,065		4.00	%	171,331		5.00	%
West Bank	326,482		9.53	%	137,011		4.00	%	137,011		4.00	%	171,264		5.00	%

The Company and West Bank are subject to a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. A banking organization with a capital conservation buffer of less than the required amount will be subject to limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers. At September 30, 2022, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer.

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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 net interest income in each scenario is based on parallel and permanent changes in the interest rates.



Scenario			% Change
300 basis points rising			(5.87)%
200 basis points rising			(3.95)%
100 basis points rising			(2.15)%
Base			—
100 basis points falling			2.08%

As of September 30, 2022, the estimated effect of a 300 basis point increase in interest rates would be a decrease of the Company’s net interest income by approximately 5.87 percent, or $5,440 over the twelve months ended September 30, 2023.

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 values 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. 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 24, 2022.

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:


Exhibits			Description
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			Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2			Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			Inline 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.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover 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)


October 27, 2022	By:	/s/ David D. Nelson
Date		David D. Nelson
		Chief Executive Officer and President
		(Principal Executive Officer)

October 27, 2022	By:	/s/ Jane M. Funk
Date		Jane M. Funk
		Executive Vice President, Treasurer and Chief Financial Officer
		(Principal Financial and Accounting Officer)