Companies: 10,793     total market cap: $139.375 T
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West Bancorporation
WTBA
#7484
Rank
$0.42 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$25.14
Share price
-1.14%
Change (1 day)
40.92%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. West Bancorporation
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q2

West Bancorporation - 10-Q quarterly report FY2022 Q2


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

FORM 10-Q

(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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)
Iowa42-1230603
(State of Incorporation)(I.R.S. Employer Identification No.)
1601 22nd Street, West Des Moines, Iowa
50266
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:  (515) 222-2300

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

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

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

Yes  ☒                      No  ☐

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

Yes  ☒                      No  o

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐                      No  ☒

As of July 27, 2022, there were 16,640,413 shares of common stock, no par value, outstanding.


WEST BANCORPORATION, INC.
INDEX
Page
PART I.
Item 1.
4
4
5
Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2022 and 2021
6
Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2022 and 2021
7
9
10
Item 2.
31
31
31
32
34
36
45
Item 3.
49
Item 4.
49
PART II.
Item 1.
50
Item 1A.
50
Item 2.
50
Item 3.
50
Item 4.
50
Item 5.
50
Item 6.
51
52
3

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


(in thousands, except share and per share data)June 30, 2022December 31, 2021
ASSETS
Cash and due from banks$26,174 $17,555 
Federal funds sold766 175,270 
Cash and cash equivalents26,940 192,825 
Securities available for sale, at fair value731,970 758,822 
Federal Home Loan Bank stock, at cost15,532 9,965 
Loans2,573,129 2,456,196 
Allowance for loan losses(25,434)(28,364)
Loans, net2,547,695 2,427,832 
Premises and equipment, net41,807 34,568 
Accrued interest receivable9,363 8,890 
Bank-owned life insurance44,072 43,609 
Deferred tax assets, net29,861 10,819 
Other assets27,551 12,871 
Total assets$3,474,791 $3,500,201 
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand$690,335 $720,136 
Interest-bearing demand472,919 548,242 
Savings1,360,020 1,550,636 
Time of $250 or more87,086 53,019 
Other time232,091 143,972 
Total deposits2,842,451 3,016,005 
Federal funds purchased133,000 2,880 
Subordinated notes, net79,265 20,465 
Federal Home Loan Bank advances125,000 125,000 
Long-term debt51,486 51,521 
Accrued expenses and other liabilities27,400 24,002 
Total liabilities3,258,602 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 June 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 June 30, 2022
    and December 31, 2021, respectively
3,000 3,000 
Additional paid-in capital30,283 30,183 
Retained earnings255,334 237,782 
Accumulated other comprehensive loss(72,428)(10,637)
Total stockholders' equity216,189 260,328 
Total liabilities and stockholders' equity$3,474,791 $3,500,201 

See Notes to Consolidated Financial Statements.
4



West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Income
(unaudited)
 Three Months Ended June 30,Six Months Ended June 30,
(in thousands, except per share data)2022202120222021
Interest income:
Loans, including fees$24,848 $23,139 $48,134 $47,177 
Securities:
Taxable3,090 1,895 5,979 3,540 
Tax-exempt892 712 1,750 1,270 
Federal funds sold 67 75 149 144 
Total interest income28,897 25,821 56,012 52,131 
Interest expense:  
Deposits3,146 1,995 5,297 3,872 
Federal funds purchased157 1 157 2 
Subordinated notes394 251 642 500 
Federal Home Loan Bank advances635 649 1,265 1,632 
Long-term debt326 75 584 154 
Total interest expense4,658 2,971 7,945 6,160 
Net interest income24,239 22,850 48,067 45,971 
Provision for loan losses(1,750)(2,000)(2,500)(1,500)
Net interest income after provision for loan losses
25,989 24,850 50,567 47,471 
Noninterest income:  
Service charges on deposit accounts585 578 1,165 1,160 
Debit card usage fees507 511 979 953 
Trust services622 691 1,251 1,343 
Increase in cash value of bank-owned life insurance236 240 463 460 
Loan swap fees— 42 — 42 
Realized securities gains, net— 36 — 40 
Other income328 417 809 982 
Total noninterest income2,278 2,515 4,667 4,980 
Noninterest expense:  
Salaries and employee benefits6,410 5,672 12,708 11,280 
Occupancy1,242 1,199 2,328 2,427 
Data processing656 617 1,280 1,219 
FDIC insurance289 426 626 830 
Professional fees202 268 419 551 
Director fees222 214 390 405 
Other expenses2,245 2,130 4,177 4,085 
Total noninterest expense11,266 10,526 21,928 20,797 
Income before income taxes17,001 16,839 33,306 31,654 
Income taxes4,334 3,600 7,455 6,663 
Net income$12,667 $13,239 $25,851 $24,991 
 
Basic earnings per common share$0.76 $0.80 $1.56 $1.51 
Diluted earnings per common share$0.75 $0.79 $1.54 $1.49 
See Notes to Consolidated Financial Statements.
5



West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
 Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2022202120222021
Net income$12,667 $13,239 $25,851 $24,991 
Other comprehensive income (loss):  
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period(44,413)4,048 (99,008)(4,290)
Plus: reclassification adjustment for net gains realized in net income— (36)— (40)
Income tax (expense) benefit11,236 (1,011)25,049 1,091 
Other comprehensive income (loss) on securities(33,177)3,001 (73,959)(3,239)
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) arising during the period4,066 (2,321)14,602 5,442 
Plus: reclassification adjustment for net losses realized in net income642 1,098 1,687 6,068 
Income tax (expense) benefit (1,191)308 (4,121)(2,900)
Other comprehensive income (loss) on derivatives3,517 (915)12,168 8,610 
Total other comprehensive income (loss)(29,660)2,086 (61,791)5,371 
Comprehensive income (loss)$(16,993)$15,325 $(35,940)$30,362 

See Notes to Consolidated Financial Statements.
 
6



West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(unaudited)
(in thousands, except share and per share data)
Three Months Ended June 30, 2022
Accumulated
AdditionalOther
PreferredCommon StockPaid-InRetainedComprehensive
StockSharesAmountCapitalEarningsIncome (Loss)Total
Balance, March 31, 2022$— 16,631,413 $3,000 $29,421 $246,827 $(42,768)$236,480 
Net income
— — — — 12,667 — 12,667 
Other comprehensive loss, net of tax— — — — — (29,660)(29,660)
Cash dividends declared, $0.25 per common share
— — — — (4,160)— (4,160)
Stock-based compensation costs
— — — 862 — — 862 
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes— 9,000 — — — — — 
Balance, June 30, 2022$— 16,640,413 $3,000 $30,283 $255,334 $(72,428)$216,189 
Three Months Ended June 30, 2021
Accumulated
AdditionalOther
PreferredCommon StockPaid-InRetainedComprehensive
StockSharesAmountCapitalEarningsIncome (Loss)Total
Balance, March 31, 2021$— 16,540,381 $3,000 $28,243 $211,847 $(8,561)$234,529 
Net income— — — — 13,239 — 13,239 
Other comprehensive income, net of tax— — — — — 2,086 2,086 
Cash dividends declared, $0.24 per common share
— — — — (3,973)— (3,973)
Stock-based compensation costs
— — — 645 — — 645 
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes— 14,465 — — — — — 
Balance, June 30, 2021$— 16,554,846 $3,000 $28,888 $221,113 $(6,475)$246,526 
See Notes to Consolidated Financial Statements.
7



West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(unaudited)
(in thousands, except share and per share data)
Six Months Ended June 30, 2022
Accumulated
AdditionalOther
PreferredCommon StockPaid-InRetainedComprehensive
StockSharesAmountCapitalEarningsIncome (Loss)Total
Balance, December 31, 2021$— 16,554,846 $3,000 $30,183 $237,782 $(10,637)$260,328 
Net income
— — — — 25,851 — 25,851 
Other comprehensive loss,
   net of tax
— — — — — (61,791)(61,791)
Cash dividends declared, $0.50 per common share
— — — — (8,299)— (8,299)
Stock-based compensation costs
— — — 1,619 — — 1,619 
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes
— 85,567 — (1,519)— — (1,519)
Balance, June 30, 2022$— 16,640,413 $3,000 $30,283 $255,334 $(72,428)$216,189 
Six Months Ended June 30, 2021
Accumulated
AdditionalOther
PreferredCommon StockPaid-InRetainedComprehensive
StockSharesAmountCapitalEarningsIncome (Loss)Total
Balance, December 31, 2020$— 16,469,272 $3,000 $28,823 $203,718 $(11,846)$223,695 
Net income
— — — — 24,991 — 24,991 
Other comprehensive income, net of tax— — — — — 5,371 5,371 
Cash dividends declared, $0.46 per common share
— — — — (7,596)— (7,596)
Stock-based compensation costs
— — — 1,278 — — 1,278 
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes
— 85,574 — (1,213)— — (1,213)
Balance, June 30, 2021$— 16,554,846 $3,000 $28,888 $221,113 $(6,475)$246,526 

See Notes to Consolidated Financial Statements.

8



West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended June 30,
(in thousands)20222021
Cash Flows from Operating Activities:
Net income$25,851 $24,991 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses(2,500)(1,500)
Net amortization and accretion1,409 929 
Securities gains, net— (40)
Stock-based compensation1,619 1,278 
Increase in cash value of bank-owned life insurance(463)(460)
Depreciation680 759 
Provision for deferred income taxes1,885 746 
Change in assets and liabilities:
Increase in accrued interest receivable(473)(184)
Decrease in other assets1,448 3,170 
Increase (decrease) in accrued expenses and other liabilities4,189 (1,181)
Net cash provided by operating activities33,645 28,508 
Cash Flows from Investing Activities:  
Proceeds from sales of securities available for sale— 28,961 
Proceeds from maturities and calls of securities available for sale46,529 43,153 
Purchases of securities available for sale(120,077)(258,216)
Purchases of Federal Home Loan Bank stock(21,003)(861)
Proceeds from redemption of Federal Home Loan Bank stock15,436 2,395 
Net increase in loans(117,363)(28,846)
Purchases of premises and equipment(8,548)(3,150)
Net cash used in investing activities(205,026)(216,564)
Cash Flows from Financing Activities:  
Net increase (decrease) in deposits(173,554)124,295 
Net increase (decrease) in federal funds purchased130,120 (1,770)
Proceeds from issuance of subordinated debt, net of issuance costs58,783 — 
Net decrease in Federal Home Loan Bank advances— (50,000)
Principal payments on long-term debt(35)(1,272)
Common stock dividends paid(8,299)(7,596)
Restricted stock units withheld for payroll taxes (1,519)(1,213)
Net cash provided by financing activities5,496 62,444 
Net decrease in cash and cash equivalents(165,885)(125,612)
Cash and Cash Equivalents:
Beginning192,825 396,435 
Ending$26,940 $270,823 
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest$7,526 $6,499 
Income taxes3,890 5,530 
See Notes to Consolidated Financial Statements.

9


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 June 30, 2022 and December 31, 2021, net income, comprehensive income (loss) and changes in stockholders' equity for the three and six months ended June 30, 2022 and 2021, and cash flows for the six months ended June 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.

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 does not plan to early adopt this standard, but continues to work through implementation. The Company continues collecting and retaining loan and credit data and evaluating various loss estimation models. 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.

10


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

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Financial Instruments - Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Financial Instruments (ASC 825). The amendments in the ASU improve the Codification by eliminating inconsistencies and providing clarifications. The amended guidance in this ASU related to the credit losses will be effective for the Company for fiscal years and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.

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.

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 six months ended June 30, 2022 and 2021 are presented in the following table.

Three Months Ended June 30,Six Months Ended June 30,
(in thousands, except per share data)2022202120222021
Net income$12,667 $13,239 $25,851 $24,991 
 
Weighted average common shares outstanding16,638 16,551 16,599 16,513 
Weighted average effect of restricted stock units outstanding
145 209 218 213 
Diluted weighted average common shares outstanding16,783 16,760 16,817 16,726 
     
Basic earnings per common share$0.76 $0.80 $1.56 $1.51 
Diluted earnings per common share$0.75 $0.79 $1.54 $1.49 
Number of anti-dilutive common stock equivalents excluded from diluted earnings per share computation182 — 88 56 
11


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

3.  Securities Available for Sale

The following tables show the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale, by security type as of June 30, 2022 and December 31, 2021.
 June 30, 2022
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
(Losses)		Fair
Value
Securities available for sale:
State and political subdivisions$244,056 $18 $(42,286)$201,788 
Collateralized mortgage obligations (1)
365,620 — (39,111)326,509 
Mortgage-backed securities (1)
176,327 — (22,159)154,168 
Collateralized loan obligations37,948 — (1,150)36,798 
Corporate notes13,750 — (1,043)12,707 
 $837,701 $18 $(105,749)$731,970 
 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 obligations37,880 59 (157)37,782 
Corporate notes12,750 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 $303,597 and $295,961 as of June 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 June 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.
 June 30, 2022
 Amortized CostFair Value
Due after five years through ten years$65,839 $61,755 
Due after ten years229,915 189,538 
 295,754 251,293 
Collateralized mortgage obligations and mortgage-backed securities541,947 480,677 
 $837,701 $731,970 
12


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 six months ended June 30, 2022 and 2021 are summarized in the following table.
 Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
Proceeds from sales$— $10,186 $— $28,961 
Gross gains on sales— 110 — 272 
Gross losses on sales— 74 — 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 June 30, 2022 and December 31, 2021.
June 30, 2022
 Less than 12 months12 months or longerTotal
 Fair
Value		Gross
Unrealized
(Losses)		Fair
Value		Gross
Unrealized
(Losses)		Fair
Value		Gross
Unrealized
(Losses)
Securities available for sale:
State and political subdivisions$165,330 $(30,959)$35,218 $(11,327)$200,548 $(42,286)
Collateralized mortgage obligations305,164 (35,386)21,345 (3,725)326,509 (39,111)
Mortgage-backed securities102,563 (13,822)51,605 (8,337)154,168 (22,159)
Collateralized loan obligations36,798 (1,150)— — 36,798 (1,150)
Corporate notes12,707 (1,043)— — 12,707 (1,043)
 $622,562 $(82,360)$108,168 $(23,389)$730,730 $(105,749)
       
 December 31, 2021
 Less than 12 months12 months or longerTotal
 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 obligations241,320 (6,149)2,352 (111)243,672 (6,260)
Mortgage-backed securities140,168 (2,714)— — 140,168 (2,714)
Collateralized loan obligations22,821 (157)— — 22,821 (157)
Corporate notes4,198 (52)— — 4,198 (52)
 $530,081 $(10,295)$36,246 $(1,505)$566,327 $(11,800)

As of June 30, 2022, securities available for sale with unrealized losses included 114 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 June 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 June 30, 2022 were due to market interest rate conditions rather than reduced estimated cash flows. At June 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 June 30, 2022.


13


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

4. Loans and Allowance for Loan Losses

Loans consisted of the following segments as of June 30, 2022 and December 31, 2021.
 June 30, 2022December 31, 2021
Commercial$475,704 $492,815 
Real estate:
Construction, land and land development390,137 359,258 
1-4 family residential first mortgages69,829 66,216 
Home equity8,564 8,422 
Commercial1,627,150 1,530,218 
Consumer and other5,912 3,797 
 2,577,296 2,460,726 
Net unamortized fees and costs(4,167)(4,530)
 $2,573,129 $2,456,196 

Included in commercial loans at June 30, 2022 and December 31, 2021, were $3,196 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 $1,220,000 and $1,190,000 were pledged as security for Federal Home Loan Bank (FHLB) advances as of June 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.


14


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 June 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 six months ended June 30, 2022 and 2021. A specific reserve of $0 and $2,500 related to TDR loans was recorded at June 30, 2022 and December 31, 2021, respectively. No TDR loans that were modified within the 12 months preceding June 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.


15


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 June 30, 2022 and December 31, 2021.
June 30, 2022December 31, 2021
Recorded InvestmentUnpaid Principal BalanceRelated AllowanceRecorded InvestmentUnpaid Principal BalanceRelated Allowance
With no related allowance recorded:
Commercial$— $— $— $— $— $— 
Real estate:
Construction, land and land development— — — — — — 
1-4 family residential first mortgages335 335 — 349 349 — 
Home equity— — — — — — 
Commercial— — — — — — 
Consumer and other— — — — — — 
335 335 — 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 mortgages335 335 — 349 349 — 
Home equity— — — — — — 
Commercial— — — 8,599 8,599 2,500 
Consumer and other— — — — — — 
$335 $335 $— $8,948 $8,948 $2,500 
The Company has no commitments to advance additional funds on any of the impaired loans.

16


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 six months ended June 30, 2022 and 2021.
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Average Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income Recognized
With no related allowance recorded:
Commercial$— $— $— $— $— $— $— $— 
Real estate:
Construction, land and land development
— — — — — — — — 
1-4 family residential first mortgages
339 — 367 — 342 — 370 — 
Home equity— — — — — — — — 
Commercial— — — — — — — — 
Consumer and other— — — — — — — — 
339 — 367 — 342 — 370 — 
With an allowance recorded:
Commercial— — — — — — — — 
Real estate:
Construction, land and land development
— — — — — — — — 
1-4 family residential first mortgages
— — — — — — — — 
Home equity— — — — — — — — 
Commercial6,310 — 14,688 — 7,271 — 15,172 — 
Consumer and other— — — — — — — — 
6,310 — 14,688 — 7,271 — 15,172 — 
Total:
Commercial— — — — — — — — 
Real estate:
Construction, land and land development
— — — — — — — — 
1-4 family residential first mortgages
339 — 367 — 342 — 370 — 
Home equity— — — — — — — — 
Commercial6,310 — 14,688 — 7,271 — 15,172 — 
Consumer and other— — — — — — — — 
$6,649 $— $15,055 $— $7,613 $— $15,542 $— 

17


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

The following tables provide an analysis of the payment status of the recorded investment in loans as of June 30, 2022 and December 31, 2021.
June 30, 2022
30-59
Days Past
Due		60-89
Days Past
Due		90 Days
or More
Past Due		Total
Past Due		CurrentNonaccrual LoansTotal Loans
Commercial$— $— $— $— $475,704 $— $475,704 
Real estate:
Construction, land and
land development— — — — 390,137 — 390,137 
1-4 family residential
first mortgages— — — — 69,494 335 69,829 
Home equity— — — — 8,564 — 8,564 
Commercial— — — — 1,627,150 — 1,627,150 
Consumer and other— — — — 5,912 — 5,912 
Total$— $— $— $— $2,576,961 $335 $2,577,296 
December 31, 2021
30-59
Days Past
Due		60-89
Days Past
Due		90 Days
or More
Past Due		Total
Past Due		CurrentNonaccrual LoansTotal
Loans
Commercial$— $— $— $— $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 
18


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 June 30, 2022 and December 31, 2021.
June 30, 2022
PassWatchSubstandardDoubtfulTotal
Commercial$475,704 $— $— $— $475,704 
Real estate:
Construction, land and land development390,085 52 — — 390,137 
1-4 family residential first mortgages69,243 152 434 — 69,829 
Home equity8,564 — — — 8,564 
Commercial1,581,240 45,910 — — 1,627,150 
Consumer and other5,912 — — — 5,912 
Total$2,530,748 $46,114 $434 $— $2,577,296 
December 31, 2021
PassWatchSubstandardDoubtfulTotal
Commercial$492,545 $270 $— $— $492,815 
Real estate:
Construction, land and land development359,203 55 — — 359,258 
1-4 family residential first mortgages65,596 156 464 — 66,216 
Home equity8,422 — — — 8,422 
Commercial1,458,075 63,544 8,599 — 1,530,218 
Consumer and other3,797 — — — 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.

19


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.

20


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 six months ended June 30, 2022 and 2021.
Three Months Ended June 30, 2022
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Beginning balance$4,708 $3,998 $348 $101 $18,417 $51 $27,623 
Charge-offs— — — — (451)— (451)
Recoveries8 — — 1 3 — 12 
Provision (1)
(55)45 25 (7)(1,780)22 (1,750)
Ending balance$4,661 $4,043 $373 $95 $16,189 $73 $25,434 
Three Months Ended June 30, 2021
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Beginning balance$4,618 $2,743 $430 $90 $22,057 $70 $30,008 
Charge-offs— — — — — — — 
Recoveries30 — — 1 3 — 34 
Provision (1)
(184)207 (71)— (1,931)(21)(2,000)
Ending balance$4,464 $2,950 $359 $91 $20,129 $49 $28,042 
Six Months Ended June 30, 2022
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Beginning balance$4,776 $3,646 $339 $91 $19,466 $46 $28,364 
Charge-offs— — — — (451)— (451)
Recoveries12 — 1 2 6 — 21 
Provision (1)
(127)397 33 2 (2,832)27 (2,500)
Ending balance$4,661 $4,043 $373 $95 $16,189 $73 $25,434 
Six Months Ended June 30, 2021
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Beginning balance$4,718 $2,634 $360 $114 $21,535 $75 $29,436 
Charge-offs— — — — — — — 
Recoveries97 — 1 2 6 — 106 
Provision (1)
(351)316 (2)(25)(1,412)(26)(1,500)
Ending balance$4,464 $2,950 $359 $91 $20,129 $49 $28,042 
(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.
21


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 June 30, 2022 and December 31, 2021.
June 30, 2022
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Ending balance:
Individually evaluated for impairment$— $— $— $— $— $— $— 
Collectively evaluated for impairment4,661 4,043 373 95 16,189 73 25,434 
Total$4,661 $4,043 $373 $95 $16,189 $73 $25,434 
December 31, 2021
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Ending balance:
Individually evaluated for impairment$— $— $— $— $2,500 $— $2,500 
Collectively evaluated for impairment4,776 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 June 30, 2022 and December 31, 2021.
June 30, 2022
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Ending balance:
Individually evaluated for impairment$— $— $335 $— $— $— $335 
Collectively evaluated for impairment475,704 390,137 69,494 8,564 1,627,150 5,912 2,576,961 
Total$475,704 $390,137 $69,829 $8,564 $1,627,150 $5,912 $2,577,296 
December 31, 2021
Real Estate
CommercialConstruction and Land1-4 Family ResidentialHome EquityCommercialConsumer and OtherTotal
Ending balance:
Individually evaluated for impairment$— $— $349 $— $8,599 $— $8,948 
Collectively evaluated for impairment492,815 359,258 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 
22


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 $255,000 at June 30, 2022 and December 31, 2021. As of June 30, 2022, the Company had swaps with a total notional amount of $125,000 that hedge the interest payments of rolling fixed-rate one-month funding consisting of FHLB advances or brokered deposits. Also as of June 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 June 30, 2022 and December 31, 2021.

June 30, 2022December 31, 2021
Cash Flow Hedges:
Gross notional amount$255,000 $255,000 
Fair value in other assets8,772 — 
Fair value in other liabilities— (7,517)
Weighted-average floating rate received1.70 %0.39 %
Weighted-average fixed rate paid2.09 %2.09 %
Weighted-average maturity in years3.74.2
Non-Hedging Derivatives:
Gross notional amount$170,001 $172,008 
Fair value in other assets11,241 3,887 
Fair value in other liabilities(11,241)(3,887)


23


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 six months ended June 30, 2022 and 2021.
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Pre-tax gain (loss) recognized in other comprehensive income$4,066 $(2,321)$14,602 $5,442 
Reclassification from AOCI into income:
Increase in interest expense$(642)$(1,098)$(1,687)$(2,468)
Decrease in noninterest income, swap termination fees— — — (3,600)

The Company estimates there will be approximately $992 reclassified from accumulated other comprehensive income to interest expense through the 12 months ending June 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 June 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 with third parties. As of June 30, 2022 and December 31, 2021, the Company's counterparties pledged $22,060 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.


24


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 June 30, 2022 and December 31, 2021.
 June 30, 2022December 31, 2021
Deferred tax assets:
Allowance for loan losses$6,206 $7,176 
Net unrealized losses on securities available for sale26,221 1,701 
Net unrealized losses on interest rate swaps— 1,903 
Lease liabilities1,295 1,502 
Accrued expenses297 395 
Restricted stock unit compensation610 821 
State net operating loss carryforward1,333 1,276 
Other 149 139 
36,111 14,913 
Deferred tax liabilities:
Right-of-use assets1,248 1,450 
Net deferred loan fees and costs243 247 
Net unrealized gains on interest rate swaps2,148 — 
Premises and equipment940 809 
Other338 312 
4,917 2,818 
Net deferred tax assets before valuation allowance31,194 12,095 
Valuation allowance(1,333)(1,276)
Net deferred tax assets$29,861 $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's 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 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 three and six months ended June 30, 2022 was 25.49 percent and 22.38 percent, respectively. Excluding this one-time state tax expense, the effective tax rates for the three and six months ended June 30, 2022 would have been 21.55 percent and 20.37 percent, respectively.


25


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 six months ended June 30, 2022 and 2021.
UnrealizedUnrealizedAccumulated
GainsGainsOther
(Losses) on(Losses) onComprehensive
SecuritiesDerivativesIncome (Loss)
Balance, December 31, 2021$(5,021)$(5,616)$(10,637)
Other comprehensive income (loss) before reclassifications(73,959)10,908 (63,051)
Amounts reclassified from accumulated other comprehensive income— 1,260 1,260 
Net current period other comprehensive income (loss)(73,959)12,168 (61,791)
Balance, June 30, 2022$(78,980)$6,552 $(72,428)
Balance, December 31, 2020$5,994 $(17,840)$(11,846)
Other comprehensive income (loss) before reclassifications(3,209)4,072 863 
Amounts reclassified from accumulated other comprehensive income(30)4,538 4,508 
Net current period other comprehensive income (loss)(3,239)8,610 5,371 
Balance, June 30, 2021$2,755 $(9,230)$(6,475)

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 June 30, 2022 and December 31, 2021. 
 June 30, 2022December 31, 2021
Commitments to fund real estate construction loans$295,076 $294,580 
Other commitments to extend credit699,040 585,678 
Standby letters of credit19,350 17,391 
 $1,013,466 $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 $25,271 and $31,552 at June 30, 2022 and December 31, 2021, respectively.


26


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

Contractual commitments: The Company had remaining commitments to invest in qualified affordable housing projects totaling $3,720 and $3,986 as of June 30, 2022 and December 31, 2021, respectively.

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 six months ended June 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.

27


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 June 30, 2022 and December 31, 2021.
 June 30, 2022
TotalLevel 1Level 2Level 3
Financial assets:
Securities available for sale:
State and political subdivisions$201,788 $— $201,788 $— 
Collateralized mortgage obligations326,509 — 326,509 — 
Mortgage-backed securities154,168 — 154,168 — 
Collateralized loan obligations36,798 — 36,798 — 
Corporate notes12,707 — 12,707 — 
Derivative instruments, interest rate swaps20,013 — 20,013 — 
Financial liabilities:
Derivative instruments, interest rate swaps$11,241 $— $11,241 $— 
 December 31, 2021
TotalLevel 1Level 2Level 3
Financial assets:
Securities available for sale:    
State and political subdivisions$232,447 $— $232,447 $— 
Collateralized mortgage obligations320,773 — 320,773 — 
Mortgage-backed securities155,060 — 155,060 — 
Collateralized loan obligations37,782 — 37,782 — 
Corporate notes12,760 — 12,760 — 
Derivative instruments, interest rate swaps3,887 — 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 June 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.


28


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 TechniqueUnobservable InputsRange (Weighted Average)
June 30, 2022
Impaired loans———
December 31, 2021
Impaired loansAppraisal of collateralAppraisal adjustment50%, 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 June 30, 2022 and December 31, 2021. 

June 30, 2022
 Carrying AmountApproximate Fair ValueLevel 1Level 2Level 3
Financial assets:
Cash and due from banks$26,174 $26,174 $26,174 $— $— 
Federal funds sold 766 766 766 — — 
Securities available for sale731,970 731,970 — 731,970 — 
Federal Home Loan Bank stock15,532 15,532 15,532 — — 
Loans, net2,547,695 2,461,582 — 2,461,582 — 
Accrued interest receivable9,363 9,363 9,363 — — 
Interest rate swaps20,013 20,013 — 20,013 — 
Financial liabilities:
Deposits$2,842,451 $2,843,224 $— $2,843,224 $— 
Federal funds purchased133,000 133,000 133,000 — — 
Subordinated notes, net79,265 68,229 — 68,229 — 
Federal Home Loan Bank advances125,000 125,000 — 125,000 — 
Long-term debt51,486 51,486 — 51,486 — 
Accrued interest payable938 938 938 — — 
Interest rate swaps11,241 11,241 — 11,241 — 
Off-balance sheet financial instruments:
Commitments to extend credit— — — — — 
Standby letters of credit— — — — — 
29


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

December 31, 2021
 Carrying AmountApproximate Fair ValueLevel 1Level 2Level 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 sale758,822 758,822 — 758,822 — 
Federal Home Loan Bank stock9,965 9,965 9,965 — — 
Loans, net2,427,832 2,453,081 — 2,446,982 6,099 
Accrued interest receivable8,890 8,890 8,890 — — 
Interest rate swaps3,887 3,887 — 3,887 — 
Financial liabilities:
Deposits$3,016,005 $3,016,305 $— $3,016,305 $— 
Federal funds purchased2,880 2,880 2,880 — — 
Subordinated notes, net20,465 17,122 — 17,122 — 
Federal Home Loan Bank advances125,000 125,000 — 125,000 — 
Long-term debt51,521 51,521 — 51,521 — 
Accrued interest payable519 519 519 — — 
Interest rate swaps11,404 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.

30


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: the continuing effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, including due to supply chain disruptions, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic; interest rate risk; 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 and investment portfolios, 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, including recent and anticipated interest rate increases; 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; 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.

31


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 June 30,Six Months Ended June 30,
2022202120222021
Reconciliation of net interest income and net interest margin on a FTE basis to GAAP:
Net interest income (GAAP)$24,239 $22,850 $48,067 $45,971 
Tax-equivalent adjustment (1)
326 270 655 499 
Net interest income on a FTE basis (non-GAAP)24,565 23,120 48,722 46,470 
Average interest-earning assets3,362,313 3,102,649 3,397,021 3,041,519 
Net interest margin on a FTE basis (non-GAAP)2.93 %2.99 %2.89 %3.08 %
Reconciliation of efficiency ratio on an adjusted and FTE basis to GAAP:
Net interest income on a FTE basis (non-GAAP)$24,565 $23,120 $48,722 $46,470 
Noninterest income2,278 2,515 4,667 4,980 
Adjustment for realized securities gains, net— (36)— (40)
Adjustment for losses on disposal of premises and equipment, net9 5 27 29 
Adjusted income26,852 25,604 53,416 51,439 
Noninterest expense11,266 10,526 21,928 20,797 
Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2)
41.96 %41.11 %41.05 %40.43 %
June 30, 2022December 31, 2021June 30, 2021
Reconciliation of allowance for loan losses ratio, excluding PPP loans:
Loans outstanding (GAAP)$2,573,129 $2,456,196 $2,309,527 
Less: PPP loans(3,196)(22,206)(84,573)
Loans, net of PPP loans (non-GAAP)2,569,933 2,433,990 2,224,954 
Allowance for loan losses25,434 28,364 28,042 
Allowance for loan losses ratio, excluding PPP loans (non-GAAP) (3)
0.99 %1.17 %1.26 %

(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.
32


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.
33


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

The following discussion describes the consolidated operations and financial condition of the Company, West Bank and West Bank's special purpose subsidiaries (which are invested in new markets tax credit activities). Results of operations for the three and six months ended June 30, 2022 are compared to the results for the same periods in 2021, and the consolidated financial condition of the Company as of June 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 June 30, 2022 was $12,667, or $0.75 per diluted common share, compared to $13,239, or $0.79 per diluted common share, for the three months ended June 30, 2021. The Company's annualized return on average assets and return on average equity for the three months ended June 30, 2022 were 1.45 percent and 22.81 percent, respectively, compared to 1.65 percent and 22.20 percent, respectively, for the three months ended June 30, 2021.

The decrease in net income for the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to a one-time increase in state income tax expense, a smaller negative provision for loan losses and an increase in salaries and employee benefits, partially offset by an increase in net interest income.

Net interest income for the three months ended June 30, 2022 grew $1,389, or 6.1 percent, compared to the three months ended June 30, 2021. The increase in net interest income was primarily due to the increase in interest income on securities and loans, partially offset by an increase in interest expense on deposits and borrowed funds. The Company recorded a negative provision for loan losses of $1,750 during the three months ended June 30, 2022, compared to a negative provision of $2,000 for the three months ended June 30, 2021. The negative provision recorded in 2021 was 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 provision in 2022 was due primarily to the reversal of a specific reserve on an impaired loan.

Noninterest expense increased $740 during the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to an increase in salaries and employee benefits expense. Income tax expense increased due to the revaluation of net deferred tax assets as a result of enacted changes in Iowa bank franchise tax rates.

Net income for the six months ended June 30, 2022 was $25,851, or $1.54 per diluted common share, compared to $24,991, or $1.49 per diluted common share, for the six months ended June 30, 2021. The Company's annualized return on average assets and return on average equity for the six months ended June 30, 2022 were 1.48 percent and 21.83 percent, respectively, compared to 1.59 percent and 21.50 percent, respectively, for the six months ended June 30, 2021.

The increase in net income for the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to a larger negative provision for loan losses and an increase in net interest income, partially offset by an increase in noninterest expense.

Net interest income for the six months ended June 30, 2022 grew $2,096, or 4.6 percent, compared to the six months ended June 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. The Company recorded a negative provision for loan losses of $2,500 during the six months ended June 30, 2022, compared to a negative provision of $1,500 for the six months ended June 30, 2021. The negative provision in 2021 was due to the improvement in economic conditions and removal of pandemic-related restrictions on businesses, along with the 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 sustained improvement in classified loans.

Noninterest expense increased $1,131 during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to an increase in salaries and employee benefits expense, partially offset by a decrease in FDIC insurance expense.

34


West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Total loans outstanding increased $116,933, or 4.8 percent, during the first six months of 2022. Excluding the impact of PPP loan activity, total loans outstanding increased $135,944, or 5.6 percent, during the first six months of 2022. As of June 30, 2022, the allowance for loan losses was 0.99 percent of total outstanding loans, compared to 1.15 percent as of December 31, 2021. At June 30, 2022, the allowance for loan losses was 0.99 percent of total outstanding loans, excluding $3,196 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 June 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 six months ended June 30, 2022As of and for the three months ended March 31, 2022As of and for the three months ended March 31, 2022
Return on average equity21.83%20.96%4.88% - 15.16%
Efficiency ratio(1)
41.05%40.14%43.69% - 67.47%
Nonperforming assets to total assets0.01%0.25%0.13% - 1.13%
(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 July 27, 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per common share. The dividend is payable on August 24, 2022, to stockholders of record on August 10, 2022.

35


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

The following table shows selected financial results and measures for the three and six months ended June 30, 2022 compared with the same periods in 2021. 
 Three Months Ended June 30,Six Months Ended June 30,
 20222021ChangeChange %20222021ChangeChange %
Net income$12,667 $13,239 $(572)(4.32)%$25,851 $24,991 $860 3.44 %
Average assets3,503,686 3,224,318 279,368 8.66 %3,524,012 3,167,401 356,611 11.26 %
Average stockholders' equity222,731 239,218 (16,487)(6.89)%238,841 234,372 4,469 1.91 %
Return on average assets1.45 %1.65 %(0.20)%1.48 %1.59 %(0.11)% 
Return on average equity22.81 %22.20 %0.61 %21.83 %21.50 %0.33 % 
Net interest margin (1)
2.93 %2.99 %(0.06)%2.89 %3.08 %(0.19)%
Efficiency ratio (1) (2)
41.96 %41.11 %0.85 %41.05 %40.43 %0.62 %
Dividend payout ratio32.84 %30.01 %2.83 %32.10 %30.40 %1.70 % 
Average equity to average assets ratio
6.36 %7.42 %(1.06)%6.78 %7.40 %(0.62)% 
As of June 30,
20222021Change
Nonperforming assets to total assets (2)
0.01 %0.45 %(0.44)%
Equity to assets ratio6.22 %7.54 %(1.32)% 
Tangible common equity ratio6.22 %7.54 %(1.32)% 
(1) Amounts are presented on a FTE basis. These are non-GAAP financial measures. For further information, refer to the Non-GAAP Financial Measures section of this report.
(2) A lower ratio is more desirable.

Definitions of ratios:
•Return on average assets - annualized net income divided by average assets.
•Return on average equity - annualized net income divided by average stockholders' equity.
•Net interest margin - annualized tax-equivalent net interest income divided by average interest-earning assets.
•Efficiency ratio - noninterest expense (excluding other real estate owned expense and write-down of premises) divided by noninterest income (excluding net securities gains/losses and gains/losses on disposition of premises and equipment) plus tax-equivalent net interest income.
•Dividend payout ratio - dividends paid to common stockholders divided by net income.
•Average equity to average assets ratio - average equity divided by average assets.
•Nonperforming assets to total assets - total nonperforming assets divided by total assets.
•Equity to assets ratio - equity divided by assets.
•Tangible common equity ratio - common equity less intangible assets (none held) divided by tangible assets.


36


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 June 30:
Average BalanceInterest Income/ExpenseYield/Rate
 20222021ChangeChange-
%		20222021ChangeChange-
%		20222021Change
Interest-earning assets:
Loans: (1) (2)
Commercial$470,486 $553,401 $(82,915)(14.98)%$4,949 $5,383 $(434)(8.06)%4.22 %3.90 %0.32 %
Real estate (3)
2,061,700 1,750,198 311,502 17.80 %19,972 17,807 2,165 12.16 %3.89 %4.08 %(0.19)%
Consumer and other4,966 4,112 854 20.77 %53 53 — — %4.23 %5.13 %(0.90)%
Total loans2,537,152 2,307,711 229,441 9.94 %24,974 23,243 1,731 7.45 %3.95 %4.04 %(0.09)%
           
Securities:           
Taxable617,104 376,165 240,939 64.05 %3,090 1,895 1,195 63.06 %2.00 %2.01 %(0.01)%
Tax-exempt (3)
156,788 141,819 14,969 10.56 %1,092 879 213 24.23 %2.78 %2.47 %0.31 %
Total securities773,892 517,984 255,908 49.40 %4,182 2,774 1,408 50.76 %2.16 %2.14 %0.02 %
           
Federal funds sold51,269 276,955 (225,686)(81.49)%67 75 (8)(10.67)%0.52 %0.11 %0.41 %
Total interest-earning assets (3)
$3,362,313 $3,102,650 $259,663 8.37 %29,223 26,092 3,131 12.00 %3.49 %3.37 %0.12 %
            
Interest-bearing liabilities:           
Deposits:           
Interest-bearing demand$517,707 $471,845 $45,862 9.72 %324 184 140 76.09 %0.25 %0.16 %0.09 %
Savings and money market1,582,033 1,356,549 225,484 16.62 %2,439 1,352 1,087 80.40 %0.62 %0.40 %0.22 %
Time deposits204,755 240,988 (36,233)(15.04)%383 459 (76)(16.56)%0.75 %0.76 %(0.01)%
Total deposits2,304,495 2,069,382 235,113 11.36 %3,146 1,995 1,151 57.69 %0.55 %0.39 %0.16 %
Borrowed Funds:
Federal funds purchased44,309 4,098 $40,211 981.23 %157 1 156 15,600.00 %1.42 %0.10 %1.32 %
Subordinated notes, net31,469 20,457 11,012 53.83 %394 251 143 56.97 %5.02 %4.93 %0.09 %
Federal Home Loan Bank
advances125,000 136,813 (11,813)(8.63)%635 649 (14)(2.16)%2.04 %1.90 %0.14 %
Long-term debt51,486 20,522 30,964 150.88 %326 75 251 334.67 %2.54 %1.48 %1.06 %
Total borrowed funds252,264 181,890 70,374 38.69 %1,512 976 536 54.92 %2.40 %2.15 %0.25 %
Total interest-bearing
liabilities$2,556,759 $2,251,272 $305,487 13.57 %4,658 2,971 2,223 56.78 %0.73 %0.53 %0.20 %
            
Net interest income (FTE) (4)
  $24,565 $23,121 $1,444 6.25 %   
Net interest spread (FTE)       2.76 %2.84 %(0.08)%
Net interest margin (FTE) (4)
       2.93 %2.99 %(0.06)%
37


West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Data for the six months ended June 30:
Average BalanceInterest Income/ExpenseYield/Rate
 20222021ChangeChange-
%		20222021ChangeChange-
%		20222021Change
Interest-earning assets:
Loans: (1) (2)
Commercial$470,296 $559,975 $(89,679)(16.01)%$9,607 $12,193 $(2,586)(21.21)%4.12 %4.39 %(0.27)%
Real estate (3)
2,019,017 1,727,198 291,819 16.90 %38,697 35,080 3,617 10.31 %3.87 %4.10 %(0.23)%
Consumer and other4,266 4,744 (478)(10.08)%87 107 (20)(18.69)%4.09 %4.55 %(0.46)%
Total loans2,493,579 2,291,917 201,662 8.80 %48,391 47,380 1,011 2.13 %3.91 %4.17 %(0.26)%
           
Securities:           
Taxable625,333 351,584 273,749 77.86 %5,979 3,540 2,439 68.90 %1.91 %2.01 %(0.10)%
Tax-exempt (3)
163,804 121,519 42,285 34.80 %2,148 1,566 582 37.16 %2.62 %2.58 %0.04 %
Total securities789,137 473,103 316,034 66.80 %8,127 5,106 3,021 59.17 %2.06 %2.16 %(0.10)%
            
Federal funds sold114,305 276,499 (162,194)(58.66)%149 144 5 3.47 %0.26 %0.11 %0.15 %
Total interest-earning assets (3)
$3,397,021 $3,041,519 $355,502 11.69 %56,667 52,630 4,037 7.67 %3.36 %3.49 %(0.13)%
            
Interest-bearing liabilities:           
Deposits:           
Interest-bearing demand$531,893 $462,189 $69,704 15.08 %574 353 221 62.61 %0.22 %0.15 %0.07 %
Savings and money market1,596,257 1,331,855 264,402 19.85 %4,059 2,667 1,392 52.19 %0.51 %0.40 %0.11 %
Time deposits200,221 214,239 (14,018)(6.54)%664 852 (188)(22.07)%0.67 %0.80 %(0.13)%
Total deposits2,328,371 2,008,283 320,088 15.94 %5,297 3,872 1,425 36.80 %0.46 %0.39 %0.07 %
Borrowed funds:
Federal funds purchased23,026 4,739 18,287 385.88 %157 2 155 7,750.00 %1.38 %0.10 %1.28 %
Subordinated notes, net25,998 20,455 5,543 27.10 %642 500 142 28.40 %4.98 %4.93 %0.05 %
Federal Home Loan Bank
advances125,000 155,801 (30,801)(19.77)%1,265 1,632 (367)(22.49)%2.04 %2.11 %(0.07)%
Long-term debt51,492 20,841 30,651 147.07 %584 154 430 279.22 %2.29 %1.49 %0.80 %
Total borrowed funds225,516 201,836 23,680 11.73 %2,648 2,288 360 15.73 %2.37 %2.29 %0.08 %
Total interest-bearing
liabilities$2,553,887 $2,210,119 $343,768 15.55 %7,945 6,160 1,785 28.98 %0.63 %0.56 %0.07 %
            
Net interest income (FTE) (4)
  $48,722 $46,470 $2,252 4.85 %   
Net interest spread (FTE)        2.73 %2.93 %(0.20)%
Net interest margin (FTE) (4)
       2.89 %3.08 %(0.19)%
(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.




38


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 150 basis points in the first six months of 2022 and is expected to continue to raise the target federal funds rate throughout the rest of 2022. These increases will have 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 six months ended June 30, 2022 decreased by 6 and 19 basis points, respectively, compared to the three and six months ended June 30, 2021. The primary driver of the decrease in the net interest margin was a decrease in yield on loans and increase in rates paid on deposits and borrowed funds. Tax-equivalent net interest income for the three and six months ended June 30, 2022 increased $1,444 and $2,252, respectively, compared to the same time periods in 2021. The increase in net interest income for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 was primarily due to increases in loans and securities balances, partially offset by decreases in yields on loans and increases in rates paid on deposits and borrowed funds.

Tax-equivalent interest income on loans increased $1,731 and $1,011 for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021. This increase in interest income was primarily driven by the increase in the average balance of commercial real estate loans. The comparability of the net interest margin between 2022 and 2021 is also 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 $213 and $1,387 and yields of 16.10 percent and 4.00 percent for the three months ended June 30, 2022 and June 30, 2021, respectively. PPP loan interest income was $653 and $4,229 with yields of 13.56 percent and 5.80 percent for the six months ended June 30, 2022 and June 30, 2021, respectively. Exclusive of the PPP loans, the yield on loans was 3.91 percent and 4.00 percent for the three months ended June 30, 2022 and June 30, 2021, respectively, and 3.86 percent and 4.06 percent for the six months ended June 30, 2022 and June 30, 2021, respectively. The decrease in loan yields was due to lower rates on new and renewed loans in 2021 and first quarter 2022 resulting from lower market rates and competitive pressures on loan pricing, partially offset by rate increases in variable-rate loans in response to federal funds rate increases in 2022.

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 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 $235,113 and $320,088 for the three and six months months ended June 30, 2022, compared to the three and six months months ended June 30, 2021. The rate paid on deposits increased 16 and 7 basis points for the three and six months ended June 30, 2022 compared to the same periods in 2021. The increases were primarily due to increases in certain deposit rates in response to the increases in the target federal funds rate.

The average balance of borrowed funds increased $70,374 and $23,680 for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021. The rate paid on borrowed funds increased 25 and 8 basis points for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021. These increases were primarily due to increases in subordinated notes and long-term debt. The increase in long-term debt was due to the Company's long-term debt borrowing of $40,000 in December 2021 which bears interest at a variable rate. The cost of borrowed funds may increase in the second half of 2022 as the variable rate on long-term debt may increase if market rates increase, and due to the addition of the subordinated notes in June 2022.

In the first six months of 2022, the Federal Reserve increased the target federal funds rate by a total of 150 basis points, and they are expected to make additional rate increases throughout the remainder of 2022. These rate increases could improve reinvestment rates on loans and securities, but could also increase the Company's cost of deposits and borrowed funds and increase the unrealized losses in the Company's securities portfolio.
39


West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
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. The negative provisions for loan losses were $1,750 and $2,500 for the three and six months ended June 30, 2022, respectively, compared to negative provisions of $2,000 and $1,500 for the three and six months ended June 30, 2021, respectively. 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 had a specific reserve of $2,500 and 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.


40


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 six months ended June 30, 2022 and 2021 and related ratios.

 Three Months Ended June 30,Six Months Ended June 30,
 20222021Change20222021Change
Balance at beginning of period$27,623 $30,008 $(2,385)$28,364 $29,436 $(1,072)
Charge-offs(451)— (451)(451)— (451)
Recoveries12 34 (22)21 106 (85)
Net (charge-offs) recoveries(439)34 (473)(430)106 (536)
Provision for loan losses charged to operations(1,750)(2,000)250 (2,500)(1,500)(1,000)
Balance at end of period$25,434 $28,042 $(2,608)$25,434 $28,042 $(2,608)
Average loans outstanding$2,537,152 $2,307,711 $2,493,578 $2,291,917 
Ratio of annualized net (charge-offs) recoveries during the period to average loans outstanding(0.07)%0.01 %(0.03)%0.01 %
Ratio of allowance for loan losses to average loans outstanding1.00 %1.22 %1.02 %1.22 %
Ratio of allowance for loan losses to total loans at end of period0.99 %1.21 %0.99 %1.21 %
Ratio of allowance for loan losses to total loans at end of period, excluding PPP loans(1)
0.99 %1.26 %0.99 %1.26 %
(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 inflationary trends, continuing supply chain issues and labor shortages, wage pressures, and expectations of further 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 150 basis points in the first six months of 2022. It is expected that additional rate increases will occur throughout the second half of 2022. The Company decreased certain qualitative factors used in the allowance for loan losses evaluation in the first six months of 2022 based upon the sustained performance of loans after the expiration of COVID modifications and sustained 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 three and six months ended June 30, 2022. Management believes the resulting allowance for loan losses as of June 30, 2022 was adequate to absorb any losses inherent in the loan portfolio at the end of the quarter.



41


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 June 30,
Noninterest income:20222021ChangeChange %
Service charges on deposit accounts$585 $578 $7 1.21 %
Debit card usage fees507 511 (4)(0.78)%
Trust services622 691 (69)(9.99)%
Increase in cash value of bank-owned life insurance236 240 (4)(1.67)%
Loan swap fees— 42 (42)(100.00)%
Realized securities gains, net— 36 (36)(100.00)%
Other income:  
All other income328 417 (89)(21.34)%
Total other income328 417 (89)(21.34)%
Total noninterest income$2,278 $2,515 $(237)(9.42)%
 Six Months Ended June 30,
Noninterest income:20222021ChangeChange %
Service charges on deposit accounts$1,165 $1,160 $5 0.43 %
Debit card usage fees979 953 26 2.73 %
Trust services1,251 1,343 (92)(6.85)%
Increase in cash value of bank-owned life insurance463 460 3 0.65 %
Loan swap fees— 42 (42)(100.00)%
Realized securities gains, net— 40 (40)(100.00)%
Other income:  
All other income809 982 (173)(17.62)%
Total other income809 982 (173)(17.62)%
Total noninterest income$4,667 $4,980 $(313)(6.29)%

The decrease in other income for the six months ended June 30, 2022 compared to the six months ended June 30, 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. In the first quarter of 2022, the Company also recognized other income of $97 related to the purchase of discounted transferable state income tax credits.

42


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 June 30,
Noninterest expense:20222021ChangeChange %
Salaries and employee benefits$6,410 $5,672 $738 13.01 %
Occupancy1,242 1,199 43 3.59 %
Data processing656 617 39 6.32 %
FDIC insurance289 426 (137)(32.16)%
Professional fees202 268 (66)(24.63)%
Director fees222 214 8 3.74 %
Other expenses:  
Subscriptions and service contracts492 467 25 5.35 %
Business development291 261 30 11.49 %
Insurance expense156 123 33 26.83 %
Trust138 137 1 0.73 %
Consulting fees125 78 47 60.26 %
Marketing70 57 13 22.81 %
Charitable contributions— 60 (60)(100.00)%
Low income housing projects amortization130 192 (62)(32.29)%
New markets tax credit project amortization and management
   fees		229 229 — — %
All other614 526 88 16.73 %
Total other expenses2,245 2,130 115 5.40 %
Total noninterest expense$11,266 $10,526 $740 7.03 %
 Six Months Ended June 30,
Noninterest expense:20222021ChangeChange %
Salaries and employee benefits$12,708 $11,280 $1,428 12.66 %
Occupancy2,328 2,427 (99)(4.08)%
Data processing1,280 1,219 61 5.00 %
FDIC insurance626 830 (204)(24.58)%
Professional fees419 551 (132)(23.96)%
Director fees390 405 (15)(3.70)%
Other expenses:  
Subscriptions and service contracts968 845 123 14.56 %
Business development527 447 80 17.90 %
Insurance expense307 244 63 25.82 %
Trust275 278 (3)(1.08)%
Consulting fees175 153 22 14.38 %
Marketing124 102 22 21.57 %
Charitable contributions— 120 (120)(100.00)%
Low income housing projects amortization272 326 (54)(16.56)%
New markets tax credit project amortization and management
   fees		459 459 — — %
All other1,070 1,111 (41)(3.69)%
Total other expenses4,177 4,085 92 2.25 %
Total noninterest expense$21,928 $20,797 $1,131 5.44 %

43


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 six months ended June 30, 2022 when compared to the three and six months ended June 30, 2021, primarily due to an increase in expense related to restricted stock units, the addition of two commercial bankers in the third quarter of 2021 and two commercial bankers in the first quarter of 2022, and normal operating increases. FDIC insurance expense decreased during the three and six months ended June 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 June 30, 2022 compared to the same period in 2021 due primarily to depreciation expense related to the new bank building in St. Cloud, Minnesota that opened in March 2022, partially offset by a reduction in rent expenses. Occupancy expense decreased for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to the reduction in rent expense from the consolidation of leased branches in the Des Moines market, partially offset by the increase in depreciation expense related to the new building in St. Cloud, Minnesota.

Subscriptions and service contracts increased for the three and six months ended June 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 with increased in person activities, and the addition of four commercial bankers.

Income Tax Expense

The Company recorded income tax expense of $4,334 (25.5 percent of pre-tax income) and $7,455 (22.4 percent of pre-tax income) for the three and six months months ended June 30, 2022, compared with $3,600 (21.4 percent of pre-tax income) and $6,663 (21.0 percent of pre-tax income) for the three and six months ended June 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 three and six months ended June 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 as of June 30, 2022 by $671 and in turn caused the one-time increase in 2022 tax expense.

Additionally, for the six months ended June 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 six 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 $734 and $684, respectively.

44


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

The Company had total assets of $3,474,791 as of June 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 $26,852 during the six months ended June 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 decline in the fair value of the portfolio, which declined $99,008 in the first six 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 are unrealized losses that are recorded in accumulated other comprehensive loss, net of tax. Future increases in market interest rates could result in an increase of the unrealized losses in the securities portfolio.

As of June 30, 2022, approximately 66 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 $116,933 from $2,456,196 as of December 31, 2021 to $2,573,129 as of June 30, 2022. Changes in the loan portfolio during the first six months of 2022 included increases of $96,932 in commercial real estate loans and $30,879 in construction, land and land development loans. Commercial loans declined $17,111, which included a $19,010 decline in PPP loans. As of June 30, 2022, PPP loans outstanding totaled $3,196. The Company continues to focus on business development efforts in all of its markets. Exclusive of PPP loans, loan growth in the first six months of 2022 was $135,944, or 5.6 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. 
 June 30, 2022December 31, 2021Change
Nonaccrual loans$335 $8,948 $(8,613)
Loans past due 90 days and still accruing interest — — — 
Troubled debt restructured loans (1)
— — — 
Total nonperforming loans335 8,948 (8,613)
Other real estate owned— — — 
Total nonperforming assets$335 $8,948 $(8,613)
    
Nonperforming loans to total loans0.01 %0.36 %(0.35)%
Nonperforming assets to total assets0.01 %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 June 30, 2022. There were six TDR loans related to one borrower as of December 31, 2021, categorized as nonaccrual.

45


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

In 2020, the Company began construction of a new office for its St. Cloud, Minnesota branch. Construction was completed in the first quarter of 2022 and the new building opened in March. 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 $173,554 during the first six 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. During the second quarter of 2022, a large corporate customer completed a significant business transaction that was funded by existing cash balances, accounting for a significant portion of the decrease in deposits.

At June 30, 2022, the Company had $196,477 in brokered deposits, compared to $130,032 at December 31, 2021. Brokered deposits included overnight funding, fixed rate deposits with terms through December 2022 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 241 basis points, 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 June 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 $425,001 and $427,008, respectively. The fair value 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 $16,126 increase in other assets and $163 decrease in other liabilities from December 31, 2021 to June 30, 2022 due to projected increases in long-term interest rates.

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 $26,940 as of June 30, 2022 compared with $192,825 as of December 31, 2021.


46


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. Brokered deposits are obtained through various programs administered by IntraFi, including IntraFi Network Deposits and IntraFi Funding, and through other third parties. At June 30, 2022, the Company had $196,477 in brokered deposits, which included overnight funding, fixed rate deposits with terms through December 2022 and variable rate deposits with terms through February 2024.

As of June 30, 2022, West Bank had additional borrowing capacity available from the FHLB of approximately $490,000, 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 $33,645 to liquidity for the six months ended June 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 $3,720 and $3,986 as of June 30, 2022 and December 31, 2021, respectively.

Capital

The Company's total stockholders' equity decreased to $216,189 at June 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 June 30, 2022, the Company's tangible common equity as a percent of tangible assets was 6.22 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, it has 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 June 30, 2022.

47


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.
ActualFor Capital
Adequacy Purposes		For Capital
Adequacy Purposes With Capital Conservation Buffer		To Be Well-Capitalized
AmountRatioAmountRatioAmountRatioAmountRatio
As of June 30, 2022:
Total Capital (to Risk-Weighted Assets)
Consolidated$394,051 12.53 %$251,667 8.00 %$330,313 10.50 %$314,584 10.00 %
West Bank428,127 13.62 %251,556 8.00 %330,167 10.50 %314,445 10.00 %
       
Tier 1 Capital (to Risk-Weighted Assets)    
Consolidated308,617 9.81 %188,750 6.00 %267,396 8.50 %251,667 8.00 %
West Bank402,693 12.81 %188,667 6.00 %267,278 8.50 %251,556 8.00 %
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Consolidated288,617 9.17 %141,563 4.50 %220,208 7.00 %204,479 6.50 %
West Bank402,693 12.81 %141,500 4.50 %220,111 7.00 %204,389 6.50 %
       
Tier 1 Capital (to Average Assets)    
Consolidated308,617 8.59 %143,643 4.00 %143,643 4.00 %179,553 5.00 %
West Bank402,693 11.22 %143,584 4.00 %143,584 4.00 %179,480 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 Bank354,846 12.10 %234,621 8.00 %307,941 10.50 %293,277 10.00 %
       
Tier 1 Capital (to Risk-Weighted Assets)    
Consolidated290,965 9.92 %176,002 6.00 %249,337 8.50 %234,670 8.00 %
West Bank326,482 11.13 %175,966 6.00 %249,284 8.50 %234,621 8.00 %
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Consolidated270,965 9.24 %132,002 4.50 %205,336 7.00 %190,669 6.50 %
West Bank326,482 11.13 %131,975 4.50 %205,294 7.00 %190,630 6.50 %
Tier 1 Capital (to Average Assets)    
Consolidated290,965 8.49 %137,065 4.00 %137,065 4.00 %171,331 5.00 %
West Bank326,482 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 June 30, 2022, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer.
48


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(2.91)%
200 basis points rising(1.95)%
100 basis points rising(1.11)%
Base—
100 basis points falling1.07%

As of June 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 2.91 percent, or $2,847 over the twelve months ended June 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.

49


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.

50




Item 6. Exhibits

The following exhibits are filed as part of this report:
ExhibitsDescription
3.1
Restatement of the Restated Articles of Incorporation of West Bancorporation, Inc. (incorporated herein by reference to Exhibit 3.1 filed with the Form 10-K on March 1, 2017)
3.2
Amended and Restated Bylaws of West Bancorporation, Inc. as of January 23, 2019 (incorporated herein by reference to Exhibit 3.1 filed with the Form 8-K on January 24, 2019)
4.1
Indenture, dated June 14, 2022, between West Bancorporation, Inc. and Wilmington Trust, National Association, as trustee (incorporated herein by reference to Exhibit 4.1 filed with the Form 8-K on June 14, 2022)
4.2
4.3
Form of 5.25% Fixed-to-Floating Rate Subordinated Notes due 2032 (incorporated herein by reference to Exhibit 4.3 filed with the Form 8-K on June 14, 2022)
10.1
Credit Agreement, dated as of December 15, 2021, by and between West Bancorporation, Inc. and National Exchange Bank & Trust (incorporated herein by reference to Exhibit 10.1 filed with the Form 8-K on June 6, 2022)
10.2
Promissory Note, dated as of December 15, 2021, made by West Bancorporation, Inc., to and in favor of National Exchange Bank & Trust (incorporated herein by reference to Exhibit 10.2 filed with the Form 8-K on June 6, 2022)
10.3
Commercial Pledge Agreement, dated as of December 15, 2021, by and between West Bancorporation, Inc. and National Exchange Bank & Trust (incorporated herein by reference to Exhibit 10.3 filed with the Form 8-K on June 6, 2022)
31.1
31.2
32.1
32.2
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and combined in Exhibit 101)

51


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)  
   
   
July 28, 2022By:/s/ David D. Nelson
Date David D. Nelson
  Chief Executive Officer and President
  (Principal Executive Officer)
July 28, 2022By:/s/ Jane M. Funk
DateJane M. Funk
Executive Vice President, Treasurer and Chief Financial Officer
  (Principal Financial and Accounting Officer)
52

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