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What changed in WEST BANCORPORATION INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of WEST BANCORPORATION INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+320 added−328 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-23)

Top changes in WEST BANCORPORATION INC's 2023 10-K

320 paragraphs added · 328 removed · 237 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

59 edited+20 added−13 removed114 unchanged
Biggest changeFDIC-insured institutions are expected to operate in a safe and sound manner. The federal banking agencies have adopted operational and managerial standards to promote the safety and soundness of such institutions that address internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.
Biggest changeThe federal banking agencies have adopted operational and managerial standards to promote the safety and soundness of such institutions that address internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings. 14 Table of Contents West Bancorporation, Inc. and Subsidiary In general, the safety and soundness standards prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.
CRA requires West Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. Federal regulators regularly assess West Bank’s record of meeting the credit needs of its communities.
The CRA requires West Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of the entire community, including low- and moderate-income neighborhoods. Federal regulators regularly assess West Bank’s record of meeting the credit needs of its communities.
Well-Capitalized Requirements . The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements.
The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements.
The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries, and this is evidenced in its increases in the targeted federal funds rate throughout 2022.
The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries, and this is evidenced in its increases in the targeted federal funds rate throughout 2022 and 2023.
Concentrations in Commercial Real Estate . Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate (CRE) is one example of regulatory concern.
Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate (CRE) is one example of regulatory concern.
Cloud. 5 Table of Contents West Bancorporation, Inc. and Subsidiary During 2022, the Company received a number of financial performance recognitions, including the following: • West Bancorporation received national recognition from investment bank and research firm Raymond James in the annual Raymond James Community Bankers Cup, which identifies America’s top performing publicly traded community banks with assets between $500 million and $10 billion.
Cloud. 5 Table of Contents West Bancorporation, Inc. and Subsidiary During 2023, the Company received a number of financial performance recognitions, including the following: • West Bancorporation received national recognition from investment bank and research firm Raymond James in the annual Raymond James Community Bankers Cup, which identifies America’s top performing publicly traded community banks with assets between $500 million and $10 billion.
West Bank has the size to provide the personal attention required by local business owners and the financial expertise and entrepreneurial attitude to help businesses meet their financial service needs. 6 Table of Contents West Bancorporation, Inc. and Subsidiary As of December 31, 2022, we conducted banking operations through 11 locations in central and eastern Iowa and southern Minnesota.
West Bank has the size to provide the personal attention required by local business owners and the financial expertise and entrepreneurial attitude to help businesses meet their financial service needs. 6 Table of Contents West Bancorporation, Inc. and Subsidiary As of December 31, 2023, we conducted banking operations through 11 locations in central and eastern Iowa and southern Minnesota.
It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above. As of December 31, 2022: (i) West Bank was not subject to a directive from Iowa Division of Banking or the FDIC to increase its capital and (ii) West Bank was well-capitalized, as defined by FDIC regulations.
It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above. As of December 31, 2023: (i) West Bank was not subject to a directive from Iowa Division of Banking or the FDIC to increase its capital and (ii) West Bank was well-capitalized, as defined by FDIC regulations.
As described above, West Bank exceeded its capital requirements under applicable guidelines as of December 31, 2022. Notwithstanding the availability of funds for dividends, however, the FDIC and the Iowa Division of Banking may prohibit the payment of dividends by West Bank if either or both determine such payment would constitute an unsafe or unsound practice.
As described above, West Bank exceeded its capital requirements under applicable guidelines as of December 31, 2023. Notwithstanding the availability of funds for dividends, however, the FDIC and the Iowa Division of Banking may prohibit the payment of dividends by West Bank if either or both determine such payment would constitute an unsafe or unsound practice.
The network builds a system of sponsors and mentors to provide more opportunities for women in leadership at West Bank and furthers our impact on the community through support and sponsorship of women’s leadership initiatives. 20 percent of West Bank’s current executive management team and 44 percent of officers and department managers are women.
The network builds a system of sponsors and mentors to provide more opportunities for women in leadership at West Bank and furthers our impact on the community through support and sponsorship of women’s leadership initiatives. 20 percent of West Bank’s current executive management team and 48 percent of officers and department managers are women.
Des Moines-West Des Moines is the largest metropolitan statistical area (MSA) in Iowa, while Iowa City and Coralville make up the fourth largest MSA in Iowa. Rochester and St. Cloud are the fourth and fifth largest MSAs in Minnesota. We believe our markets are stable and have weathered the economic challenges of the last few years relatively well.
Des Moines-West Des Moines is the largest metropolitan statistical area (MSA) in Iowa, while Iowa City and Coralville make up the fourth largest MSA in Iowa. Rochester and St. Cloud are the third and fourth largest MSAs in Minnesota. We believe our markets are stable and have weathered the economic challenges of the last few years relatively well.
As of December 31, 2022, we retained our election as a financial holding company, but we have not engaged in any activity and do not own any assets for which a financial holding company designation was required. The election affords the ability to respond more quickly to market developments and opportunities. Change in Control .
As of December 31, 2023, we retained our election as a financial holding company, but we have not engaged in any activity and do not own any assets for which a financial holding company designation was required. The election affords the ability to respond more quickly to market developments and opportunities. Change in Control .
We believe that diversity encourages innovation and inclusion, and our team’s differences give us a competitive advantage. Our goal is to foster a culture in which those differences are valued and respected. Our team is made up of 173 full-time employees and 9 part-time employees.
We believe that diversity encourages innovation and inclusion, and our team’s differences give us a competitive advantage. Our goal is to foster a culture in which those differences are valued and respected. Our team is made up of 181 full-time employees and 9 part-time employees.
At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. The reserve ratio is the DIF balance divided by estimated insured deposits.
At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. For this purpose, the reserve ratio is the DIF balance divided by estimated insured deposits.
Currently, women comprise 23 percent of the directors on our Board. As part of our compensation philosophy, we believe that we must offer and maintain market competitive compensation and benefit programs for our employees in order to attract and retain talent.
Currently, women comprise 25 percent of the directors on our Board of Directors. As part of our compensation philosophy, we believe that we must offer and maintain market competitive compensation and benefit programs for our employees in order to attract and retain talent.
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Iowa Division of Banking, the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB).
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Iowa Division of Banking, the Board of Governors of the Federal Reserve System (Federal Reserve), the FDIC and the Consumer Financial Protection Bureau (CFPB).
More specifically, the bank regulatory agencies described the goals of the CRA Proposal as follows: (i) to expand access to credit, investment, and basic banking services in low and moderate income communities; (ii) to adapt to changes in the banking industry, including mobile and internet banking by modernizing assessment areas while maintaining a focus on branch based areas; (iii) to provide greater clarity, consistency, and transparency in the application of the regulations through the use of standardized metrics as part of CRA evaluation and clarifying eligible CRA activities focused on low and moderate income communities and under served rural communities; (iv) to tailor CRA rules and data collection to bank size and business model; and (v) to maintain a unified approach among the regulators.
More specifically, the bank regulatory agencies described the goals of the CRA Rule as follows: (i) to expand access to credit, investment, and basic banking services in low and moderate income communities; (ii) to adapt to changes in the banking industry, including mobile and internet banking by modernizing assessment areas while maintaining a focus on branch based areas; (iii) to provide greater clarity, consistency, and transparency in the application of the regulations through the use of standardized metrics as part of CRA evaluation and clarifying eligible CRA activities focused on low and moderate income communities and underserved rural communities; (iv) to tailor CRA rules and data collection to bank size and business model; and (v) to maintain a unified approach among the regulators.
West Bank is a business-focused community bank that was organized in 1893. The Company’s primary activity during 2022 was the ownership of West Bank. The Company’s and West Bank’s only business is banking, and therefore, no segment information is presented in this report.
West Bank is a business-focused community bank that was organized in 1893. The Company’s primary activity during 2023 was the ownership of West Bank. The Company’s and West Bank’s only business is banking, and therefore, no segment information is presented in this report.
Our markets host major employers such as Principal Financial Group, Wells Fargo, John Deere, Mayo Clinic, University of Iowa, University of Iowa Health Care, UnityPoint Health, CentraCare Health Systems and IBM. The markets in which we operate have generally experienced stable population growth over the past five years.
Our markets host major employers such as Principal Financial Group, Wells Fargo, Hy-Vee, John Deere, Mayo Clinic, University of Iowa, University of Iowa Health Care, MercyOne, UnityPoint Health, CentraCare Health Systems and IBM. The markets in which we operate have generally experienced stable population growth over the past five years.
The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital and required deductions from Common Equity Tier 1 Capital in the event that such assets exceeded a percentage of a banking institution’s Common Equity Tier 1 Capital.
The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital and required deductions from Common Equity Tier 1 Capital if such assets exceeded a percentage of a banking institution’s Common Equity Tier 1 Capital.
This was the second consecutive year that West Bancorporation was recognized on this list. • West Bancorporation was recognized as one of the nation’s top 200 banks with assets between $2 billion and $10 billion by American Banker, based on three-year average return on equity as of December 31, 2021.
This was the third consecutive year that West Bancorporation was recognized on this list. • West Bancorporation was recognized as one of the nation’s top 200 banks with assets between $2 billion and $10 billion by American Banker, based on three-year average return on equity as of December 31, 2022.
For institutions, like West Bank, that are not considered large and highly complex banking organizations, assessments are now based on examination ratings and financial ratios. The total base assessment rates currently range from 1.5 basis points to 30 basis points.
For institutions, like West Bank, that are not considered large and highly complex banking organizations, assessments are now based on examination ratings and financial ratios. The total base assessment rates currently range from 2.5 basis points to 32 basis points.
The CRA Proposal is designed to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.
The CRA Rule is designed to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.
The Raymond James Community Bankers Cup recognizes the top 10 percent of exchange-traded community banks based on various profitability, operational efficiency, and balance sheet metrics. Raymond James ranked West Bancorporation number 12 in the nation for 2021.
The Raymond James Community Bankers Cup recognizes the top 10 percent of exchange-traded community banks based on various profitability, operational efficiency, and balance sheet metrics. Raymond James ranked West Bancorporation number 13 in the nation for 2022.
In the opinion of management, the capital position of the Company is strong. At December 31, 2022, the Company’s tangible common equity ratio was 5.84 percent compared to 7.44 percent at December 31, 2021. As of December 31, 2022 and 2021, the Company had no intangible assets or preferred stock outstanding.
In the opinion of management, the capital position of the Company is strong. At December 31, 2023, the Company’s tangible common equity ratio was 5.88 percent compared to 5.84 percent at December 31, 2022. As of December 31, 2023 and 2022, the Company had no intangible assets or preferred stock outstanding.
These security and privacy policies and procedures are in effect across all business lines and geographic locations. 14 Table of Contents West Bancorporation, Inc. and Subsidiary Branching Authority . Iowa banks, such as West Bank, have the authority under Iowa law to establish branches anywhere in the State of Iowa, subject to receipt of all required regulatory approvals.
These security and privacy policies and procedures are in effect across all business lines and geographic locations. Branching Authority . Iowa banks, such as West Bank, have the authority under Iowa law to establish branches anywhere in the State of Iowa, subject to receipt of all required regulatory approvals.
Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger. Transaction Account Reserves .
Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger. Community Reinvestment Act Requirements .
West Bank has six offices in the Des Moines area, one office in Coralville, Iowa and one office in each of our four Minnesota markets. In 2022, West Bank completed construction of a permanent branch office in St. Cloud, Minnesota.
West Bank has six offices in the Des Moines area, one office in Coralville, Iowa and one office in each of our four Minnesota markets. In 2023, West Bank completed construction of a permanent branch office in Mankato, Minnesota.
The Company declared and paid cash dividends on its common stock totaling $1.00 per share in 2022 and declared a $0.25 quarterly dividend on January 25, 2023, payable on February 22, 2023, to stockholders of record on February 8, 2023. The Company expects to continue paying regular quarterly dividends in the future.
The Company declared and paid cash dividends on its common stock totaling $1.00 per share in 2023 and declared a $0.25 quarterly dividend on January 24, 2024, payable on February 21, 2024, to stockholders of record on February 7, 2024. The Company expects to continue paying regular quarterly dividends in the future.
West Bancorporation has been recognized for this award eight out of the last nine years. • S&P Global Market Intelligence ranked West Bancorporation as the 13th best-performing community bank for 2021 with assets between $3 billion and $10 billion. The rankings were based on various measures related to profitability, growth and asset quality.
West Bancorporation has been recognized for this award nine out of the last ten years. • S&P Global Market Intelligence ranked West Bancorporation as the 17th best-performing large community bank for 2022 among banks with assets between $3 billion and $10 billion. The rankings were based on various measures related to profitability, growth and asset quality.
Management’s Discussion and Analysis of Financial Condition and Results of Operations. Description of the Company’s Business West Bank provides full-service community banking and trust services to customers located primarily in the following metropolitan areas: Des Moines, Coralville and Iowa City, Iowa, and Rochester, Owatonna, Mankato and St. Cloud, Minnesota.
Additional information on capital can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Description of the Company’s Business West Bank provides full-service community banking and trust services to customers located primarily in the following metropolitan areas: Des Moines, Coralville and Iowa City, Iowa, and Rochester, Owatonna, Mankato and St. Cloud, Minnesota.
West Bank has historically exceeded, and continues to exceed, the 300 percent guideline for commercial real estate loans. Additional monitoring processes have been implemented to manage this increased risk. 15 Table of Contents West Bancorporation, Inc. and Subsidiary Consumer Financial Services .
West Bank has historically exceeded, and continues to exceed, the 300 percent guideline for commercial real estate loans. Additional monitoring processes have been implemented to manage this increased risk. Consumer Financial Services .
These laws mandate financial services companies to have policies and procedures with respect to measures designed to address any or all of the following matters: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities.
The laws mandate financial services companies to have policies and procedures with respect to measures designed to address: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities. Concentrations in Commercial Real Estate .
Under the final rule, a community banking organization is eligible to elect the new framework if it has: less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%. West Bank may elect the CBLR framework at any time but has not currently determined to do so.
Under the final rule, a community banking organization is eligible to elect the new framework if it has: less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%. West Bank has not elected to use the CBLR framework at this time. Liquidity Requirements .
West Bank ranked 39th overall on American Banker’s list and was the top ranked bank of the eight Iowa and Minnesota banks on the list. The Company continues to grow, as loans outstanding at the end of 2022 totaled $2.7 billion compared to $2.5 billion at the end of 2021, an increase of 11.7 percent.
West Bank ranked 18th overall on American Banker’s list and was the top ranked bank of the three Iowa and Minnesota banks on the list. The Company continues to grow, as loans outstanding at the end of 2023 totaled $2.9 billion compared to $2.7 billion at the end of 2022, an increase of 6.7 percent.
In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends will have to maintain 2.5 percent in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “—Bank Capital Requirements” above. 13 Table of Contents West Bancorporation, Inc. and Subsidiary State Bank Investments and Activities .
In addition, under the Basel III Rule, institutions that want to pay dividends will have to maintain 2.5 percent in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “—Bank Capital Requirements” above. State Bank Investments and Activities .
Although capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the 2007-2008 global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress. 11 Table of Contents West Bancorporation, Inc. and Subsidiary Capital Levels .
Although capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the 2007-2008 global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress. 11 Table of Contents West Bancorporation, Inc. and Subsidiary In July 2023, federal banking agencies proposed a revision to capital rules that would apply to all banking organizations with $100 billion or more in total assets.
The Company continues to focus on expanding existing and entering into new customer relationships while maintaining strong credit quality. We anticipate that the current monetary policies of the Federal Reserve will continue to effect customer deposit activity and loan demand in 2023.
Total deposits increased 3.2 percent as of December 31, 2023 from the balances as of December 31, 2022. The Company continues to focus on expanding existing and entering into new customer relationships while maintaining strong credit quality. We anticipate that the current monetary policies of the Federal Reserve will continue to affect customer deposit activity and loan demand in 2024.
Our approach also promotes longevity in our workforce. The average tenure of our employees is over nine years. 72 employees (40 percent) have been with West Bank for over ten years and 42 employees (23 percent) for over 15 years. Non-teller turnover was approximately 11 percent in 2022.
Our approach also promotes longevity in our workforce. The average tenure of our employees is over eight years. Approximately 19 percent have been with West Bank for 10-15 years and approximately 21 percent have been with West Bank for over 15 years. Non-teller turnover was approximately 10 percent in 2023, compared to 11 percent in 2022.
Additionally, West Bank began construction of a new headquarters building in West Des Moines, Iowa and a permanent branch office in Mankato, Minnesota. West Bank offers many types of credit to its customers, including commercial, real estate and consumer loans. West Bank offers trust services, including the administration of estates, conservatorships, personal trusts and agency accounts.
Additionally, construction continued for the new headquarters building in West Des Moines, Iowa and is expected to be completed in the second quarter of 2024. West Bank offers many types of credit to its customers, including commercial, real estate and consumer loans. West Bank offers trust services, including the administration of estates, conservatorships, personal trusts and agency accounts.
The Iowa Division of Banking may restrict the declaration or payment of a dividend by an Iowa-chartered bank, such as West Bank.
Under the Iowa Banking Act, Iowa-chartered banks generally may pay dividends only out of undivided profits. The Iowa Division of Banking may restrict the declaration or payment of a dividend by an Iowa-chartered bank, such as West Bank.
The larger, international, national or regional banks have certain competitive advantages due to their ability to undertake substantial advertising campaigns and allocate their investment assets to out-of-market geographic regions with potentially higher returns. Such banks also offer certain services, such as international and conduit financing transactions, which are not offered directly by West Bank.
Some of West Bank’s competitors are locally controlled, while others are regional, national or international companies. The larger, international, national or regional banks have certain competitive advantages due to their ability to undertake substantial advertising campaigns and allocate their investment assets to out-of-market geographic regions with potentially higher returns.
The CFPB’s rules have not had a significant impact on West Bank’s operations, except for higher compliance costs. ADDITIONAL INFORMATION The principal executive offices of the Company are located at 1601 22 nd Street, West Des Moines, Iowa 50266. The Company’s telephone number is (515) 222-2300, and its internet address is www.westbankstrong.com.
The CFPB’s rules have not had a significant impact on West Bank’s operations, except for higher compliance costs. ADDITIONAL INFORMATION The principal executive offices of the Company are located at 1601 22 nd Street, West Des Moines, Iowa 50266. As of April 15, 2024, the Company’s corporate headquarters will be located at 3330 Westown Parkway, West Des Moines, Iowa 50266.
The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. Factoring in the conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital.
The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress.
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), the Bank Secrecy Act and other similar laws are designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and have significant implications for FDIC-insured institutions and other businesses involved in the transfer of money.
They are designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and have significant implications for FDIC-insured institutions and other businesses involved in the transfer of money.
Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions ( i.e. , Tier 1 Capital less all intangible assets), well above the minimum levels. 12 Table of Contents West Bancorporation, Inc. and Subsidiary Under the capital regulations of the FDIC, in order to be well‑capitalized, West Bank must maintain: • A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more; • A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more; • A ratio of Total Capital to total risk-weighted assets of 10% or more; and • A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater.
Under the capital regulations of the FDIC, in order to be well‑capitalized, West Bank must maintain: • A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more; • A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more; • A ratio of Total Capital to total risk-weighted assets of 10% or more; and • A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater.
In response to the global financial crisis, the Dodd-Frank Act increased the minimum reserve ratio from 1.15% to 1.35% of estimated amount of total insured deposits.
In response to the global financial crisis, the Dodd-Frank Act increased the minimum reserve ratio from 1.15% to 1.35% of estimated amount of total insured deposits. In the semiannual update in June 2022, the FDIC projected that the reserve ratio was at risk of not reaching the statutory minimum of 1.35% by September 30, 2028, the statutory deadline.
The amount of the assessment is calculated on the basis of West Bank’s total assets. Bank Capital Requirements . Regulatory capital represents the net assets of a banking organization available to absorb losses. Because of the risks attendant to their business, FDIC-insured institutions generally are required to hold more capital than other businesses, which directly affects our earnings capabilities.
Because of the risks attendant to their business, FDIC-insured institutions generally are required to hold more capital than other businesses, which directly affects our earnings capabilities.
Unemployment rates in all our markets are below the national unemployment rate of 3.5 percent as of December 31, 2022. The market areas served by West Bank are highly competitive with respect to both loans and deposits. West Bank competes with other commercial banks, credit unions, mortgage companies and other financial service providers, including financial technology (FinTech) companies.
Unemployment rates in all our markets are below the national unemployment rate of 3.7 percent as of December 31, 2023, according to data from the U.S. Bureau of Labor Statistics. The market areas served by West Bank are highly competitive with respect to both loans and deposits.
Technology has lowered barriers to entry and made it possible for non-banks, such as FinTech companies, to offer deposit and loan products and services traditionally provided by banks.
The financial services industry has become even more competitive as a result of recent Federal Reserve rate increases and legislative, regulatory and technological changes and continued consolidation. Technology has lowered barriers to entry and made it possible for non-banks, such as FinTech companies, to offer deposit and loan products and services traditionally provided by banks.
Applications for additional acquisitions would be affected by the evaluation of West Bank’s effectiveness in meeting its CRA requirements. In May 2022, the bank regulatory agencies issued a notice of proposed rulemaking called the Joint Proposal to Strengthen and Modernize Community Reinvestment Act Regulations (the “CRA Proposal”).
Applications for acquisitions would be affected by the evaluation of West Bank’s effectiveness in meeting its CRA requirements. On October 24, 2023, the bank regulatory agencies issued a final rule to strengthen and modernize the CRA regulations (the CRA Rule), some of which is effective on April 1, 2024.
Banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983. The minimums have been expressed in terms of ratios of “capital” divided by “total assets”.
The minimums have been expressed in terms of ratios of “capital” divided by “total assets”.
While the LCR only applies to the largest banking organizations in the country, we continue to review our liquidity risk management policies in light of developments. Dividend Payments . The primary source of funds for the Company is dividends from West Bank. Under the Iowa Banking Act, Iowa-chartered banks generally may pay dividends only out of undivided profits.
Although these tests do not, and will not, apply to West Bank, we continue to review our liquidity risk management policies in light of regulatory requirements and industry developments. Dividend Payments . The primary source of funds for the Company is dividends from West Bank.
Learn more about our ESG practices on the Corporate Governance section of our website at www.westbankstrong.com under Investor Relations/Overview/Governance documents. SUPERVISION AND REGULATION General FDIC-insured institutions, their holding companies and their affiliates are extensively regulated under federal and state law.
SUPERVISION AND REGULATION General FDIC-insured institutions, their holding companies and their affiliates are extensively regulated under federal and state law.
These larger banking organizations also have much higher legal lending limits than West Bank, and therefore, may be better able to service large regional, national and global commercial customers. The financial services industry has become even more competitive as a result of recent Federal Reserve rate increases and legislative, regulatory and technological changes and continued consolidation.
Such banks also offer certain services, such as international and conduit financing transactions, which are not offered directly by West Bank. These larger banking organizations also have much higher legal lending limits than West Bank, and therefore, may be better able to service large regional, national and global commercial customers.
According to the Federal Deposit Insurance Corporation’s (FDIC) Summary of Deposits as of June 30, 2022, West Bank ranked eighth in the state of Iowa in terms of deposit share. Some of West Bank’s competitors are locally controlled, while others are regional, national or international companies.
West Bank competes with other commercial banks, credit unions, mortgage companies and other financial service providers, including financial technology (FinTech) companies. According to the Federal Deposit Insurance Corporation’s (FDIC) Summary of Deposits as of June 30, 2023, West Bank ranked eighth in the state of Iowa in terms of deposit share.
The Board carefully considers corporate social responsibility when it works with management to determine the Company’s strategic priorities and plans to achieve such priorities. We recognize that understanding our efforts to improve ESG practices is increasingly important to our stockholders, customers and employees.
The Board carefully considers corporate social responsibility when it works with management to determine the Company’s strategic priorities and plans to achieve such priorities. Learn more about our ESG practices on the Corporate Governance section of our website at www.westbankstrong.com under Investor Relations/Overview/Governance documents.
We have a number of multi-lingual employees at West Bank and strive to have at least one bilingual team member in all Central Iowa locations in customer-facing or customer service roles. 7 Table of Contents West Bancorporation, Inc. and Subsidiary We continue to invest in initiatives aimed at the growth and readiness of our workforce, including our West Bank Women’s Impact Network (WIN).
We are proud of our culturally and gender diverse workforce, with approximately 14 percent identifying as persons of color and approximately 59 percent as female. 7 Table of Contents West Bancorporation, Inc. and Subsidiary We continue to invest in initiatives aimed at the growth and readiness of our workforce, including our West Bank Women’s Impact Network (WIN).
Liquidity Requirements . Liquidity is a measure of the ability and ease with which bank assets may be converted to cash. Liquid assets are those that can be converted to cash quickly if needed to meet financial obligations. To remain viable, FDIC-insured institutions must have enough liquid assets to meet their near-term obligations, such as withdrawals by depositors.
Liquidity is a measure of the ability and ease with which bank assets may be converted to meet financial obligations such as deposits or other funding sources. Banks are required to implement liquidity risk management frameworks that ensure they maintain sufficient liquidity, including a cushion of unencumbered, high quality liquid assets, to withstand a range of stress events.
Removed
Total loans outstanding at the end of 2022 included $1.1 million of Paycheck Protection Program (PPP) loans, compared to $22.2 million at the end of 2021. Excluding PPP loans, total loans increased 12.6 percent in 2022. Total deposits declined 4.5 percent as of December 31, 2022 from the balances as of December 31, 2021.
Added
Based on this update, the FDIC approved an increase in initial base deposit insurance assessment rate schedules by two basis points, applicable to all insured depository institutions. The increase was effective on January 1, 2023, applicable to the first quarterly assessment period of the 2023 assessment (January 1 through March 31, 2023).
Removed
The decrease in the tangible common equity ratio was primarily due to the increase in accumulated other comprehensive loss related to the decline in market value of the securities portfolio, partially offset by net income less dividends paid in 2022. Additional information on capital can be found in Item 7.
Added
In addition, because the total cost of the failures of Silicon Valley Bank and Signature Bank was approximately $16.3 billion, the FDIC adopted a special assessment for banks having deposits above $5 billion, at an annual rate of 13.4 basis points, beginning with the first quarterly assessment period of 2024 (January 1 through March 31, 2024) with an invoice payment date of June 28, 2024, and will continue to collect special assessments for an anticipated total of eight quarterly assessment periods.
Removed
We are proud of our culturally and gender diverse workforce, with approximately 18 percent identifying as persons of color and approximately 55 percent as women.
Added
The base for the special assessment is equal to an insured depository institution’s estimated uninsured deposits for the December 31, 2022 reporting period, adjusted to exclude the first $5 billion in estimated uninsured deposits. Because West Bank’s uninsured deposits at December 31, 2023 were less than $5 billion, this special assessment does not apply. Supervisory Assessments .
Removed
Prior to the COVID-19 pandemic, the reserve ratio briefly exceeded the statutory threshold, but, because of extraordinary insured deposit growth caused by an unprecedented inflow of deposits during the pandemic, the reserve ratio fell below 1.35% and continues to be below the threshold.
Added
All Iowa banks are required to pay supervisory assessments to the Iowa Division of Banking to fund the operations of that agency. The amount of the assessment is calculated on the basis of West Bank’s total assets. Bank Capital Requirements . Regulatory capital represents the net assets of a banking organization available to absorb losses.
Removed
The FDIC staff closely monitors the factors that affect the reserve ratio, and, in order to raise the reserve ratio to 1.35 % by September 30, 2028, the FDIC increased the initial deposit insurance rates by two basis points, beginning with the first quarterly assessment period of the 2023 assessment.
Added
The rules are intended to improve consistency of risk measurement in the capital rules for large banking organizations; apply the capital standards for large banking organizations to a broader set of large banking organizations to ensure regulatory capital is calculated in a consistent manner; require all large banking organizations to meet the supplementary leverage ratio requirements.
Removed
As a result of this change, West Bank’s FDIC insurance assessment will increase beginning in 2023. The DIF balance was $125.5 billion on September 30, 2022, up $1.0 billion from the end of the second quarter. The reserve ratio remained at 1.26% as growth in the fund balance kept pace with growth in insured deposits.
Added
Smaller banking organizations could be subject to the newly revised market risk capital rule if its trading assets and trading liabilities are at least $5 billion or at least 10 percent of its total assets, to satisfy minimum capital requirements. If finalized, the proposal would provide transition provisions to allow banking organizations sufficient time to adjust to the proposed requirements.
Removed
The FDIC staff continues to closely monitor the factors that affect the reserve ratio, and any change could impact FDIC assessments. Supervisory Assessments . All Iowa banks are required to pay supervisory assessments to the Iowa Division of Banking to fund the operations of that agency.
Added
Specifically, the proposal would phase in the requirements over three years, such that the new provisions would be fully implemented starting in the fourth year after the effective date of the rule. Capital Levels . Banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983.
Removed
In addition to liquidity guidelines already in place, the U.S. bank regulatory agencies implemented the Basel III Liquidity Coverage Ratio or LCR in September 2014, which require large financial firms to hold levels of liquid assets sufficient to protect against constraints on their funding during times of financial turmoil.
Added
Factoring in the conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital. 12 Table of Contents West Bancorporation, Inc. and Subsidiary Well-Capitalized Requirements .
Removed
In general, the safety and soundness standards prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.
Added
Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions ( i.e. , Tier 1 Capital less all intangible assets), well above the minimum levels.
Removed
Federal law requires FDIC-insured institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts) to provide liquidity. The amount of reserves is established by the Federal Reserve based on tranches of zero, three and ten percent of a bank’s transaction account deposits.
Added
The level and speed of deposit outflows contributing to the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in the first half of 2023 was unprecedented and contributed to acute liquidity and funding strain.
Removed
However, in March 2020, in an unprecedented move, the Federal Reserve announced that the banking system had ample reserves, and, as reserve requirements no longer played a significant role in this regime, it reduced all reserve tranches to zero percent, thereby freeing banks from the legally mandated reserve maintenance requirement.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

45 edited+17 added−20 removed139 unchanged
Biggest changeThere continues to be a rise in electronic fraudulent activity, security breaches and cyber attacks within the financial services industry, especially in the commercial banking sector due to cyber-criminals targeting commercial bank accounts.
Biggest changeInformation security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us, our customers or third-party vendors, denial or degradation of service attacks, and malware or other cyber attacks. 19 Table of Contents West Bancorporation, Inc. and Subsidiary There continues to be a rise in electronic fraudulent activity, security breaches and cyber attacks within the financial services industry, especially in the commercial banking sector due to cyber-criminals targeting commercial bank accounts, and as a result of increasingly sophisticated methods of conducting cyber attacks, including those employing artificial intelligence.
These changes also may require us to invest significant management attention and resources to make any necessary changes to operations in order to comply and could therefore also materially and adversely affect our business, financial condition and results of operations. 25 Table of Contents West Bancorporation, Inc. and Subsidiary Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.
These changes may also require us to invest significant management attention and resources to make any necessary changes to operations in order to comply and could therefore materially and adversely affect our business, financial condition and results of operations. 25 Table of Contents West Bancorporation, Inc. and Subsidiary Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.
Our common stockholders are only entitled to receive the dividends declared by our Board of Directors. Although we have historically paid quarterly dividends on our common stock, there can be no assurances that we will be able to continue to pay regular quarterly dividends or that any dividends we do declare will be in any particular amount.
Our common stockholders are only entitled to receive the dividends declared by our Board of Directors (the Board). Although we have historically paid quarterly dividends on our common stock, there can be no assurances that we will be able to continue to pay regular quarterly dividends or that any dividends we do declare will be in any particular amount.
This could lead to an increased provision for loan losses and adversely affect our operating results and financial condition. The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny. The federal banking regulators have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending.
This could lead to an increased provision for credit losses and adversely affect our operating results and financial condition. The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny. The federal banking regulators have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending.
In addition, bank regulatory agencies periodically review our allowance and may require an increase in the provision for loan losses or the recognition of additional loan charge-offs, based on judgments different from those of management. Also, if charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to increase the allowance.
In addition, bank regulatory agencies periodically review our allowance and may require an increase in the provision for credit losses or the recognition of additional loan charge-offs, based on judgments different from those of management. Also, if charge-offs in future periods exceed the allowance for credit losses, we will need additional provisions to increase the allowance.
We also cannot guarantee that our environmental risk assessment will detect all environmental issues relating to a property, which could subject us to additional liability. Risks Related to Accounting Policies and Estimates Our allowance for loan losses may be insufficient to absorb potential losses in our loan portfolio.
We also cannot guarantee that our environmental risk assessment will detect all environmental issues relating to a property, which could subject us to additional liability. Risks Related to Accounting Policies and Estimates Our allowance for credit losses may be insufficient to absorb potential losses in our loan portfolio.
A financial institution may have a concentration in commercial real estate lending if, among other factors (i) total reported loans for construction, land development, and other land represent 100 percent or more of total capital, or (ii) total reported loans secured by multifamily and non-farm non-residential properties, loans for construction, land development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300 percent or more of total capital.
A financial institution may have a concentration in commercial real estate lending if, among other factors (i) total reported loans for construction, land development, and other land represent 100 percent or more of total risk-based capital, or (ii) total reported loans secured by multifamily and non-farm non-residential properties, loans for construction, land development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300 percent or more of total risk-based capital.
As of December 31, 2022, the Company had $20.6 million in junior subordinated debentures outstanding that were issued to the Company’s subsidiary trust, West Bancorporation Capital Trust I, and $60.0 million aggregate principal amount outstanding of the Company’s 5.25% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “Notes”).
As of December 31, 2023, the Company had $20.6 million in junior subordinated debentures outstanding that were issued to the Company’s subsidiary trust, West Bancorporation Capital Trust I, and $60.0 million aggregate principal amount outstanding of the Company’s 5.25% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “Notes”).
The widespread adoption of new technologies, including mobile banking services, cryptocurrencies and payment systems, could require us in the future to make substantial expenditures to modify or adapt our existing products and services as we grow and develop new products to satisfy our customers’ expectations and comply with regulatory guidance.
The widespread adoption of new technologies, including mobile banking services, artificial intelligence, cryptocurrencies and payment systems, could require us in the future to make substantial expenditures to modify or adapt our existing products and services as we grow and develop new products to satisfy our customers’ expectations and comply with regulatory guidance.
Commercial real estate loans were a significant portion of our total loan portfolio as of December 31, 2022. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located.
Commercial real estate loans were a significant portion of our total loan portfolio as of December 31, 2023. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located.
Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses.
Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for credit losses.
Sanctions imposed by the United States and other countries in response to such conflict could further adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.
Sanctions imposed by the United States and other countries in response to such conflicts could further adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.
As a bank, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against us or our clients, which may result in financial losses or increased costs to us or our customers, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our customers, litigation or damage to our reputation.
As a bank, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against us, our third-party partners or our clients, which may result in financial losses or increased costs to us or our customers, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our customers, litigation or damage to our reputation.
The specific consequences of the conflict in Ukraine on our business is difficult to predict at this time, but in addition to inflationary pressures affecting our operations and those of our customers and borrowers, we may also experience an increase in cyberattacks against us, our customers and borrowers, service providers and other third parties. 24 Table of Contents West Bancorporation, Inc. and Subsidiary Continued elevated levels of inflation could adversely impact our business, results of operations and financial condition.
The specific consequences of the conflicts on our business are difficult to predict at this time, but in addition to inflationary pressures affecting our operations and those of our customers and borrowers, we may also experience an increase in cyberattacks against us, our customers and borrowers, service providers and other third parties. 24 Table of Contents West Bancorporation, Inc. and Subsidiary Continued elevated levels of inflation could adversely impact our business, results of operations and financial condition.
As a result, our cost of funds has increased and caused a decline in our net interest income and net interest margin in 2022, as compared to 2021.
As a result, our cost of funds has increased and caused a decline in our net interest income and net interest margin in 2023, as compared to 2022.
Economic events or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flows and market values of the affected properties. 17 Table of Contents West Bancorporation, Inc. and Subsidiary If the loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time of originating the loans, which could cause us to charge off all or a portion of the loans.
Economic events, including decreases in office occupancy following the COVID-19 pandemic, or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flows and market values of the affected properties. 17 Table of Contents West Bancorporation, Inc. and Subsidiary If the loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time of originating the loans, which could cause us to charge off all or a portion of the loans.
Our business, reputation and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient. Furthermore, the long-term impacts of climate change could have a negative impact on our customers and their businesses.
Our business, reputation and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient. Furthermore, the long-term impacts of climate change could have a negative impact on our customers and their businesses, as well as the stability of our deposit base.
Moreover, in recent periods, several large corporations, including financial institutions and retail companies, have suffered major data breaches, in some cases exposing not only confidential and proprietary corporate information, but also sensitive financial and other personal information of their customers and employees and subjecting them to potential fraudulent activity.
Moreover, in recent periods, several large corporations, including financial institutions, third party partners specializing in providing services to financial institutions, and retail companies, have suffered major data breaches, in some cases exposing not only confidential and proprietary corporate information, but also sensitive financial and other personal information of their customers and employees and subjecting them to potential fraudulent activity.
West Bank maintains liquidity primarily through customer deposits and other short-term funding sources, including advances from the Federal Home Loan Bank (FHLB), brokered CDs and purchased federal funds.
West Bank maintains liquidity primarily through customer deposits and other short-term funding sources, including advances from the Federal Home Loan Bank (FHLB) and the Federal Reserve discount window, brokered deposits and purchased federal funds.
Interest rates are sensitive to many factors, including government monetary and fiscal policies, domestic and international economic and political conditions and competition. If interest rates continue to increase, which is expected in 2023, banks will experience competitive pressures to further increase rates paid on deposits.
Interest rates are sensitive to many factors, including government monetary and fiscal policies, domestic and international economic and political conditions and competition. If interest rates continue to increase, banks will experience competitive pressures to further increase rates paid on deposits.
Based on these criteria, West Bank had concentrations of 80 percent and 398 percent, respectively, as of December 31, 2022. The purpose of the CRE Guidance is to assist banks in developing risk management practices and capital levels commensurate with the level and nature of commercial real estate concentrations.
Based on these criteria, West Bank had concentrations of 90 percent and 417 percent, respectively, as of December 31, 2023. The purpose of the CRE Guidance is to assist banks in developing risk management practices and capital levels commensurate with the level and nature of commercial real estate concentrations.
Effective use of technology increases efficiency and enables banks to better serve customers. Our future success depends, in part, on our ability to effectively implement new technology.
Effective use of technology increases efficiency and enables banks to better serve customers. Our future success depends, in part, on our ability and the ability of our third-party partners to effectively implement new technology.
We may also fail to receive full information with respect to the risks of a counterparty. In addition, in cases where we have extended credit against collateral, we may find that we are under-secured, for example, as a result of sudden declines in market values that reduce the value of collateral or due to fraud with respect to such collateral.
In addition, in cases where we have extended credit against collateral, we may find that we are under-secured, for example, as a result of sudden declines in market values that reduce the value of collateral or due to fraud with respect to such collateral.
Conversely, attempts to purchase a significant amount of our stock could cause the market price to rise above the reasonable inherent worth of the Company. 27 Table of Contents West Bancorporation, Inc. and Subsidiary The stock market can be volatile, and fluctuations in our operating results and other factors could cause our stock price to decline.
Conversely, attempts to purchase a significant amount of our stock could cause the market price to rise above the reasonable inherent worth of the Company. The stock market can be volatile, and fluctuations in our operating results and other factors could cause our stock price to decline.
Such unfavorable conditions could materially and adversely affect us. The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including the current conflict between Russia and Ukraine, which is increasing volatility in commodity and energy prices, creating supply chain issues and causing instability in financial markets.
The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including the current conflicts between Russia and Ukraine and between Israel and Palestine, which are increasing volatility in commodity and energy prices, creating supply chain issues and causing instability in financial markets and political systems.
The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our business, financial condition and results of operations. Potential partnerships with digital asset companies, moreover, could also entail significant investment.
The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our business, financial condition and results of operations.
Issuing additional common or preferred stock may adversely affect the market price of our common stock, and capital may not be available when needed. The Company may issue additional shares of common or preferred stock in order to raise capital at some date in the future to support continued growth, either internally generated or through acquisitions.
The Company may issue additional shares of common or preferred stock in order to raise capital at some date in the future to support continued growth, either internally generated or through acquisitions.
Rising interest rates also may reduce the demand for loans and the value of fixed-rate securities. These effects from interest rate changes or from other sustained economic stress or a recession, among other matters, could have a material adverse effect on our business, financial condition, liquidity, and results of operations.
These effects from interest rate changes or from other sustained economic stress or a recession, among other matters, could have a material adverse effect on our business, financial condition, liquidity, and results of operations. A large percentage of our securities have fixed interest rates and are classified as available for sale.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings.
The United States has recently experienced elevated levels of inflation, with the consumer price index climbing approximately 7.1 percent in 2022. Inflationary pressures are currently expected to continue into 2023. Continued levels of inflation could have complex effects on our business, results of operations and financial condition, some of which could be materially adverse.
The United States has recently experienced elevated levels of inflation, with the consumer price index climbing significantly in 2022. Inflationary pressures reduced in 2023 but remained elevated. Future inflation metrics are uncertain for 2024 and onward. Continued levels of inflation could have complex effects on our business, results of operations and financial condition, some of which could be materially adverse.
Although we regularly review our credit exposure to specific clients and counterparties and to specific industries that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to detect, such as fraud. Moreover, such circumstances, including fraud, may become more likely to occur or be detected in periods of general economic uncertainty.
Although we regularly review our credit exposure to specific clients and counterparties and to specific industries that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to detect, such as fraud, or such as catastrophic events affecting certain industries.
Compliance with current or future privacy, data protection and information security laws could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could adversely affect our business, financial condition or results of operations. 20 Table of Contents West Bancorporation, Inc. and Subsidiary We depend on information technology and telecommunications systems of third parties, and any systems failures, interruptions or data breaches involving these systems could adversely affect our operations and financial condition.
Compliance with current or future privacy, data protection and information security laws could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could adversely affect our business, financial condition or results of operations.
A large percentage of our securities have fixed interest rates and are classified as available for sale. As is the case with many financial institutions, our emphasis on increasing the development of core deposits, those with no stated maturity date, has resulted in our interest-bearing liabilities having a shorter duration than our interest-earning assets.
As is the case with many financial institutions, our emphasis on increasing the development of core deposits, those with no stated maturity date, has resulted in our interest-bearing liabilities having a shorter duration than our interest-earning assets. This imbalance can create significant earnings volatility because interest rates change over time.
Effective internal controls over financial reporting are necessary to provide reliable financial reports and prevent fraud. Management believes that our internal controls over financial reporting are currently effective.
Failure to maintain effective internal controls over financial reporting could impair our ability to accurately and timely report our financial results and could increase the risk of fraud. Effective internal controls over financial reporting are necessary to provide reliable financial reports and prevent fraud. Management believes that our internal controls over financial reporting are currently effective.
Furthermore, there has been heightened legislative and regulatory focus on privacy, data protection and information security. New or revised laws and regulations may significantly impact our current and planned privacy, data protection and information security-related practices, the collection, use, retention and safeguarding of customer and employee information, and current or planned business activities.
New or revised laws and regulations, including with respect to the use of artificial intelligence by financial institutions and service providers, may significantly impact our current and planned privacy, data protection and information security-related practices, the collection, use, retention and safeguarding of customer and employee information, and current or planned business activities.
At December 31, 2022, we had $138,732 of net unrealized losses in our securities portfolio. If we are forced to liquidate any of those investments prior to maturity, including because of a lack of liquidity, we would recognize as a charge to earnings the losses attributable to those securities.
If we are forced to liquidate any of those investments prior to maturity, including because of a lack of liquidity, we would recognize as a charge to earnings the losses attributable to those securities. Our securities portfolio has an average duration of 6.2 years, so we expect an increase in unrealized losses in rising interest rate environments.
This imbalance can create significant earnings volatility because interest rates change over time. As interest rates have increased, our cost of funds has increased more rapidly than the yields on a substantial portion of our interest-earning assets. In addition, the market value of our securities portfolio has declined in recent periods.
As interest rates have increased, our cost of funds has increased more rapidly than the yields on a substantial portion of our interest-earning assets. In addition, the market value of our securities portfolio has declined in recent periods. At December 31, 2023, we had $121,787 of net unrealized losses in the securities portfolio.
Any increases in provisions will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations. 18 Table of Contents West Bancorporation, Inc. and Subsidiary The Current Expected Credit Loss accounting standard could require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.
Any increases in provisions will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations. 18 Table of Contents West Bancorporation, Inc. and Subsidiary Our accounting policies and methods are the basis for how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain.
At December 31, 2022, our borrowed funds increased to $485.9 million, compared to $199.9 million at December 31, 2021. The increase included $58.9 million in subordinated notes that were issued in June 2022, $30.0 million in FHLB advances associated with a long-term interest rate swap and $197.1 million in federal funds purchased and other short-term borrowings.
At December 31, 2023, our borrowed funds increased to $592.6 million, compared to $485.9 million at December 31, 2022. The increase included $140.0 million in FHLB advances associated with long-term interest rate swaps and $20.0 million in FHLB advances with a fixed interest rate, partially offset by a decrease of $49.7 million in federal funds purchased and other short-term borrowings.
If the FOMC further increases the targeted federal funds rates, overall interest rates likely will rise, which may negatively impact the entire national economy. In addition, our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans and other assets.
In addition, our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans and other assets. Rising interest rates also may reduce the demand for loans and the value of fixed-rate securities.
If economic influences change so that we do not have access to short-term credit, or our depositors withdraw a substantial amount of their funds for other uses, West Bank might experience liquidity issues. Our efforts to monitor and manage liquidity risk may not be successful or sufficient to deal with dramatic or unanticipated reductions in our liquidity.
The Federal Reserve has announced that it is ending the BTFP and will cease making new loans under this program on March 11, 2024. If economic influences change so that we do not have access to short-term credit, or our depositors withdraw a substantial amount of their funds for other uses, West Bank might experience liquidity issues.
We maintain an allowance for loan losses at a level we believe adequate to absorb probable losses inherent in our existing loan portfolio. The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; credit loss experience; current loan portfolio quality; present economic, political and regulatory conditions; and unidentified losses inherent in the current loan portfolio.
We maintain an allowance for credit losses at a level we believe adequate to absorb current expected credit losses based on an analysis of the loan portfolio.
Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us, our customers or third-party vendors, denial or degradation of service attacks, and malware or other cyber attacks.
Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts.
There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings. 22 Table of Contents West Bancorporation, Inc. and Subsidiary We may experience difficulties in managing our growth.
Additionally, we may be negatively affected by brand or reputational harm to other community banks or to the community banking industry. 22 Table of Contents West Bancorporation, Inc. and Subsidiary We may experience difficulties in managing our growth.
In addition to credit losses, losses are recognized for a security with an unrealized loss if the Company has the intent to sell the security or if it is more likely than not that the Company will be required to sell the security before collection of the principal amount.
If the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the security is written down to fair value through income. At December 31, 2023, we had $121,787 of net unrealized losses in our securities portfolio.
Removed
The FASB issued a new accounting standard that became effective for the Company beginning on January 1, 2023. This standard, referred to as Current Expected Credit Loss (CECL), requires the Company to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for loan losses.
Added
Moreover, such circumstances, including fraud, may become more likely to occur or be detected in periods of general economic uncertainty. We may also fail to receive full information with respect to the risks of a counterparty.
Removed
This changed the Company’s previous methodology of providing for loan losses that are probable. Utilizing objective and subjective factors, the Company now maintains, as of January 1, 2023, an allowance for credit losses, established through a provision for credit losses charged to expense, to cover its estimate of the current expected credit losses in its loan and securities portfolios.
Added
The level of the allowance reflects management’s estimate of current expected losses in the portfolio as of the balance sheet date and is based on a cash flow-based model that considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts.
Removed
In determining the size of this allowance, the Company utilizes estimates based on analyses of volume and types of loans, internal loan classifications, trends in classifications, volume and trends in delinquencies, nonaccruals and charge-offs, loss experience of various loan categories, national and local economic conditions, including unemployment statistics, industry and peer bank loan quality indications, and other pertinent factors and information.
Added
Furthermore, there has been heightened legislative and regulatory focus on privacy, data protection and information security.
Removed
Expected losses are difficult to forecast, especially if those losses stem from factors beyond the Company’s historical experience or are otherwise inconsistent with its credit quality assessments.
Added
Issues with the use of artificial intelligence in our marketplace may result in reputational harm or liability, or could otherwise adversely affect our business. Artificial intelligence, including generative artificial intelligence, is or may be enabled by or integrated into our products or those developed by our third-party partners.
Removed
If the Company’s assumptions are inaccurate, its current allowance may not be sufficient to cover potential credit losses, and additional provisions may be necessary which would negatively impact its results of operations and financial condition.
Added
As with many developing technologies, artificial intelligence presents risks and challenges that could affect its further development, adoption, and use, and therefore our business.
Removed
Any subsequent increase in our allowance for credit losses or expenses incurred to determine the appropriate level of the allowance for credit losses will result in a decrease in net income and capital and may have a material adverse impact on our financial condition and results of operations.
Added
Artificial intelligence algorithms may be flawed, for example datasets may contain biased information or otherwise be insufficient; and inappropriate or controversial data practices could impair the acceptance of artificial intelligence solutions and result in burdensome new regulations.
Removed
Moreover, the CECL model may create more volatility in our level of allowance for credit losses and could result in the need for additional capital. Our accounting policies and methods are the basis for how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain.
Added
If the analyses that products incorporating artificial intelligence assist in producing for us or our third-party partners are deficient, biased or inaccurate, we could be subject to competitive harm, potential legal liability and brand or reputational harm. The use of artificial intelligence may also present ethical issues.
Removed
Generally, a fixed income security is determined to have credit losses when it appears unlikely that we will receive all the principal and interest due in accordance with the original terms of the investment.
Added
If we or our third-party partners offer artificial intelligence enabled products that are controversial because of their purported or real impact on human rights, privacy, or other issues, we may experience competitive harm, potential legal liability and brand or reputational harm.
Removed
Our securities portfolio has an average duration of 6.7 years, so we expect an increase in unrealized losses if interest rates continue to increase in 2023. 19 Table of Contents West Bancorporation, Inc. and Subsidiary Failure to maintain effective internal controls over financial reporting could impair our ability to accurately and timely report our financial results and could increase the risk of fraud.
Added
In addition, we expect that governments will continue to assess and implement new laws and regulations concerning the use of artificial intelligence, which may affect or impair the usability or efficiency of our products and services and those developed by our third-party partners. 20 Table of Contents West Bancorporation, Inc. and Subsidiary We depend on information technology and telecommunications systems of third parties, and any systems failures, interruptions or data breaches involving these systems could adversely affect our operations and financial condition.
Removed
It is currently expected that during 2023, and perhaps beyond, the Federal Open Market Committee of the Federal Reserve, or FOMC, will continue to increase interest rates to reduce the rate of inflation.
Added
Additionally, the Federal Reserve established the Bank Term Funding Program, or BTFP, on March 12, 2023, offering qualifying banks loans of up to one year in length collateralized by qualifying assets, including U.S. securities valued at par, to serve as a source of additional liquidity against high-quality securities and reducing an institution’s need to quickly sell high-quality securities to meet liquidity needs.
Removed
In 2022, the FOMC increased, at various dates throughout the year, the target range for the federal funds rate from 0.00 percent to 0.25 percent to a range of 4.25 percent to 4.50 percent. All of these increases were expressly made in response to inflationary pressures, which are currently expected to continue in 2023.
Added
Our efforts to monitor and manage liquidity risk may not be successful or sufficient to deal with dramatic or unanticipated reductions in our liquidity.
Removed
At December 31, 2022, we had $138,732 of net unrealized losses in the securities portfolio.
Added
If the Federal Reserve Federal Open Markets Committee (FOMC) further increases the targeted federal funds rates, overall interest rates likely will rise, which may negatively impact the entire national economy.
Removed
A transition away from LIBOR as a reference rate for financial contracts could negatively affect our income and expenses and the value of various financial contracts. LIBOR is used extensively in the United States and globally as a benchmark for various financial contracts, including adjustable-rate mortgages, corporate debt and interest rate swaps.
Added
Such unfavorable conditions could materially and adversely affect us.
Removed
LIBOR is set based on interest rate information reported by certain banks, which will stop reporting such information starting after December 31, 2021 through June 30, 2023. Other benchmarks may perform differently than LIBOR or alternative benchmarks have performed in the past or have other consequences that cannot currently be anticipated.
Added
Potential partnerships with digital asset companies, moreover, could also entail significant investment. 26 Table of Contents West Bancorporation, Inc. and Subsidiary Climate change could adversely affect our business, affect client activity levels and damage our reputation.
Removed
It is also uncertain what will happen with instruments that rely on LIBOR for future interest rate adjustments and which remain outstanding if LIBOR ceases to exist. 26 Table of Contents West Bancorporation, Inc. and Subsidiary While there is no consensus on what rate or rates may become accepted alternatives to LIBOR, the Alternative Reference Rates Committee, a steering committee comprised of U.S. financial market participants, selected by the Federal Reserve Bank of New York, started in May 2018 to publish the Secured Overnight Financing Rate (SOFR) as an alternative to LIBOR.
Added
There is uncertainty surrounding potential legal, regulatory and policy changes by new presidential administrations in the United States that may directly affect financial institutions and the global economy. 2024 is a presidential election year.
Removed
SOFR is a broad measure of the cost of overnight borrowings collateralized by Treasury securities that was selected by the Alternative Reference Rate Committee due to the depth and robustness of the Treasury repurchase market. At this time, it is impossible to predict whether SOFR will become an accepted alternative to LIBOR.
Added
Changes in federal policy and at regulatory agencies occur over time through policy and personnel changes following elections, which lead to changes involving the level of oversight and focus on the financial services industry. The nature, timing and economic and political effects of potential changes to the current legal and regulatory framework affecting financial institutions remain highly uncertain.
Removed
We have investment securities available for sale, loans, derivative contracts and subordinated debentures with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR to alternative rates, such as SOFR, could create considerable costs and additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR.
Added
Uncertainty surrounding future changes may adversely affect our operating environment and therefore our business, financial condition, results of operations and growth prospects. 27 Table of Contents West Bancorporation, Inc. and Subsidiary Issuing additional common or preferred stock may adversely affect the market price of our common stock, and capital may not be available when needed.
Removed
The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.

… 2 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe each of our facilities is adequate to meet our needs. In March 2022, the Company completed construction of a new office for its St. Cloud, Minnesota branch. At that time, the previously leased location was vacated. In August 2021, West Bank purchased land in Mankato, Minnesota for the purpose of constructing a full-service office.
Biggest changeWe believe each of our facilities is adequate to meet our needs. In November 2023, the Company completed construction of a new office for its Mankato, Minnesota branch. At that time, the previously leased location was vacated.
ITEM 2. PROPERTIES The corporate office of the Company is located in the main office building of West Bank, at 1601 22 nd Street in West Des Moines, Iowa. West Bank leases its main banking office, along with additional office space for operational departments. West Bank operates ten branch offices in addition to its main office.
ITEM 2. PROPERTIES The corporate office of the Company is located in the main office building of West Bank, at 1601 22 nd Street in West Des Moines, Iowa, 50266. West Bank leases its main banking office, along with additional office space for operational departments. West Bank operates ten branch offices in addition to its main office.
Four branch offices in the Des Moines, Iowa, metropolitan area are leased. Three of these branch offices are full-service locations, while one is a drive-up only, express location. West Bank also leases two full-service branch offices in Owatonna and Mankato, Minnesota. West Bank owns four full-service branch offices in Coralville and Waukee, Iowa, and Rochester and St. Cloud, Minnesota.
Four branch offices in the Des Moines, Iowa, metropolitan area are leased. Three of these branch offices are full-service locations, while one is a drive-up only, express location. West Bank also leases one full-service branch office in Owatonna, Minnesota. West Bank owns five full-service branch offices in Coralville and Waukee, Iowa, and Rochester, St. Cloud and Mankato, Minnesota.
Removed
Construction of the new office began in the first quarter of 2022 and is expected to be completed in 2023, upon which time the leased office in Mankato, Minnesota will be vacated. West Bank also purchased land in West Des Moines, Iowa in the first quarter of 2022 for construction of its new corporate headquarters.
Added
West Bank is constructing a new corporate headquarters which is scheduled to open on April 15, 2024, at its new address of 3330 Westown Parkway, West Des Moines, Iowa 50266. Upon moving to the new corporate headquarters, our current headquarters will be vacated, which will coincide with its lease expiration.
Removed
Construction began in the second quarter of 2022 and is expected to be completed in 2024. Upon completion, our current headquarters will be vacated, which will coincide with lease expirations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

0 edited+0 added−1 removed1 unchanged
Removed
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+0 added−0 removed3 unchanged
Biggest changeIn the aggregate, cash dividends paid to common stockholders in 2022 and 2021 were $1.00 and $0.94 per common share, respectively. Dividend declarations are evaluated and determined by the Board of Directors on a quarterly basis, and the dividends are paid quarterly.
Biggest changeTotal cash dividends paid to common stockholders in both 2023 and 2022 were $1.00 per common share. Dividend declarations are evaluated and determined by the Board on a quarterly basis, and the dividends are paid quarterly.
In addition, applicable bank regulatory authorities have the power to require any bank to suspend the payment of dividends until the bank complies with all requirements that may be imposed by such authorities. 29 Table of Contents West Bancorporation, Inc. and Subsidiary The following performance graph provides information regarding the cumulative, five-year return on an indexed basis of the common stock of the Company as compared with the Nasdaq Composite Index and the S&P U.S.
In addition, applicable bank regulatory authorities have the power to require any bank to suspend the payment of dividends until the bank complies with all requirements that may be imposed by such authorities. 31 Table of Contents West Bancorporation, Inc. and Subsidiary The following performance graph provides information regarding the cumulative, five-year return on an indexed basis of the common stock of the Company as compared with the Nasdaq Composite Index and the S&P U.S.
BMI Banks - Midwest Region Index prepared by S&P Global Market Intelligence. The indices assume the investment of $100 on December 31, 2017, in the common stock of the Company, the Nasdaq Composite Index and the S&P U.S. BMI Banks - Midwest Region Index, with all dividends reinvested.
BMI Banks - Midwest Region Index prepared by S&P Global Market Intelligence. The indices assume the investment of $100 on December 31, 2018, in the common stock of the Company, the Nasdaq Composite Index and the S&P U.S. BMI Banks - Midwest Region Index, with all dividends reinvested.
There were 152 holders of record of the Company’s common stock as of February 17, 2023, and an estimated 5,300 additional beneficial holders whose stock was held in street name by brokerages or fiduciaries. The closing price of the Company’s common stock was $21.31 on February 17, 2023.
There were 149 holders of record of the Company’s common stock as of February 16, 2024, and an estimated 4,000 additional beneficial holders whose stock was held in street name by brokerages or fiduciaries. The closing price of the Company’s common stock was $17.63 on February 16, 2024.
BMI Banks - Midwest Region Index 100.00 85.39 111.10 95.52 126.19 108.91 *Source: S&P Global Market Intelligence. Used with permission. All rights reserved. 30 Table of Contents West Bancorporation, Inc. and Subsidiary ITEM 6. Reserved.
BMI Banks - Midwest Region Index 100.00 130.10 111.85 147.78 127.53 130.20 *Source: S&P Global Market Intelligence. Used with permission. All rights reserved. 32 Table of Contents West Bancorporation, Inc. and Subsidiary ITEM 6. Reserved.
The Company’s common stock price performance shown in the following graph is not indicative of future stock price performance. Period Ending Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 West Bancorporation, Inc. 100.00 78.46 109.43 86.25 143.58 122.87 Nasdaq Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 S&P U.S.
The Company’s common stock price performance shown in the following graph is not indicative of future stock price performance. Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 West Bancorporation, Inc. 100.00 139.47 109.93 183.00 156.60 137.21 Nasdaq Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 S&P U.S.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

118 edited+45 added−51 removed45 unchanged
Biggest changeInterest expense includes the effect of interest rate swaps, if applicable. 2022 2021 2020 Average Balance Revenue/ Expense Yield/ Rate Average Balance Revenue/ Expense Yield/ Rate Average Balance Revenue/ Expense Yield/ Rate Assets Interest-earning assets: Loans: (1) (2) Commercial $ 487,151 $ 22,742 4.67 % $ 525,228 $ 23,365 4.45 % $ 566,593 $ 22,328 3.94 % Real estate (3) 2,061,777 84,523 4.10 % 1,796,118 72,579 4.04 % 1,574,339 68,444 4.35 % Consumer and other 5,748 282 4.91 % 4,193 182 4.34 % 6,222 272 4.36 % Total loans 2,554,676 107,547 4.21 % 2,325,539 96,126 4.13 % 2,147,154 91,044 4.24 % Securities: Taxable 592,186 12,524 2.11 % 450,910 8,542 1.89 % 322,695 7,818 2.42 % Tax-exempt (3) 155,803 4,197 2.69 % 141,816 3,522 2.48 % 55,589 1,774 3.19 % Total securities 747,989 16,721 2.24 % 592,726 12,064 2.04 % 378,284 9,592 2.54 % Interest-bearing deposits 58,426 203 0.35 % 233,873 292 0.12 % 88,904 304 0.34 % Total interest-earning assets (3) 3,361,091 124,471 3.70 % 3,152,138 108,482 3.44 % 2,614,342 100,940 3.86 % Noninterest-earning assets: Cash and due from banks 23,842 41,141 53,874 Premises and equipment, net 43,299 31,291 28,957 Other, less allowance for loan losses 80,553 46,612 42,610 Total noninterest-earning assets 147,694 119,044 125,441 Total assets $ 3,508,785 $ 3,271,182 $ 2,739,783 Liabilities and Stockholders’ Equity Interest-bearing liabilities: Deposits: Interest-bearing demand $ 505,889 2,458 0.49 % $ 477,988 769 0.16 % $ 371,153 747 0.20 % Savings and money market 1,452,034 15,814 1.09 % 1,413,878 5,641 0.40 % 1,128,631 7,008 0.62 % Time 291,732 4,357 1.49 % 208,164 1,538 0.74 % 215,224 3,501 1.63 % Total deposits 2,249,655 22,629 1.01 % 2,100,030 7,948 0.38 % 1,715,008 11,256 0.66 % Borrowed funds: Federal funds purchased and other short-term borrowings 62,901 1,764 2.80 % 4,620 5 0.11 % 4,397 23 0.52 % Subordinated notes, net 52,873 2,867 5.42 % 20,458 1,008 4.93 % 20,445 1,016 4.97 % Federal Home Loan Bank advances 128,863 2,669 2.07 % 140,274 2,944 2.10 % 178,191 4,705 2.64 % Long-term debt 51,489 1,680 3.26 % 20,995 316 1.51 % 24,912 400 1.61 % Total borrowed funds 296,126 8,980 3.03 % 186,347 4,273 2.29 % 227,945 6,144 2.70 % Total interest-bearing liabilities 2,545,781 31,609 1.24 % 2,286,377 12,221 0.53 % 1,942,953 17,400 0.90 % Noninterest-bearing liabilities: Demand deposits 708,667 709,009 544,211 Other liabilities 30,284 31,783 41,399 Stockholders’ equity 224,053 244,013 211,220 Total liabilities and stockholders’ equity $ 3,508,785 $ 3,271,182 $ 2,739,783 Net interest income (4) /net interest spread (3) $ 92,862 2.46 % $ 96,261 2.91 % $ 83,540 2.96 % Net interest margin (3) (4) 2.76 % 3.05 % 3.20 % (1) Average loan balances include nonaccrual loans.
Biggest changeInterest expense includes the effect of interest rate swaps, if applicable. 2023 2022 2021 Average Balance Revenue/ Expense Yield/ Rate Average Balance Revenue/ Expense Yield/ Rate Average Balance Revenue/ Expense Yield/ Rate Assets Interest-earning assets: Loans: (1) (2) Commercial $ 520,116 $ 32,067 6.17 % $ 487,151 $ 22,742 4.67 % $ 525,228 $ 23,365 4.45 % Real estate (3) 2,270,662 110,431 4.86 % 2,061,777 84,523 4.10 % 1,796,118 72,579 4.04 % Consumer and other 9,478 665 7.02 % 5,748 282 4.91 % 4,193 182 4.34 % Total loans 2,800,256 143,163 5.11 % 2,554,676 107,547 4.21 % 2,325,539 96,126 4.13 % Securities: Taxable 516,118 13,696 2.65 % 592,186 12,524 2.11 % 450,910 8,542 1.89 % Tax-exempt (3) 146,734 3,768 2.57 % 155,803 4,197 2.69 % 141,816 3,522 2.48 % Total securities 662,852 17,464 2.63 % 747,989 16,721 2.24 % 592,726 12,064 2.04 % Interest-bearing deposits 2,856 169 5.94 % 58,426 203 0.35 % 233,873 292 0.12 % Total interest-earning assets (3) 3,465,964 160,796 4.64 % 3,361,091 124,471 3.70 % 3,152,138 108,482 3.44 % Noninterest-earning assets: Cash and due from banks 23,139 23,842 41,141 Premises and equipment, net 67,281 43,299 31,291 Other, less allowance for credit losses 106,194 80,553 46,612 Total noninterest-earning assets 196,614 147,694 119,044 Total assets $ 3,662,578 $ 3,508,785 $ 3,271,182 Liabilities and Stockholders’ Equity Interest-bearing liabilities: Deposits: Interest-bearing demand $ 467,174 6,984 1.49 % $ 505,889 2,458 0.49 % $ 477,988 769 0.16 % Savings and money market 1,357,675 43,569 3.21 % 1,452,034 15,814 1.09 % 1,413,878 5,641 0.40 % Time 424,320 16,243 3.83 % 291,732 4,357 1.49 % 208,164 1,538 0.74 % Total deposits 2,249,169 66,796 2.97 % 2,249,655 22,629 1.01 % 2,100,030 7,948 0.38 % Borrowed funds: Federal funds purchased and other short-term borrowings 194,802 9,532 4.89 % 62,901 1,764 2.80 % 4,620 5 0.11 % Subordinated notes, net 79,501 4,442 5.59 % 52,873 2,867 5.42 % 20,458 1,008 4.93 % Federal Home Loan Bank advances 265,644 7,694 2.90 % 128,863 2,669 2.07 % 140,274 2,944 2.10 % Long-term debt 49,938 2,810 5.63 % 51,489 1,680 3.26 % 20,995 316 1.51 % Total borrowed funds 589,885 24,478 4.15 % 296,126 8,980 3.03 % 186,347 4,273 2.29 % Total interest-bearing liabilities 2,839,054 91,274 3.21 % 2,545,781 31,609 1.24 % 2,286,377 12,221 0.53 % Noninterest-bearing liabilities: Demand deposits 586,903 708,667 709,009 Other liabilities 25,218 30,284 31,783 Stockholders’ equity 211,403 224,053 244,013 Total liabilities and stockholders’ equity $ 3,662,578 $ 3,508,785 $ 3,271,182 Net interest income (4) /net interest spread (3) $ 69,522 1.43 % $ 92,862 2.46 % $ 96,261 2.91 % Net interest margin (3) (4) 2.01 % 2.76 % 3.05 % (1) Average loan balances include nonaccrual loans.
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.
Identifiable sectors within the general economy are subject to additional volatility, which at any time may have a substantial impact on the loan portfolio. In addition, regulatory agencies, as integral parts of their examination processes, periodically review the credit quality of the loan portfolio and the level of the allowance for credit losses.
Other sources include loan principal repayments, proceeds from the maturity and sale of investment securities, principal payments on amortizing securities, federal funds purchased, advances from the FHLB, other wholesale funding and funds provided by operations. Liquidity management is conducted on both a daily and a long-term basis.
Other sources include loan principal repayments, proceeds from the maturity and sale of securities, principal payments on amortizing securities, federal funds purchased, advances from the FHLB, other wholesale funding and funds provided by operations. Liquidity management is conducted on both a daily and a long-term basis.
The negative provision in 2022 was due to the reversal of a specific reserve on an impaired loan and the reduction of certain qualitative factors resulting from sustained performance of loans after the expiration of COVID-19 modifications and continued improvement in classified loans.
This negative provision in 2022 was due to the reversal of a specific reserve on an impaired loan and the reduction of certain qualitative factors resulting from the sustained performance of loans after the expiration of COVID-19 modifications and continued improvement in classified loans.
The Company continues to maintain a valuation allowance against the tax effect of state net operating losses carryforwards as management believes it is likely that such carryforwards will expire without being utilized. 37 Table of Contents (dollars in thousands, except per share amounts) DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY; INTEREST RATES; AND INTEREST DIFFERENTIAL Average Balances and an Analysis of Average Rates Earned and Paid The following table shows average balances and interest income or interest expense, with the resulting average yield or rate by category of average interest-earning assets or interest-bearing liabilities for the years indicated.
The Company continues to maintain a valuation allowance against the tax effect of state net operating losses carryforwards as management believes it is likely that such carryforwards will expire without being utilized. 39 Table of Contents (dollars in thousands, except per share amounts) DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY; INTEREST RATES; AND INTEREST DIFFERENTIAL Average Balances and an Analysis of Average Rates Earned and Paid The following table shows average balances and interest income or interest expense, with the resulting average yield or rate by category of average interest-earning assets or interest-bearing liabilities for the years indicated.
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.
While management uses available information to recognize credit losses, 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.
The effective income tax rates differ from the federal statutory income tax rates primarily due to tax-exempt interest income, the tax-exempt increase in cash value of bank-owned life insurance, disallowed interest expense, stock compensation and state income taxes.
The effective income tax rates differ from the federal statutory income tax rates primarily due to tax-exempt interest income, the tax-exempt increase in cash value of bank-owned life insurance, tax-exempt gain from bank-owned life insurance, disallowed interest expense, stock compensation and state income taxes.
For further information, refer to the section “Non-GAAP Financial Measures” of this Item. 38 Table of Contents (dollars in thousands, except per share amounts) Net Interest Income 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.
For further information, refer to the section “Non-GAAP Financial Measures” of this Item. 40 Table of Contents (dollars in thousands, except per share amounts) Net Interest Income 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.
Non-owner occupied commercial real estate loan concentrations and the weighted average LTV by property type as of December 31, 2022 and 2021 are shown in the following table. LTV is determined using the maximum credit exposure of the loan compared to the most recent appraisal data on the property obtained in accordance with the Company’s lending policies.
Non-owner occupied commercial real estate loan concentrations and the weighted average LTV by property type as of December 31, 2023 and 2022 are shown in the following table. LTV is determined using the maximum credit exposure of the loan compared to the most recent appraisal data on the property obtained in accordance with the Company’s lending policies.
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.
Any one of the following conditions may result in the review of a specific loan: concern about whether the borrower’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 significant accounting policies are described in the Notes to Consolidated Financial Statements. Based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments, management has identified its most critical accounting policies to be those related to the fair value of financial instruments and the allowance for loan losses.
The Company’s significant accounting policies are described in the Notes to Consolidated Financial Statements. Based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments, management has identified its most critical accounting policies to be those related to the fair value of financial instruments and the allowance for credit losses.
We believe that loan growth could slow down in 2023 as a result of uncertainty and diversity in economic outlooks, labor and wage challenges and the impact of higher interest rates on overall cash flows and debt service capabilities.
We believe that loan growth could slow down in 2024 as a result of uncertainty and diversity in economic outlooks, labor and wage challenges and the impact of higher interest rates on overall cash flows and debt service capabilities.
In 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.
In 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 reduced the Iowa bank franchise tax rate applied to apportioned income for 2023 and future years.
As of December 31, 2022, the Company and West Bank met all capital adequacy requirements to which they were subject, and the Company’s and West Bank’s capital ratios were in excess of the requirements to be well-capitalized under capital regulations.
As of December 31, 2023, the Company and West Bank met all capital adequacy requirements to which they were subject, and the Company’s and West Bank’s capital ratios were in excess of the requirements to be well-capitalized under capital regulations.
Results of operations and financial condition for the year ended December 31, 2021 compared to the year ended December 31, 2020 can be found in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s 2021 annual report on Form 10-K filed with the SEC on February 24, 2022. 32 Table of Contents (dollars in thousands, except per share amounts) CRITICAL ACCOUNTING POLICIES AND ESTIMATES This report is based on the Company’s audited consolidated financial statements that have been prepared in accordance with GAAP established by the FASB.
Results of operations and financial condition for the year ended December 31, 2022 compared to the year ended December 31, 2021 can be found in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s 2022 annual report on Form 10-K filed with the SEC on February 23, 2023. 34 Table of Contents (dollars in thousands, except per share amounts) CRITICAL ACCOUNTING POLICIES AND ESTIMATES This report is based on the Company’s audited consolidated financial statements that have been prepared in accordance with GAAP established by the FASB.
Results of operations for the year ended December 31, 2022 are compared to the results for the year ended December 31, 2021 and the consolidated financial condition of the Company as of December 31, 2022 is compared to December 31, 2021.
Results of operations for the year ended December 31, 2023 are compared to the results for the year ended December 31, 2022 and the consolidated financial condition of the Company as of December 31, 2023 is compared to December 31, 2022.
The Company held no other real estate owned properties as of December 31, 2022 or 2021. 35 Table of Contents (dollars in thousands, except per share amounts) Noninterest Income The following table shows the variance from the prior year in the noninterest income categories shown in the Consolidated Statements of Income.
The Company held no other real estate owned properties as of December 31, 2023 or 2022. 37 Table of Contents (dollars in thousands, except per share amounts) Noninterest Income The following table shows the variance from the prior year in the noninterest income categories shown in the Consolidated Statements of Income.
The effective tax rate for both 2022 and 2021 was also impacted by federal income tax credits, including low income housing tax credits and a new markets tax credit from West Bank’s investment in a qualified community development entity, of approximately $1,468 and $1,368, respectively.
The effective tax rate for both 2023 and 2022 was also impacted by federal income tax credits, including low income housing tax credits and a new markets tax credit from West Bank’s investment in a qualified community development entity, of approximately $1,498 and $1,468, respectively.
For further information, refer to the section “Non-GAAP Financial Measures” of this item. 45 Table of Contents (dollars in thousands, except per share amounts) Breakdown of Allowance for Loan Losses by Category The following table sets forth information concerning the Company’s allocation of the allowance for loan losses by loan segment as of the dates indicated.
For further information, refer to the section “Non-GAAP Financial Measures” of this item. 47 Table of Contents (dollars in thousands, except per share amounts) The following table sets forth information concerning the Company’s allocation of the allowance for credit losses by loan segment as of the dates indicated.
The negative provision in 2022 was due to the reduction of certain qualitative factors resulting from sustained performance of loans after the expiration of the COVID-19 modifications, continued improvement in classified loans and the reversal of a specific reserve on an impaired loan.
The negative credit loss expense recorded in 2022 was due to the reversal of a specific reserve on an impaired loan and the reduction of certain qualitative factors resulting from the sustained performance of loans after the expiration of COVID-19 modifications and continued improvement in classified loans.
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.
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.
The allowance for loan losses is management’s best estimate of probable losses inherent in the loan portfolio as of the balance sheet date. 44 Table of Contents (dollars in thousands, except per share amounts) Factors considered 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 allowance for credit losses is management’s estimate of expected lifetime losses in the loan portfolio as of the balance sheet date. 46 Table of Contents (dollars in thousands, except per share amounts) Factors considered by management 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.
It is anticipated that a significant portion of these time deposits will be renewed. In the event a substantial volume of core time deposits is not renewed, management believes the Company has sufficient liquid assets and borrowing lines to offset the potential runoff.
It is anticipated that a significant portion of the core time deposits will be renewed. In the event a substantial volume of core time deposits are not renewed, management believes the Company has sufficient liquid assets and funding sources to offset the potential runoff.
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.
Such non-GAAP financial measures include the Company’s presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, and the presentation of the efficiency ratio on an adjusted and FTE basis, excluding certain income and expenses.
For further information, refer to the section “Non-GAAP Financial Measures” of this Item. 39 Table of Contents (dollars in thousands, except per share amounts) Tax-equivalent interest income and fees on loans increased $11,421 for the year ended December 31, 2022, compared to 2021.
For further information, refer to the section “Non-GAAP Financial Measures” of this Item. 41 Table of Contents (dollars in thousands, except per share amounts) Tax-equivalent interest income and fees on loans increased $35,616 for the year ended December 31, 2023, compared to 2022.
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.
The following table reconciles the non-GAAP financial measures of net interest income and net interest margin on a fully taxable equivalent basis and efficiency ratio on an adjusted and FTE basis, to their most directly comparable measures under GAAP.
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.
The peer group for 2023 consists of 22 Midwestern, publicly traded financial institutions including Bank First Corporation, Bridgewater Bancshares, Inc., ChoiceOne Financial Services, Inc., Civista Bancshares, Inc., CrossFirst Bankshares, Inc., Equity Bancshares, Inc., Farmers National Banc Corp., Farmers & Merchants Bancorp., First Business Financial Services, Inc., First Financial Corp., First Mid Bancshares, Inc., German American Bancorp, Inc., HBT Financial, Inc., Hills Bancorporation, Isabella Bank Corporation, LCNB Corp., Macatawa Bank Corporation, Mercantile Bank Corporation, MidWest One Financial Group, Inc., Nicolet Bankshares, Inc., Peoples Bancorp, Inc., and Southern Missouri Bancorp, Inc.
Proceeds from this debt issuance were used to make a $58,650 capital injection into West Bank, the Company’s subsidiary. The Company has an interest rate swap with a notional amount of $20,000 which converts variable-rate subordinated debentures to fixed-rate debt. The interest rate is a variable rate based on the 3-month LIBOR plus 3.05 percent.
Proceeds from this debt issuance were used to make a $58,650 capital injection into West Bank, the Company’s subsidiary. The Company has an interest rate swap with a notional amount of $20,000 which converts variable-rate subordinated debentures to fixed-rate debt.
Analysis of the Allowance for Loan Losses for the Years Ended December 31 2022 2021 2020 Ratio of net (charge-offs) recoveries during the period to average loans outstanding by segment: Commercial — % 0.02 % — % Real estate: Construction, land and land development — — — 1-4 family residential first mortgages — — — Home equity — — — Commercial (0.02) % — — Consumer and other — — — Total (0.02) % 0.02 % 0.01 % Ratio of allowance for loan losses to total loans at the end of period 0.93 % 1.15 % 1.29 % Ratio of allowance for loan losses to total loans at the end of period, excluding PPP loans (1) 0.93 % 1.17 % 1.40 % Ratio of nonaccrual loans to total loans at end of period 0.01 % 0.36 % 0.71 % Ratio of allowance for loan losses to total nonaccrual loans at the end of period 7,910.87 % 316.99 % 181.77 % Ratio of net (charge-offs) recoveries to total loans at end of period (0.01) % 0.02 % 0.01 % (1) As presented, this is a non-GAAP financial measure.
Analysis of the Allowance for Credit Losses for the Years Ended December 31 2023 2022 2021 Ratio of net (charge-offs) recoveries during the period to average loans outstanding by segment: Commercial — % — % 0.02 % Real estate: Construction, land and land development — — — 1-4 family residential first mortgages — — — Home equity — — — Commercial — (0.02) % — Consumer and other — — — Total 0.00 % (0.02) % 0.02 % Ratio of allowance for credit losses to total loans at the end of period 0.97 % 0.93 % 1.15 % Ratio of nonaccrual loans to total loans at end of period 0.01 % 0.01 % 0.36 % Ratio of allowance for credit losses to total nonaccrual loans at the end of period 9,575.00 % 7,910.87 % 316.99 % Ratio of net (charge-offs) recoveries to total loans at end of period 0.00 % (0.01) % 0.02 % (1) As presented, this is a non-GAAP financial measure.
Such agencies may require West Bank to recognize additional losses based on such agencies’ review of information available to them at the time of their examinations.
Such agencies may require West Bank to recognize additional charge-offs or provisions for credit losses based on such agencies’ review of information available to them at the time of their examinations.
The dividend declared and paid in the first quarter of 2023 was $0.25 per common share. Total assets were $3,613,218 at December 31, 2022, compared to $3,500,201 at December 31, 2021, a 3.2 percent increase. Our loan portfolio grew to $2,742,836 as of December 31, 2022, from $2,456,196 as of December 31, 2021.
The dividend declared and paid in the first quarter of 2024 was $0.25 per common share. Total assets were $3,825,758 at December 31, 2023, compared to $3,613,218 at December 31, 2022, a 5.9 percent increase. Our loan portfolio grew to $2,927,535 as of December 31, 2023, from $2,742,836 as of December 31, 2022.
Management believed that the combination of high levels of potentially liquid assets, cash flows from operations and additional borrowing capacity provided the Company with sufficient liquidity as of December 31, 2022. 49 Table of Contents (dollars in thousands, except per share amounts) West Bank has entered into a construction contract for the construction of a new headquarters building in West Des Moines, Iowa.
Management believed that the combination of high levels of potentially liquid assets, unencumbered securities, cash flows from operations and additional borrowing capacity provided the Company with sufficient liquidity as of December 31, 2023. West Bank has entered into a construction contract for the construction of a new headquarters building in West Des Moines, Iowa.
The rates paid on deposits increased 63 basis points in 2022 compared to 2021. The increase in the cost of deposits was primarily due to increases in short-term brokered deposit balances and other changes in deposit mix, increases in certain deposit rates in response to increases in the target federal funds rate and market interest rate competition.
The rates paid on deposits increased 196 basis points in 2023 compared to 2022. The increase in the cost of deposits was primarily due to increases in deposit rates in response to increases in the target federal funds rate and market interest rates, increased competition for deposit balances, and changes in deposit mix.
When observable inputs do not exist, the Company estimates fair value based on available market data, and these values are classified as Level 3. Imprecision in estimating fair values can impact the carrying value of assets and the amount of revenue or loss recorded. The allowance for loan losses is established through a provision for loan losses charged to expense.
When observable inputs do not exist, the Company estimates fair value based on available market data, and these values are classified as Level 3. Imprecision in estimating fair values can impact the carrying value of assets and the amount of revenue or loss recorded.
(1) A lower ratio is better. (2) As presented, this is a non-GAAP financial measure. For further information, refer to the section "Non-GAAP Financial Measures" of this item. (3) As of December 31. 31 Table of Contents (dollars in thousands, except per share amounts) The Company’s 2022 net income was $46,399, compared to $49,607 in 2021.
(1) A lower ratio is more desirable. (2) As presented, this is a non-GAAP financial measure. For further information, refer to the section "Non-GAAP Financial Measures" of this item. 33 Table of Contents (dollars in thousands, except per share amounts) The Company’s 2023 net income was $24,137, compared to $46,399 in 2022.
Management places a strong emphasis on monitoring the composition of the Company’s commercial real estate loan portfolio. The Company has an established lending policy which includes a number of underwriting factors to be considered in making a commercial real estate loan, including, but not limited to, location, loan-to-value ratio (LTV), cash flow, collateral and the credit history of the borrower.
The Company has an established lending policy which includes a number of underwriting factors to be considered in making a commercial real estate loan, including, but not limited to, location, loan-to-value ratio (LTV), cash flow and debt service coverage, collateral and the credit history and expertise of the borrower.
As of and for the Years Ended December 31 2022 2021 2020 Performance Ratios Return on average assets 1.32 % 1.52 % 1.19 % Return on average equity 20.71 % 20.33 % 15.49 % Efficiency ratio (1)(2) 43.70 % 40.91 % 41.96 % Nonperforming assets/total assets (1)(3) 0.01 % 0.26 % 0.51 % Net interest margin (2) 2.76 % 3.05 % 3.20 % Dividends and Per Share Data Basic earnings per common share $ 2.79 $ 3.00 $ 1.99 Diluted earnings per common share 2.76 2.95 1.98 Cash dividends per common share 1.00 0.94 0.84 Dividend payout ratio 35.82 % 31.33 % 42.23 % Dividend yield 3.91 % 3.03 % 4.35 % Operating Results and Year-End Balances Net income $ 46,399 $ 49,607 $ 32,712 Total assets 3,613,218 3,500,201 3,185,744 Securities available for sale 664,115 758,822 420,571 Loans 2,742,836 2,456,196 2,280,575 Deposits 2,880,408 3,016,005 2,700,994 Borrowings 485,855 199,866 222,385 Stockholders’ equity 211,112 260,328 223,695 Average equity to average assets ratio 6.39 % 7.46 % 7.71 % Definition of ratios: • Return on average assets - net income divided by average assets. • Return on average equity - net income divided by average equity. • 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. • Nonperforming assets to total assets - total nonperforming assets divided by total assets. • Net interest margin - tax-equivalent net interest income divided by average interest-earning assets. • Dividend payout ratio - dividends paid to common stockholders divided by net income. • Dividend yield - dividends per share paid to common stockholders divided by closing year-end stock price. • Average equity to average assets ratio - average equity divided by average assets.
As of and for the Years Ended December 31, 2023 2022 2021 Performance Ratios Return on average assets 0.66 % 1.32 % 1.52 % Return on average equity 11.42 % 20.71 % 20.33 % Efficiency ratio (1)(2) 60.73 % 43.70 % 40.91 % Nonperforming assets/total assets (1) 0.01 % 0.01 % 0.26 % Net interest margin (2) 2.01 % 2.76 % 3.05 % Dividends and Per Share Data Basic earnings per common share $ 1.44 $ 2.79 $ 3.00 Diluted earnings per common share 1.44 2.76 2.95 Cash dividends per common share 1.00 1.00 0.94 Dividend payout ratio 69.21 % 35.82 % 31.33 % Dividend yield 4.72 % 3.91 % 3.03 % Operating Results and Year-End Balances Net income $ 24,137 $ 46,399 $ 49,607 Total assets 3,825,758 3,613,218 3,500,201 Securities available for sale 623,919 664,115 758,822 Loans 2,927,535 2,742,836 2,456,196 Deposits 2,973,779 2,880,408 3,016,005 Borrowings 592,637 485,855 199,866 Stockholders’ equity 225,043 211,112 260,328 Average equity to average assets ratio 5.77 % 6.39 % 7.46 % Definition of ratios: • Return on average assets - net income divided by average assets. • Return on average equity - net income divided by average equity. • 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. • Nonperforming assets to total assets - total nonperforming assets divided by total assets. • Net interest margin - tax-equivalent net interest income divided by average interest-earning assets. • Dividend payout ratio - dividends paid to common stockholders divided by net income. • Dividend yield - dividends per share paid to common stockholders divided by closing year-end stock price. • Average equity to average assets ratio - average equity divided by average assets.
Net Interest Income Net interest income decreased to $91,740 for 2022 from $95,059 for 2021, as the impact of the growth in average balances of interest-bearing liabilities and increase in average rate paid on interest-bearing liabilities exceeded the effects of the growth in average balances of interest-earning assets and increase in average yields on interest-earning assets.
Net Interest Income Net interest income decreased to $69,031 for 2023 from $91,740 for 2022, as the impact of the increase in average rates paid on and growth in average balances of interest-bearing liabilities exceeded the benefits of the growth in average balances and increase in average yields on interest-earning assets.
Monthly principal payments begin in January 2026, and the agreement matures in December 2048. OFF-BALANCE SHEET ARRANGEMENTS In the normal course of business, West Bank commits to extend credit in the form of loan commitments and standby letters of credit in order to meet the financing needs of its customers.
OFF-BALANCE SHEET ARRANGEMENTS In the normal course of business, West Bank commits to extend credit in the form of loan commitments and standby letters of credit in order to meet the financing needs of its customers.
Federal income tax expense for 2022 and 2021 was $9,165 and $9,833, respectively, while state income tax expense was approximately $3,833 and $3,468, respectively. The effective rate of income tax expense as a percent of income before income taxes was 21.9 percent and 21.2 percent, respectively, for 2022 and 2021.
Federal income tax expense for 2023 and 2022 was $3,711 and $9,165, respectively, while state income tax expense was $1,938 and $3,833, respectively. The effective rate of income tax expense as a percent of income before income taxes was 18.9 percent and 21.9 percent, respectively, for 2023 and 2022.
As of December 31 2022 2021 2020 Amount %* Amount %* Amount %* Balance at end of period applicable to: Commercial $ 4,804 18.90 % $ 4,776 20.03 % $ 4,718 26.40 % Real estate: Construction, land and land development 3,548 13.21 3,646 14.60 2,634 10.32 1-4 family residential first mortgages 357 2.74 339 2.69 360 2.58 Home equity 101 0.38 91 0.34 114 0.41 Commercial 16,575 64.50 19,466 62.19 21,535 60.04 Consumer and other 88 0.27 46 0.15 75 0.25 $ 25,473 100.00 % $ 28,364 100.00 % $ 29,436 100.00 % * Percent of loans in each category to total loans.
As of December 31 2023 2022 2021 Amount %* Amount %* Amount %* Balance at end of period applicable to: Commercial $ 5,291 18.13 % $ 4,804 18.90 % $ 4,776 20.03 % Real estate: Construction, land and land development 3,668 14.11 3,548 13.21 3,646 14.60 1-4 family residential first mortgages 704 3.64 357 2.74 339 2.69 Home equity 142 0.50 101 0.38 91 0.34 Commercial 18,420 63.25 16,575 64.50 19,466 62.19 Consumer and other 117 0.37 88 0.27 46 0.15 $ 28,342 100.00 % $ 25,473 100.00 % $ 28,364 100.00 % * Percent of loans in each category to total loans.
Basic and diluted earnings per common share for 2022 were $2.79 and $2.76, respectively, compared to $3.00 and $2.95, respectively, in 2021. During 2022, we paid our common stockholders $16,619 ($1.00 per common share) in dividends compared to $15,543 ($0.94 per common share) in 2021.
Basic and diluted earnings per common share for 2023 were $1.44 and $1.44, respectively, compared to $2.79 and $2.76, respectively, in 2022. During 2023, we paid our common stockholders $16,704 ($1.00 per common share) in dividends compared to $16,619 ($1.00 per common share) in 2022.
The net interest margin for 2022 decreased 29 basis points to 2.76 percent compared to 3.05 percent for 2021. The average yield on earning assets increased by 26 basis points, while the average rate paid on interest-bearing liabilities increased by 71 basis points.
The net interest margin for 2023 decreased 75 basis points to 2.01 percent, compared to 2.76 percent for 2022. The average yield on earning assets increased by 94 basis points, while the average rate paid on interest-bearing liabilities increased by 197 basis points.
The securities issued by state and political subdivisions are diversified among municipalities in 26 states. The following table sets forth the weighted average yield by contractual maturity by security type as of December 31, 2022. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
The following table sets forth the weighted average yield by contractual maturity by security type as of December 31, 2023. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Capital requirements are more fully discussed under the heading “Supervision and Regulation” included in Item 1 and in Note 16 to the consolidated financial statements included in Item 8 of this Form 10-K.
The Company and West Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Capital requirements are more fully discussed under the heading “Supervision and Regulation” included in Item 1 and in Note 16 to the consolidated financial statements included in Item 8 of this Form 10-K.
As of December 31, 2022, West Bank had additional borrowing capacity available from the FHLB of approximately $372,000, as well as approximately $3,830 at the Federal Reserve discount window and $67,000 through unsecured federal funds lines of credit with correspondent banks.
As of December 31, 2023, West Bank had additional borrowing capacity available from the FHLB of approximately $528,000, as well as approximately $2,282 through the Federal Reserve discount window, $35,000 through unsecured federal funds lines of credit with correspondent banks and $89,000 through the BTFP.
This decrease was primarily due to the settlement of an impaired loan in 2022. For more discussion on loan quality, see the “Loan Portfolio” and “Summary of the Allowance for Loan Losses” sections in this Item of this Form 10-K.
For more discussion on loan quality, see the “Loan Portfolio” and “Summary of the Allowance for Credit Losses” sections in this Item of this Form 10-K.
This credit agreement replaced a prior credit agreement with the same commercial bank that had a remaining balance of $5,500. The additional borrowing was used to make a capital injection into the Company’s subsidiary, West Bank. Interest is payable quarterly. Required quarterly principal payments begin in May 2023. The Company may make additional principal payments without penalty.
In December 2021, the Company entered into a credit agreement with an unaffiliated commercial bank and borrowed $40,000. This credit agreement replaced a prior credit agreement with the same commercial bank that had a remaining balance of $5,500. The additional borrowing was used to make a capital injection into the Company’s subsidiary, West Bank. Interest is payable quarterly.
The decrease was primarily the result of the increased accumulated other comprehensive loss, partially offset by net income less dividends paid. At December 31, 2022, tangible common equity as a percent of tangible assets was 5.84 percent compared to 7.44 percent as of December 31, 2021.
The increase was primarily due to net income less dividends paid and the decrease in accumulated other comprehensive loss. At December 31, 2023, tangible common equity as a percent of tangible assets was 5.88 percent compared to 5.84 percent as of December 31, 2022.
Deposit inflows and outflows can vary widely and are influenced by prevailing market interest rates, competition, local and national economic conditions and fluctuations in our corporate customers’ and municipal customers’ own liquidity needs. The Company may utilize brokered deposits to supplement core deposit fluctuations and loan growth.
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, fluctuations in our corporate customers’ and municipal customers’ own liquidity needs and recent developments in the financial services industry.
As of December 31 2022 2021 Balance % of CRE non-owner occupied Portfolio Weighted Average LTV Balance % of CRE non-owner occupied Portfolio Weighted Average LTV Non-owner occupied: Multifamily $ 371,224 21.0 % 69 % $ 435,097 27.8 % 71 % Medical & senior care facilities 249,127 14.1 65 220,726 14.1 59 Warehouse & trucking 169,462 9.6 67 153,022 9.8 69 Hotels 216,539 12.3 68 203,967 13.0 68 Mixed use 100,985 5.7 67 72,039 4.6 63 Offices 139,163 7.9 71 134,106 8.6 70 Land for development 114,428 6.5 62 96,687 6.2 63 All other 405,261 22.9 not available 249,265 15.9 not available $ 1,766,189 100.0 % $ 1,564,909 100.0 % The following table summarizes non-owner occupied commercial real estate loans by property type by risk rating as of December 31, 2022.
As of December 31 2023 2022 Balance % of Non-owner Occupied CRE Weighted Average LTV Balance % of Non-owner Occupied CRE Weighted Average LTV Non-owner occupied: Multifamily $ 453,958 24.2 % 69 % $ 371,224 21.0 % 69 % Medical & senior care facilities 225,314 12.0 63 249,127 14.1 65 Warehouse & trucking 167,030 8.9 63 169,462 9.6 67 Hotels 251,497 13.4 66 216,539 12.3 68 Mixed use 96,488 5.2 67 100,985 5.7 67 Offices 137,468 7.4 70 139,163 7.9 71 Land for development 110,874 5.9 64 114,428 6.5 62 All other 430,515 23.0 not available 405,261 22.9 not available $ 1,873,144 100.0 % $ 1,766,189 100.0 % The following table summarizes non-owner occupied commercial real estate loans by property type by risk rating as of December 31, 2023.
Peer Group Range As of and for the year ended December 31, 2022 As of and for the year ended December 31, 2022 Return on average equity 20.71% 9.97%-17.24% Efficiency ratio (1) 43.70% 43.15%-63.62% Nonperforming assets to total assets 0.01% 0.02%-1.08% (1) The efficiency ratio is a non-GAAP financial measure.
Peer Group Range As of and for the year ended December 31, 2023 As of and for the year ended December 31, 2023 Return on average equity 11.42% 1.85%-17.24% Efficiency ratio (1) 60.73% 45.85%-70.02% Nonperforming assets to total assets 0.01% 0.00%-0.73% (1) The efficiency ratio is a non-GAAP financial measure.
The loan policy is reviewed at least annually and is updated as considered necessary. The policy establishes lending limits, review criteria and other guidelines for loan administration and the allowance for loan losses, among other things. Loans are approved in accordance with the applicable guidelines and underwriting policies. Loans to any one borrower are limited by state banking laws.
The policy establishes lending limits, review criteria and other guidelines for loan administration and the allowance for credit losses, among other things. Loans are approved in accordance with the applicable guidelines and underwriting policies. Loans to any one borrower are limited by state banking laws. Loan officer lending authorities vary according to the individual loan officer’s experience and expertise.
Nonperforming loans include loans on nonaccrual status, loans past due 90 days or more and still accruing interest, and loans that have been considered to be troubled debt restructured (TDR) due to the borrowers’ financial difficulties.
Nonperforming loans include loans on nonaccrual status, loans past due 90 days or more and still accruing interest, and loans that have been considered to be loan restructurings made to borrowers experiencing financial difficulty.
The Company expects the securities portfolio as a percentage of total assets to decrease over time as the proceeds from paydowns and maturities are used to fund loan growth. 40 Table of Contents (dollars in thousands, except per share amounts) As of December 31, 2022, approximately 63 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities.
The Company expects the securities portfolio as a percentage of total assets to decrease over time as the proceeds from paydowns and maturities may be used for loan growth or repayment of borrowed funds. As of December 31, 2023, approximately 61 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities.
The Federal Reserve increased the target federal funds interest rate by a total of 425 basis points in 2022 and is expected to continue to raise the target federal funds rate in 2023. The magnitude and pace of increases in 2023 is unknown at this time.
The Federal Reserve increased the target federal funds interest rate by a total of 425 basis points in 2022 and an additional 100 basis points in 2023. The potential for additional target federal funds interest rate changes in 2024 is unknown at this time.
The Company continues to focus on expanding existing and entering into new customer relationships while maintaining strong credit quality. The yield on the Company's loan portfolio is affected by the portfolio's loan mix, the interest rate environment, the effects of competition, the level of nonaccrual loans and reversals of previously accrued interest on charged-off loans.
The yield on the 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.
This interest rate swap has a fixed rate of 4.81 percent and matures in September 2026. West Bank’s new markets tax credit special purpose subsidiary has a credit agreement for $11,486. Interest is payable monthly over the term of the agreement with an interest rate of 1.00 percent.
The interest rate is a variable rate based on the 3-month term SOFR plus 0.26161 percent tenor spread adjustment plus 3.05 percent. This interest rate swap has a fixed rate of 4.81 percent and matures in September 2026. West Bank’s new markets tax credit special purpose subsidiary has a credit agreement for $11,486.
Within one year After one year but within five years After five years but within ten years After ten years Total Securities available for sale: State and political subdivisions (1) — % — % 1.85 % 2.39 % 2.35 % Collateralized mortgage obligations — — 2.48 1.67 1.68 Mortgage-backed securities — — 1.61 1.72 1.69 Collateralized loan obligations — — 5.89 — 5.89 Corporate notes — — 3.26 — 3.26 — % — % 3.35 % 1.91 % 2.11 % (1) Yields on tax-exempt obligations have been computed on a tax-equivalent basis using a federal income tax rate of 21 percent and are adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt investment securities.
The collateralized mortgage obligations and mortgage-backed securities have monthly paydowns that are not reflected in the table. 42 Table of Contents (dollars in thousands, except per share amounts) Within one year After one year but within five years After five years but within ten years After ten years Total Securities available for sale: State and political subdivisions (1) — % — % 1.93 % 2.15 % 2.13 % Collateralized mortgage obligations — — 2.38 1.56 1.56 Mortgage-backed securities — 1.45 1.61 1.65 1.63 Collateralized loan obligations — — 7.35 — 7.35 Corporate notes — — 3.26 — 3.26 — % 1.45 % 4.07 % 1.77 % 2.07 % (1) Yields on tax-exempt obligations have been computed on a tax-equivalent basis using a federal income tax rate of 21 percent and are adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt investment securities.
Competitive pressures, the creditworthiness of the borrower, market interest rates, the availability of funds, and government regulations further influence the rate charged on a loan. 41 Table of Contents (dollars in thousands, except per share amounts) The Company follows a loan policy approved by West Bank’s Board of Directors.
Competitive pressures, the creditworthiness of the borrower, market interest rates, the availability of funds, and government regulations further influence the rate charged on a loan. The Company follows a loan policy approved by West Bank’s Board of Directors. The loan policy is reviewed at least annually and is updated as considered necessary.
As and for the Years Ended December 31 2022 2021 2020 Reconciliation of net interest income and net interest margin on an FTE basis to GAAP: Net interest income (GAAP) $ 91,740 $ 95,059 $ 82,833 Tax-equivalent adjustment (1) 1,122 1,202 707 Net interest income on an FTE basis (non-GAAP) 92,862 96,261 83,540 Average interest-earning assets 3,361,091 3,152,138 2,614,342 Net interest margin on an FTE basis (non-GAAP) 2.76 % 3.05 % 3.20 % Reconciliation of efficiency ratio on an FTE basis to GAAP: Net interest income on an FTE basis (non-GAAP) $ 92,862 $ 96,261 $ 83,540 Noninterest income 10,208 9,729 9,602 Adjustment for realized securities gains, net — (51) (77) Adjustment for losses on disposal of premises and equipment, net 29 84 9 Adjusted income 103,099 106,023 93,074 Noninterest expense 45,051 43,380 39,054 Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2) 43.70 % 40.91 % 41.96 % Reconciliation of allowance for loan losses ratio, excluding PPP loans: Loans outstanding (GAAP) $ 2,742,836 $ 2,456,196 $ 2,280,575 Less: PPP loans (1,117) (22,206) (180,757) Loans, net of PPP loans (non-GAAP) 2,741,719 2,433,990 2,099,818 Allowance for loan losses 25,473 28,364 29,436 Allowance for loan losses ratio, excluding PPP loans (non-GAAP) (3) 0.93 % 1.17 % 1.40 % (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.
As and for the Years Ended December 31 2023 2022 2021 Reconciliation of net interest income and net interest margin on an FTE basis to GAAP: Net interest income (GAAP) $ 69,031 $ 91,740 $ 95,059 Tax-equivalent adjustment (1) 491 1,122 1,202 Net interest income on an FTE basis (non-GAAP) 69,522 92,862 96,261 Average interest-earning assets 3,465,964 3,361,091 3,152,138 Net interest margin on an FTE basis (non-GAAP) 2.01 % 2.76 % 3.05 % Reconciliation of efficiency ratio on an FTE basis to GAAP: Net interest income on an FTE basis (non-GAAP) $ 69,522 $ 92,862 $ 96,261 Noninterest income 10,066 10,208 9,729 Adjustment for realized securities (gains) losses, net 431 — (51) Adjustment for losses on disposal of premises and equipment, net 29 29 84 Adjusted income 80,048 103,099 106,023 Noninterest expense 48,611 45,051 43,380 Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2) 60.73 % 43.70 % 40.91 % (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.
Included in total deposits as of December 31, 2022 and 2021, were $155,888 and $178,366, respectively, of reciprocal interest-bearing checking and $186,160 and $412,027, respectively, of reciprocal money market deposits.
Included in total deposits as of December 31, 2023 and 2022, were $165,858 and $155,888, respectively, of reciprocal interest-bearing checking and $254,504 and $186,160, respectively, of reciprocal money market deposits. Total estimated uninsured deposits were $1,435,406, $1,412,955 and $1,312,933 as of December 31, 2023, 2022 and 2021, respectively.
The Company’s concentration risks include geographic concentration in central and eastern Iowa and southern Minnesota. The local economies are composed primarily of agriculture, financial service and health care industries, and state and county governments.
The Company’s concentration risks include geographic concentration in central and eastern Iowa and southern Minnesota. The local economies are composed primarily of major financial services companies, healthcare providers, educational institutions, technology and agribusiness companies, and state and local governments.
The yield on the loan portfolio is expected to increase in a rising rate environment as variable-rate loans and loan renewals reprice at higher rates. The political and economic environments can also influence the volume of new loan originations and the mix of variable-rate versus fixed-rate loans.
The yield on the loan portfolio is expected to increase in a rising rate environment as variable-rate loans reprice at higher rates and fixed rate loan renewals and new originations are priced at prevailing market rates, which exceed the average rate on existing fixed rate loans.
The portion of the allowance for loan losses related to loans collectively evaluated for impairment decreased $391 to a total of $25,473, or 0.93 percent of outstanding loans, as of December 31, 2022 compared to $25,864, or 1.05 percent of outstanding loans, as of December 31, 2021.
The portion of the allowance for credit losses related to loans collectively evaluated for credit losses increased to $28,342, or 0.97 percent of outstanding loans as of December 31, 2023, compared to $25,473, or 0.93 percent of outstanding loans as of December 31, 2022.
The Company compares three key performance metrics to those of an identified peer group for evaluating its results.
Deposits increased to $2,973,779 as of December 31, 2023, from $2,880,408 as of December 31, 2022. The Company compares three key performance metrics to those of an identified peer group for evaluating its results.
The yield on available for sale securities increased by 20 basis points in 2022 compared to 2021. Interest expense on deposits increased $14,681 for the year ended December 31, 2022, compared to 2021. The average balance of interest bearing deposits increased $149,625 in 2022 compared to 2021, which included an increase of average brokered deposits of $64,161.
The yield on available for sale securities increased by 39 basis points in 2023 compared to 2022. Interest expense on deposits increased $44,167 for the year ended December 31, 2023, compared to 2022. The average balance of interest bearing deposits decreased $486 in 2023 compared to 2022.
Noninterest expense grew $1,671, or 3.9 percent, in 2022 compared to 2021, primarily due to an increase in salaries and employee benefits, partially offset by a decrease in FDIC insurance expense. The Company’s ratio of nonperforming assets to total assets decreased to 0.01 percent as of December 31, 2022, compared to 0.26 percent as of December 31, 2021.
Noninterest expense increased $3,560, or 7.9 percent, in 2023 compared to 2022, primarily due to increases in salaries and employee benefits, occupancy and equipment expense and FDIC insurance expense. The Company’s ratio of nonperforming assets to total assets was 0.01 percent as of both December 31, 2023 and December 31, 2022.
The increases in 2022 have had an impact on the Company’s net interest income and net interest margin and will impact the comparability of net interest income between 2022 and 2021.
The increases that occurred throughout 2022 and 2023 have had a significant impact on the comparability of net interest income between 2023, 2022 and 2021.
Loan officer lending authorities vary according to the individual loan officer’s experience and expertise. As of December 31, 2022 and 2021, there were no loans that were past due 30 days or more. Nonperforming loans declined to $322 at December 31, 2022, compared to $8,948 at December 31, 2021.
As of December 31, 2023 and 2022, there were no loans that were past due 30 days or more. Nonperforming loans declined slightly to $296 at December 31, 2023, compared to $322 at December 31, 2022.
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 West Bank’s asset-liability management policy. Our deposit growth strategy emphasizes core deposit growth.
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 West Bank’s asset-liability management policy. The Company had liquid assets (cash and cash equivalents) of $65,357 as of December 31, 2023 compared with $26,539 as of December 31, 2022.
The change in interest that is due to both volume and rate has been allocated to the change due to volume and the change due to rate in proportion to the absolute value of the change in each. 2022 Compared to 2021 2021 Compared to 2020 Volume Rate Total Volume Rate Total Interest Income Loans: (1) Commercial $ (1,744) $ 1,121 $ (623) $ (1,706) $ 2,743 $ 1,037 Real estate (2) 10,877 1,067 11,944 9,189 (5,054) 4,135 Consumer and other 74 26 100 (88) (2) (90) Total loans (including fees) 9,207 2,214 11,421 7,395 (2,313) 5,082 Securities: Taxable 2,903 1,079 3,982 2,669 (1,945) 724 Tax-exempt (2) 363 312 675 2,218 (470) 1,748 Total securities 3,266 1,391 4,657 4,887 (2,415) 2,472 Interest-bearing deposits (335) 246 (89) 269 (281) (12) Total interest income (2) 12,138 3,851 15,989 12,551 (5,009) 7,542 Interest Expense Deposits: Interest-bearing demand 47 1,642 1,689 190 (168) 22 Savings and money market 156 10,017 10,173 1,509 (2,876) (1,367) Time 795 2,024 2,819 (111) (1,852) (1,963) Total deposits 998 13,683 14,681 1,588 (4,896) (3,308) Borrowed funds: Federal funds purchased and other short-term borrowings 591 1,168 1,759 1 (19) (18) Subordinated debt, net 1,748 111 1,859 1 (9) (8) Federal Home Loan Bank advances (237) (38) (275) (897) (864) (1,761) Long-term debt 756 608 1,364 (60) (24) (84) Total borrowed funds 2,858 1,849 4,707 (955) (916) (1,871) Total interest expense 3,856 15,532 19,388 633 (5,812) (5,179) Net interest income (2) (3) $ 8,282 $ (11,681) $ (3,399) $ 11,918 $ 803 $ 12,721 (1) Average balances of nonaccrual loans were included for computational purposes.
The change in interest that is due to both volume and rate has been allocated to the change due to volume and the change due to rate in proportion to the absolute value of the change in each. 2023 Compared to 2022 2022 Compared to 2021 Volume Rate Total Volume Rate Total Interest Income Loans: (1) Commercial $ 1,625 $ 7,700 $ 9,325 $ (1,744) $ 1,121 $ (623) Real estate (2) 9,125 16,783 25,908 10,877 1,067 11,944 Consumer and other 230 153 383 74 26 100 Total loans (including fees) 10,980 24,636 35,616 9,207 2,214 11,421 Securities: Taxable (1,746) 2,918 1,172 2,903 1,079 3,982 Tax-exempt (2) (238) (191) (429) 363 312 675 Total securities (1,984) 2,727 743 3,266 1,391 4,657 Interest-bearing deposits (366) 332 (34) (335) 246 (89) Total interest income (2) 8,630 27,695 36,325 12,138 3,851 15,989 Interest Expense Deposits: Interest-bearing demand (202) 4,728 4,526 47 1,642 1,689 Savings and money market (1,092) 28,847 27,755 156 10,017 10,173 Time 2,677 9,209 11,886 795 2,024 2,819 Total deposits 1,383 42,784 44,167 998 13,683 14,681 Borrowed funds: Federal funds purchased and other short-term borrowings 5,732 2,036 7,768 591 1,168 1,759 Subordinated debt, net 1,485 90 1,575 1,748 111 1,859 Federal Home Loan Bank advances 3,654 1,371 5,025 (237) (38) (275) Long-term debt (52) 1,182 1,130 756 608 1,364 Total borrowed funds 10,819 4,679 15,498 2,858 1,849 4,707 Total interest expense 12,202 47,463 59,665 3,856 15,532 19,388 Net interest income (2) (3) $ (3,572) $ (19,768) $ (23,340) $ 8,282 $ (11,681) $ (3,399) (1) Average balances of nonaccrual loans were included for computational purposes.
Federal funds purchased and other short-term borrowings increased from $2,880 as of December 31, 2021 to $200,000 as of December 31, 2022. The $200,000 as of December 31, 2022 was comprised of overnight and short-term FHLB advances. The Company had $155,000 of short-term FHLB advances outstanding at December 31, 2022 associated with long-term interest rate swaps.
Federal funds purchased and other short-term borrowings decreased from $200,000 as of December 31, 2022 to $150,270 as of December 31, 2023. The Company had $315,000 of FHLB advances outstanding at December 31, 2023, compared to $155,000 at December 31, 2022.
EFFECTS OF NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS A discussion of the effects of new financial accounting standards and developments as they relate to the Company is located in Note 1 to the consolidated financial statements included in Item 8 of this Form 10-K.
Also, as of December 31, 2023, the ratios for the Company and West Bank were sufficient to meet the capital conservation buffer. 51 Table of Contents (dollars in thousands, except per share amounts) EFFECTS OF NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS A discussion of the effects of new financial accounting standards and developments as they relate to the Company is located in Note 1 to the consolidated financial statements included in Item 8 of this Form 10-K.
BORROWED FUNDS The fluctuation in the balances of federal funds purchased and other short-term borrowings is based on customer loan and deposit activity and the Company’s balance sheet management objectives, which from time to time may require the Company to draw on the federal funds purchased lines with our correspondent banks or FHLB advances.
The following table shows the amount of time deposits in excess of the insurance limit by maturity. 3 months or less $ 148,585 Over 3 through 6 months 65,890 Over 6 through 12 months 27,038 Over 12 months 24,538 $ 266,051 49 Table of Contents (dollars in thousands, except per share amounts) BORROWED FUNDS The fluctuation in the balances of federal funds purchased and other short-term borrowings is based on customer loan and deposit activity and the Company’s balance sheet management objectives, which from time to time may require the Company to draw on the federal funds purchased lines with our correspondent banks or FHLB advances.
Net interest margin 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. For the years ended December 31, 2022, 2021 and 2020, the Company’s net interest margin on a tax-equivalent basis was 2.76, 3.05 and 3.20 percent, respectively.
Net interest margin on an 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.
West Bank will pay the contractor a contract price consisting of the cost of work plus a fee, subject to a guaranteed maximum price of $42,309, with anticipated construction completed in 2024. As of December 31, 2022, $7,371 had been paid under this construction contract.
West Bank will pay the contractor a contract price consisting of the cost of work plus a fee, with anticipated construction completed in 2024. As of December 31, 2023, the Company had a remaining commitment of $13,019 under this contract. The Company’s total stockholders’ equity increased to $225,043 as of December 31, 2023 from $211,112 as of December 31, 2022.
The Company increased variable-rate long-term debt by $34,500 in December 2021 and issued subordinated debt of $60,000 in June 2022. Average balances of federal funds purchased and other short-term borrowings increased $58,281 in 2022 compared to 2021 to support loan growth.
The average balance of borrowed funds increased $293,759 in 2023 compared to 2022. The Company issued $60,000 of subordinated debt in June 2022. Additionally, average balances of federal funds purchased and other short-term borrowings increased $131,901 in 2023 compared to 2022.
The purchases were offset by principal paydowns and the change in the fair value of the portfolio, which declined $132,008 in 2022. The decline in fair value was the result of increases in market interest rates and is not an indication of declining credit quality. These unrealized losses are recorded in accumulated other comprehensive loss, net of tax.
Management concluded that the unrealized losses in the portfolio are the result of increases in risk-free market interest rates since the securities were purchased and are not an indication of declining credit quality. Unrealized losses are recorded in accumulated other comprehensive loss, net of tax.
To limit the Company’s exposure to market interest rate changes, interest rate swaps are in place on $110,000 of deposit balances that effectively convert certain customer deposits with variable rates to fixed-rate instruments. 47 Table of Contents (dollars in thousands, except per share amounts) The following table shows the amounts and remaining maturities of time certificates of deposit with balances of $100 or more as of December 31, 2022. 3 months or less $ 146,167 Over 3 through 6 months 110,865 Over 6 through 12 months 116,934 Over 12 months 8,885 $ 382,851 Approximately 91 percent of the total time deposits issued by West Bank mature in the next year, including brokered time deposits.
To limit the Company’s exposure to market interest rate changes, interest rate swaps are in place on $110,000 of deposit balances that effectively convert certain customer deposits with variable rates to fixed-rate instruments. Approximately 93 percent of the total time deposits issued by West Bank mature in the next year, including brokered time deposits.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+0 added−4 removed7 unchanged
Biggest changeNet Interest Income at December 31, 2022 Change in Interest Rates Amount % Change 300 basis points rising $ 86,907 (7.24) % 200 basis points rising 89,003 (5.00) 100 basis points rising 90,990 (2.88) Base case 93,690 — 100 basis points falling 96,460 2.96 200 basis points falling 103,052 9.99 Computations of the prospective effects of hypothetical interest rate changes are based on numerous assumptions.
Biggest changeNet Interest Income at December 31, 2023 Change in Interest Rates $ Change % Change 300 basis points rising $ (11,456) (14.73) % 200 basis points rising (7,187) (9.24) 100 basis points rising (3,559) (4.58) 100 basis points falling 2,461 3.16 200 basis points falling 4,786 6.16 Computations of the prospective effects of hypothetical interest rate changes are based on numerous assumptions.
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 modeled scenarios begin with a base case in which rates are unchanged and can 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 net interest income in each scenario is based on parallel yield curve changes in the interest rates applied to a static balance sheet. These do not reflect the earnings expectations of management.
The net interest income in each scenario is based on immediate parallel yield curve changes in the interest rates applied to a static balance sheet. These do not reflect the earnings expectations of management.
Actual results may differ from those projections set forth above due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and customer behavior. Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates.
Actual results may differ from those projections set forth above due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and customer behavior. Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates. 52 Table of Contents West Bancorporation, Inc. and Subsidiary
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.
To measure that risk, the Company uses an earnings simulation approach. The Company has an Asset Liability Committee which meets quarterly, or more often when deemed necessary, to review the interest rate sensitivity position and to review and develop various strategies for managing interest rate risk.
The results of the simulation are compared against approved policy limits. 50 Table of Contents (dollars in thousands, except per share amounts) 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 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.
Removed
For modeling purposes, as of December 31, 2021, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 0.99 percent and 2.85 percent, respectively, relative to the flat-rate case over the next 12 months.
Removed
The model simulations as of December 31, 2021 indicated that our projected balance sheet was slightly asset sensitive in comparison to a liability sensitive balance sheet as of December 31, 2022. The increase in liability sensitivity was partly due to changes in the sensitivity assumptions of our deposits and changes in the mix of balance sheet liabilities.
Removed
Sensitivity assumptions of deposits were adjusted to be more reflective of actual depositor behavior during the unprecedented interest rate increases in 2022.
Removed
The change in mix of deposits, brokered funds and short term borrowings and the increase of short term funding on the balance sheet at December 31, 2022 compared to December 31, 2021 has also increased the liability sensitivity of the balance sheet. 51 Table of Contents West Bancorporation, Inc. and Subsidiary

Other WTBA 10-K year-over-year comparisons