West Bancorporation(WTBA) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company presents its unaudited consolidated financial statements for the period ended June 30, 2023 Consolidated Balance Sheets The balance sheets show the company's financial position as of June 30, 2023, compared to December 31, 2022 Consolidated Balance Sheet Highlights (in thousands) | Category | June 30, 2023 | December 31, 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | ASSETS | | | | | | Total assets | $3,678,555 | $3,613,218 | $65,337 | 1.81% | | Loans, net | $2,779,137 | $2,717,363 | $61,774 | 2.27% | | Securities available for sale | $645,091 | $664,115 | $(19,024) | -2.86% | | LIABILITIES | | | | | | Total liabilities | $3,461,429 | $3,402,106 | $59,323 | 1.74% | | Total deposits | $2,836,325 | $2,880,408 | $(44,083) | -1.53% | | Federal Home Loan Bank advances | $280,000 | $155,000 | $125,000 | 80.65% | | STOCKHOLDERS' EQUITY | | | | | | Total stockholders' equity | $217,126 | $211,112 | $6,014 | 2.85% | Consolidated Statements of Income The income statements detail revenues and expenses, showing a significant decline in net income for the periods ended June 30, 2023 Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Total interest income | $39,351 | $28,897 | $10,454 | 36.18% | | Total interest expense | $22,010 | $4,658 | $17,352 | 372.52% | | Net interest income | $17,341 | $24,239 | $(6,898) | -28.46% | | Total noninterest income | $2,389 | $2,278 | $111 | 4.87% | | Total noninterest expense | $12,474 | $11,266 | $1,208 | 10.72% | | Net income | $5,862 | $12,667 | $(6,805) | -53.72% | | Basic EPS | $0.35 | $0.76 | $(0.41) | -53.95% | | Diluted EPS | $0.35 | $0.75 | $(0.40) | -53.33% | | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Total interest income | $76,530 | $56,012 | $20,518 | 36.63% | | Total interest expense | $40,494 | $7,945 | $32,549 | 409.68% | | Net interest income | $36,036 | $48,067 | $(12,031) | -25.03% | | Total noninterest income | $5,346 | $4,667 | $679 | 14.55% | | Total noninterest expense | $24,545 | $21,928 | $2,617 | 11.93% | | Net income | $13,706 | $25,851 | $(12,145) | -46.98% | | Basic EPS | $0.82 | $1.56 | $(0.74) | -47.44% | | Diluted EPS | $0.82 | $1.54 | $(0.72) | -46.75% | Consolidated Statements of Comprehensive Income (Loss) The statements present comprehensive income, including net income and other comprehensive income components Comprehensive Income (Loss) Highlights (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Net income | $5,862 | $12,667 | $(6,805) | | Other comprehensive income (loss) | $(2,392) | $(29,660) | $27,268 | | Comprehensive income (loss) | $3,470 | $(16,993) | $20,463 | | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Net income | $13,706 | $25,851 | $(12,145) | | Other comprehensive income (loss) | $3,654 | $(61,791) | $65,445 | | Comprehensive income (loss) | $17,360 | $(35,940) | $53,300 | Consolidated Statements of Stockholders' Equity The statements show changes in equity components for the periods ended June 30, 2023 and 2022 Stockholders' Equity Changes (in thousands) | Metric | Balance, Dec 31, 2022 | Cumulative effect of change in accounting principle | Net income | Other comprehensive income, net of tax | Cash dividends declared | Stock-based compensation costs | Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes | Balance, June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $211,112 | $(3,626) | $13,706 | $3,654 | $(8,341) | $1,556 | $(935) | $217,126 | - Total stockholders' equity increased by $6,014 thousand from December 31, 2022, to June 30, 2023, primarily due to net income and positive other comprehensive income, partially offset by cash dividends and an accounting principle change[17][189] Consolidated Statements of Cash Flows The statements detail cash generated and used by operating, investing, and financing activities Cash Flow Highlights (in thousands) | Category | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,264 | $33,645 | | Net cash used in investing activities | $(59,600) | $(205,026) | | Net cash provided by financing activities | $54,541 | $5,496 | | Net increase (decrease) in cash and cash equivalents | $5,205 | $(165,885) | | Cash and cash equivalents, ending | $31,744 | $26,940 | - Net cash provided by operating activities decreased significantly in 2023 compared to 2022, while net cash provided by financing activities saw a substantial increase, primarily due to increased Federal Home Loan Bank advances[19] Notes to Consolidated Financial Statements These notes provide detailed explanations for the consolidated financial statements, including the adoption of new accounting standards 1. Basis of Presentation This note outlines the preparation of financial statements and details the adoption of the CECL model effective January 1, 2023 - The Company adopted ASU No. 2016-13 (CECL model) on January 1, 2023, resulting in a $3,626 thousand reduction to retained earnings[26] Impact of ASC 326 Adoption (January 1, 2023, in thousands) | Category | Pre-ASC 326 Adoption | Impact of ASC 326 Adoption | As Reported Under ASC 326 | | :--- | :--- | :--- | :--- | | Allowance for credit losses on loans | $25,473 | $2,458 | $27,931 | | Liability for off-balance sheet credit exposures | $0 | $2,344 | $2,344 | 2. Earnings per Common Share This note details the calculation of basic and diluted earnings per common share Earnings Per Common Share (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income | $5,862 | $12,667 | $13,706 | $25,851 | | Basic earnings per common share | $0.35 | $0.76 | $0.82 | $1.56 | | Diluted earnings per common share | $0.35 | $0.75 | $0.82 | $1.54 | 3. Securities Available for Sale This note breaks down securities available for sale, noting a decrease in fair value due to market interest rate changes Securities Available for Sale (in thousands) | Category | Amortized Cost (June 30, 2023) | Fair Value (June 30, 2023) | Gross Unrealized Losses (June 30, 2023) | | :--- | :--- | :--- | :--- | | State and political subdivisions | $241,579 | $197,396 | $(44,187) | | Collateralized mortgage obligations | $324,003 | $264,834 | $(59,169) | | Mortgage-backed securities | $163,713 | $135,580 | $(28,133) | | Collateralized loan obligations | $37,948 | $37,263 | $(685) | | Corporate notes | $13,750 | $10,018 | $(3,732) | | Total | $780,993 | $645,091 | $(135,906) | | Category | Amortized Cost (Dec 31, 2022) | Fair Value (Dec 31, 2022) | Gross Unrealized Losses (Dec 31, 2022) | | :--- | :--- | :--- | :--- | | State and political subdivisions | $242,823 | $193,355 | $(49,472) | | Collateralized mortgage obligations | $338,875 | $281,628 | $(57,247) | | Mortgage-backed securities | $169,451 | $140,280 | $(29,171) | | Collateralized loan obligations | $37,948 | $36,811 | $(1,137) | | Corporate notes | $13,750 | $12,041 | $(1,709) | | Total | $802,847 | $664,115 | $(138,736) | - The Company's securities available for sale decreased by $19,024 thousand from December 31, 2022, to June 30, 2023, primarily due to principal paydowns, partially offset by a decrease in unrealized losses[174] - Unrealized losses on securities are primarily attributed to increases in market interest rates rather than credit-related losses, and the Company does not intend to sell these securities before recovery[39][174] 4. Loans and Allowance for Credit Losses This note details the loan portfolio composition and the Allowance for Credit Losses (ACL) methodology under the CECL model Loan Portfolio Composition (in thousands) | Loan Segment | June 30, 2023 | December 31, 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Commercial | $535,085 | $519,196 | $15,889 | 3.06% | | Real estate: Construction, land and land development | $351,461 | $363,014 | $(11,553) | -3.18% | | Real estate: 1-4 family residential first mortgages | $80,998 | $75,211 | $5,787 | 7.69% | | Real estate: Home equity | $12,625 | $10,322 | $2,303 | 22.31% | | Real estate: Commercial | $1,820,718 | $1,771,940 | $48,778 | 2.75% | | Consumer and other | $10,289 | $7,292 | $2,997 | 41.10% | | Total Loans | $2,811,176 | $2,746,975 | $64,201 | 2.34% | Allowance for Credit Losses (ACL) Activity (in thousands) | Metric | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2023 | | :--- | :--- | :--- | | Beginning balance | $27,941 | $25,473 | | Adoption of CECL | $0 | $2,458 | | Charge-offs | $(18) | $(18) | | Recoveries | $15 | $25 | | Provision for credit loss expense | $0 | $0 | | Ending balance | $27,938 | $27,938 | - The Company had no loan restructurings made to borrowers experiencing financial difficulty as of June 30, 2023, and nonperforming loans to total loans remained low at 0.01%[64][179] 5. Derivatives This note describes the use of interest rate swap agreements for interest rate risk management Derivative Instruments (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash Flow Hedges: | | | | Gross notional amount | $435,000 | $310,000 | | Fair value in other assets | $18,386 | $16,284 | | Fair value in other liabilities | $(59) | $0 | | Non-Hedging Derivatives: | | | | Gross notional amount | $251,601 | $254,369 | | Fair value in other assets | $14,895 | $15,309 | | Fair value in other liabilities | $(14,895) | $(15,309) | - The Company expects approximately $10,451 thousand to be reclassified from accumulated other comprehensive income to reduce interest expense through June 30, 2024, related to cash flow hedges[94] 6. Income Taxes This note presents the net deferred tax assets and liabilities and the related valuation allowance Net Deferred Tax Assets (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total deferred tax assets | $45,042 | $45,036 | | Total deferred tax liabilities | $7,327 | $6,951 | | Net deferred tax assets before valuation allowance | $37,715 | $38,085 | | Valuation allowance | $(1,609) | $(1,476) | | Net deferred tax assets | $36,106 | $36,609 | - A valuation allowance of $1,609 thousand is recorded against state net operating loss carryforwards, as management believes it is more likely than not that these will expire unutilized[97] 7. Accumulated Other Comprehensive Income (Loss) This note summarizes changes in the components of accumulated other comprehensive income (loss), net of tax Changes in Accumulated Other Comprehensive Income (Loss) (in thousands) | Component | Balance, Dec 31, 2022 | Net current period other comprehensive income | Balance, June 30, 2023 | | :--- | :--- | :--- | :--- | | Unrealized Gains (Losses) on Securities | $(103,680) | $2,111 | $(101,569) | | Unrealized Gains (Losses) on Derivatives | $12,209 | $1,543 | $13,752 | | Accumulated Other Comprehensive Income (Loss) | $(91,471) | $3,654 | $(87,817) | 8. Commitments and Contingencies This note outlines off-balance-sheet risks and contractual commitments for construction projects Commitments (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Commitments to fund real estate construction loans | $442,446 | $336,900 | | Other commitments to extend credit | $537,757 | $727,666 | | Standby letters of credit | $19,161 | $20,557 | | Total | $999,364 | $1,085,123 | - The Company has remaining commitments of $24,511 thousand for a new headquarters building and $3,991 thousand for a new office in Mankato, Minnesota, both expected to be completed in 2023-2024[103][188] 9. Fair Value Measurements This note defines fair value and presents the fair value hierarchy for financial assets and liabilities Financial Assets and Liabilities Measured at Fair Value (June 30, 2023, in thousands) | Category | Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Financial assets: | | | | | | Securities available for sale | $645,091 | $0 | $645,091 | $0 | | Derivative instruments, interest rate swaps | $33,281 | $0 | $33,281 | $0 | | Financial liabilities: | | | | | | Derivative instruments, interest rate swaps | $14,954 | $0 | $14,954 | $0 | - All securities available for sale and derivative instruments are classified within Level 2 of the fair value hierarchy, indicating their valuation relies on observable market-based inputs[113] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, key drivers, critical accounting policies, and operational results "Safe Harbor" Concerning Forward-Looking Statements This section advises that the report contains forward-looking statements subject to various risks and uncertainties - Forward-looking statements are subject to risks such as interest rate fluctuations, competitive pressures, liquidity risk, changes in credit risk, and economic conditions, including inflation and potential recession[119] Critical Accounting Policies This section highlights critical accounting policies involving significant estimates, particularly the allowance for credit losses - The Company adopted the CECL model for the allowance for credit losses on January 1, 2023, replacing the incurred loss model, which is a critical accounting policy involving complex estimates[120] Non-GAAP Financial Measures This section explains the use of non-GAAP measures to provide supplemental information for performance analysis Non-GAAP Financial Measures Reconciliation (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net interest income (GAAP) | $17,341 | $24,239 | $36,036 | $48,067 | | Net interest income on a FTE basis (non-GAAP) | $17,463 | $24,565 | $36,319 | $48,722 | | Net interest margin on a FTE basis (non-GAAP) | 2.02% | 2.93% | 2.12% | 2.89% | | Efficiency ratio on an adjusted and FTE basis (non-GAAP) | 62.83% | 41.96% | 58.91% | 41.05% | Overview The company experienced a significant decrease in net income, driven by a decline in net interest income due to rising interest expenses Key Performance Metrics (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Net income | $5,862 | $12,667 | $(6,805) | -53.72% | | Diluted EPS | $0.35 | $0.75 | $(0.40) | -53.33% | | Return on average assets | 0.64% | 1.45% | -0.81% | | | Return on average equity | 11.03% | 22.81% | -11.78% | | | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Net income | $13,706 | $25,851 | $(12,145) | -46.98% | | Diluted EPS | $0.82 | $1.54 | $(0.72) | -46.75% | | Return on average assets | 0.76% | 1.48% | -0.72% | | | Return on average equity | 12.90% | 21.83% | -8.93% | | - The decrease in net income was primarily due to a $6,898 thousand (28.5%) decrease in net interest income for the three months and a $12,031 thousand (25.0%) decrease for the six months, driven by increased interest expense on deposits and borrowings[128][129][133] - Total loans outstanding increased by $64,239 thousand (2.3%) during the first six months of 2023, and the allowance for credit losses increased to 1.00% of total outstanding loans from 0.93% at December 31, 2022[135] - The Board of Directors declared a regular quarterly cash dividend of $0.25 per common share, payable on August 23, 2023[138] Results of Operations This section analyzes operating results, focusing on net interest income, credit loss, noninterest income, and noninterest expense Net Interest Income Net interest income significantly decreased as rising interest expenses outpaced the increase in interest income, compressing the net interest margin Net Interest Income and Margin (FTE Basis, in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Net interest income (FTE) | $17,463 | $24,565 | $(7,102) | | Net interest margin (FTE) | 2.02% | 2.93% | -0.91% | | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Net interest income (FTE) | $36,319 | $48,722 | $(12,403) | | Net interest margin (FTE) | 2.12% | 2.89% | -0.77% | - Interest expense on deposits increased by $13,131 thousand (417.39%) for the three months and $24,319 thousand (459.11%) for the six months, driven by rising federal funds rates and increased competition[145][146][152] - Interest income on loans increased by $10,095 thousand (40.42%) for the three months and $19,698 thousand (40.71%) for the six months, due to higher average loan balances and increased loan yields[145][146][151] - Average borrowed funds increased by $304,039 thousand (120.52%) for the three months and $313,204 thousand (138.88%) for the six months, primarily due to subordinated debt issuance and increased FHLB advances[145][146][153] Credit Loss Expense and the Related Allowance for Credit Losses The company recorded no credit loss expense for the periods ended June 30, 2023, and the allowance for credit losses remains adequate - There was no credit loss expense recorded for the three and six months ended June 30, 2023, compared to negative provisions in the prior year, reflecting the adoption of ASU No. 2016-13[155][156][162] - The allowance for credit losses was 1.00% of total outstanding loans at June 30, 2023, deemed adequate by management to absorb expected losses[135][156][162] Noninterest Income Noninterest income increased, driven by higher trust services revenue and a gain from bank-owned life insurance Noninterest Income Highlights (in thousands) | Category | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Service charges on deposit accounts | $458 | $585 | $(127) | -21.71% | | Trust services | $749 | $622 | $127 | 20.42% | | Total noninterest income | $2,389 | $2,278 | $111 | 4.87% | | Category | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Service charges on deposit accounts | $920 | $1,165 | $(245) | -21.03% | | Trust services | $1,455 | $1,251 | $204 | 16.31% | | Gain from bank-owned life insurance | $691 | $0 | $691 | N/A | | Total noninterest income | $5,346 | $4,667 | $679 | 14.55% | - The increase in trust services revenue was due to higher one-time estate fees and growth in trust assets and accounts[164] - A gain of $691 thousand from bank-owned life insurance was recognized in the six months ended June 30, 2023, due to a death benefit claim[164] Noninterest Expense Noninterest expense increased, driven by higher salaries, occupancy, FDIC insurance, and technology costs Noninterest Expense Highlights (in thousands) | Category | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $7,029 | $6,410 | $619 | 9.66% | | Occupancy and equipment | $1,322 | $1,242 | $80 | 6.44% | | FDIC insurance | $420 | $289 | $131 | 45.33% | | Technology and software | $579 | $492 | $87 | 17.68% | | Total noninterest expense | $12,474 | $11,266 | $1,208 | 10.72% | | Category | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $13,896 | $12,708 | $1,188 | 9.35% | | Occupancy and equipment | $2,649 | $2,328 | $321 | 13.79% | | FDIC insurance | $836 | $626 | $210 | 33.55% | | Technology and software | $1,092 | $968 | $124 | 12.81% | | Total noninterest expense | $24,545 | $21,928 | $2,617 | 11.93% | - Salaries and employee benefits increased due to wage increases, market competition, and growth in commercial banking and IT teams[169] - FDIC insurance expense rose due to an increase in the minimum assessment rate effective in Q1 2023[169] Income Tax Expense Income tax expense decreased, with the effective tax rate influenced by tax-exempt income and prior-year state tax rate changes Income Tax Expense and Effective Rate (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Income tax expense | $1,394 | $4,334 | $(2,940) | | Effective tax rate | 19.2% | 25.5% | -6.3% | | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Income tax expense | $3,131 | $7,455 | $(4,324) | | Effective tax rate | 18.6% | 22.4% | -3.8% | - The 2022 tax expense included a one-time increase of $671 thousand due to changes in Iowa bank franchise tax rates[171] Financial Condition Total assets increased, driven by loan growth and borrowed funds, while deposits slightly decreased and capital levels remained strong - Total assets increased by $65,337 thousand (1.81%) to $3,678,555 thousand as of June 30, 2023, from December 31, 2022[11][173] Securities Securities available for sale decreased due to principal paydowns, while unrealized losses slightly decreased - Securities available for sale decreased by $19,024 thousand during the first six months of 2023, mainly due to principal paydowns[174] - Net unrealized losses on the available-for-sale securities portfolio decreased by $2,830 thousand in the first six months of 2023[174] - Approximately 62% of the available-for-sale securities portfolio consists of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities, which are considered to have low credit risk[175] Loans and Nonperforming Assets Loans outstanding increased, with growth in commercial real estate and commercial loans, while nonperforming assets remained low - Loans outstanding increased by $64,239 thousand (2.3%) to $2,807,075 thousand as of June 30, 2023[176] - Commercial real estate loans increased by $48,778 thousand and commercial loans by $15,889 thousand[176] Nonperforming Assets (in thousands) | Category | June 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Nonaccrual loans | $309 | $322 | $(13) | | Total nonperforming loans | $309 | $322 | $(13) | | Total nonperforming assets | $309 | $322 | $(13) | | Nonperforming loans to total loans | 0.01% | 0.01% | 0% | | Nonperforming assets to total assets | 0.01% | 0.01% | 0% | Premises and Equipment The company is undertaking significant construction projects for a new corporate headquarters and a new office in Mankato, Minnesota - Construction of a new corporate headquarters in West Des Moines, Iowa, began in Q2 2022 and is expected to be completed in H1 2024[180] - A new office in Mankato, Minnesota, is also under construction, with completion expected in Q4 2023[180] Deposits Total deposits decreased, primarily due to a reduction in brokered deposits, reflecting market interest rate competition - Deposits decreased by $44,083 thousand (1.5%) during the first six months of 2023[181] - Brokered deposits decreased to $230,701 thousand at June 30, 2023, from $272,692 thousand at December 31, 2022[181] - Estimated uninsured deposits, excluding reciprocal network and state-protected funds, were approximately 27.5% of total deposits at June 30, 2023[182] Borrowed Funds The company increased its short-term FHLB advances, largely hedged with long-term interest rate swaps - Federal funds purchased and other short-term borrowings decreased from $200,000 thousand at December 31, 2022, to $184,150 thousand at June 30, 2023[183] - The Company had $280,000 thousand of short-term FHLB advances outstanding at June 30, 2023, with $260,000 thousand hedged by long-term interest rate swaps[184] Liquidity The company maintains strong liquidity through liquid assets, unencumbered securities, and significant additional borrowing capacity - Liquid assets (cash and cash equivalents) increased to $31,744 thousand at June 30, 2023, from $26,539 thousand at December 31, 2022[185] - Additional borrowing capacity includes approximately $549,000 thousand from FHLB, $3,000 thousand from the Federal Reserve discount window, $35,000 thousand from unsecured federal funds lines, and $99,000 thousand from the Bank Term Funding Program[186] Capital Total stockholders' equity increased, and the company continues to meet all regulatory capital adequacy requirements - Total stockholders' equity increased to $217,126 thousand at June 30, 2023, from $211,112 thousand at December 31, 2022[189] - The increase in equity was mainly due to a decrease in accumulated other comprehensive loss and net income, partially offset by an adjustment from ASU 2016-13 adoption[189] Capital Ratios (June 30, 2023) | Capital Ratio | Consolidated | West Bank | | :--- | :--- | :--- | | Total Capital (to Risk-Weighted Assets) | 12.15% | 13.13% | | Tier 1 Capital (to Risk-Weighted Assets) | 9.51% | 12.24% | | Common Equity Tier 1 Capital (to Risk-Weighted Assets) | 8.92% | 12.24% | | Tier 1 Capital (to Average Assets) | 8.60% | 11.08% | - Both the Company and West Bank exceeded all minimum capital adequacy requirements, including the 2.5% capital conservation buffer, as of June 30, 2023[190][193] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's primary market risk, interest rate risk, and its management strategies - The Company's primary market risk is interest rate risk, managed through an Asset Liability Committee and earnings simulation models[194][196] Estimated Change in Net Interest Income for One Year (June 30, 2023, in thousands) | Change in Interest Rates | Amount | % Change | | :--- | :--- | :--- | | 300 basis points rising | $67,678 | -11.42% | | 200 basis points rising | $70,435 | -7.81% | | 100 basis points rising | $73,050 | -4.39% | | Base | $76,405 | 0% | | 100 basis points falling | $79,768 | 4.40% | | 200 basis points falling | $87,488 | 14.51% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control - Disclosure controls and procedures were effective as of June 30, 2023[199] - No material changes in internal control over financial reporting occurred during the period[200] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any material pending legal proceedings beyond routine litigation - No material pending legal proceedings against the Company or West Bank, other than ordinary routine litigation[202] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Form 10-K - No material changes in risk factors since the Form 10-K filing on February 23, 2023[203] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report during the period Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report during the period Item 4. Mine Safety Disclosures This item is not applicable to the Company Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter - No Rule 10b5-1 trading arrangements were adopted or terminated by directors or executive officers during the quarter[207] Item 6. Exhibits This section lists all exhibits filed as part of the report Signatures The report is duly signed on behalf of the company by its Chief Executive Officer and Chief Financial Officer