West Bancorporation(WTBA) - 2024 Q4 - Annual Report

Part I ITEM 1. BUSINESS West Bancorporation, Inc. is a financial holding company owning West Bank, a community bank serving businesses in Iowa and Minnesota, with $3.0 billion in loans and $3.4 billion in deposits by year-end 2024 General Development of Business West Bancorporation, Inc., a financial holding company for West Bank, grew loans to $3.0 billion and deposits to $3.4 billion in 2024, maintaining dividends and a strong capital position - West Bancorporation, Inc. is a financial holding company whose primary activity is owning West Bank, an Iowa-chartered community bank organized in 1893. The company operates in central Iowa, eastern Iowa, and southern Minnesota[17][19] Year-End Financial Metrics (2023 vs. 2024) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Total Loans | $3.0 billion | $2.9 billion | +2.6% | | Total Deposits | $3.4 billion | $3.0 billion | +12.9% | - The company paid cash dividends totaling $1.00 per share in 2024 and declared a quarterly dividend of $0.25 per share in January 2025. The tangible common equity ratio was 5.68% at the end of 2024, compared to 5.88% at the end of 2023[21] Description of the Company's Business West Bank offers full-service community banking, targeting small- to medium-sized businesses in stable Iowa and Minnesota markets through personalized service and competitive offerings - West Bank offers a full range of services including commercial, real estate, and consumer loans; trust services; and various deposit accounts. It also provides online/mobile banking and treasury management services for businesses[22][23] - The bank's strategy targets small- to medium-sized businesses, leveraging its local presence and expertise to offer personalized financial services[24] - The company operates in diversified and economically stable markets in Iowa and Minnesota, which are home to major employers like Principal Financial Group, Mayo Clinic, and IBM. As of December 31, 2024, unemployment rates in its markets were below the national rate of 4.1%[25][26] - West Bank faces high competition from local, regional, and national banks, as well as non-bank entities like FinTech companies. It competes by offering local decision-making authority, flexible loan arrangements, and personalized service[27][28] Human Capital Management The company's success is driven by its 189 employees, with a diverse workforce (59% female, 22% diverse) and initiatives supporting female leadership, resulting in high retention and low turnover - The company employs 180 full-time and 9 part-time employees. The workforce is approximately 59% female and 22% culturally or ethnically diverse[31] - The West Bank Women's Impact Network (WIN) has been active since 2014 to support women in leadership. Women comprise 27% of the Board of Directors, 20% of the executive management team, and 45% of West Bank officers[32] - The company maintains a stable workforce with an average employee tenure of nine years and an average officer tenure of over 12 years. Non-teller turnover was approximately 7% in 2024, down from 10% in 2023[35] SUPERVISION AND REGULATION The company and West Bank operate under extensive federal and state regulations, including Basel III capital rules, with oversight from the Federal Reserve and FDIC, managing significant CRE loan concentrations - The Company and West Bank are extensively regulated by federal and state agencies, including the Federal Reserve, FDIC, and CFPB, with a primary focus on protecting depositors[38] - As a financial holding company, the Company has broader flexibility for financial activities but must ensure both the holding company and West Bank remain well-capitalized and well-managed[42][45] - The Company and West Bank are subject to the Basel III Rule for capital requirements, which mandates minimum ratios for Common Equity Tier 1, Tier 1, and Total Capital. As of December 31, 2024, both entities were well-capitalized and in compliance with the capital conservation buffer[61][67] - West Bank has historically exceeded the 300% regulatory guideline for Commercial Real Estate (CRE) loans as a percentage of capital and has implemented additional monitoring processes to manage this concentration risk[89][90] ITEM 1A. RISK FACTORS The company faces significant credit, accounting, operational, market, and regulatory risks, including high commercial real estate loan concentration, cybersecurity threats, interest rate sensitivity, and stock trading volatility Risks Related to Credit Quality The company faces substantial credit risk due to its high concentration in commercial and commercial real estate (CRE) loans, with CRE concentrations exceeding regulatory guidelines at 110% and 422% of risk-based capital - The company's loan portfolio has a significant amount of commercial real estate, construction, and commercial loans. Repayment of these loans is dependent on the borrowers' successful business operations and can be impacted by economic downturns[101] - Commercial real estate (CRE) loans constituted a significant portion of the total loan portfolio as of December 31, 2024. The value of real estate can fluctuate significantly, and repayment often depends on income from the properties[102] - The company's CRE lending concentrations exceed federal guidelines. As of December 31, 2024, construction and land development loans were 110% of total risk-based capital (guideline is 100%), and total CRE-related loans were 422% (guideline is 300%), requiring heightened risk management[104] Risks Related to Accounting Policies and Estimates The company's financial reporting is exposed to risks from subjective accounting estimates, particularly the allowance for credit losses, and $128.8 million in unrealized losses in its securities portfolio - The determination of the allowance for credit losses (ACL) is subjective and requires significant estimates. An insufficient allowance could adversely affect financial condition if charge-offs exceed the allowance[106][107] - As of December 31, 2024, the company had $128.8 million of net unrealized losses in its securities portfolio. If forced to sell these securities before maturity, the company would recognize a charge to earnings[112] Risks Related to Information Security and Business Interruption The company faces significant risks from increasingly sophisticated cybersecurity threats, including AI-driven fraud, and is highly dependent on third-party IT systems, making it vulnerable to operational disruptions and data breaches - The company is susceptible to fraudulent activity and cybersecurity incidents, including phishing, wire fraud, and malware, which are becoming more sophisticated with tools like artificial intelligence[114][115] - The use of artificial intelligence, either internally or by third-party partners, presents risks such as flawed algorithms, data bias, and potential legal liability or reputational harm[119] - The business is highly dependent on third-party servicers for major systems like data processing and mobile/online banking. A failure or interruption of these systems could disrupt operations and harm financial condition[120] Other Risks Related to West Bank's Operations and the Economy The company faces liquidity risk from deposit withdrawals, intense market competition, and sensitivity to economic conditions like interest rate changes and inflation, with potential impacts on capital and dividends - The company is subject to liquidity risk. Borrowed funds decreased to $392.6 million at the end of 2024 from $592.6 million at the end of 2023, reflecting a reduction in FHLB advances and federal funds purchased[124][125] - The company operates in highly competitive markets, facing pressure on loan and deposit pricing from other banks and non-bank financial service providers like FinTech companies[126] - Changes in interest rates significantly impact net interest income. The Federal Reserve's rate cuts in late 2024 and anticipated cuts in 2025 create uncertainty. The company's interest-bearing liabilities have a shorter duration than its assets, creating potential earnings volatility[138][140] - Financial performance is dependent on domestic and international economic conditions, which can be affected by factors like inflation, unemployment, geopolitical conflicts (e.g., Russia-Ukraine, Israel-Palestine), and changes in trade or tax policies[142][143] - Failure to maintain sufficient regulatory capital could adversely affect customer confidence, growth, funding costs, and the ability to pay dividends[145] Risks Related to the Supervision and Regulation of the Banking Industry and Government Policies The company faces significant risks from extensive and complex banking regulations, primarily for depositor protection, and is highly sensitive to the Federal Reserve's monetary policies and interest rate changes - The company is subject to extensive and complex federal and state banking regulations, which primarily aim to protect depositors. Non-compliance can lead to penalties and reputational harm[146][147] - The Federal Reserve's monetary policies, including adjustments to interest rates and the money supply, significantly affect the company's earnings and growth. Recent rate cuts in 2024 and anticipated cuts in 2025 introduce uncertainty[149][150] Other Risks Related to the Banking Industry in General The company faces industry risks from rapid technological changes, the rise of non-bank financial alternatives leading to disintermediation, and climate change, which could impact operations, collateral, and compliance costs - Rapid technological changes in banking require substantial investment to adapt products and services. Failure to keep pace with competitors, who may have greater resources, could result in a competitive disadvantage[153] - The rise of alternative financial transaction methods and digital asset service providers could lead to "disintermediation," resulting in the loss of fee income and customer deposits[154][155][156] - Climate change poses risks through potential physical damage to collateralized property and transition risks from new regulations and changes in consumer behavior, which could negatively impact clients' financial conditions[157][158] Risks Related to West Bancorporation's Common Stock Investment in the company's common stock carries risks including low trading volume leading to price volatility, potential dilution from future issuances, subordination to debt, and dividend payments contingent on earnings and regulatory approval - The company's common stock has a relatively small trading volume, which can lead to price volatility and make it difficult to buy or sell significant amounts without affecting the price[159] - As of December 31, 2024, the company had $20.6 million in junior subordinated debentures and $60.0 million in subordinated notes, which are senior to common stock in payment priority[162] - The company's ability to pay dividends is subject to limitations, including regulatory capital requirements and its dependence on dividends received from its subsidiary, West Bank[163][164][165] ITEM 1B. UNRESOLVED STAFF COMMENTS The company reports no unresolved comments from the SEC staff - There are no unresolved comments from the SEC staff[168] ITEM 1C. CYBERSECURITY The company maintains a comprehensive cybersecurity risk management framework, overseen by the Board and management, employing layered controls, regular assessments, and training, while acknowledging potential future material impacts - The company has implemented an Information Security Program that includes policies, regular assessments, layered controls, and a third-party risk management program to manage cybersecurity threats[171][174] - Cybersecurity risk oversight is handled by the Board of Directors and its Risk and Information Technology Committee, while day-to-day management is the responsibility of the management team and the Information Security Committee[173][174] - While previously identified cybersecurity threats have not materially affected the company, it is acknowledged that future incidents could have a material adverse effect[172] ITEM 2. PROPERTIES The company's headquarters is in West Des Moines, Iowa, with West Bank operating eleven locations, including six owned and four leased branches, plus a new owned office opened in Owatonna, Minnesota in January 2025 - The company's headquarters is at 3330 Westown Parkway in West Des Moines, Iowa[175] - West Bank operates ten branch offices in addition to its headquarters. Six are owned (in Coralville and Waukee, IA, and Rochester, St. Cloud, Mankato, and Owatonna, MN) and four are leased (in the Des Moines, IA area)[175] - A new, owned office in Owatonna, Minnesota was completed and opened in January 2025, replacing a leased office in the same city[176] ITEM 3. LEGAL PROCEEDINGS Neither the company nor West Bank is party to any material pending legal proceedings, beyond ordinary litigation incidental to their business - Neither the Company nor West Bank is party to any material pending legal proceedings, apart from ordinary routine litigation[177] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Not applicable[178] Part II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES West Bancorporation's common stock trades on Nasdaq under "WTBA", with $1.00 per share in dividends paid in 2024 and 2023, and its performance tracked against market indices - The company's common stock is traded on the Nasdaq Global Select Market under the symbol "WTBA". As of February 14, 2025, the closing price was $22.20 per share[181] - Total cash dividends paid were $1.00 per common share in both 2024 and 2023. The company intends to continue paying quarterly dividends, contingent on earnings and regulatory approval[182] Five-Year Cumulative Stock Performance (Indexed) | Index | 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | 12/31/2024 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | West Bancorporation, Inc. | 100.00 | 78.82 | 131.21 | 112.28 | 98.38 | 105.98 | | Nasdaq Composite Index | 100.00 | 144.92 | 177.06 | 119.45 | 172.77 | 223.87 | | S&P U.S. BMI Banks - Midwest Region Index | 100.00 | 85.98 | 113.59 | 98.03 | 100.08 | 122.10 | ITEM 6. Reserved This item is reserved ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income in 2024 was $24.1 million, stable year-over-year, with total assets growing to $4.0 billion, loans to $3.0 billion, and deposits to $3.4 billion, while net interest margin compressed to 1.91% and credit quality remained strong Introduction The company's 2024 net income was $24.1 million, with diluted EPS of $1.42, and it aims for top-tier peer performance in metrics like 10.71% return on average equity and 0.00% nonperforming assets Financial Highlights (2022-2024) | Operating Results and Year-End Balances (in thousands) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net income | $24,050 | $24,137 | $46,399 | | Diluted earnings per common share | $1.42 | $1.44 | $2.76 | | Total assets | $4,014,991 | $3,825,758 | $3,613,218 | | Loans | $3,004,860 | $2,927,535 | $2,742,836 | | Deposits | $3,357,596 | $2,973,779 | $2,880,408 | | Stockholders' equity | $227,875 | $225,043 | $211,112 | Key Performance Ratios (2024) | Ratio | West Bancorporation, Inc. | Peer Group Range | | :--- | :--- | :--- | | Return on average equity | 10.71% | (11.08%) - 14.44% | | Efficiency ratio (non-GAAP) | 63.25% | 46.23% - 73.19% | | Nonperforming assets to total assets | 0.00% | 0.01% - 0.80% | CRITICAL ACCOUNTING POLICIES AND ESTIMATES The allowance for credit losses (ACL) is the company's most critical accounting policy, estimated using a cash flow-based model incorporating historical data, current conditions, and economic forecasts, with the ACL at $30.4 million or 1.01% of loans in 2024 - The most critical accounting policy involves the allowance for credit losses (ACL), which requires significant management estimates and judgment[196] - The company uses a cash flow-based model to estimate expected credit losses, incorporating historical loss information, current conditions, and a four-quarter forecast period for economic metrics like the national unemployment rate and treasury rate spreads[198][199] - The allowance for credit losses was $30,432 thousand (1.01% of loans) at year-end 2024, compared to $28,342 thousand (0.97% of loans) at year-end 2023[200] RESULTS OF OPERATIONS - 2024 COMPARED TO 2023 Net income in 2024 was $24.1 million, stable year-over-year, driven by increased net interest income offset by lower noninterest income and higher noninterest expense, with the effective tax rate reduced to 12.3% by an energy-related investment tax credit - Net income decreased slightly to $24,050 thousand in 2024 from $24,137 thousand in 2023. This was primarily due to higher noninterest expense and lower noninterest income, offset by increased net interest income[206][207] - Credit loss expense was $1,000 thousand in 2024, consisting of a $2,000 thousand provision for loans offset by a $1,000 thousand benefit for unfunded commitments[208] - Noninterest income decreased by 16.2% to $8,434 thousand, driven by a $741 thousand increase in realized securities losses and the non-recurrence of a $691 thousand gain from bank-owned life insurance in 2023[209][214] - Noninterest expense increased by 5.6% to $51,353 thousand, primarily due to higher occupancy and equipment costs ($1,813 thousand), technology and software ($555 thousand), and FDIC insurance ($810 thousand)[209][217] - The effective tax rate dropped to 12.3% in 2024 from 18.9% in 2023, mainly due to a $1,842 thousand energy-related investment tax credit associated with the new headquarters building[219] Financial Condition As of December 31, 2024, total assets reached $4.0 billion, with loans growing to $3.0 billion and deposits to $3.4 billion, while the securities portfolio held $128.8 million in unrealized losses and the tangible common equity ratio declined to 5.68% ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risk is interest rate risk, managed via earnings simulation, with a 100 basis point rate rise estimated to decrease net interest income by 3.06% and a 100 basis point fall estimated to increase it by 2.27% - The Company's main market risk is interest rate risk, which it manages using an earnings simulation approach overseen by its Asset Liability Committee[298][299][300] Sensitivity of Net Interest Income (at Dec 31, 2024) | Change in Interest Rates | $ Change (in thousands) | % Change | | :--- | :--- | :--- | | 300 basis points rising | $(8,155) | (8.54)% | | 200 basis points rising | $(5,060) | (5.30)% | | 100 basis points rising | $(2,928) | (3.06)% | | 100 basis points falling | $2,165 | 2.27% | | 200 basis points falling | $3,333 | 3.49% | | 300 basis points falling | $4,075 | 4.27% | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents the company's audited consolidated financial statements for 2024, with RSM US LLP providing unqualified opinions on both financial statements and internal controls, identifying the allowance for credit losses as a critical audit matter Report of Independent Registered Public Accounting Firm RSM US LLP issued unqualified opinions on the company's 2024 and 2023 consolidated financial statements and internal controls, identifying the allowance for credit losses for loans as a critical audit matter due to subjective judgments - The auditor, RSM US LLP, issued an unqualified opinion, stating the financial statements are fairly presented in accordance with U.S. GAAP[305] - The auditor also issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2024[306][316] - The allowance for credit losses for loans was identified as a critical audit matter because its estimation involves highly sensitive, subjective, and complex judgments regarding qualitative factors and forecasts[311][312] Consolidated Financial Statements The consolidated financial statements show total assets of $4.01 billion and net loans of $2.97 billion as of December 31, 2024, with net income of $24.05 million and total comprehensive income of $18.22 million for the year Consolidated Balance Sheet Highlights (As of Dec 31) | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $243,478 | $65,357 | | Loans, net | $2,974,428 | $2,899,193 | | Total assets | $4,014,991 | $3,825,758 | | Total deposits | $3,357,596 | $2,973,779 | | Total liabilities | $3,787,116 | $3,600,715 | | Total stockholders' equity | $227,875 | $225,043 | Consolidated Income Statement Highlights (Year Ended Dec 31) | (in thousands) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net interest income | $71,362 | $69,031 | $91,740 | | Credit loss expense (benefit) | $1,000 | $700 | $(2,500) | | Noninterest income | $8,434 | $10,066 | $10,208 | | Noninterest expense | $51,353 | $48,611 | $45,051 | | Net income | $24,050 | $24,137 | $46,399 | Notes to Consolidated Financial Statements The notes detail accounting policies, including ACL estimation and securities valuation, with the loan portfolio at $3.0 billion, ACL at $30.4 million, securities at $544.6 million with $128.8 million unrealized losses, deposits at $3.4 billion, and $420 million in interest rate swaps ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope within the last two years - There have been no changes in or disagreements with the Company's accountants in the prior two years[507] ITEM 9A. CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes identified in Q4 2024 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the reporting period[508] - Management assessed and asserted that the Company maintained effective internal control over financial reporting as of December 31, 2024, based on the COSO framework[512] - There were no changes in internal control over financial reporting during the fourth quarter of 2024 that materially affected, or are reasonably likely to materially affect, the Company's internal controls[514] ITEM 9B. OTHER INFORMATION No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the fourth quarter of 2024 - During the fourth quarter of 2024, no directors or executive officers adopted or terminated a Rule 10b5-1 trading plan[515] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION This item is not applicable to the company - Not applicable[516] Part III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement, with the Audit Committee comprising four independent directors, three of whom are financial experts - Most information required for this item is incorporated by reference from the Company's definitive Proxy Statement to be filed by March 4, 2025[518] - The Company has a Code of Conduct for all directors, officers, and employees, available on its website[519] - The Audit Committee members are Steven T. Schuler (Chair), James W. Noyce, Rosemary Parson, and Therese M. Vaughan. All are independent, and Mr. Schuler, Mr. Noyce, and Dr. Vaughan are designated as audit committee financial experts[521] ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement on Form DEF 14A - Information regarding executive compensation is incorporated by reference from the Company's definitive Proxy Statement[522] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Security ownership information is incorporated by reference from the Proxy Statement, with 459,605 outstanding equity awards and 665,758 shares available for future issuance under the 2021 Equity Incentive Plan - Most information for this item is incorporated by reference from the Company's definitive Proxy Statement[526] Equity Compensation Plan Information (as of Dec 31, 2024) | Plan Category | Number of shares to be issued upon exercise (a) | Weighted-average exercise price (b) | Number of shares remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 459,605 | — | 665,758 | | Equity compensation plans not approved by stockholders | — | — | — | | Total | 459,605 | — | 665,758 | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the Company's definitive Proxy Statement[527] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the Company's definitive Proxy Statement[528] Part IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES This section details the exhibits and financial statement schedules filed with the Form 10-K, including consolidated financial statements in Item 8, with other schedules omitted, and a comprehensive list of corporate and legal exhibits - The consolidated financial statements are filed under Item 8 of this Form 10-K[530] - All financial statement schedules have been omitted because they are not applicable or the required information is included in the financial statements or notes[532] - A comprehensive list of exhibits is provided, including corporate governance documents, debt agreements, management compensation plans, and required CEO/CFO certifications[532][535][536] ITEM 16. FORM 10-K SUMMARY The company has not provided a Form 10-K summary - None[537]