WEST BANCORPORATION INC

Previous wording

The Company’s 2023 net income was $24,137, compared to $46,399 in 2022. 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 dividend declared and paid in the first quarter of 2024 was $0.25 per common share.

Current wording

The Company’s 2024 net income was $24,050, compared to $24,137 in 2023. Basic and diluted earnings per common share for 2024 were $1.43 and $1.42, respectively, compared to $1.44 and $1.44, respectively, in 2023. During 2024, we paid our common stockholders $16,806 ($1.00 per common share) in dividends compared to $16,704 ($1.00 per common share) in 2023. The dividend declared and paid in the first quarter of 2025 was $0.25 per common share.

Previous wording

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. Deposits increased to $2,973,779 as of December 31, 2023, from $2,880,408 as of December 31, 2022.

Current wording

Total assets were $4,014,991 at December 31, 2024, compared to $3,825,758 at December 31, 2023, a 4.9 percent increase. Our loan portfolio grew to $3,004,860 as of December 31, 2024, from $2,927,535 as of December 31, 2023. Deposits increased to $3,357,596 as of December 31, 2024, from $2,973,779 as of December 31, 2023.

Previous wording

The Company compares three key performance metrics to those of an identified peer group for evaluating its results. 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. The Company is in the middle of the group in terms of asset size. The Company's goal is to perform at or near the top of this peer group relative to what we consider to be three key metrics: return on average equity, efficiency ratio and nonperforming assets to total assets. We believe these measures encompass the factors that define the performance of a community bank. Company and peer results for the key financial performance measures are summarized below.

Current wording

The Company compares three key performance metrics to those of an identified peer group for evaluating its results. The peer group for 2024 consists of 21 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., Mercantile Bank Corporation, MidWest One Financial Group, Inc., Nicolet Bankshares, Inc., Peoples Bancorp, Inc., and Southern Missouri Bancorp, Inc. The Company is in the middle of the group in terms of asset size. The Company's goal is to perform at or near the top of this peer group relative to what we consider to be three key metrics: return on average equity, efficiency ratio and nonperforming assets to total assets. We believe these measures encompass the factors that define the performance of a community bank. Company and peer results for the key financial performance measures are summarized below.

Previous wording

The following discussion describes the consolidated operations and financial condition of the Company, including its subsidiary West Bank and West Bank’s special purpose subsidiaries. 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. 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.

Current wording

The following discussion describes the consolidated operations and financial condition of the Company, including its subsidiary West Bank and West Bank’s special purpose subsidiaries. Results of operations for the year ended December 31, 2024 are compared to the results for the year ended December 31, 2023 and the consolidated financial condition of the Company as of December 31, 2024 is compared to December 31, 2023. Results of operations and financial condition for the year ended December 31, 2023 compared to the year ended December 31, 2022 can be found in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s 2023 annual report on Form 10-K/A filed with the SEC on February 23, 2024.

Previous wording

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.

Current wording

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 allowance for credit losses.

Previous wording

Expected credit losses are reflected in the allowance for credit losses (ACL) through a charge to credit loss expense. When the Company deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a loan is deemed uncollectible; however, generally speaking, a loan will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

Current wording

Expected credit losses on loans are reflected in the allowance for credit losses (ACL) through a charge to credit loss expense. When the Company deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a loan is deemed uncollectible; however, generally speaking, a loan will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

Previous wording

The Company measures expected credit losses of loans on a collective (pool) basis when the loans share similar risk characteristics and uses a cash flow based method to estimate expected credit losses for each of these pools. The Company’s methodology for estimating the ACL considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical experience was observed. Loans that do not share risk characteristics are evaluated on an individual basis.

Current wording

The Company measures expected credit losses on loans on a collective (pool) basis when the loans share similar risk characteristics and uses a cash flow based model to estimate expected credit losses for each of these pools. The Company’s methodology for estimating the ACL considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical experience was observed. Loans that do not share risk characteristics are evaluated on an individual basis.

Previous wording

The Company uses a cash flow based model to estimate expected credit losses for all loan segments. For each of the loan segments, the Company calculates a cash flow projection using contractual terms, estimated prepayment speeds, estimated curtailment rates, and other relevant data. The Company uses regression analysis that links historical losses of the Company and a peer group to two economic metrics: national unemployment rate and 10-year treasury rate over 2-year treasury rate spread to establish the loss rates applied to the projected cash flows. For all loan segments, the Company uses a forecast period of four quarters and reverts to a historical rate after four quarters. When estimating prepayment speed and curtailment rates, the modeling is based on historical internal data. In addition to the historical loss information, the Company utilizes qualitative factors to adjust the ACL as appropriate. Qualitative factors are based on management’s judgment of the changes in underlying loan composition of specific portfolios, trends relating to credit quality and collateral values, company-specific data, or effects of other factors such as market competition or legal and regulatory requirements.

Current wording

The Company uses a cash flow based model to estimate expected credit losses for all loan segments. For each of the loan segments, the Company calculates a cash flow projection using contractual terms, estimated prepayment speeds, estimated curtailment rates, and other relevant data. The Company uses regression analysis that links historical losses of the Company and a peer group to two economic metrics: national unemployment rate and 10-year treasury rate over 2-year treasury rate spread to establish the loss rates applied to the projected cash flows. For all loan segments, the Company uses a forecast period of four quarters and reverts to a historical loss rate after four quarters. When estimating prepayment speed and curtailment rates, the modeling is based on historical internal data. In addition to the historical loss information, the Company utilizes qualitative factors to adjust the ACL as appropriate. Qualitative factors are based on management’s judgment of the changes in underlying loan composition of specific portfolios, trends relating to credit quality and collateral values, company-specific data, or effects of other factors such as market competition or legal and regulatory requirements.

Previous wording

The allowance for credit losses as of December 31, 2023 was $28,342, or 0.97 percent of outstanding loans, compared to $25,473, or 0.93 percent of outstanding loans as of December 31, 2022. The allowance for credit losses for 2023 was measured under the current expected credit losses, or CECL, model, while the allowance for credit losses for 2022 was measured under the previous incurred loss model.

Current wording

The allowance for credit losses as of December 31, 2024 was $30,432, or 1.01 percent of outstanding loans, compared to $28,342, or 0.97 percent of outstanding loans as of December 31, 2023.

Previous wording

Net income for the year ended December 31, 2023 was $24,137, compared to $46,399 for the year ended December 31, 2022. Basic and diluted earnings per common share for 2023 were $1.44 and $1.44, respectively, and were $2.79 and $2.76, respectively for 2022.

Current wording

Net income for the year ended December 31, 2024 was $24,050, compared to $24,137 for the year ended December 31, 2023. Basic and diluted earnings per common share for 2024 were $1.43 and $1.42, respectively, and for 2023 were $1.44 and $1.44, respectively.

Previous wording

The decrease in net income in 2023 compared to 2022 was primarily due to the decrease in net interest income. Net interest income declined $22,709, or 24.7 percent, in 2023 compared to 2022. The decrease in net interest income was due to an increase in interest expense on deposits and borrowings that exceeded an increase in interest income on loans and securities, primarily due to rapidly rising short-term interest rates, an inverted yield curve and changes in funding mix.

Current wording

The modest decrease in net income in 2024 compared to 2023 was primarily due to an increase in noninterest expense and decrease in noninterest income, partially offset by an increase in net interest income and decrease in income tax expense. Net interest income increased $2,331, or 3.4 percent, in 2024 compared to 2023. The increase in net interest income was primarily due to an increase in interest income on loans and interest-bearing deposits in other financial institutions, partially offset by an increase in interest expense on deposits.

Previous wording

Noninterest income decreased $142, or 1.4 percent, in 2023 compared to 2022, primarily due to realized losses on the sales of securities and a decrease in loan swap fees, partially offset by a gain from bank-owned life insurance. 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.

Current wording

Noninterest income decreased $1,632, or 16.2 percent, in 2024 compared to 2023, primarily due to an increase in realized losses on the sales of securities, a decrease in loan swap fees, and a nonrecurring gain from bank-owned life insurance in 2023, partially offset by an increase in trust services revenue. Noninterest expense increased $2,742, or 5.6 percent, in 2024 compared to 2023, primarily due to increases in occupancy and equipment expense, technology and software expense and FDIC insurance, partially offset by a decrease in business development expenses.

Previous wording

The Company’s ratio of nonperforming assets to total assets was 0.01 percent as of both December 31, 2023 and December 31, 2022. 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.

Current wording

The Company’s ratio of nonperforming assets to total assets was 0.00 percent and 0.01 percent as of December 31, 2024 and 2023, respectively. 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.

Previous wording

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. 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. For additional analysis of net interest income, see the section captioned “Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates; and Interest Differential” in this Item of this Form 10-K.

Current wording

Net interest income increased to $71,362 for 2024 from $69,031 for 2023, as the impact of the growth of interest-earning assets and increases in average yields on interest-earning assets exceeded the effects of an increase in average balances of interest-bearing liabilities and increase in average rate paid on interest-bearing liabilities. The net interest margin for 2024 decreased 10 basis points to 1.91 percent, compared to 2.01 percent for 2023. The average yield on earning assets increased by 44 basis points, while the average rate paid on interest-bearing liabilities increased by 52 basis points. For additional analysis of net interest income, see the section captioned “Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates; and Interest Differential” in this Item of this Form 10-K.

Previous wording

The allowance for credit losses, which totaled $28,342 as of December 31, 2023, represented 0.97 percent of total loans, compared to 0.93 percent as of December 31, 2022. The allowance for credit losses for 2023 was measured under the current expected credit losses, or CECL, model, while the allowance for credit losses for 2022 was measured under the previous incurred loss model. A credit loss expense of $700 was recorded in 2023, compared to a credit loss expense of negative $2,500 in 2022. The credit loss expense recorded in 2023 included an allocation of $500 to the allowance for credit losses related to loans and $200 to the allowance for credit losses related to unfunded commitments. This credit loss expense was primarily due to growth in loans and unfunded loan commitments. 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 believed the allowance for credit losses at December 31, 2023 was adequate to absorb expected losses in the loan portfolio as of that date.

Current wording

A credit loss expense of $1,000 was recorded in 2024, compared to a credit loss expense of $700 in 2023. The credit loss expense recorded in 2024 included a $2,000 increase in the allowance for credit losses related to loans, which was offset by a $1,000 decrease to the allowance for credit losses related to unfunded commitments. The credit loss expense associated with loans recorded in 2024 was primarily due to changes in forecasted loss rates, driven by an increase in forecasted unemployment rate, and an adjustment to qualitative factors within the commercial real estate segment. The negative $1,000 credit loss expense recorded in 2024 related to unfunded commitments was primarily due to a decrease in the balance of unfunded commitments, primarily from the funding of construction loans. The credit loss expense recorded in 2023 included an allocation of $500 to the allowance for credit losses related to loans and $200 to the allowance for credit losses related to unfunded commitments. The credit loss expense in 2023 was primarily due to growth in loans and unfunded loan commitments. Management believed the allowance for credit losses at December 31, 2024 was adequate to absorb expected losses in the loan portfolio as of that date.

Previous wording

The decline in service charges on deposit accounts was primarily attributable to a higher earnings credit rate on commercial accounts. Revenue from trust services was higher in 2023 compared to 2022 primarily due to increases in one-time estate fees. An increase in trust assets and accounts since December 31, 2022 also contributed to the increase in trust service fees. The gain from bank-owned life insurance in 2023 was the result of a death benefit claim. Loan swap fees in 2023 and 2022 consist of fees earned in the back-to-back swap program. In 2023, the Company sold $11,285 of securities from the available for sale securities portfolio and realized a net loss of $431. The proceeds from this sale were reinvested in the loan portfolio.

Current wording

Revenue from trust services was higher in 2024 compared to 2023 primarily due to increases in one-time estate fees and the higher market value of trust assets. The gain from bank-owned life insurance that occurred in 2023 was the result of a death benefit claim. Loan swap fees in 2023 consisted of fees earned in the back-to-back swap program.

Previous wording

The Company records a provision for income tax expense currently payable, along with a provision for those taxes payable or refundable in the future (deferred taxes). Deferred taxes arise from differences in the timing of certain items for financial statement reporting compared to income tax reporting and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 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. 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. The future reduction in the state tax rate required the Company to reduce net deferred tax assets by $671 and in turn caused the one-time increase in 2022 tax expense.

Current wording

The Company records a provision for income tax expense currently payable, along with a provision for those taxes payable or refundable in the future (deferred taxes). Deferred taxes arise from differences in the timing of certain items for financial statement reporting compared to income tax reporting and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Federal income tax expense for 2024 and 2023 was $1,928 and $3,711, respectively, while state income tax expense was $1,465 and $1,938, respectively. The effective rate of income tax expense as a percent of income before income taxes was 12.3 percent and 18.9 percent, respectively, for 2024 and 2023. In 2024, income tax expense included a $1,842 tax benefit for an energy-related investment tax credit associated with the construction of the Company’s new headquarters building.

Previous wording

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. 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. 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.

Current wording

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, state income taxes and the investment tax credit mentioned above. The effective tax rate for both 2024 and 2023 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 $1,508 and $1,498, respectively. 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 a portion of such carryforwards will expire without being utilized.

Previous wording

The Company’s largest component of net income is net interest income, which is the difference between interest earned on interest-earning assets, consisting primarily of loans and securities, and interest paid on interest-bearing liabilities, consisting of deposits and borrowings. Fluctuations in net interest income can result from the combination of changes in the balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are also affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and the actions of regulatory authorities. 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 increases that occurred throughout 2022 and 2023 have had a significant impact on the comparability of net interest income between 2023, 2022 and 2021.

Current wording

The Company’s largest component of net income is net interest income, which is the difference between interest earned on interest-earning assets, consisting primarily of loans and securities, and interest paid on interest-bearing liabilities, consisting of deposits and borrowings. Fluctuations in net interest income can result from the combination of changes in the balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are also affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and the actions of regulatory authorities. 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. In 2024, the Federal Reserve decreased the target federal funds rate by a total of 100 basis points. The timing and extent of additional interest rate changes by the Federal Reserve is not known at this time.

Previous wording

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. For the years ended December 31, 2023, 2022 and 2021, the Company’s net interest margin on a tax-equivalent basis was 2.01, 2.76 and 3.05 percent, respectively. Tax-equivalent net interest income decreased $23,340 in 2023 compared to 2022.

Current wording

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. For the years ended December 31, 2024, 2023 and 2022, the Company’s net interest margin on a tax-equivalent basis was 1.91, 2.01 and 2.76 percent, respectively. Tax-equivalent net interest income increased $2,022 in 2024 compared to 2023.

Previous wording

Tax-equivalent interest income and fees on loans increased $35,616 for the year ended December 31, 2023, compared to 2022. The improvement was primarily due to an increase in the average yield on loans of 90 basis points in 2023 compared to 2022. Rising market interest rates have resulted in increasing rates on variable-rate loans and higher interest rates on loan renewals and new originations compared to existing portfolio rates. Additionally, the average balance of loans increased $245,580 in 2023 compared to 2022.

Current wording

Tax-equivalent interest income and fees on loans increased $23,154 for the year ended December 31, 2024, compared to 2023. The improvement was driven by a combination of an increase in the average balance of loans and an increase in loan yields in 2024 compared to 2023. The average balance of loans increased $185,567 in 2024 compared to 2023, while loan yields increased by 46 basis points in 2024 compared to 2023. Loan originations and renewals in 2024 continued to reprice at prevailing market rates which exceeded the current weighted average portfolio rate.

Previous wording

The Company continues to focus on expanding existing and entering into new customer relationships while maintaining strong credit quality. The yield on the Company's loan portfolio is affected by the portfolio’s loan mix, the interest rate environment, the effects of competition, the level of nonaccrual loans and reversals of previously accrued interest on charged-off loans. The yield on the loan portfolio is expected to increase in a rising rate environment as variable-rate loans 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 political and economic environments can also influence the volume of new loan originations and the mix of variable-rate versus fixed-rate loans.

Current wording

The yield on the Company’s loan portfolio is affected by the portfolio’s loan mix, the interest rate environment, the effects of competition, the level of nonaccrual loans and reversals of previously accrued interest on charged-off loans. The yield on the loan portfolio is expected to increase in flat and rising rate environments as variable-rate loans reprice at higher rates and renewals and new originations are priced at prevailing market rates, which exceed the roll-off rate of principal repayments and maturities of existing loans. In a declining rate environment, the yield on variable-rate loans will decline; however, as long as market rates remain higher than the yield on the fixed-rate portfolio, renewals and originations will continue to increase the yield on the fixed-rate portfolio. The political and economic environments can also influence the volume of new loan originations and the mix of variable-rate versus fixed-rate loans.

Previous wording

Tax-equivalent interest income on securities increased $743 for the year ended December 31, 2023, compared to 2022. The average balance of securities available for sale in 2023 was $85,137 lower than in 2022, primarily due to principal paydowns on securities, sales of securities, and the decline in fair value of available for sale securities during 2023 resulting from the increase in market interest rates during 2023. The yield on available for sale securities increased by 39 basis points in 2023 compared to 2022.

Current wording

Tax-equivalent interest income on securities decreased $1,128 for the year ended December 31, 2024, compared to 2023. The average balance of securities available for sale in 2024 was $49,468 lower than in 2023, primarily due to principal paydowns on securities, sales of securities, and the decline in fair value of available for sale securities during 2024 resulting from the increase in market interest rates during 2024. The yield on available for sale securities increased by 3 basis points in 2024 compared to 2023.

Previous wording

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. 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. The Federal Reserve increased the target federal funds rate by a total of 425 basis points in 2022 and an additional 100 basis points in 2023. These increases have had an adverse impact on the cost of deposits and have increased market competition.

Current wording

Interest expense on deposits increased $30,488 for the year ended December 31, 2024, compared to 2023. The average balance of interest bearing deposits increased $416,483 in 2024 compared to 2023, while the rates paid on deposits increased 68 basis points in 2024 compared to 2023. The increase in interest expense on deposits was primarily due to the increase in deposit balances, higher deposit rates resulting from higher market rates and increased competition for deposit balances, and changes in deposit mix.

Previous wording

Interest expense on borrowed funds increased $15,498 for the year ended December 31, 2023, compared to 2022. 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 average rate paid on federal funds purchased and other short-term borrowings increased 209 basis points in 2023 compared to 2022. This increase in average rates paid on federal funds purchased and other short-term borrowings was driven by the increases in the target federal funds rate by the Federal Reserve. The average balances of FHLB advances increased by $136,781 in 2023 compared to 2022. This increase in average balances was primarily due to increases in our rolling funding program whereby rolling one-month FHLB advances are hedged with long-term interest rate swap agreements to provide long-term fixed cost wholesale funding. The average rate paid on FHLB advances increased 83 basis points in 2023 compared to 2022.

Current wording

Interest expense on borrowed funds decreased $3,058 for the year ended December 31, 2024, compared to 2023. The average balance of borrowed funds decreased $76,971 in 2024 compared to 2023. The average balance of federal funds purchased and other short-term borrowings decreased $119,066 in 2024 compared to 2023 primarily due to increases in deposits. The average balance of FHLB advances increased by $46,719 in 2024 compared to 2023. This increase in average balances was primarily due to an increase in rolling one-month FHLB advances that are hedged with long-term interest rate swap agreements to provide fixed-cost wholesale funding. The average rate paid on FHLB advances increased 40 basis points in 2024 compared to 2023.

Previous wording

The balance of securities available for sale decreased by $40,196 as of December 31, 2023, compared to December 31, 2022. This decrease was primarily due to principal paydowns on securities and a sale of $11,285 of securities in the fourth quarter of 2023. The proceeds from this sale were reinvested into the loan portfolio. 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.

Current wording

The balance of securities available for sale decreased by $79,354 as of December 31, 2024, compared to December 31, 2023. This decrease was primarily due to principal paydowns on securities, a decline in fair value of securities during 2024 resulting from the increase in market interest rates and the sale of $11,841 of securities in the fourth quarter of 2024. The proceeds from this sale were reinvested into the loan portfolio. 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.

Previous wording

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. We believe those securities have little to no credit risk and provide cash flows for liquidity and repricing opportunities. All collateralized mortgage obligations and mortgage-backed securities consist of residential and commercial mortgage pass-through securities and collateralized mortgage obligations guaranteed by the Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA), or the Small Business Administration (SBA). The securities issued by state and political subdivisions are diversified among municipalities in 26 states.

Current wording

As of December 31, 2024, approximately 62 percent of the available for sale securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities. We believe those securities have little to no credit risk and provide cash flows for liquidity and repricing opportunities. All collateralized mortgage obligations and mortgage-backed securities consist of residential and commercial mortgage pass-through securities and collateralized mortgage obligations guaranteed by the Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA), or the Small Business Administration (SBA). The securities issued by state and political subdivisions are diversified among municipalities in 26 states.

Previous wording

Total gross unrealized losses in the securities available for sale portfolio were $121,806 at December 31, 2023 compared to $138,736 at December 31, 2022. As of December 31, 2023, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the securities in an unrealized loss position prior to recovery. As of December 31, 2023, the Company also determined that no individual securities in an unrealized loss position represented credit losses that would require an allowance for credit losses. 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.

Current wording

Total gross unrealized losses in the securities available for sale portfolio were $128,838 at December 31, 2024 compared to $121,806 at December 31, 2023. As of December 31, 2024, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the securities in an unrealized loss position prior to recovery. As of December 31, 2024, the Company also determined that no individual securities in an unrealized loss position represented credit losses that would require an allowance for credit losses. 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.

Previous wording

The Company seeks to create growth in commercial lending, which primarily includes commercial real estate, multi-family, and commercial and industrial lending, by offering customer-focused products and competitive pricing and by capitalizing on the positive trends in its market areas. It is the objective of the Company’s credit policies to diversify the commercial loan portfolio to limit concentrations in any single industry. As of December 31, 2023, total loans were approximately 98.4 percent of total deposits and 76.5 percent of total assets.

Current wording

The Company seeks to create growth in commercial lending, which primarily includes commercial real estate, multi-family, and commercial and industrial lending, by offering customer-focused products and competitive pricing and by capitalizing on the positive trends in its market areas. It is the objective of the Company’s credit policies to diversify the commercial loan portfolio to limit concentrations in any single industry. As of December 31, 2024, total loans were approximately 89.5 percent of total deposits and 74.8 percent of total assets.

Previous wording

Loans outstanding at the end of 2023 increased 6.7 percent compared to the end of 2022. Changes in the loan portfolio during 2023 included increases of $82,570 in commercial real estate loans, $50,463 in construction, land and land development loans and $31,477 in 1-4 family residential first mortgage loans. The Company continues to focus on business development efforts in all of its markets. 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.

Current wording

Loans outstanding at the end of 2024 increased 2.6 percent compared to the end of 2023. Changes in the loan portfolio during 2024 included an increase of $94,670 in construction, land and land development loans and decreases of $18,830 in 1-4 family residential first mortgage loans and $17,362 in commercial and industrial loans. The Company continues to focus on business development efforts in all of its markets. The political and economic environments could influence the volume of future loan originations and the mix of variable-rate versus fixed-rate loans.

Previous wording

For a description of the loan segments, see Note 4 to the consolidated financial statements included in Item 8 of this Form 10-K. The interest rates charged on loans vary with the degree of risk and the amount and terms of the loan. 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.

Current wording

For a description of the loan segments, see Note 4 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. The interest rates charged on loans vary with the degree of risk and the amount and terms of the loan. 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.

Previous wording

Nonperforming loans declined slightly to $296 at December 31, 2023, compared to $322 at December 31, 2022. The decrease was due to scheduled payments made on the one loan that was included in nonaccrual loans in both periods.

Current wording

Nonperforming loans declined to $133 at December 31, 2024, compared to $296 at December 31, 2023. The decrease was due to a payoff on the single loan included in nonperforming loans as of December 31, 2023, partially offset by the addition of one loan as of December 31, 2024.

Previous wording

Commercial loans secured by real estate, including construction, land and land development, totaled $2,267,987, or 77.4 percent of total loans, at December 31, 2023. 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.

Current wording

Commercial loans secured by real estate, including construction, land and land development, totaled $2,369,342, or 78.8 percent of total loans, at December 31, 2024. Non-owner occupied commercial real estate loan concentrations and the weighted average LTV by property type as of December 31, 2024 and 2023 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.

Previous wording

The following table summarizes non-owner occupied commercial real estate loans by property type by risk rating as of December 31, 2023. Risk ratings are defined in Note 4 to the consolidated financial statements included in Item 8 of this Form 10-K.

Current wording

The following table summarizes non-owner occupied commercial real estate loans by property type and risk rating as of December 31, 2024. Risk ratings are defined in Note 4 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Previous wording

Nonperforming loans at December 31, 2023 totaled $296, or 0.01 percent of total loans, a slight decrease from $322, or 0.01 percent of total loans, at December 31, 2022. The decrease in nonperforming loans at December 31, 2023, compared to December 31, 2022, was due to scheduled payments made on the single loan included in the nonaccrual balance in both periods. 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 held no other real estate owned properties as of December 31, 2023 or 2022.

Current wording

Nonperforming loans at December 31, 2024 totaled $133, or 0.00 percent of total loans, a slight decrease from $296, or 0.01 percent of total loans, at December 31, 2023. The decrease in nonperforming loans at December 31, 2024, compared to December 31, 2023, was due a payoff on the single loan included in the nonaccrual balance on December 31, 2023, partially offset by the addition of one loan as of December 31, 2024. 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 held no other real estate owned properties as of December 31, 2024 or 2023.

Previous wording

As of December 31, 2023 there was no allowance for credit losses related to loans individually evaluated for credit losses. As of December 31, 2022, there were no specific reserves related to loans individually evaluated for impairment. 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 increase was primarily due to the $2,458 adjustment to the allowance on January 1, 2023 related to the adoption of ASU No. 2016-13, also known as the current expected credit loss, or CECL, standard. Additionally, there was a credit loss expense of $500 related to loans for the year ended December 31, 2023, which was due primarily to loan growth. The provision for loan losses recorded in 2022 was negative $2,500. 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. Management believed the allowance for credit losses as of December 31, 2023 was adequate to absorb the expected losses in the portfolio as of that date.

Current wording

As of December 31, 2024 and 2023 there was no allowance for credit losses related to loans individually evaluated for credit losses. The portion of the allowance for credit losses related to loans collectively evaluated for credit losses increased to $30,432, or 1.01 percent of outstanding loans as of December 31, 2024, compared to $28,342, or 0.97 percent of outstanding loans as of December 31, 2023. The increase was primarily due to the credit loss expense of $2,000 for the year ended December 31, 2024. The credit loss expense for loans in 2024 was primarily due to changes in forecasted loss rates, driven by an increase in forecasted unemployment rate, and an adjustment to qualitative factors within the commercial real estate segment. The Company recorded a credit loss expense related to loans of $500 in 2023. The credit loss expense in 2023 was primarily due to growth in loans. Management believed the allowance for credit losses as of December 31, 2024 was adequate to absorb the expected losses in the portfolio as of that date.

Previous wording

Deposits totaled $2,973,779 as of December 31, 2023, which was an increase of 3.2 percent compared to December 31, 2022. Deposit inflows and outflows are influenced by prevailing market interest rates, competition, local and national economic conditions, fluctuations in our business customers’ own liquidity needs and recent developments in the financial services industry. In particular, significant competition for deposits driven by high interest rate alternatives for depositors is currently impacting deposit fluctuations and increasing our cost of deposits.

Current wording

Deposits totaled $3,357,596 as of December 31, 2024, which was an increase of 12.9 percent compared to December 31, 2023. Deposit growth in 2024 included a mix of public funds and commercial and consumer deposits. Deposit inflows and outflows are influenced by prevailing market interest rates, competition, local and national economic conditions, and fluctuations in our business customers’ own liquidity needs.

Previous wording

At December 31, 2023, the Company had $305,411 in brokered deposits, compared to $272,691 at December 31, 2022. Brokered deposits included fixed-rate time deposits with maturities through December 2025 and variable-rate deposits with terms through February 2025. Brokered deposits are utilized, along with other wholesale funding sources, to fund loan growth and offset core deposit outflows.

Current wording

At December 31, 2024, the Company had $266,418 in brokered deposits, compared to $305,411 at December 31, 2023. Brokered deposits included fixed-rate time deposits with maturities through September 2025 and variable-rate deposits with terms through February 2026. The decrease in brokered deposits during 2024 was primarily due to core deposit growth. When necessary, brokered deposits are utilized, along with other wholesale funding sources, to fund loan growth and offset core deposit outflows.

Previous wording

Management believes interest rates on deposits could continue to increase in 2024 in response to ongoing competition for deposit balances and high short-term market rates. 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.

Current wording

Management reduced interest rates on deposits in the fourth quarter of 2024 as a result of the reductions in the target federal funds rate by the Federal Reserve. Any deposit rate changes in 2025 will be dependent on market rates, liquidity needs and competition for deposit balances. 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.

Previous wording

Approximately 93 percent of the total time deposits issued by West Bank mature in the next year, including brokered time deposits. 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.

Current wording

Approximately 99 percent of the total time deposits issued by West Bank mature in the next year, including brokered time deposits. 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.