WEST BANCORPORATION INC

RESULTS OF OPERATIONS

The following table shows selected financial results and measures for the three months ended March 31, 2025 compared with the same period in 2024.

(1) Amounts are presented on a FTE basis. These are non-GAAP financial measures. For further information, refer to the Non-GAAP Financial Measures section of this report.

(2) A lower ratio is more desirable.

Definitions of ratios:

•Return on average assets - annualized net income divided by average assets.

•Return on average equity - annualized net income divided by average stockholders' equity.

•Net interest margin - annualized tax-equivalent net interest income divided by average interest-earning assets.

•Efficiency ratio - noninterest expense (excluding other real estate owned expense and write-down of premises) divided by noninterest income (excluding net securities gains/losses and gains/losses on disposition of premises and equipment) plus tax-equivalent net interest income.

•Dividend payout ratio - dividends paid to common stockholders divided by net income.

•Average equity to average assets ratio - average equity divided by average assets.

•Nonperforming assets to total assets - total nonperforming assets divided by total assets.

•Equity to assets ratio - equity divided by assets.

•Tangible common equity ratio - common equity less intangible assets (none held) divided by tangible assets.

Net Interest Income

The following table presents average balances and related interest income or interest expense, with the resulting annualized average yield or rate by category of interest-earning assets or interest-bearing liabilities. Interest income and the resulting net interest income

are shown on a FTE basis.

Data for the three months ended March 31:

(1)Average loan balances include nonaccrual loans. Interest income recognized on nonaccrual loans has been included.

(2)Interest income on loans includes amortization of loan fees and costs and prepayment penalties collected, which are not material.

(3)Tax-exempt income has been adjusted to a tax-equivalent basis using a federal income tax rate of 21 percent and is adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans.

(4)Net interest income (FTE) and net interest margin (FTE) are non-GAAP financial measures. For further information, refer to the Non-GAAP Financial Measures section of this report.

The Company's largest component of net income is net interest income, which is the difference between interest earned on interest-earning assets, consisting primarily of loans and securities, and interest paid on interest-bearing liabilities, consisting of deposits and borrowings. Fluctuations in net interest income can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are also affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities. The Federal Reserve decreased the target federal funds interest rate by a total of 100 basis points from September through December of 2024, which impacted the comparability of the net interest margin between the three months ended March 31, 2025 and three months ended March 31, 2024. The timing and extent of additional interest rate changes by the Federal Reserve is not known at this time.

Net interest margin on a FTE basis, a non-GAAP financial measure, is a measure of the net return on interest-earning assets and is computed by dividing annualized tax-equivalent net interest income by total average interest-earning assets for the period. The net interest margin for the three months ended March 31, 2025 increased by 40 basis points compared to the three months ended March 31, 2024. Tax-equivalent net interest income for the three months ended March 31, 2025 increased $4,089 when compared to the same period in 2024.

Tax-equivalent interest income on loans increased $778 for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase in interest income on loans was driven primarily by an increase in the average balance of loans. The average balance of loans for the three months ended March 31, 2025 increased $66,446 compared to the three months ended March 31, 2024. The yield on the loan portfolio increased by 3 basis points for the three months ended March 31, 2025 compared to the same period in 2024. While the fixed-rate loan portfolio has benefited from higher prevailing market rates for originations and renewals compared to the roll off rates, the yield on the variable-rate loan portfolio has decreased due to reductions in the prime rate and SOFR rates driven by the reductions in the federal funds rate from September through December 2024. The yield on the Company's loan portfolio is affected by the portfolio's loan mix, the interest rate environment, the effects of competition, the level of nonaccrual loans and reversals of previously accrued interest on charged-off loans. The political and economic environments can also influence the volume of new loan originations and the mix of variable-rate versus fixed-rate loans. The 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 on 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.

Interest income on interest-bearing deposits in other financial institutions increased $1,469 for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase was primarily due to the increase in the average balance of interest-bearing deposits in other financial institutions. This increase in balance sheet liquidity was driven by the growth in average deposit balances.

The average balance of deposits increased $335,243 for the three months ended March 31, 2025 compared to the same period in 2024. The rate paid on deposits decreased 42 basis points for the three months ended March 31, 2025 compared to the same period in 2024. Deposit growth included a mix of public funds and commercial and consumer deposits. The decrease in the cost of deposits was primarily driven by the reduction in the federal funds rate from September through December of 2024.

Interest expense on borrowed funds decreased $2,403 for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The average balance of borrowed funds decreased $206,292 for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The average balance of federal funds purchased and other short-term borrowings decreased $156,533 for the three months ended March 31, 2025, compared to the same period in 2024 primarily due to increases in deposits. The average balance of FHLB advances decreased by $45,000 for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This decrease in average balances was due to the maturity of two FHLB advances with a total balance of $45,000 in the fourth quarter of 2024. One of these FHLB advances, with a balance of $25,000, was a one-month rolling advance that was hedged with a long-term interest rate swap agreement that matured.

Credit Loss Expense and the Related Allowance for Credit Losses

The credit loss expense recorded on the income statement represents a charge made to earnings to maintain an adequate allowance for credit losses. The adequacy of the allowance for credit losses is evaluated quarterly by management and reviewed by the Board of Directors. The allowance for credit losses is management's estimate of expected lifetime losses in the loan portfolio as of the balance sheet date. The Company recorded no credit loss expense for loans for both the three months ended March 31, 2025 and March 31, 2024. Management believed the allowance for credit losses at March 31, 2025 was adequate to absorb expected losses in the loan portfolio as of that date.

Factors management considers in establishing an appropriate allowance include: the borrower's financial condition; the value and adequacy of loan collateral; the condition of the local economy and the borrower's specific industry; the levels and trends of loans by segment; and a review of delinquent and classified loans. The quarterly evaluation of the allowance focuses on factors such as specific loan reviews, changes in the components of the loan portfolio given the current and forecasted economic conditions, and historical loss experience. Any one of the following conditions may result in the review of a specific loan: concern about whether the customer's cash flow or net worth is sufficient to repay the loan; delinquency status; criticism of the loan in a regulatory examination; the suspension of interest accrual; or other factors, including whether the loan has other special or unusual characteristics that suggest special monitoring is warranted. The Company's concentration risks include geographic concentrations in central and eastern Iowa and southern Minnesota. The local economies in those markets are composed primarily of major financial service companies, healthcare providers, educational institutions, technology and agribusiness companies, and state and local governments.

West Bank has a significant portion of its loan portfolio in commercial real estate loans, commercial lines of credit, commercial term loans, and construction and land development loans. West Bank's typical commercial borrower is a small- or medium-sized, privately owned business entity. Compared to residential mortgages or consumer loans, commercial loans typically have larger balances and repayment usually depends on the borrowers' successful business operations. Commercial loans generally are not fully repaid over the loan period and may require refinancing or a large payoff at maturity. When the economy turns downward, commercial borrowers may not be able to repay their loans, and the value of their assets, which are usually pledged as collateral, may decrease rapidly and significantly.

While management uses available information to recognize losses on loans, further reduction in the carrying amounts of loans may be necessary based on changes in circumstances, changes in the overall economy in the markets we currently serve, or later acquired information. Identifiable sectors within the general economy are subject to additional volatility, which at any time may have a substantial impact on the loan portfolio. In addition, regulatory agencies, as integral parts of their examination processes, periodically review the credit quality of the loan portfolio and the level of the allowance for credit losses. Such agencies may require West Bank to recognize additional charge-offs or provisions for credit losses based on such agencies' review of information available to them at the time of their examinations.

West Bank's policy is to charge off loans when, in management's opinion, a loan or a portion of a loan is deemed uncollectible. Commercially reasonable efforts are made to maximize subsequent recoveries. The following table summarizes the activity in the Company's allowance for credit losses on loans for the three months ended March 31, 2025 and 2024 and related ratios.

Noninterest Income

The following table shows the variance from the prior year in the noninterest income categories shown in the Consolidated Statements of Income.

The decrease in other income was primarily due to a decrease in letter of credit and loan related fees during the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Noninterest Expense

The following table shows the variance from the prior year in the noninterest expense categories shown in the Consolidated Statements of Income. In addition, accounts within the “other expenses” category that represent a significant portion of the total or a significant variance are shown below.

Salaries and employee benefits increased for the three months ended March 31, 2025 compared to the same period in 2024 due primarily to an increase in incentive compensation related accruals. Occupancy and equipment expense increased for the three months ended March 31, 2025 compared to the three months March 31, 2024 primarily due to an increase in occupancy costs related to new bank buildings, including the Company's new headquarters building, which opened in April 2024, and the new branch building in Owatonna, Minnesota, which opened in January 2025. Insurance expense increased due to increased coverage related to these new bank buildings and general increases in insurance costs.

Technology and software expense increased for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 due to updates in information technology solutions. New market tax credit project amortization declined due to the expiration of the related tax credit.

Income Tax Expense

The Company recorded income tax expense of $2,193 (21.9 percent of pre-tax income) for the three months ended March 31, 2025, compared with $1,372 (19.1 percent of pre-tax income) for the three months ended March 31, 2024. The increase in effective tax rate was primarily due to the expiration of the new market tax credit at the end of 2024. The Company's consolidated income tax rate differs from the federal statutory income tax rate in each period, primarily due to tax-exempt interest income, the tax-exempt increase in cash value of bank-owned life insurance, disallowed interest expense, and state income taxes. Additionally, for the three months ended March 31, 2025, a tax benefit of $67 was recorded as a result of the increase in fair value of restricted stock over the vesting period. For the three months ended March 31, 2024, a tax expense of $5 was recorded as a result of the decrease in fair value of restricted stock over the vesting period. The tax rates for the first three months of 2025 and 2024 were also impacted by year-to-date tax credits of approximately $165 and $377, respectively.