West Bancorporation, Inc. 2023 Form 10-K Summary
Business Context and Reporting Period
West Bancorporation, Inc. is an Iowa financial holding company whose primary business is ownership of West Bank, a business-focused community bank serving central and eastern Iowa and southern Minnesota. The filing covers the fiscal year ended December 31, 2023; financial amounts are in thousands except per-share data unless otherwise stated.
- West Bank operated 11 locations and provides commercial, real estate, consumer, deposit, treasury-management and trust services.
- Loans are concentrated in commercial real estate, construction and land development, and commercial lending.
- The company completed a new Mankato branch and expected its new West Des Moines headquarters to open in April 2024.
Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net income | $24.1 million | $46.4 million | Down 48.0% |
| Diluted EPS | $1.44 | $2.76 | Down 47.8% |
| Net interest income | $69.0 million | $91.7 million | Down 24.7% |
| Net interest margin | 2.01% | 2.76% | Down 75 bps |
| Noninterest income | $10.1 million | $10.2 million | Down 1.4% |
| Noninterest expense | $48.6 million | $45.1 million | Up 7.9% |
| Return on average assets | 0.66% | 1.32% | Down 66 bps |
| Return on average equity | 11.42% | 20.71% | Down 929 bps |
| Efficiency ratio | 60.73% | 43.70% | Higher is unfavorable |
| Total assets | $3.83 billion | $3.61 billion | Up 5.9% |
| Loans | $2.93 billion | $2.74 billion | Up 6.7% |
| Deposits | $2.97 billion | $2.88 billion | Up 3.2% |
| Borrowings | $592.6 million | $485.9 million | Up 22.0% |
| Stockholders’ equity | $225.0 million | $211.1 million | Up 6.6% |
| Cash and cash equivalents | $65.4 million | $26.5 million | Up $38.8 million |
Net cash provided by operating activities was $25.2 million, compared with $59.4 million in 2022. Investing activities used $168.7 million, primarily reflecting loan growth and premises and equipment purchases; financing activities provided $182.3 million.
- Credit loss expense was $700 thousand, compared with a $2.5 million credit loss benefit in 2022.
- The allowance for credit losses was $28.3 million, or 0.97% of loans, compared with 0.93% at year-end 2022.
- Nonperforming loans were $296 thousand, or 0.01% of total loans; no loans were past due 30 days or more, and no other real estate owned was held.
- Available-for-sale securities totaled $623.9 million and had $121.8 million of net unrealized losses, primarily attributed to higher market interest rates.
- Tangible common equity was 5.88%, compared with 5.84% in 2022. West Bank remained well-capitalized and met its capital conservation buffer requirements.
- The company paid $1.00 per common share in dividends during 2023 and declared a $0.25 quarterly dividend payable in February 2024.
Material Changes Versus the Prior Comparable Period
- Profitability declined substantially as deposit and borrowing costs rose faster than yields on earning assets. Average rates paid on interest-bearing liabilities increased 197 basis points, versus a 94-basis-point increase in average asset yields.
- Deposit interest expense increased by $44.2 million and borrowed-funds interest expense increased by $15.5 million.
- Borrowings increased primarily through higher Federal Home Loan Bank advances, while federal funds purchased and other short-term borrowings declined.
- Loan growth was led by commercial real estate, construction and land development, and residential mortgage balances.
- Noninterest expense increased due to compensation, occupancy, technology and higher FDIC insurance costs.
- Noninterest income was broadly stable, with higher trust-service revenue and a $691 thousand bank-owned life insurance death-benefit gain offset by a $431 thousand securities loss and lower loan-swap fees.
- The company adopted the CECL standard on January 1, 2023, reducing retained earnings by $3.6 million and increasing the loan allowance by $2.5 million while establishing a $2.3 million allowance for unfunded commitments.
- Commercial real estate concentration remained significant: commercial real estate loans, including construction and land development, were 77.4% of total loans. The company reported a 417% non-owner-occupied CRE concentration under regulatory monitoring criteria.
Guidance, Outlook, Risks and Unusual Items
- Management expects Federal Reserve monetary policy to continue affecting deposit activity and loan demand in 2024. Loan growth could slow because of higher rates, economic uncertainty, labor and wage pressures, and borrower debt-service challenges.
- Deposit pricing may remain competitive, potentially increasing funding costs. Approximately 93% of total time deposits mature within one year, although management expects a significant portion of core time deposits to renew.
- The company believes current liquidity is sufficient. At year-end, West Bank reported approximately $528 million of additional FHLB borrowing capacity, $35 million of unsecured correspondent lines and $89 million of BTFP capacity; no discount-window or BTFP borrowings were outstanding. The BTFP was scheduled to cease making new loans on March 11, 2024.
- Key risks include interest-rate and liquidity risk, deposit concentration and uninsured deposits, commercial real estate exposure, collateral-value declines, credit-loss estimation, securities valuation losses, cybersecurity and third-party technology failures, competition from banks and fintech companies, regulatory changes and broader economic weakness.
- Estimated uninsured deposits were $1.44 billion at December 31, 2023. Brokered deposits totaled $305.4 million.
- The remaining commitment for the new headquarters construction contract was $13.0 million at year-end 2023.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter was the allowance for credit losses, particularly management’s qualitative factors and forecasts.
Most Important Facts for Investors to Verify
- Whether net interest margin stabilizes as deposit pricing, wholesale funding costs and Federal Reserve policy evolve.
- The renewal rate and pricing of the large volume of time deposits maturing during 2024, along with changes in uninsured and brokered deposits.
- Asset quality trends within the large commercial real estate portfolio, including office, hotel, multifamily and construction exposures.
- Whether the $28.3 million CECL allowance remains adequate under changing economic forecasts and collateral values.
- The potential earnings and liquidity effects of the $121.8 million securities portfolio unrealized loss position if securities must be sold before maturity.
- Progress and final cost of the new headquarters, including the remaining $13.0 million construction commitment.
- Future dividend capacity, given the company’s dependence on dividends from West Bank and the senior ranking of subordinated debt and junior subordinated debentures.