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EX-32.2 - EXHIBIT 32.2 - WEST BANCORPORATION INCwtba-20160630xex322.htm
EX-32.1 - EXHIBIT 32.1 - WEST BANCORPORATION INCwtba-20160630xex321.htm
EX-31.2 - EXHIBIT 31.2 - WEST BANCORPORATION INCwtba-20160630xex312.htm
EX-31.1 - EXHIBIT 31.1 - WEST BANCORPORATION INCwtba-20160630xex311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2016
 
 
or
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________

Commission File Number:  0-49677

WEST BANCORPORATION, INC.
(Exact Name of Registrant as Specified in its Charter)

IOWA
42-1230603
(State of Incorporation)
(I.R.S. Employer Identification No.)

 
1601 22nd Street, West Des Moines, Iowa
50266
 
 
(Address of principal executive offices)
(Zip Code)
 

Registrant's telephone number, including area code:  (515) 222-2300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x                      No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x                      No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
o
 
Accelerated filer
x
 
Non-accelerated filer
o
 
Smaller reporting company
o
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o                      No  x

As of July 27, 2016, there were 16,132,540 shares of common stock, no par value, outstanding.



WEST BANCORPORATION, INC.

INDEX
 
 
Page
PART I.
 
 
 
 
Item 1.
 
 
 
 
Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015
 
 
 
 
Consolidated Statements of Income for the three and six months ended June 30, 2016 and 2015
 
 
 
 
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015
 
 
 
 
Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2016 and 2015
 
 
 
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015
 
 
 
 
 
 
 
Item 2.
 
 
 
 
"Safe Harbor" Concerning Forward-Looking Statements
 
 
 
 
Critical Accounting Policies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 
 
 
Exhibit Index

2



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
West Bancorporation, Inc. and Subsidiary
 
 
 
 
Consolidated Balance Sheets
 
 
 
 
(unaudited)
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
June 30, 2016
 
December 31, 2015
ASSETS
 
 
 
 
Cash and due from banks
 
$
42,688

 
$
57,329

Federal funds sold
 
5,456

 
15,322

Cash and cash equivalents
 
48,144

 
72,651

Investment securities available for sale, at fair value
 
291,939

 
320,714

Investment securities held to maturity, at amortized cost (fair value of $50,565 and $51,918 at June 30, 2016 and December 31, 2015, respectively)
 
48,963

 
51,259

Federal Home Loan Bank stock, at cost
 
12,439

 
12,447

Loans
 
1,380,841

 
1,246,688

Allowance for loan losses
 
(15,829
)
 
(14,967
)
Loans, net
 
1,365,012

 
1,231,721

Premises and equipment, net
 
18,719

 
11,562

Accrued interest receivable
 
4,713

 
4,688

Bank-owned life insurance
 
32,797

 
32,834

Deferred tax assets, net
 
4,984

 
6,670

Other assets
 
3,975

 
3,850

Total assets
 
$
1,831,685

 
$
1,748,396

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
LIABILITIES
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing demand
 
$
458,197

 
$
486,707

Interest-bearing demand
 
264,241

 
267,824

Savings
 
677,497

 
570,391

Time of $250,000 or more
 
12,870

 
14,749

Other time
 
97,457

 
101,058

Total deposits
 
1,510,262

 
1,440,729

Federal funds purchased
 
1,240

 
2,760

Short-term borrowings
 
26,000

 
19,000

Subordinated notes, net of discount
 
20,392

 
20,385

Federal Home Loan Bank advances, net of discount
 
99,131

 
98,385

Long-term debt, net of discount
 
6,779

 
8,405

Accrued expenses and other liabilities
 
6,902

 
6,355

Total liabilities
 
1,670,706

 
1,596,019

COMMITMENTS AND CONTINGENCIES (NOTE 8)
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
Preferred stock, $0.01 par value; authorized 50,000,000 shares; no shares issued and outstanding at June 30, 2016 and December 31, 2015
 

 

Common stock, no par value; authorized 50,000,000 shares; 16,132,540 and 16,064,435 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
 
3,000

 
3,000

Additional paid-in capital
 
20,668

 
20,067

Retained earnings
 
135,598

 
129,740

Accumulated other comprehensive income (loss)
 
1,713

 
(430
)
Total stockholders' equity
 
160,979

 
152,377

Total liabilities and stockholders' equity
 
$
1,831,685

 
$
1,748,396

See Notes to Consolidated Financial Statements.

3



West Bancorporation, Inc. and Subsidiary
 
 
 
 
 
 
 
 
Consolidated Statements of Income
 
 
 
 
 
 
 
 
(unaudited)
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(dollars in thousands, except per share data)
 
2016
 
2015
 
2016
 
2015
Interest income:
 
 
 
 
 
 
 
 
Loans, including fees
 
$
14,303

 
$
12,999

 
$
27,769

 
$
25,621

Investment securities:
 
 
 
 
 
 
 
 
Taxable
 
1,076

 
1,042

 
2,231

 
2,167

Tax-exempt
 
819

 
756

 
1,702

 
1,520

Federal funds sold
 
11

 
22

 
31

 
32

Total interest income
 
16,209

 
14,819

 
31,733

 
29,340

Interest expense:
 
 
 
 
 
 

 
 

Deposits
 
824

 
551

 
1,529

 
1,122

Federal funds purchased
 
1

 
2

 
3

 
4

Short-term borrowings
 
17

 
1

 
31

 
27

Subordinated notes
 
177

 
176

 
364

 
347

Federal Home Loan Bank advances
 
879

 
673

 
1,751

 
1,397

Long-term debt
 
38

 
62

 
83

 
126

Total interest expense
 
1,936

 
1,465

 
3,761

 
3,023

Net interest income
 
14,273

 
13,354

 
27,972

 
26,317

Provision for loan losses
 
500

 
200

 
700

 
200

Net interest income after provision for loan losses
 
13,773

 
13,154

 
27,272

 
26,117

Noninterest income:
 
 
 
 
 
 

 
 

Service charges on deposit accounts
 
619

 
651

 
1,215

 
1,271

Debit card usage fees
 
475

 
469

 
922

 
904

Trust services
 
294

 
317

 
591

 
642

Increase in cash value of bank-owned life insurance
 
164

 
178

 
332

 
367

Gain from bank-owned life insurance
 

 

 
443

 

Realized investment securities gains, net
 
60

 
36

 
60

 
47

Other income
 
291

 
271

 
570

 
551

Total noninterest income
 
1,903

 
1,922

 
4,133

 
3,782

Noninterest expense:
 
 
 
 
 
 

 
 

Salaries and employee benefits
 
4,234

 
4,005

 
8,490

 
7,995

Occupancy
 
983

 
1,010

 
1,934

 
2,059

Data processing
 
627

 
569

 
1,206

 
1,143

FDIC insurance
 
224

 
209

 
442

 
411

Professional fees
 
196

 
177

 
430

 
381

Director fees
 
230

 
228

 
470

 
416

Other expenses
 
1,325

 
1,245

 
2,646

 
2,484

Total noninterest expense
 
7,819

 
7,443

 
15,618

 
14,889

Income before income taxes
 
7,857

 
7,633

 
15,787

 
15,010

Income taxes
 
2,381

 
2,361

 
4,615

 
4,635

Net income
 
$
5,476

 
$
5,272

 
$
11,172

 
$
10,375

 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.34

 
$
0.33

 
$
0.69

 
$
0.65

Diluted earnings per common share
 
$
0.34

 
$
0.33

 
$
0.69

 
$
0.65

Cash dividends declared per common share
 
$
0.17

 
$
0.16

 
$
0.33

 
$
0.30

See Notes to Consolidated Financial Statements.

4



West Bancorporation, Inc. and Subsidiary
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income
 
 
 
 
 
 
(unaudited)
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Net income
 
$
5,476

 
$
5,272

 
$
11,172

 
$
10,375

Other comprehensive income (loss):
 
 
 
 
 
 

 
 

Unrealized gains (losses) on available for sale securities:
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period
 
1,785

 
(2,589
)
 
4,470

 
(560
)
Less: reclassification adjustment for net gains realized in net income
 
(60
)
 
(36
)
 
(60
)
 
(47
)
Less: reclassification adjustment for amortization of net unrealized gains to interest income on securities transferred from available for sale to held to maturity
 
(91
)
 
(9
)
 
(115
)
 
(19
)
Income tax benefit (expense)
 
(621
)
 
1,001

 
(1,632
)
 
238

Other comprehensive income (loss) on available for sale securities
 
1,013

 
(1,633
)
 
2,663

 
(388
)
Unrealized gains (losses) on derivatives arising during the period:
 
(307
)
 
378

 
(1,137
)
 
(735
)
Less: reclassification adjustment for net loss on derivatives realized in net income
 
120

 

 
244

 
74

Less: reclassification adjustment for amortization of derivative termination costs
 
27

 
14

 
54

 
16

Income tax benefit (expense)
 
61

 
(149
)
 
319

 
245

Other comprehensive income (loss) on derivatives
 
(99
)
 
243

 
(520
)
 
(400
)
Total other comprehensive income (loss)
 
914

 
(1,390
)
 
2,143


(788
)
Comprehensive income
 
$
6,390

 
$
3,882

 
$
13,315

 
$
9,587


See Notes to Consolidated Financial Statements.
 

5



West Bancorporation, Inc. and Subsidiary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
Other
 
 
 
 
Preferred
 
Common Stock
 
Paid-In
 
Retained
 
Comprehensive
 
 
(in thousands, except share and per share data)
 
Stock
 
Shares
 
Amount
 
Capital
 
Earnings
 
Income (Loss)
 
Total
Balance, December 31, 2014
 
$

 
16,018,734

 
$
3,000

 
$
18,971

 
$
117,950

 
$
254

 
$
140,175

Net income
 

 

 

 

 
10,375

 

 
10,375

Other comprehensive (loss), net of tax
 

 

 

 

 

 
(788
)
 
(788
)
Cash dividends declared, $0.30 per common share
 

 

 

 

 
(4,812
)
 

 
(4,812
)
Stock-based compensation costs
 

 

 

 
496

 

 

 
496

Issuance of common stock upon vesting of restricted
 


 


 


 


 


 


 
 
stock units, net of shares withheld for payroll taxes
 

 
40,035

 

 
(179
)
 

 

 
(179
)
Excess tax benefits from vesting of restricted stock units
 

 

 

 
124

 

 

 
124

Balance, June 30, 2015
 
$

 
16,058,769

 
$
3,000

 
$
19,412

 
$
123,513

 
$
(534
)
 
$
145,391

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2015
 
$

 
16,064,435

 
$
3,000

 
$
20,067

 
$
129,740

 
$
(430
)
 
$
152,377

Net income
 

 

 

 

 
11,172

 

 
11,172

Other comprehensive income, net of tax
 

 

 

 

 

 
2,143

 
2,143

Cash dividends declared, $0.33 per common share
 

 

 

 

 
(5,314
)
 

 
(5,314
)
Stock-based compensation costs
 

 

 

 
872

 

 

 
872

Issuance of common stock upon vesting of restricted
 


 


 


 


 


 


 
 
stock units, net of shares withheld for payroll taxes
 

 
68,105

 

 
(348
)
 

 

 
(348
)
Excess tax benefits from vesting of restricted stock units
 

 

 

 
77

 

 

 
77

Balance, June 30, 2016
 
$

 
16,132,540


$
3,000

 
$
20,668

 
$
135,598

 
$
1,713

 
$
160,979


See Notes to Consolidated Financial Statements.


6



West Bancorporation, Inc. and Subsidiary
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
 
(unaudited)
 
 
 
 
 
 
Six Months Ended June 30,
(dollars in thousands)
 
2016
 
2015
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
11,172

 
$
10,375

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
700

 
200

Net amortization and accretion
 
2,220

 
1,808

Loss on disposition of premises and equipment
 

 
4

Investment securities gains, net
 
(60
)
 
(47
)
Stock-based compensation
 
872

 
496

Increase in cash value of bank-owned life insurance
 
(332
)
 
(367
)
Gain from bank-owned life insurance
 
(443
)
 

Depreciation
 
492

 
460

Deferred income taxes
 
373

 
119

Excess tax benefits from vesting of restricted stock units
 
(77
)
 
(124
)
Change in assets and liabilities:
 
 
 
 
(Increase) decrease in accrued interest receivable
 
(25
)
 
39

(Increase) decrease in other assets
 
(50
)
 
3,844

Decrease in accrued expenses and other liabilities
 
(346
)
 
(382
)
Net cash provided by operating activities
 
14,496

 
16,425

Cash Flows from Investing Activities:
 
 

 
 

Proceeds from sales of securities available for sale
 
1,544

 
16,946

Proceeds from maturities and calls of investment securities
 
32,475

 
24,724

Purchases of securities available for sale
 

 
(15,180
)
Purchases of Federal Home Loan Bank stock
 
(14,167
)
 
(10,586
)
Proceeds from redemption of Federal Home Loan Bank stock
 
14,175

 
13,493

Net increase in loans
 
(133,991
)
 
(32,776
)
Purchases of premises and equipment
 
(7,649
)
 
(1,397
)
Proceeds of principal and earnings from bank-owned life insurance
 
812

 

Proceeds from settlement of other assets
 

 
3,593

Net cash used in investing activities
 
(106,801
)
 
(1,183
)
Cash Flows from Financing Activities:
 
 

 
 

Net increase in deposits
 
69,533

 
96,148

Net increase (decrease) in federal funds purchased
 
(1,520
)
 
3,935

Net increase (decrease) in short-term borrowings
 
7,000

 
(66,000
)
Principal payments on long-term debt
 
(1,630
)
 
(1,630
)
Interest rate swap termination costs paid
 

 
(541
)
Common stock dividends paid
 
(5,314
)
 
(4,812
)
Restricted stock units withheld for payroll taxes
 
(348
)
 
(179
)
Excess tax benefits from vesting of restricted stock units
 
77

 
124

Net cash provided by financing activities
 
67,798

 
27,045

Net increase (decrease) in cash and cash equivalents
 
(24,507
)
 
42,287

Cash and Cash Equivalents:
 
 
 
 
Beginning
 
72,651

 
39,781

Ending
 
$
48,144

 
$
82,068

 
 
 
 
 
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
Cash payments for:
 
 
 
 
Interest
 
$
3,756

 
$
3,023

Income taxes
 
2,520

 
1,340

Supplemental Disclosure of Noncash Investing and Financing Activities:
 
 
 
 
Purchase of security available for sale, pending settlement
 
$

 
$
475


See Notes to Consolidated Financial Statements.

7



West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except per share data)


1.  Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by West Bancorporation, Inc. (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. Although management believes that the disclosures are adequate to make the information presented understandable, it is suggested that these interim consolidated financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2015.  In the opinion of management, the accompanying consolidated financial statements of the Company contain all adjustments necessary to fairly present the financial position as of June 30, 2016 and December 31, 2015, net income and comprehensive income for the three and six months ended June 30, 2016 and 2015, and cash flows for the six months ended June 30, 2016 and 2015.  The results for these interim periods may not be indicative of results for the entire year or for any other period.

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) established by the Financial Accounting Standards Board (FASB).  References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification™, sometimes referred to as the Codification or ASC.  In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting period.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term are the fair value and other than temporary impairment (OTTI) of financial instruments and the allowance for loan losses.

The accompanying unaudited consolidated financial statements include the accounts of the Company, West Bank and West Bank's wholly-owned subsidiary WB Funding Corporation (which owned an interest in a limited liability company that was sold in the fourth quarter of 2015).  All significant intercompany transactions and balances have been eliminated in consolidation.  In accordance with GAAP, West Bancorporation Capital Trust I is recorded on the books of the Company using the equity method of accounting and is not consolidated.

Reclassification: Certain amounts in prior year consolidated financial statements have been reclassified, with no effect on net income, comprehensive income or stockholders' equity, to conform with current period presentation.

Current accounting developments: In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the Codification. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2017. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company's consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. For public companies, this update was effective for interim and annual periods beginning after December 15, 2015, and was applied retrospectively. The adoption of this guidance required a balance sheet reclassification of unamortized debt issuance costs, which did not have a material impact on the Company's consolidated financial statements.


8



West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)


In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information by updating certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Among other changes, the update includes requiring changes in fair value of equity securities with readily determinable fair value to be recognized in net income and clarifies that entities should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entities' other deferred tax assets. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2017, and is to be applied on a modified retrospective basis. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in the update supersedes the requirements in ASC Topic 840, Leases. The update will require business entities to recognize lease assets and liabilities on the balance sheet and to disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2018, and is to be applied on a modified retrospective basis. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718). The update simplifies several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance also allows an entity to make an entity-wide accounting policy election to either estimate expected forfeitures or account for forfeitures as they occur. For public companies, the update is effective for annual periods beginning after December 15, 2016. Portions of the amended guidance are to be applied using a modified retrospective transition method and others require prospective application. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net carrying value at the amount expected to be collected on the financial assets. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount of financial assets. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Off-balance-sheet arrangements such as commitments to extend credit, guarantees, and standby letters of credit that are not considered derivatives under ASC 815 and are not unconditionally cancellable are also within the scope of this amendment. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. For public companies, the update is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. An entity will apply the amendments in this update on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.


9



West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)


2.  Earnings per Common Share

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding for the period.  Diluted earnings per common share reflect the potential dilution that could occur if the Company's outstanding restricted stock units were vested. The dilutive effect was computed using the treasury stock method, which assumes all stock-based awards were exercised and the hypothetical proceeds from exercise were used by the Company to purchase common stock at the average market price during the period.  The incremental shares, to the extent they would have been dilutive, were included in the denominator of the diluted earnings per common share calculation.  The calculations of earnings per common share and diluted earnings per common share for the three and six months ended June 30, 2016 and 2015 are presented in the following table. 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except per share data)
2016
 
2015
 
2016
 
2015
Net income
$
5,476

 
$
5,272

 
$
11,172

 
$
10,375

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
16,126

 
16,054

 
16,098

 
16,037

Weighted average effect of restricted stock units
 
 
 
 
 
 
 
   outstanding
34

 
39

 
44

 
52

Diluted weighted average common shares outstanding
16,160

 
16,093

 
16,142

 
16,089

 
 

 
 

 
 

 
 

Basic earnings per common share
$
0.34

 
$
0.33

 
$
0.69

 
$
0.65

Diluted earnings per common share
$
0.34

 
$
0.33

 
$
0.69

 
$
0.65


Restricted stock units totaling 110,765 and 124,186 were anti-dilutive and therefore excluded from the computation of diluted earnings per common share for the three and six months ended June 30, 2016, respectively. Restricted stock units totaling 133,214 and 72,619 were anti-dilutive for the three and six months ended June 30, 2015, respectively.

10



West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)


3.  Investment Securities

The following tables show the amortized cost, gross unrealized gains and losses, and fair value of investment securities, by investment security type as of June 30, 2016 and December 31, 2015.  
 
June 30, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
Securities available for sale:
 
 
 
 
 
 
 
U.S. government agencies and corporations
$
2,538

 
$
109

 
$

 
$
2,647

State and political subdivisions
64,940

 
2,720

 

 
67,660

Collateralized mortgage obligations (1)
118,067

 
1,012

 
(110
)
 
118,969

Mortgage-backed securities (1)
91,478

 
1,432

 

 
92,910

Trust preferred security
1,778

 

 
(675
)
 
1,103

Corporate notes
8,613

 
41

 
(4
)
 
8,650

 
$
287,414

 
$
5,314

 
$
(789
)
 
$
291,939

 
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
State and political subdivisions
$
48,963

 
$
1,753

 
$
(151
)
 
$
50,565

 
 

 
 

 
 

 
 

 
December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
Securities available for sale:
 
 
 
 
 
 
 
U.S. government agencies and corporations
$
2,551

 
$
141

 
$

 
$
2,692

State and political subdivisions
71,431

 
1,669

 
(21
)
 
73,079

Collateralized mortgage obligations (1)
133,414

 
491

 
(1,290
)
 
132,615

Mortgage-backed securities (1)
101,299

 
485

 
(696
)
 
101,088

Trust preferred security
1,773

 

 
(668
)
 
1,105

Corporate notes and equity securities
10,130

 
61

 
(56
)
 
10,135

 
$
320,598

 
$
2,847

 
$
(2,731
)
 
$
320,714

 
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
State and political subdivisions
$
51,259

 
$
883

 
$
(224
)
 
$
51,918

(1)
All collateralized mortgage obligations and mortgage-backed securities consist of residential mortgage pass-through securities guaranteed by GNMA or issued by FNMA and real estate mortgage investment conduits guaranteed by FHLMC or GNMA.

Investment securities with an amortized cost of approximately $137,478 and $78,553 as of June 30, 2016 and December 31, 2015, respectively, were pledged to secure access to the Federal Reserve discount window, for public fund deposits, and for other purposes as required or permitted by law or regulation. The increase in the amount of pledged investment securities as of June 30, 2016 compared to December 31, 2015 was primarily due to an increase in public fund deposits.


11



West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)


The amortized cost and fair value of investment securities available for sale as of June 30, 2016, by contractual maturity, are shown below.  Certain securities have call features that allow the issuer to call the securities prior to maturity.  Expected maturities may differ from contractual maturities for collateralized mortgage obligations and mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Therefore, collateralized mortgage obligations and mortgage-backed securities are not included in the maturity categories within the following maturity summary.
 
June 30, 2016
 
Amortized Cost
 
Fair Value
Due in one year or less
$
4,089

 
$
4,107

Due after one year through five years
14,834

 
15,153

Due after five years through ten years
30,407

 
31,679

Due after ten years
28,539

 
29,121

 
77,869

 
80,060

Collateralized mortgage obligations and mortgage-backed securities
209,545

 
211,879

 
$
287,414

 
$
291,939

The amortized cost and fair value of investment securities held to maturity as of June 30, 2016, by contractual maturity, are shown below.  Certain securities have call features that allow the issuer to call the securities prior to maturity.  
 
June 30, 2016
 
Amortized Cost
 
Fair Value
Due in one year or less
$
538

 
$
535

Due after one year through five years
487

 
486

Due after five years through ten years
19,380

 
19,880

Due after ten years
28,558

 
29,664

 
$
48,963

 
$
50,565

The details of the sales of investment securities available for sale for the three and six months ended June 30, 2016 and 2015 are summarized in the following table.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Proceeds from sales
$
1,544

 
$
6,889

 
$
1,544

 
$
16,946

Gross gains on sales
60

 
43

 
60

 
54

Gross losses on sales

 
7

 

 
7


12



West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)


The following tables show the fair value and gross unrealized losses, aggregated by investment type and length of time that individual securities have been in a continuous loss position, as of June 30, 2016 and December 31, 2015.
 
June 30, 2016
 
Less than 12 months
 
12 months or longer
 
Total
 
Fair
Value
 
Gross
Unrealized
(Losses)
 
Fair
Value
 
Gross
Unrealized
(Losses)
 
Fair
Value
 
Gross
Unrealized
(Losses)
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. government agencies and corporations
$

 
$

 
$

 
$

 
$

 
$

State and political subdivisions

 

 

 

 

 

Collateralized mortgage obligations

 

 
15,073

 
(110
)
 
15,073

 
(110
)
Mortgage-backed securities

 

 

 

 

 

Trust preferred security

 

 
1,103

 
(675
)
 
1,103

 
(675
)
Corporate notes
1,006

 
(1
)
 
527

 
(3
)
 
1,533

 
(4
)
 
$
1,006

 
$
(1
)
 
$
16,703

 
$
(788
)
 
$
17,709

 
$
(789
)
 
 

 
 

 
 

 
 

 
 

 
 

Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
$
448

 
$
(2
)
 
$
4,580

 
$
(149
)
 
$
5,028

 
$
(151
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
Less than 12 months
 
12 months or longer
 
Total
 
Fair
Value
 
Gross
Unrealized
(Losses)
 
Fair
Value
 
Gross
Unrealized
(Losses)
 
Fair
Value
 
Gross
Unrealized
(Losses)
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. government agencies and corporations
$

 
$

 
$

 
$

 
$

 
$

State and political subdivisions
321

 
(1
)
 
2,053

 
(20
)
 
2,374

 
(21
)
Collateralized mortgage obligations
53,043

 
(449
)
 
38,286

 
(841
)
 
91,329

 
(1,290
)
Mortgage-backed securities
67,662

 
(600
)
 
7,200

 
(96
)
 
74,862

 
(696
)
Trust preferred security

 

 
1,105

 
(668
)
 
1,105

 
(668
)
Corporate notes and equity securities
4,500

 
(56
)
 

 

 
4,500

 
(56
)
 
$
125,526

 
$
(1,106
)
 
$
48,644

 
$
(1,625
)
 
$
174,170

 
$
(2,731
)
 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
$
2,832

 
$
(42
)
 
$
7,341

 
$
(182
)
 
$
10,173

 
$
(224
)
As of June 30, 2016, the available for sale and held to maturity securities with unrealized losses that have existed for longer than one year included 15 state and political subdivision securities, five collateralized mortgage obligation securities, one trust preferred security and one corporate note.

The Company believes the unrealized losses on investments available for sale and held to maturity as of June 30, 2016, were due to market conditions, rather than reduced estimated cash flows. The Company does not intend to sell these securities, does not anticipate that these securities will be required to be sold before anticipated recovery, and expects full principal and interest to be collected. Therefore, the Company does not consider these investments to have OTTI as of June 30, 2016.

    

13



West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)


4. Loans and Allowance for Loan Losses

Loans consisted of the following segments as of June 30, 2016 and December 31, 2015.
 
June 30, 2016
 
December 31, 2015
Commercial
$
380,267

 
$
349,051

Real estate:
 
 
 
Construction, land and land development
223,541

 
174,602

1-4 family residential first mortgages
49,206

 
51,370

Home equity
19,727

 
21,749

Commercial
699,830

 
644,176

Consumer and other loans
9,487

 
6,801

 
1,382,058

 
1,247,749

Net unamortized fees and costs
(1,217
)
 
(1,061
)
 
$
1,380,841

 
$
1,246,688

Real estate loans of approximately $630,000 and $590,000 were pledged as security for Federal Home Loan Bank (FHLB) advances as of June 30, 2016 and December 31, 2015, respectively.

Loans are stated at the principal amounts outstanding, net of unamortized loan fees and costs, with interest income recognized on the interest method based upon those outstanding loan balances.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Loans are reported by the portfolio segments identified above and are analyzed by management on this basis. All loan policies identified below apply to all segments of the loan portfolio.

Delinquencies are determined based on the payment terms of the individual loan agreements. The accrual of interest on past due and other impaired loans is generally discontinued at 90 days past due or when, in the opinion of management, the borrower may be unable to make all payments pursuant to contractual terms.  Unless considered collectible, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income, if accrued in the current year, or charged to the allowance for loan losses, if accrued in the prior year.  Generally, all payments received while a loan is on nonaccrual status are applied to the principal balance of the loan. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. 

A loan is classified as a troubled debt restructured (TDR) loan when the Company separately concludes that a borrower is experiencing financial difficulties and a concession is granted that would not otherwise be considered. Concessions may include a restructuring of the loan terms to alleviate the burden of the borrower's cash requirements, such as an extension of the payment terms beyond the original maturity date or a change in the interest rate charged.  TDR loans with extended payment terms are accounted for as impaired until performance is established. A change to the interest rate would change the classification of a loan to a TDR loan if the restructured loan yields a rate that is below a market rate for that of a new loan with comparable risk. TDR loans with below-market rates are considered impaired until fully collected. TDR loans may also be reported as nonaccrual or past due 90 days if they are not performing per the restructured terms.

Based upon its ongoing assessment of credit quality within the loan portfolio, the Company maintains a Watch List, which includes loans classified as Doubtful, Substandard and Watch according to the Company's classification criteria. These loans involve the anticipated potential for payment defaults or collateral inadequacies. A loan on the Watch List is considered impaired when management believes it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement.  Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent.  The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

  


14



West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)


The table below presents the TDR loans by segment as of June 30, 2016 and December 31, 2015.
 
June 30, 2016
 
December 31, 2015
Troubled debt restructured loans(1):
 
 
 
Commercial
$
96

 
$
102

Real estate:
 
 
 
Construction, land and land development

 
60

1-4 family residential first mortgages
20

 
86

Home equity

 

Commercial
389

 
445

Consumer and other loans

 

Total troubled debt restructured loans
$
505

 
$
693


(1)
Included in this table were two TDR loans as of June 30, 2016 and three TDR loans as of December 31, 2015, with balances of $485 and $613, respectively, categorized as nonaccrual.

There were no loan modifications considered to be TDR that occurred during the three and six months ended June 30, 2016. There was one loan modification considered to be TDR that occurred during the three months ended June 30, 2015 with a pre- and post-modification recorded investment of $20. There were two loan modifications considered to be TDR that occurred during the six months ended June 30, 2015 with a pre- and post-modification recorded investment of $130.

The recorded investment in TDR loans that have been modified within the twelve months preceding June 30, 2016 and June 30, 2015, and that have subsequently had a payment default, totaled $20 and $110, respectively. A TDR loan is considered to have a payment default when it is past due 30 days or more.


15



West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)


The following table summarizes the recorded investment in impaired loans by segment, broken down by loans with no related allowance for loan losses and loans with a related allowance and the amount of that allowance as of June 30, 2016 and December 31, 2015.
 
June 30, 2016
 
December 31, 2015
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial
$

 
$

 
$

 
$

 
$

 
$

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development

 

 

 
60

 
663

 

1-4 family residential first mortgages
142

 
142

 

 
352

 
360

 

Home equity

 

 

 

 

 

Commercial
388

 
388

 

 
482

 
482

 

Consumer and other loans

 

 

 

 

 

 
530

 
530

 

 
894

 
1,505

 

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial
132

 
132

 
132

 
142

 
142

 
142

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

 

 

1-4 family residential first mortgages

 

 

 

 

 

Home equity
259

 
259

 
259

 
270

 
270

 
270

Commercial
146

 
146

 
146

 
155

 
155

 
155

Consumer and other loans

 

 

 

 

 

 
537

 
537

 
537

 
567

 
567

 
567

Total:
 
 
 
 
 
 
 
 
 
 
 
Commercial
132

 
132

 
132

 
142

 
142

 
142

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development

 

 

 
60

 
663

 

1-4 family residential first mortgages
142

 
142

 

 
352

 
360

 

Home equity
259

 
259

 
259

 
270

 
270

 
270

Commercial
534

 
534

 
146

 
637

 
637

 
155

Consumer and other loans

 

 

 

 

 

 
$
1,067

 
$
1,067

 
$
537

 
$
1,461

 
$
2,072

 
$
567

   
The balance of impaired loans at June 30, 2016 and December 31, 2015 was composed of 8 and 13 different borrowers, respectively. The Company has no commitments to advance additional funds on any of the impaired loans.



16



West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)


The following table summarizes the average recorded investment and interest income recognized on impaired loans by segment for the three and six months ended June 30, 2016 and 2015.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
Average Recorded Investment
 
Interest Income Recognized
 
Average Recorded Investment
 
Interest Income Recognized
 
Average Recorded Investment
 
Interest Income Recognized
 
Average Recorded Investment
 
Interest Income Recognized
With no related allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
recorded: