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EX-32.2 - EXHIBIT 32.2 - WEST BANCORPORATION INCwtba-20180331xex322.htm
EX-32.1 - EXHIBIT 32.1 - WEST BANCORPORATION INCwtba-20180331xex321.htm
EX-31.2 - EXHIBIT 31.2 - WEST BANCORPORATION INCwtba-20180331xex312.htm
EX-31.1 - EXHIBIT 31.1 - WEST BANCORPORATION INCwtba-20180331xex311.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 March 31, 2018
 
 
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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
o
 
 
 
 
Accelerated filer
x
 
 
 
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 April 25, 2018, there were 16,271,494 shares of common stock, no par value, outstanding.



WEST BANCORPORATION, INC.
INDEX
 
 
Page
PART I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

3



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
West Bancorporation, Inc. and Subsidiary
 
 
 
 
Consolidated Balance Sheets
 
 
 
 
(unaudited)
 
 
 
 
 
 
 
 
 
(in thousands, except share and per share data)
 
March 31, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Cash and due from banks
 
$
36,978

 
$
34,952

Federal funds sold
 
488

 
12,997

Cash and cash equivalents
 
37,466

 
47,949

Investment securities available for sale, at fair value
 
482,787

 
444,219

Investment securities held to maturity, at amortized cost (fair value $45,890 at December 31, 2017)
 

 
45,527

Federal Home Loan Bank stock, at cost
 
10,130

 
9,174

Loans
 
1,502,283

 
1,510,500

Allowance for loan losses
 
(16,465
)
 
(16,430
)
Loans, net
 
1,485,818

 
1,494,070

Premises and equipment, net
 
22,682

 
23,022

Accrued interest receivable
 
7,287

 
7,344

Bank-owned life insurance
 
33,776

 
33,618

Deferred tax assets, net
 
5,625

 
4,645

Other assets
 
6,454

 
4,809

Total assets
 
$
2,092,025

 
$
2,114,377

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
LIABILITIES
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing demand
 
$
394,100

 
$
395,888

Interest-bearing demand
 
314,546

 
395,052

Savings
 
854,941

 
850,216

Time of $250 or more
 
26,224

 
16,965

Other time
 
148,347

 
152,692

Total deposits
 
1,738,158

 
1,810,813

Federal funds purchased
 
51,820

 
545

Subordinated notes, net
 
20,415

 
20,412

Federal Home Loan Bank advances, net
 
76,751

 
76,382

Long-term debt
 
21,639

 
22,917

Accrued expenses and other liabilities
 
5,000

 
5,210

Total liabilities
 
1,913,783

 
1,936,279

COMMITMENTS AND CONTINGENCIES (NOTE 8)
 

 

STOCKHOLDERS' EQUITY
 
 
 
 
Preferred stock, $0.01 par value; authorized 50,000,000 shares; no shares issued and outstanding at March 31, 2018 and December 31, 2017
 

 

Common stock, no par value; authorized 50,000,000 shares; 16,271,494
    and 16,215,672 shares issued and outstanding at March 31, 2018
    and December 31, 2017, respectively
 
3,000

 
3,000

Additional paid-in capital
 
22,916

 
23,463

Retained earnings
 
158,362

 
153,527

Accumulated other comprehensive loss
 
(6,036
)
 
(1,892
)
Total stockholders' equity
 
178,242

 
178,098

Total liabilities and stockholders' equity
 
$
2,092,025

 
$
2,114,377

See Notes to Consolidated Financial Statements.

4



West Bancorporation, Inc. and Subsidiary
 
 
 
 
Consolidated Statements of Income
 
 
 
 
(unaudited)
 
 
 
 
 
 
Three Months Ended March 31,
(in thousands, except per share data)
 
2018
 
2017
Interest income:
 
 
 
 
Loans, including fees
 
$
16,474

 
$
14,969

Investment securities:
 
 
 
 
Taxable
 
1,813

 
1,027

Tax-exempt
 
1,362

 
778

Federal funds sold
 
81

 
17

Total interest income
 
19,730

 
16,791

Interest expense:
 
 

 
 

Deposits
 
3,012

 
1,195

Federal funds purchased
 
27

 
46

Subordinated notes
 
248

 
212

Federal Home Loan Bank advances
 
832

 
917

Long-term debt
 
195

 
32

Total interest expense
 
4,314

 
2,402

Net interest income
 
15,416

 
14,389

Provision for loan losses
 
150

 

Net interest income after provision for loan losses
 
15,266

 
14,389

Noninterest income:
 
 

 
 

Service charges on deposit accounts
 
649

 
600

Debit card usage fees
 
399

 
440

Trust services
 
445

 
392

Increase in cash value of bank-owned life insurance
 
158

 
154

Gain from bank-owned life insurance
 

 
307

Realized investment securities losses, net
 

 
(3
)
Other income
 
262

 
270

Total noninterest income
 
1,913

 
2,160

Noninterest expense:
 
 

 
 

Salaries and employee benefits
 
4,513

 
4,337

Occupancy
 
1,223

 
1,097

Data processing
 
676

 
688

FDIC insurance
 
162

 
213

Professional fees
 
234

 
293

Director fees
 
249

 
211

Other expenses
 
1,230

 
1,204

Total noninterest expense
 
8,287

 
8,043

Income before income taxes
 
8,892

 
8,506

Income taxes
 
1,508

 
2,400

Net income
 
$
7,384

 
$
6,106

 
 
 
 
 
Basic earnings per common share
 
$
0.46

 
$
0.38

Diluted earnings per common share
 
$
0.45

 
$
0.37

Cash dividends declared per common share
 
$
0.18

 
$
0.17

See Notes to Consolidated Financial Statements.

5



West Bancorporation, Inc. and Subsidiary
 
 
 
 
Consolidated Statements of Comprehensive Income
 
 
 
(unaudited)
 
 
 
 
 
 
Three Months Ended March 31,
(in thousands)
 
2018
 
2017
Net income
 
$
7,384

 
$
6,106

Other comprehensive income (loss) :
 
 

 
 

Unrealized gains (losses) on investment securities:
 
 
 
 
Unrealized holding gains (losses) arising during the period
 
(6,965
)
 
1,607

Unrealized gains on investment securities transferred from held to maturity to available for sale
 
363

 

Plus: reclassification adjustment for net losses realized in net income
 

 
3

Less: other reclassification adjustment
 
(36
)
 
(7
)
Income tax benefit (expense)
 
1,661

 
(609
)
Other comprehensive income (loss) on investment securities
 
(4,977
)
 
994

Unrealized gains on derivatives:
 
 
 
 
Unrealized holding gains arising during the period
 
1,545

 
9

Plus: reclassification adjustment for net loss on derivatives realized in net income
 
37

 
90

Plus: reclassification adjustment for amortization of derivative termination costs
 
23

 
27

Income tax (expense)
 
(402
)
 
(48
)
Other comprehensive income on derivatives
 
1,203

 
78

Total other comprehensive income (loss)
 
(3,774
)

1,072

Comprehensive income
 
$
3,610

 
$
7,178


See Notes to Consolidated Financial Statements.
 

6



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, 2016
 
$

 
16,137,999

 
$
3,000

 
$
21,462

 
$
141,956

 
$
(1,042
)
 
$
165,376

Net income
 

 

 

 

 
6,106

 

 
6,106

Other comprehensive income, net of tax
 

 

 

 

 

 
1,072

 
1,072

Cash dividends declared, $0.17 per common share
 

 

 

 

 
(2,743
)
 

 
(2,743
)
Stock-based compensation costs
 

 

 

 
514

 

 

 
514

Issuance of common stock upon vesting of restricted
 


 


 


 


 


 


 
 
stock units, net of shares withheld for payroll taxes
 

 
49,162

 

 
(553
)
 

 

 
(553
)
Balance, March 31, 2017
 
$

 
16,187,161

 
$
3,000

 
$
21,423

 
$
145,319

 
$
30

 
$
169,772

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
 
$

 
16,215,672

 
$
3,000

 
$
23,463

 
$
153,527

 
$
(1,892
)
 
$
178,098

Reclassification of stranded tax effects of rate change
 

 

 

 

 
370

 
(370
)
 

Net income
 

 

 

 

 
7,384

 

 
7,384

Other comprehensive loss, net of tax
 

 

 

 

 

 
(3,774
)
 
(3,774
)
Cash dividends declared, $0.18 per common share
 

 

 

 

 
(2,919
)
 

 
(2,919
)
Stock-based compensation costs
 

 

 

 
529

 

 

 
529

Issuance of common stock upon vesting of restricted
 


 


 


 


 


 


 
 
stock units, net of shares withheld for payroll taxes
 

 
55,822

 

 
(1,076
)
 

 

 
(1,076
)
Balance, March 31, 2018
 
$

 
16,271,494


$
3,000

 
$
22,916

 
$
158,362

 
$
(6,036
)
 
$
178,242


See Notes to Consolidated Financial Statements.


7



West Bancorporation, Inc. and Subsidiary
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
 
(unaudited)
 
 
 
 
 
 
Three Months Ended March 31,
(in thousands)
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
7,384

 
$
6,106

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
150

 

Net amortization and accretion
 
1,252

 
904

Investment securities losses, net
 

 
3

Stock-based compensation
 
529

 
514

Increase in cash value of bank-owned life insurance
 
(158
)
 
(154
)
Gain from bank-owned life insurance
 

 
(307
)
Depreciation
 
353

 
341

Deferred income taxes
 
279

 
450

Change in assets and liabilities:
 
 
 
 
(Increase) decrease in accrued interest receivable
 
57

 
(264
)
Increase in other assets
 
(149
)
 
(418
)
Decrease in accrued expenses and other liabilities
 
(124
)
 
(99
)
Net cash provided by operating activities
 
9,573

 
7,076

Cash Flows from Investing Activities:
 
 

 
 

Proceeds from sales of securities available for sale
 

 
8,999

Proceeds from maturities and calls of investment securities
 
9,464

 
12,437

Purchases of securities available for sale
 
(10,000
)
 
(21,108
)
Purchases of Federal Home Loan Bank stock
 
(2,134
)
 
(7,034
)
Proceeds from redemption of Federal Home Loan Bank stock
 
1,178

 
5,695

Net (increase) decrease in loans
 
8,102

 
(46,550
)
Purchases of premises and equipment
 
(13
)
 
(32
)
Proceeds of principal and earnings from bank-owned life insurance
 

 
451

Net cash provided by (used in) investing activities
 
6,597

 
(47,142
)
Cash Flows from Financing Activities:
 
 

 
 

Net decrease in deposits
 
(72,655
)
 
(17,851
)
Net increase in federal funds purchased
 
51,275

 
27,735

Principal payments on long-term debt
 
(1,278
)
 
(828
)
Common stock dividends paid
 
(2,919
)
 
(2,743
)
Restricted stock units withheld for payroll taxes
 
(1,076
)
 
(553
)
Net cash provided by (used in) financing activities
 
(26,653
)
 
5,760

Net decrease in cash and cash equivalents
 
(10,483
)
 
(34,306
)
Cash and Cash Equivalents:
 
 
 
 
Beginning
 
47,949

 
76,836

Ending
 
$
37,466

 
$
42,530

 
 
 
 
 
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
Cash payments for:
 
 
 
 
Interest
 
$
4,196

 
$
2,361

Income taxes
 

 

 
 
 
 
 
Supplemental Disclosure of Noncash Investing Activities:
 
 
 
 
Transfer of investment securities held to maturity to available for sale
 
$
45,527

 
$

See Notes to Consolidated Financial Statements.

8



West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars 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, 2017.  In the opinion of management, the accompanying consolidated financial statements of the Company contain all adjustments necessary to fairly present its financial position as of March 31, 2018 and December 31, 2017, and net income, comprehensive income and cash flows for the three months ended March 31, 2018 and 2017.  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 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 was liquidated in March 2018).  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.

Current accounting developments:  In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). 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 was effective for interim and annual periods beginning after December 15, 2017. The Company adopted the guidance effective January 1, 2018, using the modified retrospective method. The Company's revenue is primarily composed of interest income on financial instruments, including investment securities and loans, which are excluded from the scope of this update. Also excluded from the scope of the update is revenue from bank-owned life insurance, loan fees and letter of credit fees. Approximately 90 percent of the Company's revenue is outside the scope of this update. Deposit account related fees, including service charges, debit card usage fees, overdraft fees and wire transfer fees are within the scope of the guidance; however, revenue recognition practices did not change under the guidance, as deposit agreements are considered day-to-day contracts. Deposit account transaction related fees will continue to be recognized as the services are performed. Other noninterest income sources of revenue are considered immaterial. Implementation of the guidance did not change current business practices. Implementation of the guidance did not have a material impact on the Company's consolidated financial statements.

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 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, 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 was effective for interim and annual periods beginning after December 15, 2017. The Company adopted the guidance effective January 1, 2018, using the modified retrospective method. Upon adoption, the fair value of the Company's loan portfolio is now presented using an exit price method. Also, the Company is no longer required to disclose the methodologies used for estimating fair value of financial assets and liabilities that are not measured at fair value on a recurring or nonrecurring basis. The remaining requirements of this update did not have a material impact on the Company's consolidated financial statements.


9



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


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 guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for leases with terms of more than 12 months. 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 currently leases its main location and space for six other branch offices and operational departments under operating leases that will result in recognition of lease assets and lease liabilities on the consolidated balance sheets under the update. The amount of assets and liabilities added to the balance sheet are not expected to have a material impact on the Company's consolidated financial statements per preliminary estimates.

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. Under the updates, the income statement will reflect 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 will be determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses will be added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses will be 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 update. 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 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 does not plan to early adopt this standard, but is currently planning for the implementation. It is too early to assess the impact that this guidance will have on the Company's consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this update make targeted changes to the existing hedge accounting model to better align the accounting rules with a company’s risk management activities, and to simplify the application of the hedge accounting model. The update expands the types of transactions eligible for hedge accounting, eliminates the requirement to separately measure and present hedge ineffectiveness, and simplifies the way assessments of hedge ineffectiveness may be performed. The update also permits a one-time reclassification of prepayable debt securities from held to maturity classification to available for sale. For public companies, the update is effective for annual periods beginning after December 15, 2018, with early adoption permitted, including in an interim period. The amendments' presentation and disclosure guidance is required on a prospective basis. The Company adopted the guidance effective January 1, 2018. The requirements of this update related to the Company's hedging activities did not have any impact on the Company's consolidated financial statements. Upon adoption, the Company elected to transfer all its held to maturity securities portfolio to available for sale. The transferred securities had an amortized cost basis of $45,527 and a fair value of $45,890. Upon transfer, the Company recorded an adjustment of $273 to accumulated other comprehensive income, net of deferred income taxes, for the unrealized gains and losses related to the transferred securities.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendment in this update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the December 22, 2017, enactment of the reduced federal corporate income tax rate, which became effective in 2018. For public companies, the update is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The amendment can be adopted at the beginning of the period or on a retrospective basis. The Company adopted the amendment effective January 1, 2018, using the beginning of period method. The reclassified amount was $370.


10



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 months ended March 31, 2018 and 2017 are presented in the following table.
 
Three Months Ended March 31,
(in thousands, except per share data)
2018
 
2017
Net income
$
7,384

 
$
6,106

 
 
 
 
Weighted average common shares outstanding
16,219

 
16,141

Weighted average effect of restricted stock units outstanding
189

 
151

Diluted weighted average common shares outstanding
16,408

 
16,292

 
 

 
 

Basic earnings per common share
$
0.46

 
$
0.38

Diluted earnings per common share
$
0.45

 
$
0.37

Number of anti-dilutive common stock equivalents excluded from diluted earnings per share computation
8

 



11



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 March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
Securities available for sale:
 
 
 
 
 
 
 
State and political subdivisions
$
191,622

 
$
293

 
$
(4,242
)
 
$
187,673

Collateralized mortgage obligations (1)
156,873

 
3

 
(4,421
)
 
152,455

Mortgage-backed securities (1)
58,565

 
7

 
(1,118
)
 
57,454

Asset-backed securities (2)
43,562

 
66

 
(323
)
 
43,305

Trust preferred security
2,139

 

 
(139
)
 
2,000

Corporate notes
40,278

 
270

 
(648
)
 
39,900

 
$
493,039

 
$
639

 
$
(10,891
)
 
$
482,787

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
Securities available for sale:
 
 
 
 
 
 
 
State and political subdivisions
$
146,331

 
$
928

 
$
(946
)
 
$
146,313

Collateralized mortgage obligations (1)
162,631

 
28

 
(2,727
)
 
159,932

Mortgage-backed securities (1)
60,956

 
20

 
(547
)
 
60,429

Asset-backed securities (2)
45,539

 
8

 
(352
)
 
45,195

Trust preferred security
2,134

 

 
(128
)
 
2,006

Corporate notes
30,278

 
331

 
(265
)
 
30,344

 
$
447,869

 
$
1,315

 
$
(4,965
)
 
$
444,219

 
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
State and political subdivisions
$
45,527

 
$
460

 
$
(97
)
 
$
45,890

(1)
All collateralized mortgage obligations and mortgage-backed securities consist of residential mortgage pass-through securities guaranteed by FHLMC or FNMA, real estate mortgage investment conduits guaranteed by FNMA, FHLMC or GNMA, and commercial mortgage pass-through securities guaranteed by the SBA.
(2)
Pass-through asset-backed securities guaranteed by the SBA, representing participating interests in pools of long-term debentures issued by state and local development companies certified by the SBA.

On January 1, 2018, the Company adopted the amendments of ASU No. 2017-12 and, as a result, elected to transfer all securities classified as held to maturity to available for sale. At the date of reclassification, the held to maturity securities portfolio was carried at an amortized cost of $45,527. The reclassification of securities between categories was accounted for at fair value. At the date of reclassification, the securities had a fair value of $45,890 and net unrealized holding gains of $273, which were recorded net of tax in other comprehensive income. The transfer enhanced liquidity and increased flexibility with regard to asset-liability management and balance sheet composition.

Investment securities with an amortized cost of approximately $117,276 and $120,338 as of March 31, 2018 and December 31, 2017, 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.

12



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 March 31, 2018, 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, mortgage-backed securities and asset-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Therefore, collateralized mortgage obligations, mortgage-backed securities and asset-backed securities are not included in the maturity categories within the following maturity summary.
 
March 31, 2018
 
Amortized Cost
 
Fair Value
Due in one year or less
$
110

 
$
110

Due after one year through five years
3,946

 
3,926

Due after five years through ten years
74,586

 
73,682

Due after ten years
155,397

 
151,855

 
234,039

 
229,573

Collateralized mortgage obligations, mortgage-backed and asset-backed securities
259,000

 
253,214

 
$
493,039

 
$
482,787

The details of the sales of investment securities available for sale for the three months ended March 31, 2018 and 2017 are summarized in the following table.
 
Three Months Ended March 31,
 
2018
 
2017
Proceeds from sales
$

 
$
8,999

Gross gains on sales

 
39

Gross losses on sales

 
42


13



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 March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
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:
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
$
156,316

 
$
(4,232
)
 
$
1,727

 
$
(10
)
 
$
158,043

 
$
(4,242
)
Collateralized mortgage obligations
106,623

 
(2,778
)
 
43,597

 
(1,643
)
 
150,220

 
(4,421
)
Mortgage-backed securities
53,791

 
(1,118
)
 

 

 
53,791

 
(1,118
)
Asset-backed securities
29,837

 
(323
)
 

 

 
29,837

 
(323
)
Trust preferred security

 

 
2,000

 
(139
)
 
2,000

 
(139
)
Corporate notes
24,347

 
(648
)
 

 

 
24,347

 
(648
)
 
$
370,914

 
$
(9,099
)
 
$
47,324

 
$
(1,792
)
 
$
418,238

 
$
(10,891
)
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
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:
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
$
86,750

 
$
(946
)
 
$

 
$

 
$
86,750

 
$
(946
)
Collateralized mortgage obligations
107,526

 
(1,583
)
 
46,396

 
(1,144
)
 
153,922

 
(2,727
)
Mortgage-backed securities
53,974

 
(547
)
 

 

 
53,974

 
(547
)
Asset-backed securities
38,652

 
(352
)
 

 

 
38,652

 
(352
)
Trust preferred security

 

 
2,006

 
(128
)
 
2,006

 
(128
)
Corporate notes
14,735

 
(265
)
 

 

 
14,735

 
(265
)
 
$
301,637

 
$
(3,693
)
 
$
48,402

 
$
(1,272
)
 
$
350,039

 
$
(4,965
)
 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
$
12,611

 
$
(70
)
 
$
1,740

 
$
(27
)
 
$
14,351

 
$
(97
)
As of March 31, 2018, the available for sale securities with unrealized losses included 225 state and political subdivision securities, 41 collateralized mortgage obligation securities, 15 mortgage-backed securities, five asset-backed securities, one trust preferred security and nine corporate notes. The Company believed the unrealized losses on investments available for sale as of March 31, 2018 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 did not consider these investments to have other than temporary impairment as of March 31, 2018.



14



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 March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
December 31, 2017
Commercial
$
316,188

 
$
347,482

Real estate:
 
 
 
Construction, land and land development
173,495

 
207,451

1-4 family residential first mortgages
50,229

 
51,044

Home equity
13,756

 
13,811

Commercial
944,067

 
886,114

Consumer and other
6,450

 
6,363

 
1,504,185

 
1,512,265

Net unamortized fees and costs
(1,902
)
 
(1,765
)
 
$
1,502,283

 
$
1,510,500

Real estate loans of approximately $730,000 and $810,000 were pledged as security for Federal Home Loan Bank (FHLB) advances as of March 31, 2018 and December 31, 2017, 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 the terms of the loan.  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 90 days past due 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.

  





15



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


TDR loans totaled $191 and $220 as of March 31, 2018 and December 31, 2017, respectively, and were included in the nonaccrual category. There were no loan modifications considered to be TDR that occurred during the three months ended March 31, 2018 and 2017. No TDR loans that were modified within the twelve months preceding March 31, 2018 and March 31, 2017 have subsequently had a payment default. A TDR loan is considered to have a payment default when it is past due 30 days or more.

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 March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
December 31, 2017
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
883

 
$
883

 
$

 
$

 
$

 
$

Real estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

 

 

1-4 family residential first mortgages
122

 
122

 

 
91

 
91

 

Home equity
172

 
172

 

 
172

 
172

 

Commercial
798

 
798

 

 
220

 
220

 

Consumer and other

 

 

 

 

 

 
1,975

 
1,975

 

 
483

 
483

 

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial

 

 

 

 

 

Real estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

 

 

1-4 family residential first mortgages

 

 

 

 

 

Home equity
18

 
18

 
18

 
21

 
21

 
21

Commercial
114

 
114

 
114

 
118

 
118

 
118

Consumer and other

 

 

 

 

 

 
132

 
132

 
132

 
139

 
139

 
139

Total:
 
 
 
 
 
 
 
 
 
 
 
Commercial
883

 
883

 

 

 

 

Real estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

 

 

1-4 family residential first mortgages
122

 
122

 

 
91

 
91

 

Home equity
190

 
190

 
18

 
193

 
193

 
21

Commercial
912

 
912

 
114

 
338

 
338

 
118

Consumer and other

 

 

 

 

 

 
$
2,107

 
$
2,107

 
$
132

 
$
622

 
$
622

 
$
139

   
The balance of impaired loans at March 31, 2018 and December 31, 2017 was composed of seven and five 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 months ended March 31, 2018 and 2017.
 
Three Months Ended March 31,
 
2018
 
2017
 
Average Recorded Investment
 
Interest Income Recognized
 
Average Recorded Investment
 
Interest Income Recognized
With no related allowance recorded:
 
 
 
 
 
 
 
Commercial
$
270

 
$

 
$
26

 
$

Real estate:
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

1-4 family residential first mortgages
115

 

 
107

 

Home equity
172

 

 
38

 

Commercial
357

 

 
319

 

Consumer and other

 

 

 

 
914

 

 
490

 

With an allowance recorded:
 
 
 
 
 
 
 
Commercial

 

 
89

 

Real estate:
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

1-4 family residential first mortgages

 

 

 

Home equity
20

 

 
272

 

Commercial
116

 

 
134

 

Consumer and other

 

 

 

 
136

 

 
495

 

Total:
 
 
 
 
 
 
 
Commercial
270

 

 
115

 

Real estate:
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

1-4 family residential first mortgages
115

 

 
107

 

Home equity
192

 

 
310

 

Commercial
473

 

 
453

 

Consumer and other

 

 

 

 
$
1,050

 
$

 
$
985

 
$




17



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


The following tables provide an analysis of the payment status of the recorded investment in loans as of March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
30-59
Days Past
Due
 
60-89
Days Past
Due
 
90 Days
or More
Past Due
 
Total
Past Due
 
Current
 
Nonaccrual Loans
 
Total Loans
Commercial
$
13

 
$
10

 
$

 
$
23

 
$
315,282

 
$
883

 
$
316,188

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction, land and
 
 
 
 
 
 
 
 
 
 
 
 
 
land development

 

 

 

 
173,495

 

 
173,495

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
first mortgages

 

 

 

 
50,107

 
122

 
50,229

Home equity
30

 

 

 
30

 
13,536

 
190

 
13,756

Commercial

 

 

 

 
943,155

 
912

 
944,067

Consumer and other

 

 

 

 
6,450

 

 
6,450

Total
$
43

 
$
10

 
$

 
$
53

 
$
1,502,025

 
$
2,107

 
$
1,504,185

 
December 31, 2017
 
30-59
Days Past
Due
 
60-89
Days Past
Due
 
90 Days
or More
Past Due
 
Total
Past Due
 
Current
 
Nonaccrual Loans
 
Total
Loans
Commercial
$
40

 
$
20

 
$

 
$
60

 
$
347,422

 
$

 
$
347,482

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction, land and
 
 
 
 
 
 
 
 
 
 
 
 
 
land development

 

 

 

 
207,451

 

 
207,451

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
first mortgages

 
75

 

 
75

 
50,878

 
91

 
51,044

Home equity

 

 

 

 
13,618

 
193

 
13,811

Commercial

 

 

 

 
885,776

 
338

 
886,114

Consumer and other

 

 

 

 
6,363

 

 
6,363

Total
$
40

 
$
95

 
$

 
$
135

 
$
1,511,508

 
$
622

 
$
1,512,265