10-Q 1 wtba-20150630x10q.htm 10-Q WTBA-2015.06.30-10Q

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, 2015
 
 
 
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 definition 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 23, 2015, there were 16,058,769 shares of common stock, no par value, outstanding.



WEST BANCORPORATION, INC.

INDEX
 
 
Page
PART I.
 
 
 
 
Item 1.
 
 
 
 
Consolidated Balance Sheets at June 30, 2015 and December 31, 2014
 
 
 
 
Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2014
 
 
 
 
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014
 
 
 
 
Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2015 and 2014
 
 
 
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014
 
 
 
 
 
 
 
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)
 
 
 
 
 
 
 
 
 
(in thousands, except share data)
 
June 30, 2015
 
December 31, 2014
ASSETS
 
 
 
 
Cash and due from banks
 
$
61,682

 
$
27,936

Federal funds sold
 
20,386

 
11,845

Cash and cash equivalents
 
82,068

 
39,781

Investment securities available for sale, at fair value
 
245,201

 
272,790

Investment securities held to maturity, at amortized cost (fair value of $50,448
 
 
 
 
and $51,501 at June 30, 2015 and December 31, 2014, respectively)
 
51,302

 
51,343

Federal Home Loan Bank stock, at cost
 
12,168

 
15,075

Loans
 
1,217,378

 
1,184,045

Allowance for loan losses
 
(14,364
)
 
(13,607
)
Loans, net
 
1,203,014

 
1,170,438

Premises and equipment, net
 
10,921

 
9,988

Accrued interest receivable
 
4,386

 
4,425

Bank-owned life insurance
 
32,474

 
32,107

Deferred tax assets, net
 
6,697

 
6,333

Other assets
 
6,230

 
13,553

Total assets
 
$
1,654,461

 
$
1,615,833

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
LIABILITIES
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing demand
 
$
424,558

 
$
362,827

Interest-bearing demand
 
225,442

 
241,722

Savings
 
593,369

 
527,277

Time of $250,000 or more
 
14,179

 
18,985

Other time
 
109,062

 
119,651

Total deposits
 
1,366,610

 
1,270,462

Federal funds purchased
 
6,910

 
2,975

Short-term borrowings
 

 
66,000

Subordinated notes
 
20,619

 
20,619

Federal Home Loan Bank advances, net of discount
 
97,631

 
96,888

Long-term debt
 
11,046

 
12,676

Accrued expenses and other liabilities
 
6,254

 
6,038

Total liabilities
 
1,509,070

 
1,475,658

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, 2015 and December 31, 2014
 

 

Common stock, no par value; authorized 50,000,000 shares; 16,058,769 and
 
 
 
 
16,018,734 shares issued and outstanding at June 30, 2015 and
 
 
 
 
December 31, 2014, respectively
 
3,000

 
3,000

Additional paid-in capital
 
19,412

 
18,971

Retained earnings
 
123,513

 
117,950

Accumulated other comprehensive income (loss)
 
(534
)
 
254

Total stockholders' equity
 
145,391

 
140,175

Total liabilities and stockholders' equity
 
$
1,654,461

 
$
1,615,833

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,
(in thousands, except per share data)
 
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
 
Loans, including fees
 
$
12,999

 
$
11,672

 
$
25,621

 
$
23,002

Investment securities:
 
 
 
 
 
 
 
 
Taxable
 
1,042

 
1,272

 
2,167

 
2,602

Tax-exempt
 
756

 
698

 
1,520

 
1,374

Federal funds sold
 
22

 
19

 
32

 
29

Total interest income
 
14,819

 
13,661

 
29,340

 
27,007

Interest expense:
 
 
 
 
 
 

 
 

Deposits
 
551

 
637

 
1,122

 
1,259

Federal funds purchased
 
2

 
2

 
4

 
6

Short-term borrowings
 
1

 
3

 
27

 
12

Subordinated notes
 
176

 
173

 
347

 
346

Federal Home Loan Bank advances
 
673

 
652

 
1,397

 
1,299

Long-term debt
 
62

 
78

 
126

 
161

Total interest expense
 
1,465

 
1,545

 
3,023

 
3,083

Net interest income
 
13,354

 
12,116

 
26,317

 
23,924

Provision for loan losses
 
200

 
150

 
200

 
150

Net interest income after provision for loan losses
 
13,154

 
11,966

 
26,117

 
23,774

Noninterest income:
 
 
 
 
 
 

 
 

Service charges on deposit accounts
 
651

 
714

 
1,271

 
1,393

Debit card usage fees
 
469

 
453

 
904

 
863

Trust services
 
317

 
332

 
642

 
650

Revenue from residential mortgage banking
 
52

 
376

 
87

 
602

Increase in cash value of bank-owned life insurance
 
178

 
182

 
367

 
336

Realized investment securities gains, net
 
36

 

 
47

 
506

Other income
 
219

 
261

 
464

 
521

Total noninterest income
 
1,922

 
2,318

 
3,782

 
4,871

Noninterest expense:
 
 
 
 
 
 

 
 

Salaries and employee benefits
 
4,005

 
3,987

 
7,995

 
8,098

Occupancy
 
1,010

 
1,024

 
2,059

 
2,035

Data processing
 
569

 
558

 
1,143

 
1,080

FDIC insurance
 
209

 
190

 
411

 
371

Other real estate owned
 

 
109

 

 
395

Professional fees
 
177

 
221

 
381

 
485

Director fees
 
228

 
189

 
416

 
342

Other expenses
 
1,245

 
1,086

 
2,484

 
2,560

Total noninterest expense
 
7,443

 
7,364

 
14,889

 
15,366

Income before income taxes
 
7,633

 
6,920

 
15,010

 
13,279

Income taxes
 
2,361

 
2,181

 
4,635

 
4,140

Net income
 
$
5,272

 
$
4,739

 
$
10,375

 
$
9,139

 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.33

 
$
0.30

 
$
0.65

 
$
0.57

Diluted earnings per common share
 
$
0.33

 
$
0.30

 
$
0.65

 
$
0.57

Cash dividends declared per common share
 
$
0.16

 
$
0.12

 
$
0.30

 
$
0.23

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,
(in thousands)
 
2015
 
2014
 
2015
 
2014
Net income
 
$
5,272

 
$
4,739

 
$
10,375

 
$
9,139

Other comprehensive income:
 
 
 
 
 
 

 
 

Unrealized gains on securities for which a portion
 
 
 
 
 
 
 
 
of an other than temporary impairment has
 
 
 
 
 
 
 
 
been recorded in earnings:
 
 
 
 
 
 
 
 
Unrealized holding gains arising during the
 
 
 
 
 
 
 
 
period
 

 
40

 

 
358

Less: reclassification adjustment for impairment
 
 
 
 
 
 
 
 
losses realized in net income
 

 

 

 

Income tax (expense)
 

 
(15
)
 

 
(136
)
Other comprehensive income on available
 
 
 
 
 
 
 
 
for sale securities with other than temporary
 
 
 
 
 
 
 
 
impairment
 

 
25

 

 
222

Unrealized gains (losses) on securities without
 
 
 
 
 
 

 
 

other than temporary impairment:
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising
 
 
 
 
 
 
 
 
during the period
 
(2,589
)
 
4,043

 
(560
)
 
7,385

Less: reclassification adjustment for net (gains)
 
 
 
 
 
 
 
 
realized in net income
 
(36
)
 

 
(47
)
 
(506
)
Less: reclassification adjustment for amortization
 
 
 
 
 
 
 
 
of net unrealized gains on securities transferred
 
 
 
 
 
 
 
 
from available for sale to held to maturity,
 
 
 
 
 
 
 
 
realized in interest income
 
(9
)
 

 
(19
)
 

Income tax benefit (expense)
 
1,001

 
(1,537
)
 
238

 
(2,614
)
Other comprehensive income (loss) on
 
 
 
 
 
 
 
 
available for sale securities without other
 
 
 
 
 
 
 
 
than temporary impairment
 
(1,633
)
 
2,506

 
(388
)
 
4,265

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

 
(1,594
)
 
(735
)
 
(2,773
)
Less: reclassification adjustment for net loss on
 
 
 
 
 
 
 
 
derivatives realized in net income
 

 

 
74

 

Less: reclassification adjustment for amortization
 
 
 
 
 
 
 
 
of derivative termination costs
 
14

 

 
16

 

Income tax benefit (expense)
 
(149
)
 
607

 
245

 
1,054

Other comprehensive income (loss) on
 
 
 
 
 
 
 
 
derivatives
 
243

 
(987
)
 
(400
)
 
(1,719
)
Total other comprehensive income (loss)
 
(1,390
)
 
1,544

 
(788
)
 
2,768

Comprehensive income
 
$
3,882

 
$
6,283

 
$
9,587

 
$
11,907


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, 2013
 
$

 
15,976,204

 
$
3,000

 
$
18,411

 
$
105,752

 
$
(3,538
)
 
$
123,625

Net income
 

 

 

 

 
9,139

 

 
9,139

Other comprehensive income, net of tax
 

 

 

 

 

 
2,768

 
2,768

Cash dividends declared, $0.23 per common share
 

 

 

 

 
(3,678
)
 

 
(3,678
)
Stock-based compensation costs
 

 

 

 
279

 

 

 
279

Issuance of common stock upon vesting of restricted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
stock units, net of shares withheld for payroll taxes
 

 
37,081

 

 
(154
)
 

 

 
(154
)
Excess tax benefits from vesting of restricted stock units
 

 

 

 
98

 

 

 
98

Balance, June 30, 2014
 
$

 
16,013,285

 
$
3,000

 
$
18,634

 
$
111,213

 
$
(770
)
 
$
132,077

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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


See Notes to Consolidated Financial Statements.


6


West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
 
 
Six Months Ended June 30,
(in thousands)
 
2015
 
2014
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
10,375

 
$
9,139

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
200

 
150

Net amortization and accretion
 
1,808

 
1,869

(Gain) loss on disposition of premises and equipment
 
4

 
(10
)
Investment securities gains, net
 
(47
)
 
(506
)
Stock-based compensation
 
496

 
279

Gain on sale of loans
 
(14
)
 
(555
)
Proceeds from sales of loans held for sale
 
840

 
28,519

Originations of loans held for sale
 

 
(27,713
)
Gain on sales of other real estate owned
 

 
(10
)
Write-down of other real estate owned
 

 
346

Increase in cash value of bank-owned life insurance
 
(367
)
 
(336
)
Depreciation
 
460

 
412

Deferred income taxes
 
119

 
886

Excess tax benefits from vesting of restricted stock units
 
(124
)
 
(98
)
Change in assets and liabilities:
 
 
 
 
Decrease (increase) in accrued interest receivable
 
39

 
(340
)
Decrease in other assets
 
3,018

 
1,640

(Decrease) in accrued expenses and other liabilities
 
(382
)
 
(86
)
Net cash provided by operating activities
 
16,425

 
13,586

Cash Flows from Investing Activities:
 
 

 
 

Proceeds from sales of securities available for sale
 
16,946

 
29,238

Proceeds from maturities and calls of securities available for sale
 
24,724

 
32,185

Purchases of securities available for sale
 
(15,180
)
 
(47,138
)
Purchases of Federal Home Loan Bank stock
 
(10,586
)
 
(9,211
)
Proceeds from redemption of Federal Home Loan Bank stock
 
13,493

 
8,930

Net increase in loans
 
(32,776
)
 
(85,356
)
Proceeds from sales of other real estate owned
 

 
765

Proceeds from sales of premises and equipment
 

 
13

Purchases of premises and equipment
 
(1,397
)
 
(2,406
)
Purchase of bank-owned life insurance
 

 
(5,000
)
Proceeds from settlement of other assets
 
3,593

 

Net (used in) investing activities
 
(1,183
)
 
(77,980
)
Cash Flows from Financing Activities:
 
 

 
 

Net increase in deposits
 
96,148

 
98,590

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

 
(12,682
)
Net decrease in short-term borrowings
 
(66,000
)
 

Principal payments on long-term debt
 
(1,630
)
 
(1,630
)
Interest rate swap termination costs paid
 
(541
)
 

Common stock dividends paid
 
(4,812
)
 
(3,678
)
Restricted stock units withheld for payroll taxes
 
(179
)
 
(154
)
Excess tax benefits from vesting of restricted stock units
 
124

 
98

Net cash provided by financing activities
 
27,045

 
80,544

Net increase in cash and cash equivalents
 
42,287

 
16,150

Cash and Cash Equivalents:
 
 
 
 
Beginning
 
39,781

 
42,425

Ending
 
$
82,068

 
$
58,575

 
 
 
 
 

7


West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows (continued)
(unaudited)
 
 
Six Months Ended June 30,
(in thousands)
 
2015
 
2014
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
Cash payments for:
 
 
 
 
Interest
 
$
3,023

 
$
3,026

Income taxes
 
1,340

 
1,350

Supplemental Disclosure of Noncash Investing and Financing Activities:
 
 
 
 
Purchase of security available for sale, pending settlement
 
$
475

 
$

Transfer of loans to other real estate owned
 

 
313

See Notes to Consolidated Financial Statements.

8


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, 2014.  In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to fairly present the financial position as of June 30, 2015 and December 31, 2014, and net income and comprehensive income for the three and six months ended June 30, 2015 and 2014, and cash flows for the six months ended June 30, 2015 and 2014.  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 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 owns an interest in a limited liability company). West Bank's 99.99 percent owned subsidiary ICD IV, LLC (a community development entity) was liquidated during the third quarter of 2014 because the underlying loan matured.  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 January 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-04, Receivables—Troubled Debt Restructuring by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. The update clarifies when an in substance foreclosure occurs, that is, when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. This is the point when the consumer mortgage loan should be derecognized and the real property recognized. For public companies, this update was effective for interim and annual periods beginning after December 31, 2014. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 660): 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 was originally effective for interim and annual periods beginning after December 15, 2016. In July 2015, the FASB voted to delay the effective date of this ASU by one year. 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 will be effective for interim and annual periods beginning after December 15, 2015, and is to be applied retrospectively. Early adoption is permitted. The Company has determined that this guidance will not have a material impact on the Company's consolidated financial statements.


9


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(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, 2015 and 2014 are presented in the following table. 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
5,272

 
$
4,739

 
$
10,375

 
$
9,139

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
16,054

 
16,002

 
16,037

 
15,990

Weighted average effect of restricted stock units
 
 
 
 
 
 
 
   outstanding
39

 
37

 
52

 
46

Diluted weighted average common shares outstanding
16,093

 
16,039

 
16,089

 
16,036

 
 

 
 

 
 

 
 

Basic earnings per common share
$
0.33

 
$
0.30

 
$
0.65

 
$
0.57

Diluted earnings per common share
$
0.33

 
$
0.30

 
$
0.65

 
$
0.57




10


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(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, 2015 and December 31, 2014.  
 
June 30, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
Securities available for sale:
 
 
 
 
 
 
 
U.S. government agencies and corporations
$
2,565

 
$
185

 
$

 
$
2,750

State and political subdivisions
54,710

 
924

 
(591
)
 
55,043

Collateralized mortgage obligations (1)
116,901

 
815

 
(1,215
)
 
116,501

Mortgage-backed securities (1)
59,507

 
635

 
(405
)
 
59,737

Trust preferred security
1,768

 

 
(728
)
 
1,040

Corporate notes and equity securities
10,162

 
48

 
(80
)
 
10,130

 
$
245,613

 
$
2,607

 
$
(3,019
)
 
$
245,201

 
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
State and political subdivisions
$
51,302

 
$
15

 
$
(869
)
 
$
50,448

 
 

 
 

 
 

 
 

 
December 31, 2014
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
Securities available for sale:
 
 
 
 
 
 
 
U.S. government agencies and corporations
$
12,626

 
$
204

 
$
(10
)
 
$
12,820

State and political subdivisions
51,234

 
1,286

 
(161
)
 
52,359

Collateralized mortgage obligations (1)
126,430

 
856

 
(1,416
)
 
125,870

Mortgage-backed securities (1)
65,813

 
624

 
(284
)
 
66,153

Trust preferred security
1,763

 

 
(845
)
 
918

Corporate notes and equity securities
14,729

 
66

 
(125
)
 
14,670

 
$
272,595

 
$
3,036

 
$
(2,841
)
 
$
272,790

 
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
State and political subdivisions
$
51,343

 
$
344

 
$
(186
)
 
$
51,501

(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 $80,658 and $4,805 as of June 30, 2015 and December 31, 2014, 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 at June 30, 2015 compared to December 31, 2014 was primarily due to an increase in public fund deposits. 


11


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


The amortized cost and fair value of investment securities available for sale as of June 30, 2015, 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. Equity securities have no maturity date.
 
June 30, 2015
 
Amortized Cost
 
Fair Value
Due in one year or less
$
1,337

 
$
1,359

Due after one year through five years
18,914

 
19,363

Due after five years through ten years
16,378

 
16,592

Due after ten years
31,092

 
30,239

 
67,721

 
67,553

Collateralized mortgage obligations and mortgage-backed securities
176,408

 
176,238

Equity securities
1,484

 
1,410

 
$
245,613

 
$
245,201

The amortized cost and fair value of investment securities held to maturity as of June 30, 2015, by contractual maturity, are shown below.  Certain securities have call features that allow the issuer to call the securities prior to maturity.  
 
June 30, 2015
 
Amortized Cost
 
Fair Value
Due after one year through five years
$
278

 
$
274

Due after five years through ten years
14,398

 
14,276

Due after ten years
36,626

 
35,898

 
$
51,302

 
$
50,448

The details of the sales of investment securities for the three and six months ended June 30, 2015 and 2014 are summarized in the following table.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Proceeds from sales
$
6,889

 
$

 
$
16,946

 
$
29,238

Gross gains on sales
43

 

 
54

 
716

Gross losses on sales
7

 

 
7

 
210


12


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(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, 2015 and December 31, 2014.
 
June 30, 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
27,759

 
(591
)
 

 

 
27,759

 
(591
)
Collateralized mortgage obligations
19,117

 
(151
)
 
45,771

 
(1,064
)
 
64,888

 
(1,215
)
Mortgage-backed securities
21,967

 
(239
)
 
7,842

 
(166
)
 
29,809

 
(405
)
Trust preferred security

 

 
1,040

 
(728
)
 
1,040

 
(728
)
Corporate notes and equity securities
3,039

 
(26
)
 
938

 
(54
)
 
3,977

 
(80
)
 
$
71,882

 
$
(1,007
)
 
$
55,591

 
$
(2,012
)
 
$
127,473

 
$
(3,019
)
 
 

 
 

 
 

 
 

 
 

 
 

Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
$
46,975

 
$
(869
)
 
$

 
$

 
$
46,975

 
$
(869
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
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
$
10,039

 
$
(10
)
 
$

 
$

 
$
10,039

 
$
(10
)
State and political subdivisions
6,614

 
(90
)
 
5,887

 
(71
)
 
12,501

 
(161
)
Collateralized mortgage obligations
17,283

 
(87
)
 
53,318

 
(1,329
)
 
70,601

 
(1,416
)
Mortgage-backed securities
15,184

 
(101
)
 
17,126

 
(183
)
 
32,310

 
(284
)
Trust preferred security

 

 
918

 
(845
)
 
918

 
(845
)
Corporate notes and equity securities
4,581

 
(23
)
 
2,881

 
(102
)
 
7,462

 
(125
)
 
$
53,701

 
$
(311
)
 
$
80,130

 
$
(2,530
)
 
$
133,831

 
$
(2,841
)
 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
$
13,048

 
$
(186
)
 
$

 
$

 
$
13,048

 
$
(186
)
As of June 30, 2015, the available for sale securities with unrealized losses that have existed for longer than one year included 12 collateralized mortgage obligation securities, two mortgage-backed securities, one trust preferred security and two equity securities.

The Company believes the unrealized losses on investments available for sale and held to maturity as of June 30, 2015, 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, 2015.

    

13


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


4. Loans and Allowance for Loan Losses

Loans consisted of the following segments as of June 30, 2015 and December 31, 2014.
 
June 30, 2015
 
December 31, 2014
Commercial
$
334,933

 
$
316,908

Real estate:
 
 
 
Construction, land and land development
148,786

 
154,490

1-4 family residential first mortgages
51,938

 
53,497

Home equity
21,091

 
24,500

Commercial
652,487

 
625,938

Consumer and other loans
8,905

 
9,318

 
1,218,140

 
1,184,651

Net unamortized fees and costs
(762
)
 
(606
)
 
$
1,217,378

 
$
1,184,045

Real estate loans of approximately $610,000 and $590,000 were pledged as security for Federal Home Loan Bank (FHLB) advances as of June 30, 2015 and December 31, 2014, 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. 

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 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.

A loan is classified as a troubled debt restructured (TDR) loan when the Company concludes that a borrower is experiencing financial difficulties and a concession was granted that would not otherwise be considered. Concessions may include a restructuring of the loan terms to alleviate the burden on 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.


14


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


The table below presents the TDR loans by segment as of June 30, 2015 and December 31, 2014.
 
June 30, 2015
 
December 31, 2014
Troubled debt restructured loans(1):
 
 
 
Commercial
$
109

 
$

Real estate:
 
 
 
Construction, land and land development
351

 
376

1-4 family residential first mortgages
98

 
86

Home equity

 

Commercial
501

 
557

Consumer and other loans

 

Total troubled debt restructured loans
$
1,059

 
$
1,019


(1)
There were three TDR loans as of June 30, 2015 and two TDR loans as of December 31, 2014, with balances of $688 and $643, respectively, categorized as nonaccrual.

There was one loan modification considered to be TDR that occurred during the three months ended June 30, 2015, and two loan modifications considered to be TDR that occurred during the six months ended June 30, 2015 with pre- and post-modification recorded investments of $20 and $130, respectively. There were no loan modifications considered to be TDR during the three and six months ended June 30, 2014.

One TDR loan that was modified within the twelve months preceding June 30, 2015, with a recorded investment of $110, has subsequently had a payment default. No TDR loans that were modified within the twelve months preceding June 30, 2014 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.


15


West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(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 and loans with a related allowance and the amount of that allowance as of June 30, 2015 and December 31, 2014.
 
June 30, 2015
 
December 31, 2014
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
163

 
$
309

 
$

 
$
164

 
$
310

 
$

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development
351

 
954

 

 
376

 
978

 

1-4 family residential first mortgages
300

 
300

 

 
257

 
257

 

Home equity

 

 

 

 

 

Commercial
1,938

 
1,938

 

 
557

 
557

 

Consumer and other loans
4

 
4

 

 

 

 

 
2,756

 
3,505

 

 
1,354

 
2,102

 

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial
109

 
109

 
109

 
292

 
292

 
150

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development

 

 

 
825

 
825

 
200

1-4 family residential first mortgages

 

 

 

 

 

Home equity
220

 
220

 
220

 
229

 
229

 
229

Commercial
164

 
164

 
164

 
172

 
172

 
172

Consumer and other loans

 

 

 

 

 

 
493

 
493

 
493

 
1,518

 
1,518

 
751

Total:
 
 
 
 
 
 
 
 
 
 
 
Commercial
272

 
418

 
109

 
456

 
602

 
150

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development
351

 
954

 

 
1,201

 
1,803

 
200

1-4 family residential first mortgages
300

 
300

 

 
257

 
257

 

Home equity
220

 
220

 
220

 
229

 
229

 
229

Commercial
2,102

 
2,102

 
164

 
729

 
729

 
172

Consumer and other loans
4

 
4