Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of West Bancorporation, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited West Bancorporation, Inc.’s (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2020 and 2019, and the consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes to the consolidated financial statements of the Company and our report dated February 26, 2021 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Managements’ Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Des Moines, Iowa
February 26, 2021
West Bancorporation, Inc. and Subsidiary
West Bancorporation, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share data)
|
|
2020
|
|
2019
|
ASSETS
|
|
|
|
|
Cash and due from banks
|
|
$
|
77,693
|
|
|
$
|
37,808
|
|
Federal funds sold
|
|
318,742
|
|
|
15,482
|
|
Cash and cash equivalents
|
|
396,435
|
|
|
53,290
|
|
Investment securities available for sale, at fair value
|
|
420,571
|
|
|
398,578
|
|
Federal Home Loan Bank stock, at cost
|
|
11,723
|
|
|
12,491
|
|
Loans
|
|
2,280,575
|
|
|
1,941,663
|
|
Allowance for loan losses
|
|
(29,436)
|
|
|
(17,235)
|
|
Loans, net
|
|
2,251,139
|
|
|
1,924,428
|
|
Premises and equipment, net
|
|
29,077
|
|
|
29,680
|
|
Accrued interest receivable
|
|
11,231
|
|
|
7,134
|
|
Bank-owned life insurance
|
|
42,686
|
|
|
34,893
|
|
Deferred tax assets, net
|
|
11,289
|
|
|
5,361
|
|
Other assets
|
|
11,593
|
|
|
7,836
|
|
Total assets
|
|
$
|
3,185,744
|
|
|
$
|
2,473,691
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Deposits:
|
|
|
|
|
Noninterest-bearing demand
|
|
$
|
696,731
|
|
|
$
|
380,079
|
|
Interest-bearing demand
|
|
553,881
|
|
|
346,307
|
|
Savings
|
|
1,274,254
|
|
|
996,836
|
|
Time of $250 or more
|
|
46,907
|
|
|
81,871
|
|
Other time
|
|
129,221
|
|
|
209,663
|
|
Total deposits
|
|
2,700,994
|
|
|
2,014,756
|
|
Federal funds purchased
|
|
5,375
|
|
|
2,660
|
|
Subordinated notes, net
|
|
20,452
|
|
|
20,438
|
|
Federal Home Loan Bank advances, net
|
|
175,000
|
|
|
179,365
|
|
Long-term debt
|
|
21,558
|
|
|
22,925
|
|
Accrued expenses and other liabilities
|
|
38,670
|
|
|
21,727
|
|
Total liabilities
|
|
2,962,049
|
|
|
2,261,871
|
|
COMMITMENTS AND CONTINGENCIES (Note 17)
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
Preferred stock, $0.01 par value; authorized 50,000,000 shares; no shares issued and outstanding at December 31, 2020 and 2019
|
|
—
|
|
|
—
|
|
Common stock, no par value; authorized 50,000,000 shares; 16,469,272 and 16,379,752 shares issued and outstanding at December 31, 2020 and 2019, respectively
|
|
3,000
|
|
|
3,000
|
|
Additional paid-in capital
|
|
28,823
|
|
|
27,260
|
|
Retained earnings
|
|
203,718
|
|
|
184,821
|
|
Accumulated other comprehensive loss
|
|
(11,846)
|
|
|
(3,261)
|
|
Total stockholders’ equity
|
|
223,695
|
|
|
211,820
|
|
Total liabilities and stockholders’ equity
|
|
$
|
3,185,744
|
|
|
$
|
2,473,691
|
|
See Notes to Consolidated Financial Statements.
West Bancorporation, Inc. and Subsidiary
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Income
Years Ended December 31, 2020, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share data)
|
|
2020
|
|
2019
|
|
2018
|
Interest income:
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
90,668
|
|
|
$
|
85,512
|
|
|
$
|
71,189
|
|
Investment securities:
|
|
|
|
|
|
|
Taxable
|
|
7,818
|
|
|
10,031
|
|
|
8,124
|
|
Tax-exempt
|
|
1,443
|
|
|
2,022
|
|
|
4,993
|
|
Federal funds sold
|
|
304
|
|
|
1,110
|
|
|
487
|
|
Total interest income
|
|
100,233
|
|
|
98,675
|
|
|
84,793
|
|
Interest expense:
|
|
|
|
|
|
|
Deposits
|
|
11,256
|
|
|
25,214
|
|
|
17,064
|
|
Federal funds purchased
|
|
23
|
|
|
241
|
|
|
188
|
|
Subordinated notes
|
|
1,016
|
|
|
1,023
|
|
|
1,076
|
|
Federal Home Loan Bank advances
|
|
4,705
|
|
|
5,130
|
|
|
3,650
|
|
Long-term debt
|
|
400
|
|
|
637
|
|
|
757
|
|
Total interest expense
|
|
17,400
|
|
|
32,245
|
|
|
22,735
|
|
Net interest income
|
|
82,833
|
|
|
66,430
|
|
|
62,058
|
|
Provision for loan losses
|
|
12,000
|
|
|
600
|
|
|
(250)
|
|
Net interest income after provision for loan losses
|
|
70,833
|
|
|
65,830
|
|
|
62,308
|
|
Noninterest income:
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
2,360
|
|
|
2,492
|
|
|
2,541
|
|
Debit card usage fees
|
|
1,632
|
|
|
1,644
|
|
|
1,681
|
|
Trust services
|
|
2,078
|
|
|
2,026
|
|
|
1,921
|
|
Increase in cash value of bank-owned life insurance
|
|
593
|
|
|
644
|
|
|
631
|
|
Loan swap fees
|
|
1,572
|
|
|
—
|
|
|
—
|
|
Realized investment securities gains (losses), net
|
|
77
|
|
|
(87)
|
|
|
(263)
|
|
Other income
|
|
1,290
|
|
|
1,599
|
|
|
1,241
|
|
Total noninterest income
|
|
9,602
|
|
|
8,318
|
|
|
7,752
|
|
Noninterest expense:
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
21,591
|
|
|
21,790
|
|
|
18,791
|
|
Occupancy
|
|
5,467
|
|
|
5,355
|
|
|
4,996
|
|
Data processing
|
|
2,508
|
|
|
2,735
|
|
|
2,682
|
|
FDIC insurance
|
|
1,210
|
|
|
404
|
|
|
685
|
|
Professional fees
|
|
927
|
|
|
814
|
|
|
840
|
|
Director fees
|
|
868
|
|
|
993
|
|
|
1,014
|
|
Write-down of premises
|
|
—
|
|
|
—
|
|
|
333
|
|
Other expenses
|
|
6,483
|
|
|
6,315
|
|
|
5,651
|
|
Total noninterest expense
|
|
39,054
|
|
|
38,406
|
|
|
34,992
|
|
Income before income taxes
|
|
41,381
|
|
|
35,742
|
|
|
35,068
|
|
Income taxes
|
|
8,669
|
|
|
7,052
|
|
|
6,560
|
|
Net income
|
|
$
|
32,712
|
|
|
$
|
28,690
|
|
|
$
|
28,508
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1.99
|
|
|
$
|
1.75
|
|
|
$
|
1.75
|
|
Diluted earnings per common share
|
|
$
|
1.98
|
|
|
$
|
1.74
|
|
|
$
|
1.74
|
|
See Notes to Consolidated Financial Statements.
West Bancorporation, Inc. and Subsidiary
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2020, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2020
|
|
2019
|
|
2018
|
Net income
|
|
$
|
32,712
|
|
|
$
|
28,690
|
|
|
$
|
28,508
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
Unrealized gains (losses) on investment securities:
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period
|
|
6,681
|
|
|
12,153
|
|
|
(7,807)
|
|
Unrealized gains on investment securities transferred from held to maturity to available for sale
|
|
—
|
|
|
—
|
|
|
363
|
|
Plus: reclassification adjustment for net (gains) losses realized in net income
|
|
(77)
|
|
|
87
|
|
|
263
|
|
Less: other reclassification adjustment
|
|
—
|
|
|
—
|
|
|
(36)
|
|
Income tax benefit (expense)
|
|
(1,667)
|
|
|
(3,060)
|
|
|
1,806
|
|
Other comprehensive income (loss) on investment securities
|
|
4,937
|
|
9,180
|
|
(5,411)
|
Unrealized gains (losses) on derivatives:
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period
|
|
(22,278)
|
|
|
(7,355)
|
|
|
1,044
|
|
Plus: reclassification adjustment for net (gains) losses realized in net income
|
|
4,156
|
|
|
(235)
|
|
|
10
|
|
Plus: reclassification adjustment for amortization of derivative termination costs realized in interest expense
|
|
31
|
|
|
93
|
|
|
95
|
|
Income tax benefit (expense)
|
|
4,569
|
|
|
1,870
|
|
|
(290)
|
|
Other comprehensive income (loss) on derivatives
|
|
(13,522)
|
|
|
(5,627)
|
|
|
859
|
|
Total other comprehensive income (loss)
|
|
(8,585)
|
|
|
3,553
|
|
|
(4,552)
|
|
Comprehensive income
|
|
$
|
24,127
|
|
|
$
|
32,243
|
|
|
$
|
23,956
|
|
See Notes to Consolidated Financial Statements.
West Bancorporation, Inc. and Subsidiary
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2020, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,508
|
|
|
—
|
|
|
28,508
|
|
Other comprehensive loss, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,552)
|
|
|
(4,552)
|
|
Cash dividends declared, $0.78 per common share
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,696)
|
|
|
—
|
|
|
(12,696)
|
|
Stock-based compensation costs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,741
|
|
|
—
|
|
|
—
|
|
|
2,741
|
|
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes
|
|
—
|
|
|
79,822
|
|
|
—
|
|
|
(1,076)
|
|
|
—
|
|
|
—
|
|
|
(1,076)
|
|
Balance, December 31, 2018
|
|
—
|
|
|
16,295,494
|
|
|
3,000
|
|
|
25,128
|
|
|
169,709
|
|
|
(6,814)
|
|
|
191,023
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,690
|
|
|
—
|
|
|
28,690
|
|
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,553
|
|
|
3,553
|
|
Cash dividends declared, $0.83 per common share
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,578)
|
|
|
—
|
|
|
(13,578)
|
|
Stock-based compensation costs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,993
|
|
|
—
|
|
|
—
|
|
|
2,993
|
|
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes
|
|
—
|
|
|
84,258
|
|
|
—
|
|
|
(861)
|
|
|
—
|
|
|
—
|
|
|
(861)
|
|
Balance, December 31, 2019
|
|
—
|
|
|
16,379,752
|
|
|
3,000
|
|
|
27,260
|
|
|
184,821
|
|
|
(3,261)
|
|
|
211,820
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32,712
|
|
|
—
|
|
|
32,712
|
|
Other comprehensive loss, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,585)
|
|
|
(8,585)
|
|
Cash dividends declared, $0.84 per common share
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,815)
|
|
|
—
|
|
|
(13,815)
|
|
Stock-based compensation costs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,312
|
|
|
—
|
|
|
—
|
|
|
2,312
|
|
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes
|
|
—
|
|
|
89,520
|
|
|
—
|
|
|
(749)
|
|
|
—
|
|
|
—
|
|
|
(749)
|
|
Balance, December 31, 2020
|
|
$
|
—
|
|
|
16,469,272
|
|
|
$
|
3,000
|
|
|
$
|
28,823
|
|
|
$
|
203,718
|
|
|
$
|
(11,846)
|
|
|
$
|
223,695
|
|
See Notes to Consolidated Financial Statements.
West Bancorporation, Inc. and Subsidiary
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31, 2020, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2020
|
|
2019
|
|
2018
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
32,712
|
|
|
$
|
28,690
|
|
|
$
|
28,508
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
Provision for loan losses
|
|
12,000
|
|
|
600
|
|
|
(250)
|
|
Net amortization and accretion
|
|
1,892
|
|
|
3,640
|
|
|
4,945
|
|
Investment securities (gains) losses, net
|
|
(77)
|
|
|
87
|
|
|
263
|
|
Stock-based compensation
|
|
2,312
|
|
|
2,993
|
|
|
2,741
|
|
Increase in cash value of bank-owned life insurance
|
|
(593)
|
|
|
(644)
|
|
|
(631)
|
|
Gain on sale of premises
|
|
—
|
|
|
(307)
|
|
|
—
|
|
Depreciation
|
|
1,499
|
|
|
1,429
|
|
|
1,408
|
|
Write-down of premises
|
|
—
|
|
|
—
|
|
|
333
|
|
Deferred income taxes
|
|
(3,025)
|
|
|
(33)
|
|
|
(359)
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
(Increase) decrease in accrued interest receivable
|
|
(4,097)
|
|
|
497
|
|
|
(287)
|
|
Increase in other assets
|
|
(490)
|
|
|
(1,029)
|
|
|
(2,490)
|
|
Increase in accrued expenses and other liabilities
|
|
152
|
|
|
1,044
|
|
|
563
|
|
Net cash provided by operating activities
|
|
42,285
|
|
|
36,967
|
|
|
34,744
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
Proceeds from sales of investment securities available for sale
|
|
139,819
|
|
|
198,699
|
|
|
75,401
|
|
Proceeds from maturities and calls of investment securities
|
|
76,065
|
|
|
46,755
|
|
|
45,937
|
|
Purchases of investment securities available for sale
|
|
(232,409)
|
|
|
(180,168)
|
|
|
(96,170)
|
|
Purchases of Federal Home Loan Bank stock
|
|
(9,338)
|
|
|
(26,559)
|
|
|
(16,334)
|
|
Proceeds from redemption of Federal Home Loan Bank stock
|
|
10,106
|
|
|
26,105
|
|
|
13,471
|
|
Net increase in loans
|
|
(341,887)
|
|
|
(219,887)
|
|
|
(210,821)
|
|
Purchase of bank-owned life insurance
|
|
(7,200)
|
|
|
—
|
|
|
—
|
|
Purchases of premises and equipment
|
|
(2,319)
|
|
|
(1,048)
|
|
|
(210)
|
|
Proceeds from sale of premises
|
|
—
|
|
|
604
|
|
|
—
|
|
Net cash used in investing activities
|
|
(367,163)
|
|
|
(155,499)
|
|
|
(188,726)
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
Net increase in deposits
|
|
686,238
|
|
|
120,227
|
|
|
83,716
|
|
Net increase (decrease) in federal funds purchased
|
|
2,715
|
|
|
(17,325)
|
|
|
19,440
|
|
Proceeds from long-term debt
|
|
—
|
|
|
—
|
|
|
11,486
|
|
Net increase (decrease) in Federal Home Loan Bank advances
|
|
(5,000)
|
|
|
40,000
|
|
|
60,000
|
|
Principal payments on long-term debt
|
|
(1,366)
|
|
|
(4,115)
|
|
|
(7,363)
|
|
Common stock dividends paid
|
|
(13,815)
|
|
|
(13,578)
|
|
|
(12,696)
|
|
Restricted stock units withheld for payroll taxes
|
|
(749)
|
|
|
(861)
|
|
|
(1,076)
|
|
Net cash provided by financing activities
|
|
668,023
|
|
|
124,348
|
|
|
153,507
|
|
Net increase (decrease) in cash and cash equivalents
|
|
343,145
|
|
|
5,816
|
|
|
(475)
|
|
Cash and Cash Equivalents:
|
|
|
|
|
|
|
Beginning
|
|
53,290
|
|
|
47,474
|
|
|
47,949
|
|
Ending
|
|
$
|
396,435
|
|
|
$
|
53,290
|
|
|
$
|
47,474
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
Cash payments for:
|
|
|
|
|
|
|
Interest
|
|
$
|
18,531
|
|
|
$
|
31,492
|
|
|
$
|
22,154
|
|
Income taxes
|
|
11,190
|
|
|
5,880
|
|
|
7,312
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Noncash Investing Activities:
|
|
|
|
|
|
|
Establishment of lease liabilities and right-of-use assets
|
|
$
|
—
|
|
|
$
|
10,435
|
|
|
$
|
—
|
|
Transfer of investment securities held to maturity to available for sale
|
|
—
|
|
|
—
|
|
|
45,527
|
|
See Notes to Consolidated Financial Statements.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 1. Organization and Nature of Business and Summary of Significant Accounting Policies
Organization and nature of business: West Bancorporation, Inc. operates in the commercial banking industry through its wholly-owned subsidiary, West Bank. West Bank is a state chartered bank and has its main office in West Des Moines, Iowa, with seven additional offices located in the Des Moines, Iowa, metropolitan area, one office located in Coralville, Iowa, and four offices located in Minnesota, in the cities of Rochester, Owatonna, Mankato and St. Cloud. As used herein, the term “Company” refers to West Bancorporation, Inc., or if the context dictates, West Bancorporation, Inc. and its subsidiary.
Recent events: On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to cause disruption throughout the United States and around the world. The COVID-19 pandemic has adversely affected, and continues to adversely affect, economic activity globally, nationally and locally. Actions taken to help mitigate the spread of COVID-19 include restrictions on travel, lockdowns and stay-at-home orders, and forced closures for certain types of public places, businesses and schools. While the economic fallout has stabilized somewhat, COVID-19 and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on the economy, including in the geographical area in which the Company operates.
The COVID-19 pandemic is a highly unusual, unprecedented and evolving public health and economic crisis and may have a material negative impact on our financial condition and results of operations. The extent of the pandemic's effect on our business will depend on many factors, including the speed and extent of any recovery from the related economic recession. Among other things, this will depend on the duration of the COVID-19 pandemic, particularly in our Iowa and Minnesota markets, the development and distribution of vaccines, therapies and other public health initiatives to control the spread of the disease, the nature and size of federal economic stimulus and other governmental efforts, and the possibility of additional state lockdown or stay-at-home orders in our markets. It is reasonably possible that estimates made in the financial statements could be materially and adversely impacted in the near-term as a result of these conditions, including expected credit losses on loans. The COVID-19 pandemic may produce declining asset quality, reflected by a higher level of loan delinquencies and loan charge-offs, as well as downgrades of commercial lending relationships, which may necessitate additional provisions for our allowance for loan losses and reduce net income.
Significant accounting policies:
Accounting estimates and assumptions: 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 CodificationTM, 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 investment securities and derivatives, and the allowance for loan losses.
Consolidation policy: The consolidated financial statements include the accounts of the Company, West Bank and West Bank’s special purpose subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In addition, the Company owns an unconsolidated subsidiary, West Bancorporation Capital Trust I (the Trust), which was formed for the purpose of issuing trust preferred securities. In accordance with GAAP, the results of the Trust are recorded on the books of the Company using the equity method of accounting and are not consolidated.
Segment information: An operating segment is generally defined as a component of a business for which discrete financial information is available and whose operating results are regularly reviewed by the chief operating decision-maker. As a community-oriented financial institution, substantially all of West Bank’s operations involve the delivery of loan and deposit products to customers. Management makes operating decisions and assesses performance based on an ongoing review of the community banking activities, which constitutes the Company’s only operating segment for financial reporting purposes.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Comprehensive income: Comprehensive income consists of net income and other comprehensive income (OCI). OCI consists of the net change in unrealized gains and losses on the Company’s investment securities available for sale, including the noncredit-related portion of unrealized gains (losses) of other than temporarily impaired (OTTI) securities, if any, and the change in fair value of derivative instruments designated as hedges. OCI also includes the amortization of derivative termination costs and the amortization of unrealized gains on investment securities transferred from available for sale to held to maturity.
Cash and cash equivalents and cash flows: For statement of cash flow purposes, the Company considers cash, due from banks and federal funds sold to be cash and cash equivalents. Cash inflows and outflows from loans, deposits, federal funds purchased and FHLB advances are reported on a net basis.
Investment securities: Investment securities that may be sold for general liquidity needs, in response to market interest rate fluctuations, implementation of asset-liability management strategies, funding loan demand, changes in securities prepayment risk or other similar factors are classified as available for sale and reported at fair value, with unrealized gains and losses reported as a separate component of accumulated other comprehensive income (AOCI), net of deferred income taxes. Realized gains and losses on sales of investment securities are computed on a specific identification basis based on amortized cost.
The amortized cost of debt securities is adjusted for accretion of discounts to maturity and amortization of premiums over the estimated average life of each security or, in the case of callable securities, through the first call date, using the effective yield method. Such amortization and accretion is included in interest income. Interest income on securities is recognized using the interest method according to the terms of the investment security.
The Company evaluates each of its investment securities whose value has declined below amortized cost to determine whether the decline in fair value is OTTI. When determining whether an investment security is OTTI, management assesses the severity and duration of the decline in fair value, the length of time expected for recovery, the financial condition of the issuer and other qualitative factors, as well as whether: (a) it has the intent to sell the security, and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. In instances when a determination is made that an OTTI exists but management does not intend to sell the security and it is not more likely than not that it will be required to sell the security prior to its anticipated repayment or maturity, the OTTI is separated into: (a) the amount of the total OTTI related to a decrease in cash flows expected to be collected from the security (the credit loss); and (b) the amount of the total OTTI related to all other factors. The amount of the total OTTI related to the credit loss is recognized as a charge to earnings. The amount of the total OTTI related to all other factors is recognized in OCI. If the Company intends to sell or it is more likely than not that it will be required to sell a security with OTTI before recovery of its amortized cost basis, the OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date.
Federal Home Loan Bank stock: West Bank, as a member of the Federal Home Loan Bank (FHLB) system, is required to maintain an investment in capital stock of the FHLB in an amount equal to 0.12 percent of total assets plus 4.00 percent of outstanding advances from the FHLB and the outstanding principal balance of loans previously issued through the Mortgage Partnership Finance Program (MPF). No ready market exists for the FHLB stock, and it has no quoted market value. The Company evaluates this asset for impairment on a quarterly basis and determined there was no impairment as of December 31, 2020. All shares of FHLB stock are issued and redeemed at par value.
Loans: 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 and are analyzed by management on this basis. All loan policies identified below apply to all segments of the loan portfolio.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
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 troubled debt restructured (TDR) 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.
The CARES Act provided financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time in certain circumstances. This temporary suspension may only be applied to modifications of loans that were not more than 30 days past due as of December 31, 2019 and may not be applied to modifications that are not related to the COVID-19 pandemic. If elected, the temporary suspension may be applied to eligible modifications executed during the period beginning on March 1, 2020 and, as extended by the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, ending on the earlier of January 1, 2022 or 60 days after the termination of COVID-19 national emergency. In 2020, federal banking regulators, in consultation with FASB, issued interagency statements that included similar guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic that provide that short-term modifications and additional accommodations made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs.
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.
Allowance for loan losses: The allowance for loan losses is established through a provision for loan losses charged to expense. The allowance is an amount that management believes will be adequate to absorb probable losses on existing loans based on an evaluation of the collectability of loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, the review of specific problem loans, and current economic conditions that may affect the borrowers’ ability to pay. Loans are charged off against the allowance for loan losses when management believes that collectability of the principal is unlikely. While management uses the best information available to make its evaluations, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or the other factors relied upon.
The allowance for loan losses consists of specific and general components. The specific component relates to loans that meet the definition of impaired. The general component covers the remaining loans and is based on historical loss experience adjusted for qualitative factors such as delinquency trends, loan growth, economic elements and local market conditions. These same policies are applied to all segments of loans. In addition, regulatory agencies, as integral parts of their examination processes, periodically review the Company’s allowance for loan losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Premises and equipment: Premises and equipment are stated at cost less accumulated depreciation. The straight-line method of depreciation and amortization is used for calculating expense. The estimated useful lives of premises and equipment range up to 40 years for buildings, up to 10 years for furniture and equipment, and the shorter of the estimated useful life or lease term for leasehold improvements.
The Company reviews its property and equipment whenever events indicate that the carrying amount of an asset group may not be recoverable. An impairment loss is recorded when the sum of the undiscounted future cash flows is less than the carrying amount of the asset group. An impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its fair value. No indicators of impairment were identified as of December 31, 2020 and 2019.
Other real estate owned: Real estate properties acquired through or in lieu of foreclosure are initially recorded at fair value less estimated selling cost at the date of foreclosure, establishing a new cost basis. Fair value is determined by management by obtaining appraisals or other market value information at the time of foreclosure. Any write-downs in value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management by obtaining updated appraisals or other market value information at least annually. Any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the updated fair value less estimated selling cost. Net costs related to the holding of properties are included in noninterest expense. As of December 31, 2020 and 2019, the Company had no other real estate owned.
Trust assets: Assets held by West Bank in fiduciary or agency capacities, other than trust cash on deposit at West Bank, are not included in the consolidated balance sheets of the Company, as such assets are not assets of West Bank. The Company managed or administered accounts with assets totaling $395,887 as of December 31, 2020, compared to assets totaling $359,585 as of December 31, 2019.
Bank-owned life insurance: The carrying amount of bank-owned life insurance consists of the initial premium paid, plus increases in cash value, less the carrying amount associated with any death benefit received. Death benefits paid in excess of the applicable carrying amount are recognized as income. Increases in cash value and the portion of death benefits recognized as income are exempt from income taxes.
Derivatives: The Company uses derivative financial instruments, which consist of interest rate swaps, to assist in its interest rate risk management. All derivatives are measured and reported at fair value on the Company’s consolidated balance sheet as other assets or other liabilities. The Company records cash flow hedges at the inception of the derivative contract based on the Company’s intentions and belief as to likely effectiveness as a hedge. The Company documents the strategy for entering into the transactions and the method of assessing ongoing effectiveness. Cash flow hedges represent a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability. For a cash flow hedge that is effective, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. The changes in the fair value of derivatives that are not highly effective in hedging the changes in expected cash flows of the hedged item are recognized immediately in current earnings. All of the Company’s cash flow hedges qualify for hedge accounting and are considered highly effective.
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged. To determine fair value, the Company uses third-party pricing models that incorporate assumptions about market conditions and risks that are current at the reporting date. The Company does not use derivative instruments for trading or speculative purposes.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The Company formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended. When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods in which the hedged transactions will affect earnings.
To accommodate customer needs, the Company on occasion offers loan level interest rate swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a swap counterparty (back-to-back swap program). The interest rate swaps are free-standing derivatives and are recorded at fair value. The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge accounting.
Stock-based compensation: The Company’s equity incentive plans were approved by the stockholders as a means to attract, retain and reward selected participants. The plans are administered by the Compensation Committee of the Board of Directors. Compensation expense for stock-based awards is recognized on a straight-line basis over the vesting period, or until the participant reaches full retirement age if less than the vesting period, using the fair value of the award at the time of the grant. The restricted stock unit (RSU) participants do not have dividend rights prior to vesting, so the fair value of nonvested RSUs is equal to the fair market value of the underlying common stock at the grant date, reduced by the present value of the dividends expected to be paid on the underlying shares during the vesting period. The Company accounts for forfeitures as they occur.
Deferred compensation: The West Bancorporation, Inc. Deferred Compensation Plan (the Deferred Compensation Plan) provides certain individuals with additional deferral opportunities in planning for retirement. Eligible participants, including directors and key officers of the Company, may choose to voluntarily defer receipt of a portion of their respective cash compensation. The Deferred Compensation Plan is an unfunded, nonqualified deferred compensation plan intended to conform to the requirements of Section 409A of the Internal Revenue Code. Liabilities accrued under the Deferred Compensation Plan totaled $203 and none as of December 31, 2020 and 2019, respectively.
Income taxes: The Company files a consolidated federal income tax return. Income tax expense is generally allocated as if the Company and its subsidiary file separate income tax returns. Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, capital losses and net operating losses, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
When tax returns are filed, it is highly certain that some tax positions taken will be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the positions taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and is not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. Management does not believe the Company has any material uncertain tax positions to disclose.
Interest and penalties, if any, related to income taxes are recorded as other noninterest expense in the consolidated income statements in the year assessed.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Revenue recognition: Revenue from deposit account-related fees, including general service fees charged for deposit account maintenance and activity and transaction-based fees charged for certain services, such as debit card, wire transfer or overdraft activities, is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services. Trust services, which include periodic fees earned from trusts and investment management agency accounts, estate administration, custody accounts, individual retirement accounts, and other related services, are charged based on standard agreements or by statute and are recognized over the period of time the Company provides the contracted services.
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 RSUs were vested. The dilutive effect is 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.
Current accounting developments: 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 update, 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 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 update. Credit losses relating to available for sale debt securities should be recorded through an allowance for credit losses.
In December 2019, the FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326). This update amends the effective date of ASU No. 2016-13 for certain entities, including smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted. The one-time determination date for identifying as a smaller reporting company was November 15, 2019. The Company met the definition of a smaller reporting company as of this date and plans to adopt the standard with the amended effective date. The Company does not plan to early adopt this standard, but continues to work through implementation. The Company continues collecting and retaining loan and credit data and evaluating various loss estimation models. While we currently cannot reasonably estimate the impact of adopting this standard, we expect the impact will be influenced by the composition, characteristics and quality of our loan and securities portfolios, as well as the general economic conditions and forecasts as of the adoption date.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The update is effective for interim and annual periods in fiscal years beginning after December 15, 2019, with early adoption permitted for the removed disclosures and delayed adoption until the fiscal year 2020 permitted for the new disclosures. The removed and modified disclosures will be adopted on a retrospective basis, and the new disclosures will be adopted on a prospective basis. The adoption did not have a material effect on the Company’s consolidated financial statements.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Financial Instruments - Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Financial Instruments (ASC 825). The amendments in the ASU improve the Codification by eliminating inconsistencies and providing clarifications. The amended guidance in this ASU related to the credit losses will be effective for the Company for fiscal years and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of the reference rate reform on the Company’s consolidated financial statements.
In October 2020, the FASB issued ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs. The amendments in this update clarify that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. The amendments in this update are effective for public business entities beginning after December 15, 2020. The Company does not expect the guidance to have a material impact on the Company's consolidated financial statements.
Note 2. Earnings per Common Share
The calculation of earnings per common share and diluted earnings per common share is presented below for the years ended December 31, 2020, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
2020
|
|
2019
|
|
2018
|
Net income
|
$
|
32,712
|
|
|
$
|
28,690
|
|
|
$
|
28,508
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
16,447
|
|
|
16,359
|
|
|
16,275
|
|
Weighted average effect of restricted stock units outstanding
|
68
|
|
|
121
|
|
|
125
|
|
Diluted weighted average common shares outstanding
|
16,515
|
|
|
16,480
|
|
|
16,400
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
1.99
|
|
|
$
|
1.75
|
|
|
$
|
1.75
|
|
Diluted earnings per common share
|
$
|
1.98
|
|
|
$
|
1.74
|
|
|
$
|
1.74
|
|
Number of anti-dilutive common stock equivalents excluded from diluted earnings per share computation
|
243
|
|
|
105
|
|
|
103
|
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 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 December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Fair
Value
|
Securities available for sale:
|
|
|
|
|
|
|
|
State and political subdivisions
|
$
|
141,405
|
|
|
$
|
3,441
|
|
|
$
|
(514)
|
|
|
$
|
144,332
|
|
Collateralized mortgage obligations (1)
|
135,338
|
|
|
5,650
|
|
|
(26)
|
|
|
140,962
|
|
Mortgage-backed securities (1)
|
82,994
|
|
|
651
|
|
|
(122)
|
|
|
83,523
|
|
Collateralized loan obligations
|
52,822
|
|
|
50
|
|
|
(1,118)
|
|
|
51,754
|
|
|
$
|
412,559
|
|
|
$
|
9,792
|
|
|
$
|
(1,780)
|
|
|
$
|
420,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Fair
Value
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
$
|
45,442
|
|
|
$
|
1,736
|
|
|
$
|
—
|
|
|
$
|
47,178
|
|
Collateralized mortgage obligations (1)
|
180,899
|
|
|
1,651
|
|
|
(629)
|
|
|
181,921
|
|
Mortgage-backed securities (1)
|
73,038
|
|
|
225
|
|
|
(233)
|
|
|
73,030
|
|
Asset-backed securities (2)
|
17,551
|
|
|
66
|
|
|
(17)
|
|
|
17,600
|
|
Collateralized loan obligations
|
64,939
|
|
|
21
|
|
|
(128)
|
|
|
64,832
|
|
Corporate notes and other investments
|
15,300
|
|
|
—
|
|
|
(1,283)
|
|
|
14,017
|
|
|
$
|
397,169
|
|
|
$
|
3,699
|
|
|
$
|
(2,290)
|
|
|
$
|
398,578
|
|
(1)All collateralized mortgage obligations and mortgage-backed securities consist of residential mortgage pass-through securities and 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 commercial working capital and equipment loans.
Investment securities with an amortized cost of approximately $232,206 and $148,257 as of December 31, 2020 and 2019, 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 amortized cost and fair value of investment securities available for sale as of December 31, 2020, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Amortized Cost
|
|
Fair Value
|
Due after five years through ten years
|
$
|
14,343
|
|
|
$
|
14,474
|
|
Due after ten years
|
179,884
|
|
|
181,612
|
|
|
194,227
|
|
|
196,086
|
|
Collateralized mortgage obligations and mortgage-backed securities
|
218,332
|
|
|
224,485
|
|
|
$
|
412,559
|
|
|
$
|
420,571
|
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The details of the sales of investment securities for the years ended December 31, 2020, 2019 and 2018 are summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Proceeds from sales
|
$
|
139,819
|
|
|
$
|
198,699
|
|
|
$
|
75,401
|
|
Gross gains on sales
|
1,801
|
|
|
1,046
|
|
|
101
|
|
Gross losses on sales
|
1,724
|
|
|
1,133
|
|
|
364
|
|
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 December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
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
|
|
$
|
48,752
|
|
|
$
|
(514)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48,752
|
|
|
$
|
(514)
|
|
Collateralized mortgage obligations
|
|
9,275
|
|
|
(26)
|
|
|
—
|
|
|
—
|
|
|
9,275
|
|
|
(26)
|
|
Mortgage-backed securities
|
|
14,183
|
|
|
(122)
|
|
|
—
|
|
|
—
|
|
|
14,183
|
|
|
(122)
|
|
Collateralized loan obligations
|
|
14,667
|
|
|
(206)
|
|
|
32,026
|
|
|
(912)
|
|
|
46,693
|
|
|
(1,118)
|
|
|
|
$
|
86,877
|
|
|
$
|
(868)
|
|
|
$
|
32,026
|
|
|
$
|
(912)
|
|
|
$
|
118,903
|
|
|
$
|
(1,780)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
54,521
|
|
|
$
|
(335)
|
|
|
$
|
35,546
|
|
|
$
|
(294)
|
|
|
$
|
90,067
|
|
|
$
|
(629)
|
|
Mortgage-backed securities
|
|
45,132
|
|
|
(174)
|
|
|
4,687
|
|
|
(59)
|
|
|
49,819
|
|
|
(233)
|
|
Asset-backed securities
|
|
3,641
|
|
|
(4)
|
|
|
7,075
|
|
|
(13)
|
|
|
10,716
|
|
|
(17)
|
|
Collateralized loan obligations
|
|
42,823
|
|
|
(128)
|
|
|
—
|
|
|
—
|
|
|
42,823
|
|
|
(128)
|
|
Corporate notes
|
|
4,499
|
|
|
(501)
|
|
|
9,518
|
|
|
(782)
|
|
|
14,017
|
|
|
(1,283)
|
|
|
|
$
|
150,616
|
|
|
$
|
(1,142)
|
|
|
$
|
56,826
|
|
|
$
|
(1,148)
|
|
|
$
|
207,442
|
|
|
$
|
(2,290)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020, the available for sale investment securities with unrealized losses included 19 state and political subdivisions, three collateralized mortgage obligations, two mortgage-backed securities and eight collateralized loan obligations. The Company believes the unrealized losses on investment securities available for sale as of December 31, 2020 were due to market conditions, including interest rate fluctuations, 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 December 31, 2020.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 4. Loans and Allowance for Loan Losses
Loans consisted of the following segments as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Commercial
|
$
|
603,599
|
|
|
$
|
431,044
|
|
Real estate:
|
|
|
|
Construction, land and land development
|
236,093
|
|
|
264,193
|
|
1-4 family residential first mortgages
|
58,912
|
|
|
54,475
|
|
Home equity
|
9,444
|
|
|
12,380
|
|
Commercial
|
1,373,007
|
|
|
1,175,024
|
|
Consumer and other
|
5,694
|
|
|
6,787
|
|
|
2,286,749
|
|
|
1,943,903
|
|
Net unamortized fees and costs
|
(6,174)
|
|
|
(2,240)
|
|
|
$
|
2,280,575
|
|
|
$
|
1,941,663
|
|
Included in commercial loans at December 31, 2020, were $180,757 of loans originated in the PPP, which was established by the CARES Act, enacted on March 27, 2020, in response to the COVID-19 pandemic. The PPP is administered by the SBA. PPP loans may be forgiven by the SBA and are 100 percent guaranteed by the SBA. No allowance for loan losses has been allocated to PPP loans.
The loan portfolio included $1,605,525 and $1,331,393 of fixed-rate loans and $681,224 and $612,510 of variable-rate loans as of December 31, 2020 and 2019, respectively.
Real estate loans of approximately $1,010,000 and $910,000 were pledged as security for FHLB advances as of December 31, 2020 and 2019, respectively.
The Company has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, executive officers, their immediate families, and affiliated companies in which they are principal stockholders or executive officers (commonly referred to as related parties), all of which have been originated, in the opinion of management, on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties. None of these loans are past due, on nonaccrual status or restructured to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. There were no loans to a related party that the Company considered adversely classified at December 31, 2020 or 2019. Loan transactions with related parties were as follows for the years ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Balance, beginning of year
|
$
|
133,661
|
|
|
$
|
153,476
|
|
New loans
|
6,170
|
|
|
4,934
|
|
Repayments
|
(6,909)
|
|
|
(24,749)
|
|
Effect of change in composition of related parties
|
(13,322)
|
|
|
—
|
|
Balance, end of year
|
$
|
119,600
|
|
|
$
|
133,661
|
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(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 and loans with a related allowance and the amount of that allowance as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
91
|
|
|
$
|
91
|
|
|
$
|
—
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land and land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family residential first mortgages
|
|
377
|
|
|
377
|
|
|
—
|
|
|
411
|
|
|
411
|
|
|
—
|
|
Home equity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
31
|
|
|
—
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|
—
|
|
Consumer and other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
377
|
|
|
377
|
|
|
—
|
|
|
538
|
|
|
538
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land and land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family residential first mortgages
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Home equity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial
|
|
15,817
|
|
|
15,817
|
|
|
3,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
15,817
|
|
|
15,817
|
|
|
3,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
91
|
|
|
91
|
|
|
—
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land and land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family residential first mortgages
|
|
377
|
|
|
377
|
|
|
—
|
|
|
411
|
|
|
411
|
|
|
—
|
|
Home equity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
31
|
|
|
—
|
|
Commercial
|
|
15,817
|
|
|
15,817
|
|
|
3,000
|
|
|
5
|
|
|
5
|
|
|
—
|
|
Consumer and other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total impaired loans
|
|
$
|
16,194
|
|
|
$
|
16,194
|
|
|
$
|
3,000
|
|
|
$
|
538
|
|
|
$
|
538
|
|
|
$
|
—
|
|
The balance of impaired loans was composed of loans to two and six different borrowers, as of December 31, 2020 and 2019, respectively. As of December 31, 2020, $377 of total impaired loans to one of the borrowers was also considered impaired as of December 31, 2019. The Company has no commitments to advance additional funds on any of the impaired loans.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(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 years ended December 31, 2020, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
42
|
|
|
$
|
2
|
|
|
$
|
687
|
|
|
$
|
39
|
|
|
$
|
738
|
|
|
$
|
—
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land and
|
|
|
|
|
|
|
|
|
|
|
|
|
land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family residential first mortgages
|
|
392
|
|
|
5
|
|
|
73
|
|
|
6
|
|
|
113
|
|
|
—
|
|
Home equity
|
|
2
|
|
|
—
|
|
|
34
|
|
|
2
|
|
|
122
|
|
|
6
|
|
Commercial
|
|
3,659
|
|
|
17
|
|
|
384
|
|
|
22
|
|
|
600
|
|
|
—
|
|
Consumer and other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
4,095
|
|
|
24
|
|
|
1,178
|
|
|
69
|
|
|
1,573
|
|
|
6
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
339
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land and
|
|
|
|
|
|
|
|
|
|
|
|
|
land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family residential first mortgages
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Home equity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
Commercial
|
|
1,217
|
|
|
—
|
|
|
58
|
|
|
6
|
|
|
109
|
|
|
—
|
|
Consumer and other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
1,556
|
|
|
—
|
|
|
65
|
|
|
6
|
|
|
125
|
|
|
—
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
381
|
|
|
2
|
|
|
694
|
|
|
39
|
|
|
739
|
|
|
—
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land and
|
|
|
|
|
|
|
|
|
|
|
|
|
land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family residential first mortgages
|
|
392
|
|
|
5
|
|
|
73
|
|
|
6
|
|
|
113
|
|
|
—
|
|
Home equity
|
|
2
|
|
|
—
|
|
|
34
|
|
|
2
|
|
|
137
|
|
|
6
|
|
Commercial
|
|
4,876
|
|
|
17
|
|
|
442
|
|
|
28
|
|
|
709
|
|
|
—
|
|
Consumer and other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total impaired loans
|
|
$
|
5,651
|
|
|
$
|
24
|
|
|
$
|
1,243
|
|
|
$
|
75
|
|
|
$
|
1,698
|
|
|
$
|
6
|
|
Interest income forgone on impaired loans was $235, $25 and $96, respectively, during the years ended December 31, 2020, 2019 and 2018.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(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 December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
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
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
603,581
|
|
|
$
|
—
|
|
|
$
|
603,599
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
236,093
|
|
|
—
|
|
|
236,093
|
|
1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
first mortgages
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
58,535
|
|
|
377
|
|
|
58,912
|
|
Home equity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,444
|
|
|
—
|
|
|
9,444
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,357,190
|
|
|
15,817
|
|
|
1,373,007
|
|
Consumer and other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,694
|
|
|
—
|
|
|
5,694
|
|
Total
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
2,270,537
|
|
|
$
|
16,194
|
|
|
$
|
2,286,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
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
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
430,953
|
|
|
$
|
91
|
|
|
$
|
431,044
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
264,193
|
|
|
—
|
|
|
264,193
|
|
1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
first mortgages
|
|
76
|
|
|
—
|
|
|
—
|
|
|
76
|
|
|
53,988
|
|
|
411
|
|
|
54,475
|
|
Home equity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,349
|
|
|
31
|
|
|
12,380
|
|
Commercial
|
|
—
|
|
|
152
|
|
|
—
|
|
|
152
|
|
|
1,174,867
|
|
|
5
|
|
|
1,175,024
|
|
Consumer and other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,787
|
|
|
—
|
|
|
6,787
|
|
Total
|
|
$
|
76
|
|
|
$
|
152
|
|
|
$
|
—
|
|
|
$
|
228
|
|
|
$
|
1,943,137
|
|
|
$
|
538
|
|
|
$
|
1,943,903
|
|
TDR loans totaled $0 and $4 as of December 31, 2020 and 2019, respectively, and were included in the nonaccrual category. There were no loan modifications considered to be TDR that occurred during the years ended December 31, 2020 and 2019 and one loan modification considered to be TDR that occurred during the year ended December 31, 2018. The pre- and post-modification recorded investment in TDR loans that have occurred during the years ended December 31, 2020, 2019 and 2018, totaled $0, $0 and $560, respectively. The financial impact of charge-offs or specific reserves for these modified loans was immaterial.
TDR loans that have been modified within the twelve months ended December 31, 2020, 2019 and 2018, which have subsequently had a payment default, totaled $0, $0 and $544, respectively. A TDR loan is considered to have a payment default when it is past due 30 days or more.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The CARES Act provided financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time in certain circumstances. This temporary suspension may only be applied to modifications of loans that were not more than 30 days past due as of December 31, 2019 and may not be applied to modifications that are not related to the COVID-19 pandemic. If elected, the temporary suspension may be applied to eligible modifications executed during the period beginning on March 1, 2020 and, as extended by the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, ending on the earlier of January 1, 2022 or 60 days after the termination of the COVID-19 national emergency. In 2020, federal banking regulators in consultation with FASB issued interagency statements that included similar guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic that provide that short-term modifications and additional accommodations made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs.
At December 31, 2020, COVID-19-related loan modifications totaled $139,940. The modifications primarily include a deferral of principal and/or interest payments. Expiration of the deferrals range from January 2021 through June 2021. Modifications have been made for hotel loans totaling $64,449, movie theater loans totaling $17,863, mixed-use commercial real estate loans totaling $38,177 and other commercial and commercial real estate loans totaling $19,451 as of December 31, 2020. Modified loans continue to accrue interest and are evaluated for past due status based on the revised payment terms, except for one borrower relationship classified as impaired.
The following tables show the recorded investment in loans by credit quality indicator and loan segment as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Pass
|
|
Watch
|
|
Substandard
|
|
Doubtful
|
|
Total
|
Commercial
|
|
$
|
601,806
|
|
|
$
|
992
|
|
|
$
|
801
|
|
|
$
|
—
|
|
|
$
|
603,599
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
Construction, land and land development
|
|
236,035
|
|
|
58
|
|
|
—
|
|
|
—
|
|
|
236,093
|
|
1-4 family residential first mortgages
|
|
57,680
|
|
|
609
|
|
|
623
|
|
|
—
|
|
|
58,912
|
|
Home equity
|
|
9,113
|
|
|
331
|
|
|
—
|
|
|
—
|
|
|
9,444
|
|
Commercial
|
|
1,331,780
|
|
|
24,725
|
|
|
16,502
|
|
|
—
|
|
|
1,373,007
|
|
Consumer and other
|
|
5,694
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,694
|
|
Total
|
|
$
|
2,242,108
|
|
|
$
|
26,715
|
|
|
$
|
17,926
|
|
|
$
|
—
|
|
|
$
|
2,286,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Pass
|
|
Watch
|
|
Substandard
|
|
Doubtful
|
|
Total
|
Commercial
|
|
$
|
410,070
|
|
|
$
|
18,680
|
|
|
$
|
2,294
|
|
|
$
|
—
|
|
|
$
|
431,044
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
Construction, land and land development
|
|
264,132
|
|
|
61
|
|
|
—
|
|
|
—
|
|
|
264,193
|
|
1-4 family residential first mortgages
|
|
52,168
|
|
|
1,841
|
|
|
466
|
|
|
—
|
|
|
54,475
|
|
Home equity
|
|
12,349
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
12,380
|
|
Commercial
|
|
1,146,472
|
|
|
28,475
|
|
|
77
|
|
|
—
|
|
|
1,175,024
|
|
Consumer and other
|
|
6,787
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,787
|
|
Total
|
|
$
|
1,891,978
|
|
|
$
|
49,057
|
|
|
$
|
2,868
|
|
|
$
|
—
|
|
|
$
|
1,943,903
|
|
All loans are subject to the assessment of a credit quality indicator. Risk ratings are assigned for each loan at the time of approval, and they change as circumstances dictate during the term of the loan. The Company utilizes a 9-point risk rating scale as shown below, with ratings 1 - 5 included in the Pass column, rating 6 included in the Watch column, ratings 7 - 8 included in the Substandard column, and rating 9 included in the Doubtful column. All loans classified as impaired that are included in the specific evaluation of the allowance for loan losses are included in the Substandard column along with all other loans with ratings of 7 - 8.
Risk rating 1: The loan is secured by cash equivalent collateral.
Risk rating 2: The loan is secured by properly margined marketable securities, bonds or cash surrender value of life insurance.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Risk rating 3: The borrower is in strong financial condition and has strong debt service capacity. The loan is performing as agreed, and the financial characteristics and trends of the borrower exceed industry statistics.
Risk rating 4: The borrower’s financial condition is satisfactory and stable. The borrower has satisfactory debt service capacity, and the loan is well secured. The loan is performing as agreed, and the financial characteristics and trends fall in line with industry statistics.
Risk rating 5: The borrower’s financial condition is less than satisfactory. The loan is still generally paying as agreed, but strained cash flow may cause some slowness in payments. The collateral values adequately preclude loss on the loan. Financial characteristics and trends lag industry statistics. There may be noncompliance with loan covenants.
Risk rating 6: The borrower’s financial condition is deficient. Payment delinquencies may be more common. Collateral values still protect from loss, but margins are narrow. The loan may be reliant on secondary sources of repayment, including liquidation of collateral and guarantor support.
Risk rating 7: The loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Well-defined weaknesses exist that jeopardize the liquidation of the debt. The Company is inadequately protected by the valuation or paying capacity of the collateral pledged. If deficiencies are not corrected, there is a distinct possibility that a loss will be sustained.
Risk rating 8: All the characteristics of rating 7 exist with the added condition that the loan is past due more than 90 days or there is reason to believe the Company will not receive its principal and interest according to the terms of the loan agreement.
Risk rating 9: All the weaknesses inherent in risk ratings 7 and 8 exist with the added condition that collection or liquidation, on the basis of currently known facts, conditions and values, is highly questionable and improbable. A loan reaching this category would most likely be charged off.
Credit quality indicators for all loans and the Company’s risk rating process are dynamic and updated on a continuous basis. Risk ratings are updated as circumstances that could affect the repayment of an individual loan are brought to management’s attention through an established monitoring process. Individual lenders initiate changes as appropriate for ratings 1 through 5, and changes for ratings 6 through 9 are initiated via communications with management. The likelihood of loss increases as the risk rating increases and is generally preceded by a loan appearing on the Watch List, which consists of all loans with a risk rating of 6 or worse. Written action plans with firm target dates for resolution of identified problems are maintained and reviewed on a quarterly basis for all segments of loans included on the Watch List.
In addition to the Company’s internal credit monitoring practices and procedures, an outsourced independent credit review function is in place to further assess assigned internal risk classifications and monitor compliance with internal lending policies and procedures.
In all portfolio segments, the primary risks are that a borrower’s income stream diminishes to the point that it is not able to make scheduled principal and interest payments and any collateral securing the loan declines in value. The risk of declining collateral values is present for most types of loans.
Commercial loans consist primarily of loans to businesses for various purposes, including revolving lines to finance current operations, inventory and accounts receivable, and capital expenditure loans to finance equipment and other fixed assets. These loans generally have short maturities, have either adjustable or fixed interest rates, and are either unsecured or secured by inventory, accounts receivable and/or fixed assets. For commercial loans, the primary source of repayment is from the operation of the business.
Real estate loans include various types of loans for which the Company holds real property as collateral, and consist of loans on commercial properties and single and multifamily residences. Real estate loans are typically structured to mature or reprice every 5 to 10 years with payments based on amortization periods up to 30 years. The majority of construction loans are to contractors and developers for construction of commercial buildings or residential real estate. These loans typically have maturities of up to 24 months. The Company’s loan policy includes minimum appraisal and other credit guidelines.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Consumer loans include loans extended to individuals for household, family and other personal expenditures not secured by real estate. The majority of the Company’s consumer lending is for vehicles, consolidation of personal debts and household improvements. The repayment source for consumer loans, including 1-4 family residential mortgages and home equity loans, is typically wages.
The following tables detail changes in the allowance for loan losses by segment for the years ended December 31, 2020, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
Real Estate
|
|
|
|
|
|
Commercial
|
|
Construction and Land
|
|
1-4 Family Residential
|
|
Home Equity
|
|
Commercial
|
|
Consumer and Other
|
|
Total
|
Beginning balance
|
$
|
3,875
|
|
|
$
|
2,375
|
|
|
$
|
216
|
|
|
$
|
127
|
|
|
$
|
10,565
|
|
|
$
|
77
|
|
|
$
|
17,235
|
|
Charge-offs
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
Recoveries
|
103
|
|
|
—
|
|
|
72
|
|
|
4
|
|
|
12
|
|
|
11
|
|
|
202
|
|
Provision (1)
|
740
|
|
|
259
|
|
|
72
|
|
|
(16)
|
|
|
10,958
|
|
|
(13)
|
|
|
12,000
|
|
Ending balance
|
$
|
4,718
|
|
|
$
|
2,634
|
|
|
$
|
360
|
|
|
$
|
114
|
|
|
$
|
21,535
|
|
|
$
|
75
|
|
|
$
|
29,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
Real Estate
|
|
|
|
|
|
Commercial
|
|
Construction and Land
|
|
1-4 Family Residential
|
|
Home Equity
|
|
Commercial
|
|
Consumer and Other
|
|
Total
|
Beginning balance
|
$
|
3,508
|
|
|
$
|
2,384
|
|
|
$
|
250
|
|
|
$
|
171
|
|
|
$
|
10,301
|
|
|
$
|
75
|
|
|
$
|
16,689
|
|
Charge-offs
|
(452)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(452)
|
|
Recoveries
|
290
|
|
|
—
|
|
|
14
|
|
|
74
|
|
|
12
|
|
|
8
|
|
|
398
|
|
Provision (1)
|
529
|
|
|
(9)
|
|
|
(48)
|
|
|
(118)
|
|
|
252
|
|
|
(6)
|
|
|
600
|
|
Ending balance
|
$
|
3,875
|
|
|
$
|
2,375
|
|
|
$
|
216
|
|
|
$
|
127
|
|
|
$
|
10,565
|
|
|
$
|
77
|
|
|
$
|
17,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
Real Estate
|
|
|
|
|
|
Commercial
|
|
Construction and Land
|
|
1-4 Family Residential
|
|
Home Equity
|
|
Commercial
|
|
Consumer and Other
|
|
Total
|
Beginning balance
|
$
|
3,866
|
|
|
$
|
2,213
|
|
|
$
|
319
|
|
|
$
|
186
|
|
|
$
|
9,770
|
|
|
$
|
76
|
|
|
$
|
16,430
|
|
Charge-offs
|
(208)
|
|
|
—
|
|
|
—
|
|
|
(24)
|
|
|
—
|
|
|
(3)
|
|
|
(235)
|
|
Recoveries
|
673
|
|
|
—
|
|
|
18
|
|
|
24
|
|
|
13
|
|
|
16
|
|
|
744
|
|
Provision (1)
|
(823)
|
|
|
171
|
|
|
(87)
|
|
|
(15)
|
|
|
518
|
|
|
(14)
|
|
|
(250)
|
|
Ending balance
|
$
|
3,508
|
|
|
$
|
2,384
|
|
|
$
|
250
|
|
|
$
|
171
|
|
|
$
|
10,301
|
|
|
$
|
75
|
|
|
$
|
16,689
|
|
(1)The negative provisions for the various segments are either related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed and/or improvement in the credit quality factors related to those portfolio segments.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The following tables show a breakdown of the allowance for loan losses disaggregated on the basis of impairment analysis method by segment as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Real Estate
|
|
|
|
|
|
Commercial
|
|
Construction and Land
|
|
1-4 Family Residential
|
|
Home Equity
|
|
Commercial
|
|
Consumer and Other
|
|
Total
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,000
|
|
|
$
|
—
|
|
|
$
|
3,000
|
|
Collectively evaluated for impairment
|
4,718
|
|
|
2,634
|
|
|
360
|
|
|
114
|
|
|
18,535
|
|
|
75
|
|
|
26,436
|
|
Total
|
$
|
4,718
|
|
|
$
|
2,634
|
|
|
$
|
360
|
|
|
$
|
114
|
|
|
$
|
21,535
|
|
|
$
|
75
|
|
|
$
|
29,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
Real Estate
|
|
|
|
|
|
Commercial
|
|
Construction and Land
|
|
1-4 Family Residential
|
|
Home Equity
|
|
Commercial
|
|
Consumer and Other
|
|
Total
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Collectively evaluated for impairment
|
3,875
|
|
|
2,375
|
|
|
216
|
|
|
127
|
|
|
10,565
|
|
|
77
|
|
|
17,235
|
|
Total
|
$
|
3,875
|
|
|
$
|
2,375
|
|
|
$
|
216
|
|
|
$
|
127
|
|
|
$
|
10,565
|
|
|
$
|
77
|
|
|
$
|
17,235
|
|
The following tables show the recorded investment in loans, exclusive of unamortized fees and costs, disaggregated on the basis of impairment analysis method by segment as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Real Estate
|
|
|
|
|
|
Commercial
|
|
Construction and Land
|
|
1-4 Family Residential
|
|
Home Equity
|
|
Commercial
|
|
Consumer and Other
|
|
Total
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
377
|
|
|
$
|
—
|
|
|
$
|
15,817
|
|
|
$
|
—
|
|
|
$
|
16,194
|
|
Collectively evaluated for impairment
|
603,599
|
|
|
236,093
|
|
|
58,535
|
|
|
9,444
|
|
|
1,357,190
|
|
|
5,694
|
|
|
2,270,555
|
|
Total
|
$
|
603,599
|
|
|
$
|
236,093
|
|
|
$
|
58,912
|
|
|
$
|
9,444
|
|
|
$
|
1,373,007
|
|
|
$
|
5,694
|
|
|
$
|
2,286,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
Real Estate
|
|
|
|
|
|
Commercial
|
|
Construction and Land
|
|
1-4 Family Residential
|
|
Home Equity
|
|
Commercial
|
|
Consumer and Other
|
|
Total
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
91
|
|
|
$
|
—
|
|
|
$
|
411
|
|
|
$
|
31
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
538
|
|
Collectively evaluated for impairment
|
430,953
|
|
|
264,193
|
|
|
54,064
|
|
|
12,349
|
|
|
1,175,019
|
|
|
6,787
|
|
|
1,943,365
|
|
Total
|
$
|
431,044
|
|
|
$
|
264,193
|
|
|
$
|
54,475
|
|
|
$
|
12,380
|
|
|
$
|
1,175,024
|
|
|
$
|
6,787
|
|
|
$
|
1,943,903
|
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 5. Premises and Equipment, Net
Premises and equipment consisted of the following as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Land
|
$
|
5,427
|
|
|
$
|
4,176
|
|
Buildings
|
14,287
|
|
|
13,834
|
|
Right-of-use assets under operating leases
|
7,463
|
|
|
8,870
|
|
Leasehold improvements
|
3,996
|
|
|
3,963
|
|
Furniture and equipment
|
8,808
|
|
|
8,592
|
|
|
39,981
|
|
|
39,435
|
|
Accumulated depreciation
|
(10,904)
|
|
|
(9,755)
|
|
|
$
|
29,077
|
|
|
$
|
29,680
|
|
Note 6. Operating Leases
The Company leases real estate for its main office, nine branch offices and office space for operations departments under various operating lease agreements. The lease agreements have maturity dates ranging from May 2021 to February 2033, some of which include options to renew at the Company's discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the measurement of the right-of-use asset and lease liability. The weighted average remaining lives of the lease terms used in the measurement of the operating lease liability were 7.1 years and 7.7 years as of December 31, 2020 and 2019, respectively.
The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption of this accounting standard and as of the lease commencement date for leases entered into subsequent to January 1, 2019. The weighted average discount rates used in the measurement of the operating lease liabilities were 3.20 percent and 3.17 percent as of December 31, 2020 and 2019, respectively.
Operating lease right-of-use assets are included in premises and equipment. Operating lease liabilities of $7,686 and $9,102 are included in other liabilities as of December 31, 2020 and 2019, respectively. Rent expense related to these leases was $1,673, $1,630 and $1,540, for the years ended December 31, 2020, 2019 and 2018, respectively.
Total estimated rental commitments for the operating leases were as follows as of December 31, 2020.
|
|
|
|
|
|
2021
|
$
|
1,627
|
|
2022
|
1,583
|
|
2023
|
1,565
|
|
2024
|
910
|
|
2025
|
588
|
|
Thereafter
|
2,384
|
|
Total lease payments
|
8,657
|
|
Less: present value discount
|
(971)
|
|
Present value of lease liabilities
|
$
|
7,686
|
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 7. Deposits
The scheduled maturities of time deposits were as follows as of December 31, 2020.
|
|
|
|
|
|
2021
|
$
|
151,184
|
|
2022
|
14,665
|
|
2023
|
7,186
|
|
2024
|
2,216
|
|
2025
|
877
|
|
|
$
|
176,128
|
|
Short-term brokered time deposits totaled zero and $50,000 as of December 31, 2020 and 2019, respectively. Time deposits as of December 31, 2020 and 2019, included $71,286 and $95,889, respectively, of Certificate of Deposit Account Registry Service deposits, which is a program that coordinates, on a reciprocal basis, a network of banks to spread deposits exceeding the FDIC insurance coverage limits out to numerous institutions in order to provide insurance coverage for all participating deposits.
Also included in total deposits as of December 31, 2020 and 2019, were $85,348 and $95,618, respectively, of Insured Cash Sweep (ICS) interest-bearing checking and $304,077 and $235,411, respectively, of ICS money market deposits. These are also reciprocal programs providing insurance coverage for all participating deposits.
Note 8. Subordinated Notes
On July 18, 2003, the Company issued $20,619 in junior subordinated debentures to the Company’s subsidiary trust, West Bancorporation Capital Trust I. The junior subordinated debentures are senior to the Company’s common stock. As a result, the Company must make payments on the junior subordinated debentures (and the related trust preferred securities) before any dividends can be paid on its common stock, and, in the event of the Company’s bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any distribution can be made to the holders of the common stock. The Company has the right to defer distributions on the junior subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid to holders of the Company’s common stock. The junior subordinated debentures have a 30-year term, do not require any principal amortization, and are callable at the issuer’s option. The interest rate is a variable rate based on the 3-month LIBOR plus 3.05 percent. At December 31, 2020, the interest rate was 3.29 percent. Interest is payable quarterly, unless deferred. The Company has never deferred an interest payment. The effective cost of the junior subordinated debentures at December 31, 2020, including amortization of issuance costs, was 3.35 percent. Holders of the trust preferred securities associated with the junior subordinated debentures have no voting rights, are unsecured, and rank junior in priority to all the Company’s indebtedness and senior to the Company’s common stock. The junior subordinated debentures are reported net of unamortized debt issuance costs of $167 and $181 as of December 31, 2020 and 2019, respectively. The Company has an interest rate swap contract that effectively converts $20,000 of the variable-rate junior subordinated debentures to a fixed rate. See Note 11 for additional information on the interest rate swap. In addition, the junior subordinated debentures qualify as additional Tier 1 capital of the Company for regulatory purposes.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 9. Federal Home Loan Bank and Other Borrowings
The following table presents the terms of all FHLB advances as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
Average
|
|
|
|
|
|
Contractual
|
|
Effective
|
|
|
|
Contractual
|
|
Effective
|
|
|
|
Balance
|
|
Rate
|
|
Rate (1)
|
|
Balance
|
|
Rate
|
|
Rate (1)
|
Fixed-rate advances maturing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
—
|
|
|
—
|
%
|
|
—
|
%
|
|
$
|
125,000
|
|
|
1.87
|
%
|
|
2.21
|
%
|
|
2021
|
|
175,000
|
|
|
0.35
|
%
|
|
2.27
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
%
|
Variable-rate advances maturing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
—
|
|
|
—
|
%
|
|
—
|
%
|
|
55,000
|
|
|
2.27
|
%
|
|
4.46
|
%
|
|
|
|
175,000
|
|
|
0.35
|
%
|
|
2.27
|
%
|
|
180,000
|
|
|
1.99
|
%
|
|
2.90
|
%
|
Discount for modification
|
|
—
|
|
|
|
|
|
|
(635)
|
|
|
|
|
|
FHLB advances, net of discount
|
|
$
|
175,000
|
|
|
|
|
|
|
$
|
179,365
|
|
|
|
|
|
(1)The effective interest rate includes adjustments for discount amortization and interest rate swap terms, if applicable.
Fixed-rate advances are short-term advances with maturities of 1 to 3 months. The Company has interest rate swaps related to the interest cash flows of these rolling short-term FHLB advances. See Note 11 for additional information on interest rate swaps hedging FHLB advances.
Variable-rate advances were long-term advances. These advances were modified in prior years to extend their terms and to convert the borrowings to a variable rate. In connection with these modifications, the Company paid a prepayment fee which was amortized and recognized as interest expense over the remaining terms of the advances. For the years ended December 31, 2020, 2019 and 2018, the Company amortized $635, $1,486 and $1,496, respectively, of interest expense related to the discount.
The FHLB advances are collateralized by FHLB stock and real estate loans, as required by the FHLB’s collateral policy. West Bank had additional borrowing capacity of approximately $378,000 at the FHLB as of December 31, 2020.
As of December 31, 2020, West Bank had arrangements that would allow it to borrow $67,000 in unsecured federal funds lines of credit at correspondent banks that are available under the correspondent banks’ normal terms. The lines have no stated expiration dates. As of December 31, 2020, there were no amounts outstanding under these arrangements.
West Bank also pledges securities as collateral at the Federal Reserve Bank discount window for overnight borrowings. At December 31, 2020, approximately $36,174 of collateral was available to be pledged against potential borrowings at the Federal Reserve Bank discount window. There were no balances outstanding at December 31, 2020.
Note 10. Long-Term Debt
In May 2017, the Company entered into a credit agreement with an unaffiliated commercial bank and borrowed $25,000. The borrowing was used to make a capital injection into West Bank in May 2017. In June 2019, the Company modified the principal payment requirements of the credit agreement. Under the terms of the modification, required quarterly principal payments of $625 resumed in August 2020, with the balance due in May 2022. The Company may make additional principal payments without penalty. Interest under the term note is payable quarterly. The interest rate is variable at 1.95 percent plus 30-day LIBOR, which totaled 2.10 percent as of December 31, 2020. In the event of default, the commercial bank may accelerate payment of the loan. The outstanding balance was $10,000 and $11,250 as of December 31, 2020 and 2019, respectively. The note is secured by 100 percent of West Bank’s stock.
West Bank’s special purpose subsidiary has a credit agreement for $11,486. Interest is payable monthly over the term of the agreement with an interest rate of one percent. Monthly principal payments begin in January 2026 and the agreement matures in December 2048. The outstanding balance was $11,486 as of December 31, 2020 and 2019.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Future required principal payments for long-term debt as of December 31, 2020 are shown in the table below.
|
|
|
|
|
|
2021
|
$
|
2,537
|
|
2022
|
7,535
|
|
2023
|
—
|
|
2024
|
—
|
|
2025
|
—
|
|
Thereafter
|
11,486
|
|
|
$
|
21,558
|
|
Note 11. Derivatives
The Company has entered into various interest rate swap agreements as part of its interest rate risk management strategy. The Company uses interest rate swap agreements to manage its exposure to the variability of interest payments on variable-rate and short-term borrowings and deposits due to interest rate movements. The notional amounts of the interest rate swaps do not represent amounts exchanged by the counterparties, but rather, the notional amount is used to determine, along with other terms of the derivative, the amounts to be exchanged between the counterparties.
Interest Rate Swaps Designated as a Cash Flow Hedge: The Company had interest rate swaps designated as cash flow hedges with
total notional amounts of $305,000 and $335,000 at December 31, 2020 and 2019, respectively. As of December 31, 2020, the Company had swaps with a total notional amount of $175,000 that hedge the interest payments of rolling fixed-rate one- or three-month funding consisting of FHLB advances or brokered deposits. Also, as of December 31, 2020, the Company had a swap with a total notional amount of $20,000 that effectively converts variable-rate junior subordinated notes to fixed-rate debt and swaps with a total notional amount of $110,000 that hedge the interest payments of certain deposit accounts.
At the inception of each hedge transaction, the Company represented that the underlying principal balance would remain outstanding throughout the hedge transaction, making it probable that sufficient interest payments would exist through the maturity date of the swaps. The cash flow hedges were determined to be fully effective during the remaining terms of the swaps. Therefore, the aggregate fair value of the swaps is recorded in other assets or other liabilities with changes in market value recorded in OCI, net of deferred taxes. See Note 18 for additional fair value information and disclosures. The amounts included in AOCI will be reclassified to interest expense should the hedge no longer be considered effective.
Derivatives Not Designated as Accounting Hedges: To accommodate customer needs, the Company on occasion offers loan level interest rate swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a swap counterparty (back-to-back swap program). The interest rate swaps are free-standing derivatives and are recorded at fair value. The Company enters into a floating-rate loan and a fixed-rate swap with our customer. Simultaneously, the Company enters into an offsetting fixed-rate swap with a swap counterparty. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay a swap counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customers to effectively convert variable-rate loans to fixed-rate loans. The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments, which do not qualify for hedge accounting.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The table below identifies the balance sheet category and fair values of the Company’s derivative instruments as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
Fair Value
|
|
Balance Sheet
Category
|
|
Weighted Average Floating Rate
|
|
Weighted Average Fixed Rate
|
|
Weighted Average Maturity - Years
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
305,000
|
|
|
$
|
(23,848)
|
|
|
Other Liabilities
|
|
0.38
|
%
|
|
2.17
|
%
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
215,000
|
|
|
$
|
(5,786)
|
|
|
Other Liabilities
|
|
1.84
|
%
|
|
2.26
|
%
|
|
5.5
|
Interest rate swaps
|
|
70,000
|
|
|
403
|
|
|
Other Assets
|
|
2.62
|
%
|
|
2.37
|
%
|
|
5.2
|
Forward starting interest rate swaps(1)
|
|
50,000
|
|
|
(343)
|
|
|
Other Liabilities
|
|
—
|
%
|
|
1.74
|
%
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-hedging derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps - counterparty
|
|
$
|
83,876
|
|
|
$
|
492
|
|
|
Other Assets
|
|
2.90
|
%
|
|
3.47
|
%
|
|
9.8
|
Interest rate swaps - loan customer
|
|
83,876
|
|
|
(492)
|
|
|
Other Liabilities
|
|
2.90
|
%
|
|
3.47
|
%
|
|
9.8
|
(1) The fixed rate for forward starting swaps represents the fixed rate to be paid beginning on the scheduled start dates of the swaps. No interest payments were required related to these swaps prior to their effective dates.
The following table identifies the pretax gains or losses recognized on the Company’s derivative instruments designated as cash flow hedges for the years ended December 31, 2020, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Pretax Gain (Loss) Recognized in OCI
|
|
Reclassified from AOCI into Income
|
|
|
|
|
Years Ended:
|
|
|
|
Category
|
|
Amount of Gain (Loss)
|
December 31, 2020
|
|
|
$
|
(22,278)
|
|
|
Interest Expense
|
|
$
|
(4,187)
|
|
December 31, 2019
|
|
|
$
|
(7,355)
|
|
|
Interest Expense
|
|
$
|
142
|
|
December 31, 2018
|
|
|
$
|
1,044
|
|
|
Interest Expense
|
|
$
|
(105)
|
|
The Company estimates there will be approximately $5,456 reclassified from AOCI to interest expense through December 31, 2021. The Company will continue to assess the effectiveness of the hedges on a quarterly basis.
The Company is exposed to credit risk in the event of nonperformance by interest rate swap counterparties, which is minimized by collateral-pledging provisions in the agreements. Derivative contracts with swap counterparties are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings at established credit threshold levels. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration. As of December 31, 2020 and 2019, the Company pledged $24,100 and $6,570, respectively, of collateral to the counterparties in the form of cash on deposit with third parties. The interest rate swap product with the borrowers is cross collateralized with the underlying loan and therefore there is no pledged cash collateral under swap contracts with customers.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 12. Income Taxes
The Company files income tax returns in the U.S. federal and various state jurisdictions. Income tax returns for the years 2017 through 2020 remain open to examination by federal and state taxing authorities. No material income tax related interest or penalties were recognized during the years ended December 31, 2020, 2019 or 2018.
The following table shows the components of income taxes for the years ended December 31, 2020, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Current:
|
|
|
|
|
|
Federal
|
$
|
8,773
|
|
|
$
|
5,112
|
|
|
$
|
5,012
|
|
State
|
2,921
|
|
|
1,973
|
|
|
1,907
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(2,564)
|
|
|
(17)
|
|
|
(277)
|
|
State
|
(461)
|
|
|
(16)
|
|
|
(82)
|
|
Income taxes
|
$
|
8,669
|
|
|
$
|
7,052
|
|
|
$
|
6,560
|
|
Total income taxes for the years ended December 31, 2020, 2019 and 2018 differed from the amount computed by applying the U.S. federal income tax rate of 21 percent to income before income taxes, as shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
of Pretax
Income
|
|
Amount
|
|
Percent
of Pretax
Income
|
|
Amount
|
|
Percent
of Pretax
Income
|
Computed expected tax expense
|
$
|
8,690
|
|
|
21.0
|
%
|
|
$
|
7,506
|
|
|
21.0
|
%
|
|
$
|
7,364
|
|
|
21.0
|
%
|
State income tax expense, net of
|
|
|
|
|
|
|
|
|
|
|
|
federal income tax benefit
|
1,846
|
|
|
4.5
|
%
|
|
1,543
|
|
|
4.3
|
%
|
|
1,425
|
|
|
4.1
|
%
|
Tax-exempt interest income
|
(647)
|
|
|
(1.6)
|
%
|
|
(804)
|
|
|
(2.2)
|
%
|
|
(1,390)
|
|
|
(4.0)
|
%
|
Nondeductible interest expense to
|
|
|
|
|
|
|
|
|
|
|
|
own tax-exempt securities
|
88
|
|
|
0.2
|
%
|
|
183
|
|
|
0.5
|
%
|
|
231
|
|
|
0.7
|
%
|
Tax-exempt increase in cash value of
|
|
|
|
|
|
|
|
|
|
|
|
life insurance and gains
|
(125)
|
|
|
(0.3)
|
%
|
|
(135)
|
|
|
(0.4)
|
%
|
|
(132)
|
|
|
(0.4)
|
%
|
Stock compensation
|
97
|
|
|
0.2
|
%
|
|
(13)
|
|
|
—
|
%
|
|
(219)
|
|
|
(0.6)
|
%
|
Amended tax returns
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
222
|
|
|
0.6
|
%
|
Federal income tax credits
|
(1,239)
|
|
|
(3.0)
|
%
|
|
(1,265)
|
|
|
(3.5)
|
%
|
|
(1,140)
|
|
|
(3.3)
|
%
|
Other, net
|
(41)
|
|
|
(0.1)
|
%
|
|
37
|
|
|
0.1
|
%
|
|
199
|
|
|
0.6
|
%
|
Income taxes
|
$
|
8,669
|
|
|
20.9
|
%
|
|
$
|
7,052
|
|
|
19.8
|
%
|
|
$
|
6,560
|
|
|
18.7
|
%
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Net deferred tax assets consisted of the following components as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
Allowance for loan losses
|
$
|
7,418
|
|
|
$
|
4,309
|
|
|
|
|
|
Net unrealized losses on interest rate swaps
|
6,010
|
|
|
1,441
|
|
Lease liabilities
|
1,919
|
|
|
2,275
|
|
Accrued expenses
|
352
|
|
|
297
|
|
Restricted stock unit compensation
|
763
|
|
|
832
|
|
State net operating loss carryforward
|
1,197
|
|
|
1,114
|
|
Capital loss carryforward
|
—
|
|
|
3
|
|
Other
|
37
|
|
|
53
|
|
|
17,696
|
|
|
10,324
|
|
Deferred tax liabilities:
|
|
|
|
Right-of-use assets
|
1,863
|
|
|
2,218
|
|
Deferred loan costs
|
256
|
|
|
218
|
|
Net unrealized gains on securities available for sale
|
2,019
|
|
|
352
|
|
|
|
|
|
Premises and equipment
|
801
|
|
|
839
|
|
Other
|
271
|
|
|
219
|
|
|
5,210
|
|
|
3,846
|
|
Net deferred tax assets before valuation allowance
|
12,486
|
|
|
6,478
|
|
Valuation allowance for deferred tax assets
|
(1,197)
|
|
|
(1,117)
|
|
Net deferred tax assets
|
$
|
11,289
|
|
|
$
|
5,361
|
|
As of December 31, 2020, the Company had approximately $29,922 of Iowa net operating loss carryforwards available to offset future Iowa taxable income. The Company has recorded a valuation allowance against the tax effect of the Iowa net operating loss carryforwards, as management believes it is more likely than not that such carryforwards will expire without being utilized. Iowa net operating loss carryforwards of $9 expired in 2020 and the remainder will expire thereafter.
Note 13. Stock Compensation Plans
The West Bancorporation, Inc. 2017 Equity Incentive Plan (the 2017 Plan) was approved by the stockholders in April 2017. The 2017 Plan replaced the West Bancorporation, Inc. 2012 Equity Incentive Plan (the 2012 Plan). Upon approval of the 2017 Plan, the 2012 Plan was frozen, and no new grants were made under that plan. Outstanding awards under the 2012 Plan will continue pursuant to their terms and provisions. The 2017 Plan and the 2012 Plan are administered by the Compensation Committee of the Board of Directors, which determines the specific individuals who will be granted awards under the 2017 Plan and the type and amount of any such awards. All employees and directors of, and service providers to, the Company and its subsidiary are eligible to become participants in the 2017 Plan, except that nonemployees may not be granted incentive stock options. Under the terms of the 2017 Plan, the Company may grant a total of 800,000 shares of the Company’s common stock as nonqualified and incentive stock options, stock appreciation rights and stock awards. As of December 31, 2020, 338,035 shares of the Company’s common stock remained available for future awards under the 2017 Plan.
Under the 2017 Plan, the Company may grant RSU awards, as determined by the Compensation Committee, that vest upon the completion of future service requirements or specified performance criteria. All RSUs granted through December 31, 2020 under the 2017 and 2012 Plans were at no cost to the participants, and the participants will not be entitled to receive or accrue dividends until the RSUs have vested. Each RSU entitles the participant to receive one share of common stock on the vesting date or upon the participant’s termination due to death or disability, or upon a change in control of the Company if the RSUs are not fully assumed or if the RSUs are assumed and the participant’s employment is thereafter terminated by the Company without cause or by the participant for good reason. RSUs granted to employees vest 20 percent per year over a five year period, and RSUs granted to directors vest after one year. If a participant terminates employment prior to the end of the continuous service period other than due to death, disability or retirement, the award is forfeited. If a participant terminates service due to retirement, the RSUs will continue to vest, subject to provisions of the 2017 and 2012 Plans.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The following table includes a summary of nonvested RSU activity for the years ended December 31, 2020, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Grant Date
|
|
|
|
Grant Date
|
|
|
|
Grant Date
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
(actual amounts, not in thousands)
|
Shares
|
|
Per Share
|
|
Shares
|
|
Per Share
|
|
Shares
|
|
Per Share
|
Nonvested shares, beginning balance
|
380,600
|
|
|
$
|
21.52
|
|
|
354,350
|
|
|
$
|
22.13
|
|
|
339,300
|
|
|
$
|
19.55
|
|
Granted
|
147,465
|
|
|
15.38
|
|
|
154,000
|
|
|
20.00
|
|
|
136,500
|
|
|
25.81
|
|
Vested
|
(137,800)
|
|
|
21.09
|
|
|
(127,750)
|
|
|
21.38
|
|
|
(121,450)
|
|
|
19.05
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Nonvested shares, ending balance
|
390,265
|
|
|
$
|
19.35
|
|
|
380,600
|
|
|
$
|
21.52
|
|
|
354,350
|
|
|
$
|
22.13
|
|
The fair value of RSU awards that vested during 2020, 2019 and 2018 was $2,150, $2,540 and $3,144, respectively. Total compensation costs, including director compensation, recorded for the RSUs were $2,312, $2,993 and $2,741 for the years ended December 31, 2020, 2019 and 2018, respectively. The tax expense related to vesting of RSUs totaled $116 for the year ended December 31, 2020. The tax benefit related to the vesting of RSUs totaled $15 and $261, respectively, for the years ended December 31, 2019 and 2018. As of December 31, 2020, there was $3,524 of unrecognized compensation cost related to nonvested RSUs, and the weighted average period over which these remaining costs are expected to be recognized was approximately 1.6 years.
Note 14. 401(k) Retirement Plan
The Company has a defined contribution plan covering substantially all of its employees. Matching and discretionary contributions are determined annually by the Board of Directors. The Company matched 100 percent of the first six percent of employee deferrals and made an annual discretionary contribution of four percent of eligible employee compensation for the years ended December 31, 2020, 2019 and 2018. Total matching and discretionary contribution expense for the years ended December 31, 2020, 2019 and 2018, totaled $1,256, $1,107 and $1,040, respectively.
As of December 31, 2020 and 2019, the plan held 340,047 and 328,881 shares, respectively, of the Company’s common stock. These shares are included in the computation of earnings per share. Dividends on shares held in the plan may be reinvested in Company common stock or paid in cash to the participants, at the election of the participants.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 15. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in the balances of each component of AOCI, net of tax, for the years ended December 31, 2020, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
Accumulated
|
|
Unrealized
|
|
Gains
|
|
Other
|
|
Gains (Losses)
|
|
(Losses) on
|
|
Comprehensive
|
|
on Securities
|
|
Derivatives
|
|
Income (Loss)
|
Balance, December 31, 2017
|
$
|
(2,237)
|
|
|
$
|
345
|
|
|
$
|
(1,892)
|
|
Transfer of securities held to maturity to securities
|
|
|
|
|
|
available for sale
|
273
|
|
|
—
|
|
|
273
|
|
Other comprehensive income (loss) before reclassifications
|
(5,856)
|
|
|
784
|
|
|
(5,072)
|
|
Amounts reclassified from accumulated other
|
|
|
|
|
|
comprehensive income
|
172
|
|
|
75
|
|
|
247
|
|
Net current period other comprehensive income (loss)
|
(5,411)
|
|
|
859
|
|
|
(4,552)
|
|
Reclassification of stranded tax effects
|
(475)
|
|
|
105
|
|
|
(370)
|
|
Balance, December 31, 2018
|
(8,123)
|
|
|
1,309
|
|
|
(6,814)
|
|
Other comprehensive income (loss) before reclassifications
|
9,115
|
|
|
(5,517)
|
|
|
3,598
|
|
Amounts reclassified from accumulated other
|
|
|
|
|
|
comprehensive income
|
65
|
|
|
(110)
|
|
|
(45)
|
|
Net current period other comprehensive income (loss)
|
9,180
|
|
|
(5,627)
|
|
|
3,553
|
|
Balance, December 31, 2019
|
1,057
|
|
|
(4,318)
|
|
|
(3,261)
|
|
Other comprehensive income (loss) before reclassifications
|
4,994
|
|
|
(16,653)
|
|
|
(11,659)
|
|
Amounts reclassified from accumulated other
|
|
|
|
|
|
comprehensive income
|
(57)
|
|
|
3,131
|
|
|
3,074
|
|
Net current period other comprehensive income (loss)
|
4,937
|
|
|
(13,522)
|
|
|
(8,585)
|
|
Balance, December 31, 2020
|
$
|
5,994
|
|
|
$
|
(17,840)
|
|
|
$
|
(11,846)
|
|
Note 16. Regulatory Capital Requirements
The Company and West Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements (as shown in the following table) can result in certain mandatory and possibly additional discretionary actions by regulators which, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and West Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory requirements. The Company’s and West Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Management believed the Company and West Bank met all capital adequacy requirements to which they were subject as of December 31, 2020.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The Company’s and West Bank’s capital ratios are presented in the following table as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
For Capital Adequacy Purposes
|
|
For Capital
Adequacy Purposes With Capital Conservation Buffer
|
|
To Be Well-Capitalized
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
As of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
284,977
|
|
|
11.45
|
%
|
|
$
|
199,092
|
|
|
8.00
|
%
|
|
$
|
261,308
|
|
|
10.50
|
%
|
|
$
|
248,865
|
|
|
10.00
|
%
|
West Bank
|
|
290,677
|
|
|
11.69
|
%
|
|
198,995
|
|
|
8.00
|
%
|
|
261,181
|
|
|
10.50
|
%
|
|
248,744
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital (to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
255,541
|
|
|
10.27
|
%
|
|
149,319
|
|
|
6.00
|
%
|
|
211,535
|
|
|
8.50
|
%
|
|
199,092
|
|
|
8.00
|
%
|
West Bank
|
|
261,241
|
|
|
10.50
|
%
|
|
149,246
|
|
|
6.00
|
%
|
|
211,431
|
|
|
8.50
|
%
|
|
198,995
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
235,541
|
|
|
9.46
|
%
|
|
111,989
|
|
|
4.50
|
%
|
|
174,205
|
|
|
7.00
|
%
|
|
161,762
|
|
|
6.50
|
%
|
West Bank
|
|
261,241
|
|
|
10.50
|
%
|
|
111,935
|
|
|
4.50
|
%
|
|
174,120
|
|
|
7.00
|
%
|
|
161,683
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital (to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
255,541
|
|
|
8.66
|
%
|
|
118,053
|
|
|
4.00
|
%
|
|
118,053
|
|
|
4.00
|
%
|
|
147,567
|
|
|
5.00
|
%
|
West Bank
|
|
261,241
|
|
|
8.86
|
%
|
|
117,946
|
|
|
4.00
|
%
|
|
117,946
|
|
|
4.00
|
%
|
|
147,433
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
252,316
|
|
|
11.40
|
%
|
|
$
|
177,013
|
|
|
8.00
|
%
|
|
$
|
232,330
|
|
|
10.50
|
%
|
|
$
|
221,267
|
|
|
10.00
|
%
|
West Bank
|
|
259,644
|
|
|
11.74
|
%
|
|
176,970
|
|
|
8.00
|
%
|
|
232,273
|
|
|
10.50
|
%
|
|
221,212
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital (to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
235,081
|
|
|
10.62
|
%
|
|
132,760
|
|
|
6.00
|
%
|
|
188,077
|
|
|
8.50
|
%
|
|
177,013
|
|
|
8.00
|
%
|
West Bank
|
|
242,409
|
|
|
10.96
|
%
|
|
132,727
|
|
|
6.00
|
%
|
|
188,030
|
|
|
8.50
|
%
|
|
176,970
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
215,081
|
|
|
9.72
|
%
|
|
99,570
|
|
|
4.50
|
%
|
|
154,887
|
|
|
7.00
|
%
|
|
143,823
|
|
|
6.50
|
%
|
West Bank
|
|
242,409
|
|
|
10.96
|
%
|
|
99,546
|
|
|
4.50
|
%
|
|
154,849
|
|
|
7.00
|
%
|
|
143,788
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital (to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
235,081
|
|
|
9.53
|
%
|
|
98,693
|
|
|
4.00
|
%
|
|
98,693
|
|
|
4.00
|
%
|
|
123,366
|
|
|
5.00
|
%
|
West Bank
|
|
242,409
|
|
|
9.83
|
%
|
|
98,656
|
|
|
4.00
|
%
|
|
98,656
|
|
|
4.00
|
%
|
|
123,320
|
|
|
5.00
|
%
|
The Company and West Bank are subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules include the implementation of a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. A banking organization with a conservation buffer of less than the required amount will be subject to limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers. At December 31, 2020, the capital ratios for the Company and West Bank were sufficient to meet the conservation buffer.
The ability of the Company to pay dividends to its stockholders is dependent upon dividends paid by its subsidiary, West Bank. There are currently no additional restrictions on such dividends other than the general restrictions imposed on all Iowa state-chartered banks by applicable law.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The Company’s tangible common equity ratio was 7.02 percent and 8.56 percent at December 31, 2020 and 2019, respectively. The tangible common equity ratio is computed by dividing total equity less preferred stock and intangible assets by total assets less intangible assets. As of December 31, 2020 and 2019, the Company had no intangible assets or preferred stock.
Note 17. Commitments and Contingencies
Required reserve balances: Prior to March 26, 2020, West Bank was required to maintain an average reserve balance with the Federal Reserve Bank. The required reserve balance, which was included in cash and due from banks, was approximately $4,836 as of December 31, 2019. On March 26, 2020, in response to the COVID-19 pandemic, the reserve requirement was reduced to zero.
Financial instruments with off-balance sheet risk: The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations that it uses for on-balance sheet instruments. Commitments to lend are subject to borrowers’ continuing compliance with existing credit agreements. The Company’s commitments consisted of the following approximate amounts as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Commitments to extend credit
|
$
|
832,590
|
|
|
$
|
672,117
|
|
Standby letters of credit
|
23,295
|
|
|
8,029
|
|
|
$
|
855,885
|
|
|
$
|
680,146
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and generally expire within one year. Commitments to extend credit of approximately $132,834 at December 31, 2020, expire beyond one year. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, equipment, and residential and commercial real estate.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party and generally expire within one year. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances the Company deems necessary. In the event the customer does not perform in accordance with the terms of the third-party agreement, West Bank would be required to fund the commitment. The maximum potential amount of future payments West Bank could be required to make is represented by the contractual amount for letters of credit shown in the table above. If the commitment is funded, West Bank would be entitled to seek recovery from the customer. At December 31, 2020 and 2019, no amounts have been recorded as liabilities for West Bank’s potential obligations under these guarantees.
West Bank previously executed MPF Master Commitments (Commitments) with the FHLB of Des Moines to deliver residential mortgage loans and to guarantee the payment of any realized losses that exceed the FHLB’s first loss account for mortgages delivered under the Commitments. West Bank receives credit enhancement fees from the FHLB for providing this guarantee and continuing to assist with managing the credit risk of the MPF Program residential mortgage loans. The term of the most recent Commitment was through January 16, 2015 and was not renewed. The outstanding balance of mortgage loans sold under the MPF Program was $43,847 and $63,409 at December 31, 2020 and 2019, respectively.
The Company had commitments to invest in qualified affordable housing projects totaling $3,505 and $2,042 as of December 31, 2020 and 2019, respectively.
During 2020, the Company began construction on a new office in Sartell, Minnesota, which had a commitment of $8,324 as of December 31, 2020.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Concentrations of credit risk: Substantially all of the Company’s loans, commitments to extend credit and standby letters of credit have been granted to customers in the Company’s market areas. The concentrations of credit by type of loan are set forth in Note 4. The distribution by type of loan of commitments to extend credit approximates the distribution by type of loan of loans outstanding. Standby letters of credit were granted primarily to commercial borrowers.
Contingencies: Neither the Company nor West Bank is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to West Bank’s business. The Company does not know of any proceeding contemplated by a governmental authority against the Company or West Bank.
Note 18. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business. The Company’s balance sheet contains investment securities available for sale and derivative instruments that are recorded at fair value on a recurring basis. The three-level valuation hierarchy for disclosure of fair value is as follows:
Level 1 uses quoted market prices in active markets for identical assets or liabilities.
Level 2 uses observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 uses unobservable inputs that are not corroborated by market data.
The Company’s policy is to recognize transfers between Levels at the end of each reporting period, if applicable. There were no transfers between Levels of the fair value hierarchy during 2020 or 2019.
The following is a description of valuation methodologies used for financial assets and liabilities recorded at fair value on a recurring basis.
Investment securities available for sale: When available, quoted market prices are used to determine the fair value of investment securities (Level 1). If quoted market prices are not available, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar bonds where a price for the identical bond is not observable (Level 2). The fair values of these securities are determined by pricing models that consider observable market data such as interest rate volatilities, yield curves, credit spreads, prices from market makers and live trading systems. For the corporate bond portfolio, the Company has elected to use a matrix pricing model as a practical expedient to individual quoted market prices.
Management obtains the fair value of investment securities at the end of each reporting period via a third-party pricing service. Management reviewed the valuation process used by the third party and believed that process was valid. On a quarterly basis, management corroborates the fair values of a randomly selected sample of investment securities by obtaining pricing from an independent source and compares the two sets of fair values. Any significant variances are reviewed and investigated. For a sample of securities, the fair values are further validated by management, by obtaining details of the inputs used by the pricing service. Those inputs were independently tested, and management concluded the fair values were consistent with GAAP requirements and the investment securities were properly classified in the fair value hierarchy.
Derivative instruments: The Company’s derivative instruments consist of interest rate swaps accounted for as cash flow hedges, as well as interest rate swaps which are accounted for as non-hedging derivatives. The Company’s derivative positions are classified within Level 2 of the fair value hierarchy and are valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or nonbinding broker-dealer quotations. The fair value of the derivatives are determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis by level as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
Description
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets:
|
|
|
|
|
|
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
$
|
144,332
|
|
|
$
|
—
|
|
|
$
|
144,332
|
|
|
$
|
—
|
|
Collateralized mortgage obligations
|
|
140,962
|
|
|
—
|
|
|
140,962
|
|
|
—
|
|
Mortgage-backed securities
|
|
83,523
|
|
|
—
|
|
|
83,523
|
|
|
—
|
|
Collateralized loan obligations
|
|
51,754
|
|
|
—
|
|
|
51,754
|
|
|
—
|
|
Derivative instrument, interest rate swap
|
|
492
|
|
|
—
|
|
|
492
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative instrument, interest rate swap
|
|
$
|
24,340
|
|
|
$
|
—
|
|
|
$
|
24,340
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
Description
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets:
|
|
|
|
|
|
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
$
|
47,178
|
|
|
$
|
—
|
|
|
$
|
47,178
|
|
|
$
|
—
|
|
Collateralized mortgage obligations
|
|
181,921
|
|
|
—
|
|
|
181,921
|
|
|
—
|
|
Mortgage-backed securities
|
|
73,030
|
|
|
—
|
|
|
73,030
|
|
|
—
|
|
Asset-backed securities
|
|
17,600
|
|
|
—
|
|
|
17,600
|
|
|
—
|
|
Collateralized loan obligations
|
|
64,832
|
|
|
—
|
|
|
64,832
|
|
|
—
|
|
Corporate notes
|
|
14,017
|
|
|
—
|
|
|
14,017
|
|
|
—
|
|
Derivative instrument, interest rate swap
|
|
403
|
|
|
—
|
|
|
403
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative instrument, interest rate swap
|
|
$
|
6,129
|
|
|
$
|
—
|
|
|
$
|
6,129
|
|
|
$
|
—
|
|
Certain assets are measured at fair value on a nonrecurring basis. That is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). As of December 31, 2020, there was $12,817 in impaired loans that had a fair value adjustment. As of December 31, 2019, there were no impaired loans with a fair value adjustment. Impaired loans are classified within Level 3 of the fair value hierarchy.
In determining the estimated net realizable value of the underlying collateral of impaired loans, the Company primarily uses third-party appraisals or broker opinions which may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available and include consideration of variations in location, size, and income production capacity of the property. Additionally, the appraisals are periodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and are based on management’s historical knowledge, changes in business factors and changes in market conditions. Because of the high degree of judgment required in estimating the fair value of collateral underlying impaired loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of impaired loans to be highly sensitive to changes in market conditions.
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range (Weighted Average)
|
Impaired loans
|
Appraisal of collateral
|
|
Appraisal adjustment
|
|
7% selling costs
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
GAAP requires disclosure of the fair value of financial assets and liabilities, including those that are not measured and reported at fair value on a recurring or nonrecurring basis. The following table presents the carrying amounts and approximate fair values of financial assets and liabilities as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Carrying
Amount
|
|
Approximate
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
77,693
|
|
|
$
|
77,693
|
|
|
$
|
77,693
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Federal funds sold
|
|
318,742
|
|
|
318,742
|
|
|
318,742
|
|
|
—
|
|
|
—
|
|
Investment securities available for sale
|
|
420,571
|
|
|
420,571
|
|
|
—
|
|
|
420,571
|
|
|
—
|
|
Federal Home Loan Bank stock
|
|
11,723
|
|
|
11,723
|
|
|
11,723
|
|
|
—
|
|
|
—
|
|
Loans, net
|
|
2,251,139
|
|
|
2,329,684
|
|
|
—
|
|
|
2,316,867
|
|
|
12,817
|
|
Accrued interest receivable
|
|
11,231
|
|
|
11,231
|
|
|
11,231
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
|
492
|
|
|
492
|
|
|
—
|
|
|
492
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,700,994
|
|
|
$
|
2,701,833
|
|
|
$
|
—
|
|
|
$
|
2,701,833
|
|
|
$
|
—
|
|
Federal funds purchased
|
|
5,375
|
|
|
5,375
|
|
|
5,375
|
|
|
—
|
|
|
—
|
|
Subordinated notes, net
|
|
20,452
|
|
|
17,349
|
|
|
—
|
|
|
17,349
|
|
|
—
|
|
Federal Home Loan Bank advances, net
|
|
175,000
|
|
|
175,000
|
|
|
—
|
|
|
175,000
|
|
|
—
|
|
Long-term debt, net
|
|
21,558
|
|
|
21,556
|
|
|
—
|
|
|
21,556
|
|
|
—
|
|
Accrued interest payable
|
|
939
|
|
|
939
|
|
|
939
|
|
|
—
|
|
|
—
|
|
Interest rate swap
|
|
24,340
|
|
|
24,340
|
|
|
—
|
|
|
24,340
|
|
|
—
|
|
Off-balance-sheet financial instruments:
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Standby letters of credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Carrying
Amount
|
|
Approximate
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
37,808
|
|
|
$
|
37,808
|
|
|
$
|
37,808
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Federal funds sold
|
|
15,482
|
|
|
15,482
|
|
|
15,482
|
|
|
—
|
|
|
—
|
|
Investment securities available for sale
|
|
398,578
|
|
|
398,578
|
|
|
—
|
|
|
398,578
|
|
|
—
|
|
Federal Home Loan Bank stock
|
|
12,491
|
|
|
12,491
|
|
|
12,491
|
|
|
—
|
|
|
—
|
|
Loans, net
|
|
1,924,428
|
|
|
1,941,208
|
|
|
—
|
|
|
1,941,208
|
|
|
—
|
|
Accrued interest receivable
|
|
7,134
|
|
|
7,134
|
|
|
7,134
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
|
403
|
|
|
403
|
|
|
—
|
|
|
403
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,014,756
|
|
|
$
|
2,015,427
|
|
|
$
|
—
|
|
|
$
|
2,015,427
|
|
|
$
|
—
|
|
Federal funds purchased
|
|
2,660
|
|
|
2,660
|
|
|
2,660
|
|
|
—
|
|
|
—
|
|
Subordinated notes, net
|
|
20,438
|
|
|
18,568
|
|
|
—
|
|
|
18,568
|
|
|
—
|
|
Federal Home Loan Bank advances, net
|
|
179,365
|
|
|
179,365
|
|
|
—
|
|
|
179,365
|
|
|
—
|
|
Long-term debt, net
|
|
22,925
|
|
|
22,910
|
|
|
—
|
|
|
22,910
|
|
|
—
|
|
Accrued interest payable
|
|
2,070
|
|
|
2,070
|
|
|
2,070
|
|
|
—
|
|
|
—
|
|
Interest rate swap
|
|
6,129
|
|
|
6,129
|
|
|
—
|
|
|
6,129
|
|
|
—
|
|
Off-balance-sheet financial instruments:
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Standby letters of credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 19. West Bancorporation, Inc. (Parent Company Only) Condensed Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets
|
December 31, 2020 and 2019
|
|
|
2020
|
|
2019
|
ASSETS
|
|
|
|
|
Cash
|
|
$
|
4,463
|
|
|
$
|
4,122
|
|
Investment in West Bank
|
|
250,481
|
|
|
239,147
|
|
Investment in West Bancorporation Capital Trust I
|
|
619
|
|
|
619
|
|
Other assets
|
|
128
|
|
|
6
|
|
Total assets
|
|
$
|
255,691
|
|
|
$
|
243,894
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
1,544
|
|
|
$
|
386
|
|
Subordinated notes, net
|
|
20,452
|
|
|
20,438
|
|
Long-term debt
|
|
10,000
|
|
|
11,250
|
|
Total liabilities
|
|
31,996
|
|
|
32,074
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
Preferred stock
|
|
—
|
|
|
—
|
|
Common stock
|
|
3,000
|
|
|
3,000
|
|
Additional paid-in capital
|
|
28,823
|
|
|
27,260
|
|
Retained earnings
|
|
203,718
|
|
|
184,821
|
|
Accumulated other comprehensive loss
|
|
(11,846)
|
|
|
(3,261)
|
|
Total stockholders’ equity
|
|
223,695
|
|
|
211,820
|
|
Total liabilities and stockholders’ equity
|
|
$
|
255,691
|
|
|
$
|
243,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Income
|
Years Ended December 31, 2020, 2019 and 2018
|
|
|
2020
|
|
2019
|
|
2018
|
Operating income:
|
|
|
|
|
|
|
Equity in net income of West Bank
|
|
$
|
34,069
|
|
|
$
|
30,205
|
|
|
$
|
30,282
|
|
Equity in net income of West Bancorporation Capital Trust I
|
|
25
|
|
|
35
|
|
|
33
|
|
Other income
|
|
3
|
|
|
—
|
|
|
—
|
|
Total operating income
|
|
34,097
|
|
|
30,240
|
|
|
30,315
|
|
Operating expenses:
|
|
|
|
|
|
|
Interest on subordinated notes
|
|
1,016
|
|
|
1,022
|
|
|
1,076
|
|
Interest on long-term debt
|
|
283
|
|
|
519
|
|
|
750
|
|
Other expenses
|
|
550
|
|
|
498
|
|
|
530
|
|
Total operating expenses
|
|
1,849
|
|
|
2,039
|
|
|
2,356
|
|
Income before income taxes
|
|
32,248
|
|
|
28,201
|
|
|
27,959
|
|
Income tax benefits
|
|
(464)
|
|
|
(489)
|
|
|
(549)
|
|
Net income
|
|
$
|
32,712
|
|
|
$
|
28,690
|
|
|
$
|
28,508
|
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash Flows
|
Years Ended December 31, 2020, 2019 and 2018
|
|
|
2020
|
|
2019
|
|
2018
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
32,712
|
|
|
$
|
28,690
|
|
|
$
|
28,508
|
|
Adjustments to reconcile net income to net cash provided by
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
Equity in net income of West Bank
|
|
(34,069)
|
|
|
(30,205)
|
|
|
(30,282)
|
|
Equity in net income of West Bancorporation Capital Trust I
|
|
(25)
|
|
|
(35)
|
|
|
(33)
|
|
Dividends received from West Bank
|
|
16,800
|
|
|
19,200
|
|
|
22,300
|
|
Dividends received from West Bancorporation Capital Trust I
|
|
25
|
|
|
35
|
|
|
33
|
|
Amortization
|
|
13
|
|
|
13
|
|
|
13
|
|
Deferred income taxes
|
|
2
|
|
|
43
|
|
|
—
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
Increase (decrease) in other assets
|
|
(3)
|
|
|
28
|
|
|
107
|
|
Increase (decrease) in accrued expenses and other liabilities
|
|
(49)
|
|
|
(20)
|
|
|
25
|
|
Net cash provided by operating activities
|
|
15,406
|
|
|
17,749
|
|
|
20,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
(1,250)
|
|
|
(4,000)
|
|
|
(7,250)
|
|
Common stock cash dividends
|
|
(13,815)
|
|
|
(13,578)
|
|
|
(12,696)
|
|
Net cash used in financing activities
|
|
(15,065)
|
|
|
(17,578)
|
|
|
(19,946)
|
|
Net increase in cash
|
|
341
|
|
|
171
|
|
|
725
|
|
Cash:
|
|
|
|
|
|
|
Beginning
|
|
4,122
|
|
|
3,951
|
|
|
3,226
|
|
Ending
|
|
$
|
4,463
|
|
|
$
|
4,122
|
|
|
$
|
3,951
|
|
|
|
|
|
|
|
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 20. Selected Quarterly Financial Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
Three months ended
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
Interest income
|
|
$
|
25,220
|
|
|
$
|
24,657
|
|
|
$
|
24,610
|
|
|
$
|
25,746
|
|
Interest expense
|
|
6,756
|
|
|
3,910
|
|
|
3,478
|
|
|
3,256
|
|
Net interest income
|
|
18,464
|
|
|
20,747
|
|
|
21,132
|
|
|
22,490
|
|
Provision for loan losses
|
|
1,000
|
|
|
3,000
|
|
|
4,000
|
|
|
4,000
|
|
Net interest income after provision for loan losses
|
|
17,464
|
|
|
17,747
|
|
|
17,132
|
|
|
18,490
|
|
Noninterest income
|
|
2,520
|
|
|
1,775
|
|
|
3,203
|
|
|
2,104
|
|
Noninterest expense
|
|
9,663
|
|
|
9,417
|
|
|
10,059
|
|
|
9,915
|
|
Income before income taxes
|
|
10,321
|
|
|
10,105
|
|
|
10,276
|
|
|
10,679
|
|
Income taxes
|
|
2,232
|
|
|
2,136
|
|
|
2,176
|
|
|
2,125
|
|
Net income
|
|
$
|
8,089
|
|
|
$
|
7,969
|
|
|
$
|
8,100
|
|
|
$
|
8,554
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.49
|
|
|
$
|
0.48
|
|
|
$
|
0.49
|
|
|
$
|
0.52
|
|
Diluted earnings per common share
|
|
$
|
0.49
|
|
|
$
|
0.48
|
|
|
$
|
0.49
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
Three months ended
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
Interest income
|
|
$
|
23,651
|
|
|
$
|
24,335
|
|
|
$
|
25,612
|
|
|
$
|
25,077
|
|
Interest expense
|
|
7,762
|
|
|
8,297
|
|
|
8,496
|
|
|
7,690
|
|
Net interest income
|
|
15,889
|
|
|
16,038
|
|
|
17,116
|
|
|
17,387
|
|
Provision for loan losses
|
|
—
|
|
|
—
|
|
|
300
|
|
|
300
|
|
Net interest income after provision for loan losses
|
|
15,889
|
|
|
16,038
|
|
|
16,816
|
|
|
17,087
|
|
Noninterest income
|
|
2,119
|
|
|
1,999
|
|
|
2,158
|
|
|
2,042
|
|
Noninterest expense
|
|
9,544
|
|
|
9,750
|
|
|
9,536
|
|
|
9,576
|
|
Income before income taxes
|
|
8,464
|
|
|
8,287
|
|
|
9,438
|
|
|
9,553
|
|
Income taxes
|
|
1,565
|
|
|
1,629
|
|
|
1,912
|
|
|
1,946
|
|
Net income
|
|
$
|
6,899
|
|
|
$
|
6,658
|
|
|
$
|
7,526
|
|
|
$
|
7,607
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.42
|
|
|
$
|
0.41
|
|
|
$
|
0.46
|
|
|
$
|
0.46
|
|
Diluted earnings per common share
|
|
$
|
0.42
|
|
|
$
|
0.41
|
|
|
$
|
0.46
|
|
|
$
|
0.46
|
|
West Bancorporation, Inc. and Subsidiary