UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 20172023 |
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or |
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o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from __________ to __________ |
Commission File Number: 0-49677
WEST BANCORPORATION, INC.
(Exact Name of Registrant as Specified in its Charter)
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IOWA | 42-1230603 |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
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Iowa | 42-1230603 |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
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| 1601 22nd Street, West Des Moines, Iowa | 50266 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant's telephone number, including area code: (515) 222-2300
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, no par value | WTBA | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x☒ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | o☐ | | | | |
Accelerated filer | x☒ | | | | |
Non-accelerated filer | o☐ | (Do not check if a smaller reporting company) |
Smaller reporting company | o☐ | | | | |
Emerging growth company | o☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o☐ No x☒
As of October 25, 2017,2023, there were 16,215,67216,725,094 shares of common stock, no par value, outstanding.
WEST BANCORPORATION, INC.
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PART I. | | |
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PART I.Item 1. | | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
West Bancorporation, Inc. and Subsidiary Consolidated Balance Sheet
(unaudited)
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West Bancorporation, Inc. and Subsidiary | | | | |
Consolidated Balance Sheets | | | | |
(unaudited) | | | | |
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(in thousands, except share and per share data) | | September 30, 2017 | | December 31, 2016 |
ASSETS | | | | |
Cash and due from banks | | $ | 33,560 |
| | $ | 40,943 |
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Federal funds sold | | 5,937 |
| | 35,893 |
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Cash and cash equivalents | | 39,497 |
| | 76,836 |
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Investment securities available for sale, at fair value | | 418,374 |
| | 260,637 |
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Investment securities held to maturity, at amortized cost (fair value of $46,356 and $47,789 at September 30, 2017 and December 31, 2016, respectively) | | 45,597 |
| | 48,386 |
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Federal Home Loan Bank stock, at cost | | 12,256 |
| | 10,771 |
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Loans | | 1,456,905 |
| | 1,399,870 |
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Allowance for loan losses | | (16,358 | ) | | (16,112 | ) |
Loans, net | | 1,440,547 |
| | 1,383,758 |
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Premises and equipment, net | | 23,173 |
| | 23,314 |
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Accrued interest receivable | | 6,636 |
| | 5,321 |
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Bank-owned life insurance | | 33,451 |
| | 33,111 |
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Deferred tax assets, net | | 5,861 |
| | 6,957 |
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Other assets | | 4,956 |
| | 5,113 |
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Total assets | | $ | 2,030,348 |
| | $ | 1,854,204 |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
LIABILITIES | | | | |
Deposits: | | | | |
Noninterest-bearing demand | | $ | 384,625 |
| | $ | 479,311 |
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Interest-bearing demand | | 328,156 |
| | 282,592 |
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Savings | | 776,921 |
| | 668,688 |
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Time of $250 or more | | 16,539 |
| | 10,446 |
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Other time | | 145,025 |
| | 105,568 |
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Total deposits | | 1,651,266 |
| | 1,546,605 |
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Federal funds purchased | | 925 |
| | 9,690 |
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Short-term borrowings | | 48,000 |
| | — |
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Subordinated notes, net | | 20,408 |
| | 20,398 |
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Federal Home Loan Bank advances, net | | 101,005 |
| | 99,886 |
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Long-term debt, net | | 24,195 |
| | 5,126 |
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Accrued expenses and other liabilities | | 6,462 |
| | 7,123 |
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Total liabilities | | 1,852,261 |
| | 1,688,828 |
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COMMITMENTS AND CONTINGENCIES (NOTE 9) | |
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STOCKHOLDERS' EQUITY | | | | |
Preferred stock, $0.01 par value; authorized 50,000,000 shares; no shares issued and outstanding at September 30, 2017 and December 31, 2016 | | — |
| | — |
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Common stock, no par value; authorized 50,000,000 shares; 16,215,672 and 16,137,999 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | | 3,000 |
| | 3,000 |
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Additional paid-in capital | | 22,763 |
| | 21,462 |
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Retained earnings | | 152,252 |
| | 141,956 |
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Accumulated other comprehensive income (loss) | | 72 |
| | (1,042 | ) |
Total stockholders' equity | | 178,087 |
| | 165,376 |
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Total liabilities and stockholders' equity | | $ | 2,030,348 |
| | $ | 1,854,204 |
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(in thousands, except share and per share data) | | September 30, 2023 | | December 31, 2022 |
ASSETS | | | | |
Cash and due from banks | | $ | 18,819 | | | $ | 24,896 | |
Interest-bearing deposits | | 1,802 | | | 1,643 | |
Cash and cash equivalents | | 20,621 | | | 26,539 | |
Securities available for sale, at fair value | | 609,365 | | | 664,115 | |
Federal Home Loan Bank stock, at cost | | 26,691 | | | 19,336 | |
Loans | | 2,849,777 | | | 2,742,836 | |
Allowance for credit losses | | (28,147) | | | (25,473) | |
Loans, net | | 2,821,630 | | | 2,717,363 | |
Premises and equipment, net | | 75,675 | | | 53,124 | |
Accrued interest receivable | | 13,598 | | | 11,988 | |
Bank-owned life insurance | | 43,589 | | | 44,573 | |
Deferred tax assets, net | | 41,592 | | | 36,609 | |
Other assets | | 49,139 | | | 39,571 | |
Total assets | | $ | 3,701,900 | | | $ | 3,613,218 | |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
LIABILITIES | | | | |
Deposits: | | | | |
Noninterest-bearing demand | | $ | 551,688 | | | $ | 693,563 | |
Interest-bearing demand | | 417,802 | | | 536,226 | |
Savings and money market | | 1,348,591 | | | 1,237,954 | |
Time | | 437,448 | | | 412,665 | |
Total deposits | | 2,755,529 | | | 2,880,408 | |
Federal funds purchased and other short-term borrowings | | 261,510 | | | 200,000 | |
Subordinated notes, net | | 79,566 | | | 79,369 | |
Federal Home Loan Bank advances | | 315,000 | | | 155,000 | |
Long-term debt | | 48,986 | | | 51,486 | |
Accrued expenses and other liabilities | | 37,376 | | | 35,843 | |
Total liabilities | | 3,497,967 | | | 3,402,106 | |
COMMITMENTS AND CONTINGENCIES (NOTE 8) | | | | |
STOCKHOLDERS' EQUITY | | | | |
Preferred stock, $0.01 par value; authorized 50,000,000 shares; no shares issued and outstanding at September 30, 2023 and December 31, 2022 | | — | | | — | |
Common stock, no par value; authorized 50,000,000 shares; 16,725,094 and 16,640,413 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | | 3,000 | | | 3,000 | |
Additional paid-in capital | | 33,487 | | | 32,021 | |
Retained earnings | | 271,025 | | | 267,562 | |
Accumulated other comprehensive loss | | (103,579) | | | (91,471) | |
Total stockholders' equity | | 203,933 | | | 211,112 | |
Total liabilities and stockholders' equity | | $ | 3,701,900 | | | $ | 3,613,218 | |
See Notes to Consolidated Financial Statements.
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Income
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except per share data) | | 2023 | | 2022 | | 2023 | | 2022 |
Interest income: | | | | | | | | |
Loans, including fees | | $ | 36,756 | | | $ | 28,102 | | | $ | 104,715 | | | $ | 76,236 | |
Securities: | | | | | | | | |
Taxable | | 3,427 | | | 3,147 | | | 10,175 | | | 9,126 | |
Tax-exempt | | 880 | | | 890 | | | 2,648 | | | 2,640 | |
Interest-bearing deposits | | 29 | | | 30 | | | 84 | | | 179 | |
Total interest income | | 41,092 | | | 32,169 | | | 117,622 | | | 88,181 | |
Interest expense: | | | | | | | | |
Deposits | | 17,156 | | | 6,289 | | | 46,772 | | | 11,586 | |
Federal funds purchased and other short-term borrowings | | 3,165 | | | 655 | | | 7,508 | | | 812 | |
Subordinated notes | | 1,113 | | | 1,106 | | | 3,328 | | | 1,748 | |
Federal Home Loan Bank advances | | 2,329 | | | 649 | | | 5,212 | | | 1,914 | |
Long-term debt | | 695 | | | 466 | | | 2,132 | | | 1,050 | |
Total interest expense | | 24,458 | | | 9,165 | | | 64,952 | | | 17,110 | |
Net interest income | | 16,634 | | | 23,004 | | | 52,670 | | | 71,071 | |
Credit loss expense (benefit) | | 200 | | | — | | | 200 | | | (2,500) | |
Net interest income after credit loss expense (benefit) | | 16,434 | | | 23,004 | | | 52,470 | | | 73,571 | |
Noninterest income: | | | | | | | | |
Service charges on deposit accounts | | 463 | | | 553 | | | 1,383 | | | 1,718 | |
Debit card usage fees | | 495 | | | 498 | | | 1,492 | | | 1,477 | |
Trust services | | 831 | | | 780 | | | 2,286 | | | 2,031 | |
Increase in cash value of bank-owned life insurance | | 262 | | | 246 | | | 769 | | | 709 | |
Gain from bank-owned life insurance | | — | | | — | | | 691 | | | — | |
Loan swap fees | | 431 | | | 835 | | | 431 | | | 835 | |
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Other income | | 340 | | | 364 | | | 1,116 | | | 1,173 | |
Total noninterest income | | 2,822 | | | 3,276 | | | 8,168 | | | 7,943 | |
Noninterest expense: | | | | | | | | |
Salaries and employee benefits | | 6,696 | | | 6,578 | | | 20,592 | | | 19,286 | |
Occupancy and equipment | | 1,359 | | | 1,315 | | | 4,008 | | | 3,643 | |
Data processing | | 703 | | | 644 | | | 2,067 | | | 1,924 | |
Technology and software | | 573 | | | 651 | | | 1,665 | | | 1,619 | |
FDIC insurance | | 439 | | | 127 | | | 1,275 | | | 753 | |
Professional fees | | 254 | | | 250 | | | 791 | | | 669 | |
Director fees | | 196 | | | 209 | | | 652 | | | 599 | |
Other expenses | | 1,685 | | | 1,684 | | | 5,400 | | | 4,893 | |
Total noninterest expense | | 11,905 | | | 11,458 | | | 36,450 | | | 33,386 | |
Income before income taxes | | 7,351 | | | 14,822 | | | 24,188 | | | 48,128 | |
Income taxes | | 1,445 | | | 3,220 | | | 4,576 | | | 10,675 | |
Net income | | $ | 5,906 | | | $ | 11,602 | | | $ | 19,612 | | | $ | 37,453 | |
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Basic earnings per common share | | $ | 0.35 | | | $ | 0.70 | | | $ | 1.17 | | | $ | 2.25 | |
Diluted earnings per common share | | $ | 0.35 | | | $ | 0.69 | | | $ | 1.17 | | | $ | 2.23 | |
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West Bancorporation, Inc. and Subsidiary | | | | | | | | |
Consolidated Statements of Income | | | | | | | | |
(unaudited) | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except per share data) | | 2017 | | 2016 | | 2017 | | 2016 |
Interest income: | | | | | | | | |
Loans, including fees | | $ | 15,854 |
| | $ | 14,898 |
| | $ | 46,865 |
| | $ | 42,667 |
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Investment securities: | | | | | | | | |
Taxable | | 1,489 |
| | 991 |
| | 3,755 |
| | 3,222 |
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Tax-exempt | | 1,081 |
| | 780 |
| | 2,674 |
| | 2,482 |
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Federal funds sold | | 136 |
| | 27 |
| | 223 |
| | 58 |
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Total interest income | | 18,560 |
| | 16,696 |
| | 53,517 |
| | 48,429 |
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Interest expense: | | | | | | |
| | |
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Deposits | | 2,108 |
| | 872 |
| | 5,084 |
| | 2,401 |
|
Federal funds purchased | | 4 |
| | 1 |
| | 24 |
| | 4 |
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Short-term borrowings | | 9 |
| | 8 |
| | 58 |
| | 39 |
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Subordinated notes | | 232 |
| | 169 |
| | 667 |
| | 533 |
|
Federal Home Loan Bank advances | | 972 |
| | 894 |
| | 2,837 |
| | 2,645 |
|
Long-term debt | | 204 |
| | 31 |
| | 334 |
| | 114 |
|
Total interest expense | | 3,529 |
| | 1,975 |
| | 9,004 |
| | 5,736 |
|
Net interest income | | 15,031 |
| | 14,721 |
| | 44,513 |
| | 42,693 |
|
Provision for loan losses | | — |
| | 200 |
| | — |
| | 900 |
|
Net interest income after provision for loan losses | | 15,031 |
| | 14,521 |
| | 44,513 |
| | 41,793 |
|
Noninterest income: | | | | | | |
| | |
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Service charges on deposit accounts | | 715 |
| | 632 |
| | 1,946 |
| | 1,847 |
|
Debit card usage fees | | 435 |
| | 450 |
| | 1,333 |
| | 1,372 |
|
Trust services | | 436 |
| | 355 |
| | 1,264 |
| | 946 |
|
Increase in cash value of bank-owned life insurance | | 167 |
| | 160 |
| | 484 |
| | 492 |
|
Gain from bank-owned life insurance | | — |
| | — |
| | 307 |
| | 443 |
|
Realized investment securities gains, net | | 197 |
| | — |
| | 423 |
| | 60 |
|
Other income | | 314 |
| | 322 |
| | 983 |
| | 892 |
|
Total noninterest income | | 2,264 |
| | 1,919 |
| | 6,740 |
| | 6,052 |
|
Noninterest expense: | | | | | | |
| | |
|
Salaries and employee benefits | | 4,430 |
| | 4,154 |
| | 13,216 |
| | 12,644 |
|
Occupancy | | 1,087 |
| | 1,038 |
| | 3,315 |
| | 2,972 |
|
Data processing | | 635 |
| | 643 |
| | 2,031 |
| | 1,849 |
|
FDIC insurance | | 151 |
| | 272 |
| | 514 |
| | 714 |
|
Professional fees | | 184 |
| | 189 |
| | 725 |
| | 619 |
|
Director fees | | 240 |
| | 202 |
| | 697 |
| | 672 |
|
Other expenses | | 1,293 |
| | 1,495 |
| | 3,737 |
| | 4,141 |
|
Total noninterest expense | | 8,020 |
| | 7,993 |
| | 24,235 |
| | 23,611 |
|
Income before income taxes | | 9,275 |
| | 8,447 |
| | 27,018 |
| | 24,234 |
|
Income taxes | | 2,870 |
| | 2,634 |
| | 8,142 |
| | 7,249 |
|
Net income | | $ | 6,405 |
| | $ | 5,813 |
| | $ | 18,876 |
| | $ | 16,985 |
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Basic earnings per common share | | $ | 0.40 |
| | $ | 0.36 |
| | $ | 1.17 |
| | $ | 1.05 |
|
Diluted earnings per common share | | $ | 0.39 |
| | $ | 0.36 |
| | $ | 1.16 |
| | $ | 1.05 |
|
Cash dividends declared per common share | | $ | 0.18 |
| | $ | 0.17 |
| | $ | 0.53 |
| | $ | 0.50 |
|
See Notes to Consolidated Financial Statements.
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
Net income | | $ | 5,906 | | | $ | 11,602 | | | $ | 19,612 | | | $ | 37,453 | |
Other comprehensive income (loss): | | | | | | | | |
Unrealized gains (losses) on securities: | | | | | | | | |
Unrealized holding losses arising during the period | | (23,391) | | | (42,621) | | | (20,561) | | | (141,629) | |
| | | | | | | | |
| | | | | | | | |
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Income tax benefit | | 5,819 | | | 10,558 | | | 5,100 | | | 35,607 | |
Other comprehensive loss on securities | | (17,572) | | | (32,063) | | | (15,461) | | | (106,022) | |
Unrealized gains on derivatives: | | | | | | | | |
Unrealized holding gains arising during the period | | 5,303 | | | 8,637 | | | 11,771 | | | 23,239 | |
Plus: reclassification adjustment for net (gains) losses realized in net income | | (2,903) | | | (259) | | | (7,328) | | | 1,428 | |
| | | | | | | | |
Income tax expense | | (590) | | | (2,051) | | | (1,090) | | | (6,172) | |
Other comprehensive income on derivatives | | 1,810 | | | 6,327 | | | 3,353 | | | 18,495 | |
Total other comprehensive loss | | (15,762) | | | (25,736) | | | (12,108) | | | (87,527) | |
Comprehensive income (loss) | | $ | (9,856) | | | $ | (14,134) | | | $ | 7,504 | | | $ | (50,074) | |
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West Bancorporation, Inc. and Subsidiary | | | | | | | | |
Consolidated Statements of Comprehensive Income | | | | | | |
(unaudited) | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Net income | | $ | 6,405 |
| | $ | 5,813 |
| | $ | 18,876 |
| | $ | 16,985 |
|
Other comprehensive income: | | | | | | |
| | |
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Unrealized gains (losses) on investment securities: | | | | | | | | |
Unrealized holding gains (losses) arising during the period | | (1,316 | ) | | 301 |
| | 2,509 |
| | 4,771 |
|
Less: reclassification adjustment for net gains realized in net income | | (197 | ) | | — |
| | (423 | ) | | (60 | ) |
Less: reclassification adjustment for amortization of net unrealized gains to interest income on securities transferred from available for sale to held to maturity | | (34 | ) | | (7 | ) | | (234 | ) | | (122 | ) |
Income tax (expense) benefit | | 588 |
| | (112 | ) | | (704 | ) | | (1,744 | ) |
Other comprehensive income (loss) on investment securities | | (959 | ) | | 182 |
| | 1,148 |
| | 2,845 |
|
Unrealized gains (losses) on derivatives: | | | | | | | | |
Unrealized holding gains (losses) arising during the period | | (29 | ) | | 248 |
| | (376 | ) | | (889 | ) |
Less: reclassification adjustment for net loss on derivatives realized in net income | | 70 |
| | 118 |
| | 239 |
| | 362 |
|
Less: reclassification adjustment for amortization of derivative termination costs | | 28 |
| | 28 |
| | 82 |
| | 82 |
|
Income tax (expense) benefit | | (26 | ) | | (149 | ) | | 21 |
| | 170 |
|
Other comprehensive income (loss) on derivatives | | 43 |
| | 245 |
| | (34 | ) | | (275 | ) |
Total other comprehensive income (loss) | | (916 | ) | | 427 |
| | 1,114 |
|
| 2,570 |
|
Comprehensive income | | $ | 5,489 |
| | $ | 6,240 |
| | $ | 19,990 |
| | $ | 19,555 |
|
See Notes to Consolidated Financial Statements.
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except share and per share data) | | | | | | | | | | |
| | |
| | Three Months Ended September 30, 2023 |
| | | | | | | | | | | | Accumulated | | |
| | | | | | | | Additional | | | | Other | | |
| | Preferred | | Common Stock | | Paid-In | | Retained | | Comprehensive | | |
| | Stock | | Shares | | Amount | | Capital | | Earnings | | Income (Loss) | | Total |
Balance, June 30, 2023 | | $ | — | | | 16,725,094 | | | $ | 3,000 | | | $ | 32,642 | | | $ | 269,301 | | | $ | (87,817) | | | $ | 217,126 | |
Net income | | — | | | — | | | — | | | — | | | 5,906 | | | — | | | 5,906 | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (15,762) | | | (15,762) | |
Cash dividends declared, $0.25 per common share | | — | | | — | | | — | | | — | | | (4,182) | | | — | | | (4,182) | |
Stock-based compensation costs | | — | | | — | | | — | | | 845 | | | — | | | — | | | 845 | |
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Balance, September 30, 2023 | | $ | — | | | 16,725,094 | | | $ | 3,000 | | | $ | 33,487 | | | $ | 271,025 | | | $ | (103,579) | | | $ | 203,933 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2022 |
| | | | | | | | | | | | Accumulated | | |
| | | | | | | | Additional | | | | Other | | |
| | Preferred | | Common Stock | | Paid-In | | Retained | | Comprehensive | | |
| | Stock | | Shares | | Amount | | Capital | | Earnings | | Income (Loss) | | Total |
Balance, June 30, 2022 | | $ | — | | | 16,640,413 | | | $ | 3,000 | | | $ | 30,283 | | | $ | 255,334 | | | $ | (72,428) | | | $ | 216,189 | |
Net income | | — | | | — | | | — | | | — | | | 11,602 | | | — | | | 11,602 | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (25,736) | | | (25,736) | |
Cash dividends declared, $0.25 per common share | | — | | | — | | | — | | | — | | | (4,160) | | | — | | | (4,160) | |
Stock-based compensation costs | | — | | | — | | | — | | | 869 | | | — | | | — | | | 869 | |
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Balance, September 30, 2022 | | $ | — | | | 16,640,413 | | | $ | 3,000 | | | $ | 31,152 | | | $ | 262,776 | | | $ | (98,164) | | | $ | 198,764 | |
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See Notes to Consolidated Financial Statements. | | | | | | | | | | |
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West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(unaudited)
|
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West Bancorporation, Inc. and Subsidiary | | | | | | | | | | | | | | |
Consolidated Statements of Stockholders' Equity | | | | | | | | | | | | | | |
(unaudited) | | | | | | | | | | | | | | |
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| | | | | | | | | | | | 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, 2015 | | $ | — |
| | 16,064,435 |
| | $ | 3,000 |
| | $ | 20,067 |
| | $ | 129,740 |
| | $ | (430 | ) | | $ | 152,377 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 16,985 |
| | — |
| | 16,985 |
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Other comprehensive income, net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | 2,570 |
| | 2,570 |
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Cash dividends declared, $0.50 per common share | | — |
| | — |
| | — |
| | — |
| | (8,057 | ) | | — |
| | (8,057 | ) |
Stock-based compensation costs | | — |
| | — |
| | — |
| | 1,278 |
| | — |
| | — |
| | 1,278 |
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Issuance of common stock upon vesting of restricted | |
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| |
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stock units, net of shares withheld for payroll taxes | | — |
| | 73,564 |
| | — |
| | (394 | ) | | — |
| | — |
| | (394 | ) |
Excess tax benefits from vesting of restricted stock units | | — |
| | — |
| | — |
| | 105 |
| | — |
| | — |
| | 105 |
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Balance, September 30, 2016 | | $ | — |
| | 16,137,999 |
| | $ | 3,000 |
| | $ | 21,056 |
| | $ | 138,668 |
| | $ | 2,140 |
| | $ | 164,864 |
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Balance, December 31, 2016 | | $ | — |
| | 16,137,999 |
| | $ | 3,000 |
| | $ | 21,462 |
| | $ | 141,956 |
| | $ | (1,042 | ) | | $ | 165,376 |
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Net income | | — |
| | — |
| | — |
| | — |
| | 18,876 |
| | — |
| | 18,876 |
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Other comprehensive income, net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | 1,114 |
| | 1,114 |
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Cash dividends declared, $0.53 per common share | | — |
| | — |
| | — |
| | — |
| | (8,580 | ) | | — |
| | (8,580 | ) |
Stock-based compensation costs | | — |
| | — |
| | — |
| | 1,932 |
| | — |
| | — |
| | 1,932 |
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Issuance of common stock upon vesting of restricted | |
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stock units, net of shares withheld for payroll taxes | | — |
| | 77,673 |
| | — |
| | (631 | ) | | — |
| | — |
| | (631 | ) |
Balance, September 30, 2017 | | $ | — |
| | 16,215,672 |
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| $ | 3,000 |
| | $ | 22,763 |
| | $ | 152,252 |
| | $ | 72 |
| | $ | 178,087 |
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(in thousands, except share and per share data) | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2023 |
| | | | | | | | | | | | Accumulated | | |
| | | | | | | | Additional | | | | Other | | |
| | Preferred | | Common Stock | | Paid-In | | Retained | | Comprehensive | | |
| | Stock | | Shares | | Amount | | Capital | | Earnings | | Income (Loss) | | Total |
Balance, December 31, 2022 | | $ | — | | | 16,640,413 | | | $ | 3,000 | | | $ | 32,021 | | | $ | 267,562 | | | $ | (91,471) | | | $ | 211,112 | |
Cumulative effect of change in accounting principle(1) | | — | | | — | | | — | | | — | | | (3,626) | | | — | | | (3,626) | |
Net income | | — | | | — | | | — | | | — | | | 19,612 | | | — | | | 19,612 | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (12,108) | | | (12,108) | |
Cash dividends declared, $0.75 per common share | | — | | | — | | | — | | | — | | | (12,523) | | | — | | | (12,523) | |
Stock-based compensation costs | | — | | | — | | | — | | | 2,401 | | | — | | | — | | | 2,401 | |
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes | | — | | | 84,681 | | | — | | | (935) | | | — | | | — | | | (935) | |
Balance, September 30, 2023 | | $ | — | | | 16,725,094 | | | $ | 3,000 | | | $ | 33,487 | | | $ | 271,025 | | | $ | (103,579) | | | $ | 203,933 | |
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| | Nine Months Ended September 30, 2022 |
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| | | | | | | | Additional | | | | Other | | |
| | Preferred | | Common Stock | | Paid-In | | Retained | | Comprehensive | | |
| | Stock | | Shares | | Amount | | Capital | | Earnings | | Income (Loss) | | Total |
Balance, December 31, 2021 | | $ | — | | | 16,554,846 | | | $ | 3,000 | | | $ | 30,183 | | | $ | 237,782 | | | $ | (10,637) | | | $ | 260,328 | |
Net income | | — | | | — | | | — | | | — | | | 37,453 | | | — | | | 37,453 | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (87,527) | | | (87,527) | |
Cash dividends declared, $0.75 per common share | | — | | | — | | | — | | | — | | | (12,459) | | | — | | | (12,459) | |
Stock-based compensation costs | | — | | | — | | | — | | | 2,488 | | | — | | | — | | | 2,488 | |
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes | | — | | | 85,567 | | | — | | | (1,519) | | | — | | | — | | | (1,519) | |
Balance, September 30, 2022 | | $ | — | | | 16,640,413 | | | $ | 3,000 | | | $ | 31,152 | | | $ | 262,776 | | | $ | (98,164) | | | $ | 198,764 | |
(1)Cumulative effect adjustment pursuant to adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. See Note 1 for additional information.
See Notes to Consolidated Financial Statements.
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
| | West Bancorporation, Inc. and Subsidiary | | | | | |
Consolidated Statements of Cash Flows | | | | | |
(unaudited) | | | | | |
| | Nine Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2017 | | 2016 | (in thousands) | | 2023 | | 2022 |
Cash Flows from Operating Activities: | | | | | Cash Flows from Operating Activities: | | | | |
Net income | | $ | 18,876 |
| | $ | 16,985 |
| Net income | | $ | 19,612 | | | $ | 37,453 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Provision for loan losses | | — |
| | 900 |
| |
Credit loss expense (benefit) | | Credit loss expense (benefit) | | 200 | | | (2,500) | |
Net amortization and accretion | | 2,921 |
| | 3,293 |
| Net amortization and accretion | | 2,499 | | | 2,247 | |
Investment securities gains, net | | (423 | ) | | (60 | ) | |
| Stock-based compensation | | 1,932 |
| | 1,278 |
| Stock-based compensation | | 2,401 | | | 2,488 | |
Increase in cash value of bank-owned life insurance | | (484 | ) | | (492 | ) | Increase in cash value of bank-owned life insurance | | (769) | | | (709) | |
Gain from bank-owned life insurance | | (307 | ) | | (443 | ) | Gain from bank-owned life insurance | | (691) | | | — | |
| Depreciation | | 1,007 |
| | 740 |
| Depreciation | | 1,189 | | | 1,091 | |
Deferred income taxes | | 413 |
| | 253 |
| |
Provision for deferred income taxes | | Provision for deferred income taxes | | 207 | | | 1,928 | |
Change in assets and liabilities: | | | | | Change in assets and liabilities: | |
(Increase) in accrued interest receivable | | (1,315 | ) | | (542 | ) | |
Increase in accrued interest receivable | | Increase in accrued interest receivable | | (1,610) | | | (1,896) | |
(Increase) decrease in other assets | | (125 | ) | | 248 |
| (Increase) decrease in other assets | | (1,936) | | | 930 | |
Increase (decrease) in accrued expenses and other liabilities | | (516 | ) | | 152 |
| Increase (decrease) in accrued expenses and other liabilities | | (3,058) | | | 7,889 | |
Net cash provided by operating activities | | 21,979 |
| | 22,312 |
| Net cash provided by operating activities | | 18,044 | | | 48,921 | |
Cash Flows from Investing Activities: | | |
| | |
| Cash Flows from Investing Activities: | | | | |
Proceeds from sales of securities available for sale | | 74,224 |
| | 1,544 |
| |
Proceeds from maturities and calls of investment securities | | 38,529 |
| | 46,190 |
| |
| Proceeds from principal paydowns, maturities and calls of securities available for sale | | Proceeds from principal paydowns, maturities and calls of securities available for sale | | 31,886 | | | 63,353 | |
Purchases of securities available for sale | | (267,133 | ) | | — |
| Purchases of securities available for sale | | — | | | (120,077) | |
Purchases of Federal Home Loan Bank stock | | (16,794 | ) | | (16,907 | ) | Purchases of Federal Home Loan Bank stock | | (90,194) | | | (46,884) | |
Proceeds from redemption of Federal Home Loan Bank stock | | 15,309 |
| | 16,887 |
| Proceeds from redemption of Federal Home Loan Bank stock | | 82,839 | | | 38,499 | |
Net increase in loans | | (56,789 | ) | | (136,116 | ) | Net increase in loans | | (106,925) | | | (158,395) | |
| Purchases of premises and equipment | | (866 | ) | | (10,201 | ) | Purchases of premises and equipment | | (24,699) | | | (12,056) | |
Proceeds of principal and earnings from bank-owned life insurance | | 451 |
| | 812 |
| Proceeds of principal and earnings from bank-owned life insurance | | 2,458 | | | — | |
Net cash used in investing activities | | (213,069 | ) | | (97,791 | ) | Net cash used in investing activities | | (104,635) | | | (235,560) | |
Cash Flows from Financing Activities: | | |
| | |
| Cash Flows from Financing Activities: | | | | |
Net increase in deposits | | 104,661 |
| | 50,927 |
| |
Net (decrease) in federal funds purchased | | (8,765 | ) | | (1,840 | ) | |
Net increase in short-term borrowings | | 48,000 |
| | 15,500 |
| |
Proceeds from long-term debt | | 22,000 |
| | — |
| |
Net decrease in deposits | | Net decrease in deposits | | (124,879) | | | (193,158) | |
Net increase in federal funds purchased and other short-term borrowings | | Net increase in federal funds purchased and other short-term borrowings | | 61,510 | | | 201,620 | |
Proceeds from issuance of subordinated debt, net of issuance costs | | Proceeds from issuance of subordinated debt, net of issuance costs | | — | | | 58,756 | |
Net increase in Federal Home Loan Bank advances | | Net increase in Federal Home Loan Bank advances | | 160,000 | | | — | |
Principal payments on long-term debt | | (2,934 | ) | | (2,458 | ) | Principal payments on long-term debt | | (2,500) | | | (35) | |
Common stock dividends paid | | (8,580 | ) | | (8,057 | ) | Common stock dividends paid | | (12,523) | | | (12,459) | |
Restricted stock units withheld for payroll taxes | | (631 | ) | | (394 | ) | Restricted stock units withheld for payroll taxes | | (935) | | | (1,519) | |
Net cash provided by financing activities | | 153,751 |
| | 53,678 |
| Net cash provided by financing activities | | 80,673 | | | 53,205 | |
Net (decrease) in cash and cash equivalents | | (37,339 | ) | | (21,801 | ) | |
Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | | (5,918) | | | (133,434) | |
Cash and Cash Equivalents: | | | | | Cash and Cash Equivalents: | |
Beginning | | 76,836 |
| | 72,651 |
| Beginning | | 26,539 | | | 192,825 | |
Ending | | $ | 39,497 |
| | $ | 50,850 |
| Ending | | $ | 20,621 | | | $ | 59,391 | |
| | | | | | | | |
Supplemental Disclosures of Cash Flow Information: | | | | | Supplemental Disclosures of Cash Flow Information: | |
Cash payments for: | | | | | Cash payments for: | |
Interest | | $ | 8,667 |
| | $ | 5,742 |
| Interest | | $ | 61,342 | | | $ | 15,259 | |
Income taxes | | 6,410 |
| | 5,160 |
| Income taxes | | 3,890 | | | 7,490 | |
|
See Notes to Consolidated Financial Statements.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by West Bancorporation, Inc. (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission.Commission (SEC). Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. Although management believes that the disclosures are adequate to make the information presented understandable, it is suggested that these interim consolidated financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2022 filed with the SEC on February 23, 2023. In the opinion of management, the accompanying consolidated financial statements of the Company contain all adjustments necessary to fairly present its financial position as of September 30, 20172023 and December 31, 2016,2022, and net income, and comprehensive income (loss) and changes in stockholders' equity for the three and nine months ended September 30, 20172023 and 2016,2022, and cash flows for the nine months ended September 30, 20172023 and 2016.2022. The results for these interim periods may not be indicative of results for the entire year or for any other period.
The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) established by the Financial Accounting Standards Board (FASB). References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification™, sometimes referred to as the Codification or ASC. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term are the fair value and other than temporary impairment (OTTI) of financial instruments and the allowance for loancredit losses.
The accompanying unaudited consolidated financial statements include the accounts of the Company, West Bank and West Bank's wholly-owned subsidiary WB Funding Corporation.special purpose subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In accordance with GAAP, West Bancorporation Capital Trust I is recorded on the books of the Company using the equity method of accounting and is not consolidated.
Current accounting developments: In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the Codification. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2017. The Company's revenue is primarily comprised of interest income on financial instruments, including investment securities and loans, which are excluded from the scope of ASU 2014-09. The Company does not expect the guidance to have a material impact on the Company's consolidated financial statements. The most significant impact of the update for the Company may be additional noninterest income disclosure requirements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information by updating certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Among other changes, the update requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and clarifies that entities should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entities' other deferred tax assets. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2017, and is to be applied on a modified retrospective basis. Upon the effective date, the fair value of the Company's loan portfolio will be presented using an exit price method. The Company has concluded that the remaining requirements of this update are not expected to have a material impact on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in the update supersedes the requirements in ASC Topic 840, Leases. The guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for leases with lease terms of more than 12 months. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2018, and is to be applied on a modified retrospective basis. The Company currently leases its main location and space for six other branch offices and operational departments under operating leases that will result in recognition of lease assets and lease liabilities on the consolidated balance sheets under the ASU. The amount of assets and liabilities added to the balance sheet are not expected to have a material impact on the Company's consolidated financial statements per preliminary estimates.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718). The guidance in this update simplifies several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance also allows an entity to make an entity-wide accounting policy election to either estimate expected forfeitures or account for forfeitures as they occur. For public companies, the update was effective for annual periods beginning after December 15, 2016. Portions of the amended guidance were to be applied using a modified retrospective transition method, and others require prospective application. Upon adoption of this update on January 1, 2017, the Company made the accounting policy election to account for forfeitures as they occur. This resulted in no effect on the Company's consolidated financial statements, as prior stock-based compensation expense assumed no expected forfeitures. Also upon adoption, the Company changed the calculation of the assumed proceeds of the treasury stock method on a prospective basis to eliminate deferred taxes from the calculation. The net impact on the income statement is dependent upon the change in the Company's stock price from grant date to vesting date and cannot be predicted with any certainty. The requirement to report the excess tax benefit or shortfall related to settlements of share-based payment awards in earnings as an increase or decrease to tax expense has been applied to settlements occurring on or after January 1, 2017, and the impact of applying that guidance reduced reported income tax expense $285 for the nine months ended September 30, 2017.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—CreditInstruments-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. TheUnder the update, the income statement reflectswill 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 collectibilitycollectability 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-sheetOff-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 relatingrelated to available-for-saleavailable for sale debt securities should be recorded through an allowance for credit losses. For public
In December 2019, the FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326). This update amended the effective date of ASU No. 2016-13 for certain entities, including smaller reporting companies the update is effective for annual periodsuntil fiscal years beginning after December 15, 2019,2022, including interim periods within those fiscal years. All entities mayperiods. Early adoption was 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 that date and was not required to adopt the amendments in this update earlier as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. An entity will apply the amendments in this update on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently planning for the implementation of this accounting standard. It is too early to assess the impact that this guidance will have on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this update provide guidance for eight specific cash flow classification issues for which current guidance is unclear or does not exist, thereby reducing diversity in practice. For public companies, the update is effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company's early adoption of the update as ofstandard until January 1, 2017, did not have a material impact on the Company's consolidated financial statements.2023.
In March 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this update shorten the amortization period for certain purchased callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public companies, the update is effective for annual periods beginning after December 15, 2018, and is to be applied on a modified retrospective basis with a cumulative-effect adjustment directly to retained earnings as of the beginning of the adoption period. Early adoption is permitted, including adoption in an interim period. The Company does not expect the guidance to have a material impact on the Company's consolidated financial statements.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
In August 2017,March 2022, the FASB issued ASU 2017-12, DerivativesNo. 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings and HedgingVintage Disclosures. The amendments in this ASU improve the usefulness of information provided to investors about certain loan refinancings, restructurings, and write-offs. The amendments eliminate the accounting guidance for troubled debt restructurings (TDRs) by creditors that have adopted ASU No. 2016-13. It also enhances disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Lastly, the amendments require that a public business entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases.
The Company adopted ASU No. 2016-13 using the modified retrospective method for financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for the periods beginning after January 1, 2023 are presented under ASU No. 2016-13, while prior period amounts are reported in accordance with the previously applicable accounting standards. The Company recorded a reduction to retained earnings of $3,626 upon adoption of ASU No. 2016-13. The transition adjustment included an increase to the allowance for credit losses on loans of $2,458 and established an allowance for credit losses on off-balance sheet credit exposures of $2,344. There was no allowance for credit losses recorded for available-for-sale debt securities. The transition adjustment included corresponding increases in deferred tax assets of $1,176.
The following table illustrates the impact of ASC 326 adoption.
| | | | | | | | | | | | | | | | | |
| January 1, 2023 |
| Pre-ASC 326 Adoption | | Impact of ASC 326 Adoption | | As Reported Under ASC 326 |
Assets: | | | | | |
Commercial | $ | 4,804 | | | $ | 677 | | | $ | 5,481 | |
Real estate: | | | | | |
Construction, land and land development | 3,548 | | | (234) | | | 3,314 | |
1-4 family residential first mortgages | 357 | | | 121 | | | 478 | |
Home equity | 101 | | | (8) | | | 93 | |
Commercial | 16,575 | | | 1,911 | | | 18,486 | |
Consumer and other | 88 | | | (9) | | | 79 | |
Allowance for credit losses on loans | $ | 25,473 | | | $ | 2,458 | | | $ | 27,931 | |
| | | | | |
Liabilities: | | | | | |
Liability for off-balance sheet credit exposures | $ | — | | | $ | 2,344 | | | $ | 2,344 | |
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 815)848): Targeted ImprovementsFacilitation 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 Accountingease the potential burden in accounting for Hedging Activities(or recognizing the effects of) reference rate reform on financial reporting. They provide 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 were effective for all entities as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this update better align an entity's risk management activitiesrefine the scope for certain optional expedients and financial reportingexceptions for contract modifications and hedge accounting to apply to derivative contracts and certain hedging relationships through changes to bothaffected by the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. For public companies, thediscounting transition. The amendments in this update iswere effective for annual periods beginning afterall entities as of March 12, 2020 through December 15, 2018, with early adoption permitted, including31, 2022. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendment in an interim period.this update extends the period of time preparers can utilize reference rate reform relief guidance in Topic 848, discussed above. ASU No. 2022-06 defers the sunset date from December 31, 2022 to December 31, 2024. The amendments' presentation and disclosure guidance is required on a prospective basis. The Company is currently assessing the impact of this guidance, but does not expect the guidanceupdates within Topic 848 to have a material impact on our financial statements.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
In March 2023, the FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using Proportional Amortization Method. The ASU is intended to improve the accounting and disclosures for investments in tax credit structures. It allows reporting entities to elect to adopt for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact of the ASU on the Company's consolidated financial statements.
2. Earnings per Common Share
Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflect the potential dilution that could occur if the Company's outstanding restricted stock units were vested. The dilutive effect was computed using the treasury stock method, which assumes all stock-based awards were exercised and the hypothetical proceeds from exercise were used by the Company to purchase common stock at the average market price during the period. The incremental shares, to the extent they would have been dilutive, were included in the denominator of the diluted earnings per common share calculation. The calculations of earnings per common share and diluted earnings per common share for the three and nine months ended September 30, 20172023 and 20162022 are presented in the following table.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except per share data) | 2023 | | 2022 | | 2023 | | 2022 |
Net income | $ | 5,906 | | | $ | 11,602 | | | $ | 19,612 | | | $ | 37,453 | |
| | | | | | | |
Weighted average common shares outstanding | 16,725 | | | 16,640 | | | 16,697 | | | 16,613 | |
Weighted average effect of restricted stock units outstanding | 43 | | | 154 | | | 45 | | | 200 | |
Diluted weighted average common shares outstanding | 16,768 | | | 16,794 | | | 16,742 | | | 16,813 | |
| | | | | | | |
Basic earnings per common share | $ | 0.35 | | | $ | 0.70 | | | $ | 1.17 | | | $ | 2.25 | |
Diluted earnings per common share | $ | 0.35 | | | $ | 0.69 | | | $ | 1.17 | | | $ | 2.23 | |
Number of anti-dilutive common stock equivalents excluded from diluted earnings per share computation | 408 | | | 183 | | | 413 | | | 112 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except per share data) | 2017 | | 2016 | | 2017 | | 2016 |
Net income | $ | 6,405 |
| | $ | 5,813 |
| | $ | 18,876 |
| | $ | 16,985 |
|
| | | | | | | |
Weighted average common shares outstanding | 16,213 |
| | 16,135 |
| | 16,186 |
| | 16,110 |
|
Weighted average effect of restricted stock units outstanding | 118 |
| | 51 |
| | 127 |
| | 47 |
|
Diluted weighted average common shares outstanding | 16,331 |
| | 16,186 |
| | 16,313 |
| | 16,157 |
|
| |
| | |
| | |
| | |
|
Basic earnings per common share | $ | 0.40 |
| | $ | 0.36 |
| | $ | 1.17 |
| | $ | 1.05 |
|
Diluted earnings per common share | $ | 0.39 |
| | $ | 0.36 |
| | $ | 1.16 |
| | $ | 1.05 |
|
Number of anti-dilutive common stock equivalents excluded from diluted earnings per share computation | 24 |
| | 88 |
| | 14 |
| | 106 |
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
3. Investment Securities Available for Sale
The following tables show the amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale, by investment security type as of September 30, 20172023 and December 31, 2016.2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value |
Securities available for sale: | | | | | | | |
State and political subdivisions | $ | 240,954 | | | $ | — | | | $ | (58,947) | | | $ | 182,007 | |
Collateralized mortgage obligations (1) | 315,803 | | | — | | | (63,101) | | | 252,702 | |
Mortgage-backed securities (1) | 160,291 | | | — | | | (34,178) | | | 126,113 | |
Collateralized loan obligations | 37,862 | | | — | | | (332) | | | 37,530 | |
Corporate notes | 13,750 | | | — | | | (2,737) | | | 11,013 | |
| $ | 768,660 | | | $ | — | | | $ | (159,295) | | | $ | 609,365 | |
| | | | | | | |
| | | | | | | |
| December 31, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value |
Securities available for sale: | | | | | | | |
State and political subdivisions | $ | 242,823 | | | $ | 4 | | | $ | (49,472) | | | $ | 193,355 | |
Collateralized mortgage obligations (1) | 338,875 | | | — | | | (57,247) | | | 281,628 | |
Mortgage-backed securities (1) | 169,451 | | | — | | | (29,171) | | | 140,280 | |
| | | | | | | |
Collateralized loan obligations | 37,948 | | | — | | | (1,137) | | | 36,811 | |
Corporate notes | 13,750 | | | — | | | (1,709) | | | 12,041 | |
| $ | 802,847 | | | $ | 4 | | | $ | (138,736) | | | $ | 664,115 | |
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value |
Securities available for sale: | | | | | | | |
U.S. government agencies and corporations | $ | 2,500 |
| | $ | — |
| | $ | (11 | ) | | $ | 2,489 |
|
State and political subdivisions | 133,300 |
| | 1,442 |
| | (486 | ) | | 134,256 |
|
Collateralized mortgage obligations (1) | 150,298 |
| | 150 |
| | (1,081 | ) | | 149,367 |
|
Mortgage-backed securities (1) | 54,622 |
| | 288 |
| | (123 | ) | | 54,787 |
|
Asset-backed securities (2) | 46,351 |
| | 61 |
| | (139 | ) | | 46,273 |
|
Trust preferred securities | 2,130 |
| | — |
| | (430 | ) | | 1,700 |
|
Corporate notes | 29,288 |
| | 306 |
| | (92 | ) | | 29,502 |
|
| $ | 418,489 |
| | $ | 2,247 |
| | $ | (2,362 | ) | | $ | 418,374 |
|
| | | | | | | |
Securities held to maturity: | | | | | | | |
State and political subdivisions | $ | 45,597 |
| | $ | 807 |
| | $ | (48 | ) | | $ | 46,356 |
|
| |
| | |
| | |
| | |
|
| December 31, 2016 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value |
Securities available for sale: | | | | | | | |
U.S. government agencies and corporations | $ | 2,524 |
| | $ | 69 |
| | $ | — |
| | $ | 2,593 |
|
State and political subdivisions | 64,551 |
| | 376 |
| | (591 | ) | | 64,336 |
|
Collateralized mortgage obligations (1) | 103,038 |
| | 255 |
| | (1,343 | ) | | 101,950 |
|
Mortgage-backed securities (1) | 80,614 |
| | 341 |
| | (797 | ) | | 80,158 |
|
Trust preferred security | 1,784 |
| | — |
| | (534 | ) | | 1,250 |
|
Corporate notes | 10,326 |
| | 25 |
| | (1 | ) | | 10,350 |
|
| $ | 262,837 |
| | $ | 1,066 |
| | $ | (3,266 | ) | | $ | 260,637 |
|
| | | | | | | |
Securities held to maturity: | | | | | | | |
State and political subdivisions | $ | 48,386 |
| | $ | 70 |
| | $ | (667 | ) | | $ | 47,789 |
|
| |
(1) | All collateralized mortgage obligations and mortgage-backed securities consist of residential mortgage pass-through securities guaranteed by FHLMC or FNMA, real estate mortgage investment conduits guaranteed by FNMA, FHLMC or GNMA, and commercial mortgage pass-through securities guaranteed by the SBA. |
| |
(2) | Pass-through asset-backed securities guaranteed by the SBA, representing participating interests in pools of long-term debentures issued by state and local development companies certified by the SBA. |
(1)Collateralized mortgage obligations and mortgage-backed securities consist of residential and commercial mortgage pass-through securities and collateralized mortgage obligations guaranteed by FNMA, FHLMC, GNMA and SBA.
Investment securities
Securities with an amortized cost of approximately $123,457$458,126 and $141,995$293,017 as of September 30, 20172023 and December 31, 2016,2022, respectively, were pledged to secure access to theFederal Home Loan Bank (FHLB) advances and Federal Reserve discount window,credit programs, for public fund deposits, and for other purposes as required or permitted by law or regulation.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
The amortized cost and fair value of investment securities available for sale as of September 30, 2017,2023, by contractual maturity, are shown below. Certain securities have call features that allow the issuer to call the securities prior to maturity. Expected maturities may differ from contractual maturities for collateralized mortgage obligations mortgage-backed securities and asset-backedmortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, collateralized mortgage obligations mortgage-backed securities and asset-backedmortgage-backed securities are not included in the maturity categories within the following maturity summary.
| | | | | | | | | | | |
| September 30, 2023 |
| Amortized Cost | | Fair Value |
| | | |
| | | |
Due after five years through ten years | $ | 73,386 | | | $ | 66,209 | |
Due after ten years | 219,180 | | | 164,341 | |
| 292,566 | | | 230,550 | |
Collateralized mortgage obligations and mortgage-backed securities | 476,094 | | | 378,815 | |
| $ | 768,660 | | | $ | 609,365 | |
|
| | | | | | | |
| September 30, 2017 |
| Amortized Cost | | Fair Value |
Due in one year or less | $ | 2,117 |
| | $ | 2,121 |
|
Due after one year through five years | 5,633 |
| | 5,660 |
|
Due after five years through ten years | 43,213 |
| | 43,819 |
|
Due after ten years | 116,255 |
| | 116,347 |
|
| 167,218 |
| | 167,947 |
|
Collateralized mortgage obligations, mortgage-backed and asset-backed securities | 251,271 |
| | 250,427 |
|
| $ | 418,489 |
| | $ | 418,374 |
|
The amortized cost and fair value of investment securities held to maturity as of September 30, 2017, by contractual maturity, are shown below. Certain securities have call features that allow the issuer to call the securities prior to maturity.
|
| | | | | | | |
| September 30, 2017 |
| Amortized Cost | | Fair Value |
Due in one year or less | $ | — |
| | $ | — |
|
Due after one year through five years | 1,595 |
| | 1,600 |
|
Due after five years through ten years | 24,936 |
| | 25,364 |
|
Due after ten years | 19,066 |
| | 19,392 |
|
| $ | 45,597 |
| | $ | 46,356 |
|
The details of the sales of investment securities available for sale for the three and nine months ended September 30, 2017 and 2016 are summarized in the following table.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Proceeds from sales | $ | 21,204 |
| | $ | — |
| | $ | 74,224 |
| | $ | 1,544 |
|
Gross gains on sales | 197 |
| | — |
| | 527 |
| | 60 |
|
Gross losses on sales | — |
| | — |
| | 104 |
| | — |
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
There were no sales of securities available for sale during the three and nine months ended September 30, 2023 and 2022.
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 September 30, 20172023 and December 31, 2016.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| Less than 12 months | | 12 months or longer | | Total |
| Fair Value | | Gross Unrealized (Losses) | | No. of Securities | | Fair Value | | Gross Unrealized (Losses) | | No. of Securities | | Fair Value | | Gross Unrealized (Losses) |
Securities available for sale: | | | | | | | | | | | | | | | |
State and political | | | | | | | | | | | | | | | |
subdivisions | $ | 8,083 | | | $ | (674) | | | 15 | | $ | 173,924 | | | $ | (58,273) | | | 103 | | $ | 182,007 | | | $ | (58,947) | |
Collateralized mortgage | | | | | | | | | | | | | | | |
obligations | — | | | — | | | — | | 252,702 | | | (63,101) | | | 79 | | 252,702 | | | (63,101) | |
Mortgage-backed securities | — | | | — | | | — | | 126,113 | | | (34,178) | | | 27 | | 126,113 | | | (34,178) | |
Collateralized loan obligations | — | | | — | | | — | | 37,530 | | | (332) | | | 6 | | 37,530 | | | (332) | |
Corporate notes | — | | | — | | | — | | 11,013 | | | (2,737) | | | 8 | | 11,013 | | | (2,737) | |
| $ | 8,083 | | | $ | (674) | | | 15 | | $ | 601,282 | | | $ | (158,621) | | | 223 | | $ | 609,365 | | | $ | (159,295) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| December 31, 2022 |
| Less than 12 months | | 12 months or longer | | Total |
| Fair Value | | Gross Unrealized (Losses) | | No. of Securities | | Fair Value | | Gross Unrealized (Losses) | | No. of Securities | | Fair Value | | Gross Unrealized (Losses) |
Securities available for sale: | | | | | | | | | | | | | | | |
State and political | | | | | | | | | | | | | | | |
subdivisions | $ | 74,676 | | | $ | (11,556) | | | 74 | | $ | 118,487 | | | $ | (37,916) | | | 43 | | $ | 193,163 | | | $ | (49,472) | |
Collateralized mortgage | | | | | | | | | | | | | | | |
obligations | 107,449 | | | (14,484) | | | 48 | | 174,179 | | | (42,763) | | | 31 | | 281,628 | | | (57,247) | |
Mortgage-backed securities | 31,350 | | | (4,556) | | | 8 | | 108,930 | | | (24,615) | | | 19 | | 140,280 | | | (29,171) | |
| | | | | | | | | | | | | | | |
Collateralized loan obligations | 14,468 | | | (480) | | | 3 | | 22,343 | | | (657) | | | 3 | | 36,811 | | | (1,137) | |
Corporate notes | 9,185 | | | (1,315) | | | 5 | | 2,856 | | | (394) | | | 3 | | 12,041 | | | (1,709) | |
| $ | 237,128 | | | $ | (32,391) | | | 138 | | $ | 426,795 | | | $ | (106,345) | | | 99 | | $ | 663,923 | | | $ | (138,736) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Less than 12 months | | 12 months or longer | | Total |
| Fair Value | | Gross Unrealized (Losses) | | Fair Value | | Gross Unrealized (Losses) | | Fair Value | | Gross Unrealized (Losses) |
Securities available for sale: | | | | | | | | | | | |
U.S. government agencies and corporations | $ | 2,489 |
| | $ | (11 | ) | | $ | — |
| | $ | — |
| | $ | 2,489 |
| | $ | (11 | ) |
State and political subdivisions | 54,004 |
| | (486 | ) | | — |
| | — |
| | 54,004 |
| | (486 | ) |
Collateralized mortgage obligations | 102,016 |
| | (830 | ) | | 18,001 |
| | (251 | ) | | 120,017 |
| | (1,081 | ) |
Mortgage-backed securities | 27,500 |
| | (123 | ) | | — |
| | — |
| | 27,500 |
| | (123 | ) |
Asset-backed securities | 20,217 |
| | (139 | ) | | — |
| | — |
| | 20,217 |
| | (139 | ) |
Trust preferred securities | — |
| | — |
| | 1,700 |
| | (430 | ) | | 1,700 |
| | (430 | ) |
Corporate notes | 7,410 |
| | (92 | ) | | — |
| | — |
| | 7,410 |
| | (92 | ) |
| $ | 213,636 |
| | $ | (1,681 | ) | | $ | 19,701 |
| | $ | (681 | ) | | $ | 233,337 |
| | $ | (2,362 | ) |
| |
| | |
| | |
| | |
| | |
| | |
|
Securities held to maturity: | | | | | | | | | | | |
State and political subdivisions | $ | 1,658 |
| | $ | (7 | ) | | $ | 1,755 |
| | $ | (41 | ) | | $ | 3,413 |
| | $ | (48 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| December 31, 2016 |
| Less than 12 months | | 12 months or longer | | Total |
| Fair Value | | Gross Unrealized (Losses) | | Fair Value | | Gross Unrealized (Losses) | | Fair Value | | Gross Unrealized (Losses) |
Securities available for sale: | | | | | | | | | | | |
State and political subdivisions | $ | 34,903 |
| | $ | (591 | ) | | $ | — |
| | $ | — |
| | $ | 34,903 |
| | $ | (591 | ) |
Collateralized mortgage obligations | 75,771 |
| | (1,255 | ) | | 2,538 |
| | (88 | ) | | 78,309 |
| | (1,343 | ) |
Mortgage-backed securities | 60,221 |
| | (797 | ) | | — |
| | — |
| | 60,221 |
| | (797 | ) |
Trust preferred security | — |
| | — |
| | 1,250 |
| | (534 | ) | | 1,250 |
| | (534 | ) |
Corporate notes | 1,499 |
| | (1 | ) | | — |
| | — |
| | 1,499 |
| | (1 | ) |
| $ | 172,394 |
| | $ | (2,644 | ) | | $ | 3,788 |
| | $ | (622 | ) | | $ | 176,182 |
| | $ | (3,266 | ) |
| | | | | | | | | | | |
Securities held to maturity: | | | | | | | | | | | |
State and political subdivisions | $ | 32,976 |
| | $ | (458 | ) | | $ | 3,968 |
| | $ | (209 | ) | | $ | 36,944 |
| | $ | (667 | ) |
The Company adopted ASU No. 2016-13 effective January 1, 2023 which requires credit losses on available-for-sale securities to be recorded in an allowance for credit losses. If the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the security is written down to fair value through income. As of September 30, 2017,2023, the availableCompany did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the securities in an unrealized loss position prior to recovery. As of September 30, 2023, the Company also determined that no individual securities in an unrealized loss position represented credit losses that would require an allowance for sale and held to maturity securities withcredit losses. The Company concluded that the unrealized losses were primarily attributable to increases in market interest rates since these securities were purchased and other market conditions. Accrued interest receivable is not included one U.S. government agencyin available-for-sale security 89 statebalances and political subdivisionis presented in the "Accrued interest receivable" line of the Consolidated Balance Sheets. Interest receivable on securities was $3,588 as of September 30, collateralized mortgage obligation securities, eight mortgage-backed securities, three asset-backed securities, one trust preferred security2023, and two corporate notes. Thewas excluded from the estimate of credit losses.
As of December 31, 2022, the Company believed the unrealized losses on investmentssecurities available for sale and held to maturity as of September 30, 2017 were due to market conditions rather than reduced estimated cash flows. TheAt December 31, 2022, the Company doesdid not intend to sell these securities, doesdid not anticipate that these securities will be required to be sold before anticipated recovery, and expectsexpected full principal and interest to be collected. Therefore, under the accounting principles effective at December 31, 2022, the Company did not consider these investmentssecurities to have OTTIother than temporary impairment as of September 30, 2017.December 31, 2022.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
4. Loans and Allowance for LoanCredit Losses
Loans consisted of the following segments as of September 30, 20172023 and December 31, 2016.2022.
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Commercial | $ | 529,293 | | | $ | 519,196 | |
Real estate: | | | |
Construction, land and land development | 399,253 | | | 363,014 | |
1-4 family residential first mortgages | 89,713 | | | 75,211 | |
Home equity | 12,429 | | | 10,322 | |
Commercial | 1,812,816 | | | 1,771,940 | |
Consumer and other | 10,123 | | | 7,292 | |
| 2,853,627 | | | 2,746,975 | |
Net unamortized fees and costs | (3,850) | | | (4,139) | |
| $ | 2,849,777 | | | $ | 2,742,836 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Commercial | $ | 316,716 |
| | $ | 334,014 |
|
Real estate: | | | |
Construction, land and land development | 249,453 |
| | 205,610 |
|
1-4 family residential first mortgages | 49,369 |
| | 47,184 |
|
Home equity | 14,558 |
| | 18,057 |
|
Commercial | 820,144 |
| | 788,000 |
|
Consumer and other loans | 8,235 |
| | 8,355 |
|
| 1,458,475 |
| | 1,401,220 |
|
Net unamortized fees and costs | (1,570 | ) | | (1,350 | ) |
| $ | 1,456,905 |
| | $ | 1,399,870 |
|
Real estate loans of approximately $710,000$1,380,000 and $680,000$1,190,000 were pledged as security for Federal Home Loan Bank (FHLB)FHLB advances as of September 30, 20172023 and December 31, 2016,2022, respectively.
Loans are stated at the principal amounts outstanding, net of unamortized loan fees and costs, with interest income recognized on the interest method based upon those outstanding loan balances.the terms of the loan. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Loans are reported by the portfolio segments identified above and are analyzed by management on this basis. All loan policies identified below apply to all segments of the loan portfolio.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
Allowance for Credit Losses for Loans
The Company adopted ASU No. 2016-13 on January 1, 2023, at which time the Company implemented the current expected credit loss (CECL) model in estimating the allowance for credit losses (ACL) valuation account. The following tables detail the changes in the ACL by loan segment for the three and nine months ended September 30, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Beginning balance | $ | 5,496 | | | $ | 3,284 | | | $ | 472 | | | $ | 110 | | | $ | 18,469 | | | $ | 107 | | | $ | 27,938 | |
| | | | | | | | | | | | | |
Charge-offs | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Recoveries | 8 | | | — | | | — | | | 1 | | | — | | | — | | | 9 | |
Provision for credit loss expense(1) | (221) | | | 467 | | | 97 | | | — | | | (143) | | | — | | | 200 | |
Ending balance | $ | 5,283 | | | $ | 3,751 | | | $ | 569 | | | $ | 111 | | | $ | 18,326 | | | $ | 107 | | | $ | 28,147 | |
| | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Beginning balance | $ | 4,804 | | | $ | 3,548 | | | $ | 357 | | | $ | 101 | | | $ | 16,575 | | | $ | 88 | | | $ | 25,473 | |
Adoption of CECL | 677 | | | (234) | | | 121 | | | (8) | | | 1,911 | | | (9) | | | 2,458 | |
Charge-offs | (18) | | | — | | | — | | | — | | | — | | | — | | | (18) | |
Recoveries | 29 | | | — | | | 1 | | | 4 | | | — | | | — | | | 34 | |
Provision for credit loss expense(1) | (209) | | | 437 | | | 90 | | | 14 | | | (160) | | | 28 | | | 200 | |
Ending balance | $ | 5,283 | | | $ | 3,751 | | | $ | 569 | | | $ | 111 | | | $ | 18,326 | | | $ | 107 | | | $ | 28,147 | |
(1)The negative provisions for the various segments are related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed, improvement in qualitative risk factors related to those portfolio segments and/or changes in economic forecasts.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
Prior to the adoption of ASU No. 2016-13 on January 1, 2023, the Company calculated the allowance for loan losses using the incurred loss methodology. The following tables present the activity in the allowance for loan losses by segment for the three and nine months ended September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Beginning balance | $ | 4,661 | | | $ | 4,043 | | | $ | 373 | | | $ | 95 | | | $ | 16,189 | | | $ | 73 | | | $ | 25,434 | |
| | | | | | | | | | | | | |
Charge-offs | — | | | — | | | (31) | | | — | | | — | | | — | | | (31) | |
Recoveries | 9 | | | — | | | 1 | | | 1 | | | 4 | | | — | | | 15 | |
Provision for loan losses(1) | 429 | | | (557) | | | 20 | | | 9 | | | 82 | | | 17 | | | — | |
Ending balance | $ | 5,099 | | | $ | 3,486 | | | $ | 363 | | | $ | 105 | | | $ | 16,275 | | | $ | 90 | | | $ | 25,418 | |
| | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Beginning balance | $ | 4,776 | | | $ | 3,646 | | | $ | 339 | | | $ | 91 | | | $ | 19,466 | | | $ | 46 | | | $ | 28,364 | |
Charge-offs | — | | | — | | | (31) | | | — | | | (451) | | | — | | | (482) | |
Recoveries | 21 | | | — | | | 2 | | | 3 | | | 10 | | | — | | | 36 | |
Provision for loan losses(1) | 302 | | | (160) | | | 53 | | | 11 | | | (2,750) | | | 44 | | | (2,500) | |
Ending balance | $ | 5,099 | | | $ | 3,486 | | | $ | 363 | | | $ | 105 | | | $ | 16,275 | | | $ | 90 | | | $ | 25,418 | |
(1)The negative provisions for the various segments are 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.
The following tables present a breakdown of the allowance for credit losses by segment, disaggregated based on the evaluation method as of September 30, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Ending balance: | | | | | | | | | | | | | |
Individually evaluated for credit losses | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Collectively evaluated for credit losses | 5,283 | | | 3,751 | | | 569 | | | 111 | | | 18,326 | | | 107 | | | 28,147 | |
Total | $ | 5,283 | | | $ | 3,751 | | | $ | 569 | | | $ | 111 | | | $ | 18,326 | | | $ | 107 | | | $ | 28,147 | |
| | | | | | | | | | | | | |
| December 31, 2022 |
| | | 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 | 4,804 | | | 3,548 | | | 357 | | | 101 | | | 16,575 | | | 88 | | | 25,473 | |
Total | $ | 4,804 | | | $ | 3,548 | | | $ | 357 | | | $ | 101 | | | $ | 16,575 | | | $ | 88 | | | $ | 25,473 | |
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
The following tables present the recorded investment in loans, exclusive of unamortized fees and costs, disaggregated based on the evaluation method by segment as of September 30, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Ending balance: | | | | | | | | | | | | | |
Individually evaluated for credit losses | $ | — | | | $ | — | | | $ | 303 | | | $ | — | | | $ | — | | | $ | — | | | $ | 303 | |
Collectively evaluated for credit losses | 529,293 | | | 399,253 | | | 89,410 | | | 12,429 | | | 1,812,816 | | | 10,123 | | | 2,853,324 | |
Total | $ | 529,293 | | | $ | 399,253 | | | $ | 89,713 | | | $ | 12,429 | | | $ | 1,812,816 | | | $ | 10,123 | | | $ | 2,853,627 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Ending balance: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | — | | | $ | — | | | $ | 322 | | | $ | — | | | $ | — | | | $ | — | | | $ | 322 | |
Collectively evaluated for impairment | 519,196 | | | 363,014 | | | 74,889 | | | 10,322 | | | 1,771,940 | | | 7,292 | | | 2,746,653 | |
Total | $ | 519,196 | | | $ | 363,014 | | | $ | 75,211 | | | $ | 10,322 | | | $ | 1,771,940 | | | $ | 7,292 | | | $ | 2,746,975 | |
Under the CECL model, the ACL is a valuation account estimated at each balance sheet date and deducted from the amortized cost basis of loans to present the net amount expected to be collected. The Company estimates the ACL based on the underlying loans' amortized cost basis, which is the amount at which the loan is originated or acquired, adjusted for collection of cash and charge-offs, as well as applicable accretion or amortization of premiums, discounts, and net deferred fees or costs. The Company's estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected restructuring. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of the ACL.
Accrued interest on loans of $10,005 and $8,665 at September 30, 2023 and December 31, 2022, respectively, was included in accrued interest receivable on the balance sheet and was excluded from the estimate of credit losses.
Expected credit losses are reflected in the allowance for credit losses through a charge to credit loss expense. When the Company deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a loan is deemed uncollectible; however, generally speaking, a loan will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.
The Company measures expected credit losses of loans on a collective (pool) basis when the loans share similar risk characteristics and uses a cash flow based method to estimate expected credit losses for each of these pools. The Company's methodology for estimating the ACL considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical experience was observed.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
The Company uses the cash flow based model to estimate expected credit losses for all loan segments. For each of the loan segments, the Company calculates a cash flow projection using contractual terms, estimated prepayment speeds, estimated curtailment rates, and other relevant data. The Company uses regression analysis that links historical losses of the Company and its peer group to two economic metrics: national unemployment rate and 10-year treasury rate over 2-year treasury rate spread to establish the loss rates applied to the projected cash flows. For all loan segments, the Company uses a forecast period of four quarters and reverts to a historical rate after four quarters. When estimating prepayment speed and curtailment rates, the modeling is based on historical internal data.
Nonaccrual Loans and Delinquency Status
Delinquencies are determined based on the payment terms of the individual loan agreements. The accrual of interest on past due and other impairedindividually evaluated 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.income. Generally, all payments received while a loan is on nonaccrual status are applied to the principal balance of the loan. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
A loan is classified as a troubled debt restructured (TDR) loan whenThe following table presents the Company separately concludes that a borrower is experiencing financial difficultiesamortized cost basis of loans on nonaccrual status, loans on nonaccrual status with no allowance for credit losses recorded, and a concession is granted that would not otherwise be considered. Concessions may include a restructuring of the loan terms to alleviate the burden of the borrower's cash requirements, such as an extension of the payment terms beyond the original maturity date or a change in the interest rate charged. TDR loans with extended payment terms are accounted for as impaired until performance is established. A change to the interest rate would change the classification of a loan to a TDR loan if the restructured loan yields a rate that is below a market rate for that of a new loan with comparable risk. TDR loans with below-market rates are considered impaired until fully collected. TDR loans may also be reported as nonaccrual or past due 90 days if they are not performingor more and still accruing by loan segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Nonaccrual | | Nonaccrual with no Allowance for Credit Losses | | 90 Days or More Past Due and Accruing |
| September 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
Commercial | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Real estate: | | | | | | | | | | | |
Construction, land and land | | | | | | | | | | | |
development | — | | | — | | | — | | | — | | | — | | | — | |
1-4 family residential first | | | | | | | | | | | |
mortgages | 303 | | | 322 | | | 303 | | | 322 | | | — | | | — | |
Home equity | — | | | — | | | — | | | — | | | — | | | — | |
Commercial | — | | | — | | | — | | | — | | | — | | | — | |
Consumer and other | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 303 | | | $ | 322 | | | $ | 303 | | | $ | 322 | | | $ | — | | | $ | — | |
There was no interest income recognized on loans that were on nonaccrual for the nine months ended September 30, 2023 and September 30, 2022.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
The following tables provide an analysis of the restructureddelinquency status of the amortized cost of loans as of September 30, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Total Past Due | | Current | | Total Loans |
Commercial | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 529,293 | | | $ | 529,293 | |
Real estate: | | | | | | | | | | | |
Construction, land and | | | | | | | | | | | |
land development | — | | | — | | | — | | | — | | | 399,253 | | | 399,253 | |
1-4 family residential | | | | | | | | | | | |
first mortgages | — | | | — | | | — | | | — | | | 89,713 | | | 89,713 | |
Home equity | — | | | — | | | — | | | — | | | 12,429 | | | 12,429 | |
Commercial | — | | | — | | | — | | | — | | | 1,812,816 | | | 1,812,816 | |
Consumer and other | — | | | — | | | — | | | — | | | 10,123 | | | 10,123 | |
Total | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,853,627 | | | $ | 2,853,627 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Total Past Due | | Current | | Total Loans |
Commercial | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 519,196 | | | $ | 519,196 | |
Real estate: | | | | | | | | | | | |
Construction, land and | | | | | | | | | | | |
land development | — | | | — | | | — | | | — | | | 363,014 | | | 363,014 | |
1-4 family residential | | | | | | | | | | | |
first mortgages | — | | | — | | | — | | | — | | | 75,211 | | | 75,211 | |
Home equity | — | | | — | | | — | | | — | | | 10,322 | | | 10,322 | |
Commercial | — | | | — | | | — | | | — | | | 1,771,940 | | | 1,771,940 | |
Consumer and other | — | | | — | | | — | | | — | | | 7,292 | | | 7,292 | |
Total | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,746,975 | | | $ | 2,746,975 | |
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
Loan Restructurings Made to Borrowers Experiencing Financial Difficulty
As of September 30, 2023 and December 31, 2022, the Company had no loan restructurings made to borrowers experiencing financial difficulty. There were no loan restructurings made to borrowers experiencing financial difficulty for which there was a payment default within twelve months following the modification during the three and nine months ended September 30, 2023 and 2022. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.
Credit Quality Indicators
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 unableanalyzed individually to collect all contractual principal and interest payments due in accordance with the terms ofcategorize the loan agreement. Impaired loans are measured based onto 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.appropriate credit risk category.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
TDR loans totaled $247 and $426 as of September 30, 2017 and December 31, 2016, respectively, and were included in nonaccrual loans. There were no loan modifications considered to be TDR that occurred during the three and nine months ended September 30, 2017 and 2016. No TDR loans that were modified within the twelve months preceding September 30, 2017 and September 30, 2016 have subsequently had a payment default. A TDR loan is considered to have a payment default when it is past due 30 days or more.
The following table summarizes the recorded investment in impaired loans by segment, broken down by loans with no related allowance for loan losses and loans with a related allowance and the amount of that allowance as of September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance |
With no related allowance recorded: | | | | | | | | | | | |
Commercial | $ | — |
| | $ | — |
| | $ | — |
| | $ | 35 |
| | $ | 35 |
| | $ | — |
|
Real estate: | | | | | | | | | | | |
Construction, land and land development | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
1-4 family residential first mortgages | 94 |
| | 94 |
| | — |
| | 108 |
| | 108 |
| | — |
|
Home equity | 30 |
| | 30 |
| | — |
| | 41 |
| | 41 |
| | — |
|
Commercial | 247 |
| | 247 |
| | — |
| | 335 |
| | 335 |
| | — |
|
Consumer and other loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 371 |
| | 371 |
| | — |
| | 519 |
| | 519 |
| | — |
|
With an allowance recorded: | | | | | | | | | | | |
Commercial | — |
| | — |
| | — |
| | 91 |
| | 91 |
| | 91 |
|
Real estate: | | | | | | | | | | | |
Construction, land and land development | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
1-4 family residential first mortgages | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Home equity | 23 |
| | 23 |
| | 23 |
| | 276 |
| | 276 |
| | 276 |
|
Commercial | 123 |
| | 123 |
| | 123 |
| | 136 |
| | 136 |
| | 136 |
|
Consumer and other loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 146 |
| | 146 |
| | 146 |
| | 503 |
| | 503 |
| | 503 |
|
Total: | | | | | | | | | | | |
Commercial | — |
| | — |
| | — |
| | 126 |
| | 126 |
| | 91 |
|
Real estate: | | | | | | | | | | | |
Construction, land and land development | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
1-4 family residential first mortgages | 94 |
| | 94 |
| | — |
| | 108 |
| | 108 |
| | — |
|
Home equity | 53 |
| | 53 |
| | 23 |
| | 317 |
| | 317 |
| | 276 |
|
Commercial | 370 |
| | 370 |
| | 123 |
| | 471 |
| | 471 |
| | 136 |
|
Consumer and other loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| $ | 517 |
| | $ | 517 |
| | $ | 146 |
| | $ | 1,022 |
| | $ | 1,022 |
| | $ | 503 |
|
The balance of impaired loans at September 30, 2017 and December 31, 2016 was composed of 5 and 10 different borrowers, respectively. 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
(unaudited)
(dollars in thousands, except per share data)
The following table summarizes the average recorded investment and interest income recognized on impaired loans by segment for the three and nine months ended September 30, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
With no related allowance recorded: | | | | | | | | | | | | | | | |
Commercial | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Real estate: | | | | | | | | | | | | | | | |
Construction, land and land development | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 11 |
| | — |
|
1-4 family residential first mortgages | 97 |
| | — |
| | 124 |
| | — |
| | 101 |
| | — |
| | 242 |
| | 1 |
|
Home equity | 29 |
| | — |
| | — |
| | — |
| | 33 |
| | — |
| | — |
| | — |
|
Commercial | 262 |
| | — |
| | 377 |
| | — |
| | 291 |
| | — |
| | 407 |
| | — |
|
Consumer and other loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 388 |
| | — |
| | 501 |
| | — |
| | 449 |
| | — |
| | 660 |
| | 1 |
|
With an allowance recorded: | | | | | | | | | | | | | | | |
Commercial | 62 |
| | — |
| | 130 |
| | — |
| | 78 |
| | — |
| | 135 |
| | — |
|
Real estate: | | | | | | | | | | | | | | | |
Construction, land and land development | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
1-4 family residential first mortgages | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Home equity | 157 |
| | — |
| | 254 |
| | — |
| | 223 |
| | — |
| | 261 |
| | — |
|
Commercial | 125 |
| | — |
| | 143 |
| | — |
| | 130 |
| | — |
| | 148 |
| | — |
|
Consumer and other loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 344 |
| | — |
| | 527 |
| | — |
| | 431 |
| | — |
| | 544 |
| | — |
|
Total: | | | | | | | | | | | | | | | |
Commercial | 62 |
| | — |
| | 130 |
| | — |
| | 102 |
| | — |
| | 135 |
| | — |
|
Real estate: | | | | | | | | | | | | | | | |
Construction, land and land development | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 11 |
| | — |
|
1-4 family residential first mortgages | 97 |
| | — |
| | 124 |
| | — |
| | 101 |
| | — |
| | 242 |
| | 1 |
|
Home equity | 186 |
| | — |
| | 254 |
| | — |
| | 256 |
| | — |
| | 261 |
| | — |
|
Commercial | 387 |
| | — |
| | 520 |
| | — |
| | 421 |
| | — |
| | 555 |
| | — |
|
Consumer and other loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| $ | 732 |
| | $ | — |
| | $ | 1,028 |
| | $ | — |
| | $ | 880 |
| | $ | — |
| | $ | 1,204 |
| | $ | 1 |
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
The following tables provide an analysis of the payment status of the recorded investment in loans as of September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Total Past Due | | Current | | Nonaccrual Loans | | Total Loans |
Commercial | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 316,716 |
| | $ | — |
| | $ | 316,716 |
|
Real estate: | | | | | | | | | | | | | |
Construction, land and | | | | | | | | | | | | | |
land development | — |
| | — |
| | — |
| | — |
| | 249,453 |
| | — |
| | 249,453 |
|
1-4 family residential | | | | | | | | | | | | | |
first mortgages | — |
| | — |
| | — |
| | — |
| | 49,275 |
| | 94 |
| | 49,369 |
|
Home equity | 3 |
| | — |
| | — |
| | 3 |
| | 14,502 |
| | 53 |
| | 14,558 |
|
Commercial | — |
| | — |
| | — |
| | — |
| | 819,774 |
| | 370 |
| | 820,144 |
|
Consumer and other | — |
| | — |
| | — |
| | — |
| | 8,235 |
| | — |
| | 8,235 |
|
Total | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | 1,457,955 |
| | $ | 517 |
| | $ | 1,458,475 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| 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 | $ | 109 |
| | $ | — |
| | $ | — |
| | $ | 109 |
| | $ | 333,779 |
| | $ | 126 |
| | $ | 334,014 |
|
Real estate: | | | | | | | | | | | | | |
Construction, land and | | | | | | | | | | | | | |
land development | — |
| | — |
| | — |
| | — |
| | 205,610 |
| | — |
| | 205,610 |
|
1-4 family residential | | | | | | | | | | | | | |
first mortgages | 64 |
| | — |
| | — |
| | 64 |
| | 47,012 |
| | 108 |
| | 47,184 |
|
Home equity | — |
| | — |
| | — |
| | — |
| | 17,740 |
| | 317 |
| | 18,057 |
|
Commercial | — |
| | — |
| | — |
| | — |
| | 787,529 |
| | 471 |
| | 788,000 |
|
Consumer and other | — |
| | — |
| | — |
| | — |
| | 8,355 |
| | — |
| | 8,355 |
|
Total | $ | 173 |
| | $ | — |
| | $ | — |
| | $ | 173 |
| | $ | 1,400,025 |
| | $ | 1,022 |
| | $ | 1,401,220 |
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
The following tables present the recorded investment in loans by credit quality indicator and loan segment as of September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Pass | | Watch | | Substandard | | Doubtful | | Total |
Commercial | $ | 314,078 |
| | $ | 560 |
| | $ | 2,078 |
| | $ | — |
| | $ | 316,716 |
|
Real estate: | | | | | | | | | |
Construction, land and land development | 249,308 |
| | 145 |
| | — |
| | — |
| | 249,453 |
|
1-4 family residential first mortgages | 48,564 |
| | 552 |
| | 253 |
| | — |
| | 49,369 |
|
Home equity | 14,377 |
| | 56 |
| | 125 |
| | — |
| | 14,558 |
|
Commercial | 800,622 |
| | 18,246 |
| | 1,276 |
| | — |
| | 820,144 |
|
Consumer and other | 8,196 |
| | 39 |
| | — |
| | — |
| | 8,235 |
|
Total | $ | 1,435,145 |
| | $ | 19,598 |
| | $ | 3,732 |
| | $ | — |
| | $ | 1,458,475 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Pass | | Watch | | Substandard | | Doubtful | | Total |
Commercial | $ | 329,366 |
| | $ | 3,303 |
| | $ | 1,345 |
| | $ | — |
| | $ | 334,014 |
|
Real estate: | | | | | | | | | |
Construction, land and land development | 204,572 |
| | — |
| | 1,038 |
| | — |
| | 205,610 |
|
1-4 family residential first mortgages | 46,278 |
| | 798 |
| | 108 |
| | — |
| | 47,184 |
|
Home equity | 17,646 |
| | — |
| | 411 |
| | — |
| | 18,057 |
|
Commercial | 769,010 |
| | 18,392 |
| | 598 |
| | — |
| | 788,000 |
|
Consumer and other | 8,355 |
| | — |
| | — |
| | — |
| | 8,355 |
|
Total | $ | 1,375,227 |
| | $ | 22,493 |
| | $ | 3,500 |
| | $ | — |
| | $ | 1,401,220 |
|
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.
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 flows 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.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
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.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
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 lendersbankers initiate changes as appropriate for ratings 1 through 5, and changes for ratings 6 through 9 are initiated via communications withby 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 criticized loans.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 the borrower 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 five to ten 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.
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 and home equity loans, is typically wages.
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 the current economic conditions that may affect the borrower's 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.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
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 an integral part 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.
The following tables detailpresent the changes inamortized cost basis of loans by loan segment, credit quality indicator and origination year, and the allowance forcurrent period gross write-off by loan losses by segment forand origination year, based on the three and nine months endedanalysis performed as of September 30, 20172023 and 2016.December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | | | | | |
As of September 30, 2023 | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Total |
Commercial | | | | | | | | | | | | | | | |
Pass | $ | 130,239 | | | $ | 119,579 | | | $ | 51,124 | | | $ | 36,264 | | | $ | 7,519 | | | $ | 44,657 | | | $ | 139,911 | | | $ | 529,293 | |
Watch | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 130,239 | | | $ | 119,579 | | | $ | 51,124 | | | $ | 36,264 | | | $ | 7,519 | | | $ | 44,657 | | | $ | 139,911 | | | $ | 529,293 | |
Current period gross writeoffs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 18 | | | $ | — | | | $ | — | | | $ | 18 | |
Real estate: | | | | | | | | | | | | | | | |
Construction, land and land development | | | | | | | | | | | | | | | |
Pass | $ | 73,148 | | | $ | 129,426 | | | $ | 86,261 | | | $ | 20,208 | | | $ | 1,484 | | | $ | — | | | $ | 88,687 | | | $ | 399,214 | |
Watch | — | | | 39 | | | — | | | — | | | — | | | — | | | — | | | 39 | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 73,148 | | | $ | 129,465 | | | $ | 86,261 | | | $ | 20,208 | | | $ | 1,484 | | | $ | — | | | $ | 88,687 | | | $ | 399,253 | |
Current period gross writeoffs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
1-4 family residential first mortgages | | | | | | | | | | | | | | | |
Pass | $ | 27,824 | | | $ | 20,732 | | | $ | 20,370 | | | $ | 12,032 | | | $ | 3,798 | | | $ | 3,858 | | | $ | 611 | | | $ | 89,225 | |
Watch | 145 | | | — | | | — | | | — | | | — | | | — | | | — | | | 145 | |
Substandard | — | | | 40 | | | — | | | — | | | 303 | | | — | | | — | | | 343 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 27,969 | | | $ | 20,772 | | | $ | 20,370 | | | $ | 12,032 | | | $ | 4,101 | | | $ | 3,858 | | | $ | 611 | | | $ | 89,713 | |
Current period gross writeoffs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Home equity | | | | | | | | | | | | | | | |
Pass | $ | 591 | | | $ | 243 | | | $ | 529 | | | $ | 367 | | | $ | 116 | | | $ | 68 | | | $ | 10,515 | | | $ | 12,429 | |
Watch | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 591 | | | $ | 243 | | | $ | 529 | | | $ | 367 | | | $ | 116 | | | $ | 68 | | | $ | 10,515 | | | $ | 12,429 | |
Current period gross writeoffs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial | | | | | | | | | | | | | | | |
Pass | $ | 166,083 | | | $ | 521,330 | | | $ | 455,800 | | | $ | 365,665 | | | $ | 87,301 | | | $ | 198,585 | | | $ | 18,052 | | | $ | 1,812,816 | |
Watch | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 166,083 | | | $ | 521,330 | | | $ | 455,800 | | | $ | 365,665 | | | $ | 87,301 | | | $ | 198,585 | | | $ | 18,052 | | | $ | 1,812,816 | |
Current period gross writeoffs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Consumer and other | | | | | | | | | | | | | | | |
Pass | $ | 1,296 | | | $ | 299 | | | $ | 533 | | | $ | 61 | | | $ | 25 | | | $ | 371 | | | $ | 7,538 | | | $ | 10,123 | |
Watch | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 1,296 | | | $ | 299 | | | $ | 533 | | | $ | 61 | | | $ | 25 | | | $ | 371 | | | $ | 7,538 | | | $ | 10,123 | |
Current period gross writeoffs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
23
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Beginning balance | $ | 3,802 |
| | $ | 2,552 |
| | $ | 350 |
| | $ | 372 |
| | $ | 9,307 |
| | $ | 103 |
| | $ | 16,486 |
|
Charge-offs | (3 | ) | | — |
| | — |
| | (176 | ) | | — |
| | — |
| | (179 | ) |
Recoveries | 34 |
| | — |
| | 8 |
| | 5 |
| | 3 |
| | 1 |
| | 51 |
|
Provision (1) | (165 | ) | | 170 |
| | (24 | ) | | 16 |
| | 1 |
| | 2 |
| | — |
|
Ending balance | $ | 3,668 |
| | $ | 2,722 |
| | $ | 334 |
| | $ | 217 |
| | $ | 9,311 |
| | $ | 106 |
| | $ | 16,358 |
|
| | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Beginning balance | $ | 4,441 |
| | $ | 2,804 |
| | $ | 393 |
| | $ | 483 |
| | $ | 7,606 |
| | $ | 102 |
| | $ | 15,829 |
|
Charge-offs | (25 | ) | | (140 | ) | | — |
| | — |
| | — |
| | (6 | ) | | (171 | ) |
Recoveries | 53 |
| | — |
| | 37 |
| | 6 |
| | 4 |
| | — |
| | 100 |
|
Provision (1) | (318 | ) | | 8 |
| | (84 | ) | | (25 | ) | | 621 |
| | (2 | ) | | 200 |
|
Ending balance | $ | 4,151 |
| | $ | 2,672 |
| | $ | 346 |
| | $ | 464 |
| | $ | 8,231 |
| | $ | 94 |
| | $ | 15,958 |
|
| | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Beginning balance | $ | 3,881 |
| | $ | 2,639 |
| | $ | 317 |
| | $ | 478 |
| | $ | 8,697 |
| | $ | 100 |
| | $ | 16,112 |
|
Charge-offs | (196 | ) | | — |
| | — |
| | (176 | ) | | — |
| | — |
| | (372 | ) |
Recoveries | 174 |
| | 398 |
| | 10 |
| | 20 |
| | 9 |
| | 7 |
| | 618 |
|
Provision (1) | (191 | ) | | (315 | ) | | 7 |
| | (105 | ) | | 605 |
| | (1 | ) | | — |
|
Ending balance | $ | 3,668 |
| | $ | 2,722 |
| | $ | 334 |
| | $ | 217 |
| | $ | 9,311 |
| | $ | 106 |
| | $ | 16,358 |
|
| | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Beginning balance | $ | 4,369 |
| | $ | 2,338 |
| | $ | 508 |
| | $ | 481 |
| | $ | 7,254 |
| | $ | 17 |
| | $ | 14,967 |
|
Charge-offs | (25 | ) | | (140 | ) | | (93 | ) | | — |
| | — |
| | (6 | ) | | (264 | ) |
Recoveries | 194 |
| | 56 |
| | 58 |
| | 30 |
| | 10 |
| | 7 |
| | 355 |
|
Provision (1) | (387 | ) | | 418 |
| | (127 | ) | | (47 | ) | | 967 |
| | 76 |
| | 900 |
|
Ending balance | $ | 4,151 |
| | $ | 2,672 |
| | $ | 346 |
| | $ | 464 |
| | $ | 8,231 |
| | $ | 94 |
| | $ | 15,958 |
|
| |
(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
(unaudited)
(dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | | | | | |
As of December 31, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans | | Total |
Commercial | | | | | | | | | | | | | | | |
Pass | $ | 166,177 | | | $ | 65,148 | | | $ | 64,103 | | | $ | 9,926 | | | $ | 23,771 | | | $ | 24,103 | | | $ | 165,968 | | | $ | 519,196 | |
Watch | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 166,177 | | | $ | 65,148 | | | $ | 64,103 | | | $ | 9,926 | | | $ | 23,771 | | | $ | 24,103 | | | $ | 165,968 | | | $ | 519,196 | |
Current period gross writeoffs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Real estate: | | | | | | | | | | | | | | | |
Construction, land and land development | | | | | | | | | | | | | | | |
Pass | $ | 151,963 | | | $ | 96,486 | | | $ | 39,604 | | | $ | 1,562 | | | $ | 196 | | | $ | — | | | $ | 73,156 | | | $ | 362,967 | |
Watch | 47 | | | — | | | — | | | — | | | — | | | — | | | — | | | 47 | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 152,010 | | | $ | 96,486 | | | $ | 39,604 | | | $ | 1,562 | | | $ | 196 | | | $ | — | | | $ | 73,156 | | | $ | 363,014 | |
Current period gross writeoffs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
1-4 family residential first mortgages | | | | | | | | | | | | | | | |
Pass | $ | 24,777 | | | $ | 24,042 | | | $ | 14,879 | | | $ | 4,229 | | | $ | 1,283 | | | $ | 4,267 | | | $ | 1,176 | | | $ | 74,653 | |
Watch | — | | | 148 | | | — | | | — | | | — | | | — | | | — | | | 148 | |
Substandard | 88 | | | — | | | — | | | 322 | | | — | | | — | | | — | | | 410 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 24,865 | | | $ | 24,190 | | | $ | 14,879 | | | $ | 4,551 | | | $ | 1,283 | | | $ | 4,267 | | | $ | 1,176 | | | $ | 75,211 | |
Current period gross writeoffs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 31 | | | $ | — | | | $ | 31 | |
Home equity | | | | | | | | | | | | | | | |
Pass | $ | 413 | | | $ | 613 | | | $ | 512 | | | $ | 130 | | | $ | 169 | | | $ | — | | | $ | 8,485 | | | $ | 10,322 | |
Watch | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 413 | | | $ | 613 | | | $ | 512 | | | $ | 130 | | | $ | 169 | | | $ | — | | | $ | 8,485 | | | $ | 10,322 | |
Current period gross writeoffs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial | | | | | | | | | | | | | | | |
Pass | $ | 543,138 | | | $ | 440,150 | | | $ | 405,935 | | | $ | 92,304 | | | $ | 54,723 | | | $ | 169,055 | | | $ | 12,599 | | | $ | 1,717,904 | |
Watch | 22,553 | | | 30,573 | | | — | | | 910 | | | — | | | — | | | — | | | 54,036 | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 565,691 | | | $ | 470,723 | | | $ | 405,935 | | | $ | 93,214 | | | $ | 54,723 | | | $ | 169,055 | | | $ | 12,599 | | | $ | 1,771,940 | |
Current period gross writeoffs | $ | — | | | $ | 451 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 451 | |
Consumer and other | | | | | | | | | | | | | | | |
Pass | $ | 1,176 | | | $ | 1,082 | | | $ | 136 | | | $ | 86 | | | $ | 272 | | | $ | 72 | | | $ | 4,468 | | | $ | 7,292 | |
Watch | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 1,176 | | | $ | 1,082 | | | $ | 136 | | | $ | 86 | | | $ | 272 | | | $ | 72 | | | $ | 4,468 | | | $ | 7,292 | |
Current period gross writeoffs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
The following tables present a breakdown of the allowance for loan losses disaggregated on the basis of impairment analysis method by segment as of September 30, 2017 and December 31, 2016.
24
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Ending balance: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | — |
| | $ | — |
| | $ | — |
| | $ | 23 |
| | $ | 123 |
| | $ | — |
| | $ | 146 |
|
Collectively evaluated for impairment | 3,668 |
| | 2,722 |
| | 334 |
| | 194 |
| | 9,188 |
| | 106 |
| | 16,212 |
|
Total | $ | 3,668 |
| | $ | 2,722 |
| | $ | 334 |
| | $ | 217 |
| | $ | 9,311 |
| | $ | 106 |
| | $ | 16,358 |
|
| | | | | | | | | | | | | |
| December 31, 2016 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Ending balance: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | 91 |
| | $ | — |
| | $ | — |
| | $ | 276 |
| | $ | 136 |
| | $ | — |
| | $ | 503 |
|
Collectively evaluated for impairment | 3,790 |
| | 2,639 |
| | 317 |
| | 202 |
| | 8,561 |
| | 100 |
| | 15,609 |
|
Total | $ | 3,881 |
| | $ | 2,639 |
| | $ | 317 |
| | $ | 478 |
| | $ | 8,697 |
| | $ | 100 |
| | $ | 16,112 |
|
The following tables present the recorded investment in loans, exclusive of unamortized fees and costs, disaggregated on the basis of impairment analysis method by segment as of September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Ending balance: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | — |
| | $ | — |
| | $ | 94 |
| | $ | 53 |
| | $ | 370 |
| | $ | — |
| | $ | 517 |
|
Collectively evaluated for impairment | 316,716 |
| | 249,453 |
| | 49,275 |
| | 14,505 |
| | 819,774 |
| | 8,235 |
| | 1,457,958 |
|
Total | $ | 316,716 |
| | $ | 249,453 |
| | $ | 49,369 |
| | $ | 14,558 |
| | $ | 820,144 |
| | $ | 8,235 |
| | $ | 1,458,475 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | | Real Estate | | | | |
| Commercial | | Construction and Land | | 1-4 Family Residential | | Home Equity | | Commercial | | Consumer and Other | | Total |
Ending balance: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | 126 |
| | $ | — |
| | $ | 108 |
| | $ | 317 |
| | $ | 471 |
| | $ | — |
| | $ | 1,022 |
|
Collectively evaluated for impairment | 333,888 |
| | 205,610 |
| | 47,076 |
| | 17,740 |
| | 787,529 |
| | 8,355 |
| | 1,400,198 |
|
Total | $ | 334,014 |
| | $ | 205,610 |
| | $ | 47,184 |
| | $ | 18,057 |
| | $ | 788,000 |
| | $ | 8,355 |
| | $ | 1,401,220 |
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
Collateral Dependent Loans
5. Long-Term Debt
On May 25, 2017,Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent loans where the Company entered into ahas determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loans to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit agreement with a commercial bank and borrowed $25,000. Thislosses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of collateral. When repayment is expected to be from the sale of the collateral, expected credit agreement replaced a prior credit agreement withlosses are calculated as the same commercial bank that had a remaining outstanding principal balanceamount by which the amortized cost basis of $3,000.the loan exceeds the fair value of the underlying collateral less estimated cost to sell. The additional borrowing was used to make a capital injection intoACL may be zero if the Company's subsidiary, West Bank. Principal and interest underfair value of the term note are payable quarterly over five years. Required quarterly principal payments are $625, withcollateral at the balance due at maturity. The Company may make additional principal payments without penalty. The interest rate is variable at 1.95 percent overmeasurement date exceeds the 30-day LIBOR rate. The interest rate was 3.18 percent at September 30, 2017. In the case of an event of default, the unaffiliated commercial bank may accelerate the paymentamortized cost basis of the loan.
The loanfollowing table presents the amortized cost basis of collateral dependent loans, by primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2023 |
| Primary Type of Collateral |
| Real Estate | | Equipment | | Other | | Total | | ACL Allocation |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
1-4 family residential first mortgages | $ | 303 | | | $ | — | | | $ | — | | | $ | 303 | | | $ | — | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | $ | 303 | | | $ | — | | | $ | — | | | $ | 303 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 |
| Primary Type of Collateral |
| Real Estate | | Equipment | | Other | | Total | | ACL Allocation |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
1-4 family residential first mortgages | $ | 322 | | | $ | — | | | $ | — | | | $ | 322 | | | $ | — | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | $ | 322 | | | $ | — | | | $ | — | | | $ | 322 | | | $ | — | |
Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company is securedexposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by 100 percentthe Company. The estimate includes consideration of the stocklikelihood that funding will occur and an estimate of West Bank.expected credit losses on commitments expected to be funded over its estimated life. The Company's allowance for credit losses for unfunded commitments was $2,344 as of September 30, 2023. The allowance for credit losses for off-balance-sheet credit exposures is presented in the "Accrued expenses and other liabilities" line of the Consolidated Balance Sheets. Changes in the allowance for credit losses for off-balance-sheet credit exposures is reflected in the "Credit loss expense " line of the Consolidated Statements of Income. There were no changes to the allowance for credit losses for off-balance-sheet credit exposures during the nine months ended September 30, 2023.
6.5. Derivatives
The Company has entered into various forward-starting interest rate swap transactionsagreements as part of its interest rate risk management strategy. The Company uses interest rate swaps to effectively convert variablemanage its interest rate FHLB advancesrisk exposure on certain loans, borrowings and junior subordinated notesdeposits due to fixedinterest rate debtmovements. 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.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
Interest Rate Swaps Designated as of forward-starting dates.a Cash Flow Hedge: The swap transactions wereCompany had interest rate swaps designated as cash flow hedges. Interest ratehedges with total notional amounts of $445,000 and $310,000 at September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023, the Company had swaps with a total notional amount of $70,000 were terminated$295,000 that hedge the interest payments of rolling one-month funding consisting of FHLB advances or brokered deposits. Also as of September 30, 2023, the Company had swaps with a total notional amount of $40,000 that effectively converts variable-rate long-term debt to fixed-rate debt and swaps with a total notional amount of $110,000 that hedge the interest payments of certain deposit accounts.
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.
The table below identifies the balance sheet category and fair values of the Company's derivative instruments as of September 30, 2023 and December 31, 2022.
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Cash Flow Hedges: | | | |
Gross notional amount | $ | 445,000 | | | $ | 310,000 | |
Fair value in other assets | 20,726 | | | 16,284 | |
| | | |
Weighted-average floating rate received | 5.64 | % | | 4.53 | % |
Weighted-average fixed rate paid | 3.04 | % | | 2.25 | % |
Weighted-average maturity in years | 2.9 | | 3.3 |
| | | |
Non-Hedging Derivatives: | | | |
Gross notional amount | $ | 294,819 | | | $ | 254,369 | |
Fair value in other assets | 18,512 | | | 15,309 | |
Fair value in other liabilities | (18,512) | | | (15,309) | |
The following table identifies the pre-tax gains or losses recognized on the Company's derivative instruments designated as cash flow hedges for the three and nine months ended September 30, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2023 | | 2022 | 2023 | | 2022 |
Pre-tax gain recognized in other comprehensive | | | | | | |
income | $ | 5,303 | | | $ | 8,637 | | $ | 11,771 | | | $ | 23,239 | |
Reclassification from AOCI into income: | | | | | | |
Increase (decrease) in interest expense | $ | (2,903) | | | $ | (259) | | $ | (7,328) | | | $ | 1,428 | |
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in 2015, subject to termination fees totaling $541. thousands, except per share data)
The termination fees are beingCompany estimates there will be approximately $11,575 reclassified from accumulated other comprehensive income to interest expense over the remaining life of the underlying cash flows through June 2020. An interest rate swap with a notional amount of $30,000 became effective in December 2015. Another interest rate swap, with a notional amount of $20,000, has a forward-starting date in September 2018. No amount of ineffectiveness was included in net income for the nine months ended September 30, 2017 or 2016, and the Company estimates there will be approximately $373 of cash payments and reclassification from accumulated other comprehensive income toreduce interest expense through the 12 months endedending September 30, 2018.2024 related to cash flow hedges.
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 both September 30, 20172023 and December 31, 2016,2022, the Company pledged $470$0 of collateral to the counterpartycounterparties in the form of cash on deposit with a third party. The Company's counterparty was required to pledge $720 and $1,070 atdeposit. As of September 30, 20172023 and December 31, 2016, respectively.
The table below identifies the balance sheet category and fair values of2022, the Company's derivative instruments designated ascounterparties pledged $40,670 and $31,560, respectively, of collateral to the Company in the form of cash flow hedges as of September 30, 2017on deposit. The interest rate swap product with the borrower is cross-collateralized with the underlying loan and December 31, 2016.therefore there is no pledged cash collateral under swap contracts with customers.
|
| | | | | | | | | | | | | | | | | | | |
Interest Rate Swap | | | Notional Amount | | Fair Value | | Balance Sheet Category | | Weighted Average Receive Rate | | Weighted Average Pay Rate | | Maturity |
September 30, 2017 | | | | | | | | | | | | | |
Interest rate swap | | | $ | 30,000 |
| | $ | (351 | ) | | Other Liabilities | | 1.64 | % | | 2.52 | % | | 9/21/2020 |
Interest rate swap(1) | | | 20,000 |
| | 786 |
| | Other Assets | | — |
| | 4.81 | % | | 9/30/2026 |
December 31, 2016 | | | | | | | | | | | | | |
Interest rate swap | | | 30,000 |
| | (496 | ) | | Other Liabilities | | 1.30 | % | | 2.52 | % | | 9/21/2020 |
Interest rate swap(1) | | | 20,000 |
| | 1,068 |
| | Other Assets | | — |
| | 4.81 | % | | 9/30/2026 |
(1) This swap is a forward-starting swap with a weighted average pay rate of 4.81 percent beginning September 30, 2018. No interest payments are required related to this swap until December 30, 2018.
The following table identifies the pre-tax losses recognized on the Company's derivative instruments designated as cash flow hedges for the nine months ended September 30, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | |
| | | Effective Portion | | Ineffective Portion |
| | | Amount of | | Reclassified from AOCI into Income | | Recognized in Income on Derivatives |
| | | Pre-tax (Loss) | | |
| | | Recognized | | | | Amount of | | | | Amount of |
Interest Rate Swap | | | in OCI | | Category | | (Loss) | | Category | | Gain (Loss) |
September 30, 2017 | | | $ | (376 | ) | | Interest Expense | | $ | (321 | ) | | Other Income | | $ | — |
|
September 30, 2016 | | | (889 | ) | | Interest Expense | | (444 | ) | | Other Income | | — |
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
7. Deferred6. Income Taxes
Net deferred tax assets consisted of the following as of September 30, 20172023 and December 31, 2016. 2022.
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Deferred tax assets: | | | |
Allowance for credit losses | $ | 7,471 | | | $ | 6,241 | |
Net unrealized losses on securities available for sale | 39,665 | | | 34,544 | |
| | | |
Lease liabilities | 912 | | | 1,147 | |
Accrued expenses | 202 | | | 434 | |
Restricted stock unit compensation | 1,006 | | | 1,038 | |
State net operating loss carryforward | 1,686 | | | 1,476 | |
| | | |
Other | 174 | | | 156 | |
| 51,116 | | | 45,036 | |
Deferred tax liabilities: | | | |
Right-of-use assets | 868 | | | 1,099 | |
Deferred loan costs | 257 | | | 249 | |
| | | |
Net unrealized gains on interest rate swaps | 5,097 | | | 4,003 | |
Premises and equipment | 1,124 | | | 1,219 | |
New markets tax credit loan | 366 | | | 303 | |
Other | 126 | | | 78 | |
| 7,838 | | | 6,951 | |
Net deferred tax assets before valuation allowance | 43,278 | | | 38,085 | |
Valuation allowance | (1,686) | | | (1,476) | |
Net deferred tax assets | $ | 41,592 | | | $ | 36,609 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Deferred tax assets: | | | |
Allowance for loan losses | $ | 6,216 |
| | $ | 6,123 |
|
Net unrealized losses on securities available for sale | 15 |
| | 719 |
|
Intangibles | 231 |
| | 462 |
|
Accrued expenses | 499 |
| | 706 |
|
Restricted stock compensation | 564 |
| | 446 |
|
State net operating loss carryforward | 1,339 |
| | 1,271 |
|
Other | 137 |
| | 190 |
|
| 9,001 |
| | 9,917 |
|
Deferred tax liabilities: | | | |
Net deferred loan fees and costs | 289 |
| | 321 |
|
Net unrealized gains on interest rate swaps | 59 |
| | 80 |
|
Premises and equipment | 1,227 |
| | 1,027 |
|
Other | 226 |
| | 261 |
|
| 1,801 |
| | 1,689 |
|
Net deferred tax assets before valuation allowance | 7,200 |
| | 8,228 |
|
Valuation allowance | (1,339 | ) | | (1,271 | ) |
Net deferred tax assets | $ | 5,861 |
| | $ | 6,957 |
|
The Company has recorded a valuation allowance against the tax effect of the state net operating loss carryforwards, as management believes it is more likely than not that these carryforwards will expire without being utilized. The state net operating loss carryforwards expire in 20192023 and thereafter.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
7. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the nine months ended September 30, 20172023 and 2016.2022.
| | | | | | | | | | | | | | | | | | | | |
| | Unrealized | | Unrealized | | Accumulated |
| | Gains | | Gains | | Other |
| | (Losses) on | | (Losses) on | | Comprehensive |
| | Securities | | Derivatives | | Income (Loss) |
Balance, December 31, 2022 | | $ | (103,680) | | | $ | 12,209 | | | $ | (91,471) | |
Other comprehensive income (loss) before reclassifications | | (15,441) | | | 8,879 | | | (6,562) | |
Amounts reclassified from accumulated other comprehensive income | | (20) | | | (5,526) | | | (5,546) | |
Net current period other comprehensive income (loss) | | (15,461) | | | 3,353 | | | (12,108) | |
Balance, September 30, 2023 | | $ | (119,141) | | | $ | 15,562 | | | $ | (103,579) | |
| | | | | | |
Balance, December 31, 2021 | | $ | (5,021) | | | $ | (5,616) | | | $ | (10,637) | |
Other comprehensive income (loss) before reclassifications | | (106,011) | | | 17,486 | | | (88,525) | |
Amounts reclassified from accumulated other comprehensive income (loss) | | (11) | | | 1,009 | | | 998 | |
Net current period other comprehensive income (loss) | | (106,022) | | | 18,495 | | | (87,527) | |
Balance, September 30, 2022 | | $ | (111,043) | | | $ | 12,879 | | | $ | (98,164) | |
|
| | | | | | | | | | | | |
| | Unrealized | | Unrealized | | Accumulated |
| | Gains | | Gains | | Other |
| | (Losses) on | | (Losses) on | | Comprehensive |
| | Securities | | Derivatives | | Income (Loss) |
Balance, December 31, 2015 | | $ | 342 |
| | $ | (772 | ) | | $ | (430 | ) |
Other comprehensive income (loss) before reclassifications | | 2,958 |
| | (550 | ) | | 2,408 |
|
Amounts reclassified from accumulated other comprehensive income | | (113 | ) | | 275 |
| | 162 |
|
Net current period other comprehensive income (loss) | | 2,845 |
| | (275 | ) | | 2,570 |
|
Balance, September 30, 2016 | | $ | 3,187 |
| | $ | (1,047 | ) | | $ | 2,140 |
|
| | | | | | |
Balance, December 31, 2016 | | $ | (1,172 | ) | | $ | 130 |
| | $ | (1,042 | ) |
Other comprehensive income (loss) before reclassifications | | 1,556 |
| | (233 | ) | | 1,323 |
|
Amounts reclassified from accumulated other comprehensive income | | (408 | ) | | 199 |
| | (209 | ) |
Net current period other comprehensive income (loss) | | 1,148 |
| | (34 | ) | | 1,114 |
|
Balance, September 30, 2017 | | $ | (24 | ) | | $ | 96 |
| | $ | 72 |
|
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
9.8. Commitments and Contingencies
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. The Company adopted ASU No. 2016-13 effective January 1, 2023 which requires an allowance for credit losses on off-balance sheet credit exposure. See Note 4 for additional information. The Company's commitments consisted of the following approximate amounts as of September 30, 20172023 and December 31, 2016. 2022.
| | | | | | | | September 30, 2023 | | December 31, 2022 |
| September 30, 2017 | | December 31, 2016 | |
Commitments to extend credit | $ | 597,325 |
| | $ | 614,681 |
| |
Commitments to fund real estate construction loans | | Commitments to fund real estate construction loans | $ | 444,205 | | | $ | 336,900 | |
Other commitments to extend credit | | Other commitments to extend credit | 673,123 | | | 727,666 | |
Standby letters of credit | 5,424 |
| | 5,487 |
| Standby letters of credit | 16,600 | | | 20,557 | |
| $ | 602,749 |
| | $ | 620,168 |
| | $ | 1,133,928 | | | $ | 1,085,123 | |
West Bank previously executed Mortgage Partnership Finance (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. At September 30, 2017, the liability represented by the present value of the credit enhancement fees less any expected losses in the mortgages delivered under the Commitments was approximately $125. The outstanding balance of mortgage loans sold under the MPF Program was $98,353$20,854 and $112,084$23,337 at September 30, 20172023 and December 31, 2016,2022, respectively.
Contractual commitments: The Company hashad remaining commitments to invest in qualified affordable housing projects totaling $6,253$1,811 and $5,768$3,431 as of September 30, 20172023 and December 31, 2016,2022, respectively.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
West Bank entered into a construction contract in 2022 for the construction of a new headquarters building in West Des Moines, Iowa. West Bank will pay the contractor a contract price consisting of the cost of work plus a fee, subject to a guaranteed maximum price of $42,309, with anticipated construction completed in 2024. As of September 30, 2023, there was a remaining commitment of $18,625 under this contract. West Bank is also building a new office in Mankato, Minnesota to be completed in the fourth quarter of 2023, which had a remaining commitment of $2,023 as of September 30, 2023.
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 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.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
10.9. Fair Value Measurements
Accounting guidance on fair value measurements and disclosuresdefines fair value and establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system. 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 Levelslevels at the end of each reporting period, if applicable. There were no transfers between Levelslevels of the fair value hierarchy during the nine months ended September 30, 2017.2023.
The following is a description of valuation methodologies used for financial assets and liabilities recorded at fair value on a recurring basis.
Investment securitiesSecurities available for sale: When available, quoted market prices are used to determine the fair value of investment securities.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.observable (Level 2). The fair values of these securities are determined by pricing models that consider observable market data such as interest rate volatilities, LIBOR yield curve,curves, credit spreads, prices from market makers and live trading systems. Level 1 securities include certain corporate bonds and would include U.S. Treasuries, if any were held. Level 2 securities include U.S. government and agency securities, collateralized mortgage obligations, mortgage-backed securities, asset-backed securities, state and political subdivision securities, and trust preferred securities. The Company currently holds no investment securities classified as Level 3.
Generally, managementManagement 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 thatthe process was valid. On a quarterly basis, the Company testsmanagement corroborates the fair values by selectingof a randomly selected sample of investment securities from each category of securities,by obtaining pricing from an independent investment portfolio management firmfinancial market data vendor and comparing the two sets of fair values. Any significant variances are reviewed and investigated. For a sample of securities, prices are further validated by management with assistance from an independent investment portfolio management firm, 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 ashierarchy.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
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 cash flow hedges.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 non-binding broker-dealer quotations. The fair value of the derivatives is 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
(unaudited)
(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 September 30, 20172023 and December 31, 2016.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2023 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | |
Securities available for sale: | | | | | | | | |
State and political subdivisions | | $ | 182,007 | | | $ | — | | | $ | 182,007 | | | $ | — | |
Collateralized mortgage obligations | | 252,702 | | | — | | | 252,702 | | | — | |
Mortgage-backed securities | | 126,113 | | | — | | | 126,113 | | | — | |
Collateralized loan obligations | | 37,530 | | | — | | | 37,530 | | | — | |
Corporate notes | | 11,013 | | | — | | | 11,013 | | | — | |
Derivative instruments, interest rate swaps | | 39,238 | | | — | | | 39,238 | | | — | |
| | | | | | | | |
Financial liabilities: | | | | | | | | |
Derivative instruments, interest rate swaps | | $ | 18,512 | | | $ | — | | | $ | 18,512 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | |
Securities available for sale: | | | | | | | | |
State and political subdivisions | | $ | 193,355 | | | $ | — | | | $ | 193,355 | | | $ | — | |
Collateralized mortgage obligations | | 281,628 | | | — | | | 281,628 | | | — | |
Mortgage-backed securities | | 140,280 | | | — | | | 140,280 | | | — | |
| | | | | | | | |
Collateralized loan obligations | | 36,811 | | | — | | | 36,811 | | | — | |
Corporate notes | | 12,041 | | | — | | | 12,041 | | | — | |
Derivative instruments, interest rate swaps | | 31,593 | | | — | | | 31,593 | | | — | |
| | | | | | | | |
Financial liabilities: | | | | | | | | |
Derivative instruments, interest rate swaps | | $ | 15,309 | | | $ | — | | | $ | 15,309 | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | |
Investment securities available for sale: | | | | | | | | |
U.S. government agencies and corporations | | $ | 2,489 |
| | $ | — |
| | $ | 2,489 |
| | $ | — |
|
State and political subdivisions | | 134,256 |
| | — |
| | 134,256 |
| | — |
|
Collateralized mortgage obligations | | 149,367 |
| | — |
| | 149,367 |
| | — |
|
Mortgage-backed securities | | 54,787 |
| | — |
| | 54,787 |
| | — |
|
Asset-backed securities | | 46,273 |
| | — |
| | 46,273 |
| | — |
|
Trust preferred securities | | 1,700 |
| | — |
| | 1,700 |
| | — |
|
Corporate notes | | 29,502 |
| | 29,202 |
| | 300 |
| | — |
|
Derivative instrument, interest rate swap | | 786 |
| | — |
| | 786 |
| | — |
|
| |
|
| |
|
| |
|
| |
|
|
Financial liabilities: | | | | | | | | |
Derivative instrument, interest rate swap | | $ | 351 |
| | $ | — |
| | $ | 351 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | |
Investment securities available for sale: | | |
| | |
| | |
| | |
|
U.S. government agencies and corporations | | $ | 2,593 |
| | $ | — |
| | $ | 2,593 |
| | $ | — |
|
State and political subdivisions | | 64,336 |
| | — |
| | 64,336 |
| | — |
|
Collateralized mortgage obligations | | 101,950 |
| | — |
| | 101,950 |
| | — |
|
Mortgage-backed securities | | 80,158 |
| | — |
| | 80,158 |
| | — |
|
Trust preferred security | | 1,250 |
| | — |
| | 1,250 |
| | — |
|
Corporate notes | | 10,350 |
| | 10,050 |
| | 300 |
| | — |
|
Derivative instrument, interest rate swap | | 1,068 |
| | — |
| | 1,068 |
| | — |
|
| | | | | | | | |
Financial liabilities: | | | | | | | | |
Derivative instrument, interest rate swap | | $ | 496 |
| | $ | — |
| | $ | 496 |
| | $ | — |
|
West Bancorporation, Inc. and SubsidiaryNotes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
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 both September 30, 20172023 and December 31, 2016, impaired2022, there were no individually evaluated loans for whichwith a fair value adjustment was recorded were recorded at a netadjustment. Individually evaluated loans are classified within Level 3 of the fair value of $0. Impaired loanshierarchy and are evaluated and valued at the lower of cost or fair value when the loan is identified as impaired.individually evaluated. Fair value is measured based on the value of the collateral securing these loans. The types of collateral vary widely and could include accounts receivables, inventory, a variety of equipment and real estate. Evaluations
In determining the estimated net realizable value of the underlying assetscollateral of individually evaluated 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 completedroutinely made in the appraisal process by the appraisers to adjust for each impaired loan with a specific reserve. Collateral evaluationsdifferences 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 reviewedperiodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and discounted as appropriateare based on management’s historical knowledge, changes in business factors and changes in market conditions. Because of the specific typehigh degree of collateral. Injudgment required in estimating the casefair value of real estate, an independent appraisal may be obtained. Types of discounts considered included aging of receivables, conditioncollateral underlying individually evaluated loans and because of the collateral, potentialrelationship between fair value and general economic conditions, the Company considers the fair value of individually evaluated loans to be highly sensitive to changes in market for the collateral and estimated disposal costs. These discounts will vary from loan to loan and may be discounted based on management's opinions concerning market developments or the client's business.conditions.
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring or nonrecurring basis. The methodologies for estimatingfollowing table presents the carrying amounts and approximate fair valuevalues of financial assets and financial liabilities that are measured at fair value on a recurring or nonrecurring basis are discussed above. The methodologies for other financial assetsas of September 30, 2023 and financial liabilities are discussed below.December 31, 2022.
Cash and due from banks: The carrying amount approximates fair value.
Federal funds sold: The carrying amount approximates fair value.
Investment securities held to maturity: The fair values of these securities, which are all state and political subdivisions, are determined by the same method previously described for investment securities available for sale.
FHLB stock: The fair value of this restricted stock is estimated at its carrying value and redemption price of $100 per share.
Loans: The fair values of fixed rate loans are estimated using discounted cash flow analysis based on observable market interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The carrying values of variable rate loans approximate their fair values.
Deposits: The carrying amounts for demand and savings deposits, which represent the amounts payable on demand, approximate their fair values. The fair values for time deposits are estimated using discounted cash flow analysis, based on observable market interest rates currently being offered on time deposits with similar terms.
Accrued interest receivable and payable: The fair values of both accrued interest receivable and payable approximate their carrying amounts.
Borrowings: The carrying amounts of federal funds purchased, short-term borrowings, variable rate FHLB advances, and variable rate long-term borrowings approximate their fair values. Fair values of subordinated notes, a fixed rate FHLB advance and other long-term borrowings are estimated using discounted cash flow analysis, based on observable market interest rates currently being offered with similar terms.
Commitments to extend credit and standby letters of credit: The approximate fair values of commitments and standby letters of credit are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and creditworthiness of the counterparties.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2023 |
| | Carrying Amount | | Approximate Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | | | |
Cash and due from banks | | $ | 18,819 | | | $ | 18,819 | | | $ | 18,819 | | | $ | — | | | $ | — | |
Interest-bearing deposits | | 1,802 | | | 1,802 | | | 1,802 | | | — | | | — | |
Securities available for sale | | 609,365 | | | 609,365 | | | — | | | 609,365 | | | — | |
Federal Home Loan Bank stock | | 26,691 | | | 26,691 | | | 26,691 | | | — | | | — | |
Loans, net | | 2,821,630 | | | 2,680,671 | | | — | | | 2,680,671 | | | — | |
Accrued interest receivable | | 13,598 | | | 13,598 | | | 13,598 | | | — | | | — | |
Interest rate swaps | | 39,238 | | | 39,238 | | | — | | | 39,238 | | | — | |
Financial liabilities: | | | | | | | | | | |
Deposits | | $ | 2,755,529 | | | $ | 2,755,917 | | | $ | — | | | $ | 2,755,917 | | | $ | — | |
Federal funds purchased and other short-term borrowings | | 261,510 | | | 261,510 | | | 261,510 | | | — | | | — | |
Subordinated notes, net | | 79,566 | | | 62,828 | | | — | | | 62,828 | | | — | |
Federal Home Loan Bank advances | | 315,000 | | | 315,000 | | | — | | | 315,000 | | | — | |
Long-term debt | | 48,986 | | | 48,986 | | | — | | | 48,986 | | | — | |
Accrued interest payable | | 6,869 | | | 6,869 | | | 6,869 | | | — | | | — | |
Interest rate swaps | | 18,512 | | | 18,512 | | | — | | | 18,512 | | | — | |
Off-balance sheet financial instruments: | | | | | | | | | | |
Commitments to extend credit | | — | | | — | | | — | | | — | | | — | |
Standby letters of credit | | — | | | — | | | — | | | — | | | — | |
West Bancorporation, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(dollars in thousands, except per share data)
The following table presents the carrying amounts and approximate fair values of financial assets and liabilities as of September 30, 2017 and December 31, 2016. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Carrying Amount | | Approximate Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | | | |
Cash and due from banks | | $ | 24,896 | | | $ | 24,896 | | | $ | 24,896 | | | $ | — | | | $ | — | |
Interest-bearing deposits | | 1,643 | | | 1,643 | | | 1,643 | | | — | | | — | |
Securities available for sale | | 664,115 | | | 664,115 | | | — | | | 664,115 | | | — | |
Federal Home Loan Bank stock | | 19,336 | | | 19,336 | | | 19,336 | | | — | | | — | |
Loans, net | | 2,717,363 | | | 2,582,911 | | | — | | | 2,582,911 | | | — | |
Accrued interest receivable | | 11,988 | | | 11,988 | | | 11,988 | | | — | | | — | |
Interest rate swaps | | 31,593 | | | 31,593 | | | — | | | 31,593 | | | — | |
Financial liabilities: | | | | | | | | | | |
Deposits | | $ | 2,880,408 | | | $ | 2,880,495 | | | $ | — | | | $ | 2,880,495 | | | $ | — | |
Federal funds purchased and other short-term borrowings | | 200,000 | | | 200,000 | | | 200,000 | | | — | | | — | |
Subordinated notes, net | | 79,369 | | | 68,047 | | | — | | | 68,047 | | | — | |
Federal Home Loan Bank advances | | 155,000 | | | 155,000 | | | — | | | 155,000 | | | — | |
Long-term debt | | 51,486 | | | 51,486 | | | — | | | 51,486 | | | — | |
Accrued interest payable | | 3,260 | | | 3,260 | | | 3,260 | | | — | | | — | |
Interest rate swaps | | 15,309 | | | 15,309 | | | — | | | 15,309 | | | — | |
Off-balance sheet financial instruments: | | | | | | | | | | |
Commitments to extend credit | | — | | | — | | | — | | | — | | | — | |
Standby letters of credit | | — | | | — | | | — | | | — | | | — | |
|
| | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| Fair Value Hierarchy Level | | Carrying Amount | | Approximate Fair Value | | Carrying Amount | | Approximate Fair Value |
Financial assets: | | | | | | | | | |
Cash and due from banks | Level 1 | | $ | 33,560 |
| | $ | 33,560 |
| | $ | 40,943 |
| | $ | 40,943 |
|
Federal funds sold | Level 1 | | 5,937 |
| | 5,937 |
| | 35,893 |
| | 35,893 |
|
Investment securities available for sale | See previous table | | 418,374 |
| | 418,374 |
| | 260,637 |
| | 260,637 |
|
Investment securities held to maturity | Level 2 | | 45,597 |
| | 46,356 |
| | 48,386 |
| | 47,789 |
|
Federal Home Loan Bank stock | Level 1 | | 12,256 |
| | 12,256 |
| | 10,771 |
| | 10,771 |
|
Loans, net(1) | Level 2 | | 1,440,547 |
| | 1,439,084 |
| | 1,383,758 |
| | 1,382,569 |
|
Accrued interest receivable | Level 1 | | 6,636 |
| | 6,636 |
| | 5,321 |
| | 5,321 |
|
Interest rate swap | Level 2 | | 786 |
| | 786 |
| | 1,068 |
| | 1,068 |
|
Financial liabilities: | | | | | | | | | |
Deposits | Level 2 | | $ | 1,651,266 |
| | $ | 1,651,307 |
| | $ | 1,546,605 |
| | $ | 1,546,307 |
|
Federal funds purchased | Level 1 | | 925 |
| | 925 |
| | 9,690 |
| | 9,690 |
|
Short-term borrowings | Level 1 | | 48,000 |
| | 48,000 |
| | — |
| | — |
|
Subordinated notes, net | Level 2 | | 20,408 |
| | 14,021 |
| | 20,398 |
| | 12,703 |
|
Federal Home Loan Bank advances, net | Level 2 | | 101,005 |
| | 101,113 |
| | 99,886 |
| | 99,959 |
|
Long-term debt, net | Level 2 | | 24,195 |
| | 24,134 |
| | 5,126 |
| | 5,054 |
|
Accrued interest payable | Level 1 | | 616 |
| | 616 |
| | 280 |
| | 280 |
|
Interest rate swap | Level 2 | | 351 |
| | 351 |
| | 496 |
| | 496 |
|
Off-balance-sheet financial instruments: | | | | | | | | | |
Commitments to extend credit | Level 3 | | — |
| | — |
| | — |
| | — |
|
Standby letters of credit | Level 3 | | — |
| | — |
| | — |
| | — |
|
(1) All loans are Level 2 except impaired loans with a net value of $0 as of both September 30, 2017 and December 31, 2016, which are Level 3.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
"SAFE HARBOR" CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to the Company'sCompany’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements may appear throughout this report. These forward-looking statements are generally identified by the words “believes,” “expects,” “intends,” “anticipates,” “projects,” “future,” “confident,” “may,” “should,” “will,” “strategy,” “plan,” “opportunity,” “will be,” “will likely result,” “will continue” or similar references, or references to estimates, predictions or future events. Such forward-looking statements are based upon certain underlying assumptions, risks and uncertainties. Because of the possibility that the underlying assumptions are incorrect or do not materialize as expected in the future, actual results could differ materially from these forward-looking statements. Risks and uncertainties that may affect future results include: interest rate risk;risk, including the effects of recent and potential additional rate increases by the Federal Reserve; fluctuations in the values of the securities held in our investment portfolio, including as a result of changes in interest rates; competitive pressures;pressures, including from non-bank competitors such as "fintech" companies and digital asset service providers; pricing pressures on loans and deposits; our ability to successfully manage liquidity risk; changes in credit and other risks posed by the Company'sCompany’s loan and investment portfolios,portfolio, including declines in commercial or residential real estate values or changes in the allowance for loancredit losses dictated by new market conditions, accounting standards (including as a result of the implementation of the CECL accounting standard) or regulatory requirements; actionsthe concentration of bank and nonbank competitors;large deposits from certain clients, who have balances above current FDIC insurance limits; changes in local, national and international economic conditions;conditions, including rising rates of inflation and possible recession; the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time at Silicon Valley Bank, Signature Bank and First Republic Bank that resulted in failure of those institutions; changes in legal and regulatory requirements, limitations and costs;costs, including in response to the recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank; changes in customers'customers’ acceptance of the Company'sCompany’s products and services; cyber-attacks;the occurrence of fraudulent activity, breaches or failures of our information security controls or cyber-security related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools; unexpected outcomes of existing or new litigation involving the Company; the monetary, trade and other regulatory policies of the U.S. government; acts of war or terrorism, including the Israeli-Palestinian conflict and the Russian invasion of Ukraine, widespread disease or pandemics, such as the COVID-19 pandemic, or other adverse external events; risks related to climate change and the negative impact it may have on our customers and their business; changes to U.S. tax laws, regulations and guidance; talent and labor shortages; the new 1 percent excise tax on stock buybacks by publicly traded companies; and any other risks described in the “Risk Factors” sections of this and other reports filed by the Company with the Securities and Exchange Commission.SEC. The Company undertakes no obligation to revise or update such forward-looking statements to reflect current or future events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's consolidated financial statements that have been prepared in accordance with GAAP. The preparation of thesethe Company's financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes involve the most complex and subjective estimates and judgments and have the most effect on the Company's reported financial position and results of operations are described as critical accounting policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2016,2022, as filed with the SecuritiesSEC on February 23, 2023. The Company adopted ASU 2016-13 on January 1, 2023 and Exchange Commission on March 1, 2017. There have been no significant changesreplaced the allowance for loan losses "incurred loss" model discussed in the critical accounting policies or the assumptions and judgments utilized in applying these policies sinceForm 10-K for the year ended December 31, 2016.2022 with the allowance for credit losses "current expected credit loss" model, referred to as the CECL model. Refer to Note 1 and 4 for additional information and accounting policies related to the CECL model.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
NON-GAAP FINANCIAL MEASURES
This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the Company’s presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, and the presentation of the efficiency ratio on an adjusted and FTE basis, excluding certain income and expenses. Management believes these non-GAAP financial measures provide useful information to both management and investors to analyze and evaluate the Company’s financial performance. These measures are considered standard measures of comparison within the banking industry. Additionally, management believes providing measures on a FTE basis enhances the comparability of income arising from taxable and nontaxable sources. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently. These non-GAAP disclosures should not be considered an alternative to the Company’s GAAP results.
The following table reconciles the non-GAAP financial measures of net interest income and net interest margin on a FTE basis and efficiency ratio on an adjusted and FTE basis to their most directly comparable measures under GAAP.
| | | | | | | | | | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2023 | | 2022 | | | 2023 | | 2022 | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP: | | | | | | | | | |
Reconciliation of net interest income and net interest margin on a FTE basis to GAAP: | | Reconciliation of net interest income and net interest margin on a FTE basis to GAAP: | | | | | | | | | |
Net interest income (GAAP) | | $ | 15,031 |
| | $ | 14,721 |
| | $ | 44,513 |
| | $ | 42,693 |
| Net interest income (GAAP) | | $ | 16,634 | | | $ | 23,004 | | | | $ | 52,670 | | | $ | 71,071 | | |
Tax-equivalent adjustment (1) | | 677 |
| | 639 |
| | 1,892 |
| | 1,994 |
| Tax-equivalent adjustment (1) | | 113 | | | 270 | | | | 396 | | | 925 | | |
Net interest income on an FTE basis (non-GAAP) | | $ | 15,708 |
| | $ | 15,360 |
| | $ | 46,405 |
| | $ | 44,687 |
| |
Net interest income on a FTE basis (non-GAAP) | | Net interest income on a FTE basis (non-GAAP) | | 16,747 | | | 23,274 | | | | 53,066 | | | 71,996 | | |
Average interest-earning assets | | $ | 1,882,837 |
| | $ | 1,745,878 |
| | $ | 1,820,997 |
| | $ | 1,699,703 |
| Average interest-earning assets | | 3,478,053 | | | 3,322,521 | | | | 3,458,606 | | | 3,371,915 | | |
Net interest margin on an FTE basis (non-GAAP) | | 3.31 | % | | 3.50 | % | | 3.41 | % | | 3.51 | % | |
Net interest margin on a FTE basis (non-GAAP) | | Net interest margin on a FTE basis (non-GAAP) | | 1.91 | % | | 2.78 | % | | | 2.05 | % | | 2.85 | % | |
| | | | | | | | | | | | |
Reconciliation of efficiency ratio on an FTE basis to GAAP: | | | | | | | | | |
Net interest income on an FTE basis (non-GAAP) | | $ | 15,708 |
| | $ | 15,360 |
| | $ | 46,405 |
| | $ | 44,687 |
| |
Reconciliation of efficiency ratio on an adjusted and FTE basis to GAAP: | | Reconciliation of efficiency ratio on an adjusted and FTE basis to GAAP: | | | | |
Net interest income on a FTE basis (non-GAAP) | | Net interest income on a FTE basis (non-GAAP) | | $ | 16,747 | | | $ | 23,274 | | | | $ | 53,066 | | | $ | 71,996 | | |
Noninterest income | | 2,264 |
| | 1,919 |
| | 6,740 |
| | 6,052 |
| Noninterest income | | 2,822 | | | 3,276 | | | | 8,168 | | | 7,943 | | |
Less: realized investment securities gains, net | | (197 | ) | | — |
| | (423 | ) | | (60 | ) | |
Plus: losses on disposal of premises and equipment, net | | 10 |
| | — |
| | 25 |
| | — |
| |
| Adjustment for losses on disposal of premises and equipment, net | | Adjustment for losses on disposal of premises and equipment, net | | 3 | | | — | | | | 5 | | | 27 | | |
Adjusted income | | $ | 17,785 |
| | $ | 17,279 |
| | $ | 52,747 |
| | $ | 50,679 |
| Adjusted income | | 19,572 | | | 26,550 | | | | 61,239 | | | 79,966 | | |
Noninterest expense | | $ | 8,020 |
| | $ | 7,993 |
| | $ | 24,235 |
| | $ | 23,611 |
| Noninterest expense | | 11,905 | | | 11,458 | | | | 36,450 | | | 33,386 | | |
Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2) | | 45.10 | % | | 46.25 | % | | 45.95 | % | | 46.59 | % | Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2) | | 60.83 | % | | 43.16 | % | | | 59.52 | % | | 41.75 | % | |
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(1) Computed on a tax-equivalent basis using an incrementala federal income tax rate of 3521 percent, adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results, as it enhances the comparability of income arising from taxable and nontaxable sources.
(2) EfficiencyThe efficiency ratio expresses noninterest expense as a percent of fully taxable equivalent net interest income and noninterest income, excluding specific noninterest income and expenses. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the Company's financial results, as it enhancesperformance. It is a standard measure of comparison within the comparabilitybanking industry. A lower ratio is more desirable.
West Bancorporation, Inc.
Management's Discussion and expenses arising from taxableAnalysis
(in thousands, except share and nontaxable sources.per share data)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017
OVERVIEW
The following discussion describes the consolidated operations and financial condition of the Company, West Bank and West Bank's wholly owned subsidiary WB Funding Corporation.special purpose subsidiaries (which are invested in new markets tax credit activities). Results of operations for the three and nine months ended September 30, 20172023 are compared to the results for the same periods in 2016,2022, and the consolidated financial condition of the Company as of September 30, 20172023 is compared to that as of December 31, 2016. 2022. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 23, 2023.
The Company operatesconducts business from its main office in three markets:West Des Moines, Iowa and through its branch offices in central Iowa, which is generally the greater Des Moines metropolitan area; eastern Iowa, which is the area including and surrounding Iowa City and Coralville, Iowa;Coralville; and southern Minnesota, which includes the cities of Rochester, Minnesota area.Owatonna, Mankato and St. Cloud.
Net income for the three months ended September 30, 20172023 was $6,405,$5,906, or $0.39$0.35 per diluted common share, compared to $5,813,$11,602, or $0.36$0.69 per diluted common share, for the three months ended September 30, 2016.2022. The Company's annualized return on average assets and return on average equity for the three months ended September 30, 20172023 were 1.290.64 percent and 14.4110.89 percent, respectively, compared to 1.261.32 percent and 14.2021.01 percent, respectively, for the three months ended September 30, 2016.2022.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
The increasedecrease in net income for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 was primarily due to the combination of higher net interest income, growth in noninterest income and a decrease in the provision for loan losses. Noninterest expense for the three months ended September 30, 2017 held steady2023 compared to the same period in 2016.2022 was primarily due to a decrease in net interest income and loan swap fees and an increase in credit loss expense and FDIC insurance expense.
Net interest income for the three months ended September 30, 2017 grew $310,2023 decreased $6,370, or 2.127.7 percent, compared to the three months ended September 30, 2016.2022. The increasedecrease in net interest income was driven by a $47,008, or 3.4 percent,primarily due to the increase in average loans outstandinginterest expense on deposits and a $68,071, or 19.7 percent,other borrowings resulting from rapidly rising short-term interest rates and an inverted yield curve, and changes in funding mix, partially offset by an increase in average investment securities heldinterest income on loans and securities.
Noninterest income decreased $454 for the three months ended September 30, 20172023, compared to the same time period in 2016. Partially offsetting the increase in interest income was an increase of $1,236 in interest expense on deposits,2022 primarily due to higher interest rates paid on certain deposit products. The Company recorded no provision fora decrease in loan losses for the three months ended September 30, 2017 compared to a $200 provisionswap fees, partially offset by an increase in the three months ended September 30, 2016.
trust services revenue. Noninterest income grew $345, or 18.0 percent,expense increased $447 during the three months ended September 30, 20172023 compared to the same time periodthree months ended September 30, 2022, primarily due to increases in 2016, mainly as the result of net gains on sales of investment securitiessalaries and an increase in trust revenue.employee benefits and FDIC insurance expense.
Net income for the nine months ended September 30, 20172023 was $18,876,$19,612, or $1.16$1.17 per diluted common share, compared to $16,985,$37,453, or $1.05$2.23 per diluted common share, for the nine months ended September 30, 2016.2022. The Company's annualized return on average assets and return on average equity for the nine months ended September 30, 20172023 were 1.320.72 percent and 14.6912.22 percent, respectively, compared to 1.261.43 percent and 14.2921.57 percent, respectively, for the first nine months of 2016.ended September 30, 2022.
The increasedecrease in net income for the nine months ended September 30, 20172023 compared to the same period in 20162022 was primarily due to growtha decrease in net interest income associated with loan growth that exceeded the increase in interest expense on deposits, a decrease in the provision for loan losses and an increase in noninterest income. Partially offsetting these positive changes for the first nine months of 2017 compared to the first nine months of 2016 was a 2.6 percentcredit loss expense, salaries and employee benefits, occupancy costs and FDIC insurance expense, partially offset by an increase in noninterest expense.trust services revenue and a gain from bank-owned life insurance.
Net interest income for the nine months ended September 30, 2017 grew $1,820,2023 declined $18,401, or 4.325.9 percent, compared to the nine months ended September 30, 2016.2022. The increasedecrease in net interest income was primarily due to the $113,699 increase in averageinterest expense on deposits and other borrowings resulting from rapidly rising short-term interest rates and an inverted yield curve, and changes in funding mix, partially offset by an increase in interest income on loans outstandingand securities.
Noninterest income increased $225 for the first nine months of 2017 compared to the first nine months of 2016. During the nine months ended September 30, 2017, interest2023 compared to the same period in 2022 primarily due to a gain from bank-owned life insurance and an increase in trust services revenue, partially offset by a decrease in loan swap fees. Noninterest expense on deposits increased $2,683$3,064 during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2016, mainly due to increased interest rates on certain money market deposit products and certificates of deposit as a result of rising market rates. The Company recorded no provision for loan losses for the nine months ended September 30, 2017 compared to a $900 provision in the nine months ended September 30, 2016. During the nine months ended September 30, 2017, the allowance for loan losses grew $246 as a result of net recoveries on previously charged off loans exceeding current year charge-offs.
Noninterest income increased $688, or 11.4 percent, during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, mainly due to net gains on sales of investment securities, an increase in trust revenue and a nonrecurring gain on an asset sale. Noninterest expense grew $624 during the first nine months of 2017,2022, primarily due to an increaseincreases in salaries and benefit costs.employee benefits, occupancy and equipment expense and FDIC insurance expense.
Total loans outstanding increased $57,035, or 4.1 percent, during the first nine months of 2017. Management believes the loan pipeline is strong and that loan growth will continue in all three of our markets during the remainder of 2017. The credit quality of the loan portfolio remained strong as evidenced by the Company's Texas ratio, which was 0.27 percent as of September 30, 2017. As of September 30, 2017, the allowance for loan losses was 1.12 percent of outstanding loans, and management believed the allowance was adequate to absorb any losses inherent in the loan portfolio.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Each quarter throughoutTotal loans outstanding increased $106,941, or 3.9 percent, during the year,first nine months of 2023. The credit quality of the loan portfolio remained strong, as evidenced by the Company's fourratio of nonperforming loans to total assets of 0.01 percent as of both September 30, 2023 and December 31, 2022. As of September 30, 2023, the allowance for credit losses was 0.99 percent of total outstanding loans, compared to 0.93 percent as of December 31, 2022. Management believed the allowance for credit losses at September 30, 2023 was adequate to absorb expected losses in the loan portfolio as of that date.
On a quarterly basis, the Company compares three key performance metrics are compared to those of our identified peer group. The peer group for 2023 consists of 16 companies. The group of 1622 Midwestern, publicly traded peer financial institutions, against which we compare our performance each quarter consists of BankFinancialincluding Bank First Corporation, Bridgewater Bancshares Inc., ChoiceOne Financial Services, Inc., Civista Bancshares, Inc., CrossFirst Bankshares, Inc., Equity Bancshares, Inc., Farmers Capital Bank Corporation,National Banc Corp., Farmers & Merchants Bancorp., First Business Financial Services, Inc., First Defiance Financial Corp., First Mid-IllinoisMid Bancshares, Inc., German American Bancorp, Inc., HBT Financial Inc., Hills Bancorporation, Horizon Bancorp, Isabella Bank Corporation, LCNB Corp., Macatawa Bank Corporation, Mercantile Bank Corporation, MidWestOneMidWestOne Financial Group, Inc., MutualFirst Financial, Inc., Nicolet Bankshares, Inc., Peoples Bancorp, QCR Holdings, Inc., Southwestand Southern Missouri Bancorp, and Waterstone Financial, Inc. The members of the peer group are selected based on their business focus, scope and location of operations, size and other considerations. The Company is in the middle of the group in terms of asset size. The group is periodically reviewed, with changes made primarily to reflect merger and acquisition activity. OurCompany's goal is to perform at or near the top of these peersthis peer group relative to what we consider to be fourthree key metrics: return on average assets, return on average equity, efficiency ratio and Texas ratio.nonperforming assets to total assets. We believe these measures encompass the factors that define the performance of a community bank. When contrasted with theCompany and peer group's metricsresults for the six months ended June 30, 2017 (latest data available), the Company's metrics for the nine months ended September 30, 2017 were better than those of each company in the peer group as shown in the table below, except for one peer that had a higher return on average assets.key financial performance measures are summarized below.
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| West Bancorporation, Inc. | | Peer Group Range |
| Nine months ended September 30, 2017 | | Six months ended June 30, 2017 |
Return on average assets | 1.32% | | 0.56% - 1.75% |
Return on average equity | 14.69% | | 4.37% - 12.13% |
Efficiency ratio*(1)
| 45.95% | | 54.04% - 73.76% |
Texas ratio* | 0.27% | | 3.78% - 23.16% |
* A lower ratio is more desirable. | | | | | | | | | | | | | | | | | |
| West Bancorporation, Inc. | | Peer Group Range(2) |
| As of and for the nine months ended September 30, 2023 | | As of and for the six months ended June 30, 2023 | | As of and for the six months ended June 30, 2023 |
Return on average equity | 12.22% | | 12.90% | | 2.83% - 17.82% |
Efficiency ratio(1) | 59.52% | | 58.91% | | 44.96% - 68.04% |
Nonperforming assets to total assets | 0.01% | | 0.01% | | 0.00% - 0.48% |
(1) The efficiency ratio is a non-GAAP financial measure. For further information, refer to the Non-GAAP Financial Measures section of this report.
(2) Latest data available.
In July 2017, the Company was included on Bank Director Magazine's 2017 Bank Performance Scorecard listing of the top performing publicly traded banks in the nation with assets of $1 billion to $5 billion. The ranking was based on five key metrics that measured performance for 2016. The Company was ranked No. 6 in the nation.
At its meeting on October 25, 2017,2023, the Company's Board of Directors declared a regular quarterly cash dividend of $0.18$0.25 per common share. The dividend is payable on November 22, 2017,2023, to stockholders of record as ofon November 8, 2017. The dividend was increased by $0.01 to the $0.18 level for the dividend declared in April 2017 and represents the highest quarterly dividend ever paid by the Company.2023.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
RESULTS OF OPERATIONS
The following table shows selected financial results and measures for the three and nine months ended September 30, 20172023 compared with the same periods in 2016.2022.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | Change | | Change % | | 2017 | | 2016 | | Change | | Change % | | 2023 | | 2022 | | Change | | Change % | | 2023 | | 2022 | | Change | | Change % |
Net income | $ | 6,405 |
| | $ | 5,813 |
| | $ | 592 |
| | 10.18 | % | | $ | 18,876 |
| | $ | 16,985 |
| | $ | 1,891 |
| | 11.13 | % | Net income | $ | 5,906 | | | $ | 11,602 | | | $ | (5,696) | | | (49.09) | % | | $ | 19,612 | | | $ | 37,453 | | | $ | (17,841) | | | (47.64) | % |
Average assets | 1,969,547 |
| | 1,838,125 |
| | 131,422 |
| | 7.15 | % | | 1,911,391 |
| | 1,794,777 |
| | 116,614 |
| | 6.50 | % | Average assets | 3,679,541 | | | 3,475,894 | | | 203,647 | | | 5.86 | % | | 3,647,777 | | | 3,507,796 | | | 139,981 | | | 3.99 | % |
Average stockholders' equity | 176,308 |
| | 162,867 |
| | 13,441 |
| | 8.25 | % | | 171,827 |
| | 158,821 |
| | 13,006 |
| | 8.19 | % | Average stockholders' equity | 215,230 | | | 219,065 | | | (3,835) | | | (1.75) | % | | 214,599 | | | 232,177 | | | (17,578) | | | (7.57) | % |
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Return on average assets | 1.29 | % | | 1.26 | % | | 0.03 | % | | | | 1.32 | % | | 1.26 | % | | 0.06 | % | | |
| Return on average assets | 0.64 | % | | 1.32 | % | | (0.68) | % | | 0.72 | % | | 1.43 | % | | (0.71) | % | | |
Return on average equity | 14.41 | % | | 14.20 | % | | 0.21 | % | | | | 14.69 | % | | 14.29 | % | | 0.40 | % | | |
| Return on average equity | 10.89 | % | | 21.01 | % | | (10.12) | % | | 12.22 | % | | 21.57 | % | | (9.35) | % | | |
Net interest margin (1) | 3.31 | % | | 3.50 | % | | (0.19 | )% | | | | 3.41 | % | | 3.51 | % | | (0.10 | )% | | | Net interest margin (1) | 1.91 | % | | 2.78 | % | | (0.87) | % | | 2.05 | % | | 2.85 | % | | (0.80) | % | |
Efficiency ratio (1) (2) | 45.10 | % | | 46.25 | % | | (1.15 | )% | | | | 45.95 | % | | 46.59 | % | | (0.64 | )% | | | Efficiency ratio (1) (2) | 60.83 | % | | 43.16 | % | | 17.67 | % | | 59.52 | % | | 41.75 | % | | 17.77 | % | |
Dividend payout ratio | 45.57 | % | | 47.19 | % | | (1.62 | )% | | | | 45.46 | % | | 47.43 | % | | (1.97 | )% | | |
| Dividend payout ratio | 70.79 | % | | 35.86 | % | | 34.93 | % | | 63.85 | % | | 33.27 | % | | 30.58 | % | | |
Average equity to average assets ratio | 8.95 | % | | 8.86 | % | | 0.09 | % | | | | 8.99 | % | | 8.85 | % | | 0.14 | % | | |
| Average equity to average assets ratio | 5.85 | % | | 6.30 | % | | (0.45) | % | | 5.88 | % | | 6.62 | % | | (0.74) | % | | |
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| | | | | | | | | As of September 30, | | | | As of September 30, | |
| | | | | | | | | 2017 | | 2016 | | Change | | | | 2023 | | 2022 | | Change | |
Texas ratio (2) | | | | | | | | | 0.27 | % | | 0.55 | % | | (0.28 | )% | | | |
Nonperforming assets to total assets (2) | | Nonperforming assets to total assets (2) | | 0.01 | % | | 0.01 | % | | — | % | |
Equity to assets ratio | | | | | | | | | 8.77 | % | | 9.03 | % | | (0.26 | )% | | |
| Equity to assets ratio | | 5.51 | % | | 5.65 | % | | (0.14) | % | | |
Tangible common equity ratio | Tangible common equity ratio | | | | | | | | 8.77 | % | | 9.03 | % | | (0.26 | )% | | |
| Tangible common equity ratio | | 5.51 | % | | 5.65 | % | | (0.14) | % | | |
(1) Amounts are presented on ana FTE basis. These are non-GAAP financial measures. For further information, refer to the Non-GAAP Financial Measures section of this report.
(2) A lower ratio is more desirable.
Definitions of ratios:
•Return on average assets - annualized net income divided by average assets.
•Return on average equity - annualized net income divided by average stockholders' equity.
•Net interest margin - annualized tax-equivalent net interest income divided by average interest-earning assets.
•Efficiency ratio - noninterest expense (excluding other real estate owned expense)expense and write-down of premises) divided by noninterest income (excluding net securities gainsgains/losses and gains/losses on disposition of premises and equipment) plus tax-equivalent net interest income.
•Dividend payout ratio - dividends paid to common stockholders divided by net income.
Texas•Average equity to average assets ratio - average equity divided by average assets.
•Nonperforming assets to total assets - total nonperforming assets divided by tangible common equity plus the allowance for loan losses.total assets.
•Equity to assets ratio - equity divided by assets.
•Tangible common equity ratio - common equity less intangible assets (none held) divided by tangible assets.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Net Interest Income
The following tables present average balances and related interest income or interest expense, with the resulting annualized average yield or rate by category of interest-earning assets or interest-bearing liabilities. Interest income and the resulting net interest income
are shown on ana FTE basis.
| | Data for the three months ended September 30: | Data for the three months ended September 30: | | | | | | | | | | | | | | | Data for the three months ended September 30: | |
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| Average Balance | | Interest Income/Expense | | Yield/Rate | | Average Balance | | Interest Income/Expense | | Yield/Rate |
| 2017 | | 2016 | | Change | | Change- % | | 2017 | | 2016 | | Change | | Change- % | | 2017 | | 2016 | | Change | | 2023 | | 2022 | | Change | | Change- % | | 2023 | | 2022 | | Change | | Change- % | | 2023 | | 2022 | | Change |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | |
Loans: (1) (2) | | | | | | | | | | | | | | | | | | | | | | Loans: (1) (2) | |
Commercial | $ | 308,585 |
| | $ | 365,632 |
| | $ | (57,047 | ) | | (15.60 | )% | | $ | 3,452 |
| | $ | 3,874 |
| | $ | (422 | ) | | (10.89 | )% | | 4.44 | % | | 4.22 | % | | 0.22 | % | Commercial | $ | 525,596 | | | $ | 498,268 | | | $ | 27,328 | | | 5.48 | % | | $ | 8,332 | | | $ | 6,144 | | | $ | 2,188 | | | 35.61 | % | | 6.29 | % | | 4.89 | % | | 1.40 | % |
Real estate (3) | 1,109,041 |
| | 1,003,492 |
| | 105,549 |
| | 10.52 | % | | 12,503 |
| | 11,166 |
| | 1,337 |
| | 11.97 | % | | 4.47 | % | | 4.43 | % | | 0.04 | % | Real estate (3) | 2,278,129 | | | 2,074,692 | | | 203,437 | | | 9.81 | % | | 28,310 | | | 21,981 | | | 6,329 | | | 28.79 | % | | 4.93 | % | | 4.20 | % | | 0.73 | % |
Consumer and other | 8,489 |
| | 9,983 |
| | (1,494 | ) | | (14.97 | )% | | 88 |
| | 102 |
| | (14 | ) | | (13.73 | )% | | 4.09 | % | | 4.06 | % | | 0.03 | % | Consumer and other | 9,488 | | | 6,902 | | | 2,586 | | | 37.47 | % | | 173 | | | 86 | | | 87 | | | 101.16 | % | | 7.24 | % | | 5.01 | % | | 2.23 | % |
Total loans | 1,426,115 |
| | 1,379,107 |
| | 47,008 |
| | 3.41 | % | | 16,043 |
| | 15,142 |
| | 901 |
| | 5.95 | % | | 4.46 | % | | 4.37 | % | | 0.09 | % | Total loans | 2,813,213 | | | 2,579,862 | | | 233,351 | | | 9.05 | % | | 36,815 | | | 28,211 | | | 8,604 | | | 30.50 | % | | 5.19 | % | | 4.34 | % | | 0.85 | % |
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Securities: | | Securities: | | | | | | | | | | | | | | | | | | | | | |
Taxable | 259,225 |
| | 230,054 |
| | 29,171 |
| | 12.68 | % | | 1,489 |
| | 991 |
| | 498 |
| | 50.25 | % | | 2.30 | % | | 1.72 | % | | 0.58 | % | Taxable | 514,488 | | | 584,721 | | | (70,233) | | | (12.01) | % | | 3,427 | | | 3,147 | | | 280 | | | 8.90 | % | | 2.66 | % | | 2.15 | % | | 0.51 | % |
Tax-exempt (3) | 154,834 |
| | 115,934 |
| | 38,900 |
| | 33.55 | % | | 1,569 |
| | 1,176 |
| | 393 |
| | 33.42 | % | | 4.05 | % | | 4.06 | % | | (0.01 | )% | Tax-exempt (3) | 148,531 | | | 153,187 | | | (4,656) | | | (3.04) | % | | 934 | | | 1,051 | | | (117) | | | (11.13) | % | | 2.52 | % | | 2.74 | % | | (0.22) | % |
Total investment securities | 414,059 |
| | 345,988 |
| | 68,071 |
| | 19.67 | % | | 3,058 |
| | 2,167 |
| | 891 |
| | 41.12 | % | | 2.95 | % | | 2.50 | % | | 0.45 | % | |
Total securities | | Total securities | 663,019 | | | 737,908 | | | (74,889) | | | (10.15) | % | | 4,361 | | | 4,198 | | | 163 | | | 3.88 | % | | 2.63 | % | | 2.28 | % | | 0.35 | % |
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Federal funds sold | 42,663 |
| | 20,783 |
| | 21,880 |
| | 105.28 | % | | 136 |
| | 26 |
| | 110 |
| | 423.08 | % | | 1.27 | % | | 0.51 | % | | 0.76 | % | |
Interest-bearing deposits | | Interest-bearing deposits | 1,821 | | | 4,751 | | | (2,930) | | | (61.67) | % | | 29 | | | 30 | | | (1) | | | (3.33) | % | | 6.36 | % | | 2.51 | % | | 3.85 | % |
Total interest-earning assets (3) | $ | 1,882,837 |
| | $ | 1,745,878 |
| | $ | 136,959 |
| | 7.84 | % | | 19,237 |
| | 17,335 |
| | 1,902 |
| | 10.97 | % | | 4.05 | % | | 3.95 | % | | 0.10 | % | Total interest-earning assets(3) | $ | 3,478,053 | | | $ | 3,322,521 | | | $ | 155,532 | | | 4.68 | % | | 41,205 | | | 32,439 | | | 8,766 | | | 27.02 | % | | 4.70 | % | | 3.87 | % | | 0.83 | % |
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Interest-bearing liabilities: | |
| | |
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| | |
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| | |
| | |
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| | |
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| | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | |
Deposits: | |
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| | |
| | |
| | |
| | |
| | |
| Deposits: | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing demand, | | | | | | | | | | | | | | | | | | | | | | |
savings and money | | | | | | | | | | | | | | | | | | | | | | |
market | $ | 1,081,227 |
| | $ | 944,809 |
| | $ | 136,418 |
| | 14.44 | % | | 1,686 |
| | 678 |
| | 1,008 |
| | 148.67 | % | | 0.62 | % | | 0.29 | % | | 0.33 | % | |
Interest-bearing demand | | Interest-bearing demand | $ | 434,649 | | | $ | 476,145 | | | $ | (41,496) | | | (8.71) | % | | 1,680 | | | 679 | | | 1,001 | | | 147.42 | % | | 1.53 | % | | 0.57 | % | | 0.96 | % |
Savings and money market | | Savings and money market | 1,329,963 | | | 1,327,935 | | | 2,028 | | | 0.15 | % | | 11,080 | | | 4,461 | | | 6,619 | | | 148.37 | % | | 3.31 | % | | 1.33 | % | | 1.98 | % |
Time deposits | 159,949 |
| | 110,223 |
| | 49,726 |
| | 45.11 | % | | 422 |
| | 194 |
| | 228 |
| | 117.53 | % | | 1.04 | % | | 0.70 | % | | 0.34 | % | Time deposits | 427,545 | | | 343,862 | | | 83,683 | | | 24.34 | % | | 4,396 | | | 1,149 | | | 3,247 | | | 282.59 | % | | 4.08 | % | | 1.33 | % | | 2.75 | % |
Total deposits | 1,241,176 |
| | 1,055,032 |
| | 186,144 |
| | 17.64 | % | | 2,108 |
| | 872 |
| | 1,236 |
| | 141.74 | % | | 0.67 | % | | 0.33 | % | | 0.34 | % | Total deposits | 2,192,157 | | | 2,147,942 | | | 44,215 | | | 2.06 | % | | 17,156 | | | 6,289 | | | 10,867 | | | 172.79 | % | | 3.10 | % | | 1.16 | % | | 1.94 | % |
Other borrowed funds | 150,548 |
| | 132,583 |
| | 17,965 |
| | 13.55 | % | | 1,421 |
| | 1,103 |
| | 318 |
| | 28.83 | % | | 3.75 | % | | 3.31 | % | | 0.44 | % | |
Borrowed Funds: | | Borrowed Funds: | |
Federal funds purchased and | | Federal funds purchased and | |
other short-term borrowings | | other short-term borrowings | 248,065 | | | 105,431 | | | 142,634 | | | 135.29 | % | | 3,165 | | | 655 | | | 2,510 | | | 383.21 | % | | 5.06 | % | | 2.46 | % | | 2.60 | % |
Subordinated notes, net | | Subordinated notes, net | 79,533 | | | 79,285 | | | 248 | | | 0.31 | % | | 1,113 | | | 1,106 | | | 7 | | | 0.63 | % | | 5.55 | % | | 5.54 | % | | 0.01 | % |
Federal Home Loan Bank | | Federal Home Loan Bank | |
advances | | advances | 302,119 | | | 125,000 | | | 177,119 | | | 141.70 | % | | 2,329 | | | 649 | | | 1,680 | | | 258.86 | % | | 3.06 | % | | 2.06 | % | | 1.00 | % |
Long-term debt | | Long-term debt | 49,448 | | | 51,486 | | | (2,038) | | | (3.96) | % | | 695 | | | 466 | | | 229 | | | 49.14 | % | | 5.57 | % | | 3.60 | % | | 1.97 | % |
Total borrowed funds | | Total borrowed funds | 679,165 | | | 361,202 | | | 317,963 | | | 88.03 | % | | 7,302 | | | 2,876 | | | 4,426 | | | 153.89 | % | | 4.27 | % | | 3.16 | % | | 1.11 | % |
Total interest-bearing | | | | | | | | | | | | | | | | | | | | | | Total interest-bearing | | | | | | | | | | | | | | | | | | | | | |
liabilities | $ | 1,391,724 |
| | $ | 1,187,615 |
| | $ | 204,109 |
| | 17.19 | % | | 3,529 |
| | 1,975 |
| | 1,554 |
| | 78.68 | % | | 1.01 | % | | 0.66 | % | | 0.35 | % | liabilities | $ | 2,871,322 | | | $ | 2,509,144 | | | $ | 362,178 | | | 14.43 | % | | 24,458 | | | 9,165 | | | 15,293 | | | 166.86 | % | | 3.38 | % | | 1.45 | % | | 1.93 | % |
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Tax-equivalent net interest income (FTE) (4) | | |
| | |
| | $ | 15,708 |
| | $ | 15,360 |
| | $ | 348 |
| | 2.27 | % | | |
| | |
| | |
| |
Net interest income (FTE) (4) | | Net interest income (FTE) (4) | | | | | | $ | 16,747 | | | $ | 23,274 | | | $ | (6,527) | | | (28.04) | % | | | | | | |
Net interest spread (FTE) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 3.04 | % | | 3.29 | % | | (0.25 | )% | Net interest spread (FTE) | | | | | | | | | | | | | | | | 1.32 | % | | 2.42 | % | | (1.10) | % |
Net interest margin (FTE) (4) | Net interest margin (FTE) (4) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 3.31 | % | | 3.50 | % | | (0.19 | )% | Net interest margin (FTE) (4) | | | | | | | | | | | | | | | | 1.91 | % | | 2.78 | % | | (0.87) | % |
|
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Data for the nine months ended September 30: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Average Balance | | Interest Income/Expense | | Yield/Rate |
| 2023 | | 2022 | | Change | | Change- % | | 2023 | | 2022 | | Change | | Change- % | | 2023 | | 2022 | | Change |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | |
Loans: (1) (2) | | | | | | | | | | | | | | | | | | | | | |
Commercial | $ | 524,231 | | | $ | 479,723 | | | $ | 44,508 | | | 9.28 | % | | $ | 23,867 | | | $ | 15,751 | | | $ | 8,116 | | | 51.53 | % | | 6.09 | % | | 4.39 | % | | 1.70 | % |
Real estate (3) | 2,247,851 | | | 2,037,779 | | | 210,072 | | | 10.31 | % | | 80,584 | | | 60,678 | | | 19,906 | | | 32.81 | % | | 4.79 | % | | 3.98 | % | | 0.81 | % |
Consumer and other | 8,852 | | | 5,154 | | | 3,698 | | | 71.75 | % | | 453 | | | 173 | | | 280 | | | 161.85 | % | | 6.84 | % | | 4.50 | % | | 2.34 | % |
Total loans | 2,780,934 | | | 2,522,656 | | | 258,278 | | | 10.24 | % | | 104,904 | | | 76,602 | | | 28,302 | | | 36.95 | % | | 5.04 | % | | 4.06 | % | | 0.98 | % |
| | | | | | | | | | | | | | | | | | | | | |
Securities: | | | | | | | | | | | | | | | | | | | | | |
Taxable | 526,259 | | | 611,647 | | | (85,388) | | | (13.96) | % | | 10,175 | | | 9,126 | | | 1,049 | | | 11.49 | % | | 2.58 | % | | 1.99 | % | | 0.59 | % |
Tax-exempt (3) | 149,497 | | | 160,226 | | | (10,729) | | | (6.70) | % | | 2,855 | | | 3,199 | | | (344) | | | (10.75) | % | | 2.55 | % | | 2.66 | % | | (0.11) | % |
Total securities | 675,756 | | | 771,873 | | | (96,117) | | | (12.45) | % | | 13,030 | | | 12,325 | | | 705 | | | 5.72 | % | | 2.57 | % | | 2.13 | % | | 0.44 | % |
| | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits | 1,916 | | | 77,386 | | | (75,470) | | | (97.52) | % | | 84 | | | 179 | | | (95) | | | (53.07) | % | | 5.86 | % | | 0.31 | % | | 5.55 | % |
Total interest-earning assets (3) | $ | 3,458,606 | | | $ | 3,371,915 | | | $ | 86,691 | | | 2.57 | % | | 118,018 | | | 89,106 | | | 28,912 | | | 32.45 | % | | 4.56 | % | | 3.53 | % | | 1.03 | % |
| | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing demand | $ | 472,729 | | | $ | 513,106 | | | $ | (40,377) | | | (7.87) | % | | 4,882 | | | 1,253 | | | 3,629 | | | 289.62 | % | | 1.38 | % | | 0.33 | % | | 1.05 | % |
Savings and money market | 1,332,933 | | | 1,505,834 | | | (172,901) | | | (11.48) | % | | 30,714 | | | 8,520 | | | 22,194 | | | 260.49 | % | | 3.08 | % | | 0.76 | % | | 2.32 | % |
Time | 420,513 | | | 248,628 | | | 171,885 | | | 69.13 | % | | 11,176 | | | 1,813 | | | 9,363 | | | 516.44 | % | | 3.55 | % | | 0.97 | % | | 2.58 | % |
Total deposits | 2,226,175 | | | 2,267,568 | | | (41,393) | | | (1.83) | % | | 46,772 | | | 11,586 | | | 35,186 | | | 303.69 | % | | 2.81 | % | | 0.68 | % | | 2.13 | % |
Borrowed funds: | | | | | | | | | | | | | | | | | | | | | |
Federal funds purchased and | | | | | | | | | | | | | | | | | | | | | |
other short-term borrowings | 207,034 | | | 50,796 | | | 156,238 | | | 307.58 | % | | 7,508 | | | 812 | | | 6,696 | | | 824.63 | % | | 4.85 | % | | 2.14 | % | | 2.71 | % |
Subordinated notes, net | 79,466 | | | 43,955 | | | 35,511 | | | 80.79 | % | | 3,328 | | | 1,748 | | | 1,580 | | | 90.39 | % | | 5.60 | % | | 5.32 | % | | 0.28 | % |
Federal Home Loan Bank | | | | | | | | | | | | | | | | | | | | | |
advances | 249,011 | | | 125,000 | | | 124,011 | | | 99.21 | % | | 5,212 | | | 1,914 | | | 3,298 | | | 172.31 | % | | 2.80 | % | | 2.05 | % | | 0.75 | % |
Long-term debt | 50,538 | | | 51,490 | | | (952) | | | (1.85) | % | | 2,132 | | | 1,050 | | | 1,082 | | | 103.05 | % | | 5.64 | % | | 2.73 | % | | 2.91 | % |
Total borrowed funds | 586,049 | | | 271,241 | | | 314,808 | | | 116.06 | % | | 18,180 | | | 5,524 | | | 12,656 | | | 229.11 | % | | 4.15 | % | | 2.72 | % | | 1.43 | % |
Total interest-bearing | | | | | | | | | | | | | | | | | | | | | |
liabilities | $ | 2,812,224 | | | $ | 2,538,809 | | | $ | 273,415 | | | 10.77 | % | | 64,952 | | | 17,110 | | | 47,842 | | | 279.61 | % | | 3.09 | % | | 0.90 | % | | 2.19 | % |
| | | | | | | | | | | | | | | | | | | | | |
Net interest income (FTE) (4) | | | | | | $ | 53,066 | | | $ | 71,996 | | | $ | (18,930) | | | (26.29) | % | | | | | | |
Net interest spread (FTE) | | | | | | | | | | | | | | | | | 1.47 | % | | 2.63 | % | | (1.16) | % |
Net interest margin (FTE) (4) | | | | | | | | | | | | | | | | 2.05 | % | | 2.85 | % | | (0.80) | % |
(1)Average loan balances include nonaccrual loans. Interest income recognized on nonaccrual loans has been included.
(2)Interest income on loans includes amortization of loan fees and costs and prepayment penalties collected, which are not material.
(3)Tax-exempt income has been adjusted to a tax-equivalent basis using a federal income tax rate of 21 percent and is adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans.
(4)Net interest income (FTE) and net interest margin (FTE) are non-GAAP financial measures. For further information, refer to the Non-GAAP Financial Measures section of this report.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Data for the nine months ended September 30: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Average Balance | | Interest Income/Expense | | Yield/Rate |
| 2017 | | 2016 | | Change | | Change- % | | 2017 | | 2016 | | Change | | Change- % | | 2017 | | 2016 | | Change |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | |
Loans: (1) (2) | | | | | | | | | | | | | | | | | | | | | |
Commercial | $ | 326,090 |
| | $ | 361,315 |
| | $ | (35,225 | ) | | (9.75 | )% | | $ | 10,556 |
| | $ | 11,377 |
| | $ | (821 | ) | | (7.22 | )% | | 4.33 | % | | 4.21 | % | | 0.12 | % |
Real estate (3) | 1,100,526 |
| | 951,226 |
| | 149,300 |
| | 15.70 | % | | 36,692 |
| | 31,768 |
| | 4,924 |
| | 15.50 | % | | 4.46 | % | | 4.46 | % | | — | % |
Consumer and other | 8,340 |
| | 8,716 |
| | (376 | ) | | (4.31 | )% | | 251 |
| | 257 |
| | (6 | ) | | (2.33 | )% | | 4.02 | % | | 3.94 | % | | 0.08 | % |
Total loans | 1,434,956 |
| | 1,321,257 |
| | 113,699 |
| | 8.61 | % | | 47,499 |
| | 43,402 |
| | 4,097 |
| | 9.44 | % | | 4.43 | % | | 4.39 | % | | 0.04 | % |
| |
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|
Investment securities: | |
| | |
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| | |
| | |
| | |
| | |
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| | |
| | |
|
Taxable | 230,060 |
| | 243,811 |
| | (13,751 | ) | | (5.64 | )% | | 3,755 |
| | 3,222 |
| | 533 |
| | 16.54 | % | | 2.18 | % | | 1.76 | % | | 0.42 | % |
Tax-exempt (3) | 129,808 |
| | 120,049 |
| | 9,759 |
| | 8.13 | % | | 3,932 |
| | 3,742 |
| | 190 |
| | 5.08 | % | | 4.04 | % | | 4.16 | % | | (0.12 | )% |
Total investment securities | 359,868 |
| | 363,860 |
| | (3,992 | ) | | (1.10 | )% | | 7,687 |
| | 6,964 |
| | 723 |
| | 10.38 | % | | 2.85 | % | | 2.55 | % | | 0.30 | % |
| |
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| | |
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| | |
| | |
| | |
| | |
| | |
| | |
|
Federal funds sold | 26,173 |
| | 14,586 |
| | 11,587 |
| | 79.44 | % | | 223 |
| | 57 |
| | 166 |
| �� | 291.23 | % | | 1.14 | % | | 0.53 | % | | 0.61 | % |
Total interest-earning assets (3) | $ | 1,820,997 |
| | $ | 1,699,703 |
| | $ | 121,294 |
| | 7.14 | % | | 55,409 |
| | 50,423 |
| | 4,986 |
| | 9.89 | % | | 4.07 | % | | 3.96 | % | | 0.11 | % |
| |
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|
Interest-bearing liabilities: | |
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| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Deposits: | |
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| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Interest-bearing demand, | | | | | | | | | | | | | | | | | | | | | |
savings and money | | | | | | | | | | | | | | | | | | | | | |
market | $ | 1,030,095 |
| | $ | 909,950 |
| | $ | 120,145 |
| | 13.20 | % | | 4,107 |
| | 1,842 |
| | 2,265 |
| | 122.96 | % | | 0.53 | % | | 0.27 | % | | 0.26 | % |
Time deposits | 139,964 |
| | 110,218 |
| | 29,746 |
| | 26.99 | % | | 977 |
| | 559 |
| | 418 |
| | 74.78 | % | | 0.93 | % | | 0.68 | % | | 0.25 | % |
Total deposits | 1,170,059 |
| | 1,020,168 |
| | 149,891 |
| | 14.69 | % | | 5,084 |
| | 2,401 |
| | 2,683 |
| | 111.75 | % | | 0.58 | % | | 0.31 | % | | 0.27 | % |
Other borrowed funds | 146,583 |
| | 138,687 |
| | 7,896 |
| | 5.69 | % | | 3,920 |
| | 3,335 |
| | 585 |
| | 17.54 | % | | 3.58 | % | | 3.21 | % | | 0.37 | % |
Total interest-bearing | | | | | | | | | | | | | | | | | | | | | |
liabilities | $ | 1,316,642 |
| | $ | 1,158,855 |
| | $ | 157,787 |
| | 13.62 | % | | 9,004 |
| | 5,736 |
| | 3,268 |
| | 56.97 | % | | 0.91 | % | | 0.66 | % | | 0.25 | % |
| |
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|
Tax-equivalent net interest income (FTE) (4) | | |
| | |
| | $ | 46,405 |
| | $ | 44,687 |
| | $ | 1,718 |
| | 3.84 | % | | |
| | |
| | |
|
Net interest spread (FTE) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 3.16 | % | | 3.30 | % | | (0.14 | )% |
Net interest margin (FTE) (4) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 3.41 | % | | 3.51 | % | | (0.10 | )% |
| |
(1) | Average loan balances include nonaccrual loans. Interest income recognized on nonaccrual loans has been included. |
| |
(2) | Interest income on loans includes amortization of loan fees and costs and prepayment penalties collected, which are not material. |
| |
(3) | Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental federal income tax rate of 35 percent and is adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt investment securities and loans. |
| |
(4) | Net interest income (FTE) and net interest margin (FTE) are non-GAAP measures. For further information, refer to the Non-GAAP Financial Measures section of this report. |
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
The Company's largest component of net income is net interest income, which is the difference between interest earned on interest-earning assets, consisting primarily of loans and investment securities, and interest paid on interest-bearing liabilities, consisting of deposits and borrowings. Fluctuations in net interest income can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are also affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities. The Board of Governors of the Federal Reserve System increased the targetedtarget federal funds interest rate by 25a total of 425 basis points in each2022 and an additional 100 basis points during the first nine months of December 2016, March 20172023. At this time the extent to which additional target federal funds interest rate changes may occur during the remainder of 2023 is unknown. The increases that occurred throughout 2022 and June 2017.2023 have had a significant impact on the comparability of net interest income between 2023 and 2022.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Net interest margin on a FTE basis, a non-GAAP financial measure, is a measure of the net return on interest-earning assets and is computed by dividing annualized tax-equivalent net interest income by total average interest-earning assets for the period. The net interest margin for the three and nine months ended September 30, 2017 declined 192023 decreased by 87 and 1080 basis points, respectively, compared to the three and nine months ended September 30, 2016.2022. The primary driversdriver of the declinedecrease in the net interest margin werewas an increase in interest rates paid on certain deposit categoriesdeposits and borrowed funds, which have repriced faster than loans and securities, and an increase in the variable rates paid on otheraverage borrowed funds partially offset by an increase in yield on loans and investment securities. Despite the decline in the net interest margin, tax-equivalentbalances. Tax-equivalent net interest income for the three and nine months ended September 30, 2017 increased $3482023 decreased $6,527 and $1,718,$18,930, respectively, compared to the same time periods in 2016.2022. The increasedecrease in net interest income for the three and nine months ended September 30, 20172023 compared to the three and nine months ended September 30, 20162022 was largelyprimarily due to the increase in rates paid on deposits and borrowed funds and increases in average outstanding loans and an increase in yield on investment securities. Management expects the current interest rate environment to continue to put pressure on the net interest margin throughout the remainder of 2017. Management continually develops and applies strategies to attempt to maintain the net interest margin.borrowed funds balances.
Tax-equivalent interest income on loans increased $901 for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. For the nine months ended September 30, 2017, tax-equivalent interest income on loans increased $4,097 compared to the same time period in 2016. The improvement for both time periods was primarily due to the increase in average loan balances outstanding. The average yields on loans increased by nine$8,604 and four basis points, respectively,$28,302 for the three and nine months ended September 30, 20172023 compared to the three and nine months ended September 30, 2016.2022. This increase in interest income on loans was driven by a combination of an increase in the average balance of loans and an increase in loan yields. The average balances of loans for the three and nine months ended September 30, 2023 increased $233,351 and $258,278, respectively, compared to the three and nine months ended September 30, 2022, while loan yields increased 85 and 98 basis points, respectively. Rising market interest rates have resulted in increasing rates on variable-rate loans and higher interest rates on renewed and originated loans. The Company continues to focus on expanding existing and entering into new customer relationships while maintaining strong credit quality. The yield on the Company's loan portfolio is affected by the portfolio's loan mix, the interest rate environment, the effects of competition, the level of nonaccrual loans and reversals of previously accrued interest on charged-off loans. The yield on the loan portfolio is expected to increase in flat and rising rate environments as variable-rate loans reprice at higher rates and renewals and new originations are priced at prevailing market rates, which exceed the roll-off rate of principal repayments on existing loans. The political and economic environments can also influence the volume of new loan originations and the mix of variable ratevariable-rate versus fixed ratefixed-rate loans.
The average balance of investment securities was higher duringdeposits increased $44,215 for the three months ended September 30, 2017 than during2023 compared to the same period in 2016 as a result of significant investment purchase activity during2022, while the second and third quarters of 2017. The average balance of investment securities was slightly lower duringdeposits for the nine months ended September 30, 2017 than during2023 decreased $41,393 compared to the same period in 2016.2022. The purchase activity in 2017 focusedrates paid on higher yielding bonds within the existing risk profiledeposits increased 194 and was the result of growth in deposits and the reinvestment of proceeds from sales and principal paydowns of investment securities. In certain cases, securities were sold and the funds were reinvested in securities with higher rates while slightly extending the duration of the portfolio, which is expected to improve the yield on the investment portfolio in future periods. The overall portfolio yield increased 45 and 30213 basis points respectively, for the three and nine months ended September 30, 20172023 compared to the same periods last year.in 2022. The increase in the cost of deposits was primarily due to increases in deposit interest rates in response to increases in the target federal funds rate and market interest rates, increased competition for deposit balances, and changes in deposit mix. The Federal Reserve increased the target federal funds rate by a total of 425 basis points in 2022 and an additional 100 basis points in the first nine months of 2023. These increases have had an adverse impact on the cost of deposits and have increased market competition.
The average balance of interest-bearing demand, savingsInterest expense on borrowed funds increased $4,426 and money market deposits increased$12,656 for the three and nine months ended September 30, 20172023 compared to the three and nine months ended September 30, 2016, partially due to an increase in average balances of money market accounts, including public funds from municipalities. In addition, approximately $76,000 of noninterest-bearing accounts were reclassified to interest-bearing accounts in April 2017 as part of a retail deposit product restructuring in which we realigned and simplified the retail checking account products provided to our customers.2022. The average rate paid on interest-bearing demand, savingsbalance of borrowed funds increased $317,963 and money market deposits$314,808 for the three and nine months ended September 30, 2017 increased 33 and 26 basis points, respectively,2023 compared to the three and nine months ended September 30, 2016.2022. The increaseCompany issued $60,000 of subordinated debt in interest expense was primarily due to increasing interest rates on certain money market deposit products in response to the Federal Reserve System's rate increases. TheJune 2022. Additionally, average balancebalances of time depositsfederal funds purchased and other short-term borrowings increased $142,634 and $156,238 for the three and nine months ended September 30, 20172023 compared to the same periods in 2016.2022. The increase was primarily due to the shift of demandaverage rate on federal funds purchased and savings account balances to higher interest rate time deposits. Interest rates on time depositsother short-term borrowings increased 34by 260 and 25271 basis points respectively, forin the three and nine months ended September 30, 2017 compared to the same periods in 2016, primarily due to higher market interest rates paid at the time new and renewed time deposits were issued.
The average rate paid on other borrowed funds increased 44 and 37 basis points, respectively, for the three and nine months ended September 30, 20172023 compared to the three and nine months ended September 30, 2016. The2022. This increase in average rates paid on federal funds purchased and other short-term borrowings was driven by the increases in the target federal funds rate by the Federal Reserve. The average rate paidbalances of FHLB advances increased by $177,119 and $124,011 for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022. This increase in average balances was primarily due to increases in rates for variable rateadditional rolling one-month FHLB advances the subordinated notes and long-term debt. The Company borrowed an additional $22,000 in long-term borrowings in May 2017 resulting in an increaseadded in the average balancefirst nine months of other borrowed funds.
2023 that are hedged with long-term interest rate swap agreements to provide fixed cost wholesale funding.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Provision for Loan LossesCredit Loss Expense and the Related Allowance for LoanCredit Losses
The provisionCompany adopted ASU No. 2016-13 effective January 1, 2023 using the modified retrospective method for loan lossesfinancial assets measured at amortized cost and off-balance-sheet credit exposures. See Notes 1 and 4 to the Financial Statements for additional information.
The credit loss expense recorded on the income statement represents chargesa charge made to earnings to maintain an adequate allowance for loancredit losses. The adequacy of the allowance for loancredit losses is evaluated quarterly by management and reviewed by the Board of Directors. The allowance for loancredit losses is management's best estimate of probableexpected lifetime losses inherent in the loan portfolio as of the balance sheet date. Based upon the evaluation, no provisionThere was recorded for either the three or nine months ended September 30, 2017, as 2017 year-to-date recoveries on previously charged off loans exceeded year-to-date charge-offs and were sufficient to increase the allowance for loan losses to a level deemed appropriate in relation to the 2017 year-to-date loan growth and credit quality. The provision for loan lossesloss expense of $200 for the three and nine months ended September 30, 20162023, compared to a credit loss expense of $0 and negative $2,500 for the three and nine months ended September 30, 2022. The credit loss expense recorded in 2023 was $200 and $900, respectively.directly associated with loan growth. The negative credit loss expense recorded in 2022 was due to sustained improvement in the performance of loans. Management believed the allowance for credit losses at September 30, 2023 was adequate to absorb expected losses in the loan portfolio as of that date.
Factors consideredmanagement considers in establishing an appropriate allowance include: the borrower's financial condition; the value and adequacy of loan collateral; the condition of the local economy and the borrower's specific industry; the levels and trends of loans by segment; and a review of delinquent and classified loans. The quarterly evaluation of the allowance focuses on factors such as specific loan reviews, changes in the components of the loan portfolio given the current and forecasted economic conditions, and historical loss experience. Any one of the following conditions may result in the review of a specific loan: concern about whether the customer's cash flow or net worth is sufficient to repay the loan; delinquency status; criticism of the loan in a regulatory examination; the suspension of interest accrual; or other factors, including whether the loan has other special or unusual characteristics that suggest special monitoring is warranted. The Company's concentration risks include geographic concentrationconcentrations in central and eastern Iowa and southeasternsouthern Minnesota. The local economies in those markets are composed primarily of major financial service industriescompanies, healthcare providers, educational institutions, technology and agribusiness companies, and state and countylocal governments.
West Bank has a significant portion of its loan portfolio in commercial real estate loans, commercial lines of credit, commercial term loans, and construction and land development loans. West Bank's typical commercial borrower is a small- or medium-sized, privately owned business entity. West Bank's commercial loans typically have greater credit risks thanCompared to residential mortgages or consumer loans, because they oftencommercial loans typically have larger balances and repayment usually depends on the borrowers' successful business operations. Commercial loans also involve additional risks because they generally are not fully repaid over the loan period and thus, may require refinancing or a large payoff at maturity. When the economy turns downward, commercial borrowers may not be able to repay their loans, and the value of their assets, which are usually pledged as collateral, may decrease rapidly and significantly.
While management uses available information to recognize losses on loans, further reduction in the carrying amounts of loans may be necessary based on changes in circumstances, changes in the overall economy in the markets we currently serve, or later acquired information. Identifiable sectors within the general economy are subject to additional volatility, which at any time may have a substantial impact on the loan portfolio. In addition, regulatory agencies, as integral parts of their examination processes, periodically review the credit quality of the loan portfolio and the level of the allowance for loancredit losses. Such agencies may require West Bank to recognize additional charge-offs or provision for credit losses based on such agencies' review of information available to them at the time of their examinations.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
West Bank's policy is to charge off loans when, in management's opinion, a loan or a portion of a loan is deemed uncollectible. ConcertedCommercially reasonable efforts are made to maximize subsequent recoveries. The following table summarizes the activity in the Company's allowance for loancredit losses on loans for the three and nine months ended September 30, 20172023 and 20162022 and related ratios.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Balance at beginning of period | $ | 27,938 | | | $ | 25,434 | | | $ | 2,504 | | | $ | 25,473 | | | $ | 28,364 | | | $ | (2,891) | |
Adoption of CECL | — | | | — | | | — | | | 2,458 | | | — | | | 2,458 | |
Charge-offs | — | | | (31) | | | 31 | | | (18) | | | (482) | | | 464 | |
Recoveries | 9 | | | 15 | | | (6) | | | 34 | | | 36 | | | (2) | |
Net (charge-offs) recoveries | 9 | | | (16) | | | 25 | | | 16 | | | (446) | | | 462 | |
Provision for credit losses charged | | | | | | | | | | | |
(credited) to operations | 200 | | | — | | | 200 | | | 200 | | | (2,500) | | | 2,700 | |
Balance at end of period | $ | 28,147 | | | $ | 25,418 | | | $ | 2,729 | | | $ | 28,147 | | | $ | 25,418 | | | $ | 2,729 | |
| | | | | | | | | | | |
Average loans outstanding | $ | 2,813,213 | | | $ | 2,579,862 | | | | | $ | 2,780,934 | | | $ | 2,522,656 | | | |
| | | | | | | | | | | |
Ratio of annualized net (charge-offs) | | | | | | | | | | | |
recoveries during the period to average | | | | | | | | | | | |
loans outstanding | 0.00 | % | | 0.00 | % | | | | 0.00 | % | | (0.02) | % | | |
| | | | | | | | | | | |
Ratio of allowance for credit losses for | | | | | | | | | | | |
loans to average loans outstanding | 1.00 | % | | 0.99 | % | | | | 1.01 | % | | 1.01 | % | | |
| | | | | | | | | | | |
Ratio of allowance for credit losses for | | | | | | | | | | | |
for loans to total loans at end of period | 0.99 | % | | 0.97 | % | | | | 0.99 | % | | 0.97 | % | | |
42
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Balance at beginning of period | $ | 16,486 |
| | $ | 15,829 |
| | $ | 657 |
| | $ | 16,112 |
| | $ | 14,967 |
| | $ | 1,145 |
|
Charge-offs | (179 | ) | | (171 | ) | | (8 | ) | | (372 | ) | | (264 | ) | | (108 | ) |
Recoveries | 51 |
| | 100 |
| | (49 | ) | | 618 |
| | 355 |
| | 263 |
|
Net (charge-offs) recoveries | (128 | ) | | (71 | ) | | (57 | ) | | 246 |
| | 91 |
| | 155 |
|
Provision for loan losses charged to operations | — |
| | 200 |
| | (200 | ) | | — |
| | 900 |
| | (900 | ) |
Balance at end of period | $ | 16,358 |
| | $ | 15,958 |
| | $ | 400 |
| | $ | 16,358 |
| | $ | 15,958 |
| | $ | 400 |
|
| | | | | | | | | | | |
Average loans outstanding | $ | 1,426,115 |
| | $ | 1,379,107 |
| | | | $ | 1,434,956 |
| | $ | 1,321,257 |
| | |
| | | | | | | | | | | |
Ratio of annualized net charge-offs (recoveries) during the period to average loans outstanding | 0.04 | % | | 0.02 | % | | | | (0.02 | )% | | (0.01 | )% | | |
| | | | | | | | | | | |
Ratio of allowance for loan losses to average loans outstanding | 1.15 | % | | 1.16 | % | | | | 1.14 | % | | 1.21 | % | | |
In general, the U.S. economy is growing, but at a slower rate than was considered normal before the financial crisis. Average monthly job growth through August 2017 was approximately 177,000, while the national unemployment rate has declined slightly to 4.2 percent as of September 30, 2017, the lowest level since May 2007. The U.S. economy lost 33,000 jobs in September 2017, primarily in the leisure and hospitality industries, that were attributed to Hurricanes Irma and Harvey. Activity in the housing market continues at a moderate pace. Interest rates are expected to continue to gradually rise. The economic environments in Iowa and Minnesota continue to improve. Based on the current economic indicators, the Company decided to maintain the economic factors within the allowance for loan losses evaluation at the same levels used in 2016. In the first nine months of 2017, the Company continued to use experience factors based on the highest losses calculated over a rolling 12-, 16-, or 20-quarter period. Loan growth in the first nine months of 2017 resulted in the portion of the allowance for loan losses related to loans collectively evaluated for impairment to increase $603 to a total of $16,212, or 1.11 percent, as of September 30, 2017 compared to $15,609, or 1.11 percent, as of December 31, 2016. Management believed the resulting allowance for loan losses as of September 30, 2017 was adequate to absorb any losses inherent in the loan portfolio at the end of the quarter.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Noninterest Income
The following tables show the variance from the prior year in the noninterest income categories shown in the Consolidated Statements of Income. In addition, accounts within the “Other income” category that represent a significant portion of the total or a significant variance are shown below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
Noninterest income: | 2023 | | 2022 | | Change | | Change % |
Service charges on deposit accounts | $ | 463 | | | $ | 553 | | | $ | (90) | | | (16.27) | % |
Debit card usage fees | 495 | | | 498 | | | (3) | | | (0.60) | % |
Trust services | 831 | | | 780 | | | 51 | | | 6.54 | % |
Increase in cash value of bank-owned life insurance | 262 | | | 246 | | | 16 | | | 6.50 | % |
Loan swap fees | 431 | | | 835 | | | (404) | | | (48.38) | % |
Other income: | | | | | | | |
All other income | 340 | | | 364 | | | (24) | | | (6.59) | % |
Total other income | 340 | | | 364 | | | (24) | | | (6.59) | % |
Total noninterest income | $ | 2,822 | | | $ | 3,276 | | | $ | (454) | | | (13.86) | % |
| | | | | | | |
| Nine Months Ended September 30, |
Noninterest income: | 2023 | | 2022 | | Change | | Change % |
Service charges on deposit accounts | $ | 1,383 | | | $ | 1,718 | | | $ | (335) | | | (19.50) | % |
Debit card usage fees | 1,492 | | | 1,477 | | | 15 | | | 1.02 | % |
Trust services | 2,286 | | | 2,031 | | | 255 | | | 12.56 | % |
Increase in cash value of bank-owned life insurance | 769 | | | 709 | | | 60 | | | 8.46 | % |
Gain from bank-owned life insurance | 691 | | | — | | | 691 | | | N/A |
Loan swap fees | 431 | | | 835 | | | (404) | | | (48.38) | % |
Other income: | | | | | | | |
All other income | 1,116 | | | 1,173 | | | (57) | | | (4.86) | % |
Total other income | 1,116 | | | 1,173 | | | (57) | | | (4.86) | % |
Total noninterest income | $ | 8,168 | | | $ | 7,943 | | | $ | 225 | | | 2.83 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
Noninterest income: | 2017 | | 2016 | | Change | | Change % |
Service charges on deposit accounts | $ | 715 |
| | $ | 632 |
| | $ | 83 |
| | 13.13 | % |
Debit card usage fees | 435 |
| | 450 |
| | (15 | ) | | (3.33 | )% |
Trust services | 436 |
| | 355 |
| | 81 |
| | 22.82 | % |
Increase in cash value of bank-owned life insurance | 167 |
| | 160 |
| | 7 |
| | 4.38 | % |
Realized investment securities gains, net | 197 |
| | — |
| | 197 |
| | N/A |
|
Other income: | | | | | |
| | |
|
Discount on purchased income tax credits | 36 |
| | 8 |
| | 28 |
| | 350.00 | % |
All other income | 278 |
| | 314 |
| | (36 | ) | | (11.46 | )% |
Total other income | 314 |
| | 322 |
| | (8 | ) | | (2.48 | )% |
Total noninterest income | $ | 2,264 |
| | $ | 1,919 |
| | $ | 345 |
| | 17.98 | % |
| | | | | | | |
| Nine Months Ended September 30, |
Noninterest income: | 2017 | | 2016 | | Change | | Change % |
Service charges on deposit accounts | $ | 1,946 |
| | $ | 1,847 |
| | $ | 99 |
| | 5.36 | % |
Debit card usage fees | 1,333 |
| | 1,372 |
| | (39 | ) | | (2.84 | )% |
Trust services | 1,264 |
| | 946 |
| | 318 |
| | 33.62 | % |
Increase in cash value of bank-owned life insurance | 484 |
| | 492 |
| | (8 | ) | | (1.63 | )% |
Gain from bank-owned life insurance | 307 |
| | 443 |
| | (136 | ) | | (30.70 | )% |
Realized investment securities gains, net | 423 |
| | 60 |
| | 363 |
| | 605.00 | % |
Other income: | | | | | |
| | |
|
Discount on purchased income tax credits | 117 |
| | 43 |
| | 74 |
| | 172.09 | % |
Gain on sale of other assets | 88 |
| | — |
| | 88 |
| | N/A |
|
All other income | 778 |
| | 849 |
| | (71 | ) | | (8.36 | )% |
Total other income | 983 |
| | 892 |
| | 91 |
| | 10.20 | % |
Total noninterest income | $ | 6,740 |
| | $ | 6,052 |
| | $ | 688 |
| | 11.37 | % |
The increasedecline in service charges on deposit accounts was primarily attributable to a higher earnings credit rate on commercial accounts. Revenue from trust services was higher for the three and nine months ended September 30, 20172023 compared to the three and nine months ended September 30, 2016 was driven by the March2022 primarily due to increases in one-time estate fees. An increase in trust assets and April 2017 realignment and simplification of the retail checking account products provided to our customers. We expect to see higher retail service charge income for the remainder of 2017 comparedaccounts since September 30, 2022 also contributed to the same periodincrease in 2016, but we cannot predict how customers may modify their banking behavior in response to the change in checking account terms related to the product realignment. During the three and nine months ended September 30, 2017, nonsufficient funds fees declined $33 and $86, respectively, compared to the same time periods in 2016, consistent with the trend of the past several years.
Revenue from trust services was higher during the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 due to the combination of a higher amount of one-time estate fees and asset growth achieved through ongoing business development efforts.
Gainservice fees. The gain from bank-owned life insurance was recognized for both the nine months ended September 30, 20172023 was the result of a death benefit claim. Loan swap fees in 2023 and 2016, but not during the three months ended September 30, 2017 and 2016.
The Company recognized net gains on sales2022 consist of investment securitiesfees earned in the three and nine months ended September 30, 2017, as the Company took advantage of the opportunity to sell various types of investment securities available for sale at gains and reinvested the proceeds in higher yielding securities with similar risk profiles and slightly longer durations.back-to-back swap program.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Total revenue from discounts on purchased transferable State of Iowa income tax credits increased for the three and nine months ended September 30, 2017 compared to the same time periods in 2016. During the second quarter of 2017, the Company entered into agreements to purchase additional discounted transferable income tax credits and expects to recognize total income from discounts of approximately $153 for the year ended December 31, 2017. The Company reviews opportunities to acquire transferable State of Iowa income tax credits at favorable discounts as they are presented and as they are aligned with our projected ability to utilize them.
Gain on sale of other assets for the nine months ended September 30, 2017 included a nonrecurring gain of $88 in June 2017 related to a final payment received from the 2015 sale of SmartyPig, LLC.
All other income declined during the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016, primarily due to a lower level of letter of credit fees and small losses on equipment disposals.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Noninterest Expense
The following tables show the variance from the prior year periods in the noninterest expense categories shown in the Consolidated Statements of Income. In addition, accounts within the “Other“other expenses” category that represent a significant portion of the total or a significant variance are shown below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
Noninterest expense: | 2023 | | 2022 | | Change | | Change % |
Salaries and employee benefits | $ | 6,696 | | | $ | 6,578 | | | $ | 118 | | | 1.79 | % |
Occupancy and equipment | 1,359 | | | 1,315 | | | 44 | | | 3.35 | % |
Data processing | 703 | | | 644 | | | 59 | | | 9.16 | % |
Technology and software | 573 | | | 651 | | | (78) | | | (11.98) | % |
FDIC insurance | 439 | | | 127 | | | 312 | | | 245.67 | % |
Professional fees | 254 | | | 250 | | | 4 | | | 1.60 | % |
Director fees | 196 | | | 209 | | | (13) | | | (6.22) | % |
Other expenses: | | | | | | | |
Business development | 287 | | | 305 | | | (18) | | | (5.90) | % |
Insurance expense | 178 | | | 198 | | | (20) | | | (10.10) | % |
Trust | 159 | | | 137 | | | 22 | | | 16.06 | % |
Charitable contributions | 60 | | | — | | | 60 | | | N/A |
Consulting fees | 56 | | | 66 | | | (10) | | | (15.15) | % |
Marketing | 34 | | | 60 | | | (26) | | | (43.33) | % |
Low income housing projects amortization | 136 | | | 116 | | | 20 | | | 17.24 | % |
New markets tax credit project amortization and management fees | 230 | | | 230 | | | — | | | — | % |
All other | 545 | | | 572 | | | (27) | | | (4.72) | % |
Total other expenses | 1,685 | | | 1,684 | | | 1 | | | 0.06 | % |
Total noninterest expense | $ | 11,905 | | | $ | 11,458 | | | $ | 447 | | | 3.90 | % |
| | | | | | | |
| Nine Months Ended September 30, |
Noninterest expense: | 2023 | | 2022 | | Change | | Change % |
Salaries and employee benefits | $ | 20,592 | | | $ | 19,286 | | | $ | 1,306 | | | 6.77 | % |
Occupancy and equipment | 4,008 | | | 3,643 | | | 365 | | | 10.02 | % |
Data processing | 2,067 | | | 1,924 | | | 143 | | | 7.43 | % |
Technology and software | 1,665 | | | 1,619 | | | 46 | | | 2.84 | % |
FDIC insurance | 1,275 | | | 753 | | | 522 | | | 69.32 | % |
Professional fees | 791 | | | 669 | | | 122 | | | 18.24 | % |
Director fees | 652 | | | 599 | | | 53 | | | 8.85 | % |
Other expenses: | | | | | | | |
Business development | 1,035 | | | 832 | | | 203 | | | 24.40 | % |
Insurance expense | 610 | | | 505 | | | 105 | | | 20.79 | % |
Trust | 462 | | | 412 | | | 50 | | | 12.14 | % |
Charitable contributions | 180 | | | — | | | 180 | | | N/A |
Consulting fees | 175 | | | 241 | | | (66) | | | (27.39) | % |
Marketing | 115 | | | 184 | | | (69) | | | (37.50) | % |
Low income housing projects amortization | 469 | | | 388 | | | 81 | | | 20.88 | % |
New markets tax credit project amortization and management fees | 689 | | | 689 | | | — | | | — | % |
All other | 1,665 | | | 1,642 | | | 23 | | | 1.40 | % |
Total other expenses | 5,400 | | | 4,893 | | | 507 | | | 10.36 | % |
Total noninterest expense | $ | 36,450 | | | $ | 33,386 | | | $ | 3,064 | | | 9.18 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
Noninterest expense: | 2017 | | 2016 | | Change | | Change % |
Salaries and employee benefits | $ | 4,430 |
| | $ | 4,154 |
| | $ | 276 |
| | 6.64 | % |
Occupancy | 1,087 |
| | 1,038 |
| | 49 |
| | 4.72 | % |
Data processing | 635 |
| | 643 |
| | (8 | ) | | (1.24 | )% |
FDIC insurance expense | 151 |
| | 272 |
| | (121 | ) | | (44.49 | )% |
Professional fees | 184 |
| | 189 |
| | (5 | ) | | (2.65 | )% |
Director fees | 240 |
| | 202 |
| | 38 |
| | 18.81 | % |
Other expenses: | | | | | |
| | |
|
Business development | 191 |
| | 157 |
| | 34 |
| | 21.66 | % |
Insurance expense | 89 |
| | 88 |
| | 1 |
| | 1.14 | % |
Investment advisory fees | 22 |
| | 124 |
| | (102 | ) | | (82.26 | )% |
Charitable contributions | 180 |
| | — |
| | 180 |
| | N/A |
|
Postage and courier | 72 |
| | 79 |
| | (7 | ) | | (8.86 | )% |
Trust | 124 |
| | 106 |
| | 18 |
| | 16.98 | % |
Consulting fees | 60 |
| | 91 |
| | (31 | ) | | (34.07 | )% |
Miscellaneous losses | (5 | ) | | 247 |
| | (252 | ) | | (102.02 | )% |
Low income housing projects amortization | 102 |
| | 99 |
| | 3 |
| | 3.03 | % |
All other | 458 |
| | 504 |
| | (46 | ) | | (9.13 | )% |
Total other | 1,293 |
| | 1,495 |
| | (202 | ) | | (13.51 | )% |
Total noninterest expense | $ | 8,020 |
| | $ | 7,993 |
| | $ | 27 |
| | 0.34 | % |
| | | | | | | |
| Nine Months Ended September 30, |
Noninterest expense: | 2017 | | 2016 | | Change | | Change % |
Salaries and employee benefits | $ | 13,216 |
| | $ | 12,644 |
| | $ | 572 |
| | 4.52 | % |
Occupancy | 3,315 |
| | 2,972 |
| | 343 |
| | 11.54 | % |
Data processing | 2,031 |
| | 1,849 |
| | 182 |
| | 9.84 | % |
FDIC insurance expense | 514 |
| | 714 |
| | (200 | ) | | (28.01 | )% |
Professional fees | 725 |
| | 619 |
| | 106 |
| | 17.12 | % |
Director fees | 697 |
| | 672 |
| | 25 |
| | 3.72 | % |
Other expenses: | | | | | |
| | |
|
Business development | 609 |
| | 574 |
| | 35 |
| | 6.10 | % |
Insurance expense | 267 |
| | 256 |
| | 11 |
| | 4.30 | % |
Investment advisory fees | 89 |
| | 397 |
| | (308 | ) | | (77.58 | )% |
Charitable contributions | 180 |
| | — |
| | 180 |
| | N/A |
|
Postage and courier | 238 |
| | 241 |
| | (3 | ) | | (1.24 | )% |
Trust | 339 |
| | 310 |
| | 29 |
| | 9.35 | % |
Consulting fees | 213 |
| | 238 |
| | (25 | ) | | (10.50 | )% |
Miscellaneous losses | (1 | ) | | 246 |
| | (247 | ) | | (100.41 | )% |
Low income housing projects amortization | 322 |
| | 305 |
| | 17 |
| | 5.57 | % |
All other | 1,481 |
| | 1,574 |
| | (93 | ) | | (5.91 | )% |
Total other | 3,737 |
| | 4,141 |
| | (404 | ) | | (9.76 | )% |
Total noninterest expense | $ | 24,235 |
| | $ | 23,611 |
| | $ | 624 |
| | 2.64 | % |
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Salaries and employee benefits increased for the three and nine months ended September 30, 20172023 when compared to the three and nine months ended September 30, 2016, mainly as the result of2022, due to wage increases in response to market conditions and competition in retaining and recruiting talent. Additionally, there has been an increase in full-time equivalent employees with growth in our commercial banking team and information technology department. Occupancy and equipment expense increased for the price of Company common stock,nine months ended September 30, 2023 compared to the same period in 2022 primarily due to an increase in depreciation expense related to the new bank building in St. Cloud, Minnesota which opened in March 2022 and scheduled increases in rent expense on existing leases. FDIC insurance expense increased stock-based employee compensation costs.
When compared withduring the three and nine months ended September 30, 2016, occupancy costs increased for the three and nine months ended September 30, 2017, partially as the result of operating costs associated with the new Rochester, Minnesota, office, which opened in November 2016. Also impacting the increase in occupancy costs compared to the prior year was a first quarter 2016 one-time reversal of previously accrued rent related to the terms of the previous lease for the Waukee, Iowa, branch facility at the time the branch was acquired in February 2016.
The increase in data processing expense for the nine months ended September 30, 20172023 when compared to the same time periodperiods in 2016 was2022 primarily because of costs associated with upgrading credit analysis software, one-time costs associated with revisingdue to the retail checking account products, ongoing enhancements and monitoring tools for maintaining security, and an annual-inflation-rate-based contractualFDIC's increase in fees paid to our core applications systems service provider.
FDIC insurance expense declined for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016. The FDICminimum assessment rate, calculation includes a series of risk-based factors. As a resultwhich was announced in 2022 and effective as of the May 2017 capital injectionfirst quarter of $40,000 into West Bank, the capital ratio component improved enough to reduce the assessment rate to the minimum level established by the FDIC. Management believes the assessment rate will remain at the minimum level throughout the remainder of 2017 and into 2018.2023.
Professional feesBusiness development expenses increased for the nine months ended September 30, 20172023 compared to the same time period in 2016, chiefly2022 due to increased costs associated with preparation and adoption of the West Bancorporation, Inc. 2017 Equity Incentive Plan and filing a new shelf registration statement with the Securities and Exchange Commission (which allows us to issue registered equity and debt instruments) and due to higher legal fees at West Bank.
Thean increase in the size of our commercial banking team and a general increase in sponsorships and business development activity. Insurance expense increased for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 was the result of efforts to cultivate new and expanded customer relationships.
Investment advisory fees declined for the three and nine months ended September 30, 2017 as contrasted with the same time periods in 2016, mainly as a result of bringing the administration of the investment portfolio in-house, effective October 1, 2016. The Company also pays an administrative fee to an investment management firm for assisting with the purchase and administration of public company floating rate commercial loans. That administrative fee has declined as the result of holding a lower level of those loans.
Charitable contributions increased for the three and nine months ended September 30, 20172023 compared to the same time periodsperiod in 2016 due to the accrual of the normal annual contribution to the West Bancorporation Foundation.
The increase in trust expense in the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 is commensurate with the increase in the growth in trust assets.
Consulting fees declined in the three and nine months ended September 30, 2017, as the 2016 expense included data analysis costs associated with a class action litigation matter, which was settled in the third quarter of 2016. Miscellaneous losses declined in 2017, as the three and nine months ended September 30, 2016 included a $250 settlement of the previously mentioned class action litigation. An offsetting $300 insurance reimbursement of litigation costs was received in the fourth quarter of 2016.
All other expenses declined for the three and nine months ended September 30, 2017 compared to the same periods in 2016,2022 primarily due to the elimination of certaininsurance costs related to a retail deposit product, and first quarter 2016 included a one-time cost associated with a bank-owned life insurance claim.bank buildings that are under construction.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Income Tax Expense
The Company recorded income tax expense of $2,870 (30.9$1,445 (19.7 percent of pre-tax income) and $8,142 (30.1$4,576 (18.9 percent of pre-tax income) for the three and nine months ended September 30, 2017, respectively,2023, compared with $2,634 (31.2$3,220 (21.7 percent of pre-tax income) and $7,249 (29.9$10,675 (22.2 percent of pre-tax income) for the three and nine months ended September 30, 2016.2022. The Company's consolidated income tax rate differs from the federal statutory income tax rate in each period, primarily due to tax-exempt interest income, the tax-exempt increase in cash value of bank-owned life insurance, tax-exempt gain onfrom bank-owned life insurance, disallowed interest expense, and state income taxes.
Two other items significantly impacted For the effectivenine months ended September 30, 2022, income tax expense included a one-time increase in state income tax expense related to the June 2022 enactment of changes in the Iowa bank franchise tax rates. This legislation reduced the Iowa bank franchise tax rate applied to apportioned income for 2023 and future years. The future reduction in the state tax rate required the Company to reduce net deferred tax assets by $671 and in turn caused the one-time increase in 2022 tax expense.
Additionally, for the nine months ended September 30, 2017 compared to2023 a tax expense of $5 was recorded as a result of the nine months ended September 30, 2016. The adoption of ASU No. 2016-09, Compensation—Stock Compensation (Topic 718), effective January 1, 2017, simplified the recording of income taxes related to vesting of equity compensation. The impact of an increasedecrease in the fair value of restricted stock over the vesting period is now recorded as a reduction in income tax expense rather than as additional paid-in capital. Duringperiod. For the nine months ended September 30, 2017,2022, a tax benefit of $285$385 was recorded as a result of this changethe increase in accounting method. By comparison,fair value of restricted stock over the tax benefit recorded in additional paid-in capital for the nine months ended September 30, 2016 was $105.vesting period. The tax raterates for the first nine months of 20172023 and 2016 was2022 were also impacted by year-to-date federal low income housing tax credits and a new markets tax credit of approximately $308$1,123 and $262,$1,101, respectively.
FINANCIAL CONDITION
The Company had total assets of $2,030,348$3,701,900 as of September 30, 2017, an increase of 9.5 percent2023, compared to total assets of $1,854,204$3,613,218 as of December 31, 2016. The most significant changes2022. Fluctuations in the balance sheet wereincluded increases in investmentloans, premises and equipment, and borrowed funds and decreases in securities available for sale loans, deposits, short-term borrowings and long-term debt, and a decline in cash and cash equivalents. A summary of changes in the balance sheet components is provided below.deposits.
Investment Securities
The balance of investment securitiesSecurities available for sale increaseddecreased by $157,737$54,750 during the nine months ended September 30, 2017. State and political subdivision securities increased by $69,920, corporate notes increased by $19,152, and government agency guaranteed collateralized mortgage obligations, mortgage-backed2023. This decrease was due to principal paydowns on securities and asset-backed securities increased by a totalthe decline in fair value of $68,319 during the nine months ended September 30, 2017. The Company purchased $267,133 of investment securities available for sale duringresulting from the nine months ended September 30, 2017. Securities sold totaled $74,224,increase in market interest rates since December 31, 2022. Management concluded the unrealized losses are the result of increases in risk-free market interest rates since the securities were purchased and are not an indication of declining credit quality. Unrealized losses are recorded in accumulated other comprehensive loss, net of tax. The Company expects the securities portfolio as a percentage of total assets to decrease over time as the proceeds were primarily reinvested in higher yielding securities that have a similar risk profile. The remaining purchases included the reinvestment of normal principalfrom paydowns calls and maturities as well as investing themay be used for loan growth in deposits. The overall mixor repayment of the entire investment portfolio did not change significantly as a result of this activity.borrowed funds.
As of September 30, 2017,2023, approximately 6062 percent of the available for sale investment securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities and asset-backed securities. Management believesWe believe these securities provide relatively good yields, have little to no credit risk and provide fairly consistent cash flows.flows for liquidity and repricing opportunities.
Loans and Nonperforming Assets
Loans outstanding increased $57,035, from $1,399,870 as of December 31, 2016 to $1,456,905 as of September 30, 2017. Growth in the loan portfolio during the first nine months of 2017 was primarily the result of increases of $43,843 in construction loans and $32,144 in commercial real estate loans. This growth was partially offset by a decrease of $17,298 in commercial loans that included a $16,556 reduction in public company floating rate loans purchased from a third-party asset manager. The Company continues to focus on business development efforts in all of its markets. Management believes loan growth will continue in all three of our markets during the remainder of 2017.
Credit quality of the Company's loan portfolio remains strong and stable. The Company's Texas ratio, which is computed by dividing total nonperforming assets by tangible common equity plus the allowance for loan losses, was 0.27 percent as of September 30, 2017, compared to 0.56 percent as of December 31, 2016. The ratio for both dates was significantly better than the June 30, 2017 peer group average (latest data available), which was approximately 8.57 percent, according to data in the June 2017 Bank Holding Company Performance Report prepared by the Division of Supervision and Regulation of the Federal Reserve.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Loans and Nonperforming Assets
Loans outstanding increased $106,941 from $2,742,836 as of December 31, 2022 to $2,849,777 as of September 30, 2023. Changes in the loan portfolio during the first nine months of 2023 included increases of $40,876 in commercial real estate loans and $36,239 in construction, land and land development loans. The Company continues to focus on business development efforts in all of its markets.
In accordance with regulatory guidelines, the Company exercises heightened risk management practices when non-owner occupied commercial real estate lending exceeds 300 percent of total risk-based capital or construction, land development, and other land loans exceed 100 percent of total risk-based capital. Although the commercial real estate portfolio exceeded these regulatory guidelines as of September 30, 2023, they were within the Company's established policy limits and management believes that the Company has appropriate risk management policies and procedures to regularly monitor the commercial real estate portfolio. An analysis of the Company's non-owner occupied commercial real estate portfolio as of December 31, 2022 was presented in the Company's Form 10-K filed with the SEC on February 23, 2023, and the Company has not experienced any material changes to that portfolio since December 31, 2022.
The following table sets forth the amount of nonperforming assets held by the Company and common ratio measurements of those assets as of the dates shown.
| | | | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 | | Change |
Nonaccrual loans | $ | 303 | | | $ | 322 | | | $ | (19) | |
Loans past due 90 days and still accruing interest | — | | | — | | | — | |
Loan restructurings (1) | — | | | — | | | — | |
Total nonperforming loans | 303 | | | 322 | | | (19) | |
Other real estate owned | — | | | — | | | — | |
Total nonperforming assets | $ | 303 | | | $ | 322 | | | $ | (19) | |
| | | | | |
Nonperforming loans to total loans | 0.01 | % | | 0.01 | % | | — | % |
Nonperforming assets to total assets | 0.01 | % | | 0.01 | % | | — | % |
|
| | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 | | Change |
Nonaccrual loans | $ | 517 |
| | $ | 1,022 |
| | $ | (505 | ) |
Loans past due 90 days and still accruing interest | — |
| | — |
| | — |
|
Troubled debt restructured loans (1) | — |
| | — |
| | — |
|
Total nonperforming loans | 517 |
| | 1,022 |
| | (505 | ) |
Other real estate owned | — |
| | — |
| | — |
|
Total nonperforming assets | $ | 517 |
| | $ | 1,022 |
| | $ | (505 | ) |
| |
| | |
| | |
|
Nonperforming loans to total loans | 0.04 | % | | 0.07 | % | | (0.03 | )% |
Nonperforming assets to total assets | 0.03 | % | | 0.06 | % | | (0.03 | )% |
(1)While loan restructurings made to borrowers experiencing financial difficulty (loan restructurings) are commonly reported by the industry as nonperforming, those not classified in the nonaccrual category are accruing interest due to payment performance. Loan restructurings on nonaccrual status are categorized as nonaccrual. There were no loan restructurings categorized as nonaccrual as of September 30, 2023 or December 31, 2022.
| |
(1) | While TDR loans are commonly reported by the industry as nonperforming, those not classified in the nonaccrual category are accruing interest due to payment performance. TDR loans on nonaccrual status are categorized as nonaccrual. There was one TDR loan as of September 30, 2017 with a balance of $247, and two TDR loans as of December 31, 2016 with an aggregate balance of $426, categorized as nonaccrual.
|
For additional information, referPremises and Equipment
The Company purchased land in the first quarter of 2022 for its new corporate headquarters to “Provision for Loan Lossesbe located in West Des Moines, Iowa and construction began in the Related Allowance for Loan Losses”second quarter of 2022. Construction is expected to be completed in this section,the second quarter of 2024. Additionally, construction of a new office in Mankato, Minnesota also began in the first quarter of 2022 and Notes 4 and 10is expected to be completed in the financial statements.fourth quarter of 2023.
Deposits
Deposits increased $104,661decreased $124,879, or 4.3 percent, during the first nine months of 2017, or 6.8 percent, compared2023. A portion of this decrease was attributable to a decrease in brokered deposits. Brokered deposits decreased to $237,047 at September 30, 2023, from $272,692 at December 31, 2016. Interest-bearing demand accounts increased $45,564, and noninterest-bearing demand accounts declined $94,686, from December 31, 2016 to September 30, 2017. Savings2022. Excluding brokered deposits, which include money market and insured cash sweep money market accounts, increased $108,233
from December 31, 2016 to September 30, 2017. Approximately $76,000 of noninterest-bearing accounts was reclassified to interest-bearing accounts in April 2017 as part of a retail deposit product restructuring. Other balance fluctuations were primarily due to business development efforts and normal customer activity, as corporate customers' liquidity needs vary at any given time. Total time deposits increased $45,550decreased $89,234, or 3.4 percent, during the first nine months of 2017, primarily due to customers moving balances from savings accounts, including money2023. Deposit inflows and outflows are influenced by prevailing market accounts, to higherinterest rates, competition, local and national economic conditions, fluctuations in our business customers' own liquidity needs and recent developments in the financial services industry. In particular, significant competition for deposits driven by high interest rate timealternatives for depositors is currently impacting deposit fluctuations and increasing our cost of deposits.
West Bank participates in the IntraFi® ICS and CDARS reciprocal deposit network which enables depositors to receive FDIC insurance coverage on deposits otherwise exceeding the maximum insurable amount. As of September 30, 2017, a significant related party relationship maintained total deposit balances with West Bank of approximately $146,000.
Borrowings
Short-term borrowings,2023, estimated uninsured deposits, which excludes deposits in the formIntraFi® reciprocal network, brokered deposits and public funds protected by state programs, were approximately 28.0 percent of overnight funding, increased to $48,000 as of September 30, 2017 from $0 as of December 31, 2016. The need for overnight funding is primarily dependent on corporate customer deposit fluctuations, loan fundings and loan repayments. The investment portfolio was increased during the third quarter of 2017 in anticipation of known deposit increases coming in the fourth quarter. Overnight borrowings funded those investments in the interim.total deposits.
Long-term debt increased $19,069 during the first nine months of 2017. On May 25, 2017, the Company entered into a credit agreement with a commercial bank and borrowed $25,000. This credit agreement replaced a prior credit agreement with the same commercial bank that had a remaining balance of $3,000. The additional borrowing was used to make a capital injection into the Company's subsidiary, West Bank. Principal and interest under the term note are payable quarterly over five years. Required quarterly principal payments are $625, with the balance due at maturity. The Company may make additional principal payments without penalty. The interest rate is variable at 1.95 percent over the 30-day LIBOR rate. The interest rate was 3.18 percent at September 30, 2017.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Borrowed Funds
Federal funds purchased and other short-term borrowings increased from $200,000 at December 31, 2022 to $261,510 as of September 30, 2023. The fluctuations in the balances of federal funds purchased and other short-term borrowings is based on customer loan and deposit activity and the Company's balance sheet management objectives, which from time to time may require the Company to draw on the federal funds purchased lines with our correspondent banks, FHLB advances or other liquidity sources.
The Company had $315,000 of FHLB advances outstanding at September 30, 2023, $295,000 of which are one-month rolling advances hedged with long-term interest rate swaps. In the first nine months of 2023, the Company entered into seven additional long-term interest rate swap agreements hedging interest payments of one-month rolling funding with a total notional amount of $140,000. As of September 30, 2023, the Company had long-term interest rate swap agreements with a total notional amount of $295,000 to hedge the interest payments of one-month rolling funding consisting of FHLB advances or brokered deposits. These interest rate swaps have maturity dates ranging from August 2024 through June 2029 and fixed rates ranging from 1.69 percent to 4.65 percent. This strategy of hedging short-term rolling funding effectively provides fixed cost wholesale funding through the maturity dates of the various interest rate swaps.
Liquidity and Capital Resources
The objectives of liquidity management are to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for profitable business expansion. The Company's principal source of funds is deposits. Other sources include loan principal repayments, proceeds from the maturity and sale of investment securities, principal payments on collateralized mortgage obligations, mortgage-backed and asset-backedamortizing securities, federal funds purchased, advances from the FHLB, other wholesale funding and funds provided by operations. Liquidity management is conducted on both a daily and a long-term basis. Investments in liquid assets are adjusted based on expected loan demand, projected loan and investment securities maturities and payments, expected deposit flows and the objectives set by the Company's asset-liability management policy. The Company had liquid assets (cash and cash equivalents) of $39,497$20,621 as of September 30, 20172023 compared with $76,836$26,539 as of December 31, 2016.2022.
Our deposit growth strategy emphasizes core deposit growth. Deposit inflows and outflows can vary widely and are influenced by prevailing market interest rates, competition, local and national economic conditions, fluctuations in our business customers' own liquidity needs and recent developments in the financial services industry. The Company utilizes brokered deposits and other wholesale funding to supplement core deposit fluctuations and loan growth. Brokered deposits are obtained through various programs administered by IntraFi®, including IntraFi® Network Deposits and IntraFi® Funding, and through other third parties. At September 30, 2023, the Company had $237,047 in brokered deposits, which included fixed-rate deposits with terms through September 2024 and variable-rate deposits with terms through February 2025.
As of September 30, 2017,2023, West Bank had additional borrowing capacity available from the FHLB of approximately $255,000,$408,000, as well as $67,000approximately $3,000 through the Federal Reserve discount window, $35,000 through unsecured federal funds lines of credit with correspondent banks.banks, and approximately $97,000 through the new Federal Reserve Bank Term Funding Program. The Bank Term Funding Program was established by the Federal Reserve in March 2023 to provide an additional source of liquidity against high-quality securities. As of September 30, 2023, West Bank had pledged approximately $97,000 in eligible securities to facilitate participation in the program. No funds were borrowed from the Federal Reserve discount window or Bank Term Funding Program during the nine months ended September 30, 2023. Net cash from operating activities contributed $21,979$18,044 to liquidity for the nine months ended September 30, 2017.2023. Management believed that the combination of high levels of potentially liquid assets, unencumbered securities, cash flows from operations, and additional borrowing capacity provided theare sufficient to meet our liquidity and capital needs.
The Company with strong liquidityhad remaining commitments to invest in qualified affordable housing projects totaling $1,811 and $3,431 as of September 30, 2017.2023 and December 31, 2022, respectively.
West Bank entered into a construction contract in 2022 for the construction of a new headquarters building in West Des Moines, Iowa. West Bank will pay the contractor a contract price consisting of the cost of work plus a fee, subject to a guaranteed maximum price of $42,309, with anticipated construction completed in 2024. As of September 30, 2023, there was a remaining commitment of $18,625 under this contract. West Bank is also building a new office in Mankato, Minnesota to be completed in the fourth quarter of 2023, which had a remaining commitment of $2,023 as of September 30, 2023.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
Capital
The Company's total stockholders' equity increaseddecreased to $178,087$203,933 at September 30, 20172023 from $165,376$211,112 at December 31, 2016.2022. The increasedecrease was primarily the result of net income less dividends paid, and anthe increase in accumulated other comprehensive income.
loss and the adjustment made upon the adoption of ASU 2016-13, partially offset by net income less dividends paid. The increase in accumulated other comprehensive loss is primarily the result of the negative effect that rising interest rates have had on the unrealized market value adjustment of our available for sale investment portfolio. While accumulated other comprehensive losses reduce tangible common equity, they have no impact on regulatory capital. At September 30, 2017,2023, the Company's tangible common equity as a percent of tangible assets was 8.775.51 percent compared to 8.925.84 percent as of December 31, 2016.2022.
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 accounting practices. 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 September 30, 2017.2023.
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)
The Company's and West Bank's capital amounts and ratios are presented in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 September 30, 2023 | | | | | | | | | | | | | | | |
Total Capital (to Risk-Weighted Assets) | | | | | | | | | | | | |
Consolidated | $ | 418,004 | | | 11.96 | % | | $ | 279,615 | | | 8.00 | % | | $ | 366,995 | | | 10.50 | % | | $ | 349,519 | | | 10.00 | % |
West Bank | 450,074 | | | 12.89 | % | | 279,438 | | | 8.00 | % | | 366,762 | | | 10.50 | % | | 349,297 | | | 10.00 | % |
| | | | | | | | | | | | | | | |
Tier 1 Capital (to Risk-Weighted Assets) | | | | | | | | | | | | |
Consolidated | 327,512 | | | 9.37 | % | | 209,711 | | | 6.00 | % | | 297,091 | | | 8.50 | % | | 279,615 | | | 8.00 | % |
West Bank | 419,582 | | | 12.01 | % | | 209,578 | | | 6.00 | % | | 296,902 | | | 8.50 | % | | 279,438 | | | 8.00 | % |
| | | | | | | | | | | | | | | |
Common Equity Tier 1 Capital (to Risk-Weighted Assets) | | | | | | | | | | |
Consolidated | 307,512 | | | 8.80 | % | | 157,283 | | | 4.50 | % | | 244,663 | | | 7.00 | % | | 227,187 | | | 6.50 | % |
West Bank | 419,582 | | | 12.01 | % | | 157,184 | | | 4.50 | % | | 244,508 | | | 7.00 | % | | 227,043 | | | 6.50 | % |
| | | | | | | | | | | | | | | |
Tier 1 Capital (to Average Assets) | | | | | | | | | | | | |
Consolidated | 327,512 | | | 8.58 | % | | 152,692 | | | 4.00 | % | | 152,692 | | | 4.00 | % | | 190,865 | | | 5.00 | % |
West Bank | 419,582 | | | 11.00 | % | | 152,619 | | | 4.00 | % | | 152,619 | | | 4.00 | % | | 190,774 | | | 5.00 | % |
| | | | | | | | | | | | | | | |
As of December 31, 2022 | | | | | | | | | | | | | | | |
Total Capital (to Risk-Weighted Assets) | | | | | | | | | | | | |
Consolidated | $ | 408,056 | | | 12.08 | % | | $ | 270,221 | | | 8.00 | % | | $ | 354,665 | | | 10.50 | % | | $ | 337,776 | | | 10.00 | % |
West Bank | 441,628 | | | 13.08 | % | | 270,053 | | | 8.00 | % | | 354,445 | | | 10.50 | % | | 337,566 | | | 10.00 | % |
| | | | | | | | | | | | | | | |
Tier 1 Capital (to Risk-Weighted Assets) | | | | | | | | | | | | |
Consolidated | 322,583 | | | 9.55 | % | | 202,666 | | | 6.00 | % | | 287,110 | | | 8.50 | % | | 270,221 | | | 8.00 | % |
West Bank | 416,155 | | | 12.33 | % | | 202,540 | | | 6.00 | % | | 286,931 | | | 8.50 | % | | 270,053 | | | 8.00 | % |
| | | | | | | | | | | | | | | |
Common Equity Tier 1 Capital (to Risk-Weighted Assets) | | | | | | | | | | |
Consolidated | 302,583 | | | 8.96 | % | | 151,999 | | | 4.50 | % | | 236,443 | | | 7.00 | % | | 219,555 | | | 6.50 | % |
West Bank | 416,155 | | | 12.33 | % | | 151,905 | | | 4.50 | % | | 236,296 | | | 7.00 | % | | 219,418 | | | 6.50 | % |
| | | | | | | | | | | | | | | |
Tier 1 Capital (to Average Assets) | | | | | | | | | | | | |
Consolidated | 322,583 | | | 8.81 | % | | 146,439 | | | 4.00 | % | | 146,439 | | | 4.00 | % | | 183,049 | | | 5.00 | % |
West Bank | 416,155 | | | 11.37 | % | | 146,367 | | | 4.00 | % | | 146,367 | | | 4.00 | % | | 182,958 | | | 5.00 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Actual | | For Capital Adequacy Purposes With Capital Conservation Buffer | | To Be Well-Capitalized Under Prompt Corrective Action Provisions |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
As of September 30, 2017: | | | | | | | | | | | |
Total Capital (to Risk-Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 214,373 |
| | 12.01 | % | | $ | 165,070 |
| | 9.25 | % | | N/A |
| | N/A |
|
West Bank | 235,067 |
| | 13.18 | % | | 164,963 |
| | 9.25 | % | | $ | 178,339 |
| | 10.00 | % |
| |
| | |
| | |
| | |
| | |
| | |
|
Tier 1 Capital (to Risk-Weighted Assets) | |
| | |
| | |
| | |
| | |
| | |
|
Consolidated | 198,015 |
| | 11.10 | % | | 129,379 |
| | 7.25 | % | | N/A |
| | N/A |
|
West Bank | 218,709 |
| | 12.26 | % | | 129,295 |
| | 7.25 | % | | 142,671 |
| | 8.00 | % |
| | | | | | | | | | | |
Common Equity Tier 1 Capital (to Risk-Weighted Assets) | | | | | | | | | | |
Consolidated | 178,015 |
| | 9.98 | % | | 102,611 |
| | 5.75 | % | | N/A |
| | N/A |
|
West Bank | 218,709 |
| | 12.26 | % | | 102,545 |
| | 5.75 | % | | 115,920 |
| | 6.50 | % |
| |
| | |
| | |
| | |
| | |
| | |
|
Tier 1 Capital (to Average Assets) | |
| | |
| | |
| | |
| | |
| | |
|
Consolidated | 198,015 |
| | 10.06 | % | | 78,738 |
| | 4.00 | % | | N/A |
| | N/A |
|
West Bank | 218,709 |
| | 11.12 | % | | 78,694 |
| | 4.00 | % | | 98,368 |
| | 5.00 | % |
| |
| | |
| | |
| | |
| | |
| | |
|
As of December 31, 2016: | |
| | |
| | |
| | |
| | |
| | |
|
Total Capital (to Risk-Weighted Assets) | |
| | |
| | |
| | |
| | |
| | |
|
Consolidated | $ | 202,530 |
| | 11.87 | % | | $ | 147,108 |
| | 8.625 | % | | N/A |
| | N/A |
|
West Bank | 186,118 |
| | 11.04 | % | | 145,414 |
| | 8.625 | % | | $ | 168,597 |
| | 10.00 | % |
| |
| | |
| | |
| | |
| | |
| | |
|
Tier 1 Capital (to Risk-Weighted Assets) | |
| | |
| | |
| | |
| | |
| | |
|
Consolidated | 186,418 |
| | 10.93 | % | | 112,996 |
| | 6.625 | % | | N/A |
| | N/A |
|
West Bank | 170,006 |
| | 10.08 | % | | 111,695 |
| | 6.625 | % | | 134,877 |
| | 8.00 | % |
| | | | | | | | | | | |
Common Equity Tier 1 Capital (to Risk-Weighted Assets) | | | | | | | | | | |
Consolidated | 166,418 |
| | 9.76 | % | | 87,412 |
| | 5.125 | % | | N/A |
| | N/A |
|
West Bank | 170,006 |
| | 10.08 | % | | 86,406 |
| | 5.125 | % | | 109,588 |
| | 6.50 | % |
| | | | | | | | | | | |
Tier 1 Capital (to Average Assets) | |
| | |
| | |
| | |
| | |
| | |
|
Consolidated | 186,418 |
| | 10.14 | % | | 73,530 |
| | 4.00 | % | | N/A |
| | N/A |
|
West Bank | 170,006 |
| | 9.34 | % | | 72,807 |
| | 4.00 | % | | 91,009 |
| | 5.00 | % |
On January 1, 2015, theThe Company and West Bank becameare subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act changes. The new rules included the implementation of a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. The capital conservation buffer is subject to a three year phase-in period that began on January 1, 2016 and will be fully phased-in on January 1, 2019 at 2.5 percent. The required phase-in capital conservation buffer during 2017 is 1.25 percent. A banking organization with a capital 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 September 30, 2017,2023, the capital ratios for the Company and West Bank were sufficient to meet the fully phased-in conservation buffer.
In late May 2017, the Company made a capital injection into the Company's subsidiary, West Bank, funded by entering into a $25,000 credit agreement with an unaffiliated commercial bank (see Note 5 to the Consolidated Financial Statements) and selling four bank buildings to West Bank for $18,000. The four bank buildings were properties the Company had previously owned and leased to West Bank. The new credit agreement replaced a prior credit agreement that had a remaining outstanding balance of $3,000, for net loan proceeds of $22,000. In total, $40,000 was added to West Bank's capital.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of earnings volatility that results from adverse changes in interest rates and market prices. The Company'sCompany’s market risk is composed primarily of interest rate risk arising from its core banking activities of lending and deposit taking. Interest rate risk refers to the exposure arising from changes in interest rates. Fluctuations in interest rates have a significant impact not only upon net income, but also upon the cash flows and market values of assets and liabilities. Our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities. Management continually develops and applies strategies to mitigate this risk.
The Company’s objectives are to manage interest rate risk to foster consistent growth of earnings and capital. It is our policy to maintain an acceptable level of interest rate risk over a range of possible changes in interest rates while remaining responsive to market demand for loan and deposit products. To measure that risk, the Company uses an earnings simulation approach.
The Company has an Asset Liability Committee which meets quarterly to review the interest rate sensitivity position and to review and develop various strategies for managing interest rate risk. Measuring and maintaining interest rate risk is a dynamic process that management performs with the changeobjective of maximizing net interest margin while maintaining interest rate risk within acceptable tolerances. This process relies primarily on the simulation of net interest income over multiple interest rate scenarios. The Company engages a third party that utilizes a modeling program to measure the Company’s exposure to potential interest rate changes. For various assumed hypothetical changes in market interest rates, may adversely affectthis analysis measures the Company'sestimated change in net interest income. Management continually developsThe simulations allow for ongoing assessment of interest rate sensitivity and implements strategies to mitigate this risk.can include the impact of potential new business strategies. The analysismodeled scenarios begin with a base case in which rates are unchanged and include parallel and nonparallel rate shocks. The results of these shocks are measured in two forms: first, the impact on the net interest margin and earnings over one and two year time frames; and second, the impact on the market value of equity. The results of the Company'ssimulation are compared against approved policy limits.
The following table presents the estimated change in net interest income for one year under several scenarios of assumed interest rate risk as of December 31, 2016 was presentedchanges for the rate shock levels shown. The changes in each interest rate scenario represents the difference between estimated net interest income in the Company's Form 10-K filed with the Securities and Exchange Commission on March 1, 2017. The Company has not experienced any material changes to itsunchanged interest rate risk position since December 31, 2016. Management does not believe thatscenario, or the Company's primary market risk exposurebase case, and managementthe estimated net interest income in each of that exposurethe alternative interest rate scenarios. The net interest income in each scenario is based on immediate parallel yield curve changes in the first nine monthsinterest rates applied to a static balance sheet. These do not reflect earnings expectations of 2017 materially changed comparedmanagement.
| | | | | | | | | | | | | | |
| | Net Interest Income at September 30, 2023 |
Change in Interest Rates | | $ Change | | % Change |
300 basis points rising | | $(10,761) | | (14.24)% |
200 basis points rising | | (6,727) | | (8.90) |
100 basis points rising | | (3,792) | | (5.02) |
100 basis points falling | | 3,907 | | 5.17 |
200 basis points falling | | 6,564 | | 8.69 |
Computations of the prospective effects of hypothetical interest rate changes are based on numerous assumptions. The assumptions used in our interest rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates on net interest income. Actual results may differ from those projections set forth above due to thosetiming, magnitude and frequency of interest rate changes as well as changes in market conditions and customer behavior. Further, the year ended December 31, 2016.computations do not contemplate any actions the Company may undertake in response to changes in interest rates.
Item 4. Controls and Procedures
a. Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) was performed under the supervision, and with the participation, of the Company's Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission'sSEC's rules and forms.
b. Changes in internal controlscontrol over financial reporting. There were no changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PartPART II - OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 1A. Risk Factors
Management does not believe there have been any material changes in the risk factors that were disclosed in the Company's Form 10-K filed with the Securities and Exchange Commission on March 1, 2017.February 23, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.During the fiscal quarter ended September 30, 2023, none of the Company's directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement."
Item 6. Exhibits
The following exhibits are filed as part of this report:
|
| | | | |
Exhibits | Description |
31.13.1 | |
3.2 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and combined in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
West Bancorporation, Inc. | | | |
(Registrant) | | | |
| | | |
| | | |
October 26, 2023 | By: | /s/ David D. Nelson | |
Date | | David D. Nelson | |
| | Chief Executive Officer and President | |
| | (Principal Executive Officer) | |
| | | |
West Bancorporation, Inc.October 26, 2023 | By: | /s/ Jane M. Funk | |
(Registrant)Date | | Jane M. Funk | |
| | | |
| | | |
October 26, 2017 | By: | /s/ David D. Nelson | |
Date | | David D. Nelson | |
| | Chief Executive Officer and President | |
| | (Principal Executive Officer) | |
| | | |
October 26, 2017 | By: | /s/ Douglas R. Gulling | |
Date | | Douglas R. Gulling | |
| | Executive Vice President, Treasurer and Chief Financial Officer | |
| | (Principal Financial Officer) | |
| | | |
October 26, 2017 | By: | /s/ Marie I. Roberts | |
Date | | Marie I. Roberts | |
| | Senior Vice President, Controller and Chief Accounting Officer | |
| | (Principal Accounting Officer) | |