Document

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

FORM 10-Q

(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2018
 
 
or
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________

Commission File Number:  0-49677

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

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

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

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

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

Yes  x                      No  o

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

Yes  x                      No  o

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o



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

Yes  o                      No  x


As of April 25, 2018, there were 16,271,494 shares of common stock, no par value, outstanding.



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

3


Table of Contents


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

 
$
34,952

Federal funds sold
 
488

 
12,997

Cash and cash equivalents
 
37,466

 
47,949

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

 
444,219

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

 
45,527

Federal Home Loan Bank stock, at cost
 
10,130

 
9,174

Loans
 
1,502,283

 
1,510,500

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

 
1,494,070

Premises and equipment, net
 
22,682

 
23,022

Accrued interest receivable
 
7,287

 
7,344

Bank-owned life insurance
 
33,776

 
33,618

Deferred tax assets, net
 
5,625

 
4,645

Other assets
 
6,454

 
4,809

Total assets
 
$
2,092,025

 
$
2,114,377

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

 
$
395,888

Interest-bearing demand
 
314,546

 
395,052

Savings
 
854,941

 
850,216

Time of $250 or more
 
26,224

 
16,965

Other time
 
148,347

 
152,692

Total deposits
 
1,738,158

 
1,810,813

Federal funds purchased
 
51,820

 
545

Subordinated notes, net
 
20,415

 
20,412

Federal Home Loan Bank advances, net
 
76,751

 
76,382

Long-term debt
 
21,639

 
22,917

Accrued expenses and other liabilities
 
5,000

 
5,210

Total liabilities
 
1,913,783

 
1,936,279

COMMITMENTS AND CONTINGENCIES (NOTE 8)
 

 

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

 

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

 
3,000

Additional paid-in capital
 
22,916

 
23,463

Retained earnings
 
158,362

 
153,527

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

 
178,098

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

 
$
2,114,377

See Notes to Consolidated Financial Statements.

4


Table of Contents


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

 
$
14,969

Investment securities:
 
 
 
 
Taxable
 
1,813

 
1,027

Tax-exempt
 
1,362

 
778

Federal funds sold
 
81

 
17

Total interest income
 
19,730

 
16,791

Interest expense:
 
 

 
 

Deposits
 
3,012

 
1,195

Federal funds purchased
 
27

 
46

Subordinated notes
 
248

 
212

Federal Home Loan Bank advances
 
832

 
917

Long-term debt
 
195

 
32

Total interest expense
 
4,314

 
2,402

Net interest income
 
15,416

 
14,389

Provision for loan losses
 
150

 

Net interest income after provision for loan losses
 
15,266

 
14,389

Noninterest income:
 
 

 
 

Service charges on deposit accounts
 
649

 
600

Debit card usage fees
 
399

 
440

Trust services
 
445

 
392

Increase in cash value of bank-owned life insurance
 
158

 
154

Gain from bank-owned life insurance
 

 
307

Realized investment securities losses, net
 

 
(3
)
Other income
 
262

 
270

Total noninterest income
 
1,913

 
2,160

Noninterest expense:
 
 

 
 

Salaries and employee benefits
 
4,513

 
4,337

Occupancy
 
1,223

 
1,097

Data processing
 
676

 
688

FDIC insurance
 
162

 
213

Professional fees
 
234

 
293

Director fees
 
249

 
211

Other expenses
 
1,230

 
1,204

Total noninterest expense
 
8,287

 
8,043

Income before income taxes
 
8,892

 
8,506

Income taxes
 
1,508

 
2,400

Net income
 
$
7,384

 
$
6,106

 
 
 
 
 
Basic earnings per common share
 
$
0.46

 
$
0.38

Diluted earnings per common share
 
$
0.45

 
$
0.37

Cash dividends declared per common share
 
$
0.18

 
$
0.17

See Notes to Consolidated Financial Statements.

5


Table of Contents


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

 
$
6,106

Other comprehensive income (loss) :
 
 

 
 

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

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

 

Plus: reclassification adjustment for net losses realized in net income
 

 
3

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

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

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

 
9

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

 
90

Plus: reclassification adjustment for amortization of derivative termination costs
 
23

 
27

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

 
78

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

1,072

Comprehensive income
 
$
3,610

 
$
7,178


See Notes to Consolidated Financial Statements.
 

6


Table of Contents


West Bancorporation, Inc. and Subsidiary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
Other
 
 
 
 
Preferred
 
Common Stock
 
Paid-In
 
Retained
 
Comprehensive
 
 
(in thousands, except share and per share data)
 
Stock
 
Shares
 
Amount
 
Capital
 
Earnings
 
Income (Loss)
 
Total
Balance, December 31, 2016
 
$

 
16,137,999

 
$
3,000

 
$
21,462

 
$
141,956

 
$
(1,042
)
 
$
165,376

Net income
 

 

 

 

 
6,106

 

 
6,106

Other comprehensive income, net of tax
 

 

 

 

 

 
1,072

 
1,072

Cash dividends declared, $0.17 per common share
 

 

 

 

 
(2,743
)
 

 
(2,743
)
Stock-based compensation costs
 

 

 

 
514

 

 

 
514

Issuance of common stock upon vesting of restricted
 


 


 


 


 


 


 
 
stock units, net of shares withheld for payroll taxes
 

 
49,162

 

 
(553
)
 

 

 
(553
)
Balance, March 31, 2017
 
$

 
16,187,161

 
$
3,000

 
$
21,423

 
$
145,319

 
$
30

 
$
169,772

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
 
$

 
16,215,672

 
$
3,000

 
$
23,463

 
$
153,527

 
$
(1,892
)
 
$
178,098

Reclassification of stranded tax effects of rate change
 

 

 

 

 
370

 
(370
)
 

Net income
 

 

 

 

 
7,384

 

 
7,384

Other comprehensive loss, net of tax
 

 

 

 

 

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

 

 

 

 
(2,919
)
 

 
(2,919
)
Stock-based compensation costs
 

 

 

 
529

 

 

 
529

Issuance of common stock upon vesting of restricted
 


 


 


 


 


 


 
 
stock units, net of shares withheld for payroll taxes
 

 
55,822

 

 
(1,076
)
 

 

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

 
16,271,494


$
3,000

 
$
22,916

 
$
158,362

 
$
(6,036
)
 
$
178,242


See Notes to Consolidated Financial Statements.


7


Table of Contents


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

 
$
6,106

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

 

Net amortization and accretion
 
1,252

 
904

Investment securities losses, net
 

 
3

Stock-based compensation
 
529

 
514

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

 
(307
)
Depreciation
 
353

 
341

Deferred income taxes
 
279

 
450

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

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

 
7,076

Cash Flows from Investing Activities:
 
 

 
 

Proceeds from sales of securities available for sale
 

 
8,999

Proceeds from maturities and calls of investment securities
 
9,464

 
12,437

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

 
5,695

Net (increase) decrease in loans
 
8,102

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

 
451

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

 
(47,142
)
Cash Flows from Financing Activities:
 
 

 
 

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

 
27,735

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

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

 
76,836

Ending
 
$
37,466

 
$
42,530

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

 
$
2,361

Income taxes
 

 

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

 
$

See Notes to Consolidated Financial Statements.

8


Table of Contents

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


1.  Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by West Bancorporation, Inc. (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. Although management believes that the disclosures are adequate to make the information presented understandable, it is suggested that these interim consolidated financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2017.  In the opinion of management, the accompanying consolidated financial statements of the Company contain all adjustments necessary to fairly present its financial position as of March 31, 2018 and December 31, 2017, and net income, comprehensive income and cash flows for the three months ended March 31, 2018 and 2017.  The results for these interim periods may not be indicative of results for the entire year or for any other period.

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

The accompanying unaudited consolidated financial statements include the accounts of the Company, West Bank and West Bank's wholly-owned subsidiary WB Funding Corporation (which was liquidated in March 2018).  All significant intercompany transactions and balances have been eliminated in consolidation.  In accordance with GAAP, West Bancorporation Capital Trust I is recorded on the books of the Company using the equity method of accounting and is not consolidated.

Current accounting developments:  In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the Codification. For public companies, this update was effective for interim and annual periods beginning after December 15, 2017. The Company adopted the guidance effective January 1, 2018, using the modified retrospective method. The Company's revenue is primarily composed of interest income on financial instruments, including investment securities and loans, which are excluded from the scope of this update. Also excluded from the scope of the update is revenue from bank-owned life insurance, loan fees and letter of credit fees. Approximately 90 percent of the Company's revenue is outside the scope of this update. Deposit account related fees, including service charges, debit card usage fees, overdraft fees and wire transfer fees are within the scope of the guidance; however, revenue recognition practices did not change under the guidance, as deposit agreements are considered day-to-day contracts. Deposit account transaction related fees will continue to be recognized as the services are performed. Other noninterest income sources of revenue are considered immaterial. Implementation of the guidance did not change current business practices. Implementation of the guidance did not have a material impact on the Company's consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information by updating certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Among other changes, the update requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and clarifies that entities should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entities' other deferred tax assets. For public companies, this update was effective for interim and annual periods beginning after December 15, 2017. The Company adopted the guidance effective January 1, 2018, using the modified retrospective method. Upon adoption, the fair value of the Company's loan portfolio is now presented using an exit price method. Also, the Company is no longer required to disclose the methodologies used for estimating fair value of financial assets and liabilities that are not measured at fair value on a recurring or nonrecurring basis. The remaining requirements of this update did not have a material impact on the Company's consolidated financial statements.


9


Table of Contents

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


In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in the update supersedes the requirements in ASC Topic 840, Leases. The guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for leases with terms of more than 12 months. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2018, and is to be applied on a modified retrospective basis. The Company currently leases its main location and space for six other branch offices and operational departments under operating leases that will result in recognition of lease assets and lease liabilities on the consolidated balance sheets under the update. The amount of assets and liabilities added to the balance sheet are not expected to have a material impact on the Company's consolidated financial statements per preliminary estimates.

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

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

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


10


Table of Contents

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


2.  Earnings per Common Share

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding for the period.  Diluted earnings per common share reflect the potential dilution that could occur if the Company's outstanding restricted stock units were vested. The dilutive effect was computed using the treasury stock method, which assumes all stock-based awards were exercised and the hypothetical proceeds from exercise were used by the Company to purchase common stock at the average market price during the period.  The incremental shares, to the extent they would have been dilutive, were included in the denominator of the diluted earnings per common share calculation.  The calculations of earnings per common share and diluted earnings per common share for the three months ended March 31, 2018 and 2017 are presented in the following table.
 
Three Months Ended March 31,
(in thousands, except per share data)
2018
 
2017
Net income
$
7,384

 
$
6,106

 
 
 
 
Weighted average common shares outstanding
16,219

 
16,141

Weighted average effect of restricted stock units outstanding
189

 
151

Diluted weighted average common shares outstanding
16,408

 
16,292

 
 

 
 

Basic earnings per common share
$
0.46

 
$
0.38

Diluted earnings per common share
$
0.45

 
$
0.37

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

 



11


Table of Contents

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


3.  Investment Securities

The following tables show the amortized cost, gross unrealized gains and losses, and fair value of investment securities, by investment security type as of March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
Securities available for sale:
 
 
 
 
 
 
 
State and political subdivisions
$
191,622

 
$
293

 
$
(4,242
)
 
$
187,673

Collateralized mortgage obligations (1)
156,873

 
3

 
(4,421
)
 
152,455

Mortgage-backed securities (1)
58,565

 
7

 
(1,118
)
 
57,454

Asset-backed securities (2)
43,562

 
66

 
(323
)
 
43,305

Trust preferred security
2,139

 

 
(139
)
 
2,000

Corporate notes
40,278

 
270

 
(648
)
 
39,900

 
$
493,039

 
$
639

 
$
(10,891
)
 
$
482,787

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

 
$
928

 
$
(946
)
 
$
146,313

Collateralized mortgage obligations (1)
162,631

 
28

 
(2,727
)
 
159,932

Mortgage-backed securities (1)
60,956

 
20

 
(547
)
 
60,429

Asset-backed securities (2)
45,539

 
8

 
(352
)
 
45,195

Trust preferred security
2,134

 

 
(128
)
 
2,006

Corporate notes
30,278

 
331

 
(265
)
 
30,344

 
$
447,869

 
$
1,315

 
$
(4,965
)
 
$
444,219

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

 
$
460

 
$
(97
)
 
$
45,890

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

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

Investment securities with an amortized cost of approximately $117,276 and $120,338 as of March 31, 2018 and December 31, 2017, respectively, were pledged to secure access to the Federal Reserve discount window, for public fund deposits, and for other purposes as required or permitted by law or regulation.

12


Table of Contents

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


The amortized cost and fair value of investment securities available for sale as of March 31, 2018, by contractual maturity, are shown below. Certain securities have call features that allow the issuer to call the securities prior to maturity.  Expected maturities may differ from contractual maturities for collateralized mortgage obligations, mortgage-backed securities and asset-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Therefore, collateralized mortgage obligations, mortgage-backed securities and asset-backed securities are not included in the maturity categories within the following maturity summary.
 
March 31, 2018
 
Amortized Cost
 
Fair Value
Due in one year or less
$
110

 
$
110

Due after one year through five years
3,946

 
3,926

Due after five years through ten years
74,586

 
73,682

Due after ten years
155,397

 
151,855

 
234,039

 
229,573

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

 
253,214

 
$
493,039

 
$
482,787

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

 
$
8,999

Gross gains on sales

 
39

Gross losses on sales

 
42


13


Table of Contents

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


The following tables show the fair value and gross unrealized losses, aggregated by investment type and length of time that individual securities have been in a continuous loss position, as of March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
Less than 12 months
 
12 months or longer
 
Total
 
Fair
Value
 
Gross
Unrealized
(Losses)
 
Fair
Value
 
Gross
Unrealized
(Losses)
 
Fair
Value
 
Gross
Unrealized
(Losses)
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
$
156,316

 
$
(4,232
)
 
$
1,727

 
$
(10
)
 
$
158,043

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

 
(2,778
)
 
43,597

 
(1,643
)
 
150,220

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

 
(1,118
)
 

 

 
53,791

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

 
(323
)
 

 

 
29,837

 
(323
)
Trust preferred security

 

 
2,000

 
(139
)
 
2,000

 
(139
)
Corporate notes
24,347

 
(648
)
 

 

 
24,347

 
(648
)
 
$
370,914

 
$
(9,099
)
 
$
47,324

 
$
(1,792
)
 
$
418,238

 
$
(10,891
)
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
Less than 12 months
 
12 months or longer
 
Total
 
Fair
Value
 
Gross
Unrealized
(Losses)
 
Fair
Value
 
Gross
Unrealized
(Losses)
 
Fair
Value
 
Gross
Unrealized
(Losses)
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
$
86,750

 
$
(946
)
 
$

 
$

 
$
86,750

 
$
(946
)
Collateralized mortgage obligations
107,526

 
(1,583
)
 
46,396

 
(1,144
)
 
153,922

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

 
(547
)
 

 

 
53,974

 
(547
)
Asset-backed securities
38,652

 
(352
)
 

 

 
38,652

 
(352
)
Trust preferred security

 

 
2,006

 
(128
)
 
2,006

 
(128
)
Corporate notes
14,735

 
(265
)
 

 

 
14,735

 
(265
)
 
$
301,637

 
$
(3,693
)
 
$
48,402

 
$
(1,272
)
 
$
350,039

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

 
$
(70
)
 
$
1,740

 
$
(27
)
 
$
14,351

 
$
(97
)
As of March 31, 2018, the available for sale securities with unrealized losses included 225 state and political subdivision securities, 41 collateralized mortgage obligation securities, 15 mortgage-backed securities, five asset-backed securities, one trust preferred security and nine corporate notes. The Company believed the unrealized losses on investments available for sale as of March 31, 2018 were due to market conditions rather than reduced estimated cash flows. The Company does not intend to sell these securities, does not anticipate that these securities will be required to be sold before anticipated recovery, and expects full principal and interest to be collected. Therefore, the Company did not consider these investments to have other than temporary impairment as of March 31, 2018.



14


Table of Contents

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


4. Loans and Allowance for Loan Losses

Loans consisted of the following segments as of March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
December 31, 2017
Commercial
$
316,188

 
$
347,482

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

 
207,451

1-4 family residential first mortgages
50,229

 
51,044

Home equity
13,756

 
13,811

Commercial
944,067

 
886,114

Consumer and other
6,450

 
6,363

 
1,504,185

 
1,512,265

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

 
$
1,510,500

Real estate loans of approximately $730,000 and $810,000 were pledged as security for Federal Home Loan Bank (FHLB) advances as of March 31, 2018 and December 31, 2017, respectively.

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

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

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

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

  





15


Table of Contents

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


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

The following table summarizes the recorded investment in impaired loans by segment, broken down by loans with no related allowance for loan losses and loans with a related allowance and the amount of that allowance as of March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
December 31, 2017
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
883

 
$
883

 
$

 
$

 
$

 
$

Real estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

 

 

1-4 family residential first mortgages
122

 
122

 

 
91

 
91

 

Home equity
172

 
172

 

 
172

 
172

 

Commercial
798

 
798

 

 
220

 
220

 

Consumer and other

 

 

 

 

 

 
1,975

 
1,975

 

 
483

 
483

 

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial

 

 

 

 

 

Real estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

 

 

1-4 family residential first mortgages

 

 

 

 

 

Home equity
18

 
18

 
18

 
21

 
21

 
21

Commercial
114

 
114

 
114

 
118

 
118

 
118

Consumer and other

 

 

 

 

 

 
132

 
132

 
132

 
139

 
139

 
139

Total:
 
 
 
 
 
 
 
 
 
 
 
Commercial
883

 
883

 

 

 

 

Real estate:
 
 
 
 
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

 

 

1-4 family residential first mortgages
122

 
122

 

 
91

 
91

 

Home equity
190

 
190

 
18

 
193

 
193

 
21

Commercial
912

 
912

 
114

 
338

 
338

 
118

Consumer and other

 

 

 

 

 

 
$
2,107

 
$
2,107

 
$
132

 
$
622

 
$
622

 
$
139

   
The balance of impaired loans at March 31, 2018 and December 31, 2017 was composed of seven and five different borrowers, respectively. The Company has no commitments to advance additional funds on any of the impaired loans.



16


Table of Contents

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


The following table summarizes the average recorded investment and interest income recognized on impaired loans by segment for the three months ended March 31, 2018 and 2017.
 
Three Months Ended March 31,
 
2018
 
2017
 
Average Recorded Investment
 
Interest Income Recognized
 
Average Recorded Investment
 
Interest Income Recognized
With no related allowance recorded:
 
 
 
 
 
 
 
Commercial
$
270

 
$

 
$
26

 
$

Real estate:
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

1-4 family residential first mortgages
115

 

 
107

 

Home equity
172

 

 
38

 

Commercial
357

 

 
319

 

Consumer and other

 

 

 

 
914

 

 
490

 

With an allowance recorded:
 
 
 
 
 
 
 
Commercial

 

 
89

 

Real estate:
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

1-4 family residential first mortgages

 

 

 

Home equity
20

 

 
272

 

Commercial
116

 

 
134

 

Consumer and other

 

 

 

 
136

 

 
495

 

Total:
 
 
 
 
 
 
 
Commercial
270

 

 
115

 

Real estate:
 
 
 
 
 
 
 
Construction, land and land development

 

 

 

1-4 family residential first mortgages
115

 

 
107

 

Home equity
192

 

 
310

 

Commercial
473

 

 
453

 

Consumer and other

 

 

 

 
$
1,050

 
$

 
$
985

 
$




17


Table of Contents

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


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

 
$
10

 
$

 
$
23

 
$
315,282

 
$
883

 
$
316,188

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction, land and
 
 
 
 
 
 
 
 
 
 
 
 
 
land development

 

 

 

 
173,495

 

 
173,495

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
first mortgages

 

 

 

 
50,107

 
122

 
50,229

Home equity
30

 

 

 
30

 
13,536

 
190

 
13,756

Commercial

 

 

 

 
943,155

 
912

 
944,067

Consumer and other

 

 

 

 
6,450

 

 
6,450

Total
$
43

 
$
10

 
$

 
$
53

 
$
1,502,025

 
$
2,107

 
$
1,504,185

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

 
$
20

 
$

 
$
60

 
$
347,422

 
$

 
$
347,482

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction, land and
 
 
 
 
 
 
 
 
 
 
 
 
 
land development

 

 

 

 
207,451

 

 
207,451

1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
first mortgages

 
75

 

 
75

 
50,878

 
91

 
51,044

Home equity

 

 

 

 
13,618

 
193

 
13,811

Commercial

 

 

 

 
885,776

 
338

 
886,114

Consumer and other

 

 

 

 
6,363

 

 
6,363

Total
$
40

 
$
95

 
$

 
$
135

 
$
1,511,508

 
$
622

 
$
1,512,265



18


Table of Contents

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 March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
Pass
 
Watch
 
Substandard
 
Doubtful
 
Total
Commercial
$
310,620

 
$
3,665

 
$
1,903

 
$

 
$
316,188

Real estate:
 
 
 
 
 
 
 
 
 
Construction, land and land development
172,324

 
1,171

 

 

 
173,495

1-4 family residential first mortgages
49,228

 
798

 
203

 

 
50,229

Home equity
13,415

 
51

 
290

 

 
13,756

Commercial
915,076

 
20,349

 
8,642

 

 
944,067

Consumer and other
6,416

 
34

 

 

 
6,450

Total
$
1,467,079

 
$
26,068

 
$
11,038

 
$

 
$
1,504,185

 
December 31, 2017
 
Pass
 
Watch
 
Substandard
 
Doubtful
 
Total
Commercial
$
344,586

 
$
901

 
$
1,995

 
$

 
$
347,482

Real estate:
 
 
 
 
 
 
 
 
 
Construction, land and land development
206,719

 
732

 

 

 
207,451

1-4 family residential first mortgages
49,905

 
890

 
249

 

 
51,044

Home equity
13,466

 
54

 
291

 

 
13,811

Commercial
856,789

 
20,574

 
8,751

 

 
886,114

Consumer and other
6,327

 
36

 

 

 
6,363

Total
$
1,477,792

 
$
23,187

 
$
11,286

 
$

 
$
1,512,265

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.


19


Table of Contents

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.

Credit quality indicators for all loans and the Company's risk rating process are dynamic and updated on a continuous basis. Risk ratings are updated as circumstances that could affect the repayment of an individual loan are brought to management's attention through an established monitoring process. Individual lenders initiate changes as appropriate for ratings 1 through 5, and changes for ratings 6 through 9 are initiated via communications with management. The likelihood of loss increases as the risk rating increases and is generally preceded by a loan appearing on the Watch List, which consists of all loans with a risk rating of 6 or worse. Written action plans with firm target dates for resolution of identified problems are maintained and reviewed on a quarterly basis for all segments of loans included on the Watch List.

In addition to the Company's internal credit monitoring practices and procedures, an outsourced independent credit review function is in place to further assess assigned internal risk classifications and monitor compliance with internal lending policies and procedures.

In all portfolio segments, the primary risks are that a borrower's income stream diminishes to the point that 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.


20


Table of Contents

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


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.

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 detail the changes in the allowance for loan losses by segment for the three months ended March 31, 2018 and 2017.
 
Three Months Ended March 31, 2018
 
 
 
Real Estate
 
 
 
 
 
Commercial
 
Construction and Land
 
1-4 Family Residential
 
Home Equity
 
Commercial
 
Consumer and Other
 
Total
Beginning balance
$
3,866

 
$
2,213

 
$
319

 
$
186

 
$
9,770

 
$
76

 
$
16,430

Charge-offs
(195
)
 

 

 
(1
)
 

 

 
(196
)
Recoveries
59

 

 
4

 
6

 
3

 
9

 
81

Provision (1)
(148
)
 
(360
)
 
(3
)
 
(5
)
 
669

 
(3
)
 
150

Ending balance
$
3,582

 
$
1,853

 
$
320

 
$
186

 
$
10,442

 
$
82

 
$
16,465

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 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
(60
)
 

 

 

 

 

 
(60
)
Recoveries
59

 
303

 
1

 
8

 
3

 
1

 
375

Provision (1)
(80
)
 
(28
)
 
(3
)
 
(39
)
 
148

 
2

 

Ending balance
$
3,800

 
$
2,914

 
$
315

 
$
447

 
$
8,848

 
$
103

 
$
16,427

(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.

21


Table of Contents

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


The following tables present a breakdown of the allowance for loan losses disaggregated on the basis of impairment analysis method by segment as of March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
 
 
Real Estate
 
 
 
 
 
Commercial
 
Construction and Land
 
1-4 Family Residential
 
Home Equity
 
Commercial
 
Consumer and Other
 
Total
Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$
18

 
$
114

 
$

 
$
132

Collectively evaluated for impairment
3,582

 
1,853

 
320

 
168

 
10,328

 
82

 
16,333

Total
$
3,582

 
$
1,853

 
$
320

 
$
186

 
$
10,442

 
$
82

 
$
16,465

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
Real Estate
 
 
 
 
 
Commercial
 
Construction and Land
 
1-4 Family Residential
 
Home Equity
 
Commercial
 
Consumer and Other
 
Total
Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$
21

 
$
118

 
$

 
$
139

Collectively evaluated for impairment
3,866

 
2,213

 
319

 
165

 
9,652

 
76

 
16,291

Total
$
3,866

 
$
2,213

 
$
319

 
$
186

 
$
9,770

 
$
76

 
$
16,430

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 March 31, 2018 and December 31, 2017.
 
March 31, 2018
 
 
 
Real Estate
 
 
 
 
 
Commercial
 
Construction and Land
 
1-4 Family Residential
 
Home Equity
 
Commercial
 
Consumer and Other
 
Total
Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
883

 
$

 
$
122

 
$
190

 
$
912

 
$

 
$
2,107

Collectively evaluated for impairment
315,305

 
173,495

 
50,107

 
13,566

 
943,155

 
6,450

 
1,502,078

Total
$
316,188

 
$
173,495

 
$
50,229

 
$
13,756

 
$
944,067

 
$
6,450

 
$
1,504,185

 
December 31, 2017
 
 
 
Real Estate
 
 
 
 
 
Commercial
 
Construction and Land
 
1-4 Family Residential
 
Home Equity
 
Commercial
 
Consumer and Other
 
Total
Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$
91

 
$
193

 
$
338

 
$

 
$
622

Collectively evaluated for impairment
347,482

 
207,451

 
50,953

 
13,618

 
885,776

 
6,363

 
1,511,643

Total
$
347,482

 
$
207,451

 
$
51,044

 
$
13,811

 
$
886,114

 
$
6,363

 
$
1,512,265



22


Table of Contents

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


5. Derivatives

The Company uses interest rate swap agreements to manage the interest rate risk related to the variability in interest payments due to changes in interest rates. The Company entered into two forward-starting interest rate swap transactions to effectively convert variable rate debt instruments to fixed rate instruments. These two swap transactions are designated as cash flow hedges of the changes in LIBOR, the benchmark interest rate being hedged, associated with the interest payments on $50,000 of debt instruments. In January 2018, the Company entered into a new interest rate swap agreement that effectively converts certain customer deposits with variable rates based on the federal funds upper target rate to fixed rate instruments. This swap transaction has a notional amount of $60,000 with a forward-starting date in December 2018 and is designated as a cash flow hedge of the risk of changes in total cash flows paid on certain customer deposits. The Company is exposed to credit risk in the event of nonperformance by counterparties to the interest rate swaps, which is minimized by collateral-pledging provisions in the agreements. Derivative contracts 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 March 31, 2018 and December 31, 2017, the Company pledged $0 and $210, respectively, of collateral to the counterparty in the form of cash on deposit with a third party. The Company's counterparty was required to pledge $2,580 and $980 at March 31, 2018 and December 31, 2017, respectively. The Company estimates there will be approximately $91 of cash payments and reclassification from accumulated other comprehensive income to interest expense through the 12 months ending March 31, 2019. Interest rate swaps with a total notional amount of $70,000 were terminated in 2015, subject to termination fees totaling $541. The termination fees are being reclassified from accumulated other comprehensive income to interest expense over the remaining life of the underlying cash flows through June 2020.

The table below identifies the balance sheet category and fair values of the Company's derivative instruments designated as cash flow hedges as of March 31, 2018 and December 31, 2017.
 
 
Notional
Amount
 
Fair Value
 
Balance Sheet
Category
 
Weighted Average Receive Rate
 
Weighted Average Pay Rate
 
Maturity
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap
 
$
30,000

 
$
256

 
Other Assets
 
2.53
%
 
2.52
%
 
9/21/2020
Interest rate swap(1)
 
20,000

 
1,423

 
Other Assets
 

 
4.81
%
 
9/30/2026
Interest rate swap(2)
 
60,000

 
713

 
Other Assets
 

 
2.31
%
 
12/31/2025
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap
 
$
30,000

 
$
(86
)
 
Other Liabilities
 
1.95
%
 
2.52
%
 
9/21/2020
Interest rate swap(1)
 
20,000

 
895

 
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.
(2)
This swap is a forward-starting swap with a weighted average pay rate of 2.31 percent beginning December 31, 2018. No interest payments are required related to this swap until January 31, 2019.

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 months ended March 31, 2018 and 2017.
 
 
 
 
 
 
Reclassified from AOCI into Income
 
 
Amount of Pre-tax Gain Recognized in OCI
 
 
 
 
 
 
Amount of Loss
 
 
Three months ended March 31,
 
 
 
Three months ended March 31,
 
 
2018
 
2017
 
Category
 
2018
 
2017
Interest rate swaps
 
$
1,545

 
9

 
Interest Expense
 
$
(60
)
 
(117
)


23


Table of Contents

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


6.  Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Act) was signed into law. The Tax Act reduced the federal corporate income tax rate from the previous maximum rate of 35 percent to 21 percent. The lower federal corporate income tax rate became effective for the Company on January 1, 2018. The enactment of the legislation and the reduction in the federal income tax rate resulted in a revaluation of deferred tax assets and liabilities in December 2017.

Net deferred tax assets consisted of the following as of March 31, 2018 and December 31, 2017.  
 
March 31, 2018
 
December 31, 2017
Deferred tax assets:
 
 
 
Allowance for loan losses
$
4,116

 
$
4,108

Net unrealized losses on securities available for sale
2,563

 
902

Intangibles
51

 
101

Accrued expenses
215

 
176

Restricted stock compensation
285

 
544

State net operating loss carryforward
1,420

 
1,379

Other
81

 
86

 
8,731

 
7,296

Deferred tax liabilities:
 
 
 
Net deferred loan fees and costs
188

 
193

Net unrealized gains on interest rate swaps
541

 
139

Premises and equipment
809

 
792

Other
148

 
148

 
1,686

 
1,272

Net deferred tax assets before valuation allowance
7,045

 
6,024

Valuation allowance
(1,420
)
 
(1,379
)
Net deferred tax assets
$
5,625

 
$
4,645

The Company has recorded a valuation allowance against the tax effect of 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 2019 and thereafter.


24


Table of Contents

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 three months ended March 31, 2018 and 2017.
 
 
Unrealized
 
Unrealized
 
Accumulated
 
 
(Losses)
 
Gains
 
Other
 
 
on
 
on
 
Comprehensive
 
 
Securities
 
Derivatives
 
Income (Loss)
Balance, December 31, 2016
 
$
(1,172
)
 
$
130

 
$
(1,042
)
Other comprehensive income before reclassifications
 
996

 
6

 
1,002

Amounts reclassified from accumulated other comprehensive income
 
(2
)
 
72

 
70

Net current period other comprehensive income
 
994

 
78

 
1,072

Balance, March 31, 2017
 
$
(178
)
 
$
208

 
$
30

 
 
 
 
 
 
 
Balance, December 31, 2017
 
$
(2,237
)
 
$
345

 
$
(1,892
)
Transfer of securities held to maturity to securities available for sale
 
273

 

 
273

Other comprehensive income (loss) before reclassifications
 
(5,225
)
 
1,159

 
(4,066
)
Amounts reclassified from accumulated other comprehensive income
 
(25
)
 
44

 
19

Net current period other comprehensive income (loss)
 
(4,977
)
 
1,203

 
(3,774
)
Reclassification of stranded tax effects
 
(475
)
 
105

 
(370
)
Balance, March 31, 2018
 
$
(7,689
)
 
$
1,653

 
$
(6,036
)
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's commitments consisted of the following approximate amounts as of March 31, 2018 and December 31, 2017
 
March 31, 2018
 
December 31, 2017
Commitments to extend credit
$
612,165

 
$
617,949

Standby letters of credit
5,785

 
5,996

 
$
617,950

 
$
623,945

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 March 31, 2018, 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 $68. The outstanding balance of mortgage loans sold under the MPF Program was $90,842 and $94,292 at March 31, 2018 and December 31, 2017, respectively.

Contractual commitments: The Company has remaining commitments to invest in qualified affordable housing projects totaling $6,097 and $6,130 as of March 31, 2018 and December 31, 2017, respectively.

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.

25


Table of Contents

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


9. Fair Value Measurements

Accounting guidance on fair value measurements and disclosures defines fair value and establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system.  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business.

The Company's balance sheet contains investment securities available for sale and derivative instruments that are recorded at fair value on a recurring basis.  The three-level valuation hierarchy for disclosure of fair value is as follows:

Level 1 uses quoted market prices in active markets for identical assets or liabilities.

Level 2 uses observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3 uses unobservable inputs that are not corroborated by market data.

The Company's policy is to recognize transfers between Levels at the end of each reporting period, if applicable. There were no transfers between Levels of the fair value hierarchy during the three months ended March 31, 2018.

The following is a description of valuation methodologies used for financial assets and liabilities recorded at fair value on a recurring basis.

Investment securities available for sale: When available, quoted market prices are used to determine the fair value of investment securities. 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. The fair values of these securities are determined by pricing models that consider observable market data such as interest rate volatilities, LIBOR yield curve, credit spreads, prices from market makers and live trading systems. Level 1 securities 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, one trust preferred security and corporate notes. The Company currently holds no investment securities classified as Level 3.

Generally, management obtains the fair value of investment securities at the end of each reporting period via a third-party pricing service. Management reviewed the valuation process used by the third party and believed that process was valid. On a quarterly basis, management corroborates the fair values of a randomly selected sample of investment securities by obtaining pricing from an independent investment portfolio management firm 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.

Derivative instruments: The Company's derivative instruments consist of interest rate swaps, which are accounted for as cash flow hedges. 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.


26


Table of Contents

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 March 31, 2018 and December 31, 2017.
 
 
March 31, 2018
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
Investment securities available for sale:
 
 
 
 
 
 
 
 
State and political subdivisions
 
$
187,673

 
$

 
$
187,673

 
$

Collateralized mortgage obligations
 
152,455

 

 
152,455

 

Mortgage-backed securities
 
57,454

 

 
57,454

 

Asset-backed securities
 
43,305

 

 
43,305

 

Trust preferred security
 
2,000

 

 
2,000

 

Corporate notes
 
39,900

 

 
39,900

 

Derivative instruments, interest rate swaps
 
2,392

 

 
2,392

 

 
 
December 31, 2017
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
Investment securities available for sale:
 
 

 
 

 
 

 
 

State and political subdivisions
 
$
146,313

 
$

 
$
146,313

 
$

Collateralized mortgage obligations
 
159,932

 

 
159,932

 

Mortgage-backed securities
 
60,429

 

 
60,429

 

Asset-backed securities
 
45,195

 

 
45,195

 

Trust preferred security
 
2,006

 

 
2,006

 

Corporate notes
 
30,344

 

 
30,344

 

Derivative instrument, interest rate swap
 
895

 

 
895

 

 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
Derivative instrument, interest rate swap
 
$
86

 
$

 
$
86

 
$

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 March 31, 2018 and December 31, 2017, impaired loans with a net book value of $0 and $0, respectively, for which a fair value adjustment was recorded were classified as level 3.  Impaired loans are evaluated and valued at the lower of cost or fair value when the loan is identified as impaired.  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 of the underlying assets are completed for each impaired loan with a specific reserve. Collateral evaluations are reviewed and discounted as appropriate based on knowledge of the specific type of collateral. In the case of real estate, an independent appraisal may be obtained. Types of discounts considered include aging of receivables, condition of the collateral, potential 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.
 

27


Table of Contents

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 following table presents the carrying amounts and approximate fair values of financial assets and liabilities as of March 31, 2018 and December 31, 2017
 
 
 
March 31, 2018
 
December 31, 2017
 
Fair Value Hierarchy Level
 
Carrying Amount
 
Approximate Fair Value
 
Carrying Amount
 
Approximate Fair Value
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and due from banks
Level 1
 
$
36,978

 
$
36,978

 
$
34,952

 
$
34,952

Federal funds sold
Level 1
 
488

 
488

 
12,997

 
12,997

Investment securities available for sale
Level 2
 
482,787

 
482,787

 
444,219

 
444,219

Investment securities held to maturity
Level 2
 

 

 
45,527

 
45,890

Federal Home Loan Bank stock
Level 1
 
10,130

 
10,130

 
9,174

 
9,174

Loans, net
Level 2
 
1,485,818

 
1,470,260

 
1,494,070

 
1,490,166

Accrued interest receivable
Level 1
 
7,287

 
7,287

 
7,344

 
7,344

Interest rate swaps
Level 2
 
2,392

 
2,392

 
895

 
895

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
Level 2
 
$
1,738,158

 
$
1,737,541

 
$
1,810,813

 
$
1,810,924

Federal funds purchased
Level 1
 
51,820

 
51,820

 
545

 
545

Subordinated notes, net
Level 2
 
20,415

 
15,489

 
20,412

 
15,357

Federal Home Loan Bank advances, net
Level 2
 
76,751

 
76,751

 
76,382

 
76,382

Long-term debt
Level 2
 
21,639

 
21,585

 
22,917

 
22,860

Accrued interest payable
Level 1
 
854

 
854

 
736

 
736

Interest rate swap
Level 2
 

 

 
86

 
86

Off-balance-sheet financial instruments:
 
 
 
 
 
 
 
 
 
Commitments to extend credit
Level 3
 

 

 

 

Standby letters of credit
Level 3
 

 

 

 




28


Table of Contents
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’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. Forward-looking statements may appear throughout this report. These forward-looking statements are generally identified by the words “believes,” “expects,” “intends,” “anticipates,” “projects,” “future,” “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; competitive pressures; pricing pressures on loans and deposits; changes in credit and other risks posed by the Company’s loan and investment portfolios, including declines in commercial or residential real estate values or changes in the allowance for loan losses dictated by new market conditions or regulatory requirements; actions of bank and nonbank competitors; changes in local, national and international economic conditions; changes in legal and regulatory requirements, limitations and costs; changes in customers’ acceptance of the Company’s products and services; cyber-attacks; unexpected outcomes of existing or new litigation involving the Company; 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 (the 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 the 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, 2017, as filed with the SEC on March 1, 2018. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since the year ended December 31, 2017.


29


Table of Contents
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. Both measures are considered standard measures of comparison within the banking industry. Management believes the presentation of the efficiency ratio provides supplemental useful information for proper understanding of the financial results, as it enhances the comparability of income and expenses 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 an FTE basis and efficiency ratio on an adjusted and FTE basis to GAAP.
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP:
 
 
 
 
Net interest income (GAAP)
 
$
15,416

 
$
14,389

Tax-equivalent adjustment (1)
 
289

 
618

Net interest income on an FTE basis (non-GAAP)
 
$
15,705

 
$
15,007

Average interest-earning assets
 
$
2,012,694

 
$
1,746,525

Net interest margin on an FTE basis (non-GAAP)
 
3.16
%
 
3.48
%
 
 
 
 
 
Reconciliation of efficiency ratio on an FTE basis to GAAP:
 
 
 
 
Net interest income on an FTE basis (non-GAAP)
 
$
15,705

 
$
15,007

Noninterest income
 
1,913

 
2,160

Adjustment for realized investment securities losses, net
 

 
3

Adjusted income
 
$
17,618

 
$
17,170

Noninterest expense
 
$
8,287

 
$
8,043

Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2)
 
47.04
%
 
46.84
%

(1)
Computed on a tax-equivalent basis using a federal income tax rate of 21 percent in 2018 and 35 percent in 2017, adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans.
(2)
Efficiency ratio expresses noninterest expense as a percent of fully taxable equivalent net interest income and noninterest income, excluding specific noninterest income and expenses.

THREE MONTHS ENDED MARCH 31, 2018

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 (which was liquidated in March 2018). Results of operations for the three months ended March 31, 2018 are compared to the results for the same period in 2017, and the consolidated financial condition of the Company as of March 31, 2018 is compared to December 31, 2017. The Company operates in three markets: 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; and the Rochester, Minnesota area.

Net income for the three months ended March 31, 2018 was $7,384, or $0.45 per diluted common share, compared to $6,106, or $0.37 per diluted common share, for the three months ended March 31, 2017. The Company's annualized return on average assets and return on average equity for the three months ended March 31, 2018 were 1.42 percent and 16.79 percent, respectively, compared to 1.35 percent and 14.80 percent, respectively, for the first three months of 2017.


30


Table of Contents
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)

The increase in net income for the three months ended March 31, 2018 compared to the same period in 2017 was primarily due to higher net interest income and a decrease in income taxes, partially offset by increases in provision for loan losses and noninterest expense. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Tax Act reduced the federal corporate income tax rate from the previous maximum rate of 35 percent to 21 percent effective for 2018 and future years. The enactment of the legislation and the reduction in the federal income tax rate resulted in a decrease in income taxes for the three months ended March 31, 2018 compared to the same period in 2017.

Net interest income for the three months ended March 31, 2018 grew $1,027, or 7.1 percent, compared to the three months ended March 31, 2017. The increase in net interest income was primarily due to a $175,556 increase in average investments and $77,851 increase in average loans outstanding for the first three months of 2018 compared to the first three months of 2017. During the three months ended March 31, 2018, interest expense on deposits increased $1,817 compared to the three months ended March 31, 2017, mainly due to a $331,051 increase in average deposit balances and increases to interest rates on certain money market deposit products and certificates of deposit as a result of rising market rates. The Company recorded a $150 provision for loan losses for the three months ended March 31, 2018 compared to no provision in the three months ended March 31, 2017.

Noninterest income declined $247 during the three months ended March 31, 2018, compared to the three months ended March 31, 2017, mainly due to a nonrecurring gain from bank-owned life insurance in 2017. Noninterest expense grew $244, or 3.0 percent, during the first three months of 2018 compared to the same time period in 2017, primarily due to increases in salaries and benefit costs and occupancy expenses.

Total loans outstanding declined $8,217, or 0.5 percent, during the first three months of 2018. Management believes the loan pipeline is strong and that loan growth will continue in all three of our markets during the remainder of 2018. The credit quality of the loan portfolio remained strong, as evidenced by the Company's Texas ratio, which was 1.08 percent as of March 31, 2018. As of March 31, 2018, the allowance for loan losses was 1.10 percent of outstanding loans, and management believed the allowance was adequate to absorb any losses inherent in the loan portfolio.

Each quarter throughout the year, the Company's four key performance metrics are compared to those of our identified peer group of Midwestern, publicly traded peer financial institutions. During the third quarter of 2017, one peer was removed from the group due to a merger, resulting in a group of 15 as of December 31, 2017 which included BankFinancial Corporation, Farmers Capital Bank Corporation, First Business Financial Services, Inc., First Defiance Financial Corp., First Mid-Illinois Bancshares, Inc., Hills Bancorporation, Horizon Bancorp, Isabella Bank Corporation, Mercantile Bank Corporation, MidWestOne Financial Group, Inc., MutualFirst Financial, Inc., Nicolet Bankshares, Inc., Peoples Bancorp, QCR Holdings, Inc. and Waterstone Financial, Inc. Effective January 1, 2018, First Internet Bancorp was added to bring the peer group back up to 16 financial institutions. 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. Our goal is to perform at or near the top of these peers relative to what we consider to be four key metrics: return on average assets, return on average equity, efficiency ratio and Texas ratio. We believe these measures encompass the factors that define the performance of a community bank. When contrasted with the peer group's metrics for the year ended December 31, 2017 (latest data available), the Company's metrics for the year ended December 31, 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. The Company's return on average assets and return on average equity ratios for the three months ended March 31, 2018 were positively affected by the reduction in the federal income tax rates in 2018 and therefore are not comparable to ratios as of December 31, 2017. Management expects peer results for the three months ended March 31, 2018 to be similarly affected by this change.
 
West Bancorporation, Inc.
 
Peer Group Range
 
Three months ended March 31, 2018
 
Year ended December 31, 2017
 
Year ended December 31, 2017
Return on average assets
1.42%
 
1.18%
 
0.56% - 1.43%
Return on average equity
16.79%
 
13.29%
 
4.44% - 11.51%
Efficiency ratio(1) (2)
47.04%
 
45.39%
 
53.34% - 75.03%
Texas ratio(2)
1.08%
 
0.32%
 
2.31% - 16.31%
(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) A lower ratio is more desirable.


31


Table of Contents
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)

In March 2018, the Company was recognized as a Raymond James Community Bankers Cup winner. West Bank was ranked 7th overall based on six profitability, operational efficiency and balance sheet metrics that measured performance for 2017. The study recognizes the top performing exchange-traded banks with assets between $500 million and $10 billion.

At its meeting on April 25, 2018, the Board of Directors declared a quarterly cash dividend of $0.20 per common share. The dividend is payable on May 23, 2018, to stockholders of record on May 9, 2018. The quarterly dividend was increased from the last dividend amount by $0.02 to the $0.20 level, an 11 percent increase, and represents the highest quarterly dividend ever paid by the Company.

RESULTS OF OPERATIONS

The following table shows selected financial results and measures for the three months ended March 31, 2018 compared with the same period in 2017
 
Three Months Ended March 31,
 
2018
 
2017
 
Change
 
Change %
Net income
$
7,384

 
$
6,106

 
$
1,278

 
20.93
%
Average assets
2,102,876

 
1,839,301

 
263,575

 
14.33
%
Average stockholders' equity
178,392

 
167,288

 
11,104

 
6.64
%
 
 
 
 
 
 
 
 
Return on average assets
1.42
%
 
1.35
%
 
0.07
 %
 
 

Return on average equity
16.79
%
 
14.80
%
 
1.99
 %
 
 

Net interest margin (1)
3.16
%
 
3.48
%
 
(0.32
)%
 
 
Efficiency ratio (1) (2)
47.04
%
 
46.84
%
 
0.2
 %
 
 
Dividend payout ratio
39.53
%
 
44.92
%
 
(5.39
)%
 
 

Average equity to average assets ratio
8.48
%
 
9.10
%
 
(0.62
)%
 
 

 
 
 
 
 
 
 
 
 
As of March 31,
 
 
 
2018
 
2017
 
Change
 
 
Texas ratio (2)
1.08
%
 
0.49
%
 
0.59
 %
 
 
Equity to assets ratio
8.52
%
 
9.09
%
 
(0.57
)%
 
 

Tangible common equity ratio
8.52
%
 
9.09
%
 
(0.57
)%
 
 

(1) Amounts are presented on an 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) divided by noninterest income (excluding net securities gains 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 ratio - total nonperforming assets divided by tangible common equity plus the allowance for loan losses.
Equity to assets ratio - equity divided by assets.
Tangible common equity ratio - common equity less intangible assets (none held) divided by tangible assets.



32


Table of Contents
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)

Net Interest Income

The following table presents 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 an FTE basis.
Data for the three months ended March 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Balance
 
Interest Income/Expense
 
Yield/Rate
 
2018
 
2017
 
Change
 
Change-
%
 
2018
 
2017
 
Change
 
Change-
%
 
2018
 
2017
 
Change
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans: (1) (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
326,710

 
$
336,317

 
$
(9,607
)
 
(2.86
)%
 
$
3,680

 
$
3,478

 
$
202

 
5.81
 %
 
4.57
%
 
4.19
%
 
0.38
 %
Real estate (3)
1,163,372

 
1,074,179

 
89,193

 
8.30
 %
 
12,805

 
11,642

 
1,163

 
9.99
 %
 
4.46
%
 
4.40
%
 
0.06
 %
Consumer and other
6,549

 
8,284

 
(1,735
)
 
(20.94
)%
 
68

 
82

 
(14
)
 
(17.07
)%
 
4.18
%
 
4.00
%
 
0.18
 %
Total loans
1,496,631

 
1,418,780

 
77,851

 
5.49
 %
 
16,553

 
15,202

 
1,351

 
8.89
 %
 
4.49
%
 
4.35
%
 
0.14
 %
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

Investment securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Taxable
304,564

 
206,582

 
97,982

 
47.43
 %
 
1,813

 
1,027

 
786

 
76.53
 %
 
2.38
%
 
1.99
%
 
0.39
 %
Tax-exempt (3)
190,160

 
112,586

 
77,574

 
68.90
 %
 
1,572

 
1,163

 
409

 
35.17
 %
 
3.31
%
 
4.13
%
 
(0.82
)%
Total investment securities
494,724

 
319,168

 
175,556

 
55.00
 %
 
3,385

 
2,190

 
1,195

 
54.57
 %
 
2.74
%
 
2.74
%
 
 %
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Federal funds sold
21,339

 
8,577

 
12,762

 
148.79
 %
 
81

 
17

 
64

 
376.47
 %
 
1.54
%
 
0.80
%
 
0.74
 %
Total interest-earning assets (3)
$
2,012,694

 
$
1,746,525

 
$
266,169

 
15.24
 %
 
20,019

 
17,409

 
2,610

 
14.99
 %
 
4.03
%
 
4.04
%
 
(0.01
)%
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing liabilities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Deposits:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing demand,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
savings and money
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
market
$
1,213,290

 
$
937,297

 
$
275,993

 
29.45
 %
 
2,541

 
977

 
1,564

 
160.08
 %
 
0.85
%
 
0.42
%
 
0.43
 %
Time deposits
173,010

 
117,952

 
55,058

 
46.68
 %
 
471

 
218

 
253

 
116.06
 %
 
1.10
%
 
0.75
%
 
0.35
 %
Total deposits
1,386,300

 
1,055,249

 
331,051

 
31.37
 %
 
3,012

 
1,195

 
1,817

 
152.05
 %
 
0.88
%
 
0.46
%
 
0.42
 %
Other borrowed funds
125,650

 
147,609

 
(21,959
)
 
(14.88
)%
 
1,302

 
1,207

 
95

 
7.87
 %
 
4.20
%
 
3.32
%
 
0.88
 %
Total interest-bearing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
liabilities
$
1,511,950

 
$
1,202,858

 
$
309,092

 
25.70
 %
 
4,314

 
2,402

 
1,912

 
79.60
 %
 
1.16
%
 
0.81
%
 
0.35
 %
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net interest income (FTE) (4)
 
 

 
 

 
$
15,705

 
$
15,007

 
$
698

 
4.65
 %
 
 

 
 

 
 

Net interest spread (FTE)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
2.87
%
 
3.23
%
 
(0.36
)%
Net interest margin (FTE) (4)
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
3.16
%
 
3.48
%
 
(0.32
)%

(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 in 2018 and 35 percent in 2017 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 financial measures. For further information, refer to the Non-GAAP Financial Measures section of this report.

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 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 targeted federal funds interest rate by 25 basis points in March 2018 and each of March, June and December 2017.


33


Table of Contents
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)

Net interest margin 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 months ended March 31, 2018 declined 32 basis points compared to the three months ended March 31, 2017. The primary drivers of the decline in the net interest margin were an increase in interest rates paid on certain deposit categories and an increase in the variable rates paid on other borrowed funds, partially offset by an increase in yield on loans. Also impacting the net interest margin was the decline in the federal income tax rate to 21 percent in 2018, from 35 percent in 2017, which is used in the calculation of the tax-equivalent interest income on tax-exempt loans and securities. The change in the federal income tax rate used in the tax-equivalent adjustment to net interest income accounted for approximately 10 basis points of the decline in net interest margin for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. Despite the decline in the net interest margin, tax-equivalent net interest income for the three months ended March 31, 2018 increased $698 compared to the same time period in 2017. The increase in net interest income for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was largely due to an increase in average outstanding loans and securities, partially offset by an increase in average deposit balances and an increase in rates on deposits and other borrowed funds. Management expects the current interest rate environment to continue to put pressure on the net interest margin throughout the remainder of 2018.

For the three months ended March 31, 2018, tax-equivalent interest income on loans increased $1,351 compared to the same time period in 2017. The improvement was primarily due to the increase in average loan balances outstanding. The average yield on loans increased by 14 basis points for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. 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 political and economic environments can also influence the volume of new loan originations and the mix of variable rate versus fixed rate loans.

The average balance of investment securities was higher during the three months ended March 31, 2018 than during the same period in 2017 as a result of significant investment purchase activity during 2017. The purchase activity in 2017 focused on higher yielding bonds within the existing risk profile 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. The change in the federal income tax rate used in the tax-equivalent adjustment of tax-exempt securities accounted for an approximately 78 basis point reduction in the yield on tax-exempt investment securities for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. This was offset by improvements in the yield on taxable investment securities which resulted in the overall portfolio yield remaining the same at 2.74 percent for both the three months ended March 31, 2018 and 2017.

The average balance of interest-bearing demand, savings and money market deposits increased for the three months ended March 31, 2018 compared to the three months ended March 31, 2017, primarily 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. The average rate paid on interest-bearing demand, savings and money market deposits for the three months ended March 31, 2018 increased 43 basis points compared to the three months ended March 31, 2017. The increase in interest expense was primarily due to increasing interest rates on certain money market deposit products in response to increases in the targeted federal funds rate. The average balance of time deposits increased for the three months ended March 31, 2018 compared to the same period in 2017. The increase was primarily due to the shift of demand and savings account balances to higher interest rate time deposits. Interest rates on time deposits increased 35 basis points for the three months ended March 31, 2018 compared to the same period in 2017, 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 88 basis points for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase in the average rate paid was due to increases in rates for variable rate FHLB advances, subordinated notes and long-term debt. The average balance of other borrowed funds declined for the three months ended March 31, 2018 compared to the three months ended March 31, 2017, primarily due to lower average balances of federal funds purchased and the December 2017 payoff of a $25,000 FHLB advance.

34


Table of Contents
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)

Provision for Loan Losses and the Related Allowance for Loan Losses

The provision for loan losses represents charges made to earnings to maintain an adequate allowance for loan losses.  The adequacy of the allowance for loan losses is evaluated quarterly by management and reviewed by the Board of Directors. The allowance for loan losses is management's best estimate of probable losses inherent in the loan portfolio as of the balance sheet date.  Based upon the most recent quarterly evaluation, a $150 provision was recorded for the three months ended March 31, 2018 compared to no provision recorded for the three months ended March 31, 2017.

Factors considered 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 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 concentration in central and eastern Iowa and southeastern Minnesota. The local economies are composed primarily of service industries and state and county 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.  Compared to residential mortgages or consumer loans, commercial loans typically have larger balances, and repayment usually depends on the borrowers' successful business operations.  Commercial loans 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 loan losses.  Such agencies may require West Bank to recognize additional losses based on such agencies' review of information available to them at the time of their examinations.
  
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. Concerted efforts are made to maximize subsequent recoveries.  The following table summarizes the activity in the Company's allowance for loan losses for the three months ended March 31, 2018 and 2017 and related ratios. 
 
Three Months Ended March 31,
 
2018
 
2017
 
Change
Balance at beginning of period
$
16,430

 
$
16,112

 
$
318

Charge-offs
(196
)
 
(60
)
 
(136
)
Recoveries
81

 
375

 
(294
)
Net (charge-offs) recoveries
(115
)
 
315

 
(430
)
Provision for loan losses charged to operations
150

 

 
150

Balance at end of period
$
16,465

 
$
16,427

 
$
38

 
 
 
 
 
 
Average loans outstanding
$
1,496,631

 
$
1,418,780

 
 
 
 
 
 
 
 
Ratio of annualized net (charge-offs) recoveries during the period to average loans outstanding
(0.03
)%
 
0.09
%
 
 
 
 
 
 
 
 
Ratio of allowance for loan losses to average loans outstanding
1.10
 %
 
1.16
%
 
 
 
 
 
 
 
 
Ratio of allowance for loan losses to total loans at end of period
1.10
 %
 
1.14
%
 
 

35


Table of Contents
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)

In general, the U.S. economy is growing at a moderate pace. Average monthly job growth for the first three months of 2018 was approximately 201,000 based on preliminary estimates, while the national unemployment rate remained low at 4.1 percent as of March 31, 2018. 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 2017. In the first three months of 2018, the Company continued to use experience factors based on the highest losses calculated over a rolling 12-, 16-, or 20-quarter period. The portion of the allowance for loan losses related to loans collectively evaluated for impairment increased $42 to a total of $16,333, or 1.09 percent, as of March 31, 2018 compared to $16,291, or 1.08 percent, as of December 31, 2017. Management believed the resulting allowance for loan losses as of March 31, 2018 was adequate to absorb any losses inherent in the loan portfolio at the end of the quarter.

Noninterest Income

The following table shows 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 March 31,
Noninterest income:
2018
 
2017
 
Change
 
Change %
Service charges on deposit accounts
$
649

 
$
600

 
$
49

 
8.17
 %
Debit card usage fees
399

 
440

 
(41
)
 
(9.32
)%
Trust services
445

 
392

 
53

 
13.52
 %
Increase in cash value of bank-owned life insurance
158

 
154

 
4

 
2.60
 %
Gain from bank-owned life insurance

 
307

 
(307
)
 
(100.00
)%
Realized investment securities losses, net

 
(3
)
 
3

 
100.00
 %
Other income:
 
 
 
 
 

 
 

Discount on purchased income tax credits
12

 
16

 
(4
)
 
(25.00
)%
All other income
250

 
254

 
(4
)
 
(1.57
)%
Total other income
262

 
270

 
(8
)
 
(2.96
)%
Total noninterest income
$
1,913

 
$
2,160

 
$
(247
)
 
(11.44
)%
The increase in service charges on deposit accounts for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was driven primarily by the March and April 2017 realignment and simplification of the retail checking account products provided to our customers. We expect retail service charge income for the remainder of 2018 to remain comparable to the same periods in 2017. During the three months ended March 31, 2018, nonsufficient funds fees declined $27 and debit card usage fees declined $41 compared to the same time period in 2017. These declines are consistent with recent trends.

Revenue from trust services was higher during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 due to the combination of higher amounts of one-time estate fees and asset growth.

Gain from bank-owned life insurance was recognized for the three months ended March 31, 2017 as the result of a single policy event.

The Company recognizes revenue from discounts on purchased transferable State of Iowa income tax credits. 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. The Company expects to recognize total income from discounts on current purchased tax credits of approximately $46 for the year ended December 31, 2018.



36


Table of Contents
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)

Noninterest Expense

The following table shows the variance from the prior year in the noninterest expense categories shown in the Consolidated Statements of Income. In addition, accounts within the “Other expenses” category that represent a significant portion of the total or a significant variance are shown below.
 
Three Months Ended March 31,
Noninterest expense:
2018
 
2017
 
Change
 
Change %
Salaries and employee benefits
$
4,513

 
$
4,337

 
$
176

 
4.06
 %
Occupancy
1,223

 
1,097

 
126

 
11.49
 %
Data processing
676

 
688

 
(12
)
 
(1.74
)%
FDIC insurance
162

 
213

 
(51
)
 
(23.94
)%
Professional fees
234

 
293

 
(59
)
 
(20.14
)%
Director fees
249

 
211

 
38

 
18.01
 %
Other expenses:
 
 
 
 
 

 
 

Marketing
45

 
68

 
(23
)
 
(33.82
)%
Business development
218

 
172

 
46

 
26.74
 %
Insurance expense
92

 
90

 
2

 
2.22
 %
Investment advisory fees
16

 
41

 
(25
)
 
(60.98
)%
Charitable contributions
75

 

 
75

 
N/A

Postage and courier
69

 
86

 
(17
)
 
(19.77
)%
Subscriptions
91

 
65

 
26

 
40.00
 %
Trust
93

 
105

 
(12
)
 
(11.43
)%
Consulting fees
65

 
61

 
4

 
6.56
 %
Low income housing projects amortization
134

 
116

 
18

 
15.52
 %
All other
332

 
400

 
(68
)
 
(17.00
)%
Total other
1,230

 
1,204

 
26

 
2.16
 %
Total noninterest expense
$
8,287

 
$
8,043

 
$
244

 
3.03
 %
Salaries and employee benefits increased for the three months ended March 31, 2018 when compared to the three months ended March 31, 2017, mainly as the result of standard increases in salaries and related payroll taxes plus additional taxes related to the vesting of restricted stock units.

When compared with the three months ended March 31, 2017, occupancy costs increased for the three months ended March 31, 2018, partially due to a periodic indexed rent adjustment in accordance with the terms of the lease for the Company's main office.

Data processing primarily includes fees paid for our core applications systems, ongoing enhancement and monitoring tools for maintaining security and one-time costs associated with implementation of new applications. Data processing expense declined for the three months ended March 31, 2018 compared to the same time period in 2017, primarily because of varying one-time costs associated with the implementation of new applications in each period.

FDIC insurance expense declined for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The FDIC assessment rate calculation includes a series of risk-based factors. As a result of the May 2017 capital injection of $40,000 into West Bank, our capital ratio component improved enough to reduce the assessment rate to the minimum base assessment level established by the FDIC. Management expects the assessment rate to remain at or near the minimum level during 2018.

Professional fees decreased for the three months ended March 31, 2018 compared to the same time period in 2017, primarily due to lower legal fees at West Bank and one-time costs incurred in 2017 associated with the preparation and adoption of the West Bancorporation, Inc. 2017 Equity Incentive Plan.

Director fees increased for the three months ended March 31, 2018 when compared to the three months ended March 31, 2017, mainly due to the addition of a new director effective January 1, 2018 and higher stock-based compensation costs.


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Table of Contents
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)

The decrease in marketing expense for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily due to costs associated with the retail checking account product updates that occurred in 2017.

The increase in business development expense for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was the result of additional sponsorships of community events and efforts to cultivate new and expanded customer relationships.

Investment advisory fees declined for the three months ended March 31, 2018 as contrasted with the same time period in 2017, mainly as a result of lower administrative fees paid to an investment management firm for the administration of public company floating rate commercial loans. That administrative fee has declined as the result of a lower volume of loans in that portfolio. The Company does not plan to add any additional public company floating rate commercial loans to the portfolio.

Charitable contributions increased for the three months ended March 31, 2018 compared to the same time period in 2017 due to the accrual of the annual contribution to the West Bancorporation Foundation.

Subscriptions increased for the three months ended March 31, 2018 compared to the three months ended March 31, 2017, primarily due to an increase in subscription services utilized and timing of renewals.

Income Tax Expense

The Company recorded income tax expense of $1,508 (17.0 percent of pre-tax income) for the three months ended March 31, 2018, compared with $2,400 (28.2 percent of pre-tax income) for the three months ended March 31, 2017. The decline in the percentage of income tax expense to pre-tax income was the result of enactment of the Tax Cuts and Jobs Act on December 22, 2017. This legislation lowered the federal corporate income tax rate to 21 percent beginning in 2018 from a maximum rate of 35 percent in 2017. The Company's consolidated income tax rate differs from the federal statutory income tax rate in each respective period, primarily due to tax-exempt interest income, the tax-exempt increase in cash value of bank-owned life insurance, tax-exempt gain on bank-owned life insurance, disallowed interest expense, and state income taxes.

In addition, for the three months ended March 31, 2018 and 2017, a tax benefit of $238 and $193, respectively, was recorded as a result of the increase in fair value of restricted stock over the vesting period. The tax rate for the first three months of 2018 and 2017 was also impacted by year-to-date federal low income housing tax credits of approximately $125 and $103, respectively.

FINANCIAL CONDITION

The Company had total assets of $2,092,025 as of March 31, 2018, a decrease of 1.1 percent compared to total assets of $2,114,377 as of December 31, 2017. The most significant changes in the balance sheet were declines in federal funds sold, loans and deposits, and an increase in federal funds purchased. A summary of changes in the balance sheet components is provided below.

Investment Securities

On January 1, 2018, the Company elected to transfer all securities classified as held to maturity to available for sale. At the date of reclassification, the held to maturity securities portfolio was carried at an amortized cost of $45,527. The reclassification of securities between categories was accounted for at fair value. At the date of reclassification, the securities had a fair value of $45,890 and unrealized holding gains of $273 which were recorded net of tax in other comprehensive income. The transfer enhanced liquidity and increased flexibility with regard to asset-liability management and balance sheet composition.

The balance of investment securities available for sale, subsequent to the transfer of held to maturity securities, decreased by $6,959 during the three months ended March 31, 2018. State and political subdivision securities decreased by $4,530 during the three months ended March 31, 2018, primarily due to declines in fair value. Corporate notes increased by $9,556 during the three months ended March 31, 2018 due to purchases of securities. Government agency guaranteed collateralized mortgage obligations, mortgage-backed securities and asset-backed securities decreased by a total of $12,342 during the three months ended March 31, 2018, primarily due to normal principal paydowns.


38


Table of Contents
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)

As of March 31, 2018, approximately 50 percent of the available for sale investment securities portfolio consisted of government agency guaranteed collateralized mortgage obligations, mortgage-backed securities and asset-backed securities. Management believes these securities provide relatively good yields, have little to no credit risk and provide fairly consistent cash flows.

Loans and Nonperforming Assets

Loans outstanding decreased $8,217, from $1,510,500 as of December 31, 2017 to $1,502,283 as of March 31, 2018. Changes in the loan portfolio during the first three months of 2018 included decreases of $31,294 in commercial loans and $33,956 in construction real estate loans, partially offset by an increase of $57,953 in commercial real estate loans. The commercial and commercial real estate loan portfolios were impacted by a $28,568 payoff when our customer was acquired by an out-of-state buyer. The Company continues to focus on business development efforts in all its markets. Management believes loan growth will occur in all three of our markets during the remainder of 2018.

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 1.08 percent as of March 31, 2018, compared to 0.32 percent as of December 31, 2017. The ratio for both dates was significantly better than the December 31, 2017 peer group average (latest data available), which was approximately 7.96 percent, according to data in the December 2017 Bank Holding Company Performance Report prepared by the Division of Supervision and Regulation of the Federal Reserve.

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. 
 
March 31, 2018
 
December 31, 2017
 
Change
Nonaccrual loans
$
2,107

 
$
622

 
$
1,485

Loans past due 90 days and still accruing interest

 

 

Troubled debt restructured loans (1)

 

 

Total nonperforming loans
2,107

 
622

 
1,485

Other real estate owned

 

 

Total nonperforming assets
$
2,107

 
$
622

 
$
1,485

 
 

 
 

 
 

Nonperforming loans to total loans
0.14
%
 
0.04
%
 
0.10
%
Nonperforming assets to total assets
0.10
%
 
0.03
%
 
0.07
%

(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 March 31, 2018 and December 31, 2017 with a balance of $191 and $220, respectively, categorized as nonaccrual.

For additional information, refer to “Provision for Loan Losses and the Related Allowance for Loan Losses” in this section, and Note 4 to the financial statements.

Deposits

Deposits declined $72,655 during the first three months of 2018, or 4.0 percent, compared to December 31, 2017.  Interest-bearing demand accounts declined $80,506 while savings accounts, which include money market accounts, increased $4,725 from December 31, 2017 to March 31, 2018. Balance fluctuations were primarily due to normal customer activity, as corporate customers' liquidity needs vary at any given time. Total time deposits increased $4,914 during the first three months of 2018. As of March 31, 2018, a significant related party relationship maintained total deposit balances with West Bank of approximately $158,000.

Borrowings

Federal funds purchased increased to $51,820 as of March 31, 2018 from $545 as of December 31, 2017. The need for overnight funding is primarily dependent on corporate customer deposit fluctuations, loan fundings and loan repayments.

Long-term debt declined $1,278 during the first three months of 2018, as the Company made principal repayments on the outstanding debt.

39


Table of Contents
West Bancorporation, Inc.
Management's Discussion and Analysis
(in thousands, except share and per share data)

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-backed securities, federal funds purchased, advances from the FHLB, 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 $37,466 as of March 31, 2018 compared with $47,949 as of December 31, 2017.

As of March 31, 2018, West Bank had additional borrowing capacity available from the FHLB of approximately $319,000, as well as approximately $35,000 through unsecured federal funds lines of credit with correspondent banks.  Net cash from operating activities contributed $9,573 to liquidity for the three months ended March 31, 2018.  Management believed that the combination of high levels of potentially liquid assets, cash flows from operations, and additional borrowing capacity provided the Company with strong liquidity as of March 31, 2018.

The Company's total stockholders' equity increased to $178,242 at March 31, 2018 from $178,098 at December 31, 2017.  The increase was primarily the result of net income less dividends paid, and was partially offset by a decline in accumulated other comprehensive income. At March 31, 2018, the Company's tangible common equity as a percent of tangible assets was 8.52 percent compared to 8.42 percent as of December 31, 2017.

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 March 31, 2018.

40


Table of Contents
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
Under Prompt Corrective
Action Provisions
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
As of March 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Capital (to Risk-Weighted Assets)
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
$
220,743

 
12.01
%
 
$
146,993

 
8.00
%
 
$
181,444

 
9.875
%
 
N/A

 
N/A

West Bank
238,603

 
13.00
%
 
146,831

 
8.00
%
 
181,244

 
9.875
%
 
$
183,538

 
10.00
%
 
 

 
 

 
 
 
 
 
 

 
 

 
 

 
 

Tier 1 Capital (to Risk-Weighted Assets)
 
 
 
 
 
 

 
 

 
 

 
 

Consolidated
204,278

 
11.12
%
 
110,245

 
6.00
%
 
144,696

 
7.875
%
 
N/A

 
N/A

West Bank
222,138

 
12.10
%
 
110,123

 
6.00
%
 
144,536

 
7.875
%
 
146,831

 
8.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
 
 
 
 
 
 
 
 
 
 
Consolidated
184,278

 
10.03
%
 
82,683

 
4.50
%
 
117,135

 
6.375
%
 
N/A

 
N/A

West Bank
222,138

 
12.10
%
 
82,592

 
4.50
%
 
117,006

 
6.375
%
 
119,300

 
6.50
%
 
 

 
 

 
 
 
 
 
 

 
 

 
 

 
 

Tier 1 Capital (to Average Assets)
 
 
 
 
 
 

 
 

 
 

 
 

Consolidated
204,278

 
9.68
%
 
84,391

 
4.00
%
 
84,391

 
4.00
%
 
N/A

 
N/A

West Bank
222,138

 
10.54
%
 
84,326

 
4.00
%
 
84,326

 
4.00
%
 
105,407

 
5.00
%
 
 

 
 

 
 
 
 
 
 

 
 

 
 

 
 

As of December 31, 2017:
 

 
 

 
 
 
 
 
 

 
 

 
 

 
 

Total Capital (to Risk-Weighted Assets)
 
 
 
 
 
 

 
 

 
 

 
 

Consolidated
$
216,420

 
11.76
%
 
$
147,169

 
8.00
%
 
$
170,164

 
9.25
%
 
N/A

 
N/A

West Bank
235,570

 
12.82
%
 
147,049

 
8.00
%
 
170,026

 
9.25
%
 
$
183,812

 
10.00
%
 
 

 
 

 
 
 
 
 
 

 
 

 
 

 
 

Tier 1 Capital (to Risk-Weighted Assets)
 
 
 
 
 
 

 
 

 
 

 
 

Consolidated
199,990

 
10.87
%
 
110,377

 
6.00
%
 
133,372

 
7.25
%
 
N/A

 
N/A

West Bank
219,140

 
11.92
%
 
110,287

 
6.00
%
 
133,263

 
7.25
%
 
147,049

 
8.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
 
 
 
 
 
 
 
 
 
 
Consolidated
179,990

 
9.78
%
 
82,783

 
4.50
%
 
105,778

 
5.75
%
 
N/A

 
N/A

West Bank
219,140

 
11.92
%
 
82,715

 
4.50
%
 
105,692

 
5.75
%
 
119,478

 
6.50
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 Capital (to Average Assets)
 
 
 
 
 
 

 
 

 
 

 
 

Consolidated
199,990

 
9.60
%
 
83,326

 
4.00
%
 
83,326

 
4.00
%
 
N/A

 
N/A

West Bank
219,140

 
10.52
%
 
83,287

 
4.00
%
 
83,287

 
4.00
%
 
104,109

 
5.00
%

On January 1, 2015, the Company and West Bank became 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 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 2018 is 1.875 percent. A banking organization with a conservation buffer of less than the required amount will be subject to limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. At March 31, 2018, the ratios for the Company and West Bank were sufficient to meet the fully phased-in conservation buffer.


41


Table of Contents


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's market risk is primarily interest rate risk arising from its core banking activities of lending and deposit taking. Interest rate risk is the risk that the change in market interest rates may adversely affect the Company's net interest income. Management continually develops and implements strategies to mitigate this risk. The analysis of the Company's interest rate risk as of December 31, 2017 was presented in the Company's Form 10-K filed with the Securities and Exchange Commission on March 1, 2018. The Company has not experienced any material changes to its interest rate risk position since December 31, 2017. Management does not believe that the Company's primary market risk exposure and management of that exposure in the first three months of 2018 materially changed compared to those in the year ended December 31, 2017.

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's rules and forms.

b. Changes in internal controls 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.

Part 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, 2018.

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.


42


Table of Contents



Item 6. Exhibits

The following exhibits are filed as part of this report:
Exhibits
Description
31.1
31.2
32.1
32.2
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document


43


Table of Contents


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)
 
 
 
 
 
 
 
 
 
 
 
April 26, 2018
By:
/s/ David D. Nelson
 
Date
 
David D. Nelson
 
 
 
Chief Executive Officer and President
 
 
 
(Principal Executive Officer)
 
 
 
 
 
April 26, 2018
By:
/s/ Douglas R. Gulling
 
Date
 
Douglas R. Gulling
 
 
 
Executive Vice President, Treasurer and Chief Financial Officer
 
 
 
(Principal Financial Officer)
 
 
 
 
 
April 26, 2018
By:
/s/ Marie I. Roberts
 
Date
 
Marie I. Roberts
 
 
 
Senior Vice President and Chief Accounting Officer
 
 
 
(Principal Accounting Officer)
 


44