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

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
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)
Iowa42-1230603
(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

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, no par valueWTBAThe Nasdaq Global Select Market

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

Yes                        No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes                        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
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

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                        No  

As of April 27, 2022, there were 16,631,413 shares of common stock, no par value, outstanding.



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


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
West Bancorporation, Inc. and Subsidiary
Consolidated Balance Sheet
(unaudited)


(in thousands, except share and per share data)March 31, 2022December 31, 2021
ASSETS
Cash and due from banks$21,896 $17,555 
Federal funds sold122,359 175,270 
Cash and cash equivalents144,255 192,825 
Securities available for sale, at fair value797,912 758,822 
Federal Home Loan Bank stock, at cost10,269 9,965 
Loans2,485,366 2,456,196 
Allowance for loan losses(27,623)(28,364)
Loans, net2,457,743 2,427,832 
Premises and equipment, net40,898 34,568 
Accrued interest receivable10,083 8,890 
Bank-owned life insurance43,836 43,609 
Deferred tax assets, net20,877 10,819 
Other assets21,196 12,871 
Total assets$3,547,069 $3,500,201 
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand$710,697 $720,136 
Interest-bearing demand554,235 548,242 
Savings1,632,690 1,550,636 
Time of $250 or more46,486 53,019 
Other time147,144 143,972 
Total deposits3,091,252 3,016,005 
Federal funds purchased 2,880 
Subordinated notes, net20,468 20,465 
Federal Home Loan Bank advances125,000 125,000 
Long-term debt51,486 51,521 
Accrued expenses and other liabilities22,383 24,002 
Total liabilities3,310,589 3,239,873 
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, 2022 and December 31, 2021
  
Common stock, no par value; authorized 50,000,000 shares; 16,631,413
    and 16,554,846 shares issued and outstanding at March 31, 2022
    and December 31, 2021, respectively
3,000 3,000 
Additional paid-in capital29,421 30,183 
Retained earnings246,827 237,782 
Accumulated other comprehensive loss(42,768)(10,637)
Total stockholders' equity236,480 260,328 
Total liabilities and stockholders' equity$3,547,069 $3,500,201 

See Notes to Consolidated Financial Statements.
4




West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Income
(unaudited)
 Three Months Ended March 31,
(in thousands, except per share data)20222021
Interest income:
Loans, including fees$23,286 $24,038 
Securities:
Taxable2,889 1,645 
Tax-exempt858 558 
Federal funds sold 82 69 
Total interest income27,115 26,310 
Interest expense:  
Deposits2,151 1,877 
Federal funds purchased 1 
Subordinated notes248 249 
Federal Home Loan Bank advances630 983 
Long-term debt258 79 
Total interest expense3,287 3,189 
Net interest income23,828 23,121 
Provision for loan losses(750)500 
Net interest income after provision for loan losses
24,578 22,621 
Noninterest income:  
Service charges on deposit accounts580 582 
Debit card usage fees472 442 
Trust services629 652 
Increase in cash value of bank-owned life insurance227 220 
Realized securities gains, net 4 
Other income481 565 
Total noninterest income2,389 2,465 
Noninterest expense:  
Salaries and employee benefits6,298 5,608 
Occupancy1,086 1,228 
Data processing624 602 
FDIC insurance337 404 
Professional fees217 283 
Director fees168 191 
Other expenses1,932 1,955 
Total noninterest expense10,662 10,271 
Income before income taxes16,305 14,815 
Income taxes3,121 3,063 
Net income$13,184 $11,752 
 
Basic earnings per common share$0.80 $0.71 
Diluted earnings per common share$0.78 $0.70 
See Notes to Consolidated Financial Statements.
5




West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
 Three Months Ended March 31,
(in thousands)20222021
Net income$13,184 $11,752 
Other comprehensive income (loss):  
Unrealized gains (losses) on securities:
Unrealized holding losses arising during the period(54,595)(8,338)
Plus: reclassification adjustment for net gains realized in net income (4)
Income tax benefit13,813 2,102 
Other comprehensive loss on securities(40,782)(6,240)
Unrealized gains (losses) on derivatives:
Unrealized holding gains arising during the period10,536 7,763 
Plus: reclassification adjustment for net losses realized in net income1,045 4,970 
Income tax expense (2,930)(3,208)
Other comprehensive income on derivatives8,651 9,525 
Total other comprehensive income (loss)(32,131)3,285 
Comprehensive income (loss)$(18,947)$15,037 

See Notes to Consolidated Financial Statements.
 
6




West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(unaudited)
(in thousands, except share and per share data)
Three Months Ended March 31, 2022
Accumulated
AdditionalOther
PreferredCommon StockPaid-InRetainedComprehensive
StockSharesAmountCapitalEarningsIncome (Loss)Total
Balance, December 31, 2021$ 16,554,846 $3,000 $30,183 $237,782 $(10,637)$260,328 
Net income
    13,184  13,184 
Other comprehensive loss,
   net of tax
     (32,131)(32,131)
Cash dividends declared, $0.25 per common share
    (4,139)(4,139)
Stock-based compensation costs
   757   757 
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes
 76,567  (1,519)  (1,519)
Balance, March 31, 2022$ 16,631,413 $3,000 $29,421 $246,827 $(42,768)$236,480 
Three Months Ended March 31, 2021
Accumulated
AdditionalOther
PreferredCommon StockPaid-InRetainedComprehensive
StockSharesAmountCapitalEarningsIncome (Loss)Total
Balance, December 31, 2020$ 16,469,272 $3,000 $28,823 $203,718 $(11,846)$223,695 
Net income
— — — — 11,752 — 11,752 
Other comprehensive income, net of tax— — — — — 3,285 3,285 
Cash dividends declared, $0.22 per common share
— — — — (3,623)— (3,623)
Stock-based compensation costs
— — — 633 — — 633 
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes
 71,109  (1,213)  (1,213)
Balance, March 31, 2021$— 16,540,381 $3,000 $28,243 $211,847 $(8,561)$234,529 

See Notes to Consolidated Financial Statements.

7




West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended March 31,
(in thousands)20222021
Cash Flows from Operating Activities:
Net income$13,184 $11,752 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses(750)500 
Net amortization and accretion666 382 
Securities gains, net (4)
Stock-based compensation757 633 
Increase in cash value of bank-owned life insurance(227)(220)
Depreciation307 373 
Provision for deferred income taxes824 446 
Change in assets and liabilities:
Increase in accrued interest receivable(1,193)(1,477)
(Increase) decrease in other assets249 (2,883)
Increase in accrued expenses and other liabilities1,702 5,547 
Net cash provided by operating activities15,519 15,049 
Cash Flows from Investing Activities:  
Proceeds from sales of securities available for sale 18,775 
Proceeds from maturities and calls of securities available for sale25,730 18,577 
Purchases of securities available for sale(120,077)(72,650)
Purchases of Federal Home Loan Bank stock(384)(856)
Proceeds from redemption of Federal Home Loan Bank stock80 165 
Net increase in loans(29,161)(23,352)
Purchases of premises and equipment(6,951)(963)
Net cash used in investing activities(130,763)(60,304)
Cash Flows from Financing Activities:  
Net increase (decrease) in deposits75,247 (18,901)
Net decrease in federal funds purchased(2,880)(1,315)
Principal payments on long-term debt(35)(639)
Common stock dividends paid(4,139)(3,623)
Restricted stock units withheld for payroll taxes (1,519)(1,213)
Net cash provided by (used in) financing activities66,674 (25,691)
Net decrease in cash and cash equivalents(48,570)(70,946)
Cash and Cash Equivalents:
Beginning192,825 396,435 
Ending$144,255 $325,489 
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest$3,218 $3,531 
Income taxes  
See Notes to Consolidated Financial Statements.

8



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

1.  Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by West Bancorporation, Inc. (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. Although management believes that the disclosures are adequate to make the information presented understandable, it is suggested that these interim consolidated financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 24, 2022. 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, 2022 and December 31, 2021 and net income, comprehensive income, changes in stockholders' equity and cash flows for the three months ended March 31, 2022 and 2021. 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 special purpose subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In accordance with GAAP, West Bancorporation Capital Trust I is recorded on the books of the Company using the equity method of accounting and is not consolidated.

Current accounting developments:  In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net carrying value at the amount expected to be collected on the financial assets. Under the update, the income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount of financial assets. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Off-balance-sheet arrangements such as commitments to extend credit, guarantees, and standby letters of credit that are not considered derivatives under ASC 815 and are not unconditionally cancellable are also within the scope of this update. Credit losses relating to available for sale debt securities should be recorded through an allowance for credit losses.

In December 2019, the FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326). This update amends the effective date of ASU No. 2016-13 for certain entities, including smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted. The one-time determination date for identifying as a smaller reporting company was November 15, 2019. The Company met the definition of a smaller reporting company as of that date and plans to adopt the standard with the amended effective date. The Company does not plan to early adopt this standard, but continues to work through implementation. The Company continues collecting and retaining loan and credit data and evaluating various loss estimation models. While we currently cannot reasonably estimate the impact of adopting this standard, we expect the impact will be influenced by the composition, characteristics and quality of our loan and securities portfolios, as well as the general economic conditions and forecasts as of the adoption date.

9



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

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Financial Instruments - Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Financial Instruments (ASC 825). The amendments in the ASU improve the Codification by eliminating inconsistencies and providing clarifications. The amended guidance in this ASU related to the credit losses will be effective for the Company for fiscal years and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU improve the usefulness of information provided to investors about certain loan refinancing, restructurings, and write-offs. The amendments eliminate the accounting guidance for troubled debt restructurings (TDRs) by creditors that have adopted ASU No. 2016-13. It also enhances disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficult. Lastly, the amendments require that a public business entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. The Company is currently evaluating the impact of the ASU on the Company's consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of the reference rate reform on the Company’s consolidated financial statements.
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this update refine the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to apply to derivative contracts and certain hedging relationships affected by the discounting transition. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of the reference rate reform on the Company's consolidated financial statements.

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, 2022 and 2021 are presented in the following table.

Three Months Ended March 31,
(in thousands, except per share data)20222021
Net income$13,184 $11,752 
 
Weighted average common shares outstanding16,561 16,475 
Weighted average effect of restricted stock units outstanding
279 226 
Diluted weighted average common shares outstanding16,840 16,701 
   
Basic earnings per common share$0.80 $0.71 
Diluted earnings per common share$0.78 $0.70 
Number of anti-dilutive common stock equivalents excluded from diluted earnings per share computation
18 67 
10



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

3.  Securities Available for Sale

The following tables show the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale, by security type as of March 31, 2022 and December 31, 2021.
 March 31, 2022
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Fair
Value
Securities available for sale:
State and political subdivisions$244,668 $384 $(22,016)$223,036 
Collateralized mortgage obligations (1)
382,410 84 (24,717)357,777 
Mortgage-backed securities (1)
180,495 13 (14,397)166,111 
Collateralized loan obligations37,907  (200)37,707 
Corporate notes13,750 3 (472)13,281 
 $859,230 $484 $(61,802)$797,912 
 December 31, 2021
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Fair
Value
Securities available for sale:
State and political subdivisions$231,903 $3,161 $(2,617)$232,447 
Collateralized mortgage obligations (1)
325,406 1,627 (6,260)320,773 
Mortgage-backed securities (1)
157,607 167 (2,714)155,060 
Collateralized loan obligations37,880 59 (157)37,782 
Corporate notes12,750 62 (52)12,760 
 $765,546 $5,076 $(11,800)$758,822 
(1)Collateralized mortgage obligations and mortgage-backed securities consist of residential and commercial mortgage pass-through securities and collateralized mortgage obligations guaranteed by FNMA, FHLMC, GNMA and SBA.

Securities with an amortized cost of approximately $286,672 and $295,961 as of March 31, 2022 and December 31, 2021, respectively, were pledged to secure access to the Federal Reserve discount window, for public fund deposits, and for other purposes as required or permitted by law or regulation.

The amortized cost and fair value of securities available for sale as of March 31, 2022, by contractual maturity, are shown below. Certain securities have call features that allow the issuer to call the securities prior to maturity. Expected maturities may differ from contractual maturities for collateralized mortgage obligations and mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, collateralized mortgage obligations and mortgage-backed securities are not included in the maturity categories within the following maturity summary.
 March 31, 2022
 Amortized CostFair Value
Due after five years through ten years$65,187 $63,263 
Due after ten years231,138 210,761 
 296,325 274,024 
Collateralized mortgage obligations and mortgage-backed securities562,905 523,888 
 $859,230 $797,912 
11



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

The details of the sales of securities available for sale for the three months ended March 31, 2022 and 2021 are summarized in the following table.
 Three Months Ended March 31,
 20222021
Proceeds from sales$ $18,775 
Gross gains on sales 162 
Gross losses on sales 158 

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, 2022 and December 31, 2021.
March 31, 2022
 Less than 12 months12 months or longerTotal
 Fair
Value
Gross
Unrealized
(Losses)
Fair
Value
Gross
Unrealized
(Losses)
Fair
Value
Gross
Unrealized
(Losses)
Securities available for sale:
State and political subdivisions$164,711 $(16,085)$34,130 $(5,931)$198,841 $(22,016)
Collateralized mortgage obligations336,765 (23,465)10,131 (1,252)346,896 (24,717)
Mortgage-backed securities125,926 (10,227)38,310 (4,170)164,236 (14,397)
Collateralized loan obligations37,707 (200)  37,707 (200)
Corporate notes12,278 (472)  12,278 (472)
 $677,387 $(50,449)$82,571 $(11,353)$759,958 $(61,802)
       
 December 31, 2021
 Less than 12 months12 months or longerTotal
 Fair
Value
Gross
Unrealized
(Losses)
Fair
Value
Gross
Unrealized
(Losses)
Fair
Value
Gross
Unrealized
(Losses)
Securities available for sale:
State and political subdivisions$121,574 $(1,223)$33,894 $(1,394)$155,468 $(2,617)
Collateralized mortgage obligations241,320 (6,149)2,352 (111)243,672 (6,260)
Mortgage-backed securities140,168 (2,714)  140,168 (2,714)
Collateralized loan obligations22,821 (157)  22,821 (157)
Corporate notes4,198 (52)  4,198 (52)
 $530,081 $(10,295)$36,246 $(1,505)$566,327 $(11,800)

As of March 31, 2022, securities available for sale with unrealized losses included 75 state and political subdivision securities, 72 collateralized mortgage obligation securities, 25 mortgage-backed securities, six collateralized loan obligation securities and seven corporate notes. Collateralized loan obligation securities are debt securities backed by pools of senior secured commercial loans to a diverse group of companies across a broad spectrum of industries. At March 31, 2022, the Company only owned collateralized loan obligations that were AAA- or AA-rated. The Company believes the unrealized losses on securities available for sale as of March 31, 2022 were due to market interest rate conditions rather than reduced estimated cash flows. At March 31, 2022, the Company did not intend to sell these securities, did not anticipate that these securities will be required to be sold before anticipated recovery, and expected full principal and interest to be collected. Therefore, the Company did not consider these securities to have other than temporary impairment as of March 31, 2022.


12



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, 2022 and December 31, 2021.
 March 31, 2022December 31, 2021
Commercial$466,874 $492,815 
Real estate:
Construction, land and land development388,424 359,258 
1-4 family residential first mortgages65,978 66,216 
Home equity9,213 8,422 
Commercial1,555,001 1,530,218 
Consumer and other4,068 3,797 
 2,489,558 2,460,726 
Net unamortized fees and costs(4,192)(4,530)
 $2,485,366 $2,456,196 

Included in commercial loans at March 31, 2022 and December 31, 2021, were $9,398 and $22,206, respectively, of loans originated in the Paycheck Protection Program (PPP). The PPP was established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted on March 27, 2020, and expanded by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, enacted on December 27, 2020 and the American Rescue Plan Act, enacted on March 11, 2021, in response to the Coronavirus Disease 2019 (COVID-19) pandemic. The PPP is administered by the Small Business Administration (SBA). PPP loans may be forgiven by the SBA and are 100 percent guaranteed by the SBA. Therefore, no allowance for loan losses is allocated to PPP loans.

Real estate loans of approximately $1,170,000 and $1,190,000 were pledged as security for Federal Home Loan Bank (FHLB) advances as of March 31, 2022 and December 31, 2021, 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 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.


13



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

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 specific component of the allowance for loan losses.

TDR loans totaled $8,458 and $8,599 as of March 31, 2022 and December 31, 2021 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, 2022 and 2021. A specific reserve of $2,500 related to TDR loans was recorded at March 31, 2022 and December 31, 2021. No TDR loans that were modified within the 12 months preceding March 31, 2022 and 2021 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.


14



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

The following table summarizes the recorded investment in impaired loans by segment, broken down by loans with no related allowance for loan losses and loans with a related allowance and the amount of that allowance as of March 31, 2022 and December 31, 2021.
March 31, 2022December 31, 2021
Recorded InvestmentUnpaid Principal BalanceRelated AllowanceRecorded InvestmentUnpaid Principal BalanceRelated Allowance
With no related allowance recorded:
Commercial$ $ $ $ $ $— 
Real estate:
Construction, land and land development