West Bancorporation(WTBA) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Presents the unaudited consolidated balance sheets, income, equity, and cash flow statements for the period Consolidated Balance Sheets Total assets grew to $3.27 billion, driven by increases in securities and loans funded by deposit growth Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $270,823 | $396,435 | | Securities available for sale | $601,462 | $420,571 | | Loans, net | $2,281,485 | $2,251,139 | | Total assets | $3,268,760 | $3,185,744 | | Liabilities & Equity | | | | Total deposits | $2,825,289 | $2,700,994 | | Federal Home Loan Bank advances | $125,000 | $175,000 | | Total liabilities | $3,022,234 | $2,962,049 | | Total stockholders' equity | $246,526 | $223,695 | Consolidated Statements of Income Net income significantly increased year-over-year due to higher net interest income and a negative loan loss provision Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $22,850 | $20,747 | $45,971 | $39,211 | | Provision for loan losses | ($2,000) | $3,000 | ($1,500) | $4,000 | | Noninterest income | $2,515 | $1,775 | $4,980 | $4,295 | | Noninterest expense | $10,526 | $9,417 | $20,797 | $19,080 | | Net income | $13,239 | $7,969 | $24,991 | $16,058 | | Diluted EPS | $0.79 | $0.48 | $1.49 | $0.97 | Consolidated Statements of Cash Flows Cash flow from operations was positive, but overall cash decreased due to significant investment in securities Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $28,508 | $23,530 | | Net cash used in investing activities | ($216,564) | ($196,494) | | Net cash provided by financing activities | $62,444 | $236,343 | | Net (decrease) increase in cash and cash equivalents | ($125,612) | $63,379 | Notes to Consolidated Financial Statements Details accounting policies, loan portfolio composition, derivatives, and fair value measurement methodologies - The company plans to adopt the new credit loss standard (ASU 2016-13, Topic 326) for fiscal years beginning after December 15, 2022, and does not plan to early adopt[26] Loan Portfolio Composition (in thousands) | Loan Type | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Commercial | $510,947 | $603,599 | | Real estate - Commercial | $1,445,512 | $1,373,007 | | Real estate - Construction | $281,754 | $236,093 | | Other Loans | $83,769 | $80,050 | | Total Loans (before net fees) | $2,315,982 | $2,286,749 | - At June 30, 2021, the company had no COVID-19-related loan modifications outstanding[46] Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial performance, highlighting strong earnings, the lessening COVID-19 impact, and margin compression Summary of Performance Reports significantly improved net income and EPS, driven by a negative loan loss provision and strong loan growth Performance Summary - Q2 2021 vs Q2 2020 | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Net Income | $13,239 thousand | $7,969 thousand | | Diluted EPS | $0.79 | $0.48 | | Return on Average Assets | 1.65% | 1.19% | | Return on Average Equity | 22.20% | 15.68% | Performance Summary - H1 2021 vs H1 2020 | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Net Income | $24,991 thousand | $16,058 thousand | | Diluted EPS | $1.49 | $0.97 | | Return on Average Assets | 1.59% | 1.23% | | Return on Average Equity | 21.50% | 15.61% | - The Board of Directors declared a quarterly cash dividend of $0.24 per common share, payable on August 25, 2021[136] Impact of COVID-19 Discusses lingering economic uncertainty from the pandemic and its pressure on the net interest margin - Loan exposure to the hotel, restaurant, and movie theater industries totaled approximately $256.1 million, or 11.1% of the total loan portfolio, as of June 30, 2021[122] - As of June 30, 2021, the company had no loans remaining under COVID-19-related modifications[122] Results of Operations Net interest income grew, though margin declined; a negative provision for loan losses boosted profitability - Net interest margin (FTE) for H1 2021 was 3.08%, down from 3.19% in H1 2020, primarily due to lower yields on loans and securities, partially offset by lower funding costs[145][149] - A negative provision for loan losses of $1.5 million was recorded in H1 2021, compared to a $4.0 million provision in H1 2020, reflecting improved economic conditions[155] - Noninterest income for H1 2021 increased by $685,000, driven by higher trust services revenue and debit card fees[165] - Noninterest expense for H1 2021 increased by $1.7 million, primarily due to higher salaries and employee benefits and a 56.9% increase in FDIC insurance expense[168] Financial Condition Total assets grew to $3.27 billion, with improved asset quality and capital ratios exceeding regulatory minimums - Excluding PPP loans, the loan portfolio grew by $125.1 million, or 6.0%, in the first six months of 2021[131] - Nonaccrual loans decreased to $14.6 million at June 30, 2021, from $16.2 million at December 31, 2020[176][181] Capital Ratios as of June 30, 2021 | Ratio | Consolidated Actual | Well-Capitalized Minimum | | :--- | :--- | :--- | | Total Capital (to Risk-Weighted Assets) | 11.32% | 10.00% | | Tier 1 Capital (to Risk-Weighted Assets) | 10.27% | 8.00% | | Common Equity Tier 1 Capital | 9.51% | 6.50% | | Tier 1 Capital (to Average Assets) | 8.47% | 5.00% | Quantitative and Qualitative Disclosures About Market Risk Manages interest rate risk via simulation modeling, indicating an asset-sensitive position Interest Rate Sensitivity Analysis (Estimated Change in NII over 1 Year) | Scenario | % Change in Net Interest Income | | :--- | :--- | | 300 basis points rising | 4.23% | | 200 basis points rising | 3.05% | | 100 basis points rising | 1.73% | Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2021[201] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control[202] PART II. OTHER INFORMATION Legal Proceedings The company is not party to any material legal proceedings outside of ordinary routine litigation - There are no material pending legal proceedings against the Company or its subsidiary, West Bank, outside of ordinary routine litigation[204] Risk Factors No material changes have occurred in the risk factors previously disclosed in the annual Form 10-K report - No material changes to the risk factors disclosed in the 2020 Form 10-K have occurred[205] Exhibits Lists all exhibits filed with the report, including incentive plans and required officer certifications