What changed in this filing

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Item 1. Business

2022-02-24 compared with 2021-03-01 · 133 added, 140 removed, 297 unchanged (48% of the section changed)

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and southern Minnesota, which includes the cities of Rochester, Owatonna, Mankato and St.

The Company’s financial performance goal is to be in the top quartile of our benchmarking peer group as measured by three key performance metrics.

Our benchmarking peer group for 2020 consisted of 21 Midwestern, publicly traded financial institutions.

The Company’s three key performance metrics as of and for the year ended December 31, 2020 are as follows:

l Return on average equity 15.49 %

l Efficiency ratio (1)

l Texas ratio 6.40 %

(1) As presented, this is a non-GAAP financial measure.

See Part II, Item 7 - "Non-GAAP Financial Measures" for additional details.

West Bancorporation, Inc.

and Subsidiary

Based on peer group analysis using data from the nine months ended September 30, 2020, which is the latest available data, the Company’s results for the 2020 fiscal year were better than those of each member of our defined peer group for return on average equity and efficiency ratio.

Our Texas ratio was at the 50th percentile of the peer group.

We currently believe our 2020 fiscal year results when compared to the peer group’s 2020 fiscal year results, once available, will be similar to these interim results.

During 2021, the Company received a number of financial performance recognitions, including the following:

• West Bancorporation received national recognition from investment bank and research firm Raymond James in the annual Raymond James Community Bankers Cup, which identifies America’s top performing publicly traded community banks with assets between $500 million and $10 billion.

The Raymond James Community Bankers Cup recognizes the top 10 percent of exchange-traded community banks based on various profitability, operations efficiency, and balance sheet metrics.

Raymond James ranked West Bancorporation number 21 in the nation for 2020.

West Bancorporation has been recognized by this award seven out of the last eight years.

• S&P Global Market Intelligence ranked West Bancorporation as the 10th best-performing community bank in 2020 with assets between $3 billion and $10 billion.

The rankings were based on various measures related to profitability, growth and asset quality.

This was the first year that West Bancorporation was eligible for consideration of this recognition.

• Piper Sandler recognized West Bancorporation as one of the 35 top-performing community banks in America.

The performance period was measured from June 2020 through June 2021 and the recognition was for companies with market caps below $2.5 billion.

Performance metrics focused on growth, profitability, credit quality and capital strength.

The Company continues to grow, as loans outstanding at the end of 2021 totaled $2.5 billion compared to $2.3 billion at the end of 2020, an increase of 7.7 percent.

Total loans outstanding at the end of 2020 included $180.76 million of Paycheck Protection Program (PPP) loans.

Total loans outstanding at the end of 2021 included $22.2 million of Paycheck Protection Program (PPP) loans, compared to $180.8 million at the end of 2020.

Excluding PPP loans, total loans increased 15.9 percent in 2021.

Total deposits grew 34.1 percent at December 31, 2020 from the balances as of December 31, 2019.

The growth in deposit balances was primarily due to changes in customer behavior as a result of the COVID-19 pandemic and our customers’ desire to retain liquidity, as well as a result of additional funds provided to individuals and businesses by government relief programs.

We believe the pipeline for new business remains strong, although less so than a year ago, as we continue to focus efforts on sales through strengthening existing relationships and developing new relationships.

We are confident in our ability to cultivate quality relationships and deliver excellent service.

The Company declared and paid cash dividends on common stock totaling $0.84 per share in 2020 and declared a $0.22 quarterly dividend on January 27, 2021, payable on February 24, 2021 to stockholders of record on February 10, 2021.

Total deposits grew 11.7 percent as of December 31, 2021 from the balances as of December 31, 2020.

The Company continues to focus on expanding existing and entering into new customer relationships while maintaining strong credit quality.

We anticipate that the long-term impact of the COVID-19 pandemic, including increasing inflationary trends, labor shortages and supply chain issues, could have an affect on customer deposit balances and the growth of our loan portfolio.

The Company declared and paid cash dividends on its common stock totaling $0.94 per share in 2021 and declared a $0.25 quarterly dividend on January 26, 2022, payable on February 23, 2022, to stockholders of record on February 9, 2022.

This is an increase of $0.01 from the prior quarter and represents a record high quarterly dividend for the Company.

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As of December 31, 2021 and 2020, the Company had no intangible assets or preferred stock outstanding.

The decrease in the tangible common equity ratio was primarily due to the unprecedented asset growth of the Company propelled by the impacts of the COVID-19 pandemic and a decrease in accumulated other comprehensive income, which was the result of a decline in the value of interest rate swaps.

Additional information on capital and the financial impact of the COVID-19 pandemic can be found in Item 7.

The increase in the tangible common equity ratio was primarily due to net income less dividends paid in 2021.

Additional information on capital can be found in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Cloud, Minnesota.

West Bank has eight offices in the Des Moines area, one office in Coralville, Iowa and one office in each of our four Minnesota markets.

West Bank has also begun construction of a permanent branch office in Sartell, Minnesota, a suburb of St.

West Bank has seven offices in the Des Moines area, one office in Coralville, Iowa and one office in each of our four Minnesota markets.

In 2022, West Bank will complete construction of a permanent branch office in Sartell, Minnesota, a suburb of St.

Cloud and begin construction of a permanent branch office in Mankato, Minnesota.

The Company also announced in 2021 that it is building a new headquarters in West Des Moines with construction expected to begin in 2022.

West Bank offers many types of credit to its customers, including commercial, real estate and consumer loans.

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West Bank has the size to provide the personal attention required by local business owners and the financial expertise and entrepreneurial attitude to help businesses meet their financial service needs.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic.

Actions taken in our markets and around the world to help mitigate the spread of COVID-19 have included restrictions on travel, quarantines, stay at home orders and forced closures or operational restrictions placed on various businesses, schools and public venues.

Throughout the pandemic, we continue to provide all services to our customers and execute our business strategies.

West Bancorporation, Inc.

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We believe that an important factor contributing to our historical performance and our ability to execute our strategic priorities is the vibrancy of our markets.

Our geographic markets entered the COVID-19 pandemic from a position of economic strength which has helped sustain much of their local economies through 2020.

Our markets are home to major financial services companies, healthcare providers, educational institutions, technology and agribusiness companies, and state and local governments.

Our geographic markets entered the COVID-19 pandemic from a position of economic strength which has helped sustain much of their local economies throughout the pandemic.

Our markets are home to major financial services companies, healthcare systems, educational institutions, technology and agribusiness companies, and state and local governments.

Our markets host major employers such as Principal Financial Group, Wells Fargo, Mayo Clinic, University of Iowa, University of Iowa Health Care, UnityPoint Health Partners, CentraCare Health Systems and IBM.

The unprecedented challenges and uncertainties of the COVID-19 pandemic have created economic stress of varying degrees across these industry sectors.

The markets in which we operate have generally experienced stable population growth over the past five years.

Des Moines-West Des Moines is the largest metropolitan statistical area (MSA) in Iowa with an estimated population of 699,000, while Iowa City and Coralville make up the fourth largest MSA in Iowa with an estimated population o f 173,000.

Des Moines-West Des Moines is the largest metropolitan statistical area (MSA) in Iowa with an estimated population of 708,000, while Iowa City and Coralville make up the fourth largest MSA in Iowa with an estimated population of 176,000.

Rochester and St.

Cloud are the third and fourth largest MSAs in Minnesota with estimated populations o f 222,000 and 202,000, respectively.

Although the markets in which we operate have been economically stable in recent years, the COVID-19 pandemic significantly impacted all markets in 2020.

Both business activity and unemployment rates were impacted due to changes in consumer behavior and restrictions implemented in response to the pandemic.

Unemployment rates peaked in 2020 at 11.0 percent and 9.9 percent in Iowa and Minnesota, respectively.

As of December 31, 2020, the Iowa and Minnesota unemployment rates were 3.1 percent and 4.4 percent, respectively, which were below the national rate of 6.7 percent .

Cloud are the fourth and fifth largest MSAs in Minnesota with estimated populations of 223,000 and 203,000, respectively.

We believe our markets are stable and have weathered the challenges brought on by the COVID-19 pandemic well.

Unemployment rates in all our markets are below the national unemployment rate of 3.9 percent as of December 31, 2021.

The market areas served by West Bank are highly competitive with respect to both loans and deposits.

West Bank competes with other commercial banks, credit unions, mortgage companies and other financial service providers, including financial technology (FinTech) companies.

According to the Federal Deposit Insurance Corporation’s (FDIC) Summary of Deposits as of June 30, 2020, West Bank ranked eighth in the state of Iowa in terms of deposit size.

According to the Federal Deposit Insurance Corporation’s (FDIC) Summary of Deposits as of June 30, 2021, West Bank ranked eighth in the state of Iowa in terms of deposit share.

Some of West Bank’s competitors are locally controlled, while others are regional, national or international companies.

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The financial services industry has become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation.

Technology has lowered barriers to entry and made it possible for non-banks, such as FinTech companies, to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.

Technology has lowered barriers to entry and made it possible for non-banks, such as FinTech companies, to offer deposit and loan products and services traditionally provided by banks.

In order to compete to the fullest extent possible with the other financial institutions in its primary market areas, West Bank uses the flexibility and knowledge of its local management, Board of Directors and community advisors.

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In particular, West Bank competes for loans primarily by offering competitive interest rates, experienced lending personnel with local decision-making authority, flexible loan arrangements, quality products and services, and proactive relationship management.

West Bank competes for deposits principally by offering depositors a variety of straight-forward deposit products and convenient office locations and hours, along with electronic access and other personalized services.

West Bank competes for deposits principally by offering depositors a variety of straight-forward deposit products along with electronic access and other personalized services.

West Bank also competes with the general financial markets for funds.

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The competition for these funds is based almost exclusively on yields to customers.

Human Capital Resources

Human Capital Management

We believe that the success of our business is largely due to the quality of our employees, the development of each employee's full potential and the Company's ability to provide timely and satisfying rewards.

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We invest in education and development programs, including tuition reimbursement for courses and degree programs and fees paid for certifications.

As of December 31, 2020, we had 175 employees, of which 162 were full time and 13 were part time.

As of December 31, 2020, approximately 57 percent of our current workforce was female and 43 percent was male.

Approximately 17 percent of our workforce consisted of ethnically diverse employees as of December 31, 2020.

We encourage employees to seek educational opportunities for both industry knowledge and professional development.

We believe that diversity encourages innovation and inclusion, and our team’s differences give us a competitive advantage.

Our goal is to foster a culture in which those differences are valued and respected.

Our team is made up of 167 full-time employees and 14 part-time employees.

We are proud of our culturally and gender diverse workforce, with approximately 15 percent identifying as persons of color and approximately 57 percent as women.

We have a number of multi-lingual employees at West Bank and strive to have at least one bilingual team member in all Central Iowa locations in customer-facing or customer service roles.

West Bancorporation, Inc.

and Subsidiary

We continue to invest in initiatives aimed at the growth and readiness of our workforce, including our West Bank Women’s Impact Network (WIN).

Since 2014, WIN connects and expands relationships among women at West Bank with women in our communities and our customers.

The network builds a system of sponsors and mentors to provide more opportunities for women in leadership at West Bank and furthers our impact on the community through support and sponsorship of women’s leadership initiatives.

20 percent of West Bank’s current executive management team is made up of women, and 49 percent of officers and department managers are women.

Currently, women comprise 15 percent of the directors on our Board.

Another woman has been nominated to the Board, which will increase that percentage to 23 percent if she is elected at the 2022 annual meeting.

As part of our compensation philosophy, we believe that we must offer and maintain market competitive compensation and benefit programs for our employees in order to attract and retain talent.

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Because we have fewer people, we need to have the right people and ensure that we offer what we consider to be above average pay in exchange for above average performance.

In addition to competitive base wages, additional programs include annual bonus opportunities, Company matched 401(k) and discretionary 401(k) contributions, stock award opportunities, healthcare and insurance benefits, paid time off, family leave and employee assistance programs.

Our approach also produces longevity in our workforce.

The average tenure of our employees is approximately nine years.

We are committed to the health, safety and wellness of our employees.

In response to the COVID-19 pandemic, we implemented operating environment changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations.

This includes having some employees work from home, while implementing additional safety measures for employees continuing critical on-site work.

No employees have been furloughed or laid off as a result of COVID-19.

Our employees are provided a formal performance evaluation annually that includes discussion of the opportunity for advancement and career development.

In addition to competitive base wages, additional programs include annual bonus opportunities, Company-matched 401(k) and discretionary 401(k) contributions, stock award opportunities, educational expense reimbursement, insurance benefits, paid time off, family leave and employee assistance programs.

Our best-in-class health care plans, including medical, dental, vision, short-term and long-term disability and life insurance, reflect a sincere investment in our colleagues’ physical, emotional and financial well-being.

Offering premium coverage through our health insurance provider, our employees are afforded a large network of doctors and the Company pays 75 percent of monthly medical premiums for employees enrolled.

Our approach also promotes longevity in our workforce.

The average tenure of our employees is over nine years.

64 employees (36 percent) have been with West Bank for over ten years and 41 employees (23 percent) for over 15 years.

Non-teller turnover was approximately six percent in 2021.

We conduct periodic company-wide employee engagement surveys to assess employee satisfaction and engagement.

Succession planning and talent development are important at all levels within our organization.

The Board oversees executive management’s succession plan for our named executive officers.

The Board’s succession planning activities are ongoing and strategic.

In addition, the CEO annually provides the Board with his assessment of senior leaders and their potential to succeed at key senior management positions.

SUPERVISION AND REGULATION

FDIC-insured institutions, their holding companies and their affiliates are extensively regulated under federal and state law.

As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Iowa Division of Banking, the Board of Governors of the Federal Reserve System (Federal Reserve), the FDIC and the Consumer Financial Protection Bureau (CFPB).

F DIC-insured institutions, their holding companies and their affiliates are extensively regulated under federal and state law.

As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Iowa Division of Banking, the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB).

Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (FASB), securities laws administered by the SEC and state securities authorities, and anti-money laundering laws enforced by the U.S.

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The effect of these statutes, regulations, regulatory policies and accounting rules are significant to our operations and results.

West Bancorporation, Inc.

and Subsidiary

Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of FDIC-insured institutions, their holding companies and affiliates that is intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than stockholders.

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Although the reforms primarily targeted systemically important financial service providers, their influence filtered down in varying degrees to community banks over time and caused our compliance and risk management processes, and the costs thereof, to increase.

Then, in May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (Regulatory Relief Act) was enacted by Congress in part to provide regulatory relief for community banks and their holding companies.

To that end, the law eliminated questions about the applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving us of any requirement to engage in mandatory stress tests, maintain a risk committee or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds.

We believe these reforms are favorable to our operations.

The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (Regulatory Relief Act) eliminated questions about the applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving us of any requirement to engage in mandatory stress tests or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds.

We believe these reforms have been favorable to our operations.

The supervisory framework for U.S.

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The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations.

The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and West Bank, beginning with a discussion of the impact of the COVID-19 pandemic on the banking industry.

The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and West Bank.

It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described.

The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision.

West Bancorporation, Inc.

and Subsidiary

COVID-19 Pandemic

The federal bank regulatory agencies, along with their state counterparts, have issued a steady stream of guidance responding to the COVID-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact.

These include, without limitation:

The federal bank regulatory agencies, along with their state counterparts, issued a steady stream of guidance responding to the COVID-19 pandemic and they took a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact.

These included, without limitation:

requiring banks to focus on business continuity and pandemic planning;

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and providing credit under the Community Reinvestment Act (CRA) for certain pandemic-related loans, investments and public service.

Because of the need for social distancing measures, the agencies revamped the manner in which they conducted periodic examinations of their regulated institutions, including making greater use of off-site reviews.

Moreover, the Federal Reserve issued guidance encouraging banking institutions to utilize its discount window for loans and intraday credit extended by its Reserve Banks to help households and businesses impacted by the pandemic and announced numerous funding facilities.

The FDIC also has acted to mitigate the deposit insurance assessment effects of participating in the PPP and the Federal Reserve’s PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility.

Reference is made to the discussion of “Risks Related to the COVID-19 Pandemic” in Item 1A.

Risk Factors and “Significant Developments - Impact of COVID-19” in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report for information on the Coronavirus Aid, Relief and Economic Security Act (CARES Act) and PPP and for discussions of the economic impact of the COVID-19 pandemic.

In addition, information as to selected topics, such as the impact on capital requirements, dividend payments, reserves and CRA, is contained in the relevant sections of this Supervision and Regulation discussion provided below.

Reference is made to the discussion of Risks Related to the COVID-19 Pandemic in the Risk Factors section below for discussions of the impact of the COVID-19 pandemic.

In addition, information as to selected topics is contained in the relevant sections of this Supervision and Regulation discussion provided below.

Supervision and Regulation of the Company

The Company, as the sole stockholder of West Bank, is a bank holding company that has elected financial holding company status.

As a bank holding company, we are registered with, and subject to regulation by, the Federal Reserve under the BHCA.

As a bank holding company, we are registered with, and subject to regulation by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (BHCA).

We are legally obligated to act as a source of financial and managerial strength to West Bank and to commit resources to support West Bank in circumstances where we might not otherwise do so.

Under the BHCA, we are subject to periodic examination by the Federal Reserve and are required to file with the Federal Reserve periodic reports of our operations and such additional information regarding our operations as the Federal Reserve may require.

West Bancorporation, Inc.

and Subsidiary

Acquisitions and Activities/Financial Holding Company Election .

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Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions.

The BHCA generally prohibits the Company from acquiring direct or indirect ownership or control of five percent or more of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries.

The BHCA generally prohibits the Company from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries.

This general prohibition is subject to a number of exceptions.

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The BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies.

West Bancorporation, Inc.

and Subsidiary

Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.

Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity, as long as the activity does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.

In the third quarter of 2016, we elected to operate as a financial holding company.

In order to maintain our status as a financial holding company, both the Company and West Bank must be well-capitalized, well-managed, and have at least a satisfactory CRA rating.

If the Federal Reserve determines that either the Company or West Bank is not well-capitalized or well-managed, the Federal Reserve will provide a period of time in which to achieve compliance, but during the period of noncompliance, the Federal Reserve may place any additional limitations on us that it deems appropriate.

Furthermore, if non-compliance is based on the failure of West Bank to achieve a satisfactory CRA rating, we would not be able to commence any new financial activities or acquire a company that engages in such activities.

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Company Capital Requirements .

The Company has not been required by the Federal Reserve to report consolidated regulatory capital due to an exemption provided by the Federal Reserve’s Small Bank Holding Company Policy Statement applicable to holding companies with less than $3 billion in total assets.

The Company crossed the $3 billion threshold in late 2020.

However, the federal bank regulatory agencies issued an Interim Final Rule on November 20, 2020, that provided temporary relief for certain community banking organizations as a result of growth in asset size from the COVID-19 response.

Under the Interim Final Rule, which in pertinent part applies to financial institutions with less than $3 billion in total assets as of December 31, 2019, the asset growth of such banks in 2020 and 2021 will not trigger consolidated capital reporting requirements until January 1, 2022.

Unless the Federal Reserve determines otherwise, we are considered well-capitalized until that date, as long as West Bank is well-capitalized.

For capital requirements applicable to West Bank, see “Supervision and Regulation of West Bank —Bank Capital Requirements” below.

The Company is subject to complex consolidated capital requirements of the Basel III rule, see “—the Basel III Rule” below.

Dividend Payments .

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or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

These factors have come into consideration in the industry as a result of the COVID-19 pandemic.

The Company paid regular quarterly dividends in 2020 and expects to continue paying regular quarterly dividends in the future.

The Federal Reserve also possesses enforcement powers over bank holding companies and their nonbank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.

Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.

West Bancorporation, Inc.

and Subsidiary

Monetary Policy .

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Federal Securities Regulation .

Our common stock is registered with the SEC under the Exchange Act.

Our common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (Exchange Act).

Consequently, we are subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.

West Bancorporation, Inc.

and Subsidiary

Corporate Governance .

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The reserve ratio is the FDIC insurance fund balance divided by estimated insured deposits.

The Dodd-Frank Act altered the minimum reserve ratio of the DIF, increasing the minimum from 1.15 percent to 1.35 percent of the estimated amount of total insured deposits.

The reserve ratio reached 1.36 percent as of September 30, 2018, exceeding the statutory required minimum.

As a result, the FDIC provided assessment credits to insured depository institutions, like West Bank, with total consolidated assets of less than $10 billion for the portion of their regular assessments that contributed to growth in the reserve ratio between 1.15 percent and 1.35 percent.

The Dodd-Frank Act altered the minimum reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits.

The reserve ratio reached 1.36% as of September 30, 2018.

The FDIC applied the small bank credits for quarterly assessment periods beginning July 1, 2019.

However, the reserve ratio then fell to 1.30 percent in 2020 as a result of extraordinary insured deposit growth caused by an unprecedented inflow of more than $1 trillion in estimated insured deposits in the first half of 2020, stemming mainly from the COVID-19 pandemic.

Although the FDIC could have ceased the small bank credits, it waived the requirement that the reserve ratio be at least 1.35 percent for full remittance of the remaining assessment credits, and it refunded all small bank credits as of September 30, 2020.

However, the reserve ratio fell to 1.30% in 2020 because of extraordinary insured deposit growth caused by an unprecedented inflow of more than $1 trillion in estimated insured deposits in the first half of 2020, stemming mainly from the COVID-19 pandemic.

Although the FDIC could have ceased the small bank credits, it waived the requirement that the reserve ratio be at least 1.35% for full remittance of the remaining assessment credits, and it refunded all small bank credits as of September 30, 2020.

The DIF balance was $121.9 billion on September 30, 2021, up $1.4 billion from the end of the second quarter.

The reserve ratio remained at 1.27% as growth in the fund balance kept pace with growth in insured deposits.

The FDIC staff continues to closely monitor the factors that affect the reserve ratio, and any change could impact FDIC assessments.

Supervisory Assessments .

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Regulatory capital represents the net assets of a banking organization available to absorb losses.

Because of the risks attendant to their business, FDIC-insured institutions are generally required to hold more capital than other businesses, which directly affects our earnings capabilities.

While capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress.

Certain provisions of the Dodd-Frank Act and Basel III, discussed below, establish capital standards for banks and most bank holding companies that are meaningfully more stringent than those in place previously.

Because of the risks attendant to their business, FDIC-insured institutions generally are required to hold more capital than other businesses, which directly affects our earnings capabilities.

Although capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress.

West Bancorporation, Inc.

and Subsidiary

Capital Levels .

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The accords recognized that bank assets for the purpose of the capital ratio calculations needed to be risk weighted (the theory being that riskier assets should require more capital) and that off-balance sheet exposures needed to be factored in the calculations.

Following the global financial crisis of 2008-2009, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement on a strengthened set of capital requirements for banking organizations around the world, known as Basel III, to address deficiencies recognized in connection with the global financial crisis.

West Bancorporation, Inc.

and Subsidiary

Following the global financial crisis, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement on a strengthened set of capital requirements for banking organizations around the world, known as Basel III, to address deficiencies recognized in connection with the global financial crisis.

Basel III Rule.

In July 2013, the U.S.

federal banking agencies approved the implementation of the Basel III regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the Dodd-Frank Act (Basel III Rule).

In contrast to capital requirements historically, which were in the form of guidelines, Basel III was released in the form of binding regulations by each of the regulatory agencies.

The Basel III Rule increased the required quantity and quality of capital and required more detailed categories of risk weighting of riskier, more opaque assets.

For nearly every class of assets, the Basel III Rule requires a more complex, detailed and calibrated assessment of risk in the calculation of risk weightings.

The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies” (generally certain holding companies with consolidated assets of less than $3 billion (see discussion under “Company Capital Requirements”)) and certain qualifying banking organizations that may elect a simplified framework (which we have not done).

The United States bank regulatory agencies adopted the Basel III regulatory capital reforms, and, at the same time, effected changes required by the Dodd-Frank Act, in regulations that were effective (with certain phase-ins) in 2015 (Basel III Rule).

Basel III established capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously:

it increased the required quantity and quality of capital;

and it required a more complex, detailed and calibrated assessment of risk in the calculation of risk weightings.

Thus, West Bank is subject to the Basel III Rule as described below.

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The Basel III Rule required minimum capital ratios as of January 1, 2015, as follows:

• A ratio of minimum Common Equity Tier 1 Capital equal to 4.5 percent of risk-weighted assets;

• A ratio of minimum Tier 1 Capital equal to 6 percent of risk-weighted assets;

• A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8 percent of risk-weighted assets;

• A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4 percent in all circumstances.

In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5 percent in Common Equity Tier 1 Capital attributable to a capital conservation buffer.

• A ratio of Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets;

• A ratio of Tier 1 Capital equal to 6% of risk-weighted assets;

• A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets;

• A leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.

In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.

The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress.

Factoring in the conservation buffer increases the minimum ratios depicted above to 7 percent for Common Equity Tier 1 Capital, 8.5 percent for Tier 1 Capital and 10.5 percent for Total Capital.

Factoring in the conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital.

The federal bank regulators released a joint statement in response to the COVID-19 pandemic reminding the industry that capital and liquidity buffers were meant to give banks the means to support the economy in adverse situations, and that the agencies would support banks that use the buffers for that purpose if undertaken in a safe and sound manner.

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, Tier 1 Capital less all intangible assets), well above the minimum levels.

Under the capital regulations of the FDIC, in order to be well‑capitalized, West Bank must maintain:

• A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5 percent or more;

• A ratio of Tier 1 Capital to total risk-weighted assets of 8 percent or more;

• A ratio of Total Capital to total risk-weighted assets of 10 percent or more;

• A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5 percent or greater.

West Bancorporation, Inc.

and Subsidiary

Under the capital regulations of the FDIC, in order to be well‑capitalized, West Bank must maintain:

• A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more;

• A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more;

• A ratio of Total Capital to total risk-weighted assets of 10% or more;

• A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater.

It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above.

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(i) West Bank was not subject to a directive from Iowa Division of Banking or the FDIC to increase its capital and (ii) West Bank was well-capitalized, as defined by FDIC regulations.

West Bank is also in compliance with the capital conservation buffer.

West Bank also was in compliance with the capital conservation buffer.

Prompt Corrective Action .

The concept of an institution being “well-capitalized” is part of a regulatory enforcement regime that provides the federal banking regulators with broad power to take “prompt corrective action” to resolve the problems of institutions based on the capital level of each particular institution.

The concept of an institution being “well-capitalized” is part of a regulatory enforcement regime that provides the federal banking regulators with broad power to take “prompt corrective action” to resolve the problems of depository institutions based on the capital level of each particular institution.

The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation.

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In response, Congress provided an “off-ramp” for institutions, like us, with total consolidated assets of less than $10 billion.

Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single “Community Bank Leverage Ratio” (CBLR) of between 8 and 10 percent.

Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single “Community Bank Leverage Ratio” (CBLR) of between 8 and 10%.

Under the final rule, a community banking organization is eligible to elect the new framework if it has:

less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9 percent.

The bank regulatory agencies temporarily lowered the CBLR to 8 percent as a result of the COVID-19 pandemic.

less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%.

West Bank may elect the CBLR framework at any time but has not currently determined to do so.

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bank regulatory agencies implemented the Basel III Liquidity Coverage Ratio or LCR in September 2014, which require large financial firms to hold levels of liquid assets sufficient to protect against constraints on their funding during times of financial turmoil.

While the LCR only applies to the largest banking organizations in the country, we continue to review our liquidity risk management policies in light of these developments.

While the LCR only applies to the largest banking organizations in the country, we continue to review our liquidity risk management policies in light of developments.

Dividend Payments .

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Certain limitations and reporting requirements are also placed on extensions of credit by West Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal stockholders of the Company and to “related interests” of such directors, officers and principal stockholders.

In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of the Company or West Bank, or a principal stockholder of the Company, may obtain credit from banks with which West Bank maintains a correspondent relationship.

In addition, federal law and regulations may affect the terms on which any person who is a director or officer of the Company or West Bank, or a principal stockholder of the Company, may obtain credit from banks with which West Bank maintains a correspondent relationship.

Safety and Soundness Standards/Risk Management .

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If an FDIC-insured institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency.

Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the FDIC-insured institution’s rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances.

Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the FDIC-insured institution’s rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates that the institution pays on deposits or require the institution to take any action that the regulator deems appropriate under the circumstances.

Operating in an unsafe or unsound manner will also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.

During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions they supervise.

Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have changed the nature of banking markets.

The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, legal and reputational risk.

The federal bank regulators have identified key risk themes for 2021 as:

credit risk management given projected weaker economic conditions and commercial and residential real estate concentration risk management.

The agencies will also be monitoring banks for their transition away from LIBOR as a reference rate, compliance risk management related to COVID-19 pandemic-related activities, Bank Secrecy Act/anti-money laundering (AML) compliance, cybersecurity, planning for and implementation of the current expected credit losses (CECL) accounting standard, and CRA performance.

The key risk themes identified for 2022 are discussed under Risk Factors.

West Bank is expected to have active board and senior management oversight;

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These security and privacy policies and procedures are in effect across all business lines and geographic locations.

West Bancorporation, Inc.

and Subsidiary

Branching Authority .

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and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger.

West Bancorporation, Inc.

and Subsidiary

Transaction Account Reserves .

Federal law requires FDIC-insured institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts) to provide liquidity.

Reserves are maintained on deposit at the Federal Reserve Banks.

The reserve requirements are subject to annual adjustment by the Federal Reserve, and, for 2020, the Federal Reserve had determined that the first $16.9 million of otherwise reservable balances had no reserve requirement;

for transaction accounts aggregating between $16.9 million to $127.5 million, the reserve requirement was 3 percent of those transaction account balances;

and for net transaction accounts in excess of $127.5 million, the reserve requirement was 10 percent of the aggregate amount of total transaction account balances in excess of $127.5 million.

However, in March 2020, in an unprecedented move, the Federal Reserve announced that the banking system had ample reserves, and, as reserve requirements no longer played a significant role in this regime, it reduced all reserve tranches to zero percent, thereby freeing banks from the reserve maintenance requirement.

The amount of reserves is established by the Federal Reserve based on tranches of zero, three and ten percent of a bank’s transaction account deposits.

The action permits West Bank to loan or invest funds that were previously unavailable.

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Community Reinvestment Act Requirements .

The CRA requires West Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods.

CRA requires West Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods.

Federal regulators regularly assess West Bank’s record of meeting the credit needs of its communities.

Applications for acquisitions would be affected by the evaluation of West Bank’s effectiveness in meeting its CRA requirements.

Applications for additional acquisitions would be affected by the evaluation of West Bank’s effectiveness in meeting its CRA requirements.

Anti-Money Laundering .

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) is designed to deny terrorists and criminals the ability to obtain access to the U.S.

financial system and has significant implications for FDIC-insured institutions, brokers, dealers and other businesses involved in the transfer of money.

The USA PATRIOT Act, along with other legal authority, mandates financial services companies to have policies and procedures with respect to measures designed to address any or all of the following matters:

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), the Bank Secrecy Act and other similar laws are designed to deny terrorists and criminals the ability to obtain access to the U.S.

financial system and have significant implications for FDIC-insured institutions and other businesses involved in the transfer of money.

These laws mandate financial services companies to have policies and procedures with respect to measures designed to address any or all of the following matters:

(i) customer identification programs;

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Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment.

A concentration in commercial real estate is one example of regulatory concern.

A concentration in commercial real estate (CRE) is one example of regulatory concern.

The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance (CRE Guidance) provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny:

(i) commercial real estate loans exceeding 300 percent of capital and increasing 50 percent or more in the preceding three years;

(i) CRE loans exceeding 300 percent of capital and increasing 50 percent or more in the preceding three years;

or (ii) construction and land development loans exceeding 100 percent of capital.

The CRE Guidance does not limit banks’ levels of commercial real estate lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations.

The CRE Guidance does not limit banks’ levels of CRE lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations.

On December 18, 2015, the federal banking agencies issued a statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards.

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Additional monitoring processes have been implemented to manage this increased risk.

West Bancorporation, Inc.

and Subsidiary

Consumer Financial Services .

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FDIC-insured institutions with $10 billion or less in assets, like West Bank, continue to be examined by their applicable bank regulators.

Because abuses in connection with residential mortgages were a significant factor contributing to the financial crisis of 2008-2009, many new rules issued by the CFPB and required by the Dodd-Frank Act addressed mortgage and mortgage-related products, their underwriting, origination, servicing and sales.

Because abuses in connection with residential mortgages were a significant factor contributing to the global financial crisis, many new rules issued by the CFPB, as required by the Dodd-Frank Act, addressed mortgage and mortgage-related products, their underwriting, origination, servicing and sales.

The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices.

In addition to numerous disclosure requirements, the Dodd-Frank Act imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.” The CFPB has from time to time released additional rules as to qualified mortgages and the borrower’s ability to repay, most recently in October 2020.

In addition to numerous disclosure requirements, the Dodd-Frank Act and the CFPB’s enabling rules imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.” The CFPB has from time to time released additional rules as to qualified mortgages and the borrower’s ability to repay.

The CFPB’s rules have not had a significant impact on West Bank’s operations, except for higher compliance costs.

West Bancorporation, Inc.

and Subsidiary

ADDITIONAL INFORMATION

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business