What changed in this filing

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Item 1A. Risk Factors

2022-02-24 compared with 2021-03-01 · 46 added, 100 removed, 306 unchanged (32% of the section changed)

10 unchanged sentences

These procedures cannot, however, be expected to completely eliminate our credit risks, and we can make no guarantees concerning the strength of our loan portfolio.

West Bancorporation, Inc.

and Subsidiary

The information that we use in managing our credit risk may be inaccurate or incomplete, which may result in an increased risk of default and otherwise have an adverse effect on our business, results of operations and financial condition.

13 unchanged sentences

Also, when credit markets tighten due to adverse developments in specific markets or the general economy, opportunities for refinancing may become more expensive or unavailable, resulting in loan defaults.

West Bancorporation, Inc.

and Subsidiary

Our loan portfolio includes commercial real estate loans, which involve risks specific to real estate values.

15 unchanged sentences

however, there can be no guarantee of the effectiveness of the risk management processes on an ongoing basis.

West Bancorporation, Inc.

and Subsidiary

We are subject to environmental liability risk associated with real estate collateral securing our loans.

17 unchanged sentences

and unidentified losses inherent in the current loan portfolio.

West Bancorporation, Inc.

and Subsidiary

Determination of the allowance is inherently subjective as it requires significant estimates and management’s judgment of credit risks and future trends, all of which may undergo material changes.

7 unchanged sentences

This will change the current method of providing for loan losses that are probable, and may require us to increase our allowance for loan losses and to greatly increase the types of data we will need to collect and analyze to determine the appropriate level of the allowance for loan losses.

Any increase in our allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses will result in a decrease in net income and capital and may have a material adverse impact on our financial condition and results of operations.

An increase in our allowance for loan losses at the adoption of CECL would decrease capital.

Any subsequent increase in our allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses will result in a decrease in net income and capital and may have a material adverse impact on our financial condition and results of operations.

Moreover, the CECL model may create more volatility in our level of allowance for loan losses and could result in the need for additional capital.

8 unchanged sentences

These changes are beyond our control, can be difficult to predict and could have a material adverse impact on our financial condition and results of operations.

West Bancorporation, Inc.

and Subsidiary

If a significant portion of any unrealized losses in our portfolio of investment securities were to become other than temporarily impaired with credit losses, we would recognize a material charge to our earnings, and our capital ratios would be adversely impacted.

6 unchanged sentences

In addition to credit losses, losses are recognized for a security with an unrealized loss if the Company has the intent to sell the security or if it is more likely than not that the Company will be required to sell the security before collection of the principal amount.

West Bancorporation, Inc.

and Subsidiary

Failure to maintain effective internal controls over financial reporting could impair our ability to accurately and timely report our financial results and could increase the risk of fraud.

11 unchanged sentences

Some of our customers may have been affected by these breaches, which could increase their risks of identity theft and other fraudulent activity that could involve their accounts with us.

West Bancorporation, Inc.

and Subsidiary

Information pertaining to us and our customers is maintained, and transactions are executed, on networks and systems maintained by us and certain third-party partners, such as our online banking, mobile banking and core deposit and loan recordkeeping systems.

6 unchanged sentences

Compliance with current or future privacy, data protection and information security laws could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could adversely affect our business, financial condition or results of operations.

West Bancorporation, Inc.

and Subsidiary

We depend on information technology and telecommunications systems of third parties, and any systems failures, interruptions or data breaches involving these systems could adversely affect our operations and financial condition.

12 unchanged sentences

As a result of the foregoing, our ability to conduct business may be adversely affected by any significant disruptions to us or to third parties with whom we interact.

West Bancorporation, Inc.

and Subsidiary

Other Risks Related to West Bank’s Operations

1 unchanged sentence

West Bank maintains liquidity primarily through customer deposits and other short-term funding sources, including advances from the Federal Home Loan Bank (FHLB), brokered CDs and purchased federal funds.

We are currently experiencing higher than normal levels of liquidity and are facing challenges on how to invest or deploy the excess funds.

This increased liquidity and an uptick in the competition for loans have created additional downward pressure on our net interest margin in recent periods.

If economic influences change so that we do not have access to short-term credit, or our depositors withdraw a substantial amount of their funds for other uses, West Bank might experience liquidity issues.

3 unchanged sentences

Although we believe West Bank’s current sources of funds are adequate for its liquidity needs, there can be no assurance in this regard for the future.

West Bancorporation, Inc.

and Subsidiary

The competition for banking and financial services in our market areas is high, which could adversely affect our financial condition and results of operations.

8 unchanged sentences

Loss of customer deposits due to increased competition could increase our funding costs.

We rely on bank deposits to be a low cost and stable source of funding.

We rely on customer deposits to be a low cost and stable source of funding.

We compete with banks and other financial services companies for deposits.

13 unchanged sentences

Any financial liability, litigation costs or reputational damage caused by these legal claims could have a material adverse impact on our business, financial condition and results of operations.

West Bancorporation, Inc.

and Subsidiary

The soundness of other financial institutions could adversely affect us.

4 unchanged sentences

There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings.

West Bancorporation, Inc.

and Subsidiary

We may experience difficulties in managing our growth.

1 unchanged sentence

To the extent that we undertake acquisitions or new office openings, we are likely to experience the effects of higher operating expense relative to operating income from the new operations, which may have an adverse effect on our overall levels of reported net income, return on average equity and return on average assets.

To the extent we hire teams of bankers from other financial institutions, our salaries and employee benefits expense will likely increase, which may have an adverse effect on our net income, without any guarantee that the new lending team will be successful in generating new business.

To the extent we hire teams of bankers from other financial institutions, our salaries and employee benefits expense will likely increase, which may have an adverse effect on our net income, without any guarantee that the new banking team will be successful in generating new business.

Other effects of engaging in such growth strategies may include potential diversion of our management’s time and attention and general disruption to our business.

14 unchanged sentences

The loss of services of a few of our senior executive officers or key personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition or results of operations, at least in the short term.

Labor shortages and a failure to attract and retain qualified employees could negatively impact our business, results of operations and financial condition.

A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, decreased labor force size and participation rates as a result of the COVID-19 pandemic, expanded unemployment benefits offered in response to the ongoing COVID-19 pandemic, and other government actions.

Although we have not experienced any material labor shortage to date, we have recently observed an overall tightening and increasingly competitive local labor market.

A sustained labor shortage or increased turnover rates within our employee base could lead to increased costs, such as increased compensation expense to attract and retain employees.

In addition, if we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we take to respond to a decrease in labor availability have unintended negative effects, our business could be adversely affected.

An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have a material adverse impact on our business, results of operations and financial condition.

West Bancorporation, Inc.

3 unchanged sentences

Interest rates are sensitive to many factors, including government monetary and fiscal policies and domestic and international economic and political conditions.

If interest rates increase, banks will experience competitive pressures to increase rates paid on deposits.

If interest rates increase, which is expected to occur in 2022, banks will experience competitive pressures to increase rates paid on deposits.

Depending on competitive pressures, such deposit rate increases may occur faster than increases in rates received on loans, which may reduce net interest income during the transition periods.

16 unchanged sentences

Such unfavorable conditions could materially and adversely affect us.

Continued elevated levels of inflation could adversely impact our business, results of operations and financial condition.

The United States has recently experienced elevated levels of inflation, with the consumer price index climbing approximately 7.0 percent in 2021.

Continued levels of inflation could have complex effects on our business, results of operations and financial condition, some of which could be materially adverse.

For example, while we generally expect any inflation-related increases in our interest expense to be offset by increases in our interest revenue, inflation-driven increases in our levels of noninterest expense could negatively impact our results of operations.

Continued elevated levels of inflation could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability to repay indebtedness.

It is also possible that governmental responses to the current inflation environment could adversely affect our business, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls.

The duration and severity of the current inflationary period cannot be estimated with precision.

We are required to maintain capital to meet regulatory requirements, and if we fail to maintain sufficient capital, whether due to an inability to raise capital, operational losses, or otherwise, our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, could be adversely affected.

3 unchanged sentences

Failure to meet these capital and other regulatory requirements could affect customer confidence, our ability to grow, the costs of funds, FDIC insurance costs, the ability to pay dividends on common stock and to make distributions on the junior subordinated debentures, the ability to make acquisitions, the ability to make certain discretionary bonus payments to executive officers, and the results of operations and financial condition.

Risks Related to the COVID-19 Pandemic

The outbreak of COVID-19 has led to an economic recession and had other severe effects on the U.S.

economy and has disrupted our operations.

The ongoing COVID-19 pandemic has also adversely impacted certain industries in which our clients operate and impaired their ability to fulfill their financial obligations to us.

The ultimate impact of the COVID-19 pandemic on our business remains uncertain but may have a material and adverse effect on our business, financial condition, results of operations and growth prospects.

The COVID-19 pandemic continues to negatively impact the United States and the world.

The spread of COVID-19 has negatively impacted the U.S.

economy at large, and small businesses in particular, and has disrupted our operations.

The responses on the part of the U.S.

and global governments and populations have created a recessionary environment, reduced economic activity and caused significant volatility in the global stock markets.

We have experienced significant disruptions across our business due to these effects, which may in future periods lead to decreased earnings, significant loan defaults and slowdowns in our loan collections.

West Bancorporation, Inc.

and Subsidiary

The outbreak of COVID-19 has resulted in a decline in the businesses of certain of our clients, a decrease in consumer confidence, and an increase in unemployment.

Continued disruptions to our clients’ businesses could result in increased risk of delinquencies, defaults, foreclosures, and losses on our loans, negatively impact regional economic conditions, result in declines in local loan demand, liquidity of loan guarantors, the value of loan collateral (particularly in real estate), loan originations, and deposit availability and negatively impact the implementation of our growth strategy.

Although the U.S.

government introduced, and may introduce in the future, programs designed to soften the impact of COVID-19 on small businesses or provide stimulus checks to individuals, our borrowers may still not be able to satisfy their financial obligations to us.

In addition, COVID-19 has impacted and likely will continue to impact the financial ability of businesses and consumers to borrow money, which would negatively impact loan volumes.

Certain of our borrowers are in, or have exposure to, the hotel, retail, restaurant and movie theater industries and are located in areas that are, or were, quarantined or under stay-at-home orders.

COVID-19 may also have an adverse effect on our commercial real estate portfolio, particularly with respect to real estate with exposure to these industries, and our consumer loan portfolios.

As COVID-19 cases have surged in recent months, any new or prolonged quarantine or stay-at-home orders would have a negative adverse impact on these borrowers and their revenue streams, which consequently impacts their ability to meet their financial obligations to us and could result in loan defaults.

The ultimate extent of the COVID-19 pandemic’s effect on our business will depend on many factors, primarily including the speed and extent of any recovery from the related economic recession.

Among other things, this will depend on the duration of the COVID-19 pandemic, particularly in our markets, the development, distribution and supply of vaccines, therapies and other public health initiatives to control the spread of the disease, the nature and size of federal economic stimulus and other governmental efforts, and the possibility of additional state lockdown or stay-at-home orders in our markets in response to surges in the number of COVID-19 cases.

The initial distribution of vaccines has been slow, and there may continue to be challenges with producing and distributing sufficient quantities of the vaccines.

If the general public is unwilling or unable to access effective vaccines and therapies, this may also prolong the COVID-19 pandemic.

In addition, new variants of COVID-19 may increase the spread or severity of COVID-19 and previously developed vaccines and therapies may not be as effective against new COVID-19 variants.

As a result of the COVID-19 pandemic we may experience adverse financial consequences due to a number of other factors, including but not limited to:

• the negative effect on earnings resulting from the Bank modifying loans and agreeing to loan payment deferrals due to the COVID-19 crisis;

• increased demand on our liquidity as we meet borrowers’ needs, experience significant credit deterioration, and cover expenses related to our business continuity plan;

• the potential for reduced liquidity and its negative affect on our capital and leverage ratios;

• the modification of our business practices, including with respect to branch operations, employee travel, employee work locations, participation in meetings, events and conferences, and related changes for our vendors and other business partners;

• increases in federal and state taxes as a result of the effects of the pandemic and stimulus programs on governmental budgets;

• an increase in FDIC premiums if the agency experiences additional resolution costs relating to bank failures;

• increased cyber and payment fraud risk due to increased online and remote activity;

• other operational failures due to changes in our normal business practices because of the pandemic and governmental actions to contain it.

Overall, we believe that the economic impact from COVID-19 will be severe and could have a material and adverse impact on our business and result in significant losses in our loan portfolio, all of which would adversely and materially impact our earnings and capital.

Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the global economic impact of the COVID-19 pandemic, including the availability of credit, adverse impacts on liquidity and any recession that has occurred or may occur in the future.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change.

West Bancorporation, Inc.

and Subsidiary

government and banking regulators, including the Federal Reserve, have taken a number of unprecedented actions in response to the COVID-19 pandemic, which could ultimately have a material adverse effect on our business and results of operations.

On March 27, 2020, President Trump signed into law the CARES Act, which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349.0 billion loan program administered through the SBA referred to as the PPP.

In addition, on December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021, a $900.0 billion COVID-19 relief package that includes an additional $284.0 billion in PPP funding and Congress is in the process of negotiating additional stimulus bills and other actions in response to COVID-19.

In addition to implementing the programs contemplated by these acts, the federal bank regulatory agencies have issued a steady stream of guidance in response 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:

• requiring banks to focus on business continuity and pandemic planning;

• adding pandemic scenarios to stress testing;

• encouraging bank use of capital conservation buffers and reserves in lending programs;

• permitting certain regulatory reporting extensions;

• reducing margin requirements on swaps;

• permitting certain otherwise prohibited investments in investment funds;

• issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts;

• providing credit under the CRA for certain pandemic-related loans, investments, and public service.

The COVID-19 pandemic has significantly affected the financial markets and the Federal Reserve has taken a number of actions in response.

In March 2020, the Federal Reserve dramatically reduced the target federal funds rate and announced a $700 billion quantitative easing program in response to the expected economic downturn caused by the COVID-19 pandemic.

In addition, the Federal Reserve reduced the interest that it pays on excess reserves.

We expect that these reductions in interest rates, especially if prolonged, could adversely affect our net interest income, net interest margin and profitability.

The impact of the COVID-19 pandemic on our business activities as a result of new government and regulatory laws, policies, programs, and guidelines, as well as market reactions to such activities, remains uncertain but may ultimately have a material adverse effect on our business and results of operations.

COVID-19 has disrupted banking and other financial activities in the areas in which we operate and could potentially create widespread business continuity issues for us.

The COVID-19 pandemic has negatively impacted the ability of our employees and clients to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues for us.

We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of an outbreak or escalation of the COVID-19 pandemic in our market areas, including because of illness, quarantines, government actions or other restrictions in connection with the COVID-19 pandemic.

Although we have a business continuity plan and other safeguards in place, there is no assurance that such plan and safeguards will be effective.

Further, we rely upon third-party vendors to conduct business and to process, record, and monitor transactions.

If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our clients.

As a participating lender in the PPP, the Company and the Bank are subject to additional risks of litigation from the Bank’s customers or other parties regarding the Bank’s processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guarantees.

The CARES Act included a $349.0 billion loan program administered through the SBA referred to as the PPP.

Under the PPP, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enrolled in the program, subject to numerous limitations and eligibility criteria.

The Bank participated as a lender in the PPP.

The PPP opened on April 3, 2020;

however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there was some ambiguity in the laws, rules, and guidance regarding the operation of the PPP, which exposed us to risks relating to noncompliance with the PPP.

On April 24, 2020, an additional $310.0 billion in funding for PPP loans was authorized and such funds became available for PPP loans beginning on April 27, 2020.

West Bancorporation, Inc.

and Subsidiary

Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP and claims related to agent fees.

The Company and the Bank may be exposed to the risk of similar litigation, from both customers and non-customers that approached the Bank regarding PPP loans, regarding its process and procedures used in processing applications for the PPP, or litigation from agents with respect to agent fees.

If any such litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in significant financial liability or adversely affect the Company’s reputation.

In addition, litigation can be costly, regardless of outcome.

Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.

Also, it has been reported that many borrowers fraudulently obtained PPP loans through the program.

We may be subject to regulatory and litigation risk if any of our PPP borrowers used fraudulent means to obtain a PPP loan.

The Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP, or if the borrower fraudulently obtained a PPP loan.

In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.

Risks Related to the COVID-19 Pandemic

The outbreak of COVID-19 led to an economic recession and had other severe effects on the U.S.

The ultimate impact of the COVID-19 pandemic may have an adverse effect on our financial condition and growth prospects in the future.

The COVID-19 pandemic negatively impacted the United States and world economy.

The outbreak of COVID-19 resulted in a decline in the businesses of certain of our clients, a decrease in consumer confidence, and initial increases in unemployment.

Recent supply chain disruptions caused primarily by the pandemic have negatively affected certain of our commercial customers.

Even as efforts to contain the pandemic, including vaccinations, have made progress and some restrictions have relaxed, new variants of the virus have and may continue to have significant economic effects.

The impact of these variants cannot be predicted.

As a result, we expect the impact of COVID-19 could continue to be volatile, and last for a significant and indeterminate period.

In addition, the lasting effects of government aid programs are uncertain, and the ultimate long-term impact of the business shutdowns that occurred as a result of COVID-19 remains uncertain in many sectors of the economy.

Risks Related to the Supervision and Regulation of the Banking Industry and Government Policies

29 unchanged sentences

Technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods.

For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds.

For example, consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds.

Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks.

40 unchanged sentences

The Company may issue additional shares of common or preferred stock in order to raise capital at some date in the future to support continued growth, either internally generated or through acquisitions.

Common shares have been and will be issued through the Company’s 2012 Equity Incentive Plan, the Company’s 2017 Equity Incentive Plan, and, if approved by the Company’s stockholders at the 2021 annual meeting, the Company’s 2021 Equity Incentive Plan, as grants of restricted stock units vest.

Common shares have been and will be issued through the Company’s 2017 Equity Incentive Plan and the Company’s 2021 Equity Incentive Plan as grants of restricted stock units vest.

As additional shares of common or preferred stock are issued, the ownership interests of our existing stockholders may be diluted.

19 unchanged sentences

There are no unresolved comments from the SEC staff.

West Bancorporation, Inc.

and Subsidiary

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 1A. Risk Factors