What changed in this filing

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Item 1. Business

2023-02-23 compared with 2022-02-24 · 56 added, 60 removed, 370 unchanged (24% of the section changed)

16 unchanged sentences

• 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.

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

Raymond James ranked West Bancorporation number 12 in the nation for 2021.

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.

West Bancorporation has been recognized for this award eight out of the last nine years.

• S&P Global Market Intelligence ranked West Bancorporation as the 13th best-performing community bank for 2021 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.

This was the second consecutive year that West Bancorporation was recognized on this list.

• West Bancorporation was recognized as one of the nation’s top 200 banks with assets between $2 billion and $10 billion by American Banker, based on three-year average return on equity as of December 31, 2021.

West Bank ranked 39th overall on American Banker’s list and was the top ranked bank of the eight Iowa and Minnesota banks on the list.

The Company continues to grow, as loans outstanding at the end of 2022 totaled $2.7 billion compared to $2.5 billion at the end of 2021, an increase of 11.7 percent.

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Excluding PPP loans, total loans increased 12.6 percent in 2022.

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

Total deposits declined 4.5 percent as of December 31, 2022 from the balances as of December 31, 2021.

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.

We anticipate that the current monetary policies of the Federal Reserve will continue to effect customer deposit activity and loan demand in 2023.

The Company declared and paid cash dividends on its common stock totaling $1.00 per share in 2022 and declared a $0.25 quarterly dividend on January 25, 2023, payable on February 22, 2023, to stockholders of record on February 8, 2023.

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

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

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As of December 31, 2022 and 2021, the Company had no intangible assets or preferred stock outstanding.

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

The decrease in the tangible common equity ratio was primarily due to the increase in accumulated other comprehensive loss related to the decline in market value of the securities portfolio, partially offset by net income less dividends paid in 2022.

Additional information on capital can be found in Item 7.

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Cloud, Minnesota.

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 has six 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 completed construction of a permanent branch office in St.

Cloud, Minnesota.

Additionally, West Bank began construction of a new headquarters building in West Des Moines, Iowa and a permanent branch office in Mankato, Minnesota.

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

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West Bank offers a full range of deposit services, including checking, savings and money market accounts and time certificates of deposit.

West Bank also offers internet, mobile banking and treasury management services, which help to meet the banking needs of its customers.

West Bank also offers online banking, mobile banking and treasury management services, which help to meet the banking needs of its customers.

Treasury management services offered to business customers include cash management, client-generated automated clearing house transactions, remote deposit and fraud protection services.

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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 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.

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

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 708,000, while Iowa City and Coralville make up the fourth largest MSA in Iowa with an estimated population of 176,000.

Des Moines-West Des Moines is the largest metropolitan statistical area (MSA) in Iowa, while Iowa City and Coralville make up the fourth largest MSA in Iowa.

Rochester and St.

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.

Cloud are the fourth and fifth largest MSAs in Minnesota.

We believe our markets are stable and have weathered the economic challenges of the last few years relatively well.

Unemployment rates in all our markets are below the national unemployment rate of 3.5 percent as of December 31, 2022.

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These larger banking organizations also have much higher legal lending limits than West Bank, and therefore, may be better able to service large regional, national and global commercial customers.

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

The financial services industry has become even more competitive as a result of recent Federal Reserve rate increases and 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 deposit and loan products and services traditionally provided by banks.

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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.

20 percent of West Bank’s current executive management team and 44 percent of officers and department managers are women.

Currently, women comprise 23 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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72 employees (40 percent) have been with West Bank for over ten years and 42 employees (23 percent) for over 15 years.

Non-teller turnover was approximately six percent in 2021.

Non-teller turnover was approximately 11 percent in 2022.

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

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

Environmental, Social, and Governance (ESG) & Corporate Responsibility

West Bancorporation, Inc.

strives to be a good corporate citizen by operating as an employer that is committed to our vibrant and diverse workforce and by conducting business in an environmentally responsible manner.

The Board carefully considers corporate social responsibility when it works with management to determine the Company’s strategic priorities and plans to achieve such priorities.

We recognize that understanding our efforts to improve ESG practices is increasingly important to our stockholders, customers and employees.

Learn more about our ESG practices on the Corporate Governance section of our website at www.westbankstrong.com under Investor Relations/Overview/Governance documents.

SUPERVISION AND REGULATION

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

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 Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB).

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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.

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.

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, 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 have been favorable to our operations.

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

COVID-19 Pandemic

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;

adding pandemic scenarios to stress testing;

encouraging bank use of capital 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;

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, and they have continued using virtual bank examinations.

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

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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.

West Bancorporation, Inc.

and Subsidiary

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.

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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 .

The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries, and this is evidenced in its reaction to the COVID-19 pandemic.

Among the tools available to the Federal Reserve to affect the money supply are open market transactions in U.S.

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These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.

West Bancorporation, Inc.

and Subsidiary

Federal Securities Regulation .

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At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking.

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% to 1.35% of the estimated amount of total insured deposits.

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

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% and 1.35%.

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

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 reserve ratio is the DIF balance divided by estimated insured deposits.

In response to the global financial crisis, the Dodd-Frank Act increased the minimum reserve ratio from 1.15% to 1.35% of estimated amount of total insured deposits.

Prior to the COVID-19 pandemic, the reserve ratio briefly exceeded the statutory threshold, but, because of extraordinary insured deposit growth caused by an unprecedented inflow of deposits during the pandemic, the reserve ratio fell below 1.35% and continues to be below the threshold.

The FDIC staff closely monitors the factors that affect the reserve ratio, and, in order to raise the reserve ratio to 1.35 % by September 30, 2028, the FDIC increased the initial deposit insurance rates by two basis points, beginning with the first quarterly assessment period of the 2023 assessment.

As a result of this change, West Bank’s FDIC insurance assessment will increase beginning in 2023.

The DIF balance was $125.5 billion on September 30, 2022, up $1.0 billion from the end of the second quarter.

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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.

Well-Capitalized Requirements .

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See “—Bank Capital Requirements” above.

West Bancorporation, Inc.

and Subsidiary

State Bank Investments and Activities .

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These restrictions have not had, and are not currently expected to have, a material impact on the operations of West Bank.

West Bancorporation, Inc.

and Subsidiary

Insider Transactions .

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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 .

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

In May 2022, the bank regulatory agencies issued a notice of proposed rulemaking called the Joint Proposal to Strengthen and Modernize Community Reinvestment Act Regulations (the “CRA Proposal”).

The CRA Proposal is designed to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.

More specifically, the bank regulatory agencies described the goals of the CRA Proposal as follows:

(i) to expand access to credit, investment, and basic banking services in low and moderate income communities;

(ii) to adapt to changes in the banking industry, including mobile and internet banking by modernizing assessment areas while maintaining a focus on branch based areas;

(iii) to provide greater clarity, consistency, and transparency in the application of the regulations through the use of standardized metrics as part of CRA evaluation and clarifying eligible CRA activities focused on low and moderate income communities and under served rural communities;

(iv) to tailor CRA rules and data collection to bank size and business model;

and (v) to maintain a unified approach among the regulators.

A final rule has not yet been issued.

Anti-Money Laundering .

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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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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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Copies of the Company’s filings with the SEC are also available from the SEC’s website (www.sec.gov) free of charge.

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 1. Business