00011669282020FYFALSEMay 17, 2022nono00011669282020-01-012020-12-31iso4217:USD00011669282020-06-30xbrli:shares00011669282021-02-2600011669282020-12-3100011669282019-12-31iso4217:USDxbrli:shares00011669282019-01-012019-12-3100011669282018-01-012018-12-310001166928us-gaap:DepositAccountMember2020-01-012020-12-310001166928us-gaap:DepositAccountMember2019-01-012019-12-310001166928us-gaap:DepositAccountMember2018-01-012018-12-310001166928us-gaap:DebitCardMember2020-01-012020-12-310001166928us-gaap:DebitCardMember2019-01-012019-12-310001166928us-gaap:DebitCardMember2018-01-012018-12-310001166928us-gaap:FiduciaryAndTrustMember2020-01-012020-12-310001166928us-gaap:FiduciaryAndTrustMember2019-01-012019-12-310001166928us-gaap:FiduciaryAndTrustMember2018-01-012018-12-310001166928wtba:UnrealizedGainsLossesOnSecuritiesWithoutOttiNetOfTaxMember2020-01-012020-12-310001166928wtba:UnrealizedGainsLossesOnSecuritiesWithoutOttiNetOfTaxMember2019-01-012019-12-310001166928wtba:UnrealizedGainsLossesOnSecuritiesWithoutOttiNetOfTaxMember2018-01-012018-12-310001166928wtba:UnrealizedGainsLossesonDerivativesMember2020-01-012020-12-310001166928wtba:UnrealizedGainsLossesonDerivativesMember2019-01-012019-12-310001166928wtba:UnrealizedGainsLossesonDerivativesMember2018-01-012018-12-310001166928us-gaap:PreferredStockMember2017-12-310001166928us-gaap:CommonStockMember2017-12-310001166928us-gaap:AdditionalPaidInCapitalMember2017-12-310001166928us-gaap:RetainedEarningsMember2017-12-310001166928us-gaap:AccumulatedOtherComprehensiveIncomeMember2017-12-3100011669282017-12-310001166928us-gaap:PreferredStockMember2018-01-012018-12-310001166928us-gaap:CommonStockMember2018-01-012018-12-310001166928us-gaap:AdditionalPaidInCapitalMember2018-01-012018-12-310001166928us-gaap:RetainedEarningsMember2018-01-012018-12-310001166928us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-01-012018-12-310001166928us-gaap:PreferredStockMember2018-12-310001166928us-gaap:CommonStockMember2018-12-310001166928us-gaap:AdditionalPaidInCapitalMember2018-12-310001166928us-gaap:RetainedEarningsMember2018-12-310001166928us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-3100011669282018-12-310001166928us-gaap:PreferredStockMember2019-01-012019-12-310001166928us-gaap:CommonStockMember2019-01-012019-12-310001166928us-gaap:AdditionalPaidInCapitalMember2019-01-012019-12-310001166928us-gaap:RetainedEarningsMember2019-01-012019-12-310001166928us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-12-310001166928us-gaap:PreferredStockMember2019-12-310001166928us-gaap:CommonStockMember2019-12-310001166928us-gaap:AdditionalPaidInCapitalMember2019-12-310001166928us-gaap:RetainedEarningsMember2019-12-310001166928us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001166928us-gaap:PreferredStockMember2020-01-012020-12-310001166928us-gaap:CommonStockMember2020-01-012020-12-310001166928us-gaap:AdditionalPaidInCapitalMember2020-01-012020-12-310001166928us-gaap:RetainedEarningsMember2020-01-012020-12-310001166928us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-12-310001166928us-gaap:PreferredStockMember2020-12-310001166928us-gaap:CommonStockMember2020-12-310001166928us-gaap:AdditionalPaidInCapitalMember2020-12-310001166928us-gaap:RetainedEarningsMember2020-12-310001166928us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-31wtba:Bank_branches0001166928wtba:DesMoinesIowaMetropolitanAreaBranchesExcludingMainMember2020-12-310001166928wtba:CoralvilleIowaMember2020-12-310001166928wtba:SouthernMinnesotaMember2020-12-31xbrli:pure0001166928us-gaap:InvestmentInFederalHomeLoanBankStockMember2020-12-310001166928srt:MaximumMemberus-gaap:BuildingAndBuildingImprovementsMember2020-01-012020-12-310001166928wtba:FurnitureAndEquipmentMembersrt:MaximumMember2020-01-012020-12-310001166928us-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310001166928us-gaap:CollateralizedMortgageObligationsMember2020-12-310001166928us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2020-12-310001166928us-gaap:CollateralizedLoanObligationsMember2020-12-310001166928us-gaap:USStatesAndPoliticalSubdivisionsMember2019-12-310001166928us-gaap:CollateralizedMortgageObligationsMember2019-12-310001166928us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2019-12-310001166928us-gaap:AssetBackedSecuritiesMember2019-12-310001166928us-gaap:CollateralizedLoanObligationsMember2019-12-310001166928us-gaap:CorporateDebtSecuritiesMember2019-12-31wtba:securities0001166928us-gaap:CommercialLoanMember2020-12-310001166928us-gaap:CommercialLoanMember2019-12-310001166928wtba:ConstructionLandAndLandDevelopmentMember2020-12-310001166928wtba:ConstructionLandAndLandDevelopmentMember2019-12-310001166928us-gaap:ResidentialMortgageMember2020-12-310001166928us-gaap:ResidentialMortgageMember2019-12-310001166928us-gaap:HomeEquityMember2020-12-310001166928us-gaap:HomeEquityMember2019-12-310001166928us-gaap:CommercialRealEstateMember2020-12-310001166928us-gaap:CommercialRealEstateMember2019-12-310001166928wtba:ConsumerAndOtherLoansMember2020-12-310001166928wtba:ConsumerAndOtherLoansMember2019-12-310001166928us-gaap:RealEstateMember2020-12-310001166928us-gaap:RealEstateMember2019-12-31wtba:Borrowers0001166928us-gaap:CommercialLoanMember2020-01-012020-12-310001166928us-gaap:CommercialLoanMember2019-01-012019-12-310001166928us-gaap:CommercialLoanMember2018-01-012018-12-310001166928wtba:ConstructionLandAndLandDevelopmentMember2020-01-012020-12-310001166928wtba:ConstructionLandAndLandDevelopmentMember2019-01-012019-12-310001166928wtba:ConstructionLandAndLandDevelopmentMember2018-01-012018-12-310001166928us-gaap:ResidentialMortgageMember2020-01-012020-12-310001166928us-gaap:ResidentialMortgageMember2019-01-012019-12-310001166928us-gaap:ResidentialMortgageMember2018-01-012018-12-310001166928us-gaap:HomeEquityMember2020-01-012020-12-310001166928us-gaap:HomeEquityMember2019-01-012019-12-310001166928us-gaap:HomeEquityMember2018-01-012018-12-310001166928us-gaap:CommercialRealEstateMember2020-01-012020-12-310001166928us-gaap:CommercialRealEstateMember2019-01-012019-12-310001166928us-gaap:CommercialRealEstateMember2018-01-012018-12-310001166928wtba:ConsumerAndOtherLoansMember2020-01-012020-12-310001166928wtba:ConsumerAndOtherLoansMember2019-01-012019-12-310001166928wtba:ConsumerAndOtherLoansMember2018-01-012018-12-310001166928us-gaap:FinancingReceivables30To59DaysPastDueMemberus-gaap:CommercialLoanMember2020-12-310001166928us-gaap:CommercialLoanMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-310001166928us-gaap:CommercialLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-310001166928us-gaap:FinancingReceivables30To59DaysPastDueMemberwtba:ConstructionLandAndLandDevelopmentMember2020-12-310001166928us-gaap:FinancingReceivables60To89DaysPastDueMemberwtba:ConstructionLandAndLandDevelopmentMember2020-12-310001166928us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberwtba:ConstructionLandAndLandDevelopmentMember2020-12-310001166928us-gaap:ResidentialMortgageMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-310001166928us-gaap:ResidentialMortgageMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-310001166928us-gaap:ResidentialMortgageMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-310001166928us-gaap:FinancingReceivables30To59DaysPastDueMemberus-gaap:HomeEquityMember2020-12-310001166928us-gaap:FinancingReceivables60To89DaysPastDueMemberus-gaap:HomeEquityMember2020-12-310001166928us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberus-gaap:HomeEquityMember2020-12-310001166928us-gaap:CommercialRealEstateMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-310001166928us-gaap:CommercialRealEstateMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-310001166928us-gaap:CommercialRealEstateMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-310001166928wtba:ConsumerAndOtherLoansMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-310001166928wtba:ConsumerAndOtherLoansMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-310001166928wtba:ConsumerAndOtherLoansMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-310001166928us-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-310001166928us-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-310001166928us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-310001166928us-gaap:FinancingReceivables30To59DaysPastDueMemberus-gaap:CommercialLoanMember2019-12-310001166928us-gaap:CommercialLoanMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310001166928us-gaap:CommercialLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310001166928us-gaap:FinancingReceivables30To59DaysPastDueMemberwtba:ConstructionLandAndLandDevelopmentMember2019-12-310001166928us-gaap:FinancingReceivables60To89DaysPastDueMemberwtba:ConstructionLandAndLandDevelopmentMember2019-12-310001166928us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberwtba:ConstructionLandAndLandDevelopmentMember2019-12-310001166928us-gaap:ResidentialMortgageMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-310001166928us-gaap:ResidentialMortgageMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310001166928us-gaap:ResidentialMortgageMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310001166928us-gaap:FinancingReceivables30To59DaysPastDueMemberus-gaap:HomeEquityMember2019-12-310001166928us-gaap:FinancingReceivables60To89DaysPastDueMemberus-gaap:HomeEquityMember2019-12-310001166928us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberus-gaap:HomeEquityMember2019-12-310001166928us-gaap:CommercialRealEstateMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-310001166928us-gaap:CommercialRealEstateMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310001166928us-gaap:CommercialRealEstateMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310001166928wtba:ConsumerAndOtherLoansMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-310001166928wtba:ConsumerAndOtherLoansMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310001166928wtba:ConsumerAndOtherLoansMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310001166928us-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-310001166928us-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310001166928us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-31wtba:loans0001166928wtba:HotelsMember2020-12-310001166928wtba:MovieTheatersMember2020-12-310001166928wtba:MixedUseCommercialRealEstateMember2020-12-310001166928wtba:OtherCommercialAndCommercialRealEstateLoansMember2020-12-310001166928us-gaap:CommercialLoanMemberus-gaap:PassMember2020-12-310001166928us-gaap:SpecialMentionMemberus-gaap:CommercialLoanMember2020-12-310001166928us-gaap:CommercialLoanMemberus-gaap:SubstandardMember2020-12-310001166928us-gaap:DoubtfulMemberus-gaap:CommercialLoanMember2020-12-310001166928us-gaap:PassMemberwtba:ConstructionLandAndLandDevelopmentMember2020-12-310001166928us-gaap:SpecialMentionMemberwtba:ConstructionLandAndLandDevelopmentMember2020-12-310001166928us-gaap:SubstandardMemberwtba:ConstructionLandAndLandDevelopmentMember2020-12-310001166928us-gaap:DoubtfulMemberwtba:ConstructionLandAndLandDevelopmentMember2020-12-310001166928us-gaap:ResidentialMortgageMemberus-gaap:PassMember2020-12-310001166928us-gaap:SpecialMentionMemberus-gaap:ResidentialMortgageMember2020-12-310001166928us-gaap:ResidentialMortgageMemberus-gaap:SubstandardMember2020-12-310001166928us-gaap:DoubtfulMemberus-gaap:ResidentialMortgageMember2020-12-310001166928us-gaap:HomeEquityLoanMemberus-gaap:PassMember2020-12-310001166928us-gaap:SpecialMentionMemberus-gaap:HomeEquityLoanMember2020-12-310001166928us-gaap:HomeEquityLoanMemberus-gaap:SubstandardMember2020-12-310001166928us-gaap:DoubtfulMemberus-gaap:HomeEquityLoanMember2020-12-310001166928us-gaap:HomeEquityLoanMember2020-12-310001166928us-gaap:CommercialRealEstateMemberus-gaap:PassMember2020-12-310001166928us-gaap:SpecialMentionMemberus-gaap:CommercialRealEstateMember2020-12-310001166928us-gaap:CommercialRealEstateMemberus-gaap:SubstandardMember2020-12-310001166928us-gaap:DoubtfulMemberus-gaap:CommercialRealEstateMember2020-12-310001166928wtba:ConsumerAndOtherLoansMemberus-gaap:PassMember2020-12-310001166928us-gaap:SpecialMentionMemberwtba:ConsumerAndOtherLoansMember2020-12-310001166928wtba:ConsumerAndOtherLoansMemberus-gaap:SubstandardMember2020-12-310001166928us-gaap:DoubtfulMemberwtba:ConsumerAndOtherLoansMember2020-12-310001166928us-gaap:PassMember2020-12-310001166928us-gaap:SpecialMentionMember2020-12-310001166928us-gaap:SubstandardMember2020-12-310001166928us-gaap:DoubtfulMember2020-12-310001166928us-gaap:CommercialLoanMemberus-gaap:PassMember2019-12-310001166928us-gaap:SpecialMentionMemberus-gaap:CommercialLoanMember2019-12-310001166928us-gaap:CommercialLoanMemberus-gaap:SubstandardMember2019-12-310001166928us-gaap:DoubtfulMemberus-gaap:CommercialLoanMember2019-12-310001166928us-gaap:PassMemberwtba:ConstructionLandAndLandDevelopmentMember2019-12-310001166928us-gaap:SpecialMentionMemberwtba:ConstructionLandAndLandDevelopmentMember2019-12-310001166928us-gaap:SubstandardMemberwtba:ConstructionLandAndLandDevelopmentMember2019-12-310001166928us-gaap:DoubtfulMemberwtba:ConstructionLandAndLandDevelopmentMember2019-12-310001166928us-gaap:ResidentialMortgageMemberus-gaap:PassMember2019-12-310001166928us-gaap:SpecialMentionMemberus-gaap:ResidentialMortgageMember2019-12-310001166928us-gaap:ResidentialMortgageMemberus-gaap:SubstandardMember2019-12-310001166928us-gaap:DoubtfulMemberus-gaap:ResidentialMortgageMember2019-12-310001166928us-gaap:HomeEquityLoanMemberus-gaap:PassMember2019-12-310001166928us-gaap:SpecialMentionMemberus-gaap:HomeEquityLoanMember2019-12-310001166928us-gaap:HomeEquityLoanMemberus-gaap:SubstandardMember2019-12-310001166928us-gaap:DoubtfulMemberus-gaap:HomeEquityLoanMember2019-12-310001166928us-gaap:HomeEquityLoanMember2019-12-310001166928us-gaap:CommercialRealEstateMemberus-gaap:PassMember2019-12-310001166928us-gaap:SpecialMentionMemberus-gaap:CommercialRealEstateMember2019-12-310001166928us-gaap:CommercialRealEstateMemberus-gaap:SubstandardMember2019-12-310001166928us-gaap:DoubtfulMemberus-gaap:CommercialRealEstateMember2019-12-310001166928wtba:ConsumerAndOtherLoansMemberus-gaap:PassMember2019-12-310001166928us-gaap:SpecialMentionMemberwtba:ConsumerAndOtherLoansMember2019-12-310001166928wtba:ConsumerAndOtherLoansMemberus-gaap:SubstandardMember2019-12-310001166928us-gaap:DoubtfulMemberwtba:ConsumerAndOtherLoansMember2019-12-310001166928us-gaap:PassMember2019-12-310001166928us-gaap:SpecialMentionMember2019-12-310001166928us-gaap:SubstandardMember2019-12-310001166928us-gaap:DoubtfulMember2019-12-310001166928us-gaap:CommercialLoanMember2018-12-310001166928wtba:ConstructionLandAndLandDevelopmentMember2018-12-310001166928us-gaap:ResidentialMortgageMember2018-12-310001166928us-gaap:HomeEquityMember2018-12-310001166928us-gaap:CommercialRealEstateMember2018-12-310001166928wtba:ConsumerAndOtherLoansMember2018-12-310001166928us-gaap:CommercialLoanMember2017-12-310001166928wtba:ConstructionLandAndLandDevelopmentMember2017-12-310001166928us-gaap:ResidentialMortgageMember2017-12-310001166928us-gaap:HomeEquityMember2017-12-310001166928us-gaap:CommercialRealEstateMember2017-12-310001166928wtba:ConsumerAndOtherLoansMember2017-12-310001166928us-gaap:LandMember2020-12-310001166928us-gaap:LandMember2019-12-310001166928us-gaap:BuildingAndBuildingImprovementsMember2020-12-310001166928us-gaap:BuildingAndBuildingImprovementsMember2019-12-310001166928us-gaap:LeaseAgreementsMember2020-12-310001166928us-gaap:LeaseAgreementsMember2019-12-310001166928us-gaap:LeaseholdImprovementsMember2020-12-310001166928us-gaap:LeaseholdImprovementsMember2019-12-310001166928wtba:FurnitureAndEquipmentMember2020-12-310001166928wtba:FurnitureAndEquipmentMember2019-12-310001166928us-gaap:OtherLiabilitiesMember2020-12-310001166928us-gaap:OtherLiabilitiesMember2019-12-310001166928us-gaap:JuniorSubordinatedDebtMember2003-07-180001166928us-gaap:JuniorSubordinatedDebtMember2020-01-012020-12-310001166928us-gaap:JuniorSubordinatedDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-12-310001166928us-gaap:JuniorSubordinatedDebtMember2020-12-310001166928us-gaap:JuniorSubordinatedDebtMember2019-12-310001166928wtba:FixedRateFHLBAdvancesDomain2019-12-310001166928wtba:FixedRateFHLBAdvancesDomain2020-12-310001166928us-gaap:VariableRateDomain2019-12-310001166928us-gaap:FederalHomeLoanBankAdvancesMember2020-01-012020-12-310001166928us-gaap:FederalHomeLoanBankAdvancesMember2019-01-012019-12-310001166928us-gaap:FederalHomeLoanBankAdvancesMember2018-01-012018-12-310001166928wtba:FederalFundsLinesOfCreditAtCorrespondentBanksMemberus-gaap:UnsecuredDebtMember2020-12-310001166928wtba:FederalFundsLinesOfCreditAtCorrespondentBanksMember2020-12-310001166928us-gaap:SecuredDebtMember2017-05-250001166928us-gaap:SecuredDebtMember2017-05-252017-05-250001166928us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-12-310001166928us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-12-310001166928us-gaap:SecuredDebtMember2020-12-310001166928us-gaap:SecuredDebtMember2019-12-310001166928wtba:SpecialpurposesubsidiarydebtMember2018-12-210001166928wtba:SpecialpurposesubsidiarydebtMember2018-12-212018-12-210001166928wtba:SpecialpurposesubsidiarydebtMember2020-12-310001166928wtba:SpecialpurposesubsidiarydebtMember2019-12-310001166928us-gaap:SecuredDebtMember2020-01-012020-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2020-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2019-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberwtba:InterestrateswaphedgingrollingshorttermfundingMember2020-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberwtba:InterestrateswaphedgingFHLBadvancesandsubordinatednotesDomain2020-12-310001166928wtba:InterestrateswaphedgingdepositaccountsMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMember2020-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMemberus-gaap:OtherLiabilitiesMember2020-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMemberus-gaap:OtherLiabilitiesMember2020-01-012020-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMemberus-gaap:OtherLiabilitiesMember2019-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMemberus-gaap:OtherLiabilitiesMember2019-01-012019-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMemberus-gaap:OtherAssetsMember2019-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMemberus-gaap:OtherAssetsMember2019-01-012019-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberwtba:ForwardstartinginterestrateswaphedgingrollingonemonthfundingMemberus-gaap:OtherLiabilitiesMember2019-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberwtba:ForwardstartinginterestrateswaphedgingrollingonemonthfundingMemberus-gaap:OtherLiabilitiesMember2019-01-012019-12-310001166928us-gaap:InterestRateSwapMemberus-gaap:OtherAssetsMemberus-gaap:NondesignatedMember2020-12-310001166928us-gaap:InterestRateSwapMemberus-gaap:OtherAssetsMemberus-gaap:NondesignatedMember2020-01-012020-12-310001166928us-gaap:InterestRateSwapMemberus-gaap:OtherLiabilitiesMemberus-gaap:NondesignatedMember2020-12-310001166928us-gaap:InterestRateSwapMemberus-gaap:OtherLiabilitiesMemberus-gaap:NondesignatedMember2020-01-012020-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2020-01-012020-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMemberus-gaap:InterestExpenseMember2020-01-012020-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2019-01-012019-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMemberus-gaap:InterestExpenseMember2019-01-012019-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2018-01-012018-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMemberus-gaap:InterestExpenseMember2018-01-012018-12-310001166928us-gaap:DesignatedAsHedgingInstrumentMembersrt:ScenarioForecastMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2021-01-012021-12-310001166928us-gaap:InterestRateSwapMember2020-12-310001166928us-gaap:InterestRateSwapMember2019-12-310001166928wtba:ExpiredinPrior12MonthsDomain2020-12-310001166928us-gaap:CommonStockMemberwtba:WestBancorporationInc.2017EquityIncentivePlanMember2020-12-310001166928us-gaap:CommonStockMemberus-gaap:RestrictedStockUnitsRSUMember2020-01-012020-12-310001166928us-gaap:CommonStockMemberus-gaap:RestrictedStockUnitsRSUMember2019-12-310001166928us-gaap:CommonStockMemberus-gaap:RestrictedStockUnitsRSUMember2018-12-310001166928us-gaap:CommonStockMemberus-gaap:RestrictedStockUnitsRSUMember2017-12-310001166928us-gaap:CommonStockMemberus-gaap:RestrictedStockUnitsRSUMember2019-01-012019-12-310001166928us-gaap:CommonStockMemberus-gaap:RestrictedStockUnitsRSUMember2018-01-012018-12-310001166928us-gaap:CommonStockMemberus-gaap:RestrictedStockUnitsRSUMember2020-12-310001166928us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2017-12-310001166928us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2017-12-310001166928us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2018-01-012018-12-310001166928us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2018-01-012018-12-310001166928us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2018-12-310001166928us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2018-12-310001166928us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2019-01-012019-12-310001166928us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2019-01-012019-12-310001166928us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2019-12-310001166928us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2019-12-310001166928us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2020-01-012020-12-310001166928us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2020-01-012020-12-310001166928us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2020-12-310001166928us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2020-12-310001166928wtba:WestBankMember2020-12-310001166928wtba:WestBankMember2019-12-310001166928srt:SubsidiariesMember2019-12-310001166928srt:SubsidiariesMember2020-12-310001166928us-gaap:CommitmentsToExtendCreditMember2020-12-310001166928us-gaap:CommitmentsToExtendCreditMember2019-12-310001166928us-gaap:StandbyLettersOfCreditMember2020-12-310001166928us-gaap:StandbyLettersOfCreditMember2019-12-310001166928wtba:CommitmentstoextendcreditexpirationafteroneyearMemberus-gaap:CommitmentsToExtendCreditMember2020-12-310001166928wtba:AffordableHousingProjectInvestmentMember2020-12-310001166928wtba:AffordableHousingProjectInvestmentMember2019-12-310001166928wtba:OfficeBuildingContractMember2020-12-310001166928us-gaap:FairValueMeasurementsRecurringMember2020-01-012020-12-310001166928us-gaap:FairValueMeasurementsRecurringMember2019-01-012019-12-310001166928us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:CollateralizedMortgageObligationsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:CollateralizedMortgageObligationsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:CollateralizedMortgageObligationsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:CollateralizedMortgageObligationsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:FairValueInputsLevel1Memberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:CollateralizedLoanObligationsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:CollateralizedLoanObligationsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:CollateralizedLoanObligationsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:CollateralizedLoanObligationsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001166928us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:CollateralizedMortgageObligationsMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:CollateralizedMortgageObligationsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:CollateralizedMortgageObligationsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:CollateralizedMortgageObligationsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:FairValueInputsLevel1Memberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:CollateralizedLoanObligationsMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:CollateralizedLoanObligationsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:CollateralizedLoanObligationsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:CollateralizedLoanObligationsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:FairValueInputsLevel1Memberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001166928us-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001166928us-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Member2019-12-310001166928us-gaap:FairValueInputsLevel1Memberus-gaap:CarryingReportedAmountFairValueDisclosureMember2020-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel1Member2020-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Member2020-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2020-12-310001166928us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Member2020-12-310001166928us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CommitmentsToExtendCreditMember2020-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CommitmentsToExtendCreditMember2020-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Memberus-gaap:CommitmentsToExtendCreditMember2020-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CommitmentsToExtendCreditMember2020-12-310001166928us-gaap:StandbyLettersOfCreditMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2020-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel1Memberus-gaap:StandbyLettersOfCreditMember2020-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:StandbyLettersOfCreditMemberus-gaap:FairValueInputsLevel2Member2020-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:StandbyLettersOfCreditMemberus-gaap:FairValueInputsLevel3Member2020-12-310001166928us-gaap:FairValueInputsLevel1Memberus-gaap:CarryingReportedAmountFairValueDisclosureMember2019-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel1Member2019-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Member2019-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2019-12-310001166928us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Member2019-12-310001166928us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CommitmentsToExtendCreditMember2019-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CommitmentsToExtendCreditMember2019-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Memberus-gaap:CommitmentsToExtendCreditMember2019-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CommitmentsToExtendCreditMember2019-12-310001166928us-gaap:StandbyLettersOfCreditMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2019-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel1Memberus-gaap:StandbyLettersOfCreditMember2019-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:StandbyLettersOfCreditMemberus-gaap:FairValueInputsLevel2Member2019-12-310001166928us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:StandbyLettersOfCreditMemberus-gaap:FairValueInputsLevel3Member2019-12-310001166928srt:ParentCompanyMember2020-12-310001166928srt:ParentCompanyMember2019-12-310001166928srt:ParentCompanyMember2020-01-012020-12-310001166928srt:ParentCompanyMember2019-01-012019-12-310001166928srt:ParentCompanyMember2018-01-012018-12-310001166928srt:ParentCompanyMember2018-12-310001166928srt:ParentCompanyMember2017-12-3100011669282020-01-012020-03-3100011669282020-04-012020-06-3000011669282020-07-012020-09-3000011669282020-10-012020-12-3100011669282019-01-012019-03-3100011669282019-04-012019-06-3000011669282019-07-012019-09-3000011669282019-10-012019-12-31

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

FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
For the fiscal year ended December 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission file number:  0-49677
WEST BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-1230603
(State of incorporation or organization) (I.R.S. Employer Identification No.)
1601 22nd Street, West Des Moines, Iowa
50266
(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code:  (515) 222-2300

Securities registered pursuant to Section 12(b) of the Act: 
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, no par value WTBA The Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:  NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  o     No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes  o     No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒ No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒ No  o

1


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer
Non-accelerated filer o
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  No  ☒

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2020, was approximately $277,982,230 (based on the closing price on the Nasdaq Global Select Market on that date of $17.49).

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the most recent practicable date, February 26, 2021.

16,469,272 shares of common stock, no par value

DOCUMENTS INCORPORATED BY REFERENCE

The definitive proxy statement of West Bancorporation, Inc., which was filed on March 1, 2021, is incorporated by reference into Part III hereof to the extent indicated in such Part.
2


FORM 10-K
TABLE OF CONTENTS
 
5
   
PART I
     
ITEM 1.
5
     
ITEM 1A.
   
ITEM 1B.
   
ITEM 2.
   
ITEM 3.
   
ITEM 4.
     
PART II
     
ITEM 5.
   
ITEM 6.
   
ITEM 7.
   
ITEM 7A.
   
ITEM 8.
   
ITEM 9.
   
ITEM 9A.
   
ITEM 9B.
   
PART III
     
ITEM 10.
   
ITEM 11.
   
ITEM 12.
   
ITEM 13.
   
ITEM 14.
     
PART IV
   
ITEM 15.
ITEM 16.
3





















(PAGE INTENTIONALLY LEFT BLANK)


4

West Bancorporation, Inc. and Subsidiary
“SAFE HARBOR” CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to the Company’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements may appear throughout this report. These forward-looking statements are generally identified by the words “believes,” “expects,” “intends,” “anticipates,” “projects,” “future,” “confident,” “may,” “should,” “will,” “strategy,” “plan,” “opportunity,” “will be,” “will likely result,” “will continue” or similar references, or references to estimates, predictions or future events. Such forward-looking statements are based upon certain underlying assumptions, risks and uncertainties. Because of the possibility that the underlying assumptions are incorrect or do not materialize as expected in the future, actual results could differ materially from these forward-looking statements.  Risks and uncertainties that may affect future results include: the effects of the Coronavirus Disease 2019 (COVID-19) pandemic, including its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic; interest rate risk; competitive pressures; pricing pressures on loans and deposits; changes in credit and other risks posed by the Company’s loan and investment portfolios, including declines in commercial or residential real estate values or changes in the allowance for loan losses dictated by new market conditions, accounting standards (including as a result of the future implementation of the current expected credit loss (CECL) accounting standard) or regulatory requirements; actions of bank and nonbank competitors; changes in local, national and international economic conditions; changes in legal and regulatory requirements, limitations and costs; changes in customers’ acceptance of the Company’s products and services; cyber-attacks; unexpected outcomes of existing or new litigation involving the Company; the monetary, trade and other regulatory policies of the U.S. government; acts of war or terrorism, widespread disease or pandemics, such as the COVID-19 pandemic, or other adverse external events; developments and uncertainty related to the future use and availability of some reference rates, such as the London Interbank Offered Rate (LIBOR), as well as other alternative reference rates; and any other risks described in the “Risk Factors” sections of this report and other reports filed by the Company with the Securities and Exchange Commission (the SEC). The Company undertakes no obligation to revise or update such forward-looking statements to reflect current or future events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

PART I

ITEM 1.  BUSINESS

General Development of Business

West Bancorporation, Inc. (the Company or West Bancorporation) is an Iowa corporation and a financial holding company registered under the Bank Holding Company Act of 1956, as amended (BHCA). The Company was formed in 1984 to own West Bank, an Iowa-chartered bank headquartered in West Des Moines, Iowa. West Bank is a business-focused community bank that was organized in 1893. The Company’s primary activity during 2020 was the ownership of West Bank. The Company’s and West Bank’s only business is banking, and therefore, no segment information is presented in this report.

As a financial holding company, the Company has additional flexibility to engage in a broader range of financial activities through affiliates than are permissible for bank holding companies that are not financial holding companies. While the Company does not currently have a plan to engage in any new activities, as a financial holding company, it has the ability to respond more quickly to market developments and opportunities.

The Company currently operates in the following markets: central Iowa, which is generally the greater Des Moines metropolitan area; eastern Iowa, which includes the area surrounding Iowa City and Coralville; and southern Minnesota, which includes the cities of Rochester, Owatonna, Mankato and St. Cloud.

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)
41.96  %
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.    
5

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.
The Company continues to grow, as loans outstanding at the end of 2020 totaled $2.28 billion compared to $1.94 billion at the end of 2019, an increase of 17.5 percent. Total loans outstanding at the end of 2020 included $180.76 million of Paycheck Protection Program (PPP) loans. Excluding PPP loans, total loans increased 8.0 percent in 2020. 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. 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. In the opinion of management, the capital position of the Company is strong. At December 31, 2020, the Company’s tangible common equity ratio was 7.02 percent compared to 8.56 percent at December 31, 2019. As of December 31, 2020 and 2019, 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. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Description of the Company’s Business

West Bank provides full-service community banking and trust services to customers located primarily in the following metropolitan areas: Des Moines, Coralville and Iowa City, Iowa, and Rochester, Owatonna, Mankato and St. 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. Cloud. West Bank offers many types of credit to its customers, including commercial, real estate and consumer loans. West Bank offers trust services, including the administration of estates, conservatorships, personal trusts and agency accounts.  

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. Treasury management services offered to business customers include cash management, client-generated automated clearing house transactions, remote deposit and fraud protection services. Also offered are merchant credit card processing and corporate credit cards.

West Bank’s business strategy emphasizes strong business and personal relationships between West Bank and its customers and the delivery of products and services that meet the individualized needs of those customers. West Bank also emphasizes strong cost controls, while striving to achieve an above average return on equity. To accomplish these goals, West Bank focuses on small- to medium-sized businesses in its local markets that traditionally wish to develop an exclusive relationship with a single bank. 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.


6

West Bancorporation, Inc. and Subsidiary

As of December 31, 2020, we conducted banking operations through 13 locations in central and eastern Iowa and southern Minnesota. The economies in our market areas are well diversified. 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 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 of 173,000. Rochester and St. Cloud are the third and fourth largest MSAs in Minnesota with estimated populations of 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.

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. Some of West Bank’s competitors are locally controlled, while others are regional, national or international companies. The larger, international, national or regional banks have certain competitive advantages due to their ability to undertake substantial advertising campaigns and allocate their investment assets to out-of-market geographic regions with potentially higher returns. Such banks also offer certain services, such as international and conduit financing transactions, which are not offered directly by West Bank. 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. 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.

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. West Bank has a group of community advisors in each of its markets who provide insight to management on current business activity levels and trends. West Bank seeks to capitalize on customers who desire to do business with a local institution. This includes emphasizing specialized services, local promotional activities, and personal contacts by West Bank’s officers, directors and employees. 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 also competes with the general financial markets for funds. Yields on corporate and government debt securities and commercial paper affect West Bank’s ability to attract and hold deposits. West Bank also competes for funds with money market accounts and similar investment vehicles offered by brokerage firms, mutual fund companies, internet banks and others. The competition for these funds is based almost exclusively on yields to customers.

Human Capital Resources

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. We encourage and support the development of our employees and, whenever possible, strive to fill vacancies with internal candidates. 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.

7

West Bancorporation, Inc. and Subsidiary

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. The goal of our compensation program is to create superior long-term value for our stockholders by attracting, motivating and retaining outstanding employees who serve our customers while generating financial performance that is consistently better than our peers. Our business model allows us to operate with fewer employees than the typical commercial bank of our size because we emphasize teamwork, sound practices and a focus on business banking. 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.

SUPERVISION AND REGULATION

General

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). 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. Department of the Treasury (Treasury) have an impact on our business. The effect of these statutes, regulations, regulatory policies and accounting rules are significant to our operations and results.

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. These federal and state laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of our business; the kinds and amounts of investments we may make; required capital levels relative to our assets; the nature and amount of collateral for loans; the establishment of branches; our ability to merge, consolidate and acquire; dealings with our insiders and affiliates; and our payment of dividends. In reaction to the global financial crisis and particularly following passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), we experienced heightened regulatory requirements and scrutiny. 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 supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity and various other factors. 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. 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.
8

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: 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.

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.
Supervision and Regulation of the Company

General. 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. 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.

Acquisitions and Activities/Financial Holding Company Election. The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company. Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its FDIC-insured institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company. 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. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking ... as to be a proper incident thereto.” This authority would permit us to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services. The BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies.


9

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. 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. As of December 31, 2020, we retained our election as a financial holding company, but we have not engaged in any activity and do not own any assets for which a financial holding company designation was required. The election affords the ability to respond more quickly to market developments and opportunities.

Change in Control. Federal law prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. Control is conclusively presumed to exist upon the acquisition of 25 percent or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10 percent and 24.99 percent ownership.

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.

Dividend Payments. Our ability to pay dividends to our stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies. As an Iowa corporation, we are subject to the limitations of Iowa law, which allows us to pay dividends unless, after such dividend, (i) we would not be able to pay our debts as they become due in the usual course of business or (ii) our total assets would be less than the sum of our total liabilities plus any amount that would be needed if we were to be dissolved at the time of the dividend payment, to satisfy the preferential rights upon dissolution of stockholders whose rights are superior to the rights of the stockholders receiving the distribution.

As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to stockholders if: (i) the company’s net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition; 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.

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. government securities and changes in the discount rate on bank borrowings. 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.

Federal Securities Regulation. Our common stock is registered with the SEC under the 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.
10

West Bancorporation, Inc. and Subsidiary

Corporate Governance. The Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that will affect most U.S. publicly traded companies. It increased stockholder influence over boards of directors by requiring companies to give stockholders a nonbinding vote on executive compensation and so-called “golden parachute” payments, and authorizing the SEC to promulgate rules that would allow stockholders to nominate and solicit voters for their own candidates using a company’s proxy materials. The legislation also directed the Federal Reserve to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded.

Supervision and Regulation of West Bank

General. West Bank is an Iowa-chartered bank. The deposit accounts of West Bank are insured by the FDIC’s Deposit Insurance Fund (DIF) to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category. As an Iowa-chartered FDIC-insured bank, West Bank is subject to the examination, supervision, reporting and enforcement requirements of the Iowa Division of Banking, the chartering authority for Iowa banks, and the FDIC, designated by federal law as the primary federal regulator of insured state banks that, like West Bank, are not members of the Federal Reserve System (nonmember banks).

Deposit Insurance. As an FDIC-insured institution, West Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system whereby FDIC-insured institutions pay insurance premiums at rates based on their risk classification. For institutions, like West Bank, that are not considered large and highly complex banking organizations, assessments are now based on examination ratings and financial ratios. The total base assessment rates currently range from 1.5 basis points to 30 basis points. 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 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 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.

Supervisory Assessments. All Iowa banks are required to pay supervisory assessments to the Iowa Division of Banking to fund the operations of that agency. The amount of the assessment is calculated on the basis of West Bank’s total assets.

Bank Capital Requirements. 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.

Capital Levels. Banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983. The minimums have been expressed in terms of ratios of “capital” divided by “total assets". The capital guidelines for U.S. banks beginning in 1989 have been based upon international capital accords (known as “Basel” rules) adopted by the Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. bank regulatory agencies on an interagency basis. 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.
11

West Bancorporation, Inc. and Subsidiary

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

Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but, in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments. The Basel III Rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations). The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital and required deductions from Common Equity Tier 1 Capital in the event that such assets exceeded a percentage of a banking institution’s Common Equity Tier 1 Capital.

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; and
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. 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. 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. The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a banking organization that is well-capitalized may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing of other required notices or applications; and (iii) accept, roll-over or renew brokered deposits. Higher capital levels could also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., 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; and
A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5 percent or greater.
12

West Bancorporation, Inc. and Subsidiary

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

As of December 31, 2020: (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.

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 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. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.

Community Bank Capital Simplification. Community banks have long raised concerns with bank regulators about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule. 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. 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. West Bank may elect the CBLR framework at any time but has not currently determined to do so.

Liquidity Requirements. Liquidity is a measure of the ability and ease with which bank assets may be converted to cash. Liquid assets are those that can be converted to cash quickly if needed to meet financial obligations. To remain viable, FDIC-insured institutions must have enough liquid assets to meet their near-term obligations, such as withdrawals by depositors. In addition to liquidity guidelines already in place, the U.S. 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.

Dividend Payments. The primary source of funds for the Company is dividends from West Bank. Under the Iowa Banking Act, Iowa-chartered banks generally may pay dividends only out of undivided profits. The Iowa Division of Banking may restrict the declaration or payment of a dividend by an Iowa-chartered bank, such as West Bank. The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, West Bank exceeded its capital requirements under applicable guidelines as of December 31, 2020. Notwithstanding the availability of funds for dividends, however, the FDIC and the Iowa Division of Banking may prohibit the payment of dividends by West Bank if either or both determine such payment would constitute an unsafe or unsound practice. In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends will have to maintain 2.5 percent in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “—Bank Capital Requirements” above.

State Bank Investments and Activities. West Bank is permitted to make investments and engage in activities directly or through subsidiaries as authorized by Iowa law. However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless West Bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the DIF. These restrictions have not had, and are not currently expected to have, a material impact on the operations of West Bank.

13

West Bancorporation, Inc. and Subsidiary

Insider Transactions. West Bank is subject to certain restrictions imposed by federal law on “covered transactions” between West Bank and its “affiliates.” The Company is an affiliate of West Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to the Company, investments in the stock or other securities of the Company, and the acceptance of the stock or other securities of the Company as collateral for loans made by West Bank. The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.

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.

Safety and Soundness Standards/Risk Management. FDIC-insured institutions are expected to operate in a safe and sound manner. The federal banking agencies have adopted operational and managerial standards to promote the safety and soundness of such institutions that address internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

In general, the safety and soundness standards prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to operate in a safe and sound manner, the FDIC-insured institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. 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. 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. West Bank is expected to have active board and senior management oversight; adequate policies, procedures and limits; adequate risk measurement, monitoring and management information systems; and comprehensive internal controls.

Privacy and Cybersecurity. West Bank is subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public confidential information of their customers. These laws require West Bank to periodically disclose its privacy policies and practices relating to sharing such information and permit consumers to opt out of their ability to share information with unaffiliated third parties under certain circumstances. They also impact West Bank’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. In addition, as a part of its operational risk mitigation, West Bank is required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information and to require the same of its service providers. These security and privacy policies and procedures are in effect across all business lines and geographic locations.


14

West Bancorporation, Inc. and Subsidiary

Branching Authority. Iowa banks, such as West Bank, have the authority under Iowa law to establish branches anywhere in the State of Iowa, subject to receipt of all required regulatory approvals. The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments. Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; 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.

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 action permits West Bank to loan or invest funds that were previously unavailable. The Federal Reserve has indicated that it expects to continue to operate in an ample reserves regime for the foreseeable future.

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. 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.

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: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities.

Concentrations in Commercial Real Estate. 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. 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; 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. 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. The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk.

West Bank has historically exceeded, and continues to exceed, the 300 percent guideline for commercial real estate loans. Additional monitoring processes have been implemented to manage this increased risk.


15

West Bancorporation, Inc. and Subsidiary

Consumer Financial Services. The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws. The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including West Bank, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets. 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. 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.

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

ADDITIONAL INFORMATION

The principal executive offices of the Company are located at 1601 22nd Street, West Des Moines, Iowa 50266. The Company’s telephone number is (515) 222-2300, and its internet address is www.westbankstrong.com. Copies of the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments thereto are available for viewing or downloading free of charge from the Investor Relations section of the Company’s website as soon as reasonably practicable after the documents are filed with or furnished to the SEC. Copies of the Company’s filings with the SEC are also available from the SEC’s website (www.sec.gov) free of charge.

ITEM 1A.  RISK FACTORS

West Bancorporation’s business is conducted almost exclusively through West Bank. West Bancorporation and West Bank are subject to many of the common risks that challenge publicly traded, regulated financial institutions. An investment in West Bancorporation’s common stock is also subject to the following specific risks. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations.

Risks Related to Credit Quality

We must effectively manage the credit risks of our loan portfolio.

The largest component of West Bank’s income is interest received on loans. Our business depends on the creditworthiness of our customers. There are risks inherent in making loans, including risks of nonpayment, risks resulting from uncertainties of the future value of collateral, and risks resulting from changes in economic and industry conditions. We attempt to reduce our credit risk through prudent loan application, underwriting and approval procedures, including internal loan reviews before and after proceeds have been disbursed, careful monitoring of the concentration of our loans within specific industries, and collateral and guarantee requirements. 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.


16

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.

In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on information furnished by or on behalf of clients and counterparties, including financial statements and other financial information. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. Although we regularly review our credit exposure to specific clients and counterparties and to specific industries that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to detect, such as fraud. Moreover, such circumstances, including fraud, may become more likely to occur or be detected in periods of general economic uncertainty. We may also fail to receive full information with respect to the risks of a counterparty. In addition, in cases where we have extended credit against collateral, we may find that we are under-secured, for example, as a result of sudden declines in market values that reduce the value of collateral or due to fraud with respect to such collateral. If such events or circumstances were to occur, it could result in potential loss of revenue and have an adverse effect on our business, results of operations and financial condition.

Our loan portfolio includes commercial loans, which involve risks specific to commercial borrowers.

West Bank’s loan portfolio includes a significant amount of commercial real estate loans, construction and land development loans, commercial lines of credit and commercial term loans. West Bank’s typical commercial borrower is a small- or medium-sized, privately owned Iowa or Minnesota business entity. Commercial loans often have large balances, and repayment usually depends on the borrowers’ successful business operations. Commercial loans also are generally not fully repaid over the loan period and thus may require refinancing or a large payoff at maturity. If the general economy turns downward, commercial borrowers may not be able to repay their loans, and the value of their assets, which are usually pledged as collateral, may decrease rapidly and significantly. 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.

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

Commercial real estate loans were a significant portion of our total loan portfolio as of December 31, 2020. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. Adverse developments affecting real estate values in one or more of our markets could increase the credit risk associated with our loan portfolio. Additionally, commercial real estate lending typically involves higher loan principal amounts, and repayment of the loans is generally dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic events or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flows and market values of the affected properties.

If the loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time of originating the loans, which could cause us to charge off all or a portion of the loans. This could lead to an increased provision for loan losses and adversely affect our operating results and financial condition.

The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.

The federal banking regulators have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under the CRE Guidance, a financial institution that, like West Bank, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may have a concentration in commercial real estate lending if, among other factors (i) total reported loans for construction, land development, and other land represent 100 percent or more of total capital, or (ii) total reported loans secured by multifamily and non-farm non-residential properties, loans for construction, land development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300 percent or more of total capital. Based on these criteria, West Bank had concentrations of 80 percent and 464 percent, respectively, as of December 31, 2020. The purpose of the CRE Guidance is to assist banks in developing risk management practices and capital levels commensurate with the level and nature of commercial real estate concentrations. The CRE Guidance states that management should employ heightened risk management practices, including board and management oversight, strategic planning, development of underwriting standards, and risk assessment and monitoring through market analysis and stress testing. West Bank believes that its current risk management processes adequately address the regulatory guidance; however, there can be no guarantee of the effectiveness of the risk management processes on an ongoing basis.


17

West Bancorporation, Inc. and Subsidiary

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

A significant portion of our loan portfolio is secured by real property. Under certain circumstances, we may take title to the real property collateral through foreclosure or other means. As the titleholder of the property, we may be responsible for environmental risks, such as hazardous materials, which attach to the property. For these reasons, prior to extending credit, we have an environmental risk assessment program to identify any known environmental risks associated with the real property that will secure our loans. In addition, we routinely inspect properties following the taking of title. When environmental risks are found, environmental laws and regulations may prescribe our approach to remediation. As a result, while we have ownership of a property, we may incur substantial expense and bear potential liability for any damages caused. The environmental risks may also materially reduce the property’s value or limit our ability to use or sell the property. We also cannot guarantee that our environmental risk assessment will detect all environmental issues relating to a property, which could subject us to additional liability.

Risks Related to Accounting Policies and Estimates

Our allowance for loan losses may be insufficient to absorb potential losses in our loan portfolio.

We maintain an allowance for loan losses at a level we believe adequate to absorb probable losses inherent in our existing loan portfolio. The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; credit loss experience; current loan portfolio quality; present economic, political and regulatory conditions; and unidentified losses inherent in the current loan portfolio.

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. Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review our allowance and may require an increase in the provision for loan losses or the recognition of additional loan charge-offs, based on judgments different from those of management. Also, if charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to increase the allowance. Any increases in provisions will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations.

The Current Expected Credit Loss accounting standard could require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.

The FASB issued a new accounting standard that will be effective for the Company for the fiscal year beginning January 1, 2023. This standard, referred to as Current Expected Credit Loss (CECL), will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for loan losses. 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. 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.

Our accounting policies and methods are the basis for how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods in order to ensure they comply with U.S. generally accepted accounting principles (GAAP) and reflect management’s judgment as to the most appropriate manner in which to record and report our financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances. The application of that chosen accounting policy or method might result in us reporting different amounts than would have been reported under a different alternative. If management’s estimates or assumptions are incorrect, the Company may experience a material loss.

From time to time, the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our financial statements. 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.
18

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.

Factors beyond our control can significantly influence the fair value of investment securities in our portfolio and can cause potential adverse changes to the fair value of those securities. These factors include, but are not limited to, changes in interest rates, rating agency downgrades of the securities, defaults by the issuer or individual mortgagors with respect to the underlying securities, and instability in the credit markets. Any of the foregoing factors could cause an other than temporary impairment (OTTI) in future periods and result in realized losses.

We analyze our investment securities quarterly to determine whether, in the opinion of management, any of the securities have OTTI. To the extent that any portion of the unrealized losses in our portfolio of investment securities is determined to have OTTI and is credit-loss related, we will recognize a charge to our earnings in the quarter during which such determination is made, and our capital ratios will be adversely impacted. Generally, a fixed income security is determined to have OTTI when it appears unlikely that we will receive all the principal and interest due in accordance with the original terms of the investment. 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.

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.

Effective internal controls over financial reporting are necessary to provide reliable financial reports and prevent fraud. Management believes that our internal controls over financial reporting are currently effective. While management will continue to assess our controls and procedures and take immediate action to remediate any future perceived issues, there can be no guarantee of the effectiveness of these controls and procedures on an ongoing basis. Any failure to maintain an effective internal control environment could impact our ability to report our financial results on an accurate and timely basis, which could result in regulatory actions, loss of investor confidence, and an adverse impact on our business operations and stock price.

Risks Related to Information Security and Business Interruption

The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

As a bank, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against us or our clients, which may result in financial losses or increased costs to us or our customers, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our customers, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us, our customers or third-party vendors, denial or degradation of service attacks, and malware or other cyber-attacks.

There continues to be a rise in electronic fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector due to cyber-criminals targeting commercial bank accounts. Moreover, in recent periods, several large corporations, including financial institutions and retail companies, have suffered major data breaches, in some cases exposing not only confidential and proprietary corporate information, but also sensitive financial and other personal information of their customers and employees and subjecting them to potential fraudulent activity. 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.


19

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. The secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are essential to protect us and our customers against fraud and security breaches and to maintain the confidence of our customers. Breaches of information security also may occur through intentional or unintentional acts by those having access to our systems or the confidential information of our customers, including employees. In addition, increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third-party technologies (including browsers and operating systems), or other developments could result in a compromise or breach of the technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us, our customers and underlying transactions, as well as the technology used by our customers to access our systems. Our third-party partners’ inability to anticipate, or failure to adequately mitigate, breaches of security could result in a number of negative events, including losses to us or our customers, loss of business or customers, damage to our reputation, the incurrence of additional expenses, disruption to our business, additional regulatory scrutiny or penalties, or our exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Furthermore, there has been heightened legislative and regulatory focus on privacy, data protection and information security. New or revised laws and regulations may significantly impact our current and planned privacy, data protection and information security-related practices, the collection, use, retention and safeguarding of customer and employee information, and current or planned business activities. 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.

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.

Our business is highly dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems, third-party servicers, accounting systems, mobile and online banking platforms and financial intermediaries. We outsource to third parties many of our major systems, such as data processing and mobile and online banking. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. A system failure or service denial could result in a deterioration of our ability to process loans or gather deposits and provide customer service, compromise our ability to operate effectively, result in potential noncompliance with applicable laws or regulations, damage our reputation, result in a loss of customer business or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on business, financial condition, results of operations and growth prospects. In addition, failures of third parties to comply with applicable laws and regulations, or fraud or misconduct on the part of employees of any of these third parties, could disrupt our operations or adversely affect our reputation.

It may be difficult for us to replace some of our third-party vendors, particularly vendors providing our core banking and information services, in a timely manner if they are unwilling or unable to provide us with these services in the future for any reason, and even if we are able to replace them, it might be at higher cost or result in the loss of customers. Any such events could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Our operations rely heavily on the secure processing, storage and transmission of information and the monitoring of a large number of transactions on a minute-by-minute basis, and even a short interruption in service could have significant consequences. We also interact with and rely on retailers, for whom we process transactions, as well as financial counterparties and regulators. Each of these third parties may be targets of the same types of fraudulent activity, computer break-ins and other cybersecurity breaches described above, and the cybersecurity measures that they maintain to mitigate the risk of such activity may be different than our own and may be inadequate.

As a result of financial entities and technology systems becoming more interdependent and complex, a cyber incident, information breach or loss, or technology failure that compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including ourselves. 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.


20

West Bancorporation, Inc. and Subsidiary

Other Risks Related to West Bank’s Operations

We are subject to liquidity risks.

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. 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. Our efforts to monitor and manage liquidity risk may not be successful or sufficient to deal with dramatic or unanticipated reductions in our liquidity. If this were to occur and additional debt is needed for liquidity purposes in the future, there can be no assurance that such debt would be available or, if available, would be on favorable terms. In such events, our cost of funds may increase, thereby reducing our net interest income, or we may need to sell a portion of our investment portfolio, which, depending upon market conditions, could result in the Company or West Bank realizing losses. 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.

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

We operate in highly competitive markets and face strong competition in originating loans, seeking deposits and offering our other services. We compete in making loans, attracting deposits, and recruiting and retaining talented employees. The Des Moines metropolitan market area, in particular, has attracted many new financial institutions within the last two decades. We also compete with nonbank financial service providers, such as FinTech companies, many of which are not subject to the same regulatory restrictions that we are and may be able to compete more effectively as a result.

Customer loyalty can be influenced by a competitor’s new products, especially if those offerings are priced lower than our products. Some of our competitors may also be better able to attract customers because they provide products and services over a larger geographic area than we serve. This competitive climate can make it more difficult to establish and maintain relationships with new and existing customers, can lower the rate that we are able to charge on loans, and can affect our charges for other services. Our growth and profitability depend on our continued ability to compete effectively within our markets, and our inability to do so could have a material adverse effect on our financial condition and results of operations.

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 compete with banks and other financial services companies for deposits. If our competitors raise the rates they pay on deposits, our funding costs may increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely on more expensive sources of funding. Higher funding costs could reduce our net interest margin and net interest income and could have a material adverse effect on our financial condition and results of operations.

Damage to our reputation could adversely affect our business.

Our business depends upon earning and maintaining the trust and confidence of our customers, stockholders and employees. Damage to our reputation could cause significant harm to our business. Harm to our reputation can arise from numerous sources, including employee misconduct, vendor nonperformance, cybersecurity breaches, compliance failures, litigation or governmental investigations, among other things. In addition, a failure to deliver appropriate standards of service, or a failure or perceived failure to treat customers and clients fairly, can result in customer dissatisfaction, litigation, and heightened regulatory scrutiny, all of which can lead to lost revenue, higher operating costs and harm to our reputation. Adverse publicity about West Bank, whether or not true, may also result in harm to our business. Should any events or circumstances that could undermine our reputation occur, there can be no assurance that any lost revenue from customers opting to move their business to another institution and the additional costs and expenses that we may incur in addressing such issues would not adversely affect our financial condition and results of operations.

We are subject to various legal claims and litigation.

We are periodically involved in routine litigation incidental to our business. Regardless of whether these claims and legal actions are founded or unfounded, if such legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the Company’s reputation. In addition, litigation can be costly. 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.
21

West Bancorporation, Inc. and Subsidiary

The soundness of other financial institutions could adversely affect us.

Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks and other institutional clients. Many of these transactions expose us to credit risk in the event of default by our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings.

We may experience difficulties in managing our growth.

In the future, we may decide to expand into additional communities or attempt to strengthen our position in our current markets through opportunistic acquisitions of all or part of other financial institutions or related businesses or through the hiring of teams of bankers from other financial institutions that we believe provide a strategic fit with our business, or by opening new locations. 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. 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.

To the extent that we grow through acquisitions or office openings, we cannot provide assurance that we will be able to adequately or profitably manage such growth. Acquiring other banks and businesses will involve risks similar to those commonly associated with new office openings, but may also involve additional risks. These additional risks include potential exposure to unknown or contingent liabilities of banks and businesses we acquire, exposure to potential asset quality issues of the acquired bank or related business, difficulty and expense of integrating the operations and personnel of banks and businesses we acquire, and the possible loss of key employees and customers of the banks and businesses we acquire.

Maintaining or increasing our market share may depend on lowering prices and the adoption of new products and services.

Our success depends, in part, on our ability to adapt our products and services to evolving industry standards and customer needs. There may be increased pressure to provide products and services at lower prices. Lower prices can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies could require us to make substantial expenditures to modify or adapt our existing products and services. Also, these and other capital investments in our business may not produce expected growth in earnings anticipated at the time of the expenditure. We may not be successful in introducing new products and services, achieving market acceptance of our products and services, or developing and maintaining loyal customers.

The loss of the services of any of our senior executive officers or key personnel could cause our business to suffer.

Much of our success is due to our ability to attract and retain senior management and key personnel experienced in banking and financial services who are very involved in the communities we currently serve. Our continued success depends to a significant extent upon the continued services of relatively few individuals. In addition, our success depends in significant part upon our senior management’s ability to develop and implement our business strategies. 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.


22

West Bancorporation, Inc. and Subsidiary

Changes in interest rates could negatively impact our financial condition and results of operations.

Earnings in the banking industry, particularly the community bank segment, are substantially dependent on net interest income, which is the difference between interest earned on interest-earning assets (investments and loans) and interest paid on interest-bearing liabilities (deposits and borrowings). 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. 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. Changes in interest rates could also influence our ability to originate loans and obtain deposits, the fair value of our financial assets and liabilities, and the average duration of our securities portfolio. Community banks, such as West Bank, rely more heavily than larger institutions on net interest income as a revenue source. Larger institutions generally have more diversified sources of noninterest income.

Our business is subject to domestic and, to a lesser extent, international economic conditions and other factors, many of which are beyond our control and could materially and adversely affect us.

Our financial performance generally, and in particular the ability of customers to pay interest on and repay principal on outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is highly dependent upon the business environment, not only in the markets where we operate, but also in the states of Iowa and Minnesota, generally, in the United States as a whole, and internationally. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity, or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; uncertainty in U.S. trade policies, legislation, treaties and tariffs; natural disasters; acts of war or terrorism; widespread disease or pandemics; or a combination of these or other factors. Such unfavorable conditions could materially and adversely affect us.

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.

The Company and West Bank are required by federal and state regulatory authorities to maintain adequate levels of capital to support their operations. The ability to raise additional capital, when and if needed, will depend on conditions in the capital markets, economic conditions, and a number of other factors, including investor perceptions regarding the banking industry and market conditions, and governmental activities, many of which are outside of our control, as well as on our financial condition and performance. Accordingly, we cannot provide assurance that we will be able to raise additional capital, if needed, or on terms acceptable to us. 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. 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.


23

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; and
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.


24

West Bancorporation, Inc. and Subsidiary

The U.S. 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; and
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. 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.

25

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 Supervision and Regulation of the Banking Industry and Government Policies

We may be materially and adversely affected by the highly regulated environment in which we operate.

We are subject to extensive federal and state regulation, supervision and examination. A more detailed description of the primary federal and state banking laws and regulations that affect us is contained in Item 1 of this Form 10-K in the section captioned “Supervision and Regulation.” Banking regulations are primarily intended to protect depositors’ funds, FDIC funds, customers and the banking system as a whole, rather than our stockholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things.

As a financial holding company, we are subject to extensive regulation and supervision and undergo periodic examinations by our regulators, who have extensive discretion and authority to prevent or remedy unsafe or unsound practices or violations of law by banks and financial holding companies. Failure to comply with applicable laws, regulations or policies could result in sanctions by regulatory agencies, civil monetary penalties and/or damage to our reputation, which could have a material adverse effect on us. Although we have policies and procedures designed to mitigate the risk of any such violations, there can be no assurance that such violations will not occur.

Current or proposed regulatory or legislative changes to laws applicable to the financial industry may impact the profitability of our business activities and may change certain of our business practices, including our ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs. In addition, political developments, including possible changes in law introduced by the Biden administration or the appointment of new personnel in regulatory agencies, add uncertainty to the implementation, scope and timing of regulatory reforms. These changes also may require us to invest significant management attention and resources to make any necessary changes to operations in order to comply and could therefore also materially and adversely affect our business, financial condition and results of operations.

Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the options available to the Federal Reserve to implement these objectives are open market operations in U.S. government securities, adjustments of the discount rate, and changes in reserve requirements against bank deposits. These monetary policy options are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The specific effects of such policies upon our business, financial condition and results of operations cannot be predicted.

26

West Bancorporation, Inc. and Subsidiary

Other Risks Related to the Banking Industry in General

Technology is changing rapidly and may put us at a competitive disadvantage.

The banking industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. Effective use of technology increases efficiency and enables banks to better serve customers. Our future success depends, in part, on our ability to effectively implement new technology. Many of our larger competitors have substantially greater resources than we do to invest in technological improvements. As a result, they may be able to offer, or more quickly offer, additional or superior products that could put West Bank at a competitive disadvantage.

Consumers may decide not to use banks to complete their financial transactions, which could adversely affect our business and results of operations.

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. Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our business, financial condition and results of operations.

A transition away from LIBOR as a reference rate for financial contracts could negatively affect our income and expenses and the value of various financial contracts.

LIBOR is used extensively in the United States and globally as a benchmark for various financial contracts, including adjustable rate mortgages, corporate debt and interest rate swaps. LIBOR is set based on interest information reported by certain banks, which may stop reporting such information after 2021. Other benchmarks may perform differently than LIBOR or alternative benchmarks have performed in the past or have other consequences that cannot currently be anticipated. It is also uncertain what will happen with instruments that rely on LIBOR for future interest rate adjustments and which remain outstanding if LIBOR ceases to exist.

While there is no consensus on what rate or rates may become accepted alternatives to LIBOR, the Alternative Reference Rates Committee, a steering committee comprised of U.S. financial market participants, selected by the Federal Reserve Bank of New York, started in May 2018 to publish the Secured Overnight Financing Rate (“SOFR”) as an alternative to LIBOR. SOFR is a broad measure of the cost of overnight borrowings collateralized by Treasury securities that was selected by the Alternative Reference Rate Committee due to the depth and robustness of the Treasury repurchase market. At this time, it is impossible to predict whether SOFR will become an accepted alternative to LIBOR.

We have investment securities available for sale, loans, derivative contracts and subordinated debentures with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR to alternative rates, such as SOFR, could create considerable costs and additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation. In addition, any such transition could: (i) adversely affect the interest rates paid or received on, the revenue and expenses associated with, and the value of our floating-rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates, or other securities or financial arrangements given LIBOR’s role in determining market interest rates globally; (ii) prompt inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with an alternative reference rate; (iii) result in disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based securities; and (iv) require the transition to or development of appropriate systems and analytics to effectively transition our risk management process from LIBOR-based products to those based on the applicable alternative pricing benchmark, such as SOFR. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.


27

West Bancorporation, Inc. and Subsidiary

Risks Related to West Bancorporation’s Common Stock

Our stock is relatively thinly traded.

Although our common stock is traded on the Nasdaq Global Select Market, the average daily trading volume of our common stock is relatively small compared to many public companies. The desired market characteristics of depth, liquidity, and orderliness require the substantial presence of willing buyers and sellers in the marketplace at any given time. In our case, this presence depends on the individual decisions of a relatively small number of investors and general economic and market conditions over which we have no control. Due to the relatively small trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause the stock price to fall more than would be justified by the inherent worth of the Company. Conversely, attempts to purchase a significant amount of our stock could cause the market price to rise above the reasonable inherent worth of the Company.

The stock market can be volatile, and fluctuations in our operating results and other factors could cause our stock price to decline.

The stock market has experienced, and may continue to experience, fluctuations that significantly impact the market prices of securities issued by many companies. Market fluctuations could adversely affect our stock price. These fluctuations have often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations, as well as general economic, systemic, political and market conditions, such as recessions, loss of investor confidence, interest rate changes, government shutdowns, presidential elections, international trade wars or international currency fluctuations may negatively affect the market price of our common stock. Moreover, our operating results may fluctuate and vary from period to period due to the risk factors set forth herein. As a result, period-to-period comparisons should not be relied upon as an indication of future performance. Our stock price could fluctuate significantly in response to the impact of these risk factors.

Issuing additional common or preferred stock may adversely affect the market price of our common stock, and capital may not be available when needed.

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. As additional shares of common or preferred stock are issued, the ownership interests of our existing stockholders may be diluted. The market price of our common stock might decline or fail to increase in response to issuing additional common or preferred stock. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside of our control. Accordingly, we cannot provide any assurance that we will be able to raise additional capital, if needed, on acceptable terms. If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected.

The holders of our junior subordinated debentures have rights that are senior to those of our common stockholders.

As of December 31, 2020, the Company had $20.6 million in junior subordinated debentures outstanding that were issued to the Company’s subsidiary trust, West Bancorporation Capital Trust I. The junior subordinated debentures are senior to the Company’s shares of common stock. As a result, the Company must make payments on the junior subordinated debentures (and the related trust preferred securities (TPS)) before any dividends can be paid on its common stock, and in the event of the Company’s bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any distributions can be made to the holders of the common stock. The Company has the right to defer distributions on the junior subordinated debentures (and the related TPS) for up to five years during which time no dividends may be paid to holders of the Company’s common stock. The Company’s ability to pay future distributions depends upon the earnings of West Bank and the issuance of dividends from West Bank to the Company, which may be inadequate to service the obligations. Interest payments on the junior subordinated debentures underlying the TPS are classified as a “dividend” by the Federal Reserve supervisory policies and therefore are subject to applicable restrictions and approvals imposed by the Federal Reserve Board.


28

West Bancorporation, Inc. and Subsidiary

There can be no assurances concerning continuing dividend payments.

Our common stockholders are only entitled to receive the dividends declared by our Board of Directors. Although we have historically paid quarterly dividends on our common stock, there can be no assurances that we will be able to continue to pay regular quarterly dividends or that any dividends we do declare will be in any particular amount. The primary source of money to pay our dividends comes from dividends paid to the Company by West Bank. West Bank’s ability to pay dividends to the Company is subject to, among other things, its earnings, financial condition and applicable regulations, which in some instances limit the amount that may be paid as dividends.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

There are no unresolved comments from the SEC staff.

ITEM 2.  PROPERTIES

The corporate office of the Company is located in the main office building of West Bank, at 1601 22nd Street in West Des Moines, Iowa. West Bank leases its main banking office, along with additional office space for operational departments. West Bank operates 12 branch offices in addition to its main office. Six branch offices in the Des Moines, Iowa, metropolitan area are leased. Three of the branch offices are full-service locations, while the other three are drive-up only, express locations. West Bank also leases three full-service branch offices in Owatonna, Mankato and St. Cloud, Minnesota. West Bank owns three full-service branch offices in Coralville and Waukee, Iowa, and Rochester, Minnesota. We believe each of our facilities is adequate to meet our needs.
In October 2020, West Bank purchased land in Sartell, Minnesota, a suburb of St. Cloud, for the purpose of constructing a full-service office to serve all of the St. Cloud, Minnesota metropolitan area. West Bank will own the land and building for the St. Cloud branch office, and construction is expected to be completed by the end of 2021.
ITEM 3.  LEGAL PROCEEDINGS

Neither the Company nor West Bank is party to any material pending legal proceedings, other than ordinary litigation incidental to West Bank’s business, and no property of these entities is the subject of any such proceeding. The Company does not know of any proceedings contemplated by a governmental authority against the Company or West Bank.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

West Bancorporation common stock is traded on the Nasdaq Global Select Market under the symbol “WTBA”. There were 169 holders of record of the Company’s common stock as of February 19, 2021, and an estimated 3,200 additional beneficial holders whose stock was held in street name by brokerages or fiduciaries.  The closing price of the Company’s common stock was $22.15 on February 19, 2021.

In the aggregate, cash dividends paid to common stockholders in 2020 and 2019 were $0.84 and $0.83 per common share, respectively. Dividend declarations are evaluated and determined by the Board of Directors on a quarterly basis, and the dividends are paid quarterly. The Company intends to continue its policy of paying quarterly dividends; however, the ability of the Company to pay dividends in the future will depend primarily upon the earnings of West Bank and its ability to pay dividends to the Company, economic factors, including the ultimate impact of the COVID-19 pandemic, as well as regulatory requirements of the Federal Reserve relating to the payment of dividends by bank holding companies.

The ability of West Bank to pay dividends is governed by various statutes. These statutes provide that a bank may pay dividends only out of undivided profits. In addition, applicable bank regulatory authorities have the power to require any bank to suspend the payment of dividends until the bank complies with all requirements that may be imposed by such authorities.


29

West Bancorporation, Inc. and Subsidiary

The following performance graph provides information regarding the cumulative, five-year return on an indexed basis of the common stock of the Company as compared with the Nasdaq Composite Index and the SNL Midwest Bank Index prepared by S&P Global Market Intelligence. The latter index reflects the performance of bank holding companies operating principally in the Midwest as selected by S&P Global Market Intelligence. The indices assume the investment of $100 on December 31, 2015, in the common stock of the Company, the Nasdaq Composite Index and the SNL Midwest Bank Index, with all dividends reinvested. The Company’s common stock price performance shown in the following graph is not indicative of future stock price performance.

WTBA-20201231_G1.JPG
Period Ending
Index 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020
West Bancorporation, Inc. 100.00  129.71  136.16  106.84  148.99  116.10 
Nasdaq Composite 100.00  108.87  141.13  137.12  187.44  271.64 
SNL Midwest Bank 100.00  133.61  143.58  122.61  159.51  136.96 
*Source: S&P Global Market Intelligence.  Used with permission.  All rights reserved.

30

West Bancorporation, Inc. and Subsidiary

ITEM 6.  SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands, except per share amounts)

INTRODUCTION

The Company’s financial highlights and key performance measures are presented in the table below.

As of and for the Years Ended December 31
2020 2019 2018
Performance Ratios
Return on average assets 1.19  % 1.20  % 1.31  %
Return on average equity 15.49  % 14.34  % 15.68  %
Efficiency ratio (1)(2)
41.96  % 50.96  % 48.33  %
Texas ratio (1)
6.40  % 0.23  % 0.93  %
Dividends and Per Share Data
Cash dividends per common share $ 0.84  $ 0.83  $ 0.78 
Basic earnings per common share 1.99  1.75  1.75 
Diluted earnings per common share 1.98  1.74  1.74 
Dividend payout ratio 42.23  % 47.33  % 44.53  %
Dividend yield 4.35  % 3.24  % 4.09  %
Operating Results and Year-End Balances
Net income $ 32,712  $ 28,690  $ 28,508 
Total assets 3,185,744  2,473,691  2,296,568 
Stockholders’ equity 223,695  211,820  191,023 
Average equity to average assets ratio 7.71  % 8.38  % 8.38  %
Definition of ratios:
Return on average assets - net income divided by average assets.
Return on average equity - net income divided by average equity.
Efficiency ratio - noninterest expense (excluding other real estate owned expense and write-down of premises) divided by noninterest income (excluding net securities gains/losses and gains/losses on disposition of premises and equipment) plus tax-equivalent net interest income.
Texas ratio - total nonperforming assets divided by tangible common equity plus the allowance for loan losses.
Dividend payout ratio - dividends paid to common stockholders divided by net income.
Dividend yield - dividends per share paid to common stockholders divided by closing year-end stock price.
Average equity to average assets ratio - average equity divided by average assets.

(1) A lower ratio is better.
(2) As presented, this is a non-GAAP financial measure. For further information, refer to the section "Non-GAAP Financial Measures" of this item

The Company’s 2020 net income was $32,712 compared to $28,690 in 2019. Net income for 2020 was a record for the Company. Basic and diluted earnings per common share for 2020 were $1.99 and $1.98, respectively, compared to $1.75 and 1.74, respectively, in 2019. During 2020, we paid our common stockholders $13,815 ($0.84 per common share) in dividends compared to $13,578 ($0.83 per common share) in 2019. The dividend declared and paid in the first quarter of 2021 was $0.22 per common share compared to $0.21 per common share for the fourth quarter of 2020, and was the highest quarterly dividend ever paid by the Company.


31

(dollars in thousands, except per share amounts)


Our loan portfolio grew to $2,280,575 as of December 31, 2020, from $1,941,663 as of December 31, 2019. This loan growth included $180,757 of PPP loans as of December 31, 2020. Deposits increased to $2,700,994 as of December 31, 2020, from $2,014,756 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. The increase in deposit balances had a direct impact on our asset balances and liquidity position at year end as funds were deployed in loan originations, investment security purchases and federal funds sold. Total assets were $3,185,744 at December 31, 2020, compared to $2,473,691 at December 31, 2019, a 28.8 percent increase. Our balance sheet may decrease and the mix of assets and liabilities may change in 2021. Loans and deposits may decrease as customer behavior adjusts to economic uncertainties created by the duration of the COVID pandemic, reductions in broad-based government relief programs and the efficiency of the rollout of COVID-19 vaccinations.

The Company has a quantitative peer analysis program in place for evaluating its results. The peer group is periodically reviewed, and was revised in the first quarter of 2020 after evaluating financial institutions that we believe better reflect our Company, particularly in terms of market capitalization, asset size, employee headcount and loan portfolio composition. The Company is in the middle of the group in terms of asset size. The group of 21 Midwestern, publicly traded, peer financial institutions against which we compared our performance for 2020 consisted of Bank First Corporation, Civista Bancshares, Inc., CrossFirst Bankshares, Inc., Equity Bancshares, Inc., Farmers National Banc Corp., Farmers & Merchants Bancorp, First Business Financial Services, Inc., First Financial Corp., First Mid Bancshares, Inc., German American Bancorp, Inc., Hills Bancorporation, Isabella Bank Corporation, LCNB Corp., Level One Bancorp, Inc., Macatawa Bank Corporation, Mackinac Financial Corporation, Mercantile Bank Corporation, MidWestOne Financial Group, Inc., Nicolet Bankshares, Inc., Peoples Bancorp, Inc., and Southern Missouri Bancorp, Inc. The Company's goal is to perform at or near the top of this peer group relative to what we consider to be three key metrics: return on average equity, efficiency ratio and Texas ratio. We believe these measures encompass the factors that define the performance of a community bank. Company and peer results for the key financial performance measures are summarized below.
West Bancorporation, Inc. Peer Group Range
As of and for the year ended December 31, 2020
As of and for the nine months ended September 30, 2020 (2)
Return on average equity 15.49%  -24.14% - 13.74%
Efficiency ratio* (1)
41.96%    45.85% - 70.99%
Texas ratio* 6.40%      2.61% - 16.72%
* A lower ratio is better.
(1)    As presented, this is a non-GAAP financial measure. For further information, refer to the section “Non-GAAP Financial Measures” of this Item.
(2)    Latest data available.

Our earnings outlook is positive, and we have strong capital resources. We anticipate the Company will be profitable in 2021 at a level that compares with that of our peers. The amount of our future profit is dependent, in large part, on our ability to continue to grow the loan portfolio, the amount of loan losses we incur, fluctuations in market interest rates, the strength of the local and national economy, and the economic recovery from the COVID-19 pandemic.

The following discussion describes the consolidated operations and financial condition of the Company, including its subsidiary West Bank and West Bank’s special purpose subsidiaries. Results of operations for the year ended December 31, 2020 are compared to the results for the year ended December 31, 2019 and the consolidated financial condition of the Company as of December 31, 2020 is compared to December 31, 2019. Results of operations for the year ended December 31, 2019 compared to the results for the year ended December 31, 2018 can be found in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s 2019 annual report on Form 10-K filed with the SEC on February 27, 2020.

SIGNIFICANT DEVELOPMENTS - IMPACT OF COVID-19

The COVID-19 pandemic, and efforts to contain it, have had a complex and significant adverse impact on the economy, the banking industry and the Company. The impact on future fiscal periods is subject to a high degree of uncertainty.


32

(dollars in thousands, except per share amounts)


Effects on Our Market Areas. Our commercial and consumer banking products and services are offered primarily in Iowa and Minnesota, where individual and government responses to the COVID-19 pandemic led to broad curtailment of economic activity beginning in March 2020. In Iowa and Minnesota, schools closed for the remainder of the school year, most retail establishments, including restaurants and entertainment venues, were ordered to close for varying lengths of time, and travel and non-critical healthcare services were significantly curtailed. Since the initial shut down in March 2020, phased reopening plans began in mid-May subject to public health reopening guidelines, including social distancing and limitations on capacity. Schools and colleges have reopened under various in-person, online and hybrid learning models. Recent increases in COVID-19 transmission has lead to additional targeted closures and restrictions. These measures have had a lasting impact on the economies of and customers located in these states. The Bank remained open during the closures as banks had been identified as essential services. Initially, the Bank continued to serve its customers through its drive-ups and Video Teller Machines and inside its branch offices by appointment only. Our full service branch lobbies reopened to walk-in customer activity in June 2020.

Both states in our market areas experienced increases in unemployment levels in 2020 as a result of the curtailment of business activities. Unemployment in Iowa was 3.1 percent in December 2020, after peaking at 11.0 percent in April 2020, according to the Iowa Workforce Development. Unemployment in Minnesota was 4.4 percent in December 2020, after peaking at 9.9 percent in May 2020, according to the Minnesota Department of Employment and Economic Development.

Policy and Regulatory Developments. Federal, state and local governments and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic, including the following:

The Federal Reserve decreased the range for the federal funds target rate by 0.5 percent on March 3, 2020, and by another 1.0 percent on March 16, 2020, reaching a current range of 0.0 - 0.25 percent.

On March 27, 2020, President Trump signed the CARES Act, which established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the SBA, referred to as the PPP. After the initial $349 billion in funds for the PPP was exhausted, an additional $310 billion in funding for PPP loans was authorized. As of December 31, 2020 the Bank originated $224,489 in PPP loans as a lender in the program in 2020. In addition, on December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021, a $900.0 billion COVID-19 relief package that included an additional $284.0 billion in PPP funding.

In addition, the CARES Act, as extended by the Coronavirus Response and Relief Supplemental Appropriation Act of 2021 (a part of the Consolidated Appropriations Act, 2021), provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. See Note 4 to the consolidated financial statements included in Item 8 of this Form 10-K for additional disclosure of TDRs.

On April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19-related loan modifications as TDRs. See Note 4 to the consolidated financial statements included in Item 8 of this Form 10-K for additional disclosure of TDRs. On April 9, 2020, the Federal Reserve announced additional measures aimed at supporting small and mid-sized businesses, as well as state and local governments impacted by COVID-19. The Federal Reserve announced the Main Street Business Lending Program, which established two new loan facilities intended to facilitate lending to small and mid-sized businesses: (1) the Main Street New Loan Facility, or MSNLF, and (2) the Main Street Expanded Loan Facility, or MSELF. MSNLF loans are unsecured term loans originated on or after April 8, 2020, while MSELF loans are provided as upsized tranches of existing loans originated before April 8, 2020. The combined size of the program is authorized up to $600 billion.
On August 3, 2020, the FFIEC issued a Joint Statement on Additional Loan Accommodations Related to COVID-19, which, among other things, encouraged financial institutions to consider prudent additional loan accommodation options when borrowers are unable to meet their obligations due to continuing financial challenges. Accommodation options should be based on prudent risk management and consumer protection principles.


33

(dollars in thousands, except per share amounts)


In addition to the policy responses described above, the federal bank regulatory agencies, along with their state counterparts, have issued a 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 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 CRA for certain pandemic related loans, investments and public service. Moreover, because of the need for social distancing measures, the agencies revamped the manner in which they conducted periodic examinations of their regular institutions, including making greater use of off-site reviews. The Federal Reserve also 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 has also 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.

Effects on Our Business. The COVID-19 pandemic and the specific developments referred to above have had and will continue to have a significant impact on our business. In particular, we anticipate that a significant portion of the Bank’s borrowers in the hotel, restaurant, retail and movie theater industries will continue to endure significant economic distress, which has caused, and may continue to cause, them to draw on their existing lines of credit and adversely affect their ability to repay existing indebtedness, and may adversely impact the value of collateral. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio, particularly with respect to real estate with exposure to these industries, and the value of certain collateral securing our loans. As a result, our financial condition, capital levels and results of operations could be adversely affected, as described in further detail below.

Our Response. We took numerous steps in 2020 in response to the COVID-19 pandemic, including the following:

We actively worked with loan customers to evaluate prudent loan modification terms. In 2020, West Bank provided loan modification for nearly 300 loans totaling over $550,000. As of December 31, 2020, 35 loans totaling $139,940, or 6.1 percent of total loans, were in payment deferral status under COVID-19-related modifications. The modifications included a deferral of principal and/or interest payments. Expiration of the deferrals range from January 2021 through June 2021. As of December 31, 2020, the modifications are for hotel loans totaling $64,449, movie theater loans totaling $17,863, mixed-use commercial real estate loans totaling $38,177 and other commercial and commercial real estate loans totaling $19,451.
In 2020, West Bank originated 925 PPP loans totaling $224,489. As of December 31, 2020, total outstanding PPP loans were $180,757. Borrowers are in the process of filing for forgiveness with the SBA. When the borrower applies for loan forgiveness, the Bank has 60 days to submit the application to the SBA. The SBA then has 90 days to approve the loan forgiveness. We expect the forgiveness process to extend into the second quarter of 2021. Additionally, a second round of PPP loans began in January 2021, and the Company is a participating lender in this program. As of February 19, 2021, West Bank has originated 256 loans totaling approximately $43,100 in the second round program.

From mid-March through the end of June 2020, we limited all branch activity to drive-up and appointment only services. We continue to promote our digital banking options through our website, and encourage customers to utilize our online and mobile banking services. Our customer service and retail banking departments have remained fully staffed and available to assist customers through our various digital channels. As we reopened our lobbies for customer activity, we implemented various social distancing and cleaning protocols recommended by governmental health departments to protect the health and safety of our employees and customers. We have successfully deployed a modified working strategy, including emphasis on social distancing and remote work as necessary to emphasize the safety of our teams and continuity of our business processes. We continue to pay all employees according to their normal work schedule, even if their workload has been altered. No employees have been furloughed or laid off as a result of COVID-19.

34

(dollars in thousands, except per share amounts)


Liquidity and Capital Strength. We maintain access to multiple sources of liquidity and continually review these sources in preparation for any unforeseen funding needs due to COVID-19. The Company has funding available from the FHLB, along with access to federal funds lines with various correspondent banks and access to the brokered certificate of deposit market. In addition, the Company has borrowing capacity at the Federal Reserve discount window and has access to the Paycheck Protection Program Liquidity Facility established by the Federal Reserve. If an extended recession causes large numbers of the Company’s deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of wholesale funding, which could have an adverse effect on the Company's net interest margin.

The Company's capital ratios continue to exceed the highest required regulatory benchmark levels. We have, in recent years, raised our quarterly dividend in the second quarter of each year. However, due to the uncertainty facing our economy, our Board of Directors kept the dividend at the 2019 level of $0.21 per share for all of 2020. In the first quarter of 2021, the Company’s Board of Directors declared a regular quarterly dividend of $0.22 per common share, an increase of $0.01 from the quarterly dividends paid in 2020.

Exposure to Stressed Industries. Certain industries have been particularly impacted by shutdowns, capacity restrictions, quarantines and social distancing guidelines in response to COVID-19 and efforts to contain it. The most significant impact to our customer base has been in the hospitality and entertainment industries. At December 31, 2020, West Bank's total commercial real estate and commercial operating loan exposure to the hotel, retail, restaurant and movie theater industries was approximately $197,199 $104,515, $23,671 and $17,863, respectively. Collectively, at December 31, 2020, those exposures made up approximately 15.1 percent of the total loan portfolio. Because of the significant uncertainties related to the duration of the COVID-19 pandemic and its potential effects on our customers, and on the national and local economy as a whole, there can be no assurances as to how the crisis may ultimately affect the Company's loan portfolio.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This report is based on the Company’s audited consolidated financial statements that have been prepared in accordance with GAAP established by the FASB. The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company’s significant accounting policies are described in the Notes to Consolidated Financial Statements. Based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments, management has identified its most critical accounting policies to be those related to the fair value of financial instruments and the allowance for loan losses.

The fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business. A framework has been established for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities and includes a three-level hierarchy for determining fair value based on the transparency of inputs to each valuation as of the measurement date. The Company estimates the fair value of financial instruments using a variety of valuation methods. When financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value and are classified as Level 1. When financial instruments, such as investment securities and derivatives, are not actively traded, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar instruments where a price for the identical instrument is not observable. The fair values of these financial instruments, which are classified as Level 2, are determined by pricing models that consider observable market data such as interest rate volatilities, yield curves, credit spreads, prices from external market data providers and/or nonbinding broker-dealer quotations. When observable inputs do not exist, the Company estimates fair value based on available market data, and these values are classified as Level 3. Imprecision in estimating fair values can impact the carrying value of assets and the amount of revenue or loss recorded.


35

(dollars in thousands, except per share amounts)


The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that collectability of the principal is unlikely. The Company has policies and procedures for evaluating the overall credit quality of its loan portfolio, including timely identification of potential problem loans. On a quarterly basis, management reviews the appropriate level for the allowance for loan losses, incorporating a variety of risk considerations, both quantitative and qualitative. Quantitative factors include the Company’s historical loss experience, delinquency and charge-off trends, collateral values, known information about individual loans and other factors. Qualitative factors include the general economic environment in the Company’s market areas and the expected trend of those economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or the other factors considered. To the extent that actual results differ from forecasts and management’s judgment, the allowance for loan losses may be greater or less than future charge-offs.

The measurement of the allowance for loan losses at December 31, 2020 included quantitative and qualitative factors. The historical net loan loss experience had virtually no impact on the measurement of the allowance for loan losses as West Bank has had cumulative net loan recoveries over the past five years. Management’s assessment of qualitative factors applied to loans collectively evaluated for impairment were influenced by the impact of the COVID-19 pandemic on borrowers and broader economic conditions. The portion of the allowance for loan losses related to loans collectively evaluated for impairment increased $9,201 to a total of $26,436, or 1.16 percent of outstanding loans, as of December 31, 2020 compared to $17,235, or 0.89 percent of outstanding loans, as of December 31, 2019. As of December 31, 2020, there were $3,000 in specific reserves related to loans individually evaluated for impairment compared to none as of December 31, 2019. The specific reserves resulted from the downgrade in credit quality of one borrower due to the severe economic impact of COVID-19 on its business. The specific impairment was determined after evaluating the value of the underlying collateral.
36

(dollars in thousands, except per share amounts)


NON-GAAP FINANCIAL MEASURES

This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the Company’s presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, the presentation of the efficiency ratio on an FTE basis, excluding certain income and expenses, and the presentation of the allowance for loan losses ratio, excluding PPP loans. Management believes these non-GAAP financial measures provide useful information to both management and investors to analyze and evaluate the Company’s financial performance. Net interest income and net interest margin on an FTE basis and the efficiency ratio on an FTE basis are considered standard measures of comparison within the banking industry. Allowance for loan losses to total loans, excluding PPP loans is a non-GAAP measure that serves as a useful measurement to evaluate the allowance for loan losses without the impact of SBA guaranteed PPP loans. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently. These non-GAAP disclosures should not be considered an alternative to the Company’s GAAP results. The following table reconciles the non-GAAP financial measures of net interest income, net interest margin, and efficiency ratio on an FTE basis, loans, net of PPP loans and allowance for loan losses ratio, excluding PPP loans to their most directly comparable measures under GAAP.
  As and for the Years Ended December 31
2020 2019 2018
Reconciliation of net interest income and net interest margin on an FTE basis to GAAP:
Net interest income (GAAP) $ 82,833  $ 66,430  $ 62,058 
Tax-equivalent adjustment (1)
707  834  1,528 
Net interest income on an FTE basis (non-GAAP)
$ 83,540 $ 67,264 $ 63,586
Average interest-earning assets $ 2,614,342  $ 2,277,461  $ 2,075,372 
Net interest margin on an FTE basis (non-GAAP) 3.20  % 2.95  % 3.06%
Reconciliation of efficiency ratio on an FTE basis to GAAP:
Net interest income on an FTE basis (non-GAAP) $ 83,540  $ 67,264  $ 63,586 
Noninterest income 9,602 8,318 7,752
Adjustment for realized investment securities (gains) losses, net
(77) 87  263
Adjustment for losses on disposal of premises and
    equipment, net
9  —  109
Adjustment for gain on sale of premises   (307) — 
Adjusted income $ 93,074  $ 75,362  $ 71,710 
Noninterest expense $ 39,054  $ 38,406  $ 34,992
Adjustment for write-down of premises   —  (333)
Adjusted expense $ 39,054  $ 38,406  $ 34,659 
Efficiency ratio on an adjusted and FTE basis (non-GAAP) (2)
41.96  % 50.96  % 48.33%
Reconciliation of allowance for loan losses ratio, excluding PPP loans:
Loans outstanding (GAAP) $ 2,280,575  $ 1,941,663  $ 1,721,830
Less: PPP loans (180,757) —  — 
Loans, net of PPP loans (non-GAAP) 2,099,818  1,941,663  1,721,830 
Allowance for loan losses 29,436  17,235  16,689
Allowance for loan losses ratio, excluding PPP loans (non-GAAP) 1.40  % 0.89  % 0.97  %
(1) Computed on a tax-equivalent basis using a federal income tax rate of 21 percent, adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results, as it enhances the comparability of income arising from taxable and nontaxable sources.
(2) The efficiency ratio expresses noninterest expense as a percent of fully taxable equivalent net interest income and noninterest income, excluding specific noninterest income and expenses. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial performance. It is a standard measure of comparison within the banking industry.

37

(dollars in thousands, except per share amounts)


RESULTS OF OPERATIONS - 2020 COMPARED TO 2019

OVERVIEW

Net income for the year ended December 31, 2020, was $32,712, compared to $28,690 for the year ended December 31, 2019. Basic and diluted earnings per common share for 2020 were $1.99 and $1.98, respectively, and were $1.75 and 1.74, respectively for 2019.

The increase in 2020 net income compared to 2019 was primarily the result of higher net interest income and noninterest income, partially offset by an increase in provision for loan losses. Net interest income grew $16,403, or 24.7 percent, in 2020 compared to 2019. The increase in net interest income was primarily due to the decrease in interest expense on deposits and other borrowings. Interest expense decreased $14,845, or 46.0 percent, compared to 2019, primarily due to the Federal Reserve’s reductions in the targeted federal funds rate that occurred in March 2020 in response to the COVID-19 pandemic. In response to the economic conditions and reduction in market interest rates, West Bank lowered its interest rates in March 2020 in almost all deposit categories.

The Company recorded a provision for loan losses of $12,000 in 2020 compared to a provision for loan losses of $600 in 2019. The increase in the provision for loan losses was due to the uncertainty surrounding economic conditions as a result of the COVID-19 pandemic and slow economic recovery in the hotel and entertainment industries, and an increase in specific reserves on impaired loans.

Noninterest income increased $1,284, or 15.4 percent, in 2020 compared to 2019, primarily due to loan swap fees earned on back-to-back interest rate swaps and realized investment securities gains in 2020, compared to losses in 2019. Noninterest expense grew $648, or 1.7 percent, in 2020 compared to 2019, primarily due to an increase in FDIC insurance expense.

The Company has consistently used the efficiency ratio as one of its key financial metrics to measure expense control. For the year ended December 31, 2020, the Company’s efficiency ratio decreased to 41.96 percent from the prior year’s ratio of 50.96 percent. This ratio is computed by dividing noninterest expense (excluding other real estate owned expense and write-down of premises) by the sum of tax-equivalent net interest income plus noninterest income (excluding net investment securities gains or losses and gains or losses on disposition of premises and equipment), and a lower ratio is better. The higher efficiency ratio in 2019 was attributable to our expansion of operations in the three new Minnesota markets of Owatonna, Mankato and St. Cloud. In March 2019, the Company began operations in these three new Minnesota markets. The financial results of 2019 included certain operational and business development costs directly related to the Minnesota expansion totaling approximately $2.8 million on a pretax basis, while net interest income and fee income in these markets was approximately $1.1 million in 2019. The expense drag from the ramp up of these operations resulted in a higher than normal efficiency ratio in 2019. We entered 2020 with profitable operations in these new markets. The lower efficiency ratio in 2020, compared to 2019, was primarily the result of profitable operations in the new Minnesota markets and the decrease in interest expense, which was attributable to the Federal Reserve’s reductions in the federal funds rate.

The Texas ratio, which is the ratio of nonperforming assets to tangible common equity plus the allowance for loan losses, increased to 6.40 percent as of December 31, 2020, compared to 0.23 percent as of December 31, 2019. A lower Texas ratio indicates a stronger credit quality condition. The increase in our Texas ratio in 2020 was primarily due to an increase in nonaccrual loans resulting from the downgrade in the credit quality of one borrower due to the severe economic impact of COVID-19 on its business. For more discussion on loan quality, see the “Loan Portfolio” and “Summary of the Allowance for Loan Losses” sections in this Item of this Form 10-K.

38

(dollars in thousands, except per share amounts)


Net Interest Income

Net interest income increased to $82,833 for 2020 from $66,430 for 2019, as the impact of the growth of interest-earning assets and decrease in average rate paid on interest-bearing liabilities exceeded the effects of an increase in average balance of interest-bearing liabilities and decrease in average yields on interest-earning assets. The net interest margin for 2020 increased 25 basis points to 3.20 percent compared to 2.95 percent for 2019. The average yield on earning assets decreased by 51 basis points, while the rate paid on interest-bearing liabilities decreased by 91 basis points. The primary driver of the increase in the net interest margin was a decrease in interest rates paid on deposits and other borrowed funds and an increase in average loan balances, partially offset by a decrease in yield on loans and investments. The Federal Reserve decreased the targeted federal funds rate by a total of 150 basis points during the first quarter of 2020. Management expects these reductions in the targeted federal funds rate will result in continued low rates paid on deposits and declining yields on loans in 2021. For additional analysis of net interest income, see the section captioned “Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates; and Interest Differential” in this Item of this Form 10-K.

Provision for Loan Losses and Loan Quality

The allowance for loan losses, which totaled $29,436 as of December 31, 2020, represented 1.29 percent of total loans and 181.8 percent of nonperforming loans at year end, compared to 0.89 percent and 3,203.5 percent, respectively, as of December 31, 2019. A provision for loan losses of $12,000 was recorded in 2020 compared to $600 in 2019. The increased provision for loan losses in 2020 was due to the uncertainty surrounding economic conditions as a result of the COVID-19 pandemic and slow economic recovery in the hotel and entertainment industries, and an increase in specific reserves on impaired loans. We believe the provision for loans losses could increase in future periods based on our belief that the credit quality of our loan portfolio may decline and loan defaults could increase as a result of the duration of the COVID-19 pandemic and the possibility of a prolonged economic recovery.

Nonperforming loans at December 31, 2020 totaled $16,194, or 0.71 percent of total loans, an increase from $538, or 0.03 percent of total loans, at December 31, 2019. The increase in nonperforming loans at December 31, 2020, compared to December 31, 2019, was primarily due to the downgrade in the credit quality of one borrower due to the severe economic impact of COVID-19 on its business. This borrower’s loans were classified as watch prior to COVID-19 and were further downgraded to substandard and put on nonaccrual in September 2020. Nonperforming loans include loans on nonaccrual status, loans past due 90 days or more and still accruing interest, and loans that have been considered to be troubled debt restructured (TDR) due to the borrowers’ financial difficulties. The Company held no other real estate owned properties as of December 31, 2020 or 2019.

Noninterest Income

The following table shows the variance from the prior year in the noninterest income categories shown in the Consolidated Statements of Income. In addition, accounts within the “Other income” category that represent a significant portion of the total or a significant variance are shown. 
  Years ended December 31
Noninterest income: 2020 2019 Change Change %
Service charges on deposit accounts $ 2,360  $ 2,492  $ (132) (5.30) %
Debit card usage fees 1,632  1,644  (12) (0.73) %
Trust services 2,078  2,026  52  2.57  %
Increase in cash value of bank-owned life insurance 593  644  (51) (7.92) %
Loan swap fees 1,572  —  1,572  N/A
Realized investment securities gains (losses), net 77  (87) 164  188.51  %
Other income:        
Other service charges and fees 1,164  1,039  125  12.03  %
Gain on sale of premises   307  (307) (100.00) %
All other 126  253  (127) (50.20) %
Total other income 1,290  1,599  (309) (19.32) %
Total noninterest income $ 9,602  $ 8,318  $ 1,284  15.44  %
39

(dollars in thousands, except per share amounts)


The Company offers loan level interest rate swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a swap counterparty (back-to-back swap program). Loan swap fees consist of fees earned in the back-to-back swap program which began in the first quarter of 2020, resulting in income from loan swap fees of $1,572 in 2020 and none in 2019. These fees are largely dependent on the timing and volume of customer activity and may not reoccur in future periods. The gain on sale of premises in 2019 was the result of the sale of the Iowa City branch facility after the Company consolidated the Iowa City and Coralville branches. Service charges on deposit accounts decreased for 2020 when compared to 2019, primarily as a result of the reduction in nonsufficient fund fees.

Noninterest Expense

The following table shows the variance from the prior year in the noninterest expense categories shown in the Consolidated Statements of Income. In addition, accounts within the “Other expenses” category that represent a significant portion of the total or a significant variance are shown.
  Years ended December 31
Noninterest expense: 2020 2019 Change Change %
Salaries and employee benefits $ 21,591  $ 21,790  $ (199) (0.91) %
Occupancy 5,467  5,355  112  2.09  %
Data processing 2,508  2,735  (227) (8.30) %
FDIC insurance 1,210  404  806  199.50  %
Professional fees 927  814  113  13.88  %
Director fees 868  993  (125) (12.59) %
Other expenses:      
Marketing 211  230  (19) (8.26) %
Business development 704  907  (203) (22.38) %
Insurance expense 440  382  58  15.18  %
Subscriptions 569  394  175  44.42  %
Trust 462  443  19  4.29  %
Consulting fees 323  327  (4) (1.22) %
Postage and courier 328  282  46  16.31  %
Supplies 217  311  (94) (30.23) %
Low income housing projects amortization 432  453  (21) (4.64) %
New market tax credit project amortization and related management fees
919  919  —  —  %
All other 1,878  1,667  211  12.66  %
Total other 6,483  6,315  168  2.66  %
Total noninterest expense $ 39,054  $ 38,406  $ 648  1.69  %

Salaries and employee benefits decreased in 2020 compared to 2019, primarily due to fewer full time equivalent employees and a decrease in expenses related to restricted stock unit awards and insurance benefits. These expense reductions were partially offset by normal annual performance raises, one-time staff bonuses for efforts related to the PPP program and an increase in the number of employees eligible for retirement benefit contributions. The Company has not made, and at this time does not expect to make, any material staffing or compensation changes as a result of the COVID-19 pandemic. Occupancy expense increased in 2020 compared to 2019 because of the incurrence of a full twelve months of expenses related to the expansion into the cities of Owatonna, Mankato and St. Cloud, Minnesota, which occurred toward the end of the first quarter of 2019. Data processing decreased in 2020 compared to 2019, primarily due to a new contract signed with West Bank's core data processing provider. FDIC insurance expense increased in 2020 compared to 2019, primarily due to the increase in the Company's average assets and assessment rate. Additionally, the FDIC applied approximately $425 of credits to the Company’s quarterly assessment in 2019, which resulted in no expense in the third and fourth quarters of 2019. Business development expense decreased in 2020 compared to 2019, primarily due to the limitations placed on business development activities during COVID-19 restrictions and shutdowns. All other expenses were higher in 2020 compared to 2019, due primarily to losses as a result of check fraud schemes.

40

(dollars in thousands, except per share amounts)


Income Taxes

The Company records a provision for income tax expense currently payable, along with a provision for those taxes payable or refundable in the future (deferred taxes). Deferred taxes arise from differences in the timing of certain items for financial statement reporting compared to income tax reporting and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Federal income tax expense for 2020 and 2019 was approximately $6,209 and $5,095, respectively, while state income tax expense was approximately $2,460 and $1,957, respectively. The effective rate of income tax expense as a percent of income before income taxes was 20.9 percent and 19.8 percent, respectively, for 2020 and 2019.

The effective income tax rates differ from the federal statutory income tax rates primarily due to tax-exempt interest income, the tax-exempt increase in cash value of bank-owned life insurance, disallowed interest expense, stock compensation and state income taxes. The effective tax rate for both 2020 and 2019 was also impacted by federal income tax credits, including low income housing tax credits and a new markets tax credit from West Bank’s investment in a qualified community development entity, of approximately $1,239 and $1,265, respectively.

The Company continues to maintain a valuation allowance against the tax effect of state net operating losses carryforwards as management believes it is likely that such carryforwards will expire without being utilized.


41

(dollars in thousands, except per share amounts)


DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY; INTEREST RATES; AND INTEREST DIFFERENTIAL

Average Balances and an Analysis of Average Rates Earned and Paid

The following table shows average balances and interest income or interest expense, with the resulting average yield or rate by category of average interest-earning assets or interest-bearing liabilities for the years indicated. Interest income and the resulting net interest income are shown on a fully taxable basis. Interest expense includes the effect of interest rate swaps, if applicable.
2020 2019 2018
  Average
Balance
Revenue/
Expense
Yield/
Rate
Average
Balance
Revenue/
Expense
Yield/
Rate
Average
Balance
Revenue/
Expense
Yield/
Rate
Assets
Interest-earning assets:
Loans: (1) (2)
Commercial $ 566,593  $ 22,328  3.94  % $ 387,137  $ 19,493  5.04  % $ 321,395  $ 15,315  4.77  %
Real estate (3)
1,574,339  68,444  4.35  % 1,405,175  66,078  4.70  % 1,225,665  55,973  4.57  %
Consumer and other 6,222  272  4.36  % 6,876  335  4.87  % 6,613  282  4.26  %
Total loans 2,147,154  91,044  4.24  % 1,799,188  85,906  4.77  % 1,553,673  71,570  4.61  %
Investment securities:            
Taxable 322,695  7,818  2.42  % 354,727  10,031  2.83  % 322,795  8,124  2.52  %
Tax-exempt (3)
55,589  1,774  3.19  % 69,505  2,462  3.54  % 173,449  6,140  3.54  %
Total investment securities 378,284  9,592  2.54  % 424,232  12,493  2.94  % 496,244  14,264  2.87  %
Federal funds sold 88,904  304  0.34  % 54,041  1,110  2.05  % 25,455  487  1.91  %
Total interest-earning assets (3)
2,614,342  100,940  3.86  % 2,277,461  99,509  4.37  % 2,075,372  86,321  4.16  %
Noninterest-earning assets:                  
Cash and due from banks 53,874      41,036      33,934     
Premises and equipment, net 28,957      30,351      22,271     
Other, less allowance for
loan losses 42,610      37,793      37,822     
Total noninterest-earning assets 125,441      109,180      94,027     
Total assets $ 2,739,783      $ 2,386,641      $ 2,169,399     
Liabilities and Stockholders’ Equity                
Interest-bearing liabilities:                  
Deposits:                  
Savings, interest-bearing
demand and money markets $ 1,499,784  7,755  0.52  % $ 1,337,009  19,548  1.46  % $ 1,266,534  14,369  1.13  %
Time 215,224  3,501  1.63  % 255,770  5,666  2.22  % 184,386  2,695  1.46  %
Total deposits 1,715,008  11,256  0.66  % 1,592,779  25,214  1.58  % 1,450,920  17,064  1.18  %
Other borrowed funds 227,945  6,144  2.70  % 191,969  7,031  3.66  % 127,836  5,671  4.44  %
Total interest-bearing liabilities 1,942,953  17,400  0.90  % 1,784,748  32,245  1.81  % 1,578,756  22,735  1.44  %
Noninterest-bearing liabilities:                
Demand deposits 544,211    379,231      401,778     
Other liabilities 41,399    22,647      7,108     
Stockholders’ equity 211,220      200,015      181,757     
Total liabilities and
stockholders’ equity $ 2,739,783      $ 2,386,641      $ 2,169,399     
Net interest income (4)/net interest spread (3)
$ 83,540  2.96  % $ 67,264  2.56  %   $ 63,586  2.72  %
Net interest margin (3) (4)
    3.20  %     2.95  %     3.06  %
(1)Average loan balances include nonaccrual loans. Interest income recognized on nonaccrual loans has been included.
(2)Interest income on loans includes amortization of loan fees and costs and prepayment penalties collected, which are not material.
(3)Tax-exempt income has been adjusted to a tax-equivalent basis using a federal income tax rate of 21 percent and is adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt investment securities and loans.
(4)Net interest income (FTE) and net interest margin (FTE) are non-GAAP financial measures. For further information, refer to the section “Non-GAAP Financial Measures” of this Item.
42

(dollars in thousands, except per share amounts)


Net Interest Income

The Company’s largest component of net income is net interest income, which is the difference between interest earned on interest-earning assets, consisting primarily of loans and investment securities, and interest paid on interest-bearing liabilities, consisting of deposits and borrowings. Fluctuations in net interest income can result from the combination of changes in the balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are also affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and the actions of regulatory authorities. The Federal Reserve decreased the targeted federal funds rate by 75 basis points in the second half of 2019. In addition, in response to the COVID-19 pandemic, the Federal Reserve decreased the targeted federal funds interest rate by a total of 150 basis points in March 2020. These decreases impacted the comparability of net interest income between 2019 and 2020. The Federal Reserve is forecasting to keep the federal funds rate near zero for the next three years. We expect the short term interest rates to remain unchanged and the yield curve to slightly increase in 2021 compared to 2020.

Net interest margin is a measure of the net return on interest-earning assets and is computed by dividing annualized tax-equivalent net interest income by total average interest-earning assets for the period. For the years ended December 31, 2020, 2019 and 2018, the Company’s net interest margin on a tax-equivalent basis was 3.20, 2.95 and 3.06 percent, respectively. There was an increase of $16,276 in tax-equivalent net interest income in 2020 compared to 2019. This was primarily due to a decrease in interest rates paid on deposits and other borrowed funds and an increase in average loan balances, partially offset by a decrease in yield on loans and investments.

Rate and Volume Analysis

The rate and volume analysis shown below, on a tax-equivalent basis, is used to determine how much of the change in interest income or expense is the result of a change in volume or a change in interest yield or rate. The change in interest that is due to both volume and rate has been allocated to the change due to volume and the change due to rate in proportion to the absolute value of the change in each.
  2020 Compared to 2019 2019 Compared to 2018
  Volume Rate Total Volume Rate Total
Interest Income
Loans: (1)
Commercial $ 7,699  $ (4,864) $ 2,835  $ 3,272  $ 906  $ 4,178 
Real estate (2)
7,586  (5,220) 2,366  8,400  1,705  10,105 
Consumer and other (30) (33) (63) 12  41  53 
Total loans (including fees) 15,255  (10,117) 5,138  11,684  2,652  14,336 
Investment securities:            
Taxable (856) (1,357) (2,213) 848  1,059  1,907 
Tax-exempt (2)
(460) (228) (688) (3,682) (3,678)
Total investment securities (1,316) (1,585) (2,901) (2,834) 1,063  (1,771)
Federal funds sold 456  (1,262) (806) 585  38  623 
Total interest income (2)
14,395  (12,964) 1,431  9,435  3,753  13,188 
Interest Expense            
Deposits:            
Savings, interest-bearing
demand and money market 2,136  (13,929) (11,793) 837  4,342  5,179 
Time (809) (1,356) (2,165) 1,274  1,697  2,971 
Total deposits 1,327  (15,285) (13,958) 2,111  6,039  8,150 
Other borrowed funds 1,173  (2,060) (887) 2,477  (1,117) 1,360 
Total interest expense 2,500  (17,345) (14,845) 4,588  4,922  9,510 
Net interest income (2) (3)
$ 11,895  $ 4,381  $ 16,276  $ 4,847  $ (1,169) $ 3,678 
(1)Average balances of nonaccrual loans were included for computational purposes.
(2)Tax-exempt income has been converted to a tax-equivalent basis using a federal income tax rate of 21 percent and is adjusted for the effect of the nondeductible interest expense associated with owning tax-exempt investment securities and loans. 
(3)Net interest income (FTE) is a non-GAAP financial measure. For further information, refer to the section “Non-GAAP Financial Measures” of this Item.

43

(dollars in thousands, except per share amounts)


Tax-equivalent interest income and fees on loans increased $5,138 for the year ended December 31, 2020, compared to 2019. The improvement was primarily due to an increase of $347,966 in average balance of loans in 2020 compared to 2019, which was significantly offset by the overall decline in loan yields. The average yield on loans decreased 53 basis points in 2020 compared to 2019. Average loan balances for the year ended December 31, 2020 included $151,074 of PPP loans. Interest income recognized on PPP loans, which includes the amortization of origination fees paid by the SBA, was $4,752 for the year ended December 31, 2020, resulting in a yield of 3.15 percent. Interest income on PPP loans included approximately $1,000 of accelerated amortization of origination fees upon loan forgiveness and repayment by the SBA. While the PPP loans contributed to the increase in average loans and interest income, they negatively impacted the overall yield on loans. The future impact of PPP loans, including the second round of PPP lending, on net interest income and net interest margin will be subject to the timing of loan forgiveness by the SBA and may create volatility in the commercial loan yields during 2021.

The Company continues to focus on expanding existing and entering into new customer relationships while maintaining strong credit quality. The yield on the Company's loan portfolio is affected by the portfolio's loan mix, the interest rate environment, the effects of competition, the level of nonaccrual loans and reversals of previously accrued interest on charged-off loans. The political and economic environments can also influence the volume of new loan originations and the mix of variable-rate versus fixed-rate loans. We anticipate that our interest income will be adversely affected in future periods as a result of the COVID-19 pandemic, including the possibility of decreases in the size of our loan portfolio and declining credit quality, the expected continuation of low interest rates, and an increase in nonaccrual loans.

The average balance of investment securities in 2020 was $45,948 lower than in 2019, primarily as a result of securities sold during 2019 and first quarter of 2020 to create liquidity for expected loan growth prior to the COVID-19 pandemic.

The average balance of interest-bearing demand, savings and money market deposits increased $162,775 in 2020 compared to 2019. The increase was primarily due to an increase in average balances of money market and interest-bearing demand accounts. 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. The average rate paid on interest-bearing demand, savings and money market deposits in 2020 decreased by 94 basis points compared to 2019. The average balance of time deposits decreased $40,546 in 2020 compared to 2019. The average rate paid on time deposits decreased 59 basis points in 2020 compared to 2019. The decreases in average rates paid were primarily due to decreasing interest rates on all deposit products in response to the unprecedented decrease in the target federal funds rate in March 2020.

The average balance of other borrowed funds increased $35,976 in 2020 compared to 2019. The rate paid on borrowed funds declined 96 basis points in 2020 compared to 2019, primarily due to the maturity of long-term, high-rate FHLB advances in December 2019 through September 2020 and the reduction of market rates beginning in the second half of 2019 on short-term and variable-rate borrowings. The Company had a higher than usual amount of liquid assets at December 31, 2020 as a result of unexpected high levels of deposits. However, the impact of the COVID-19 pandemic and possible decreases in interest-bearing deposits in future periods could result in an increase in borrowed funds.

As a result of the reductions in the targeted federal funds interest rate, as well as the possible impact of the COVID-19 pandemic, such as lower levels of loans or increases in nonaccrual loans, our net interest income and net interest margin could decrease in future periods.

INVESTMENT SECURITIES PORTFOLIO

The following table sets forth the composition of the Company’s investment portfolio as of the dates indicated.
  As of December 31
  2020 2019 2018
Securities available for sale, at fair value:
State and political subdivisions $ 144,332  $ 47,178  $ 149,156 
Collateralized mortgage obligations 140,962  181,921  157,004 
Mortgage-backed securities 83,523  73,030  63,378 
Asset-backed securities   17,600  31,903 
Collateralized loan obligations 51,754  64,832  — 
Trust preferred security   —  1,900 
Corporate notes   14,017  50,417 
Total securities available for sale $ 420,571  $ 398,578  $ 453,758 
44

(dollars in thousands, except per share amounts)


The investment securities available for sale presented in the following table are reported at fair value and by contractual maturity as of December 31, 2020. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. The collateralized mortgage obligations and mortgage-backed securities have monthly paydowns that are not reflected in the table.
Investments as of December 31, 2020 Within one
year
After one year
but within five
years
After five years
but within ten
years
After ten years Total
State and political subdivisions $ —  $ —  $ 9,486  $ 134,846  $ 144,332 
Collateralized mortgage obligations —  —  5,712  135,250  140,962 
Mortgage-backed securities —  —  2,800  80,723  83,523 
Collateralized loan obligations —  —  4,988  46,766  51,754 
Total $ —  $ —  $ 22,986  $ 397,585  $ 420,571 
Weighted average yield:          
State and political subdivisions (1)
—  % —  % 1.62  % 2.59  %
Collateralized mortgage obligations —  % —  % 1.27  % 2.64  %
Mortgage-backed securities —  % —  % 4.24  % 1.52  %
Collateralized loan obligations —  % —  % 1.52  % 2.04  %
Total —  % —  % 1.82  % 2.32  %
(1)    Yields on tax-exempt obligations have been computed on a tax-equivalent basis using a federal income tax rate of 21 percent and are adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt investment securities.

Management’s process for obtaining and validating the fair value of investment securities is discussed in Note 18 to the consolidated financial statements included in Item 8 of this Form 10-K.

As of December 31, 2020, the existing gross unrealized losses of $1,780 in the Company’s investment portfolio were considered to be temporary in nature due to market interest rate fluctuations, not reduced estimated cash flows. The Company has the ability and the intent to hold the related securities with unrealized losses for a period of time sufficient to allow for a recovery, which may be at maturity. However, management may decide to sell securities with unrealized losses at a future date for liquidity purposes, to manage interest rate risk, or to enhance interest income.

The balance of investment securities available for sale increased by $21,993 during 2020. Securities were sold early in 2020 to create liquidity for expected loan growth prior to the COVID-19 pandemic. Throughout 2020, securities were purchased and sold as part of various reinvestment strategies including reducing our interest rate risk exposure in variable-rate bonds and managing overall interest rate risk and yield. In the fourth quarter of 2020, excess liquidity was invested in state and political subdivision bonds and collateralized mortgage obligations. The securities issued by state and political subdivisions are diversified in 24 states. As of December 31, 2020, the Company did not have securities from a single issuer, except for the United States government or its agencies, that exceeded 10 percent of consolidated stockholders’ equity. At December 31, 2020, the collateralized loan obligations owned by the Company were rated AAA or AA.

As of December 31, 2020, approximately 53 percent of the available for sale investment securities portfolio consisted of government agency guaranteed collateralized mortgage obligations and mortgage-backed securities. In the current interest rate environment, those securities provide relatively good yields, have little to no credit risk, and provide fairly consistent cash flows. All collateralized mortgage obligations and mortgage-backed securities consist of residential mortgage pass-through securities and real estate mortgage investment conduits guaranteed by the Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), or Government National Mortgage Association (GNMA), and commercial mortgage pass-through securities guaranteed by the SBA. The debt obligations were all within the credit ratings acceptable under West Bank’s investment policy.


45

(dollars in thousands, except per share amounts)


LOAN PORTFOLIO

Types of Loans

The following table sets forth the composition of the Company’s loan portfolio by segment as of the dates indicated.
  As of December 31
  2020 2019 2018 2017 2016
Commercial $ 603,599  $ 431,044  $ 358,763  $ 347,482  $ 334,014 
Real estate:        
Construction, land and land development 236,093  264,193  245,810  207,451  205,610 
1-4 family residential first mortgages 58,912  54,475  49,052  51,044  47,184 
Home equity 9,444  12,380  14,469  13,811  18,057 
Commercial 1,373,007  1,175,024  1,050,025  886,114  788,000 
Consumer and other 5,694  6,787  6,211  6,363  8,355 
Total loans 2,286,749  1,943,903  1,724,330  1,512,265  1,401,220 
Deferred loan fees, net (6,174) (2,240) (2,500) (1,765) (1,350)
Total loans, net of deferred fees $ 2,280,575  $ 1,941,663  $ 1,721,830  $ 1,510,500  $ 1,399,870 

As of December 31, 2020, total loans were approximately 84 percent of total deposits and 72 percent of total assets. As of December 31, 2020, the majority of all loans were originated directly by West Bank to borrowers within West Bank’s principal market areas.  

Loans outstanding at the end of 2020 increased 17.5 percent compared to the end of 2019. Changes in the loan portfolio during 2020 included an increase of $197,983 in commercial real estate loans and a decrease of $28,100 in construction, land and land development loans. Commercial loans, excluding PPP loans, declined $8,202. As of December 31, 2020, PPP loans outstanding totaled $180,757, all of which were included in commercial loans. The Company continues to focus on business development efforts in all of its operating markets. We anticipate that loan growth may slow down in 2021 as a result of the duration of the COVID-19 pandemic and the related economic uncertainties.

For a description of the loan segments, see Note 4 to the consolidated financial statements included in Item 8 of this Form 10-K. The interest rates charged on loans vary with the degree of risk and the amount and terms of the loan. Competitive pressures, the creditworthiness of the borrower, market interest rates, the availability of funds, and government regulations further influence the rate charged on a loan.

The Company follows a loan policy approved by West Bank’s Board of Directors. The loan policy is reviewed at least annually and is updated as considered necessary. The policy establishes lending limits, review criteria and other guidelines for loan administration and the allowance for loan losses, among other things. Loans are approved by West Bank’s Board of Directors and/or designated officers in accordance with the applicable guidelines and underwriting policies. Loans to any one borrower are limited by state banking laws. Loan officer lending authorities vary according to the individual loan officer’s experience and expertise.

Loans Secured by Real Estate

The commercial real estate market continues to be a significant source of business for West Bank. Management places a strong emphasis on monitoring the composition of the Company’s commercial real estate loan portfolio. The Company has an established lending policy which includes a number of underwriting factors to be considered in making a commercial real estate loan, including, but not limited to, location, loan-to-value ratio (LTV), cash flow, collateral and the credit history of the borrower. The lending policy also includes guidelines for real estate appraisals and evaluations, including minimum appraisal and evaluation standards.


46

(dollars in thousands, except per share amounts)


Although repayment risk exists on all loans, different factors influence repayment risk for each type of loan. The primary risks associated with commercial real estate loans are the quality of the borrower’s management and the health of the national and regional economies. Underwriting on commercial properties is primarily based on the economic viability of the project with heavy consideration given to the creditworthiness and experience of the borrower. Recognizing that debt is paid via cash flow, the projected cash flows of the project are critical in underwriting because these determine the ultimate value of the property and the ability to service debt. Therefore, in most commercial real estate projects, we generally require a minimum stabilized debt service coverage ratio of 1.20 to 1.35, depending on the real estate type. Exceptions to this policy can be made for certain borrowers that exhibit other credit quality strengths. Exceptions to the policy are monitored by management. Our strategy with respect to the management of these types of risks is to consistently follow prudent loan policies and underwriting practices.

The Company recognizes that a diversified loan portfolio contributes to reducing risk. The specific loan portfolio mix is subject to change based on loan demand, the business environment and various economic factors. The Company actively monitors concentrations within the loan portfolio to ensure appropriate diversification is maintained. In addition, management tracks the level of owner occupied commercial real estate loans versus non-owner occupied commercial real estate loans. Owner occupied commercial real estate loans are generally considered to have less risk than non-owner occupied commercial real estate loans.

In accordance with regulatory guidelines, the Company exercises heightened risk management practices when non-owner occupied commercial real estate lending exceeds 300 percent of total risk-based capital or construction, land development, and other land loans exceed 100 percent of total risk-based capital. Although the Company’s loan portfolio is heavily concentrated in real estate and its real estate portfolio levels exceed these regulatory guidelines, it has established risk management policies and procedures to regularly monitor the commercial real estate portfolio.

Commercial loans secured by real estate, including construction, land and land development, totaled $1,609,100, or 70 percent of total loans, at December 31, 2020. Non-owner occupied commercial real estate loan concentrations and the weighted average LTV by property type as of December 31, 2020 and 2019 are shown in the following table. LTV is determined using the maximum credit exposure of the loan compared to the most recent appraisal data on the property obtained in accordance with the Company’s lending policies.
As of December 31
2020 2019
Non-owner occupied commercial real estate
Balance % of CRE Portfolio Weighted Average LTV Balance % of CRE Portfolio Weighted Average LTV
Multifamily $ 313,205  24.0  % 69  % $ 272,927  23.2  % 71  %
Medical & senior care facilities 203,954  15.6  % 65  % 204,889  17.4  % 66  %
Warehouse & trucking 146,178  11.2  % 69  % 132,249  11.3  % 71  %
Hotel 164,721  12.6  % 64  % 138,898  11.8  % 69  %
Mixed use 83,681  6.4  % 74  % 62,315  5.3  % 74  %
Offices 140,299  10.8  % 72  % 130,169  11.1  % 72  %
Land for development 69,345  5.3  % 59  % 73,382  6.2  % 64  %
All other 183,106  14.1  % not available 160,305  13.7  % not available
Total $ 1,304,489  100.0  % $ 1,175,134  100.0  %


47

(dollars in thousands, except per share amounts)


The following table summarizes non-owner occupied commercial real estate loans by property type and risk rating as of December 31, 2020. Risk ratings are defined in Note 4 to the consolidated financial statements included in Item 8 of this Form 10-K.
As of December 31, 2020
  Risk Rating
  Total 1-3 4 5 6 7 8
Multifamily $ 313,205  $ 25,104  $ 220,746  $ 52,942  $ 14,413  $ —  $ — 
Medical & senior care facilities 203,954  97,861  66,170  29,710  10,213  —  — 
Warehouse & trucking 146,178  57,754  83,759  4,665  —  —  — 
Hotel 164,721  —  85,291  79,430  —  —  — 
Mixed use 83,681  8,143  10,407  65,131  —  —  — 
Offices 140,299  13,459  111,764  15,076  —  —  — 
Land for development 69,345  809  63,281  5,197  58  —  — 
All other 183,106  29,920  148,168  5,018  —  —  — 
Total $ 1,304,489  $ 233,050  $ 789,586  $ 257,169  $ 24,684  $ —  $ — 

As of December 31, 2020, there were no non-owner occupied commercial real estate loans that were past due 30 days or more.

Maturities of Loans

The contractual maturities of the Company’s loan portfolio are shown in the following tables. Actual repayments may differ from contractual maturities because individual borrowers may have the right to prepay loans with or without prepayment penalties.
Loans as of December 31, 2020 Within one
year
After one but
within five
years
After five
years
Total
Commercial $ 129,891  $ 400,114  $ 73,594  $ 603,599 
Real estate:  
Construction, land and land development 140,441  87,555  8,097  236,093 
1-4 family residential first mortgages 7,182  49,347  2,383  58,912 
Home equity 3,077  6,367  —  9,444 
Commercial 85,881  751,701  535,425  1,373,007 
Consumer and other 3,358  2,336  —  5,694 
Total loans $ 369,830  $ 1,297,420  $ 619,499  $ 2,286,749 
         
  After one but
within five
years
After five
years
 
Loan maturities after one year with:      
Fixed rates $ 1,139,267  $ 338,811   
Variable rates 158,153  280,688   
  $ 1,297,420  $ 619,499   
48

(dollars in thousands, except per share amounts)