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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
West Bancorporation, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
WEST BANCORPORATION, INC.
NOTICE OF ANNUAL MEETING
TO BE HELD APRIL 12, 2005
To the Shareholders of West Bancorporation, Inc.:
The Annual Meeting of the shareholders of West Bancorporation, Inc. will be held
in the board room at the headquarters of the Company, located at 1601 22nd
Street, West Des Moines, Iowa, on Tuesday, April 12, 2005, at 4:30 p.m., to
consider and vote on:
1. The election of nine Directors to serve on the Board of Directors of
West Bancorporation, Inc. until the next Annual Meeting and until
their successors are elected and have qualified;
2. Approval of the West Bancorporation, Inc. Restricted Stock
Compensation Plan; and
3. Such other business as may properly come before the Annual Meeting
or any adjournment thereof.
February 7, 2005 has been fixed as the record date for determination of
shareholders entitled to notice of and to vote at the Annual Meeting and at any
and all adjournments thereof. A list of such shareholders will be maintained at
the offices of West Bancorporation, Inc., at 1601 22nd Street, West Des Moines,
Iowa, during the ten-day period preceding the Annual Meeting.
TO ENSURE YOUR REPRESENTATION AT THE MEETING, THE BOARD OF DIRECTORS REQUESTS
THAT YOU MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. A
SELF-ADDRESSED, POSTAGE-PAID RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
WE HOPE YOU WILL BE ABLE TO ATTEND THE MEETING IN PERSON.
For the Board of Directors
/s/ Thomas E. Stanberry
Chairman, President and Chief Executive Officer
March 10, 2005
WEST BANCORPORATION, INC.
1601 22nd Street
West Des Moines, IA 50266
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 12, 2005
This proxy statement is furnished to shareholders of West Bancorporation, Inc.,
an Iowa corporation, (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the Annual Meeting
of Shareholders to be held on Tuesday, April 12, 2005, at 4:30 o'clock p.m.,
local time, in the board room at the headquarters of the Company at 1601 22nd
Street, West Des Moines, Iowa, and at any adjournment or postponement thereof
(the "Meeting"). A copy of our 2004 summary annual report to shareholders and
appendix to the proxy statement, including financial statements accompanies this
proxy statement.
This proxy statement, form of proxy and other accompanying materials are first
being mailed to shareholders on or about March 10, 2005. Only shareholders of
record at the close of business on February 7, 2005, are entitled to notice of
and to vote at the Meeting. There were 16,701,843 shares of the Company's common
stock (the "common stock") outstanding at the close of business on that date,
all of which will be entitled to vote at the Meeting. The presence, in person or
by proxy, of the holders of a majority of such outstanding shares is necessary
to constitute a quorum for the transaction of business at the Meeting. Holders
of the shares of common stock are entitled to one vote per share standing in
their names on the record date on all matters to properly come before the
Meeting. If the holder of shares abstains from voting on any matter, or if
shares are held by a broker which has indicated that it does not have
discretionary authority to vote on a particular matter, those shares will be
considered to be present for the purpose of determining whether a quorum is
present, but will not be counted as votes cast with respect to any matter to
come before the Meeting and will not affect the outcome of any matter.
Holders of common stock through the Company's Employee Savings and Stock
Ownership Plan ("the Plan") can direct the Trustee of the Plan how to vote the
number of shares held in the Plan as of the record date for any matter put to
the vote of shareholders. If a Plan participant does not direct the Trustee on
how to vote, then the Trustee shall vote those shares in the same proportion as
those shares for which the Trustee received proper direction to vote for such
matter.
If the accompanying proxy is properly signed and returned and is not withdrawn
or revoked, the shares represented thereby will be voted in accordance with the
instructions indicated thereon. If the manner of voting such shares is not
indicated on the proxy, the shares will be voted FOR the election of the
nominees for directors named herein and FOR approval of the West Bancorporation,
Inc. Restricted Stock Compensation Plan. Election of any nominee for director
and approval of the West Bancorporation, Inc. Restricted Stock Compensation Plan
will require the affirmative vote of a majority of those shares voting at the
Meeting in person or by proxy.
The Company will bear the cost of solicitation of proxies. In addition to the
use of the mails, proxies may be solicited by officers, directors and regular
employees of the Company, without extra compensation, by telephone, e-mail,
facsimile or personal contact. It will greatly assist the Company in limiting
expense in connection with the Meeting if any shareholder who does not expect to
attend the Meeting in person will return a signed proxy promptly.
A shareholder may revoke his or her proxy at any time prior to the exercise
thereof by filing with the Secretary of the Company at the Company's principal
office at 1601 22nd Street, West Des Moines, Iowa 50266, Attn: Secretary, either
a written revocation of the proxy or a duly executed proxy bearing a later date.
A shareholder may also withdraw the Proxy by attending the Meeting and voting in
person. Attendance at the Meeting without voting in person will not serve as the
revocation of a proxy.
1
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of nine members. One
director, David R. Milligan has informed the Company's Nominating and Governance
Committee of the Board of Directors of his intention not to stand for
re-election. Mr. Milligan did not cite any disagreement with the Company in
announcing his intention not to stand for re-election. A long-time director of
the Company's subsidiary, West Bank, George D. Milligan (no relation to David R.
Milligan) has been nominated by the Nominating and Governance Committee as his
replacement. The term for the persons elected as directors is until the next
Annual Meeting of Shareholders and until their successors are duly elected and
qualified or until their earlier resignation, removal from office, death or
incapacitation.
The By-laws of the Company provide that the number of directors of the Company
shall not be less than five and not greater than 15. The Board has currently set
the size for 2005 at nine members. The Board of Directors has decided the number
of nine members is sufficient to conduct the business of the Company. The
proxies cannot be voted for a greater number of persons than the number of
nominees named herein.
The Board of Directors recommends a vote FOR the nominees listed in the table on
the next page.
Proxies in the accompanying form will be voted FOR the election of these
individuals, unless contrary instructions are given thereon. If any nominee or
nominees shall become unavailable for election, it is intended that the proxies
will be voted for the election of the substitute nominees as the Board of
Directors may propose. Any shareholder has the option to withhold authority to
vote for all nominees for directors, or to withhold authority to vote for
individual nominees for directors. The effect on the election of directors of
casting votes against nominees or of withholding authority to vote for nominees
is that the shareholder is considered present at the meeting and considered for
meeting quorum requirements, but the vote is not a vote in favor of the nominee
for purposes of determining whether the nominee has received the favorable vote
of a majority of shares present at the meeting needed for the election.
Information concerning the nominees for election, including their age, year
first elected a director and business experience of each during the previous
five years as of February 7, 2005, is set forth in the following table. Each of
the nominees is currently serving as a director of the Company except George D.
Milligan and all nominees, except Mr. Crowley, also serve as a director of West
Bank ("Bank"). Of the nominees, only Mr. Stanberry is currently serving as a
director of WB Capital Management Inc.
2
NOMINEES
Has Served
Name as a Director Position with Company and its
(Age) Since Subsidiaries and/or Principal Occupation
------------------- ------------- --------------------------------------------------
Frank W. Berlin 1995 President, Frank W. Berlin & Associates,
(Age 59) West Des Moines, Iowa
Steven G. Chapman 1994 President and Chief Executive Officer,
(Age 53) ITAGroup, Inc., West Des Moines, Iowa
Michael A. Coppola 1996 President, Coppola Enterprises, Inc.,
(Age 48) Des Moines, Iowa
Orville E. Crowley 1984 President and Chief Operating Officer,
(Age 78) Linden Lane Farms Company, Cumming, Iowa
George D. Milligan President, The Graham Group, Inc.
(Age 48)
Robert G. Pulver 1984 Chairman, President and CEO,
(Age 57) All State Industries, Inc., West Des Moines, Iowa
Thomas E. Stanberry 2003 Chairman, President and Chief Executive
(Age 50) Officer of the Company
Chairman and Chief Executive Officer of the Bank
Chairman of WB Capital Management Inc.
Jack G. Wahlig 2001 President, Integrus Financial, L.C.,
(Age 72) West Des Moines, Iowa
Connie Wimer 1985 Owner/Publisher, Business Publications Corporation
(Age 72) Des Moines, Iowa
In addition to the positions listed above, the nominees were employed in the
following capacities during the past five years. Prior to 2003, Mr. Stanberry
served in a variety of capacities with U.S. Bancorp Piper Jaffray, most recently
as Managing Director. Connie Wimer served as President of Iowa Title Company
until her retirement in November 2001.
With the exception of George D. Milligan, who is a director of United Fire &
Casualty Company, none of the other above nominees hold a directorship in any
other company with a class of securities registered pursuant to Section 12 or
subject to Section 15(d) of the Securities Exchange Act or registered as an
investment company under the Investment Company Act of 1940.
3
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During 2004, and until the Annual Shareholders' Meeting on April 12, 2005, the
Board of Directors was and will be comprised of nine (9) members. Pursuant to
NASD Rule 4200(a)(15), the Board has made an affirmative determination that the
following members of the Board of Directors and the nominee are "independent"
within the meaning of such rule: Frank W. Berlin, Steven G. Chapman, Michael A.
Coppola, Orville E. Crowley, George D. Milligan, Robert G. Pulver, Jack G.
Wahlig and Connie Wimer. The Board of Directors does not consider the
relationship between the Company and Michael A. Coppola (as further described
hereinafter under the heading "Loans to Directors and Officers and Other
Transactions with Directors and Officers") to be material to either party, and
therefore considers Mr. Coppola to be an independent director of the Company. As
such, and pursuant to NASD Rule 4350(c)(1), a majority of the members of the
Board of Directors and all of the members of the Audit Committee are
"independent" as so defined. Subsequent to the annual meeting, the Board will be
comprised of nine (9) members, the majority of which shall be "independent."
Both West Bank and WB Capital Management Inc. are "controlled companies" within
the meaning of NASD Rule 4350(c)(5) and are therefore exempt from the
requirements of NASD Rule 4350(c). The Board of Directors holds regular
quarterly meetings and held four such meetings during 2004. The Board of
Directors also held three special meetings during 2004. It is a requirement of
the Board that each member of the Board of Directors attend at least 75% of the
scheduled meetings and, during 2004, each of the directors of the Company
attended at least 75% of all meetings of the Board of Directors and meetings of
committees to which such director was appointed. All of the members of the Board
of Directors attended last year's Annual Shareholders' Meeting, except Mr.
Pulver.
The Board of Directors has established the Audit Committee, the Compensation
Committee and the Nominating and Corporate Governance Committee as standing
committees of the Board of Directors. Additional information concerning each of
the committees and the directors serving on them are described below.
The Audit Committee consists of Jack G. Wahlig, as Chairperson, Michael A.
Coppola and Connie Wimer, all of whom are independent directors under criteria
established by the Securities and Exchange Commission and NASDAQ. Based on the
attributes, education and experience requirements required by NASD Rule
4350(d)(2)(A), the requirements set forth in Section 407 of the Sarbanes-Oxley
Act of 2002 and associated regulations, the Board of Directors has identified
Jack G. Wahlig as an "Audit Committee Financial Expert" as defined under Item
401(h) of Regulation S-K, and has determined him to be "independent." The Audit
Committee recommends independent auditors to the board, reviews with the
independent auditors the plan, scope and results of the auditors' services,
approves their fees and reviews the Company's financial reporting and internal
control functions. The Audit Committee also performs the duties set forth in its
written charter which has been adopted by the Board of Directors. A copy of the
charter was filed with the 2004 Proxy Statement. The committee is also prepared
to meet privately at any time at the request of the independent registered
public accountants or members of management to review any special situation
arising on any of the above subjects. Reference is made to the "Report of the
Audit Committee". The Audit Committee met five times during 2004. None of the
Audit Committee members serve on any other audit committee of a listed company.
The Compensation Committee consists of Connie Wimer, as Chairperson, Frank W.
Berlin, Orville E. Crowley and Robert G. Pulver, all of whom are independent
directors under criteria established by the Securities and Exchange Commission
and NASDAQ. The Compensation Committee reviews the Company's compensation and
benefit policies, including the individual salaries of the executive officers
and makes recommendations to the Board of Directors as to the salary of the
Chief Executive Officer. The Compensation Committee also performs the duties set
forth in its written charter which has been adopted by the Board of Directors. A
copy of the charter was filed with the 2004 Proxy Statement. During 2004, the
Committee was also involved in the restatement of the Employee Savings and Stock
Ownership Plan and the approval of the Restricted Stock Compensation Plan which
is presented for the approval of shareholders in Proposal 2. Reference is made
to the "Report of the Compensation Committee". The Compensation Committee met
ten times during 2004.
The Company's Nominating and Corporate Governance Committee consists of Robert
G. Pulver, as Chairperson, Frank W. Berlin and Steven G. Chapman, all of whom
are independent directors under criteria established by the Securities and
Exchange Commission and NASDAQ. During 2004, the Nominating and Corporate
Governance Committee met one time. This committee makes recommendations to the
Board of Directors regarding the composition and structure of the Board,
nominations for elections of Directors and policies and processes regarding
principles of corporate governance in order to ensure the Board's compliance
with its fiduciary duties to the Company and its shareholders. This committee
recommended to the Board the director-nominees proposed in this Proxy Statement
for election by the shareholders. It reviews the qualifications of, and
recommends to the Board, candidates to fill Board vacancies if any were to occur
during the year. The Nominating and Corporate Governance Committee also performs
the duties set forth in its written charter as revised in January 2005 and as
adopted by the Board of Directors. A copy of the charter is attached to this
Proxy Statement as Exhibit A. This Committee will consider, as part of its
nomination process, any director candidate recommended by a shareholder of the
Company who follows the procedures shown under the heading "2006 Shareholder
Proposals". The Nominating and Corporate Governance Committee (the "Committee")
follows the processes below when identifying and evaluating nominees to the
Company's board of directors:
4
Procedures for identifying candidates:
a) Review current directors of the Company.
b) Review current directors of the Company's banking subsidiary, West
Bank.
c) Solicit input from existing directors and executive officers.
d) Review submissions from shareholders, if any.
The following criteria will be considered when evaluating nominee
candidates:
a) Composition
The Board should be composed of:
1. Directors chosen with a view to bringing to the Board a
variety of experiences and backgrounds.
2. Directors who have high level managerial experience or are
accustomed to dealing with complex problems.
3. Directors who will represent the balanced, best interests of
the shareholders as a whole rather than special interest
groups or constituencies, while also taking into consideration
the overall composition and needs of the Board.
4. A majority of the Board's directors shall be independent
directors under the criteria for independence required by the
SEC and NASDAQ.
b) Selection Criteria
In considering possible candidates for election as an outside
director, the Committee and other directors should be guided by the
foregoing general guidelines and by the following criteria:
1. Each director should be an individual of the highest character
and integrity, have experience at or demonstrated
understanding of strategy/policy-setting and a reputation for
working constructively with others.
2. Each director should have sufficient time available to devote
to the affairs of the Company in order to carry out the
responsibilities of a director.
3. Each director should be free of any conflict of interest which
would interfere with the proper performance of the
responsibilities of a director.
4. The Chief Executive is expected to be a director. Other
members of senior management may be considered, but Board
membership is not necessary or a prerequisite to a higher
management position.
During 2004, directors of the Company received an annual retainer of $2,400 plus
$400 per meeting (board and committee) with the exception of the Audit Committee
which received $500 per meeting. If the Audit Committee meeting is on the same
day as a regular board meeting, the fee paid directors attending the Audit
Committee and attending the board meeting would be a total of $500. Directors of
the Company who also served as directors of the Bank received fees during 2004
of $350 for each meeting attended (ten meetings held) plus $2,400 per year, $400
for loan committee meetings attended and $300 for other committee meetings
attended. Directors who are also officers of the Company do not receive
director's fees.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND EXECUTIVE OFFICERS
The following table sets forth the shares of Common Stock of the Company (the
"Common Stock") beneficially owned as of February 7, 2005, by each director of
the Company, each executive officer listed in the Summary Compensation Table and
by all directors and executive officers (including the named executive officers)
as a group.
5
Shares Beneficially Percent of Total
Name Owned (1) (2) Shares Outstanding
-------------------------------- ------------------- ------------------
Frank W. Berlin 44,625 *
Steven G. Chapman 15,750 *
Michael A. Coppola 24,846 *
Orville E. Crowley (3) 126,913 *
David R. Milligan 25,750 *
George D. Milligan - *
Robert G. Pulver (4) 69,379 *
Thomas E. Stanberry (5) 10,457 *
Jack G. Wahlig - *
Connie Wimer 29,190 *
Joyce A. Chapman 63,246 *
Scott D. Eltjes 664 *
Douglas R. Gulling 2,471 *
Sharen K. Surber 29,151 *
Brad L. Winterbottom 8,027 *
Executive officers and directors
as a group (15 persons) 450,469 2.70%
*Indicates less than 1% ownership of outstanding shares.
(1) Shares "beneficially owned" include shares owned by or for, among others,
the spouse and/or minor children of the named individual and any other
relative who has the same home as such individual, as well as other shares
with respect to which the named individual has or shares voting or
investment power. Beneficial ownership may be disclaimed as to certain of
the shares.
(2) Except as otherwise indicated in the following notes, each named
individual owns his or her shares directly, or indirectly through a
self-directed IRA or the Company's profit sharing plan, and has sole
investment and voting power with respect to such shares.
(3) Mr. Crowley disclaims any beneficial ownership of 283,500 shares held in
his spouse's name.
(4) Mr. Pulver disclaims any beneficial ownership of 6,300 shares held in his
spouse's name.
(5) Mr. Stanberry disclaims any beneficial ownership of 450 shares held in his
spouse's name.
OTHER BENEFICIAL OWNERS
The following table sets forth certain information on each person who is known
to the Company to be the beneficial owner as of February 7, 2005, of more than
five percent of the Common Stock.
Shares Beneficially Percent of Total
Name and Address Owned Shares Outstanding
---------------------- ------------------- ------------------
The Jay Newlin Trust 992,336 5.94%
6165 NW 86th St., #114
Johnston, IA 50131
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's
directors and executive officers and persons who own more than 10 percent of the
Company's Common Stock file initial reports of ownership and reports of changes
of ownership with the Securities and Exchange Commission and NASDAQ. Reporting
persons are required by the SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on its review of the copies
of such forms received or written representations that no other reports were
required, the Company believes that all of the Section 16(a) reports applicable
to its directors and officers during 2004 were filed, with the exception of
Thomas E. Stanberry, who filed one late report reporting one transaction and
Michael A. Coppola, who filed one late report reporting one transaction.
6
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned or paid to the seven most
highly compensated executive officers, including Scott D. Eltjes who became an
executive officer in January 2005, for services rendered in the fiscal years
ended December 31, 2004, 2003 and 2002. All compensation was paid by the Bank
for services rendered as executive officers of the Bank, except Thomas E.
Stanberry, who was compensated by the Company and Scott D. Eltjes, who was
compensated by WB Capital Management Inc. No compensation was paid by the
Company to any of the other named executive officers. Bonus amounts are shown in
the year accrued.
SUMMARY COMPENSATION TABLE
Name
and Current Base All Other
Position Year Salary Bonus (1) Compensation (2)
----------- ---- -------- -------- ----------------
Thomas E. Stanberry, Chairman, President and 2004 $200,000 $224,346 $15,690
Chief Executive Officer of the Company, Chairman 2003 166,667 136,666 85,336
and Chief Executive Officer of the Bank and 2002 - - -
Chairman of WB Capital Management Inc.
David R. Milligan, Director of the Company, 2004 $179,000 $ 39,380 $19,185
Vice Chairman of the Bank (3) 2003 174,000 35,780 18,059
2002 167,000 26,140 16,886
Brad L. Winterbottom, Director and President 2004 $173,000 $ 38,060 $17,737
of the Bank and Director of 2003 168,000 34,610 17,019
WB Capital Management Inc. 2002 163,000 19,860 19,509
Douglas R. Gulling, Executive Vice President and 2004 $155,000 $ 39,450 $16,085
Chief Financial Officer of the Company, Chief Financial 2003 125,000 27,500 12,708
Officer of the Bank and Director and Treasurer 2002 92,500 31,850 54
of WB Capital Management Inc.
Scott D. Eltjes, Director and Head of WB Capital 2004 $150,000 $ 0 $15,690
Management Inc. 2003 38,077 0 3,808
2002 0 0 0
Joyce A. Chapman, Vice President and Treasurer 2004 $107,000 $ 23,540 $11,775
of the Company, Executive Vice President and 2003 102,000 21,340 10,476
Director of the Bank and Director of WB Capital 2002 99,000 12,680 10,161
Management Inc.
Sharen K. Surber, Executive Vice President 2004 $107,000 $ 23,540 $11,775
of the Bank 2003 104,000 21,780 10,687
2002 101,000 13,220 10,371
(1) Includes a holiday bonus equal to two percent of annual salary which is
paid to all officers and employees of the Bank and the Company.
(2) Consists entirely of contributions made by the Company on behalf of the
named executive officer to the Company's Employee Savings and Stock
Ownership Plan except for the following amounts for 2004, 2003 and 2002,
respectively, which represent premiums on group term life insurance
coverage: Stanberry - $690, $61 and $0; Milligan - $1,285, $640 and $604;
Winterbottom - $437, $212 and $203; Gulling - $585, $207 and $54; Eltjes -
$189, $18 and $0; Chapman - $1,075, $268, $253; and Surber $1,075, $279
and $263; and relocation expense reimbursements of $85,285 in 2003 for
Stanberry.
(3) Mr. Milligan served as Executive Vice President of the Company and as
Chairman and Chief Executive Officer of the Bank throughout 2004. His
retirement from those positions became effective on January 1, 2005. He
continues to work for the Bank on a part-time basis.
7
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors reviews the Company's
compensation and benefit policies, including the individual salaries of the
executive officers, and submits recommendations to the Board of Directors.
Executive Officer Compensation
The Compensation Committee has established a compensation program consisting of
an annual base salary and the opportunity to earn incentive compensation. The
base salaries are intended to be competitive and consistent with amounts paid to
executives performing similar functions in comparable companies. The incentive
compensation is contingent upon the attainment of targeted net income and
personal performance objectives established early in the year.
Chief Executive Officer Compensation
The compensation arrangement for Mr. Thomas E. Stanberry was comprised of a base
salary of $200,000 plus a bonus. A bonus of $220,346 was accrued in 2004 and has
been paid to him in 2005. The bonus was determined based upon the attainment of
certain financial performance goals as determined by the Compensation Committee.
In 2005, Mr. Stanberry's bonus will also be based upon the attainment of certain
financial performance goals.
The Compensation Committee of the Company believes the Chief Executive Officer
and other executive officers of the Company and the Bank receive appropriate
compensation for their responsibilities and the resulting financial performance
of the Company.
During 2004, the Compensation Committee approved amendments to the Company's
Employee Savings and Stock Ownership Plan to add a stock ownership feature. Said
Plan was approved by the Board of Directors in 2004. The Committee also
recommended the proposal to approve the West Bancorporation, Inc. Restricted
Stock Compensation Plan.
The undersigned members of the Compensation Committee have submitted this
report.
Connie Wimer, Chair
Frank W. Berlin
Orville E. Crowley
Robert G. Pulver
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are set forth in the preceding
section. There are no members of the Compensation Committee who were officers or
employees of the Company, West Bank or WB Capital Management Inc. during the
fiscal year, who were previously officers or employees of the Company, West Bank
or WB Capital Management Inc., or had any relationship otherwise requiring
disclosure hereunder.
EMPLOYMENT CONTRACTS
The executive officers named in the Summary Compensation Table, with the
exception of Mr. Stanberry and Mr. Eltjes, have entered into employment
contracts with the Bank. The provisions are similar for each executive, except
for salary which is shown in the table above, and call for compensation in the
event of a change in control of up to two year's salary, compensation in certain
cases of termination by the Company and by the executive, and an agreement by
the executive not to compete against the Company during the term of the
executive's employment and for a period of one year after termination of the
agreement, in the event of voluntary termination by the employee. The term of
the individual contracts ranges from one to three years.
8
EMPLOYMENT AGREEMENTS
Mr. Stanberry's employment arrangement is covered under an employment agreement
with the Company whereby, in exchange for his service, he receives an initial
base salary of $200,000 per year, with an annual review by the Board. In
addition, under the agreement, Mr. Stanberry is eligible to receive an annual
incentive payment, with the amount and criteria to be determined at the
discretion of the Board, and is eligible to participate in the Company's
employee benefit plans and will receive reimbursement for club memberships. The
annual incentive payment for 2004 was $220,346. The agreement is for a
three-year period and is renewable on an annual basis for a three-year period.
The agreement calls for compensation in the event of a change in control equal
to three times the base salary plus the most recent annual incentive payment,
compensation in certain cases of termination by the Company and by Mr.
Stanberry, and an agreement by Mr. Stanberry not to compete against the Company
during the term of his employment and for a period of one year after termination
of the agreement, in the event of voluntary termination by the employee.
Mr. Eltjes entered into an employment agreement with WB Capital Management Inc.
The agreement is for a term through September 30, 2008 with compensation of
$150,000 per year. Subsequent to September 30, 2008, the agreement will
automatically renew for additional terms of one year. The agreement includes a
covenant not to compete. In the event of termination due to a change in control,
the agreement requires payment of his salary for the remaining term of the
agreement.
EMPLOYEE BENEFIT PLANS
The Company sponsors an employee savings and stock ownership plan with a 401(k)
feature covering substantially all of its employees. The plan was originally
established as a profit sharing plan effective January 1, 1965. It was amended
to add 401(k) provisions as of April 15, 2000 and was restated during 2004 to
include a stock ownership plan. The plan allows for employee contributions that
are employer matched up to certain levels. The plan provides for profit sharing
contributions as the Board of Directors determines annually.
LOANS TO DIRECTORS AND OFFICERS AND OTHER TRANSACTIONS WITH DIRECTORS AND
OFFICERS
Certain directors and executive officers of the Company, their associates or
members of their families, were customers of, and have had transactions with,
the Bank from time to time in the ordinary course of business, and additional
transactions may be expected to take place in the ordinary course of business in
the future. All loans and commitments included in such transactions have been
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons.
In the opinion of management of the Company, such loan transactions do not
involve more than the normal risk of collectability or present other unfavorable
features.
The Bank leases two branch facilities from a company that is 33 1/3% owned by
Mr. Coppola. Mr. Coppola also serves as the president of the lessor. Annual
lease payments on those two branch facilities totaled approximately $155,000 for
2004. One lease, which was renewed in 2004, expires in 2009 and the other
expires in 2018. Both leases contain options to renew for up to 20 and 25
additional years, respectively. Terms of the original leases were consummated
prior to Mr. Coppola being named a director in 1996.
Said transactions referred to in the two immediately preceding paragraphs are
hereby disclosed under Regulation S-K, Item 404. To that end, and pursuant to
NASD Rule 4350(h), the Audit Committee has conducted an appropriate review of
these transactions for conflict of interest situations and has approved or
ratified same.
9
STOCK PRICE PERFORMANCE GRAPH
The following performance graph provides information regarding cumulative,
five-year return on an indexed basis of the Common Stock as compared with the
NASDAQ - Total US Index and the SNL Midwest Bank Index prepared by SNL Financial
L.C. of Charlottesville, Virginia. The latter index reflects the performance of
bank holding companies operating principally in the Midwest as selected by SNL
Financial. The indexes assume the investment of $100 on December 31, 1999 in the
Common Stock, the NASDAQ - Total US Index and the SNL Midwest Bank Index, with
all dividends reinvested. The Company's stock price performance shown in the
following graph is not indicative of future stock price performance.
WEST BANCORPORATION, INC.
[TOTAL RETURN PERFORMANCE GRAPH]
PERIOD ENDING
---------------------------------------------------------------
INDEX 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04
West Bancorporation, Inc. 100.00 88.29 99.02 133.04 157.20 174.76
NASDAQ - Total US 100.00 60.82 48.16 33.11 49.93 54.49
SNL Midwest Bank Index 100.00 121.10 123.76 119.39 152.82 172.44
*Source: SNL Financial LC, Charlottesville, VA. Used with permission. All rights
reserved.
REPORT OF THE AUDIT COMMITTEE
The incorporation by reference of this Proxy Statement into any document filed
with the Securities and Exchange Commission by West Bancorporation, Inc. shall
not be deemed to include the following report unless such report is specifically
stated to be incorporated by reference into such document.
The Audit Committee of the Board of Directors hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited financial
statements for the year ended December 31, 2004 (the "Audited
Financial Statements") with the Company's management.
10
2. The Audit Committee has discussed with McGladrey & Pullen, LLP, the
Company's independent registered public accounting firm, the matters
required to be discussed by Statement on Auditing Standards No. 61
and No. 90 (Communication with Audit Committees), as in effect on
the date of this Proxy Statement.
3. The Audit Committee has received the written disclosures and the
letter from McGladrey & Pullen, LLP required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), as in effect on the date of this Proxy Statement, and
has discussed with McGladrey & Pullen, LLP its independence.
4. Based on the review and discussion referred to in paragraphs (1)
through (3) above, the Audit Committee recommended to the Board of
Directors of the Company, and the Board has approved, that the
Audited Financial Statements be included in West Bancorporation,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
2004, for filing with the Securities and Exchange Commission.
5. The Board has approved the Audit Committee Charter, as filed with
the 2004 Proxy Statement.
6. The Audit Committee has approved or ratified all related party
transactions between directors and the Company.
The undersigned members of the Audit Committee have submitted this report.
Jack G. Wahlig, Chair
Michael A. Coppola
Connie Wimer
REPORT OF THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee ("Nominating Committee")
evaluated the current board membership and concluded all were capable and were
effectively carrying out the responsibilities expected of them as directors of
West Bancorporation, Inc. The Nominating Committee then contacted all directors
to determine their personal desire to stand for re-election. In doing so, Mr.
David R. Milligan indicated it was his desire to retire from the Board at the
completion of his term. Mr. Milligan did not cite any disagreement with the
Company in announcing his intention not to stand for re-election. The Nominating
Committee concluded that the remaining members of the current board would be
nominated for election to the Board of Directors of West Bancorporation, Inc. at
the annual shareholders' meeting on April 12, 2005. The Nominating Committee
directors, who are all non-management independent directors, recommended one
additional nominee, Mr. George D. Milligan (no relation to Mr. David R.
Milligan) for the Board and determined that the composition and size of the
Board at nine members is sufficient.
The undersigned members of the Nominating and Corporate Governance Committee
have submitted this report.
Robert G. Pulver, Chair
Frank W. Berlin
Steven G. Chapman
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRM
The Board of Directors of the Company, at the recommendation of the Audit
Committee, has approved McGladrey & Pullen, LLP, an independent registered
public accounting firm, as the principal accountant for the Company. McGladrey &
Pullen, LLP, will conduct the audit examination of the Company and its
subsidiaries for 2005. McGladrey & Pullen, LLP was also the principal accountant
and performed the audit in 2004.
A representative from McGladrey & Pullen, LLP is expected to be present at the
Annual Meeting of shareholders. He will have the opportunity to make a statement
if he desires to do so and is expected to be available to respond to appropriate
questions from shareholders.
11
AUDIT FEES
The following table presents fees for professional audit services rendered by
McGladrey & Pullen, LLP for the audit of the Company's annual financial
statements for the fiscal years ended December 31, 2004 and 2003, and fees
billed for other services rendered by McGladrey & Pullen, LLP and its associated
entity RSM McGladrey, Inc.:
2004 2003
-------- -------
Audit fees (1) $151,915 $74,700
Audit related fees (2) 19,564 5,910
Tax fees (3) 10,730 13,235
All other fees (4) - 4,215
-------- -------
Total $182,209 $98,060
======== =======
(1) Audit Fees represent fees for professional services provided for the audit
of the Company's annual financial statements, review of the Company's
quarterly financial statements in connection with the filing of current
and periodic reports and reporting on internal controls in accordance with
Section 404 of Sarbanes Oxley.
(2) Audit-Related Fees represent an audit of the Company's profit sharing plan
in 2004 and consultations in connection with acquisitions in 2003.
(3) Tax Fees represent fees for professional services related to tax
compliance, which included preparation of tax returns and tax advice
regarding acquisitions.
(4) All other fees represent services provided for the edgarization of
periodic reports.
Independence:
The Audit Committee has considered whether the non-audit services provided by
McGladrey & Pullen, LLP and its associated entity RSM McGladrey, Inc. to West
Bancorporation, Inc. are compatible with maintaining the independence of
McGladrey & Pullen, LLP and concluded that the independence of McGladrey &
Pullen, LLP is not compromised by the provision of such services.
The Audit Committee pre-approves all auditing services and permitted non-audit
services, including the fees and terms of those services, to be performed for
the Company by its independent registered public accounting firm prior to
engagement.
PROPOSAL 2
PROPOSAL TO APPROVE WEST BANCORPORATION, INC. RESTRICTED STOCK
COMPENSATION PLAN
The Board of Directors recommends that shareholders vote FOR approval of the
Company's Restricted Stock Compensation Plan (the Plan). The Plan was adopted by
the Board of Directors on February 9, 2005, subject to the approval of
shareholders. If the shareholders approve the Plan, it will become effective as
of March 1, 2005. If shareholders do not approve the Plan, the Plan will have no
effect.
The purpose of the Plan is to attract and retain able individuals by rewarding
directors and employees of West Bancorporation, Inc., and its subsidiaries and
to align the interests of directors and employees with those of the shareholders
of the Company. The Plan provides Awards to be made under the Plan until March
1, 2015 with a maximum of 300,000 shares to be issued as Awards.
The following is a summary of the material terms and provisions of the
Restricted Stock Compensation Plan. This summary is qualified in its entirety by
reference to the complete text of the Plan, which is attached hereto as Exhibit
B. To the extent that there is a conflict between this summary and the
Restricted Stock Compensation Plan, the terms of the Plan will govern.
DESCRIPTION OF THE RESTRICTED STOCK COMPENSATION PLAN
PLAN ADMINISTRATION. The Restricted Stock Compensation Plan will be administered
by the Compensation Committee (the "Committee") of the Company's Board of
Directors. The Committee will have the authority to manage and control the
operations and administration of the Plan including (1) selecting Participants
to whom Awards will be made, (2) determining the number of shares of Restricted
Stock to be awarded to a Participant, (3) determining the length of the
restricted period, (4) determining the purchase price, if any, to be paid by the
Participants for Restricted Stock, (5) determining whether to designate if an
Award is intended to be "performance-based compensation" as that term is used in
Section 162(m) of the Internal Revenue Code, (6) determining if any adjustment
is required to outstanding Awards due to a stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase of securities of the Company, or other similar corporate transaction,
(7) interpreting, amending or rescinding any rules and regulations relating to
the Plan, and (8) delegate all or any portion of its responsibilities and powers
to any person or persons selected by it.
ELIGIBILITY. Only persons who are directors or employees of the Company shall be
eligible to receive grants of Restricted Stock and become Participants under the
Plan. The Committee in its discretion will determine those directors or
employees of the Company who are eligible to participate in the Plan. As of
December 31, 2004, the Company and its subsidiaries had approximately 150
employees.
12
AWARDS. Awards under the Plan will be in the form of grants of shares of common
stock of the Company subject to certain restrictions ("Restricted Stock"). The
maximum number of shares the Company may purchase in the open market for
delivery to Participants will be 300,000 shares. Any forfeiture prior to vesting
shall again be available for Awards under the Plan. The number of common shares
available for Awards to any single Participant over the duration of the Plan
shall not exceed 40 percent of the total number of shares available under the
Plan (120,000 shares).
No common stock awarded under the Plan may be transferred, sold, exchanged,
pledged or otherwise disposed of by a Participant during the Restricted Period,
other than by the Participant's last will and testament, by the applicable laws
of descent and distribution, or as otherwise determined by the Committee.
Each outstanding Award shall become immediately vested following the date of a
"Change in Control". Shares of Restricted Stock will be forfeited in the event a
Participant is terminated by voluntary resignation or the Participant is
terminated for cause. A Participant who dies during any Restricted Period, shall
fully vest in such shares of Restricted Stock, effective as of the date of
death. In the event of a Participant's retirement from the Company, the
treatment of the Award shall be determined by the Committee.
AMENDMENT AND TERMINATION. The Plan may be amended or terminated by the
Committee at any time, provided that no action shall be taken by the Board of
Directors or the Committee without approval of the shareholders to the extent
shareholder approval is required.
SHAREHOLDER COMMUNICATIONS
The Company provides for a process for shareholders to send communications to
the Board of Directors. Shareholders may send communications to the Board of
Directors by contacting the Company's Chief Financial Officer in one of the
following ways:
- In writing at 1601 22nd Street, Suite 209, West Des Moines, IA
50266;
- By e-mail at dgulling@westbankiowa.com.
The Chief Financial Officer will submit each communication received to the Board
of Directors at the next regular meeting.
2006 SHAREHOLDER PROPOSALS
In order for any proposals of shareholders pursuant to the procedures prescribed
in Rule 14a-8 under the Securities Exchange Act of 1934 to be presented as an
item of business at the Annual Meeting of Shareholders of the Company to be held
in 2006, the proposal must be received at the Company's principal executive
offices no later than November 9, 2005 and must be limited to 500 words. To be
included in the Company's proxy statement, the shareholder must be a holder of
record or beneficial owner of at least $2,000 in market value of the Company's
shares entitled to be voted on the proposal and have held the shares for at
least one year and shall continue to hold the shares through the date of the
Meeting. Either you, or your representative who is qualified under state law to
present the proposal on your behalf, must attend the meeting to present the
proposal. Shareholders may not submit more than one proposal. A shareholder
proposal submitted outside the procedures prescribed in Rule 14a-8 shall be
considered untimely unless received no later than January 24, 2006.
Shareholders wishing to recommend names of individuals for possible nomination
to the Company's Board of Directors may do so according to the following
procedures established by the Board:
1. Contact the Secretary of the Company to obtain the Board Membership
Criteria established by the Board of Directors.
2. Make type-written submission to the Secretary of the Company naming
the proposed candidate and specifically noting how the candidate
meets the criteria set forth by the Board.
3. Submission must be received by the Company 120 days prior to the
expected mailing date of the proxy.
4. Person making submission must prove they are a shareholder of the
Company and that they own shares with a market value of at least
$2,000 and have held those shares for at least one year at the time
the submission is made.
5. If the person being submitted is aware of the submission, he or she
must sign a statement indicating such.
6. If the person being submitted is not aware of the submission, the
submitter must explain why.
The written submission must be mailed to:
Corporate Secretary
West Bancorporation, Inc.
1601 22nd Street, Suite 209
West Des Moines, Iowa 50266
13
GENERAL MATTERS
The Company will provide, when available, a copy of its annual report on Form
10-K as filed with the Securities and Exchange Commission, without charge to
each shareholder solicited, upon the written or oral request of any such
shareholder. Such request should be directed to Chief Financial Officer, West
Bancorporation, Inc., 1601 22nd Street, West Des Moines, Iowa 50266 or by
calling 515-222-2300. It will also be available on the Securities and Exchange
Commission's Internet web site at
http://www.sec.gov/edgar/searchedgar/webusers.htm and through a link on the
Company's investor relations web page at www.westbankiowa.com.
OTHER MATTERS
Management does not know of any other matters to be presented at the meeting,
but should other matters properly come before the meeting, the proxies will vote
on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ Alice A. Jensen, Secretary
March 10, 2005
14
EXHIBIT A
WEST BANCORPORATION, INC.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE CHARTER
A. PURPOSE AND SCOPE
The primary function of the Nominating and Corporate Governance Committee
(the "Committee") is to assist the Board of Directors (the "Board") of
West Bancorporation, Inc. (the "Company") in fulfilling its
responsibilities by: (i) reviewing and making recommendations to the Board
regarding the Board's composition and structure, establishing criteria for
Board membership and evaluating corporate policies relating to the
recruitment of Board members; and (ii) establishing, implementing and
monitoring policies and processes regarding principles of corporate
governance in order to ensure the Board's compliance with its fiduciary
duties to the Company and its shareholders.
B. COMPOSITION AND MEETINGS
The Committee shall be comprised of a minimum of three members of the
Board as appointed by the Board, each of whom shall meet any independence
requirements promulgated by the Securities and Exchange Commission, the
National Association of Securities Dealers, the NASDAQ Stock Market, any
exchange upon which securities of the Company are traded, or any
governmental or regulatory body exercising authority over the Company
(each a "Regulatory Body"), and each member of the Committee shall be free
from any relationship that, in the opinion of the Board, would interfere
with the exercise of his or her independent judgment as a member of the
Committee.
The members of the Committee shall be elected by the Board and shall serve
until their successors shall be duly elected and qualified or until their
earlier resignation or removal. Unless a Chair is elected by the full
Board, the members of the Committee may designate a Chair by majority vote
of the full Committee membership.
The Committee shall meet as necessary, but at least once each year, to
enable it to fulfill its responsibilities and duties as set forth herein.
The Committee shall report its actions to the Board and keep written
minutes of its meetings which shall be recorded and filed with the books
and records of the Company.
C. RESPONSIBILITES AND DUTIES
To fulfill its responsibilities and duties the Committee shall:
Corporate Governance Policy Establishment and Review
1. Develop principles of corporate governance including, but not
limited to, the establishment of a corporate code of ethics and
conduct for all directors, officers and employees of the Company and
its affiliates, (a "Code of Conduct") designed to promote honest and
ethical conduct, including the ethical handling of conflicts of
interest; full, fair, accurate, timely and understandable disclosure
in the Company's periodic reports; and compliance with applicable
governmental rules and regulations. The Code of Conduct shall be
submitted by the Committee to the Board and the boards of the
Company's affiliates for their approval.
2. Review and assess the adequacy of the Code of Conduct approved by
the Board periodically, but at least annually. The Committee shall
recommend any modifications to the Code of Conduct to the Board for
approval. If so approved the Company shall submit the revised Code
of Conduct to the boards of its affiliates for their approval.
3. Direct members of the Company's senior management to report any
violations of or non-compliance with the Code of Conduct to the
Committee.
4. Be available to members of the Company's senior management team to
consult with and to resolve reported violations or instances of
non-compliance with the Code of Conduct.
5. Determine an appropriate response to material violations of or
non-compliance with the Code of Conduct including, at the discretion
of the Committee, reporting any material violations of or
non-compliance with the Code of Conduct to any appropriate
Regulatory Body.
15
6. Review and assess the adequacy of this Charter periodically as conditions
dictate, but at least annually and recommend any modifications to the
Charter if and when appropriate to the Board for its approval.
7. Review and assess the adequacy of the charters of any committee of the
Board (the "Governing Documents") periodically in order to ensure
compliance with any principles of corporate governance developed by the
Committee and recommend to the Board any necessary modifications to the
Governing Documents.
8. Review and assess the performance of any committee of the Board.
Board Composition, Nominations and Shareholder Proposals
1. Evaluate the current composition and organization of the Board and its
committees in light of requirements established by any Regulatory Body or
any other applicable statutes, rules or regulations which the Committee
deems relevant and make recommendations regarding the foregoing to the
Board for approval.
2. Review the composition and size of the Board in order to ensure that the
Board is comprised of members reflecting the proper expertise, skills,
attributes and personal and professional backgrounds for service as a
director of the Company.
3. Determine the criteria for selection of the Chairman of the Board, Board
members and Board committee members.
4. Evaluate the performance of current Board members proposed for reelection,
and make recommendations to the Board regarding the appropriateness of
members of the Board standing for reelection.
5. Evaluate and, if deemed necessary, recommend the termination of Board
membership of any director in accordance with the Code of Conduct or any
corporate governance principles adopted by the Board, for cause or for
other appropriate reason.
6. Review and recommend to the Board an appropriate course of action upon the
resignation of current Board members or any planned expansion of the
Board.
7. Evaluate and recommend to the Board the appointment of Board members to
committees of the Board.
8. Evaluate and approve a slate of nominees for election to the Board and
review the qualification, experience and fitness for service on the Board
of any potential members of the Board.
9. Review all stockholder proposals submitted to the Company (including any
proposal relating to the nomination of a member of the Board) and the
timeliness of the submission thereof and recommend to the Board
appropriate action on each such proposal.
Criteria for Evaluating Board Nominee Candidates
The Board should be composed of:
1. Directors chosen with a view to bringing to the Board a variety of
experiences and backgrounds.
2. Directors who have high level managerial experience or are accustomed to
dealing with complex problems.
3. Directors who will represent the balanced, best interests of the
shareholders as a whole rather than special interest groups or
constituencies, while also taking into consideration the overall
composition and needs of the Board.
4. A majority of the Board's directors shall be independent directors under
the criteria for independence required by the SEC and NASDAQ.
In considering possible candidates for election as an outside director, the
Nominating Committee and other Directors should be guided by the foregoing
general guidelines and by the following criteria:
1. Each director should be an individual of the highest character and
integrity, have experience at or demonstrated understanding of
strategy/policy-setting and a reputation for working constructively with
others.
16
2. Each director should have sufficient time available to devote to the
affairs of the Company in order to carry out the responsibilities of a
director.
3. Each director should be free of any conflict of interest which would
interfere with the proper performance of the responsibilities of a
director.
4. The Chief Executive is expected to be a director. Other members of senior
management may be considered, but Board membership is not necessary or a
prerequisite to a higher management position.
Conflicts of Interest
1. Resolve actual and potential conflicts of interest a Board member may have
and issue to any Board member having an actual or potential conflict of
interest instructions on how to conduct him or herself in matters before
the Board which may pertain to the conflict.
2. To the extent deemed necessary by the committee, engage outside counsel
and/or independent consultants to review any matter under its
responsibility.
3. Take such other actions regarding the Company's corporate governance that
are in the best interest of the Company and its shareholders as the
Committee shall deem appropriate or as shall otherwise be required by any
Regulatory Body.
17
EXHIBIT B
WEST BANCORPORATION, INC.
RESTRICTED STOCK COMPENSATION PLAN
1. PURPOSE OF THE PLAN
The purpose of the West Bancorporation, Inc. Restricted Stock Compensation
Plan (the "Plan") is to attract and retain able individuals by rewarding
directors and employees of West Bancorporation, Inc., its subsidiaries and
affiliates (defined as entities in which West Bancorporation, Inc. has a
significant equity or other interest) (collectively, the "Company") and to
align the interests of directors and employees with those of the
stockholders of the Company.
2. EFFECTIVE DATE AND DURATION OF PLAN
This Plan shall become effective as of March 1, 2005, subject to the
approval of the stockholders of the Company at the Annual Meeting on April
12, 2005. Awards may be made under the Plan until March 1, 2015.
3. ELIGIBLE PERSONS
Only persons who are directors or employees of the Company shall be
eligible to receive grants of Restricted Stock (defined below) and become
"Participants" under the Plan. The Compensation Committee of the Company's
Board of Directors (the "Committee") shall exercise the discretionary
power to determine from time to time the directors or employees of the
Company who are eligible to participate in this Plan.
4. AWARD TYPES
(a) Restricted Stock Awards. The Committee may grant Participants shares
of Common Stock subject to certain restrictions ("Restricted
Stock"). (The award of Restricted Stock is sometimes referred to
herein as an "Award" or "Awards" as the case may be).
5. COMMON STOCK SUBJECT TO THE PLAN
(a) Maximum Shares Available for Delivery. Subject to Section 5(c), the
maximum number of shares of Common Stock available for issuance to
Participants under the Plan and the maximum number of shares which
the Company may purchase in the open market for delivery to
Participants shall be in the aggregate, 300,000.
In addition, any Common Stock covered by an Award granted under the
Plan, which is forfeited, cancelled or expires in whole or in part
shall be deemed not to be delivered for purposes of determining the
maximum number of shares of Common Stock available for grants under
the Plan.
Upon forfeiture or termination of Restricted Stock prior to vesting,
the shares of Common Stock subject thereto shall again be available
for Awards under the Plan.
(b) Individual Share Limits. The number of shares of Common Stock
available for Restricted Stock Awards granted under the Plan to any
single Participant over the duration of the Plan shall not exceed 40
percent of the total number of shares available under the Plan
(120,000 shares).
18
(c) Adjustments for Corporate Transactions. The Committee may determine
that a corporate transaction has occurred affecting the Common Stock
such that an adjustment or adjustments to outstanding Awards is
required to preserve (or prevent enlargement of) the benefits or
potential benefits intended at the time of grant. For this purpose a
corporate transaction includes, but is not limited to, any dividend
or other distribution (whether in the form of cash, Common Stock,
securities of a subsidiary of the Company, other securities or other
property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Common Stock or other
securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other
similar corporate transaction. In the event of such a corporate
transaction, the Committee may, in such manner as the Committee
deems equitable and subject to all federal and state regulatory
requirements, adjust (i) the number and kind of shares which may be
awarded under the Plan and (ii) the number and kind of shares
subject to outstanding Awards.
(d) Limits on Distribution. Distribution of shares of Common Stock or
other amounts under the Plan shall be subject to the following:
(i) Notwithstanding any other provision of the Plan, the Company
shall have no liability to deliver any shares of Common Stock
under the Plan or make any other, distribution of benefits
under the Plan unless such delivery or distribution would
comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933),
and the applicable requirements of any securities exchange or
similar entity.
(ii) To the extent that the Plan provides for issuance of stock
certificates to reflect the issuance of shares of Common Stock
or Restricted Stock, the issuance may be effected on a
non-certificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.
(e) Stock Deposit Requirements and other Restrictions. The Committee, in
its discretion, may require as a condition to the grant of Awards,
the deposit of Common Stock owned by the Participant receiving such
grant, and the forfeiture of such grants, if such deposit is not
made or maintained during the required holding period. Such shares
of deposited Common Stock may not be otherwise sold or disposed of
during the applicable holding period or restricted period.
6. AWARDS OF RESTRICTED STOCK
(a) Restricted Stock Awards may be awarded by the Committee, in its sole
discretion, and with respect to granting any Award, the Committee
shall:
(i) Select Participants to whom Awards will be made;
(ii) Determine the number of shares of Restricted Stock to be
awarded to a Participant;
(iii) Determine the length of the restricted period (the "Restricted
Period");
(iv) Determine the purchase price, if any, to be paid by the
Participant for Restricted Stock;
(v) Determine any restrictions other than those set forth in this
Plan; and
(vi) Determine whether to designate where any Award is intended to
be "performance-based compensation" as that term is used in
Section 162(m) of the Internal Revenue Code.
(b) Subject to the restrictions set forth in the Plan, each Participant
who receives Restricted Stock shall have all rights as a stockholder
with respect to such shares, including the right to vote the shares
and receive dividends and other distributions.
7. TRANSFERABILITY OF AWARDS
Except as otherwise provided by rules of the Committee, no Common Stock
awarded under this Plan shall be transferred, sold, exchanged, pledged or
otherwise disposed by a Participant during the Restricted Period, other
than (i) by the Participant's last will and testament, (ii) by the
applicable laws of descent and distribution, (iii) or as otherwise
determined by the Committee, in accordance with regulations promulgated
under the Securities Exchange Act of 1934 or any other applicable law or
regulation.
19
8. TAXES
Whenever the Company issues Common Stock under the Plan, the Company may
require the recipient to remit to the Company an amount sufficient to
satisfy any federal, state or local tax withholding requirements prior to
the delivery of such Common Stock, or, in the discretion of the Committee,
upon the election of the Participant, the Company may withhold from the
shares to be delivered shares sufficient to satisfy all or a portion of
such tax withholding requirements.
9. CHANGE OF CONTROL
Each outstanding Award shall become immediately vested following the date
of the following occurrences, each constituting a "Change of Control":
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act), (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of voting securities of the Company
where such acquisition causes such Person to own 20% or more of the
combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors
(the "Outstanding Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall
not be deemed to result in a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation
pursuant to a transaction that complies with clauses (i), (ii) and
(iii) of subsection (c) below; and provided, further, that if any
Person's beneficial ownership of the Outstanding Voting Securities
reaches or exceeds 20% as a result of a transaction described in
clause (i) or (ii) above, and such Person subsequently acquires
beneficial ownership of additional voting securities of the Company,
such subsequent acquisition shall be treated as an acquisition that
causes such Person to own 20% or more of the Outstanding Voting
Securities; or
(b) individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least of a majority of the directors
then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(c) The approval by the shareholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business Combination is
subject, at the time of such approval by stockholders, to the
consent of any government or governmental agency, the obtaining of
such consent (either explicitly or implicitly by consummation);
excluding, however, such a Business Combination pursuant to which
(i) all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Voting Securities
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then Outstanding Voting Securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation that as a result of such transaction owns
the Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Voting
Securities, (ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business Combination
and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
In the event of a Change of Control, a Participant shall vest in all
shares of Restricted Stock, effective as of the date of such Change of
Control.
20
10. TERMINATION OF EMPLOYMENT
(a) Resignation or Termination for Cause. If the Participant's employment by
the Company is terminated by the voluntary resignation of the Participant,
the Committee shall determine whether shares of Restricted Stock which are
subject to restriction on the date of termination are required to be
forfeited, provided that Participants who are awarded shares in a calendar
year shall be treated equally for forfeiture purpose. If the Participant's
employment by the Company is terminated by a Company discharge due to
Participant's illegal activities, poor work performance, misconduct or
violation of the Company's Code of Ethics, policies or practices, all
shares of Restricted Stock which are subject to restriction on the date of
termination shall be forfeited.
(b) Other Termination.
(i) Death. A Participant who dies while employed by the Company during
any applicable Restricted Period, shall fully vest in such shares of
Restricted Stock, effective as of the date of death.
(ii) Retirement. The Committee shall determine, at the time of a
Participant's retirement from the Company, the treatment of the
Award of Restricted Stock.
(iii) Spin-offs. If the termination of employment is due to the cessation,
transfer, or spin-off of a complete line of business of the Company,
the Committee, in its sole discretion, shall determine the treatment
of all outstanding Awards under the Plan.
11. ADMINISTRATION OF THE PLAN
(a) Administration. The authority to manage and control the operations
and administration of the Plan shall be vested in the Committee,
subject to the following:
(i) In making any Award, the Committee may take into account the
nature of services rendered by the individual, the
individual's present and potential contribution to the
Company's success and such other factors as the Committee
deems relevant.
(ii) The Committee will have the authority and discretion to
interpret the Plan, to establish, amend, and rescind any rules
and regulations relating to the Plan, to determine the terms
and provisions of any agreements made pursuant to the Plan,
and to make all other determinations that may be necessary or
advisable for the administration of the Plan.
(iii) Any interpretation of the Plan by the Committee and any
decision made by it under the Plan is final and binding.
(b) Delegation by Committee. Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the
Committee may allocate all or any portion of its responsibilities
and powers to any one or more of its members and may delegate all or
any part of its responsibilities and powers to any person or persons
selected by it. Any such allocation or delegation may be revoked by
the Committee at any time.
12. AMENDMENTS OF THE PLAN
The Committee may from time to time prescribe, amend and rescind rules and
regulations relating to the Plan. Subject to the approval of the Board of
Directors, where required, the Committee may at any time terminate, amend,
or suspend the operation of the Plan, provided that no action shall be
taken by the Board of Directors or the Committee without the approval of
the stockholders to the extent shareholder approval is required.
13. FOREIGN JURISDICTIONS
The Committee may adopt, amend, and terminate such arrangements, not
inconsistent with the intent of the Plan, as it may deem necessary or
desirable to make available tax or other benefits of the laws of any
foreign jurisdiction, to directors and employees of the Company who are
subject to such laws and who receive Awards under the Plan.
21
14. NON-ALIENATION OF RIGHTS AND BENEFITS.
Subject to Section 7, no right or benefit under the Plan shall be subject
to alienation, sale, assignment, pledge, or encumbrance and any attempt to
do so shall be void. No right or benefit under the Plan be subject to the
debts, contacts, liabilities or torts of the person entitled to such
rights or benefits.
15. LIMITATION OF LIABILITY OR OBLIGATION OF THE COMPANY.
Nothing in the Plan shall be construed:
(a) to give any director or employee of the Company any right to be
granted any Award other than at the sole discretion of the Plan
Committee;
(b) to give any Participant any rights whatsoever with respect to shares
of Common Stock except as specifically provided in the Plan;
(c) to limit in any way the right of the Company or any Subsidiary to
terminate, change or modify, with or without cause, the employment
of any Participant at any time; or
(d) to be evidence of any agreement or understanding, express or
implied, that the Company or any Subsidiary will employ any
Participant in any particular position at any particular rate of
compensation or for any particular period of time.
Payments and other benefits received by a Participant under an Award shall
not be deemed part of a Participant's regular, recurring compensation for
purposes of any termination, indemnity or severance pay laws and shall not
be included in, nor have any effect on, the determination of benefits
under any other employee benefit plan, contract or similar arrangement
provided by the Company or any Subsidiary, unless expressly so provided by
such other plan, contract or arrangement.
16. NO LOANS
The Company shall not lend money to any Participant to finance a
transaction under this Plan.
17. NOTICES
All notices to the Company regarding the Plan shall be in writing,
effective as of actual receipt by the Company, and shall be sent to:
Chief Executive Officer
West Bancorporation, Inc.
1601 22nd Street
West Des Moines, IA 50266
22
WEST BANCORPORATION, INC.
APPENDIX TO THE PROXY STATEMENT
FISCAL YEAR 2004
TABLE OF CONTENTS
PAGE
General Information.................................................................................... 2
Selected Financial Data................................................................................ 3
Management's Discussion and Analysis................................................................... 4
Reports of Independent Registered Public Accounting Firm............................................... 26
Management's Report on Internal Control over Financial Reporting....................................... 29
Consolidated Balance Sheets............................................................................ 30
Consolidated Statements of Income...................................................................... 31
Consolidated Statements of Stockholders' Equity........................................................ 32
Consolidated Statements of Comprehensive Income........................................................ 32
Consolidated Statements of Cash Flows.................................................................. 33
Notes to Consolidated Financial Statements............................................................. 35
Stock Information...................................................................................... 58
1
WEST BANCORPORATION, INC.
GENERAL INFORMATION
West Bancorporation, Inc. (the "Company") is an Iowa corporation and bank
holding company registered under the Bank Holding Company Act of 1956, as
amended. The Company was organized and incorporated in 1984 to serve as a
holding company for its principal banking subsidiary, West Bank.
West Bank's operations are conducted primarily within the Des Moines and Iowa
City, Iowa metropolitan areas. The principal sources of revenue are from
interest and fees earned on loans, service charges on deposit accounts and
interest on fixed income securities.
On October 1, 2003, the Company, through a new wholly-owned subsidiary, WB
Capital Management Inc., purchased the assets of VMF Capital, L.L.C., a
registered investment advisor. The company is doing business as VMF Capital,
with offices in Cedar Rapids and Clive, Iowa and provides portfolio management
services to individuals, retirement plans, corporations, foundations and
endowments.
The Company's stock trades on the Nasdaq National Market under the symbol WTBA.
2
WEST BANCORPORATION, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Years Ended December 31
-----------------------------------------------------------------------
(dollars in thousands, except per share amounts) 2004 2003 2002 2001 2000
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Operating Results
Interest income $ 49,599 $ 43,461 $ 44,640 $ 54,614 $ 61,199
Interest expense 13,952 11,139 13,650 24,952 33,639
----------- ----------- ----------- ----------- -----------
Net interest income 35,647 32,322 30,990 29,662 27,560
Provision for loan losses 1,200 850 910 1,063 1,190
----------- ----------- ----------- ----------- -----------
Net interest income after provision for loan losses 34,447 31,472 30,080 28,599 26,370
----------- ----------- ----------- ----------- -----------
Noninterest income 10,706 9,305 6,614 6,314 5,678
Noninterest expense 16,968 14,694 11,220 10,480 9,596
----------- ----------- ----------- ----------- -----------
Income before income taxes 28,185 26,083 25,474 24,433 22,452
Income taxes 9,571 8,800 9,098 8,697 8,036
----------- ----------- ----------- ----------- -----------
Net income $ 18,614 $ 17,283 $ 16,376 $ 15,736 $ 14,416
=========== =========== =========== =========== ===========
Dividends and Per Share Data (1)
Cash dividends $ 10,484 $ 10,279 $ 9,957 $ 9,636 $ 9,315
Cash dividends per share 0.625 0.610 0.590 0.571 0.552
Basic earnings per share 1.11 1.02 0.97 0.93 0.85
=========== =========== =========== =========== ===========
Average common shares outstanding 16,761,278 16,863,285 16,863,285 16,863,285 16,863,285
=========== =========== =========== =========== ===========
Year End Balances
Total assets $ 1,148,435 $ 1,000,612 $ 886,116 $ 815,970 $ 827,876
Investment securities 347,052 274,913 212,292 189,473 292,371
Net loans 719,318 593,380 483,959 489,158 495,884
Deposits 865,932 705,074 613,099 571,730 547,283
Long-term borrowings 101,893 106,024 51,600 48,000 48,000
Stockholders' equity 97,620 92,896 85,824 79,012 70,845
=========== =========== =========== =========== ===========
Equity to assets ratio 8.50% 9.28% 9.69% 9.68% 8.56%
=========== =========== =========== =========== ===========
Years Ended December 31
-----------------------------------------------------------------------
(dollars in thousands) 2004 2003 2002 2001 2000
---------------------- ----------- ----------- ----------- ----------- -----------
Net income $ 18,614 $ 17,283 $ 16,376 $ 15,736 $ 14,416
Average assets 1,066,511 932,907 837,938 837,798 812,411
Average stockholders' equity 94,209 88,742 81,904 74,977 63,872
=========== =========== =========== =========== ===========
Return on assets (net income divided by average
assets) 1.75% 1.85% 1.95% 1.88% 1.77%
Return on equity (net income divided by average
equity) 19.76% 19.48% 19.99% 20.99% 22.57%
Efficiency ratio (noninterest expense divided by
noninterest income plus taxable equivalent net
interest income) 35.78% 34.78% 29.19% 28.23% 27.98%
Dividend payout ratio (dividends paid divided
by net income) 56.32% 59.26% 60.78% 61.22% 64.44%
Equity to assets ratio (average equity divided by
average assets) 8.83% 9.51% 9.77% 8.95% 7.86%
(1) In July 2004, the Company's Board of Directors authorized a 5 percent common
stock dividend. Per share numbers in this report have been adjusted for that
stock dividend.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The following discussion is provided for the consolidated operations of the
Company, which includes its wholly-owned banking subsidiary, West Bank ("Bank")
and its wholly-owned investment advisory subsidiary, WB Capital Management Inc.
d/b/a VMF Capital ("VMF Capital"). The purpose of this discussion is to focus on
significant factors affecting the Company's financial condition and results of
operations.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
The information contained in this report may contain forward-looking statements
about the Company's growth and acquisition strategies, new products and
services, and future financial performance, including earnings and dividends per
share, return on average assets, return on average equity, efficiency ratio and
capital ratio. Certain statements in this report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking information is based upon certain underlying
assumptions, risks and uncertainties. Because of the possibility of change in
the underlying assumptions, actual results could differ materially from these
forward-looking statements. Risks and uncertainties that may affect future
results include: competitive pressures, pricing pressures on loans and deposits,
actions of bank and non-bank competitors, changes in local and national economic
conditions, changes in regulatory requirements, actions of the Securities and
Exchange Commission and/or the Federal Reserve Board, and customers' acceptance
of the Company's products and services. The Company undertakes no obligation to
revise or update such forward-looking statements to reflect current events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
CRITICAL ACCOUNTING POLICIES
The "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and disclosures included within this report, are based on the
Company's audited consolidated financial statements. These statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The financial information contained in these
statements is, for the most part, based on approximate measures of the financial
effects of transactions and events that have already occurred. However, the
preparation of these statements requires management to make certain estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses.
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 policy to be that related
to the allowance for loan losses.
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 collectibility 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 credits.
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. To the extent actual
results differ from forecasts and management's judgment, the allowance for loan
losses may be greater or less than future charge-offs.
RESULTS OF OPERATIONS - 2004 COMPARED TO 2003
OVERVIEW
For the year ended December 31, 2004, the Company recorded net income of
$18,614,000, an increase of 7.7 percent from net income of $17,283,000 in 2003.
Earnings per share were $1.11 in 2004 compared to $1.02 in 2003. Earnings per
share for 2003 were restated to reflect a 5 percent common stock dividend which
was issued in August 2004. Most of the increase was attributable to higher net
interest income. Net interest income increased in large part because of
significant asset growth. Interest income increased due to these favorable
volume variances despite a slight decline in the net interest margin of 6 basis
points to 3.71%. Net income for 2004 included the first full year of operations
for VMF Capital which was formed October 1, 2003 and for the two acquired bank
branches in Iowa City.
The Company's return on average assets (ROA) was 1.75 percent in 2004, compared
to 1.85 percent in 2003. The return on average equity (ROE) was 19.76 percent,
compared to 19.48 percent for the prior year.
4
The Company has consistently used the efficiency ratio to measure productivity.
This ratio is computed by dividing noninterest expense by the sum of
tax-equivalent net interest income plus noninterest income (excluding gains and
losses from the sale of securities). For the year ended December 31, 2004, the
Company's efficiency ratio was 35.78 percent, up from the prior year's ratio of
34.78 percent. This ratio for both years is significantly better than peer group
averages, which are generally around 60% according to data in the September 2004
Bank Holding Company Performance Report, which was prepared by the Federal
Reserve Board's Division of Banking Supervision and Regulation. The Company
expects the efficiency ratio for 2005 to be in the range of 37 percent.
Net Interest Income
Net interest income increased 10.3 percent to $35,647,000 for 2004 primarily due
to the increase in the volume of interest-earning assets which exceeded
unfavorable rate variances. Average loans grew by 22% and the average balance of
the investment portfolio was also up 22%. The average yield on earning assets
increased 9 basis points, while the average rate on interest-bearing liabilities
increased 15 basis points. The net interest spread, which is the difference
between the yield earned on assets and the rate paid on liabilities, declined to
3.36 percent from 3.42 percent a year earlier. Net interest margin, which is
tax-equivalent net interest income as a percent of average earning assets, was
3.71 percent in 2004 down from 3.77 percent in 2003.
Loan Growth/Loan Quality
At December 31, 2004, total gross loans increased approximately $127 million to
$726,902,000 from $600,065,000 a year earlier. Most of the growth came in
commercial, construction and commercial real estate loans. Loan quality remained
good with nonperforming loans at December 31, 2004 totaling $860,000 or .12
percent of total loans. This compares to $1,793,000, or .30 percent of total
loans at December 31, 2003. Nonperforming loans include loans on nonaccrual
status, loans that have been renegotiated to below market interest rates or
terms, and loans past due 90 days or more.
The allowance for loan losses, which totaled $6,527,000, represented 759 percent
of nonaccrual loans and loans past due more than 90 days at the end of 2004,
compared to 333 percent for 2003. The provision for loan losses totaled
$1,200,000 for 2004, up from $850,000 for 2003. The Company's net charge-offs as
a percent of average loans were .10 percent for 2004, compared to .05 percent
for 2003. The amount of loans charged off in 2004 totaled $815,000 compared to
$485,000 in 2003. Recoveries in 2004 from loans previously charged-off were
$167,000, down from $205,000 in the prior year.
The allowance for loan losses represents a reserve available to absorb probable
loan losses within the loan portfolio as of December 31, 2004. The allowance is
based on management's judgment after considering various factors such as the
current and anticipated economic environment, historical loan loss experience,
and evaluation of individual loans.
Management considered the allowance for loan losses at December 31, 2004
sufficient to absorb probable loan losses within the portfolio.
5
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 significant variances
are shown (in thousands).
Years ended December 31
------------------------------------
Noninterest income 2004 2003 Change Change-%
------- ------ ------- --------
Service charges on deposit accounts $ 4,968 $4,984 $ (16) -0.32%
Trust services 632 507 125 24.65%
Investment advisory fees 2,683 504 2,179 432.34%
Increase in cash value of bank-owned
life insurance 869 667 202 30.28%
Proceeds from bank-owned life insurance - 821 (821) 100.00%
Gain (loss) on sale of securities 199 300 (101) -33.67%
Other income:
Gain on sale of real estate loans 152 396 (244) -61.62%
Debit card income 156 129 27 20.93%
ATM surcharge fees 96 111 (15) -13.51%
Safe deposit box rental 153 138 15 10.87%
All other income 798 748 50 6.68%
------- ------ ------- -------
Total other income 1,355 1,522 (167) -10.97%
------- ------ ------- -------
Total noninterest income $10,706 $9,305 $ 1,401 15.06%
======= ====== ======= -------
Service charges on deposit accounts declined slightly due to somewhat lower
nonsufficient funds fees. Income from trust services was up due to an increase
in the amount of trust assets under management. Investment advisory fees are
fees earned by VMF Capital, which commenced operations on October 1, 2003.
Bank-owned life insurance was purchased during the first and third quarters of
2003 and the Company received tax-exempt income from life insurance proceeds in
2003 as the result of the untimely death of one of the Bank's officers. The
decrease in gains on sale of real estate loans is due to lower volumes of loan
originations. Debit card income was up due to higher usage volumes. ATM
surcharge fees declined as consumers sought to avoid the surcharge fee by using
ATM's sponsored by their own bank. The increase in safe deposit box rental
income is the result of a full year's worth of fees in the Iowa City market.
Noninterest Expense
Total noninterest expense increased 15.5 percent to $16,968,000 in 2004 from
$14,694,000 in 2003.
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 Expense category that represent significant variances
are shown (in thousands).
6
Years ended December 31
------------------------------------------
Noninterest expense: 2004 2003 Change Change-%
-------- ------- ------- --------
Salaries and employee benefits $ 9,680 $ 7,701 $ 1,979 25.70%
Occupancy 2,057 1,583 474 29.94%
Data processing 1,361 1,130 231 20.44%
Charitable contributions 147 1,483 (1,336) -90.09%
Other expenses:
Professional fees 567 326 241 73.93%
Intangible amortization 358 170 188 110.59%
Supplies 282 207 75 36.23%
Marketing 324 252 72 28.57%
Postage and courier 373 338 35 10.36%
Other real estate owned and
collection expenses (175) 66 (241) -365.15%
Investment advisory
marketers expense 216 38 178 468.42%
All other expenses 1,778 1,400 378 27.00%
-------- ------- ------- -------
Total other expenses 3,723 2,797 926 33.11%
-------- ------- ------- -------
Total noninterest expense $ 16,968 $14,694 $ 2,274 15.48%
======== ======= ======= =======
The increase in salaries and benefits includes compensation related expenses for
the employees associated with the two acquisitions in the last half of 2003.
Occupancy expenses likewise were higher in 2004 due to the four additional
locations acquired in the second half of 2003 and a new bank office in
Coralville in the fourth quarter of 2004. Charitable contributions expense was
significantly lower than 2004 because last year the Company formed and donated
to the West Bancorporation Foundation, Inc. the tax equivalent amount received
from a death claim from bank-owned life insurance. The increase in professional
fees were the result of additional legal and accounting services associated with
complying with the Sarbanes-Oxley Act of 2002 and the decision to outsource the
Company's internal audit services. The increase in intangible asset amortization
also relates to the 2003 acquisitions. Supplies expense is higher because of the
introduction of a new logo and a full year's expense for the Iowa City branches
and VMF Capital. Marketing expense increased as the result of the decision to do
more direct marketing to selected customer segments. Postage and courier expense
was up also due to a full year's operation in Iowa City and with VMF Capital.
Other real estate owned expense has declined as a result of selling several
other real estate properties at gains. Investment advisory marketers expense
included a full year's expense compared to only the fourth quarter for 2003 and
also increased due to referrals for new business.
Income Taxes
The Company records a provision for income taxes currently payable, along with a
provision for those taxes payable in the future. Such deferred taxes arise from
differences in the timing of certain items for financial statement reporting
compared to income tax reporting. The effective income tax rate differs from the
federal statutory income tax rate primarily due to tax-exempt interest income,
the tax-exempt increase in cash value of bank-owned life insurance, tax-exempt
proceeds from life insurance in 2003, disallowed interest expense, meals and
entertainment expenses and state income taxes. The effective rate of income tax
expense as a percent of income before income taxes was 34.0 percent for 2004,
compared to 33.7 percent for 2003. The federal income tax expense was
approximately $8,300,000 and $7,500,000 for 2004 and 2003, respectively, while
state income tax expense was approximately $1,350,000 and $1,300,000,
respectively.
RESULTS OF OPERATIONS - 2003 COMPARED TO 2002
OVERVIEW
During 2003, the Company and its subsidiaries grew through two acquisitions. In
the first transaction, West Bank purchased the assets and assumed certain
liabilities of Hawkeye State Bank in Iowa City, Iowa on July 18, 2003. Assets
acquired in this transaction totaled approximately $129 million at two offices
in Iowa City. In the second transaction, a newly-formed subsidiary, WB Capital
Management Inc. purchased the assets and assumed certain liabilities of VMF
Capital, L.L.C., an independently-owned asset manager on October 1, 2003. The
new entity is operating under the name VMF Capital, with offices in Cedar Rapids
and Clive, Iowa and provides portfolio management services to individuals,
retirement plans, corporations, foundations and endowments.
7
For the year ended December 31, 2003, the Company recorded net income of
$17,283,000, an increase of 5.5 percent from net income of $16,376,000 in 2002.
Earnings per share were $1.02 in 2003 compared to $0.97 in 2002. Earnings per
share for both years were restated to reflect a 5 percent common stock dividend
which was issued in August 2004. Most of the increase was attributable to higher
net interest income. Net interest income increased primarily because of the
acquisition of approximately $103 million in interest-earning assets in the
Hawkeye State Bank transaction effective July 18, 2003. Interest income
increased due to these favorable volume variances despite continued pressure on
the net interest margin which declined 20 basis points to 3.77%.
The Company's return on average assets (ROA) was 1.85 percent in 2003, compared
to 1.95 percent in 2002. The return on average equity (ROE) was 19.48 percent,
compared to 19.99 percent for the prior year. ROE declined even though net
income increased, because the Company's capital grew at a faster rate than net
income.
A significant transaction affecting net income in 2003 was the purchase of
bank-owned life insurance in the first and third quarters. The purpose of the
purchases was to offset the costs of employee benefits and to enhance revenue in
the current low interest rate environment. The increase in the cash value is
exempt from taxation and totaled $667,000 for the year ended December 31, 2003.
During the fourth quarter of 2003, the Company received $821,000 in tax-exempt
income from life insurance proceeds as a result of the death of one of the
Bank's officers. The Company decided to form a charitable foundation and
contribute the tax-equivalent amount of the income received from the insurance
claim. The amount of the donation was $1,330,000 and will allow the proceeds
from the death claim to benefit worthwhile charities in future years. The net
effect of these transactions on net income was zero.
For the year ended December 31, 2003, the Company's efficiency ratio was 34.78
percent, up from the prior year's ratio of 29.19 percent. The Company's
efficiency ratio was higher in 2003 because of the receipt of the income from
life insurance proceeds and the related charitable contribution, and the results
of VMF Capital. Excluding these two items, the Company's efficiency ratio would
have been 31.10 percent for the year ended December 31, 2003.
Net Interest Income
Net interest income increased 4.3 percent to $32,322,000 for 2003 due to the
increase in the volume of interest-earning assets which exceeded unfavorable
rate variances. The yield on both loans and investment securities declined more
than the decline in the rate paid on interest-bearing liabilities. The average
yield on earning assets declined 64 basis points, while the average rate on
interest-bearing liabilities declined 62 basis points. The net interest spread
declined to 3.42 percent from 3.44 percent a year earlier. Net interest margin,
which is tax-equivalent net interest income as a percent of average earning
assets, was 3.77 percent in 2003 down from 3.97 percent in 2002.
Loan Growth/Loan Quality
At December 31, 2003, total loans increased approximately $111.5 million, or
22.8 percent, to $600,065,000 from $488,574,000 a year earlier. Growth came in
all loan categories due to the combination of the acquisition of the two Iowa
City offices and increased loan demand. Exclusive of the acquired offices, loans
grew 8.6 percent. Loan quality remained good with nonperforming loans at
December 31, 2003 totaling $1,793,000 or .30 percent of total loans. This
compares to $1,899,000, or .39 percent of total loans at December 31, 2002.
The allowance for loan losses, which totaled $5,975,000, represented 333 percent
of nonaccrual loans and loans past due more than 90 days at the end of 2003,
compared to 237 percent for 2002. The provision for loan losses totaled $850,000
for 2003, down slightly from $910,000 for 2002. The Company's net charge-offs as
a percent of average loans were .05 percent for 2003, an improvement from .14
percent for 2002. The amount of loans charged off in 2003 was approximately 59
percent less than in 2002, however, recoveries in 2003 from loans previously
charged-off were also significantly lower in the current year.
Management considered the allowance for loan losses at December 31, 2003
sufficient to absorb probable loan losses within the portfolio.
8
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 significant variances
are shown (in thousands).
Years ended December 31
-------------------------------------------
2003 2002 Change Change-%
--------- --------- --------- --------
Noninterest income
Service charges on deposit accounts $ 4,984 $ 4,705 $ 279 5.93%
Trust services 507 570 (63) -11.05%
Investment advisory fees 504 - 504 -
Increase in cash value of bank-owned
life insurance 667 - 667 -
Proceeds from bank-owned life insurance 821 - 821 -
Gain (loss) on sale of securities 300 116 184 158.62%
Other income:
Gain on sale of real estate loans 396 175 221 126.29%
Debit card income 129 91 38 41.76%
ATM surcharge fees 111 69 42 60.87%
All other income 886 888 (2) -0.23%
--------- --------- -------- ------
Total other income 1,522 1,223 299 24.45%
--------- --------- -------- ------
Total noninterest income $ 9,305 $ 6,614 $ 2,691 40.69%
========= ========= ======== ======
Service charges on deposit accounts grew due to higher volumes and an increase
in nonsufficient funds fees. Income from trust services was down due to a
decrease in the number of trust accounts. Investment advisory fees were earned
by VMF Capital in the fourth quarter of 2003. As previously discussed,
bank-owned life insurance was purchased during 2003 and the Company received
tax-exempt income from life insurance proceeds as the result of the untimely
death of one of the Bank's officers. The increase in the gain on sale of real
estate loans was due to the increased loan volume as a result of the lower
interest rate environment and the addition of loan volume through the banking
offices acquired in Iowa City, Iowa. The volume of loans originated and sold in
the secondary market and the resulting gains on those sales declined in the
fourth quarter as interest rates moved slightly higher and due to the cyclical
nature of the market. Debit card income was up because of increased promotion of
debit cards to the Bank's customer base and ATM surcharge fees were not
implemented until the second quarter of 2002.
Noninterest Expense
Total noninterest expense increased 31.0 percent to $14,694,000 in 2003 from
$11,220,000 in 2002. Exclusive of the previously discussed contribution to the
newly established charitable foundation, noninterest expense increased 19.1
percent.
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 Expense category that represent significant variances
are shown (in thousands).
9
Years ended December 31
------------------------------------------
Noninterest expense: 2003 2002 Change Change-%
--------- --------- --------- --------
Salaries and employee benefits $ 7,701 $ 6,408 $ 1,293 20.18%
Occupancy 1,583 1,311 272 20.75%
Data processing 1,130 1,006 124 12.33%
Charitable contributions 1,483 107 1,376 1285.98%
Other expenses:
Supplies 207 173 34 19.65%
Advertising 252 209 43 20.57%
Trust expense 260 283 (23) -8.13%
Professional fees 326 263 63 23.95%
Intangible amortization 170 32 138 431.25%
Postage and courier 338 282 56 19.86%
Other real estate owned and
collection expenses 66 13 53 407.69%
All other expenses 1,178 1,133 45 3.97%
--------- --------- --------- --------
Total other expenses 2,797 2,388 409 17.13%
--------- --------- --------- --------
Total noninterest expense $ 14,694 $ 11,220 $ 3,474 30.96%
========= ========= ========= ========
The increase in salaries and benefits included the salaries of the employees in
the banking offices acquired in Iowa City for five and a half months, the
salaries of VMF Capital employees for the fourth quarter and one-time relocation
expenses for the Company's chief executive officer totaling $85,285. Occupancy
expenses were higher in 2003 due to the costs of the two acquired offices in
Iowa City and two offices for VMF Capital, higher maintenance costs due to snow
removal and increased depreciation expenses related to technology purchases. As
previously discussed, charitable contributions increased due to the one-time
donation of the tax-equivalent amount of life insurance proceeds of $1,330,000
to a charitable foundation. Professional fees increased due to the outsourcing
of certain internal audit functions, increased State of Iowa Banking Department
fee assessments related to the Hawkeye transaction and increased legal fees due
to new legal requirements pertaining to corporate governance. Intangible
amortization increased due to the amortization of the core deposit intangible
related to the acquisition of the two banking offices in Iowa City and the
non-compete and client list intangibles at VMF Capital. Postage and courier
expenses increased primarily due to the offices acquired in Iowa City. Other
real estate owned and collection expenses increased primarily due to the fourth
quarter write-down of two properties to net realizable value.
Income Taxes
The effective rate of income tax expense as a percent of income before income
taxes was 33.7 percent for 2003, compared to 35.7 percent for 2002. The decline
is due to the higher amount of tax-exempt income in 2003. The federal income tax
expense was approximately $7,500,000 and $7,800,000 for 2003 and 2002,
respectively, while state income tax expense was approximately $1,300,000 in
both years.
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 tables show average balances and interest income or interest
expense, with the resulting average yield or rate by category of average earning
assets or interest-bearing liability.
10
(dollars in thousands)
2004 2003 2002
------------------------------- ------------------------------ -----------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
----------- ---------- ------ ---------- --------- ------ ---------- --------- ------
Assets
Interest-earning assets:
Loans: (2) (3)
Commercial $ 279,268 $ 14,975 5.36% $ 270,129 $ 15,127 5.60% $ 254,424 $ 15,721 6.18%
Real estate 334,532 20,459 6.12% 230,806 15,518 6.72% 191,417 14,831 7.75%
Consumer 13,864 1,008 7.27% 18,509 1,388 7.50% 20,532 1,639 7.98%
Other (1) 18,211 1,058 5.81% 11,589 879 7.58% 15,640 1,223 7.82%
----------- ---------- ---- ---------- --------- ---- ---------- --------- ----
Total loans 645,875 37,500 5.81% 531,033 32,912 6.20% 482,013 33,414 6.93%
----------- ---------- ---- ---------- --------- ---- ---------- --------- ----
Investment securities:
Taxable 240,601 9,442 3.92% 206,263 8,174 3.96% 184,867 8,506 4.60%
Tax-exempt (1) 61,117 2,977 4.87% 40,560 2,026 5.00% 28,494 1,867 6.55%
----------- ---------- ---- ---------- --------- ---- ---------- --------- ----
Total investment securities 301,718 12,419 4.12% 246,823 10,200 4.13% 213,361 10,373 4.86%
----------- ---------- ---- ---------- --------- ---- ---------- --------- ----
Federal funds sold and other
short-term investments 46,588 948 2.03% 103,883 1,265 1.22% 109,480 1,821 1.66%
----------- ---------- ---- ---------- --------- ---- ---------- --------- ----
Total interest-earning assets (1) 994,181 $ 50,867 5.12% 881,739 $ 44,377 5.03% 804,854 $ 45,608 5.67%
----------- ---------- ==== ---------- --------- ==== ---------- --------- ====
Noninterest-earning assets:
Cash and due from banks 28,326 25,710 29,029
Premises and equipment, net 3,794 2,387 1,306
Other, less allowance for loan
losses 40,210 23,071 2,749
----------- ---------- ----------
Total noninterest-earning assets 72,330 51,168 33,084
----------- ---------- ----------
Total Assets $ 1,066,511 $ 932,907 $ 837,938
=========== ========== ==========
1 Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental rate of 35% and is adjusted to reflect the effect of the
nondeductible interest expense associated with owning tax-exempt
investments.
2 Average loan balances include nonaccrual loans. Interest income on
nonaccrual loans has been excluded.
3 Interest income on loans includes amortization of loan fees, which is not
material.
11
(dollars in thousands)
2004 2003 2002
------------------------------ ------------------------------ ----------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
---------- ---------- ------ ---------- --------- ------ ---------- --------- -----
Liabilites and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings, checking with interest,
and money markets $ 395,757 $ 3,682 0.93% $ 345,986 $ 3,084 0.89% $ 282,307 $ 3,756 1.33%
Time deposits 193,379 3,760 1.94% 113,910 2,666 2.34% 145,341 5,084 3.50%
---------- --------- ---- ----------- --------- ---- ---------- --------- ----
Total deposits 589,136 7,442 1.26% 459,896 5,750 1.25% 427,648 8,840 2.07%
Other borrowed funds 203,064 6,510 3.21% 231,794 5,389 2.32% 184,224 4,810 2.61%
---------- --------- ---- ----------- --------- ---- ---------- --------- ----
Total interest-bearing liabilities 792,200 13,952 1.76% 691,690 11,139 1.61% 611,872 13,650 2.23%
---------- --------- ==== ----------- --------- ==== ---------- --------- ====
Noninterest-bearing liabilities:
Demand deposits 175,605 148,648 140,977
Other liabilities 4,497 3,827 3,185
Stockholders' equity 94,209 88,742 81,904
---------- ---------- ----------
Total Liabilities and Stockholders' $1,066,511 $ 932,907 $ 837,938
Equity
========== ========== ==========
Net interest income (1) $ 36,915 $ 33,238 $ 31,958
========= ========= =========
Margin Analysis
Interest income/yield on
interest-earning
assets (1) $ 50,867 5.12% $ 44,377 5.03% $ 45,608 5.67%
Interest expense/rate on
interest-bearing
liabilities 13,952 1.76% 11,139 1.61% 13,650 2.23%
--------- ----- --------- ----- --------- ----
Net interest income/net interest $ 36,915 3.36% $ 33,238 3.42% $ 31,958 3.44%
spread (1)
========= ===== ========= ===== ========= ====
Net interest margin (1) 3.71% 3.77% 3.97%
===== ===== ====
1 Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental rate of 35% and is adjusted to reflect the effect of the
nondeductible interest expense associated with owning tax-exempt
investments.
NET INTEREST INCOME
The Company's largest component contributing to net income is net interest
income, which is the difference between interest earned on earning assets which
are primarily loans and investments and interest paid on interest-bearing
liabilities which are primarily deposits and borrowings. The volume of and
yields earned on earning assets and the volume of and the rates paid on
interest-bearing liabilities determine net interest income. Interest earned and
interest paid are also affected by general economic conditions, particularly
changes in market interest rates, and by competitive factors, government
policies and the action of regulatory authorities. Net interest income divided
by average earning assets is referred to as net interest margin. For the years
ending December 31, 2004, 2003 and 2002, the Company's net interest margin was
3.71 percent, 3.77 percent and 3.97 percent, respectively.
12
Analysis of Changes in Interest Differential
The following table sets forth, on a tax-equivalent basis, a summary of the
changes in net interest income due to changes in asset and liability volumes and
due to changes in interest rates.
VOLUME AND YIELD/RATE VARIANCE (1)
(in thousands and on a tax equivalent basis)
2004 Compared to 2003 2003 Compared to 2002
-----------------------------------------------------------------------
Volume Rate Total Volume Rate Total
----------- -------- ------- ---------- --------- ---------
Interest Income
Loans: (2)
Commercial $ 597 $ (749) $ (152) $ 1,146 $ (1,740) $ (594)
Real estate 6,185 (1,244) 4,941 1,922 (1,235) 687
Consumer (339) (41) (380) (155) (96) (251)
Other 303 (124) 179 (308) (36) (344)
----------- -------- ------- ---------- --------- ---------
Total loans (including fees) 6,746 (2,158) 4,588 2,605 (3,107) (502)
----------- -------- ------- ---------- --------- ---------
Investment securities:
Taxable 1,347 (79) 1,268 1,672 (2,004) (332)
Tax-exempt (3) 1,000 (49) 951 362 (203) 159
----------- -------- ------- ---------- --------- ---------
Total investment securities 2,347 (128) 2,219 2,034 (2,207) (173)
----------- -------- ------- ---------- --------- ---------
Federal funds sold and other
short-term investments (909) 592 (317) (89) (467) (556)
----------- -------- ------- ---------- --------- ---------
Total interest income (3) 8,184 (1,694) 6,490 4,550 (5,781) (1,231)
----------- -------- ------- ---------- --------- ---------
Interest Expense
Deposits:
Savings, checking with interest,
and money markets 459 139 598 1,451 (2,123) (672)
Time deposits 1,444 (350) 1,094 (956) (1,462) (2,418)
----------- -------- ------- ---------- --------- ---------
Total deposits 1,903 (211) 1,692 495 (3,585) (3,090)
Other borrowed funds (545) 1,666 1,121 1,006 (427) 579
----------- -------- ------- ---------- --------- ---------
Total interest expense 1,358 1,455 2,813 1,501 (4,012) (2,511)
----------- -------- ------- ---------- --------- ---------
Net interest income (3) $ 6,826 $ (3,149) $ 3,677 $ 3,049 $ (1,769) $ 1,280
=========== ======== ======= ========== ========= =========
1 The change in interest that is due to both volume and rate changes 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.
2 Balances of nonaccrual loans have been included for computational
purposes.
3 Tax-exempt income has been converted to a tax-equivalent basis using a
federal income tax rate of 35% and is adjusted for the effect of the
nondeductible interest expense associated with owning tax-exempt
investments.
13
INVESTMENT PORTFOLIO
The investments below are presented at carrying value and reported by
contractual maturity. Expected maturities may differ from contractual maturities
because issuers may have the right to call or prepay obligations with or without
prepayment penalties.
December 31, 2004
(dollars in thousands)
After one year After five
but within years but
Within one five within ten After ten
year years years years Total
----------- -------------- ---------- ----------- ----------
U.S. Government agencies and corporations $ 3,008 $ 73,155 $ 98,547 $ 24,592 $ 199,302
States of the United States and political
subdivisions 11,032 16,279 21,929 47,673 96,913
Corporate notes and other investments 23,175 3,554 6,022 11,564 44,315
----------- ------------ ---------- ----------- ----------
Total $ 37,215 $ 92,988 $ 126,498 $ 83,829 $ 340,530
=========== ============ ========== =========== ==========
Weighted average yield:
U.S. Government agencies and corporations 3.34% 3.58% 4.29% 4.81%
States of the United States and political
subdivisions (1) 3.12% 4.16% 5.77% 5.57%
Corporate notes and other investments 3.58% 2.51% 4.26% 6.10%
----------- ------------ ---------- -----------
Total 3.43% 3.64% 4.54% 5.42%
=========== ============ ========== ===========
1 Yields on tax-exempt obligations have been computed on a tax-equivalent
basis using an incremental tax rate of 35% and are adjusted to reflect the
effect of the nondeductible interest expense associated with owning
tax-exempt investments.
Investments in States of the United States and political subdivisions represent
purchases of municipal bonds issued by municipalities located primarily in the
State of Iowa.
Investments in corporate notes and other investments include corporate debt
obligations of companies located and doing business throughout the United
States. The debt obligations were all within the credit ratings acceptable under
West Bank's investment policy.
As of December 31, 2004, the Company did not have securities from a single
issuer, except for the United States government or its agencies, which exceeded
10 percent of consolidated stockholders' equity.
14
LOAN PORTFOLIO
Types of Loans
The following table sets forth the composition of the Company's loan portfolio
for the past five years ending December 31, 2004 (dollars in thousands).
As of December 31
--------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ----------- ------------ ----------
Commercial $ 268,805 $ 244,173 $ 235,985 $ 226,183 $ 234,089
Real Estate
Construction, land and land development 87,379 44,200 27,827 33,954 16,250
1-4 family residential 75,616 76,853 56,939 71,628 81,983
Commercial 273,204 204,673 143,560 138,409 138,705
Consumer and other loans 21,898 30,166 24,263 23,333 29,221
---------- ---------- ----------- ------------ ----------
Total loans 726,902 600,065 488,574 493,507 500,248
Deferred loan fees, net 1,057 710 121 108 169
---------- ---------- ----------- ------------ ----------
Total loans, net of deferred fees $ 725,845 $ 599,355 $ 488,453 $ 493,399 $ 500,079
========== ========== =========== ============ ==========
The Company's loan portfolio primarily consists of commercial loans, commercial
real estate, real estate construction, land and land development, residential
real estate, and consumer loans. As of December 31, 2004, gross loans totaled
approximately $727 million, which equals approximately 84 percent of total
deposits and 63 percent of total assets. As of December 31, 2004, almost all of
the loans were originated directly by West Bank to borrowers within the Bank's
principal market areas. There were no foreign loans outstanding during the years
presented.
Commercial loans consist primarily of loans to businesses for various purposes
including revolving lines to finance current operations, inventory and accounts
receivable; and capital expenditure loans to finance equipment and other fixed
assets. These loans generally have short maturities, have either adjustable or
fixed rates and are unsecured or secured by inventory, accounts receivable
and/or equipment.
Real estate loans include various types of loans for which West Bank holds real
property as collateral and consist of loans primarily on commercial properties,
and single and multi-family residences. Real estate loans typically have fixed
rates for up to seven years with the bank's loan policy having a maximum
amortization period of up to 30 years. The majority of construction loan volume
is to contractors and developers to construct commercial buildings or develop
residential real estate and generally have maturities of up to 24 months. West
Bank originates residential real estate loans for its portfolio and for sale in
the secondary market for a fee.
Consumer loans include loans extended to individuals for household, family and
other personal expenditures not secured by real estate. The majority of West
Bank's consumer lending is for vehicles, consolidation of personal debts, and
household improvements.
The interest rates charged on loans vary with the degree of risk, the amount of
the loan and the maturity of the loan. Competitive pressures, market interest
rates, the availability of funds and government regulation further influence the
rate charged on a loan.
West Bank follows a loan policy that has been approved by the Bank's Board of
Directors and is administered by West Bank's management. This policy establishes
lending limits, review criteria and other guidelines such as loan administration
and allowance for loan losses. Loans are approved by the Bank's Board of
Directors and/or designated officers in accordance with respective guidelines
and underwriting policies of the Bank. Loans to any one borrower are limited by
applicable state banking laws. Loan officer credit limits generally vary
according to the individual loan officer's experience.
Maturities of Loans
The contractual maturities of the Company's loan portfolio are as shown below.
Actual maturities may differ from contractual maturities because individual
borrowers may have the right to prepay loans with or without prepayment
penalties.
15
Loans as of December 31, 2004
(dollars in thousands)
After one
but
Within one within five After five
year years years Total
------------ ------------ ----------- ----------
Commercial $ 153,395 $ 97,320 $ 18,090 $ 268,805
Real Estate
Construction, land and land development 53,493 32,964 922 87,379
1-4 family residential 16,437 47,004 12,175 75,616
Commercial 32,803 153,076 87,325 273,204
Consumer and other loans 7,355 13,817 726 21,898
------------ ------------ ----------- ----------
Total Loans $ 263,483 $ 344,181 $ 119,238 $ 726,902
============ ============ =========== ==========
After one
but
within five After five
years years
------------- ----------
Loan maturities after one year with:
Fixed rates $ 214,340 $ 37,791
Variable rates 129,841 81,447
----------- ----------
$ 344,181 $ 119,238
=========== ==========
Risk Elements
The following table sets forth information concerning the Company's
nonperforming assets for the past five years ending December 31, 2004 (dollars
in thousands).
Years Ended December 31
--------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- --------- -------- --------
Nonaccrual loans $ 785 $ 1,668 $ 1,354 $ 878 $ 705
Loans past due 90 days and still
accruing interest 75 125 545 396 466
-------- -------- --------- -------- --------
Total nonperforming loans 860 1,793 1,899 1,274 1,171
Other real estate owned 175 441 529 1,089 1,363
-------- -------- --------- -------- --------
Total nonperforming assets $ 1,035 $ 2,234 $ 2,428 $ 2,363 $ 2,534
======== ======== ========= ======== ========
Nonperforming loans to total loans 0.12% 0.30% 0.39% 0.26% 0.23%
Nonperforming assets to total loans 0.14% 0.37% 0.50% 0.48% 0.51%
Nonperforming assets to total assets 0.09% 0.22% 0.27% 0.29% 0.31%
The accrual of interest on past due and other impaired loans is generally
discontinued at 90 days or when, in the opinion of management, the borrower may
be unable to make payments as they become due. Interest income is subsequently
recognized only to the extent cash payments are received. In certain cases,
interest may continue to accrue on loans past due more than 90 days when the
value of the collateral is sufficient to cover both the principal amount of the
loan and accrued interest. Interest income on restructured loans is recognized
pursuant to the terms of the new loan agreement. Interest income on other
impaired loans is monitored and based upon the terms of the underlying loan
agreement. However, the recorded net investment in impaired loans, including
accrued interest, is limited to the present value of the expected cash flows of
the impaired loan or the observable fair market value of the loan's collateral.
16
Outstanding loans of approximately $2,472,000 were placed on nonaccrual status
during 2004 with total nonaccrual loans equaling $785,000 as of December 31,
2004. The average balance of nonaccrual loans during 2004 was approximately
$1,793,000. The total amount of loans on nonaccrual status as of December 31,
2003 was $1,668,000. Loans are placed on nonaccrual status when there is doubt
as to the borrower's ability to make scheduled principal and interest payments.
A loan may be removed from nonaccrual status when payments have resumed and it
is reasonable to expect continued payment performance. For the years ended
December 31, 2004, 2003 and 2002, interest income, which would have been
recorded under the original terms of such loans, was approximately $98,000,
$102,000 and $85,000, respectively. For the periods shown above, there were no
restructured loans. As of December 31, 2004, there were no additional potential
problem loans and leases identified that are not included in the amounts
reported above.
SUMMARY OF THE ALLOWANCE FOR LOAN LOSSES
The provision for loan losses represents charges made to earnings to maintain an
adequate allowance for loan losses. The allowance for loan losses is
management's best estimate of probable losses inherent in the loan portfolio as
of the balance sheet date. Factors considered in establishing an appropriate
allowance include: an assessment of the financial condition of the borrower; a
realistic determination of value and adequacy of underlying collateral; the
condition of the local economy and the condition of the specific industry of the
borrower; an analysis of the levels and trends of loan categories; and a review
of delinquent and classified loans.
The adequacy of the allowance for loan losses is evaluated quarterly by
management and reviewed by the Bank's Board of Directors. This evaluation
focuses on specific loan reviews, changes in the type and volume of the loan
portfolio given the current and forecasted economic conditions and historical
loss experience. Any one of the following conditions may result in the review of
a specific loan: concern about whether the customer's cash flow or net worth is
sufficient to repay the loan; delinquency status; criticism of the loan in a
regulatory examination; the suspension of interest accrual; or other reasons
including when the loan has other special or unusual characteristics which
suggest special monitoring is warranted.
While management uses available information to recognize losses on loans,
further reduction in the carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require the Company to recognize additional
losses based on their judgment about information available to them at the time
of their examination.
Change in the Allowance for Loan Losses
The Company's policy is to charge-off loans when, in management's opinion, the
loan is deemed uncollectable, although concerted efforts are made to maximize
future recoveries. The following table sets forth information regarding changes
in the Company's allowance for loan losses for the most recent five years
(dollars in thousands):
17
Analysis of the Allowance for Loan Losses for the Years
Ended December 31
--------------------------------------------------------------
2004 2003 2002 2001 2000
---------- --------- --------- --------- ---------
Balance at beginning of period $ 5,975 $ 4,494 $ 4,240 $ 4,194 $ 4,040
Charge-offs:
Commercial 499 302 943 926 1,027
Real Estate
Construction, land and land development - - - - -
1-4 family residential 230 4 56 - 2
Commercial - - - - -
Consumer and other loans 86 179 195 157 147
---------- --------- --------- --------- ---------
815 485 1,194 1,083 1,176
---------- --------- --------- --------- ---------
Recoveries:
Commercial 33 145 499 40 85
Real Estate
Construction, land and land development - - - - -
1-4 family residential 80 - - - -
Commercial - - - - -
Consumer and other loans 54 60 39 26 55
---------- --------- --------- --------- ---------
167 205 538 66 140
---------- --------- --------- --------- ---------
Net charge-offs 648 280 656 1,017 1,036
Allowance related to acquisition - 911 - - -
Provision for loan losses charged
to operations 1,200 850 910 1,063 1,190
---------- --------- --------- --------- ---------
Balance at end of period $ 6,527 $ 5,975 $ 4,494 $ 4,240 $ 4,194
========== ========= ========= ========= =========
Average loans outstanding $ 645,875 $ 531,033 $ 482,013 $ 495,825 $ 489,598
========== ========= ========= ========= =========
Ratio of net charge-offs during the period
to average loans outstanding 0.10% 0.05% 0.14% 0.21% 0.21%
========== ========= ========= ========= =========
Ratio of allowance for loan losses to
average loans outstanding 1.01% 1.13% 0.93% 0.86% 0.86%
========== ========= ========= ========= =========
As the previous table indicates, the provision for loan losses and the allowance
acquired in the Hawkeye State Bank transaction are the most significant changes
in the reserve level for the five-year period presented. In the year 2000, the
charge-off of one specific commercial loan caused an increase in this ratio to
.21 percent. The net charge-off ratio in 2001 was also .21 percent, but was
caused by loans with individually smaller loan balances. The net charge-off
ratio for 2002 dropped to .14 percent because of higher amounts recovered on
loans that had been charged off in prior years. The net charge-off ratio for
2003 was .05 percent, which is credited to the close monitoring of the loan
portfolio and active collection efforts after a loan has been charged off. The
net charge-off ratio for 2004 was .10 percent which was slightly higher than
2003, but still at a level that management considers good when compared to our
peers. According to the September 2004 Bank Holding Company Performance Report
prepared by the Federal Reserve Board's Division of Banking Supervision and
Regulation, the percentage of net charge-offs to average loans for all banks
with total assets between $1 billion and $3 billion was .16 percent for the
first nine months of 2004.
Factors that are considered when determining the adequacy of the allowance
include loan concentrations, loan growth, the economic outlook and historical
losses. The Company's concentration risks include geographic concentration in
central Iowa. The local economy is comprised primarily of service industries and
state and county governments. It is expected that the economy will grow at a
slightly slower pace in 2005 than it did in 2004. It is not possible to
determine the impact on the Company of potentially slower economic growth.
18
Breakdown of Allowance for Loan Losses by Category
The following table sets forth information concerning the Company's allocation
of the allowance for loan losses (dollars in thousands):
2004 2003 2002 2001 2000
-----------------------------------------------------------------------------------------------
Amount % * Amount % * Amount % * Amount % * Amount % *
--------- ------ -------- ------ --------- ------ -------- ------ -------- ------
Balance at end of period
applicable to:
Commercial $ 3,443 36.98% $ 3,659 40.69% $ 2,934 48.30% $ 2,315 45.83% $ 2,154 46.80%
Real Estate
Construction, land and land
development 298 12.02% 341 7.37% 279 5.70% 286 6.88% 141 3.25%
1-4 family residential 826 10.40% 179 12.81% 106 11.65% 130 14.51% 134 16.39%
Commercial 1,700 37.58% 1,211 34.11% 646 29.38% 856 28.05% 980 27.73%
Consumer and other loans 260 3.01% 585 5.03% 529 4.97% 653 4.73% 785 5.84%
--------- ------ -------- ------ --------- ------ -------- ----- -------- ------
$ 6,527 100.0% $ 5,975 100.00% $ 4,494 100.00% $ 4,240 100.0% $ 4,194 100.00%
========= ===== ======== ====== ========= ====== ======== ===== ======== ======
* *Percent of loans in each category to total loans.
As shown in the above table, the amount of the allowance for loan losses
allocated to 1-4 family residential loans increased significantly while the
amount allocated to consumer and other loans declined more than proportionately.
Both changes reflect the change in charge-offs experienced in those categories
in 2004 compared to prior periods. See the table under the heading "Summary of
the Allowance for Loan Losses". Charge-offs on 1-4 family residential loans in
2004 were significantly higher than the previous four years while charge-offs on
consumer and other loans dropped to a five year low.
DEPOSITS
Type of Deposits
The Company's primary source of funds is customer deposits. The Company attempts
to attract noninterest-bearing deposits, which are a low cost funding source. In
addition, West Bank offers a variety of interest-bearing accounts designed to
attract both short-term and longer-term deposits from customers.
Interest-bearing accounts earn interest at rates established by Bank management
based on competitive market factors and the Company's need for funds. While
approximately 70 percent of the Bank's certificates of deposit mature in the
next year, it is anticipated that a majority of these certificates will be
renewed. Rate sensitive certificates of deposits in excess of $100,000
experience somewhat higher volatility with regard to renewal volume as the Bank
adjusts rates based upon funding needs. In the event a substantial volume of
certificates are not renewed, the Company has sufficient liquid assets and
borrowing lines to fund significant runoff. A sustained reduction in deposit
volume would have a significant negative impact on the Company's operations and
liquidity.
The following table sets forth the average balances for each major category of
deposits and the weighted average interest rate paid for deposits during the
years ended December 31, 2004, 2003 and 2002 (dollars in thousands).
Average Deposits by Type
-----------------------------------------------------------------------
2004 2003 2002
-------------------- ---------------------- ---------------------
Amount Rate Amount Rate Amount Rate
------------ ---- ------------- ---- -------------- ----
Noninterest-bearing demand
deposits $ 175,605 - $ 148,648 - $ 140,977 -
Interest-bearing demand deposits 42,360 0.20% 41,078 0.27% 32,388 0.42%
Money market deposits 259,012 1.09% 225,811 1.02% 174,923 1.50%
Savings deposits 94,385 0.81% 79,097 0.83% 74,996 1.32%
Time certificates 193,379 1.94% 113,910 2.34% 145,341 3.50%
------------ ------------- --------------
$ 764,741 $ 608,544 $ 568,625
============ ============= ==============
19
Certificates of Deposit
The following table shows the amounts and remaining maturities of time
certificates of deposit with balances of $100,000 or more at December 31, 2004,
2003 and 2002 (in thousands).
As of December 31
-----------------------------------------
2004 2003 2002
----------- ----------- -----------
3 months or less $ 77,090 $ 23,804 $ 14,690
Over 3 through 6 months 41,085 11,396 17,590
Over 6 through 12 months 25,154 14,495 5,897
Over 12 months 50,387 13,768 50,416
----------- ----------- -----------
$ 193,716 $ 63,463 $ 88,593
=========== =========== ===========
BORROWED FUNDS
The following table summarizes the outstanding amount of and the average rate on
borrowed funds as of December 31, 2004, 2003 and 2002 (in thousands).
As of December 31
-------------------------------------------------------------
2004 2003 2002
----------------- ----------------- -------------------
Balance Rate Balance Rate Balance Rate
--------- ----- ---------- ----- --------- ------
Trust preferred securities $ - -% $ 20,000 7.04% $ - -%
Subordinated notes 20,619 7.04% - -% - -%
Long-term borrowings 81,274 4.48% 86,024 4.30% 51,600 5.56%
Federal funds purchased and securities sold
under agreements to repurchase 74,543 2.18% 85,443 0.68% 127,419 1.08%
Short-term borrowings 4,668 2.43% 9,142 1.04% 5,097 0.99%
--------- ---- ---------- ---- --------- ----
$ 181,104 3.77% $ 200,609 2.88% $ 184,116 2.33%
========= ==== ========== ==== ========= ====
Long-term borrowings consisted of Federal Home Loan Bank (FHLB) advances and an
installment note payable to VMF Capital, L.L.C. The short-term borrowings as of
the end of each year are Treasury, Tax and Loan option notes and at December 31,
2004 included a note payable to VMF Capital L.L.C., and at December 31, 2003
included an FHLB overnight advance. Average balances for short-term borrowings
for the years shown below also include overnight borrowings from the Federal
Home Loan Bank and an occasional borrowing from the Federal Reserve Bank
discount window in 2002.
The following tables set forth the average amount of, the average rate paid and
maximum outstanding balance on borrowed funds for the years ended December 31,
2004, 2003 and 2002 (in thousands).
Years Ended December 31
-----------------------------------------------------------------------
2004 2003 2002
--------------------- ----------------------- --------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
----------- ------- ------------ ------- ---------- -------
Trust preferred securities $ - -% $ 9,150 7.04% $ - -%
Subordinated notes 20,619 7.04% - -% - -%
Long-term borrowings 82,121 4.55% 68,398 4.72% 51,156 5.57%
Federal funds purchased and securities sold
under agreements to repurchase 72,397 1.18% 153,237 0.98% 131,026 1.47%
Short-term borrowings 27,927 1.59% 1,009 0.85% 2,042 1.45%
----------- ------- ------------ ------- ---------- -------
$ 203,064 3.21% $ 231,794 2.32% $ 184,224 2.61%
=========== ======= ============ ======= ========== =======
20
2004 2003 2002
-------- ---------- -------
Maximum amount outstanding during the year:
Trust preferred securities $ - $ 20,000 $ -
Subordinated notes 20,619 - -
Long-term borrowings 86,024 90,215 51,600
Federal funds purchased and securities sold
under agreements to repurchase 135,987 212,814 161,863
Short-term borrowings 99,805 9,142 6,000
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, the Company commits to extend credit through
vehicles such as loan commitments and standby letters of credit in order to meet
the financing needs of its customers. These commitments expose the company to
varying degrees of credit and market risk in excess of the amount recognized in
the consolidated balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on balance sheet instruments. As of
December 31, 2004 and 2003, the Company had commitments to extend credit of
approximately $188.5 million and $166.9 million, respectively, and standby
letters of credit of approximately $22.2 million and $20.0 million,
respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained is based on management's credit evaluation of the
party. Collateral held varies, but may include accounts receivable, inventory,
property and equipment, residential real estate, income-producing commercial
properties, crops and livestock.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held varies
as specified above and is required in instances which the Company deems
necessary. In the event the customer does not perform in accordance with the
terms of the agreement with the third party, the Bank would be required to fund
the commitment. The maximum potential amount of future payments the Bank could
be required to make is represented by the contractual amount shown above. If the
commitment was funded, the Bank would be entitled to seek recovery from the
customer. At December 31, 2004 and 2003, no amounts had been recorded as
liabilities for the Bank's potential obligations under these guarantees.
CONTRACTUAL OBLIGATIONS
The following table sets forth the balance of contractual obligations by
maturity period as of December 31, 2004 (in thousands).
Payments due by period
--------------------------------------------------------------
One to Three to
Less than three five More than
Total One year years years five years
----------- ---------- ---------- ----------- -----------
Subordinated notes $ 20,619 $ - $ - $ - $ 20,619
Long-term borrowings:
Federal Home Loan Bank advances 80,274 10,900 3,016 35,366 30,992
Note payable, VMF Capital, L.L.C. (1) 1,000 - 1,000 - -
Operating lease commitments 5,913 918 1,497 844 2,654
----------- ---------- ---------- ----------- -----------
Total $ 107,806 $ 11,818 $ 5,513 $ 36,210 $ 54,265
=========== ========== ========== =========== ===========
1 Two $500,000 installments payable to VMF Capital, L.L.C. are due and payable
in January 2006 and 2007 only if the amount of assets under management by VMF
Capital on the last day of the calendar year immediately preceding the due date
of the installment payments equal or exceed assets under management as of
October 1, 2003.
21
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for profitable business expansion. The Company's principal source
of funds is deposits including demand, money market, savings and certificates of
deposit. Other sources include principal repayments on loans, proceeds from the
maturity and sale of investment securities, federal funds purchased, repurchase
agreements, advances from the Federal Home Loan Bank and funds provided by
operations. Liquid assets of cash on hand, balances due from other banks,
federal funds sold, corporate demand notes, money market mutual funds and
interest-bearing deposits in financial institutions declined from $82 million in
2003 to $30 million in 2004. The Company had additional borrowing capacity
available from the Federal Home Loan Bank ("FHLB") of approximately $98 million
at December 31, 2004 and has a $5 million unsecured line of credit through a
large regional correspondent bank. In addition, the Bank has $100 million in
borrowing capacity available through unsecured federal funds lines of credit
with correspondent banks. Net cash from operating activities contributed $23.5
million, $17.5 million and $17.2 million to liquidity for the years 2004, 2003
and 2002, respectively. These cash flows from operations are expected to
continue in the foreseeable future.
The combination of high levels of potentially liquid assets, cash flows from
operations and additional borrowing capacity provided strong liquidity for the
Company at December 31, 2004.
The Company's total stockholders' equity increased to $97,620,000 at December
31, 2004, from $92,896,000 at December 31, 2003. Total equity increased due to
retention of earnings after dividend payments. At December 31, 2004,
stockholders' equity was 8.50 percent of total assets, compared to 9.28 percent
at December 31, 2003. No material capital expenditures or material changes in
the capital resource mix are anticipated at this time. The capital levels of the
Company exceed applicable regulatory guidelines as of December 31, 2004.
In April 2004, the Company's Board of Directors authorized the buy-back of the
Company's common stock for a period of twelve months, in an amount not to exceed
$5 million. Since the authorization, 161,312 shares at a cost of $2,360,235 have
been purchased. These purchases took place in the second quarter.
On July 14, 2004, the Board of Directors of the Company declared a 5 percent
common stock dividend to be paid on August 2, 2004 to shareholders of record on
July 26, 2004. Any fractional shares resulting from the stock dividend were paid
in cash. The number of outstanding common shares and earnings per common share
in the accompanying financial statements and footnotes reflect the 5 percent
common stock dividend.
INTEREST RATE RISK
Interest rate risk refers to the exposure of earnings and capital arising from
changes in interest rates. Management's objectives are to manage interest rate
risk and to work for consistent growth of earnings and capital. Interest rate
risk management focuses on fluctuations in net interest income identified
through computer simulations used to evaluate volatility, interest rate, spread,
and volume assumptions. This risk is quantified and compared against tolerance
levels.
The Company uses an in-house computer software simulation modeling program to
measure its exposure to potential interest rate changes. For various assumed
hypothetical changes in market interest rates, this analysis measures the
estimated change in net interest income.
Another measure of interest rate sensitivity is the gap ratio. This ratio
indicates the amount of interest-earning assets repricing within a given period
in comparison to the amount of interest-bearing liabilities repricing within the
same period of time. A gap ratio of 1.0 indicates a matched position, in which
case the effect on net interest income due to interest rate movements will be
minimal. A gap ratio of less than 1.0 indicates that more liabilities than
assets reprice within the time period and a ratio greater than 1.0 indicates
that more assets reprice than liabilities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk is comprised primarily of interest rate risk arising
from its core banking activities of lending and deposit taking. Interest rate
risk is the risk that changes in market interest rates may adversely affect the
Company's net interest income. Management continually develops and applies
strategies to mitigate this risk. Management does not believe that the Company's
primary market risk exposure and management of that exposure in 2004 changed
compared to 2003.
22
The following table presents the estimated change in net interest income for the
coming twelve months under several scenarios of assumed interest rate changes
for the rate shock levels shown:
Scenario % Change
----------------------- --------
300 basis points rising 1.85%
200 basis points rising 1.37%
100 basis points rising 1.03%
Base
100 basis points falling -2.74%
200 basis points falling -3.84%
As shown above, at December 31, 2004, the estimated effect of an immediate 300
basis point increase in interest rates would increase the Company's net interest
income by 1.85 percent or approximately $732,000 in 2005. The estimated effect
of an immediate 200 basis point decrease in rates would decrease the Company's
net interest income by 3.84 percent or approximately $1,521,000. Because the
majority of liabilities subject to interest rate movements in the short term are
of the type that generally lag interest rate movements in the market, they do
not change in the same magnitude in the short term as the change in market
rates.
Computations of the prospective effects of hypothetical interest rate changes
are based on numerous assumptions. Actual values may differ from those
projections set forth above. Further, the computations do not contemplate any
actions the Company may undertake in response to changes in interest rates.
Current interest rates on certain liabilities are at a level that does not allow
for significant re-pricing should market interest rates decline considerably.
The following table sets forth the estimated maturity or re-pricing and the
resulting interest sensitivity gap, of the Company's interest-earning assets and
interest-bearing liabilities and the cumulative interest sensitivity gap at
December 31, 2004. The expected maturities are presented on a contractual basis
or, if more relevant, based on projected call dates. Actual maturities may
differ from contractual maturities because of prepayment assumptions and early
withdrawal of deposits.
23
Three Over 3 Over 1
Months Through 12 Through Over
or Less Months 5 Years 5 Years (1) Total
----------- ---------- --------- ---------- ----------
Interest-earning assets:
Loans $ 371,255 $ 61,022 $ 243,926 $ 49,642 $ 725,845
Investment securities:
Available for sale 22,923 16,121 72,981 169,085 281,110
Held to maturity 500 11,261 13,002 34,657 59,420
Federal funds sold and other
short-term investments 11,193 - - - 11,193
Federal Home Loan Bank stock - - - 6,523 6,523
----------- ---------- --------- ---------- ----------
Total interest-earning assets 405,871 88,404 329,909 259,907 1,084,091
----------- ---------- --------- ---------- ----------
Interest-bearing liabilities
Interest-bearing deposits:
Savings, money market and
interest-bearing demand 422,560 - - - 422,560
Time 88,267 90,312 77,161 922 256,662
Federal funds purchased and
securities sold under agreement
to repurchase 74,543 - - - 74,543
Other short-term borrowings 4,668 - - - 4,668
Long-term borrowings 10,900 - 39,382 51,611 101,893
----------- ---------- --------- ---------- ----------
Total interest-bearing liabilities 600,938 90,312 116,543 52,533 860,326
----------- ---------- --------- ---------- ----------
Interest sensitivity gap per period $ (195,067) $ (1,908) $ 213,366 $ 207,374 $ 223,765
=========== ========== ========= ========== ==========
Cumulative interest sensitivity gap $ (195,067) $ (196,975) $ 16,391 $ 223,765 $ 223,765
=========== ========== ========= ========== ==========
Interest sensitivity gap ratio 0.68 0.98 2.83 4.95 1.26
=========== ========== ========= ========== ==========
Cumulative interest sensitivity gap ratio 0.68 0.72 1.02 1.26 1.26
=========== ========== ========= ========== ==========
(1) Investments with maturities over 5 years include the market values of equity
securities of $7,115,000.
As of December 31, 2004, the Company's cumulative gap ratios for assets and
liabilities re-pricing within three months and within one year were .68 and .72,
respectively, meaning that the Company is liability sensitive, or in other
words, more interest-bearing liabilities will be subject to repricing within
those time frames than interest-earning assets. However, the majority of the
interest-bearing liabilities subject to repricing within these time frames are
savings, money market and interest-bearing demand deposits. These types of
deposits generally do not reprice as quickly or with the same magnitude as
non-deposit money market instruments. The effect of this relationship is that
interest expense does not rise as quickly in times of increasing market interest
rates.
EFFECTS OF NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
The Accounting Standards Executive Committee has issued Statement of Position
03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer.
This Statement applies to all loans acquired in a transfer, including those
acquired in the acquisition of a bank or a branch, and provides that such loans
be accounted for at fair value with no allowance for loan losses, or other
valuation allowance, permitted at the time of acquisition. The difference
between cash flows expected at the acquisition date and the investment in the
loan should be recognized as interest income over the life of the loan. If
contractually required payments for principal and interest are less than
expected cash flows, this amount should not be recognized as a yield adjustment,
a loss accrual, or a valuation allowance. For the Company, this Statement is
effective for calendar year 2005. No impact is expected on the consolidated
financial statements at the time of adoption.
24
INFLATION
The primary impact of inflation on the Company's operation is increased asset
yields, deposit costs and operating overhead. Unlike most industries, virtually
all of the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates generally have a more significant impact on
a financial institution's performance than they would on non-financial
companies. Although interest rates do not necessarily move in the same direction
or to the same extent as the prices of goods and services, increases in
inflation generally have resulted in increased interest rates. The effects of
inflation can magnify the growth of assets and, if significant, require that
equity capital increase at a faster rate than would be otherwise necessary.
25
[MCGLADREY & PULLEN LOGO]
Certified Public Accountants
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
West Bancorporation, Inc.
West Des Moines, Iowa
We have audited the accompanying consolidated balance sheets of West
Bancorporation, Inc. and subsidiaries, as of December 31, 2004 and 2003, and the
related consolidated statements of income, stockholders' equity, comprehensive
income and cash flows for each of the three years in the period ended December
31, 2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of West Bancorporation,
Inc. and subsidiaries, as of December 31, 2004 and 2003, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of West
Bancorporation, Inc. and subsidiaries' internal control over financial reporting
as of December 31, 2004, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 3, 2005 expressed an
unqualified opinion.
/s/ MCGLADREY & PULLEN, LLP
Des Moines, Iowa
March 3, 2005
[McGladrey & Pullen, LLP is an independent member firm of RSM International,
an affliation of separate and independent legal entities.]
26
[MCGLADREY & PULLEN LOGO]
Certified Public Accounts
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
West Bancorporation, Inc.
Des Moines, Iowa
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting that West
Bancorporation, Inc. maintained effective internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). West Bancorporation, Inc.'s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Because management's assessment
and our audit were conducted to also meet the reporting requirements of Section
112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA),
management's assessment and our audit of West Bancorporation, Inc.'s internal
control over financial reporting included controls over the preparation of
financial statements in accordance with the instructions to the Consolidated
Reports of Condition and Income (call report instructions). A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.
[McGladrey & Pullen, LLP is an independent member firm of RSM International,
an affiliation of separate and independent legal entities.]
27
Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, management's assessment that West Bancorporation, Inc.
maintained effective internal control over financial reporting as of December
31, 2004 is fairly stated, in all material respects, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Also in our
opinion, West Bancorporation, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the balance sheets of West
Bancorporation, Inc. as of December 31, 2004 and 2003, and the related
statements of income, stockholders' equity, comprehensive income and cash flows
for each of the years in the three-year period ended December 31, 2004, and our
report dated March 3, 2005 expresses an unqualified opinion.
/s/ MCGLADREY & PULLEN, LLP
Des Moines, Iowa
March 3, 2005
28
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of West Bancorporation, Inc. (the Company) is responsible for
establishing and maintaining adequate internal control over financial reporting.
The Company's internal control system was designed to provide reasonable
assurance to the Company's management and board of directors regarding the
preparation and fair presentation of published financial statements. All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
West Bancorporation, Inc. management assessed the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004. In making
this assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated
Framework. Based on our assessment we believe that, as of December 31, 2004, the
Company's internal control over financial reporting is effective based on those
criteria. The independent registered public accounting firm that audited the
financial statements included in the annual report has issued an attestation
report on management's assessment of the Company's internal control over
financial reporting.
/S/ Thomas E. Stanberry
------------------------------------------------
Thomas E. Stanberry
Chairman, President and Chief Executive Officer
/S/ Douglas R. Gulling
------------------------------------------------
Douglas R. Gulling
Executive Vice President and Chief Financial Officer
29
WEST BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
2004 2003
--------------- ---------------
ASSETS
Cash and due from banks (Note 13) $ 18,686,360 $ 27,786,795
Federal funds sold and other short-term investments 11,193,099 54,287,004
--------------- ---------------
CASH AND CASH EQUIVALENTS 29,879,459 82,073,799
Securities available for sale (Notes 2, 7 and 9) 281,110,020 178,308,941
Securities held to maturity (Notes 2, 7 and 9) 59,419,549 91,406,205
Federal Home Loan Bank stock, at cost (Note 9) 6,522,800 5,197,600
Loans, net of allowance for loan losses (Notes 3, 7 and 9) 719,318,179 593,379,820
Premises and equipment, net (Note 4) 4,309,597 3,683,020
Accrued interest receivable 6,505,047 5,878,880
Goodwill and other intangible assets (Note 5) 16,561,810 16,900,487
Bank-owned life insurance 21,256,138 20,386,714
Other assets (Note 10) 3,551,911 3,396,145
--------------- ---------------
$ 1,148,434,510 $ 1,000,611,611
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing demand $ 186,710,245 $ 172,070,832
Savings and interest bearing demand 422,560,048 403,060,980
Time, in excess of $100,000 (Note 6) 193,716,248 63,463,030
Other time (Note 6) 62,945,833 66,479,171
--------------- ----------------
TOTAL DEPOSITS 865,932,374 705,074,013
Federal funds purchased and securities sold under
agreements to repurchase 74,543,033 85,442,675
Other short-term borrowings (Notes 2 and 7) 4,668,451 9,141,973
Accrued expenses and other liabilities 3,777,903 2,032,291
Trust preferred securities (Note 8) - 20,000,000
Subordinated notes (Note 8) 20,619,000 -
Long-term borrowings (Notes 2, 3 and 9) 81,273,773 86,024,315
--------------- ---------------
TOTAL LIABILITIES 1,050,814,534 907,715,267
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY (Notes 11 and 12)
Common stock, no par value; authorized 50,000,000 shares;
shares issued and outstanding; 16,701,843 and 16,863,285
at December 31, 2004 and 2003, respectively 3,000,000 3,000,000
Additional paid-in capital 32,000,000 32,000,000
Retained earnings 62,565,046 56,796,771
Accumulated other comprehensive income 54,930 1,099,573
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 97,619,976 92,896,344
--------------- ---------------
$ 1,148,434,510 $ 1,000,611,611
=============== ===============
See Notes to Consolidated Financial Statements.
30
WEST BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
------------- ------------- -------------
Interest income:
Loans $ 37,168,986 $ 32,633,401 $ 33,035,194
Securities:
U.S. Treasury, government agencies and corporations 6,408,522 4,727,838 6,764,475
States and political subdivisions 2,399,378 1,725,250 1,625,568
Other 2,673,791 3,111,436 1,404,173
Federal funds sold and other short-term investments 947,993 1,263,190 1,810,348
------------- ------------- -------------
TOTAL INTEREST INCOME 49,598,670 43,461,115 44,639,758
------------- ------------- -------------
Interest expense:
Demand and savings deposits 3,681,439 3,084,033 3,755,205
Time deposits 3,759,910 2,665,970 5,084,437
Federal funds purchased and securities sold under
agreements to repurchase 857,050 1,503,051 1,929,097
Other short-term borrowings 444,120 8,564 29,622
Trust preferred securities - 649,280 -
Subordinated notes 1,475,429 - -
Long-term borrowings 3,733,719 3,228,493 2,851,210
------------- ------------- -------------
TOTAL INTEREST EXPENSE 13,951,667 11,139,391 13,649,571
------------- ------------- -------------
NET INTEREST INCOME 35,647,003 32,321,724 30,990,187
Provision for loan losses (Note 3) 1,200,000 850,000 910,000
------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 34,447,003 31,471,724 30,080,187
------------- ------------- -------------
Noninterest income:
Service charges on deposit accounts 4,968,077 4,984,373 4,705,261
Trust services 631,500 507,000 569,634
Investment advisory fees 2,682,690 503,899 -
Increase in cash value of bank-owned life insurance 869,423 666,785 -
Proceeds from bank-owned life insurance - 821,254 -
Net realized gains from sales of securities available for sale 198,877 299,562 115,939
Other income 1,355,342 1,522,348 1,223,368
------------- ------------- -------------
TOTAL NONINTEREST INCOME 10,705,909 9,305,221 6,614,202
------------- ------------- -------------
Noninterest expenses:
Salaries and employee benefits 9,680,139 7,700,608 6,408,438
Occupancy 2,056,755 1,582,660 1,310,971
Data processing 1,360,724 1,130,131 1,006,272
Charitable contributions 147,584 1,483,516 106,552
Other expenses 3,722,923 2,797,331 2,388,294
------------- ------------- -------------
TOTAL NONINTEREST EXPENSES 16,968,125 14,694,246 11,220,527
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 28,184,787 26,082,699 25,473,862
Income taxes (Note 10) 9,570,310 8,800,071 9,098,059
------------- ------------- -------------
NET INCOME $ 18,614,477 $ 17,282,628 $ 16,375,803
============= ============= =============
Earnings per share, basic $ 1.11 $ 1.02 $ 0.97
============= ============= =============
See Notes to Consolidated Financial Statements.
31
WEST BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
------------- ------------- -------------
Common stock:
Beginning of year balance $ 3,000,000 $ 3,000,000 $ 3,000,000
------------- ------------- -------------
End of year balance 3,000,000 3,000,000 3,000,000
------------- ------------- -------------
Additional paid-in capital:
Beginning of year balance 32,000,000 32,000,000 32,000,000
------------- ------------- -------------
End of year balance 32,000,000 32,000,000 32,000,000
------------- ------------- -------------
Retained earnings:
Beginning of year balance 56,796,771 49,792,716 43,374,281
Net income 18,614,477 17,282,628 16,375,803
Dividends on common stock; per share amounts
2004 $0.625; 2003 $0.610; 2002 $0.590 (10,483,877) (10,278,573) (9,957,368)
Purchase of fractional shares resulting from stock
dividend (2,090) - -
Shares reacquired under the common stock
repurchase plan (2,360,235) - -
------------- ------------- -------------
End of year balance 62,565,046 56,796,771 49,792,716
------------- ------------- -------------
Accumulated other comprehensive income (loss):
Beginning of year balance 1,099,573 1,031,446 637,980
Other comprehensive income (loss), unrealized gains (losses) on
securities, net of reclassification adjustment, net of tax (Note 2) (1,044,643) 68,127 393,466
------------- ------------- -------------
End of year balance 54,930 1,099,573 1,031,446
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY $ 97,619,976 $ 92,896,344 $ 85,824,162
============= ============= =============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
------------- ------------- -------------
Net income $ 18,614,477 $ 17,282,628 $ 16,375,803
Other comprehensive income (loss), unrealized gains (losses) on
securities, net of reclassification adjustment, net of tax (Note 2) (1,044,643) 68,127 393,466
------------- ------------- -------------
COMPREHENSIVE INCOME $ 17,569,834 $ 17,350,755 $ 16,769,269
============= ============= =============
See Notes to Consolidated Financial Statements.
32
WEST BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,614,477 $ 17,282,628 $ 16,375,803
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 1,200,000 850,000 910,000
Net amortization and accretion 1,910,806 1,833,470 570,344
Loss on disposition of fixed assets 28,236 - 28,665
Net (gains) from sales of securities available for sale and loans
held for sale (351,343) (657,029) (290,802)
Proceeds from sales of loans held for sale 12,977,354 34,940,846 11,135,193
Originations of loans held for sale (12,878,888) (34,626,996) (10,972,180)
Depreciation 359,004 252,164 171,791
Deferred income taxes 486,713 (265,517) (20,179)
Change in assets and liabilities:
(Increase) in accrued interest receivable (626,167) (674,677) (101,611)
Increase (decrease) in accrued expenses and other liabilities 1,745,612 (1,483,171) (559,056)
------------- ------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 23,465,804 17,451,718 17,247,968
------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales, calls and maturities of securities
available for sale 103,179,320 48,649,704 12,827,854
Purchases of securities available for sale (195,052,005) (147,154,163) (51,171,184)
Proceeds from maturities and calls of securities held to maturity 48,453,000 70,566,334 149,242,544
Purchases of securities held to maturity (30,717,948) (16,755,419) (133,505,723)
Cash effect of Hawkeye State Bank and VMF Capital transactions - 19,124,018 -
Acquisition of Federal Home Loan Bank stock (12,591,300) (446,900) -
Proceeds from redemption of Federal Home Loan Bank stock 11,266,100 191,400 -
Net (increase) decrease in loans (127,084,359) (26,501,634) 4,300,974
Purchases of premises and equipment (1,013,817) (180,406) (447,955)
Purchase of bank-owned life insurance - (20,000,000) -
Change in other assets (907,130) (312,423) 574,900
------------- ------------- --------------
NET CASH (USED IN) INVESTING ACTIVITIES (204,468,139) (72,819,489) (18,178,590)
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 160,858,361 (10,343,765) 41,368,210
Net change in federal funds purchased and securities
sold under agreements to repurchase (10,899,642) (43,321,061) 19,586,736
Net change in other short-term borrowings (5,023,522) 4,045,101 (903,128)
Proceeds from issuing trust preferred securities - 20,000,000 -
Proceeds from long-term borrowings 10,619,000 1,550,000 3,600,000
Principal payments on long-term borrowings (13,900,000) (5,424,200) -
Purchase of fractional shares resulting from stock dividend (2,090) - -
Payment for shares reacquired under common stock
repurchase plan (2,360,235) - -
Cash dividends (10,483,877) (10,278,573) (9,957,368)
------------- ------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 128,807,995 (43,772,498) 53,694,450
------------- ------------- --------------
(Continued)
33
WEST BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (52,194,340) $ (99,140,269) $ 52,763,828
CASH AND CASH EQUIVALENTS
Beginning 82,073,799 181,214,068 128,450,240
------------- -------------- --------------
Ending $ 29,879,459 $ 82,073,799 $ 181,214,068
============= ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest $ 12,939,967 $ 11,523,793 $ 14,305,494
Income taxes 8,548,000 9,747,183 9,198,986
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Assets and (liabilities) received in conjunction with
acquisition transactions:
Cash $ - $ 22,701,753 $ -
Investment securities - 17,424,813 -
Federal Home Loan Bank stock - 1,812,400 -
Loans, net - 83,725,241 -
Premises and equipment - 2,360,129 -
Goodwill - 14,518,585 -
Core deposit and other intangibles - 2,503,982 -
Other assets - 1,206,565 -
Deposits - (102,319,278) -
Federal Home Loan Bank advances - (38,614,630) -
Securities sold under agreements to repurchase - (1,345,065) -
Other liabilities - (396,760) -
------------- -------------- --------------
- 3,577,735 -
Less cash acquired - (22,701,753) -
------------- -------------- --------------
NET CASH (PROVIDED BY) TRANSACTIONS $ - $ (19,124,018) $ -
============= ============== ==============
See Notes to Consolidated Financial Statements.
34
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization and nature of business: West Bancorporation, Inc. (the Holding
Company) is a holding company which has three wholly-owned subsidiaries, West
Bank (the Bank), WB Capital Management Inc. (WB Capital) and West Bancorporation
Capital Trust I (the Trust) which was formed in 2003 for the purpose of issuing
trust preferred securities (referred to collectively as the Company). The Bank
is state chartered and has its main office in West Des Moines, Iowa, with seven
branches located in the Des Moines metropolitan area and three branches located
in the Iowa City metropolitan area. WB Capital (d/b/a VMF Capital) was formed in
2003 and is an investment advisory firm with offices located in Clive and Cedar
Rapids, Iowa.
Significant accounting policies:
Accounting estimates and assumptions: The consolidated financial
statements have been prepared in conformity with generally accepted
accounting principles. In preparing the financial statements, management
is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the reported amounts of revenue and
expense for the reporting period. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to
significant change in the near term are the allowance for loan losses and
fair value of financial instruments.
Consolidation policy: The consolidated financial statements include the
accounts of the Holding Company, the Bank and WB Capital. All significant
intercompany transactions and balances have been eliminated in
consolidation. A revision to FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, in the first quarter of 2004 stated that the
financial statements for the Trust should not be consolidated with the
Company's and intercompany transactions should not be eliminated. The
result of this change is that the balance of subordinated debt has
increased by $619,000, which represents debt issued by the Company to the
Trust. In addition, other assets increased by $619,000, which represents
the Company's investment in the common stock of the Trust. The results of
the Trust are recorded on the books of the Company using the equity method
of accounting. There was no impact to net income as a result of this
change.
Other comprehensive income: The Financial Accounting Standards Board
(FASB) Statement No. 130 requires unrealized gains and losses on the
Company's securities available for sale to be included in comprehensive
income.
Cash and cash equivalents: For the statement of cash flow purposes, the
Company considers cash, due from banks, federal funds sold and short-term
investments, including money market mutual funds, to be cash and cash
equivalents.
Securities: Securities available for sale are reported at fair value, with
unrealized gains and losses reported as a separate component of
accumulated other comprehensive income, net of deferred income taxes.
Available for sale securities may be sold for general liquidity needs,
response to market interest rate fluctuations, implementation of
asset-liability management strategies, funding increased loan demand,
changes in securities prepayment risk or other similar factors. Realized
gains and losses on sales are computed on a specific identification basis.
35
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities held to maturity consist of debt securities for which the
Company has the positive intent and the ability to hold to maturity. They
are stated at cost, net of premium amortization and discount accretion.
Declines in the fair value of individual securities, classified as either
held to maturity or available for sale below their amortized cost, that
are determined to be other than temporary result in write-downs of the
individual securities to their fair value with the resulting write-downs
included in current earnings as realized losses.
Loans held for sale: Loans held for sale are those loans held with the
intent to sell in the foreseeable future. They are carried at the lower of
aggregate cost or market value. Sales are made without recourse and any
gain or loss is recognized at the settlement date.
Loans: Loans are stated at the principal amounts outstanding reduced by
the allowance for loan losses, unearned discount and unearned loan fees
with interest income recognized on the interest method based upon those
outstanding loan balances.
The accrual of interest on past due and other impaired loans is generally
discontinued at 90 days or when, in the opinion of management, the
borrower may be unable to make payments as they become due. Interest
income is subsequently recognized only to the extent cash payments are
received.
A loan is impaired when it is probable the Bank will be unable to collect
all contractual principal and interest payments due in accordance with the
terms of the loan agreement. Impaired loans are measured based on the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. The amount of impairment, if any, and any subsequent
changes are included in the allowance for loan losses.
Allowance for loan losses: 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
collectibility of the principal is unlikely. The allowance is an amount
that management believes will be adequate to absorb probable losses on
existing loans, based on an evaluation of the collectibility of loans and
prior loss experience. This evaluation also takes into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that may affect the borrower's ability to pay. 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. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses, and may require the Bank to make additions to
the allowance based on their judgment about information available to them
at the time of their examinations.
Premises and equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets.
Trust assets: Assets held by the Bank in fiduciary or agency capacities
are not included in the consolidated financial statements.
Investment advisory assets under management: Assets managed by WB Capital
are not included in the consolidated financial statements.
36
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets: The price paid over the net fair value of the acquired
businesses ("goodwill") is not amortized. Other intangible assets are
amortized over their estimated useful lives, using straight-line and
accelerated methods. The recoverability of goodwill and other intangible
assets is evaluated annually, at a minimum, or on an interim basis if
events or circumstances indicate a possible inability to realize the
carrying amount.
Bank-owned life insurance: The carrying amount of bank-owned life
insurance consists of the initial premium paid plus increases in cash
value less the carrying amount associated with any death benefit received.
Death benefits paid in excess of the applicable carrying amount are
recognized as income which is exempt from income taxes. During 2003, the
Bank made two purchases of bank-owned life insurance with the initial
premium totaling $20,000,000.
Income taxes: The Company files a consolidated federal income tax return.
Income tax expense is generally allocated as if the Holding Company and
its subsidiaries file separate income tax returns. Deferred taxes are
provided on a liability method whereby deferred tax assets are recognized
for deductible temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the changes between the
reported amounts of assets and liabilities and their tax basis. Deferred
tax assets are reduced by a valuation allowance, when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Current accounting developments: The Accounting Standards Executive
Committee has issued Statement of Position 03-3, Accounting for Certain
Loans or Debt Securities Acquired in a Transfer. This Statement applies to
all loans acquired in a transfer, including those acquired in the
acquisition of a bank or a branch, and provides that such loans be
accounted for at fair value with no allowance for loan losses, or other
valuation allowance, permitted at the time of acquisition. The difference
between cash flows expected at the acquisition date and the investment in
the loan should be recognized as interest income over the life of the
loan. If contractually required payments for principal and interest are
less than expected cash flows, this amount should not be recognized as a
yield adjustment, a loss accrual or a valuation allowance. For the
Company, this Statement is effective for calendar year 2005. No impact is
expected on the consolidated financial statements at the time of adoption.
Acquisitions: On July 18, 2003, the Company, through its wholly-owned bank
subsidiary, West Bank, purchased the assets and assumed certain
liabilities of Hawkeye State Bank in Iowa City, Iowa. In conjunction with
this acquisition, the Company issued $20,000,000 in company-obligated,
mandatorily redeemable preferred securities (commonly known as trust
preferred securities) through a pooled transaction. Goodwill of
$13,376,000 and a core deposit intangible of $1,680,000 were recorded as a
result of the transaction. The core deposit intangible is being amortized
over an estimated average life of approximately seven years.
On October 1, 2003, the Company, through a newly formed subsidiary, WB
Capital Management Inc., purchased the assets and assumed certain
liabilities of VMF Capital, L.L.C. The company does business as VMF
Capital. The purchase price was paid for by a combination of cash and a
note payable. The payment of the note is contingent upon maintaining a
certain amount of assets under management, which is expected to occur.
Additional payments are contingent upon the attainment of certain
profitability measures. The probability of attaining those profitability
measures is not determinable. Goodwill of $1,162,000 and identifiable
intangible assets of $824,000 were recorded with this transaction. The
identifiable intangible assets are being amortized over estimated lives of
6 - 10 years. The operations of Hawkeye State Bank and VMF Capital are
included in the consolidated statements of income, comprehensive income
and cash flows from the date of acquisition.
37
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassification: Certain items on the consolidated statements of income
as of December 31, 2003 and 2002 were reclassified with no effect on net
income or stockholders' equity, to be consistent with the classifications
used in the December 31, 2004 statement.
Earnings per share: Earnings per share represents income available to
common shareholders divided by the weighted average number of shares
outstanding during the period.
On July 14, 2004, the Board of Directors of the Company declared a 5
percent common stock dividend to be effective on August 2, 2004.
Fractional shares resulting from the stock dividend were paid in cash. The
average number of common shares outstanding and the earnings per common
share have been restated for the stock dividend as if it occurred on
January 1, 2002.
Presented below is the numerator and denominator used in the computations
for earnings per common share for the years ended December 31: (The
Company has no common equivalent shares that could cause dilution.)
2004 2003 2002
------------- ------------ -------------
Numerator, income available to
common stockholders $ 18,614,477 $ 17,282,628 $ 16,375,803
============= ============ =============
Denominator, weighted-average
shares outstanding 16,761,278 16,863,285 16,863,285
============= ============ =============
Basic earnings per common share $ 1.11 $ 1.02 $ 0.97
============= ============ =============
NOTE 2. SECURITIES
Securities available for sale are as follows as of December 31, 2004 and 2003:
2004
--------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
--------------- ----------- ------------ -------------
U.S. Government agencies and corporations $ 186,008,795 $ 670,429 $ (378,224) $ 186,301,000
State and political subdivisions 59,220,322 467,694 (959,570) 58,728,446
Corporate notes and other investments 35,790,055 327,497 (36,978) 36,080,574
--------------- ----------- ------------ -------------
$ 281,019,172 $ 1,465,620 $ (1,374,772) $ 281,110,020
=============== =========== ============ =============
38
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2003
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------------- ----------- ------------ -------------
U.S. Government agencies and corporations $ 98,032,442 $ 1,038,983 $ (191,298) $ 98,880,127
State and political subdivisions 11,384,712 373,553 (5,931) 11,752,334
Corporate notes and other investments 67,119,191 638,896 (81,607) 67,676,480
--------------- ----------- ------------ -------------
$ 176,536,345 $ 2,051,432 $ (278,836) $ 178,308,941
=============== =========== ============ =============
Securities held to maturity are as follows as of December 31, 2004 and 2003:
2004
--------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
--------------- ----------- ------------ -------------
U.S. Government agencies and corporations $ 13,000,532 $ 95,868 $ - $ 13,096,400
State and political subdivisions 38,185,095 629,910 (99,697) 38,715,308
Corporate notes and other investments 8,233,922 148,249 (52,721) 8,329,450
--------------- ----------- ------------ -------------
$ 59,419,549 $ 874,027 $ (152,418) $ 60,141,158
=============== =========== ============ =============
2003
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------------- ----------- ------------ -------------
U.S. Government agencies and corporations $ 39,192,519 $ 925,543 $ - $ 40,118,062
State and political subdivisions 36,894,510 874,988 (39,163) 37,730,335
Corporate notes and other investments 15,319,176 309,296 - 15,628,472
--------------- ----------- ------------ -------------
$ 91,406,205 $ 2,109,827 $ (39,163) $ 93,476,869
=============== =========== ============ =============
39
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables show the gross fair value and gross unrealized losses,
aggregated by investment category and length of time that individual securities
have been in a continuous loss position, as of December 31, 2004 and 2003.
2004
--------------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL
----------------------------- --------------------------- ----------------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
VALUE (LOSSES) VALUE (LOSSES) VALUE (LOSSES)
------------- ------------ ------------ ----------- ------------- ------------
U.S. Government
agencies and
corporations $ 57,715,120 $ (272,469) $ 2,887,500 $ (105,755) $ 60,602,620 $ (378,224)
State and political
subdivisions 54,733,968 (1,046,436) 1,239,176 (12,831) 55,973,144 (1,059,267)
Corporate notes and
other investments 11,694,243 (89,699) - - 11,694,243 (89,699)
------------- ------------ ------------ ----------- ------------- ------------
$ 124,143,331 $ (1,408,604) $ 4,126,676 $ (118,586) $ 128,270,007 $ (1,527,190)
============= ============ ============ =========== ============= ============
2004
--------------------------------------------------------------------------------------------
Less than 12 months 12 months or longer Total
----------------------------- --------------------------- ----------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value (Losses) Value (Losses) Value (Losses)
------------- ------------ ------------ ----------- ------------- ------------
U.S. Government
agencies and
corporations $ 22,817,468 $ (191,298) $ - $ - $ 22,817,468 $ (191,298)
State and political
subdivisions 8,814,323 (25,854) 903,389 (19,240) 9,717,712 (45,094)
Corporate notes and
other investments 10,284,607 (81,607) - - 10,284,607 (81,607)
------------- ------------ ------------ ----------- ------------- ------------
$ 41,916,398 $ (298,759) $ 903,389 $ (19,240) $ 42,819,787 $ (317,999)
============= ============ ============ =========== ============= ============
As of December 31, 2004, the investment portfolio included one U.S. agency
security and three municipal securities with a current unrealized loss which has
existed for longer than one year. The agency security and one of the municipal
securities reside in the Bank's available for sale portfolio and two municipal
securities reside in the Bank's held to maturity portfolio. All of the municipal
obligations are with Iowa communities considered to be acceptable credit risks.
Because the declines in fair value were due to changes in market interest rates,
not in estimated cash flows, no other-than-temporary impairment was recorded at
December 31, 2004.
40
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair value of securities available for sale as of
December 31, 2004 and 2003 by contractual maturity are shown below:
2004 2003
------------------------------ -------------------------------
AMORTIZED FAIR Amortized Fair
COST VALUE Cost Value
------------- ------------- ------------- -------------
Due in one year or less $ 25,400,202 $ 25,454,217 $ 49,040,785 $ 49,290,174
Due after one year through five years 80,033,811 79,985,321 55,103,846 55,909,990
Due after five years through ten years 115,059,485 115,323,290 52,052,317 52,306,727
Due after ten years 60,525,674 60,347,192 20,339,397 20,802,050
------------- ------------- ------------- -------------
$ 281,019,172 $ 281,110,020 $ 176,536,345 $ 178,308,941
============= ============= ============= =============
The amortized cost and fair value of securities held to maturity as of December
31, 2004 and 2003 by contractual maturity are shown below:
2004 2003
------------------------------ -------------------------------
AMORTIZED FAIR Amortized Fair
COST VALUE Cost Value
------------- ------------- ------------- -------------
Due in one year or less $ 11,761,280 $ 11,785,795 $ 22,048,507 $ 22,322,211
Due after one year through five years 13,002,163 13,210,685 43,660,928 44,597,553
Due after five years through ten years 11,174,923 11,405,073 9,042,035 9,252,782
Due after ten years 23,481,183 23,739,605 16,654,735 17,304,323
------------- ------------- ------------- ------------
$ 59,419,549 $ 60,141,158 $ 91,406,205 $ 93,476,869
============= ============= ============= ============
For the years ended December 31, 2004, 2003 and 2002, proceeds from sales of
securities available for sale amounted to $12,388,666, $23,310,427 and
$9,437,287, respectively. Security gains of $255,845, $363,881 and $115,939 were
realized for the years ended December 31, 2004, 2003 and 2002, respectively.
Security losses of $56,968, $64,319 and $0 were realized for the years ended
December 31, 2004, 2003 and 2002, respectively.
Securities with an amortized cost of approximately $237,346,000 and $103,863,000
as of December 31, 2004 and 2003, respectively, were pledged as collateral on
the treasury tax and loan option notes, securities sold under agreements to
repurchase, federal funds purchased, Federal Home Loan Bank (FHLB) notes
payable, and for other purposes as required or permitted by law or regulation.
41
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of other comprehensive income (loss), net unrealized gains
(losses) on securities available for sale, net of tax for the years ended
December 31, 2004, 2003 and 2002, are as follows:
2004 2003 2002
------------- ----------- -----------
Unrealized holding gains (losses) arising
during the period $ (1,482,872) $ 408,535 $ 750,502
Less reclassification adjustment for net (gains)
realized in net income (198,877) (299,562) (115,939)
------------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS),
NET UNREALIZED GAINS (LOSSES)
ON SECURITIES AVAILABLE FOR
SALE BEFORE TAX (EXPENSE) CREDIT (1,681,749) 108,973 634,563
Tax (expense) credit 637,106 (40,846) (241,097)
------------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS),
NET UNREALIZED GAINS (LOSSES) ON
SECURITIES AVAILABLE FOR SALE, NET
OF TAX $ (1,044,643) $ 68,127 $ 393,466
============= =========== ===========
NOTE 3. LOANS
Loans are as follows, as of December 31, 2004 and 2003:
2004 2003
------------- -------------
Commercial $ 268,805,257 $ 244,172,603
Real estate:
Construction, land and land development 87,379,222 44,199,507
1-4 family residential 75,615,737 76,852,982
Commercial 273,204,333 204,673,438
Consumer and other loans 21,897,355 30,166,472
------------- -------------
726,901,904 600,065,002
------------- -------------
Allowance for loan losses 6,526,824 5,975,587
Unearned discount and loan fees 1,056,901 709,595
------------- -------------
7,583,725 6,685,182
------------- -------------
$ 719,318,179 $ 593,379,820
============= =============
42
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The loan portfolio includes approximately $322,027,000 and $324,207,000 of fixed
rate loans and $404,875,000 and $275,858,000 of variable rate loans as of
December 31, 2004 and 2003, respectively.
Loans of approximately $354,000 and $472,000 as of December 2004 and 2003,
respectively, were pledged as collateral on the treasury tax and loan option
notes and for other purposes as required or permitted by regulation.
Changes in the allowance for loan losses were as follows for the years ended
December 31, 2004, 2003 and 2002:
2004 2003 2002
------------ ------------ ------------
Balance, at beginning of year $ 5,975,587 $ 4,493,583 $ 4,239,990
Increase in allowance related to acquisition - 911,000 -
Provision for loan losses 1,200,000 850,000 910,000
Recoveries 166,311 205,057 537,902
Charge-offs (815,074) (484,053) (1,194,309)
------------ ------------ ------------
Balance, at end of year $ 6,526,824 $ 5,975,587 $ 4,493,583
============ ============ ============
Impaired loans (nonaccrual loans) were approximately $785,000 and $1,668,000 as
of December 31, 2004 and 2003, respectively. The total allowance for loan losses
related to these loans was approximately $196,000 and $166,800 as of December
31, 2004 and 2003, respectively. The average recorded investment in impaired
loans during 2004 and 2003 was approximately $1,793,000 and $1,255,000,
respectively. Interest income foregone on impaired loans was approximately
$98,000 during 2004 and $102,000 in 2003.
The Company has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, executive
officers, their immediate families and affiliated companies in which they are
principal stockholders (commonly referred to as related parties), all of which
have been, in the opinion of management, on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated parties.
Loan transactions with related parties were as follows for the years ended
December 31, 2004 and 2003:
2004 2003
------------- --------------
Balance, beginning of year $ 17,963,975 $ 17,852,354
New loans 5,863,825 17,537,995
Repayments (9,280,443) (16,615,166)
Reduction in reported amounts due to director retirements - (811,208)
------------- --------------
Balance, end of year $ 14,547,357 $ 17,963,975
============= ==============
43
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are as follows as of December 31, 2004 and 2003:
2004 2003
------------ ------------
Land $ 1,306,816 $ 1,306,816
Building 1,014,866 949,976
Equipment 3,644,879 3,258,926
Leasehold improvements 938,764 952,078
------------ ------------
6,905,325 6,467,796
Accumulated depreciation 2,595,728 2,784,776
------------ ------------
$ 4,309,597 $ 3,683,020
============ ============
NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is the excess of the cash paid over the net fair value of assets
acquired and liabilities assumed in an acquisition, less the amount of
identifiable intangible assets. Goodwill is not amortized, but is tested for
impairment on an annual basis. The Company has determined that there is no
impairment of goodwill. At December 31, 2004 and 2003, the Company had goodwill
of $14,537,585 and $14,518,585, respectively.
Other intangible assets are those that can be separately identified and assigned
a value. Other intangible assets are amortized over their estimated life using
an appropriate amortization method. The Company is using the straight-line
method to amortize the core deposit intangible and employment/non-compete
contracts and accelerated methods to amortize the intangible assets associated
with client lists. The value of the core deposit intangible was determined
according to four major deposit categories; noninterest bearing demand deposits,
interest-bearing demand deposits, savings deposits and money market deposits. A
separate estimated life was determined for each component. At December 31, 2004
and 2003, the Company had gross other intangible assets of $2,503,982 and
$2,814,977, and accumulated amortization of $479,757 and $433,075, respectively.
Goodwill and other intangible assets primarily result from the acquisition of
Hawkeye State Bank and VMF Capital, L.L.C. The composition of goodwill and other
intangible assets is as follows:
Employment/
Core Deposit Noncompete
Goodwill Intangible Client Base Contracts Total
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2002 $ - $ 47,730 $ - $ - $ 47,730
Additions - 2003 14,518,585 1,679,655 499,082 325,245 17,022,567
Amortization - 2003 - 129,842 23,706 16,262 169,810
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2003 14,518,585 1,597,543 475,376 308,983 16,900,487
Additions - 2004 19,000 - - - 19,000
Amortization - 2004 - 232,635 71,306 53,736 357,677
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2004 $ 14,537,585 $ 1,364,908 $ 404,070 $ 255,247 $ 16,561,810
============ ============ ============ ============ ============
44
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The future scheduled amortization as of December 31, 2004 is as follows:
Employment/
Core Deposit Noncompete
Intangible Client Base Contracts Total
------------ ----------- ----------- ------------
2005 $ 216,726 $ 68,692 $ 53,736 $ 339,154
2006 216,726 65,399 53,736 335,861
2007 216,726 61,083 53,736 331,545
2008 237,608 55,423 53,736 346,767
2009 204,922 48,212 40,303 293,437
Thereafter 272,200 105,261 - 377,461
------------ ----------- ----------- ------------
$ 1,364,908 $ 404,070 $ 255,247 $ 2,024,225
============ =========== ========== ============
NOTE 6. DEPOSITS
At December 31, 2004, the scheduled maturities of time deposits are as follows:
2005 $ 178,579,077
2006 62,816,704
2007 8,853,755
2008 2,279,555
2009 and thereafter 4,132,990
-------------
$ 256,662,081
=============
NOTE 7. SHORT-TERM BORROWINGS
Short-term borrowings as of December 31, 2004 consisted of Treasury, Tax and
Loan option notes and a note payable to VMF Capital L.L.C. The related interest
expense for 2004 consisted of interest on Treasury, Tax and Loan and FHLB
short-term advances. Short-term borrowings as of December 31, 2003, and the
related interest expense for the year 2003, consisted of Treasury, Tax and Loan
option notes and an FHLB overnight advance. Short-term borrowings as of December
31, 2002, and the related interest expense for the year 2002, consisted of
Treasury, Tax and Loan option notes. The notes are collateralized by certain
loans and investment securities.
NOTE 8. SUBORDINATED NOTES/TRUST PREFERRED SECURITIES
On July 18, 2003, the Company obtained $20,619,000 in trust preferred securities
from its participation in the issuance of a pooled trust preferred security. The
security has a 30-year maturity, does not require any principal amortization and
is callable in seven years at par at the issuer's option. The interest rate is
fixed for seven years at 6.975% and then becomes variable based on the
three-month LIBOR rate plus 3.05 percent. Interest is payable quarterly. Holders
of the subordinated notes have no voting rights, are unsecured, and rank junior
in priority to all of the Company's indebtedness and senior to the Company's
common stock. See Note 1 for a discussion of the accounting principals related
to this debt.
45
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. LONG-TERM BORROWINGS
At December 31, 2004, long-term borrowings consist of the following FHLB
advances and a note payable to VMF Capital, L.L.C.:
INTEREST
AMOUNT RATE MATURITY
--------------- -------- --------
FHLB advances $ 10,900,000 1.62% 2005
- - 2006
3,016,373 3.33 2007
33,376,969 4.89 2008 (a)
1,988,511 4.16 2009
25,404,335 5.48 2010 (a)
5,587,585 3.46 2011
---------------
TOTAL FHLB ADVANCES 80,273,773
---------------
Note payable, VMF Capital, L.L.C 500,000 6.00 2006
500,000 6.00 2007
---------------
TOTAL NOTE PAYABLE,
VMF CAPITAL, L.L.C 1,000,000
---------------
TOTAL LONG-TERM BORROWINGS $ 81,273,773
===============
(a) These advances are callable on a quarterly basis.
The FHLB advances are collateralized by FHLB stock, investment securities and
real estate loans as required by the FHLB's collateral policy. Certain advances
listed above were assumed in the Hawkeye State Bank transaction. Balances shown
and the indicated interest rate reflect purchase accounting adjustments.
The two $500,000 installments payable to VMF Capital, L.L.C. are due and payable
only if the amount of assets under the management of WB Capital on the last day
of the calendar year immediately preceding the due date of the installment
payments equal or exceed assets under management as of October 1, 2003.
In the second quarter of 2003, the Company obtained a $5 million unsecured line
of credit through a large regional correspondent bank. The interest rate is
variable and tied to LIBOR. The line was not used during 2004 or 2003.
At December 31, 2004, the Bank had arrangements to borrow $100 million in
unsecured federal funds lines of credit at correspondent banks which are
available under the correspondent bank's normal terms. Two of these lines expire
at various times through December 2005. The others have no stated expiration
date. There were no amounts outstanding under these arrangements at December 31,
2004. The Bank also has additional borrowing capacity of approximately $98
million at the FHLB as of December 31, 2004.
46
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. INCOME TAXES
The components of income tax expense are as follows for the years ended December
31, 2004, 2003 and 2002:
2004 2003 2002
------------ ------------ ------------
Current:
Federal $ 7,728,405 $ 7,757,894 $ 7,820,938
State 1,355,192 1,307,694 1,297,300
Deferred 486,713 (265,517) (20,179)
------------ ------------ ------------
$ 9,570,310 $ 8,800,071 $ 9,098,059
============ ============ ============
Total income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 35% to income before income taxes as a result of the
following:
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
2004 2003 2002
----------------------- ---------------------- -----------------------
PERCENT Percent Percent
OF PRETAX of Pretax of Pretax
AMOUNT INCOME Amount Income Amount Income
----------- --------- ----------- --------- ----------- ---------
Computed "expected" tax
expense $ 9,864,676 35.0% $ 9,128,944 35.0% $ 8,915,852 35.0%
State income tax, net of
federal income tax benefit 902,065 3.2 825,336 3.2 843,245 3.3
Tax-exempt interest income (971,936) (3.4) (698,784) (2.7) (746,284) (2.9)
Nondeductible interest
expense to own
tax-exempts 77,507 0.3 53,921 0.2 66,678 0.3
Tax-exempt life insurance
proceeds and increase
in cash value (304,298) (1.1) (520,814) (2.0) - -
Other, net 2,296 - 11,468 - 18,568 -
----------- ---- ----------- ---- ----------- ----
$ 9,570,310 34.0% $ 8,800,071 33.7% $ 9,098,059 35.7%
=========== ==== =========== ==== =========== ====
47
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net deferred tax assets consist of approximately the following as of December
31, 2004 and 2003:
2004 2003
------------ ------------
Deferred tax assets:
Allowance for loan losses $ 2,480,193 $ 2,270,723
Purchase accounting on borrowings 670,272 887,501
State net operating loss carryforward 101,300 83,700
Other 56,216 58,726
------------ ------------
3,307,981 3,300,650
------------ ------------
Deferred income tax liabilities:
Deferred loan fees 164,336 206,667
Net unrealized gain on securities available for sale 35,917 673,022
Intangibles 1,360,357 1,173,750
Premises and equipment 397,665 239,452
Other 260,397 86,442
------------ ------------
2,218,672 2,379,333
------------ ------------
Net deferred tax asset before valuation allowance 1,089,309 921,317
Valuation allowance for deferred tax asset (101,300) (83,700)
------------ ------------
NET DEFERRED TAX ASSET $ 988,009 $ 837,617
============ ============
The Company has approximately $1,688,000 of operating loss carryforwards
available to the Holding Company and WB Capital to offset future state taxable
income. The Company has recorded a valuation allowance against the tax effect of
those net operating loss carryforwards as management believes it is more likely
than not that such carryforwards will expire without being utilized. The state
operating loss carryforwards expire as follows:
YEAR EXPIRING:
2005 $ 84,000
2006 42,000
2007 12,000
2008 -
2009 and thereafter 1,550,000
-----------
$ 1,688,000
===========
48
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. REGULATORY CAPITAL REQUIREMENTS
The Holding Company and Bank are subject to various regulatory capital
requirements administered by federal and state banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Holding Company's and
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital to risk-weighted assets and of Tier
I capital to average assets. Management believes the Holding Company and Bank
met all capital adequacy requirements to which they are subject as of December
31, 2004.
As of December 31, 2004, the most recent notification from regulatory agencies
categorized the Bank as well-capitalized under the regulatory framework for
prompt corrective action. To be categorized as well-capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
similar to those set forth in the following table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Holding Company's capital amounts and ratios are as follows:
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ----------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ----- ------------- ----- ------------- -----
AS OF DECEMBER 31, 2004:
TOTAL CAPITAL (TO RISK-
WEIGHTED ASSETS) $ 107,530,000 12.3% $ 69,821,000 8.0% $ 87,276,000 10.0%
TIER I CAPITAL (TO RISK-
WEIGHTED ASSETS) 101,003,000 11.6 34,910,000 4.0 52,366,000 6.0
TIER I CAPITAL (TO
AVERAGE ASSETS) 101,003,000 8.6 47,041,000 4.0 58,801,000 5.0
As of December 31, 2003:
Total Capital (to Risk-
Weighted Assets) $ 100,868,000 13.1% $ 61,713,000 8.0% $ 77,142,000 10.0%
Tier I Capital (to Risk-
Weighted Assets) 94,893,000 12.3 30,857,000 4.0 46,285,000 6.0
Tier I Capital (to
Average Assets) 94,893,000 9.6 39,725,000 4.0 49,656,000 5.0
49
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank is restricted as to the amount of dividends which may be paid to the
Holding Company without prior regulatory approval. The Bank may not pay
dividends that would result in its capital levels being reduced below the
minimum requirements. As of December 31, 2004, the Bank had approximately $1.6
million of retained earnings available for dividends.
NOTE 12. COMMON STOCK TRANSACTIONS
On July 14, 2004, the Board of Directors of the Company declared a 5 percent
common stock dividend for holders of record on July 26, 2004. As a result of
this action, 795,202 shares of common stock were issued. Fractional shares
resulting from the 5 percent common stock dividend were paid in cash.
On April 15, 2004, the Board of Directors authorized the buy-back of the
Company's common stock for a period of twelve months, in an amount not to exceed
$5 million. Since the authorization, 161,312 shares (restated for the 5 percent
common stock dividend) have been purchased at a cost of $2,360,235.
NOTE 13. COMMITMENTS AND CONTINGENCIES AND RELATED-PARTY LEASES
The Company leases real estate under several noncancelable operating lease
agreements. Rent expense was approximately $881,000, $773,000 and $726,000 for
the years ended December 31, 2004, 2003 and 2002, respectively.
The Company leases certain real estate from two directors of the Company. Terms
of two noncancelable operating leases were consummated prior to one of the
directors being named by the Company in 1996. Terms of another noncancelable
operating lease were consummated on terms deemed to be at arm's-length. Rent
expense to the related parties was approximately $192,000, $187,000 and $183,000
for the years ended December 31, 2004, 2003 and 2002, respectively.
The approximate total minimum rental commitments as of December 31, 2004 are as
follows:
RELATED PARTY TOTAL
------------- -----------
2005 $ 159,000 $ 918,000
2006 159,000 887,000
2007 159,000 610,000
2008 159,000 466,000
2009 126,000 378,000
Thereafter 518,000 2,654,000
----------- -----------
$ 1,280,000 $ 5,913,000
=========== ===========
Required reserve balances: The Bank is required to maintain an average reserve
balance with the Federal Reserve Bank. Required reserve balances were
approximately $4,122,000 and $1,948,000 as of December 31, 2004 and 2003,
respectively.
50
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments with off-balance-sheet risk: The Company is party to
financial instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the consolidated balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as they do for on-balance-sheet instruments. The
Company's commitments as of December 31, 2004 and 2003 are approximately as
follows:
2004 2003
------------- -------------
Commitments to extend credit $ 188,495,000 $ 166,945,000
Standby letters of credit 22,181,000 19,974,000
------------- -------------
$ 210,676,000 $ 186,919,000
============= =============
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained is based on management's credit evaluation of the
party. Collateral held varies, but may include accounts receivable, crops,
livestock, inventory, property and equipment, residential real estate and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held varies
as specified above and is required in instances which the Company deems
necessary. In the event the customer does not perform in accordance with the
terms of the agreement with the third party, the Bank would be required to fund
the commitment. The maximum potential amount of future payments the Bank could
be required to make is represented by the contractual amount shown in the
summary above. If the commitment is funded, the Bank would be entitled to seek
recovery from the customer. At December 31, 2004 and 2003, no amounts have been
recorded as liabilities for the Bank's potential obligations under these
guarantees.
Concentrations of credit risk: Substantially all of the Company's loans,
commitments to extend credit, and standby letters of credit have been granted to
customers in the Company's market area (a 50-mile radius of the greater Des
Moines, Iowa, metropolitan area and a 30-mile radius of the Iowa City, Iowa,
metropolitan area). Securities issued by state and political subdivisions
primarily involve governmental entities within the state of Iowa. The
concentrations of credit by type of loan are set forth in Note 3. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. Standby letters of credit were granted primarily to
commercial borrowers.
Contingencies: In the normal course of business, the Company is involved in
various legal proceedings. In the opinion of management, any liability resulting
from such proceedings would not have a material adverse effect on the
consolidated financial statements.
51
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Company restated its profit sharing plan during 2004 to include a stock
ownership plan. The restated plan is an employee savings and stock ownership
plan covering substantially all of its employees. The plan consists of two
components. One component is an employee stock ownership plan. The other
component is a profit sharing plan. Both components have a qualified cash or
deferred arrangement under Code Section 401(k). The purpose of the plan is to
offer participants a systematic program for the accumulation of retirement and
savings income, as well as a means to obtaining beneficial interest of ownership
in company stock. The stock ownership component of the plan is intended to
exclusively invest in common stock of the Company.
The contributions made by the Company to the profit sharing component are
determined annually by the Board of Directors. Profit sharing expense for the
years ended December 31, 2004, 2003 and 2002 was approximately $413,000,
$323,000 and $252,000, respectively.
The plan allows eligible employees to defer a portion of their compensation
ranging from 1% to the maximum dollar amount allowed by current law. The Company
is required to match a portion of the employees' contribution. The Company's
match is 100% of the first 2% of employee deferrals and 50% of the next 2% of
employee deferrals. Expense for the years ended December 31, 2004, 2003 and 2002
was approximately $170,000, $133,000 and $104,000, respectively.
As of December 31, 2004, the plan holds 225,551 shares of Company stock. These
shares are included in the computation of earnings per share. Dividends on
shares held in the plan may be reinvested in Company stock or paid in cash to
the participants.
NOTE 15. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, are not necessarily indicative of the amounts that
the Company could realize in a current market exchange. SFAS No. 107 excludes
all nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
Cash and due from banks: The carrying amount approximates fair value.
Federal funds sold and other short-term investments: The carrying amount
approximates fair value.
Securities: Fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable financial instruments.
52
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Federal Home Loan Bank stock: The fair value of this untraded stock is
estimated at its carrying value and redemption price of $100 per share.
Loans: Fair values of loans are estimated using discounted cash flow
analysis based on interest rates currently being offered for loans with
similar terms to borrowers with similar credit quality.
Deposits: The carrying amounts for demand and savings deposits, which
represents the amount payable on demand, approximates their fair values.
Fair values for fixed-rate and variable-rate certificates of deposit are
estimated using discounted cash flow analysis based on interest rates
currently being offered on certificates with similar terms.
Accrued interest receivable and payable: The fair values of both accrued
interest receivable and payable approximate their carrying amounts.
Federal funds purchased and securities sold under agreements to repurchase
and other borrowings: The carrying amount of federal funds purchased and
securities sold under agreements to repurchase and certain other
borrowings approximate their fair values. Fair values of long-term
borrowings including subordinated notes/trust preferred securities are
estimated using discounted cash flow analysis based on interest rates
currently being offered with similar terms.
Commitments to extend credit and standby letters of credit: The
approximate fair values of commitments and standby letters of credit are
considered equal to their notional values, based on the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and creditworthiness of the
counterparties.
The carrying amounts and approximate fair values are as follows as of December
31, 2004 and 2003:
2004 2003
------------------------------- -------------------------------
CARRYING APPROXIMATE Carrying Approximate
AMOUNT FAIR VALUE Amount Fair Value
------------- ------------- ------------- -------------
Financial assets:
Cash and due from banks $ 18,686,000 $ 18,686,000 $ 27,787,000 $ 27,787,000
Federal funds sold and other short-term investments 11,193,000 11,193,000 54,287,000 54,287,000
Securities available for sale 281,110,000 281,110,000 178,309,000 178,309,000
Securities held to maturity 59,420,000 60,141,000 91,406,000 93,477,000
Federal Home Loan Bank stock 6,523,000 6,523,000 5,198,000 5,198,000
Loans, net 719,318,000 720,682,000 593,380,000 601,568,000
Accrued interest receivables 6,505,000 6,505,000 5,879,000 5,879,000
Financial liabilities:
Deposits 865,932,000 864,399,000 705,074,000 706,256,000
Federal funds purchased and securities sold
under agreements to repurchase 74,543,000 74,543,000 85,443,000 85,443,000
Other short-term borrowings 4,668,000 4,668,000 9,142,000 9,142,000
Accrued interest payable 1,631,000 1,631,000 616,000 616,000
Subordinated debentures/trust preferred securities 20,619,000 22,796,000 20,000,000 19,929,000
Long-term borrowings 81,274,000 83,600,000 86,024,000 88,993,000
Off-balance-sheet financial instruments:
Commitments to extend credit - - - -
Standby letters of credit - - - -
53
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. WEST BANCORPORATION, INC. (PARENT COMPANY ONLY) CONDENSED FINANCIAL
STATEMENTS
BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
2004 2003
------------- -------------
ASSETS
Cash $ 1,271,011 $ 4,308,070
Investment in securities available for sale 5,147,981 189,750
Investment in West Bank 89,427,275 86,796,310
Investment in WB Capital Management Inc. 1,473,917 1,418,384
Investment in West Bancorporation Capital Trust I 619,000 -
Intercompany debentures from West Bank 20,000,000 20,000,000
Other assets 566,113 420,177
------------- -------------
TOTAL ASSETS $ 118,505,297 $ 113,132,691
============= =============
LIABILITIES AND EQUITY
LIABILITIES
Accrued expenses and other liabilities $ 266,321 $ 236,347
Trust preferred securities - 20,000,000
Subordinated notes 20,619,000 -
------------- -------------
20,885,321 20,236,347
------------- -------------
EQUITY
Common stock 3,000,000 3,000,000
Additional paid-in capital 32,000,000 32,000,000
Retained earnings 62,565,046 56,796,771
Accumulated other comprehensive income 54,930 1,099,573
------------- -------------
TOTAL EQUITY 97,619,976 92,896,344
------------- -------------
TOTAL LIABILITIES AND EQUITY $ 118,505,297 $ 113,132,691
============= =============
54
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
------------- ------------- -------------
Operating income:
Equity in net income of West Bank $ 18,908,160 $ 17,782,998 $ 16,516,279
Equity in net income (loss) of WB Capital
Management Inc. 55,533 (81,616) -
Equity in net income of West Bancorporation
Capital Trust I 43,846 - -
Interest and dividend income 1,546,620 433,637 1,269
Gain on sale of investment securities 9,301 160,277 -
------------- ------------- -------------
20,563,460 18,295,296 16,517,548
------------- ------------- -------------
Operating expenses:
Interest on trust preferred securities - 649,280 -
Interest on subordinated notes 1,475,429 - -
Salaries and employee benefits 464,254 409,668 -
Other 292,990 178,899 217,386
------------- ------------- -------------
2,232,673 1,237,847 217,386
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 18,330,787 17,057,449 16,300,162
Income tax (credits) (283,690) (225,179) (75,641)
------------- ------------- -------------
NET INCOME $ 18,614,477 $ 17,282,628 $ 16,375,803
============= ============= =============
55
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,614,477 $ 17,282,628 $ 16,375,803
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of West Bank (18,908,160) (17,782,998) (16,516,279)
Equity in net (income) loss of WB Capital Management Inc. (55,533) 81,616 -
Equity in net income of West Bancorporation Capital Trust I (43,846) - -
Dividends received from West Bank 15,275,000 16,369,500 10,515,551
Dividends received from West Bancorporation Capital
Trust I 43,846 - -
Gains from sale of securities available for sale (9,301) (160,277) -
Amortization 39,949 6,030 -
Deferred income taxes (1,066) (2,355) -
Changes in assets and liabilities:
Increase in other assets (141,926) (403,743) (13,092)
Increase in accrued expenses and other liabilities 36,554 217,373 14,750
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,849,994 15,607,774 10,376,733
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 944,901 491,977 -
Purchases of securities available for sale (5,985,752) (502,650) -
Capitalization of WB Capital Management Inc. - (1,500,000) -
Capitalization of West Bancorporation Capital Trust I (619,000) - -
Issuance of debentures to subsidiary - (20,000,000) -
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (5,659,851) (21,510,673) -
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of trust preferred securities - 20,000,000 -
Proceeds from issuance of subordinated debentures 619,000 - -
Purchase of fractional shares resulting from stock dividend (2,090) - -
Payment for shares reacquired under common stock
repurchase plan (2,360,235) - -
Dividends paid (10,483,877) (10,278,573) (9,957,368)
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (12,227,202) 9,721,427 (9,957,368)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (3,037,059) 3,818,528 419,365
CASH
Beginning 4,308,070 489,542 70,177
------------- ------------- -------------
Ending $ 1,271,011 $ 4,308,070 $ 489,542
============= ============= =============
56
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2004
---------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------------------------- ------------ ------------ ------------ ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
Interest income $ 11,433 $ 11,639 $ 12,572 $ 13,955
Interest expense 2,860 3,056 3,553 4,483
------------ ------------ ------------ ------------
NET INTEREST INCOME 8,573 8,583 9,019 9,472
Provision for loan losses 225 225 325 425
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,348 8,358 8,694 9,047
Noninterest income 2,436 2,828 2,757 2,685
Noninterest expense 4,296 4,251 4,158 4,263
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 6,488 6,935 7,293 7,469
Income taxes 2,226 2,382 2,486 2,477
------------ ------------ ------------ ------------
NET INCOME $ 4,262 $ 4,553 $ 4,807 $ 4,992
============ ============ ============ ============
Net income per common share - basic $ 0.25 $ 0.27 $ 0.29 $ 0.30
============ ============ ============ ============
2003
---------------------------------------------------------------
Three months ended March 31 June 30 September 30 December 31
------------------------------------- ------------ ------------ ------------ ------------
(amounts in thousands, except per share amount)
Interest income $ 10,374 $ 10,340 $ 11,325 $ 11,422
Interest expense 2,716 2,664 2,817 2,942
------------ ------------ ------------ ------------
NET INTEREST INCOME 7,658 7,676 8,508 8,480
Provision for loan losses 200 175 250 225
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,458 7,501 8,258 8,255
Noninterest income 1,704 1,939 2,157 3,505
Noninterest expense 2,906 2,878 3,393 5,517
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 6,256 6,562 7,022 6,243
Income taxes 2,205 2,311 2,458 1,826
------------ ------------ ------------ ------------
NET INCOME $ 4,051 $ 4,251 $ 4,564 $ 4,417
============ ============ ============ ============
Net income per common share - basic $ 0.24 $ 0.25 $ 0.27 $ 0.26
============ ============ ============ ============
57
STOCK INFORMATION
West Bancorporation, Inc. common stock is traded on the Nasdaq National Market
and quotations are furnished by the Nasdaq System. There were 332 common
stockholders of record on December 31, 2004, and an estimated 850 additional
beneficial holders whose stock was held in street name by brokerage houses.
MARKET AND DIVIDEND INFORMATION (1)
High Low Dividends
---------- ---------- ----------
2004
1st quarter $ 17.14 $ 15.40 $ 0.152
2nd quarter 17.14 13.93 0.152
3rd quarter 17.54 14.76 0.160
4th quarter 18.15 16.21 0.160
2003
1st quarter $ 16.70 $ 13.67 $ 0.152
2nd quarter 18.68 15.02 0.152
3rd quarter 17.92 15.77 0.152
4th quarter 17.66 16.24 0.152
(1) In July 2004, the Company's Board of Directors authorized a 5 percent common
stock dividend. Per share numbers in this table have been adjusted for that
stock dividend.
The prices shown above are the high and low sale prices for the Company's common
stock. The market quotations, reported by Nasdaq, do not include retail markup,
markdown or commissions.
NASDAQ SYMBOL: WTBA
Wall Street Journal and
Other Newspapers: WestBcp
TRANSFER AGENT/DIVIDEND PAYING AGENT
Illinois Stock Tranfer Company
209 West Jackson Boulevard, Suite 903
Chicago, Illinois 60606-6905
800-757-5755
www.illinoisstocktransfer.com
FORM 10-K
Copies of the Company's annual report to the Securities and Exchange Commission
on Form 10-K will be mailed when available without charge to shareholders upon
written request. Such written request should be directed to, Chief Financial
Officer, West Bancorporation, Inc., 1601 22nd Street, West Des Moines, Iowa
50266. It will also be available on the Securities and Exchange Commission's
website at http://www.sec.gov/edgar/searchedgar/webusers.htm and through a link
on the Company's investor relations web page at www.westbankiowa.com.
58
[WEST BANCORPORATION LOGO]
West Bancorporation, Inc.
PLEASE COMPLETE BOTH SIDES OF THE PROXY CARD,
DETACH AND RETURN IN THE ENCLOSED ENVELOPE.
DETACH ATTENDANCE CARD HERE AND
DETACH PROXY CARD HERE MAIL WITH PROXY CARD
-------------------------------------------------------------------------------- ----------------------------------------
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. IF NO DIRECTION IS GIVEN , THIS PROXY WILL BE
VOTED ( 1 ) FOR THE ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1; AND (2) FOR
THE APPROVAL OF THE WEST BANCORPORATION, INC. RESTRICTED STOCK COMPENSATION
PLAN; AND (3) IN THE DISCRETION OF THE NAMED PROXIES UPON SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING.
West Bancorporation, Inc.
[VOTER CONTROL NUMBER If you plan to personally attend the
ABOVE NAME HERE LOGO] Dated ____________________, 2005 Annual Meeting of Shareholders, please
________________________________ check the box below and list names of
________________________________ attendees on reverse side.
(PLEASE SIGN HERE)
Return this stub in the enclosed
envelope with your completed proxy card.
Please sign exactly as name appears above. When shares are held by joint
tenants, both should sign. When signing as administrator, attorney, executor, I do plan to attend [ ]
guardian or trustee, please give full title as such. If a corporation, the 2005 meeting
WEST BANCORPORATION, INC. WEST DES MOINES, IOWA PROXY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS ON APRIL 12, 2005
NAMES OF PERSONS ATTENDING The undersigned hereby appoints Thomas E. Stanberry and Jack G. Wahlig, or either of them, the
undersigned's attorneys and proxies, with full power of substitution, to vote all shares of Common
__________________________ Stock of West Bancorporation, Inc. which the undersigned is entitled to vote as of the record
date, February 7, 2005, as fully as the undersigned could do if personally present, at the Annual
__________________________ Meeting of Shareholders of said corporation to be held in the board room at the headquarters of the
Company, located at 1601 22nd Street, West Des Moines, Iowa, on Tuesday, April 12, 2005 at 4:30
__________________________ p.m., Central Time, and at any and all adjournments thereof.
__________________________ THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1 AND PROPOSAL 2.
1. Election of Directors: 01 Frank W. Berlin 04 Orville E. Crowley 07 Thomas E. Stanberry
02 Steven G. Chapman 05 George D. Milligan 08 Jack G. Wahlig
03 Michael A. Coppola 06 Robert G. Pulver 09 Connie Wimer
[ ] Vote FOR all nominees listed above [ ] Vote WITHHELD from all nominees
(except as marked to the contrary below)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE,
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE SPACE PROVIDED TO THE RIGHT.) ___________________
2. Approval of the West Bancorporation, Inc. Restricted Stock Compensation Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In accordance with their discretion, upon all other matters that may
properly come before said meeting and any adjournments or postponements
thereof.