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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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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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SEC 1913 (02-02)
WEST BANCORPORATION, INC.
NOTICE OF ANNUAL SHAREHOLDERS MEETING
TO BE HELD APRIL 19, 2007
Dear Fellow Shareholders:
The Annual Shareholders Meeting of West Bancorporation, Inc. will be held in the
Conference Center on the second floor of the West Bank building at 1601 22nd
Street, West Des Moines, Iowa, on Thursday, April 19, 2007, at 4:00 p.m. We will
review the progress of the Company and answer questions during the meeting. We
will also ask you to vote on the following matters:
1. The election of ten directors nominated in the Proxy Statement to
serve as the Board of Directors until the next Annual Meeting and
until their successors are elected and have qualified; and
2. Such other business as may properly come before the Annual Meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on February 15, 2007, as
the record date for determination of Shareholders entitled to notice of and to
vote at the Annual Meeting. A list of eligible Shareholders will be maintained
at the Company's offices at 1601 22nd Street, West Des Moines, Iowa, during the
ten-day period preceding the Annual Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, IN ORDER TO MAKE SURE
YOUR VOTE IS RECEIVED, PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY CARD OR
VOTE YOUR PROXY ELECTRONICALLY VIA THE INTERNET AS INSTRUCTED ON THE CARD. A
PROMPT RESPONSE WOULD BE APPRECIATED.
WE HOPE YOU WILL PERSONALLY ATTEND THE ANNUAL MEETING AND LOOK FORWARD TO SEEING
YOU THERE. THANK YOU FOR YOUR INTEREST IN THE COMPANY.
For the Board of Directors,
/s/ Thomas E. Stanberry
----------------------------------------
Thomas E. Stanberry
Chairman, President and Chief Executive
Officer
March 12, 2007
PROXY STATEMENT
TABLE OF CONTENTS
INTRODUCTION............................................................... 2
PROPOSALS FOR ANNUAL MEETING............................................... 3
Election of Directors................................................... 3
Other Matters........................................................... 4
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD............................. 5
Audit Committee Report.................................................. 5
Compensation Committee Report........................................... 6
Nominating and Corporate Governance Committee Report.................... 7
2006 and 2007 Directors' Compensation................................... 8
Compensation Committee Interlocks and Insider Participation............. 9
Security Ownership of Certain Beneficial Owners and Executive Officers.. 9
Other Beneficial Owners................................................. 9
Section 16(a) Beneficial Ownership Reporting Compliance................. 10
EXECUTIVE COMPENSATION..................................................... 10
Compensation Discussion and Analysis.................................... 10
Summary Compensation Table.............................................. 12
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.............................. 13
Audit Fees.............................................................. 13
GENERAL MATTERS............................................................ 13
Transactions with Related Persons....................................... 13
2008 Shareholder Proposals.............................................. 14
Shareholder Communications.............................................. 14
Form 10-K............................................................... 14
Delivery of Documents to Shareholders Sharing an Address................ 15
1
WEST BANCORPORATION, INC.
1601 22nd Street
West Des Moines, IA 50266
PROXY STATEMENT
2007 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 19, 2007
INTRODUCTION
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of West Bancorporation, Inc. (the "Board" and the "Company")
of proxies to be used at the Annual Shareholders Meeting ("Annual Meeting"). The
meeting will be held in the Conference Center at the Company's headquarters,
1601 22nd Street, West Des Moines, Iowa, on April 19, 2007, at 4:00 p.m., local
time, and at any and all adjournments thereof. A copy of the Company's 2006
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 12, 2007.
Only Shareholders of record at the close of business on February 15, 2007,
("Shareholders" or "Shareholder") are entitled to notice of and to vote at the
Annual Meeting. There were 17,536,682 shares of the Company's Common Stock
outstanding at the close of business on that date, all of which are eligible to
vote at the Annual Meeting. The presence, in person or by proxy, of the holders
of a majority of the outstanding shares is necessary to constitute a quorum for
the transaction of business at the Annual Meeting. Shareholders 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 a Shareholder abstains from voting on any
matter, or if shares are held by a broker who 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 Annual Meeting.
The Company is not aware of any matters to be presented at the Annual Meeting
other than the election of the ten nominees described in this proxy statement.
The ten directors elected will be those nominees who receive a plurality of
those shares voting at the Annual Meeting in person or by proxy. If any matters
not described in this proxy statement are properly presented at the Annual
Meeting, the proxies will use their personal judgment to determine how to vote
your shares. If the Annual Meeting is adjourned, the proxies can vote your
shares on the new meeting date as well, unless you have revoked your proxy
instructions.
If you hold shares through a broker, follow the voting instructions provided by
your broker. If you want to vote in person, a legal proxy must be obtained from
your broker and brought to the Annual Meeting. If you do not submit voting
instructions to your broker, generally your broker is permitted to vote your
shares in its discretion.
Holders of stock in 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 for the benefit of the Holder as of the record date for any
matter put to the vote of the Shareholders. If a Plan participant does not
provide directions to the Trustee, then the Trustee shall vote those shares in
the same proportion as the shares for which the Trustee received proper
direction to vote.
A form of proxy is enclosed for use at the Annual Meeting. Before the Annual
Meeting, you can appoint a proxy to vote your shares of stock by completing and
signing the enclosed proxy card and mailing it in time to be received before the
Annual Meeting, or by using the internet (http://www.illinoisstocktransfer.com).
The electronic proxy appointment procedures are designed to confirm your
identity and to allow you to give your proxy voting instructions. If you wish to
vote via the internet, please follow the instructions on the proxy card.
If your proxy is properly signed and returned and is not withdrawn or revoked,
your shares represented thereby will be voted in accordance with your
instructions. 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.
If the enclosed proxy is executed and returned, it may nevertheless be revoked
at any time prior to the Annual Meeting. You may revoke a proxy electronically
by entering a new vote via the internet or by filing either a written revocation
of the proxy or a duly executed proxy bearing a later date with the Secretary of
the Company at the Company's principal office at 1601 22nd Street, West Des
Moines, Iowa 50266, Attn: Alice A. Jensen, Corporate Secretary. You may also
withdraw a proxy by attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting without voting in person will not serve as the
revocation of a proxy.
2
The Company will bear the cost of solicitation of proxies. In addition to the
use of mail, proxies may be solicited by officers, directors, and 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 Annual Meeting if each Shareholder who does not expect to
attend the Annual Meeting will promptly return a signed proxy or vote via the
internet.
PROPOSALS FOR ANNUAL MEETING
1. Election of Directors. The Board currently consists of nine members. The term
for directors is until the next Annual Shareholders Meeting and until their
successors are duly elected and qualified or until their earlier resignation,
removal from office, death, or incapacity.
The By-laws of the Company provide that the number of directors of the Company
shall not be less than 5 or greater than 15. The Board has set the number of
directors for 2007 at 10. The Board has decided that ten directors are
sufficient to conduct the business of the Company. Proxies cannot be voted for
more than 10 persons.
The Board 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 the listed
individuals, unless contrary instructions are given. 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 may propose. Any
Shareholder has the option to withhold authority to vote for all nominees, or to
withhold authority to vote for individual nominees. The effect of withholding
authority to vote for nominees is that the Shareholder is considered present at
the Annual 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 a plurality of the votes cast by the shares entitled to
vote.
Information concerning the nominees, including their ages, year first elected a
director, and business experience during the previous 5 years as of February 15,
2007, is set forth in the following table. Each of the nominees, except Ms.
Carlson, is currently serving as a director of the Company and all nominees,
except Mr. Crowley and Ms. Carlson, also serve as directors of West Bank, a
subsidiary of the Company. Wendy L. Carlson, J.D., C.P.A., Chief Financial
Officer and General Counsel of American Equity Investment Life Holding Company
has been nominated by the Nominating and Corporate Governance Committee as a new
director of the Company. Of the nominees, only Mr. Stanberry is currently a
director of WB Capital Management Inc. ("WB Capital"), a subsidiary of the
Company.
3
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 61) West Des Moines, Iowa
Wendy L. Carlson -- Chief Financial Officer and General Counsel
(Age 46) American Equity Investment Life Holding Company,
West Des Moines, Iowa
Steven G. Chapman 1994 Chairman and Chief Executive Officer,
(Age 55) ITAGroup, Inc., West Des Moines, Iowa
Michael A. Coppola 1996 President, Coppola Enterprises, Inc.,
(Age 50) Des Moines, Iowa
Orville E. Crowley 1984 President and Chief Operating Officer,
(Age 80) Linden Lane Farms Company, Cumming, Iowa
George D. Milligan 2005 President, The Graham Group, Inc.,
(Age 50) Des Moines, Iowa
Robert G. Pulver 1984 President and CEO,
(Age 59) All State Industries, Inc., West Des Moines, Iowa
Thomas E. Stanberry 2003 Chairman, President and Chief Executive
(Age 52) Officer of the Company
Chairman and Chief Executive Officer of West Bank
Chairman of WB Capital Management Inc.
Jack G. Wahlig 2001 President, Integrus Financial, L.C.,
(Age 74) West Des Moines, Iowa
Connie Wimer 1985 Owner/Publisher, Business Publications Corporation,
(Age 74) Des Moines, Iowa
In addition to the positions listed above, the nominees were employed in the
following capacities during the past 5 years. Prior to 2003, Mr. Stanberry
served in a variety of capacities with U.S. Bancorp Piper Jaffray, most recently
as Managing Director.
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.
2. Other Matters. Management does not know of any other matters to be presented
at the Annual Meeting, but should other matters properly come before the Annual
Meeting, the proxies will vote on such matters in accordance with their best
judgment.
4
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board currently has nine directors. The Board has determined that the
following eight directors are "independent" as defined by NASDAQ:
Frank W. Berlin
Steven G. Chapman
Michael A. Coppola
Orville E. Crowley
George D. Milligan
Robert G. Pulver
Jack G. Wahlig
Connie Wimer
The Board has also determined that Wendy L. Carlson would be an independent
director if she is elected.
In 2006, the Board held four regularly scheduled quarterly meetings. An
organizational meeting and one special meeting were also held. Each director is
required to attend at least seventy-five percent of the full Board meetings and
the meetings of any committees on which the director serves. This requirement
was satisfied in 2006. Board members are encouraged to attend the Annual
Shareholders Meeting, and all Board members attended the 2006 Annual Meeting.
The Board has established the following standing committees:
Audit Committee
Compensation Committee
Nominating and Corporate Governance Committee
The Board has adopted written charters for each standing committee. The charters
may be seen on the Investor Relations section of the Company's website
(www.westbankiowa.com). The membership and primary responsibilities of the
committees are described below. The 2006 report of each committee follows its
description.
AUDIT COMMITTEE. The members of the Audit Committee are Jack G. Wahlig, Chair,
George D. Milligan, and Connie Wimer. Jack G. Wahlig is a "financial expert" as
defined in the Sarbanes-Oxley Act of 2002 and related regulations. He retired as
the national managing partner of the public accounting firm of McGladrey &
Pullen, LLP after a 41-year career. The 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 Committee also performs
the duties set forth in its written charter. 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. The Audit Committee regularly reviews its written
charter and recommends to the Board changes to the charter, when it deems
necessary. The Audit Committee met five times during 2006. George D. Milligan is
the only member of the Audit Committee who also serves on the audit committee of
another listed company.
AUDIT COMMITTEE REPORT
The incorporation by reference of this proxy statement into any document filed
with the SEC by the Company 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 hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited financial
statements for the year ended December 31, 2006 (the "Audited
Financial Statements"), with the Company's management.
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),
in effect on the date of this proxy statement, and has discussed with
McGladrey & Pullen, LLP its independence.
5
4. Based on the review and discussion referred to in paragraphs (1)
through (3) above, the Audit Committee recommended to the Board, and
the Board approved, that the Audited Financial Statements be included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 2006, for filing with the SEC.
5. The Board has approved the Audit Committee Charter.
6. The Audit Committee has approved or ratified all related party
transactions between the Directors and the Company.
The undersigned members of the Audit Committee have submitted this report.
Jack G. Wahlig, Chair
George D. Milligan
Connie Wimer
COMPENSATION COMMITTEE. The current members of the Compensation Committee are
Robert G. Pulver, Chair, Frank W. Berlin, Orville E. Crowley and George D.
Milligan. Each of the committee members are independent directors. The
Compensation Committee reviews the Company's compensation and benefit policies,
including the individual salaries of the executive officers, makes
recommendations to the Board as to the salary of the Chief Executive Officer,
makes recommendations to the Board as to incentive compensation plans and
employment agreements between the Company, the Chief Executive Officer, and
other executive officers and makes recommendations to the Board concerning
director compensation. The Compensation Committee also has oversight
responsibility for the Company's Restricted Stock Compensation Plan and performs
the duties set forth in its written charter. The Compensation Committee met
three times during 2006.
COMPENSATION COMMITTEE REPORT
The incorporation by reference of this proxy statement into any document filed
with the SEC by the Company shall not be deemed to include the following report
unless such report is specifically stated to be incorporated by reference into
such document.
The Compensation Committee hereby reports as follows:
1. The Compensation Committee reviewed and discussed the Compensation
Discussion & Analysis with management.
2. Based on its review and discussions, the Committee recommended to the
Board that the Compensation Discussion & Analysis be included in this
proxy statement.
The undersigned members of the Compensation Committee have submitted this
report.
Robert G. Pulver, Chair
Frank W. Berlin
Orville E. Crowley
George D. Milligan
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE. The Nominating and Corporate
Governance Committee members are Steven G. Chapman, Chair, Robert G. Pulver, and
Jack G. Wahlig, all of whom are independent directors. During 2006, the
Nominating and Corporate Governance Committee met four times. This Committee
makes recommendations to the Board regarding the composition and structure of
the Board and nominations for election of directors, including the
director-nominees proposed in this proxy statement. It develops 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, including establishment and periodic review of a code of ethics
and conduct for all directors and employees. The Committee also performs all
other duties set forth in its written charter. This Committee will consider, as
part of its nomination process, any director candidate recommended by a
Shareholder who follows the procedures shown under the heading "2008 Shareholder
Proposals". The Nominating and Corporate Governance Committee follows the
process described below when identifying and evaluating nominees to the Board:
6
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 business 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.
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 nomination as an independent
director, the Committee and other directors should consider the foregoing
general guidelines and criteria:
1. A director should be of the highest character and integrity, have
experience at or demonstrated understanding of strategy/policy-setting
and have a reputation for working constructively with others.
2. A 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. A director should be free of any conflict of interest that would
interfere with the proper performance of the responsibilities of a
director.
4. The Chief Executive Officer 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.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE REPORT
The Nominating and Corporate Governance Committee evaluated the qualifications
and performance of each of the members of the Board of Directors. In its
evaluation, the Committee compared each of the current directors to the
qualifications and characteristics of a director set forth in the Committee's
charter. The Committee then polled each director to determine his or her
willingness to stand for re-election and determined that each was willing to
continue service. The Committee sought and reviewed information concerning
potential directors and nominees. It determined that Wendy L. Carlson satisfied
the criteria listed above and that she would be a valuable addition to the
Board. Accordingly, the Committee recommended to the Board that Ms. Carlson be
nominated for election as a director. The Board approved the Committee's
recommendation.
The Committee also determined that the current size of the Board should be
expanded by one director. Based on the foregoing, the Committee concluded that
each of the current Board members should be nominated for re-election at the
Annual Meeting and that Ms. Carlson should be nominated.
The Committee reviewed the adequacy of its charter and the charters of the Audit
and Compensation Committees. The Committee recommended a modification to its
charter and the Audit Committee Charter which were approved by the Board of
Directors of the Company and did not recommend any modifications to the charter
of the Compensation Committee. The Committee also reviewed the Company's Code of
Conduct and recommended changes which were approved by the Boards of the Company
and its subsidiaries. The Committee performed all the other duties stated in its
charter.
7
The undersigned members of the Nominating and Corporate Governance Committee
have submitted this report.
Steven G. Chapman, Chair
Robert G. Pulver
Jack G. Wahlig
2006 AND 2007 DIRECTORS' COMPENSATION
During 2006, directors of the Company received an annual retainer of $2,400 plus
$400 per regular meetings (board and committee) or $500 for Audit Committee
meetings. If a Committee meeting was on the same day as a regular board meeting,
the fee paid for attending both meetings was $500 for an Audit Committee meeting
and $400 for any other committee meeting. Directors of the Company who also
served as directors of West Bank received fees during 2006 of $350 for each West
Bank board meeting attended (ten meetings held) plus an annual retainer of
$2,400, $400 for loan committee meetings attended, and $300 for other committee
meetings attended. Mr. Stanberry and other employees do not receive director's
fees.
Directors' fees for the Company and West Bank have been increased for 2007.
Company directors will receive an annual retainer of $8,000. In addition, the
following meeting fees will be paid:
Company Board meeting $500
Committee meeting $500
Audit Committee meeting $600
The Chairs of the Audit and Compensation Committee will be paid a $100
additional meeting fee. If there are multiple meetings on one day, the maximum
fee paid will be the highest fee for one meeting.
Annual retainers for West Bank directors have been increased to $6,500. The
following meeting fees will be paid:
West Bank Board $450
Loan Committee $500
Trust Committee $400
If there are multiple meetings on one day, the maximum fee paid will be the
highest fee for one meeting.
Directors of the Company are eligible to receive grants of restricted stock
under the Restricted Stock Compensation Plan. No awards were made during 2006.
The following table sets forth all compensation earned or paid to the directors
for services rendered in the fiscal year ended December 31, 2006.
Fees Paid Fees Paid All Other
Name by Company by Subsidiary Compensation (1) Total
---- ---------- ------------- ---------------- -------
Frank W. Berlin $6,150 $11,000 $ -- $17,150
Steven G. Chapman 7,700 9,750 880 18,330
Michael A. Coppola 6,200 6,250 -- 12,450
Orville E. Crowley 6,150 4,125 7,241 17,516
George D. Milligan 7,350 10,150 367 17,867
Robert G. Pulver 7,450 10,250 440 18,140
Jack G. Wahlig 8,500 6,600 440 15,540
Connie Wimer 8,000 6,900 -- 14,900
(1) All other compensation includes fees normally charged by the West Bank
trust department, which were waived for the directors.
8
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are set forth above. No Committee
members have ever been officers or employees of the Company or have been parties
to any related-party transaction requiring disclosure.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND EXECUTIVE OFFICERS
The following table contains the shares of Common Stock beneficially owned by
each director, by each named executive officer listed in the Summary
Compensation Table, and by all directors and executive officers of the Company
and subsidiaries (including named executive officers) as a group. The ownership
information is as of February 15, 2007.
Shares Beneficially Percent of Total
Name Owned (1)(2) Shares Outstanding
---- ------------------- ------------------
Frank W. Berlin 46,856 *
Steven G. Chapman 16,537 *
Wendy L. Carlson -- *
Michael A. Coppola 26,088 *
Orville E. Crowley (3) 133,258 *
George D. Milligan 1,500 *
Robert G. Pulver (4)(6) 72,845 *
Thomas E. Stanberry (5) 17,223 *
Jack G. Wahlig -- *
Connie Wimer 28,848 *
Scott D. Eltjes 4,310 *
Douglas R. Gulling 8,495 *
Jeffrey D. Lorenzen 2,237 *
Brad L. Winterbottom 8,731 *
Executive officers and directors
as a group (15 persons) 399,164 2.28%
* 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 address 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 297,675 shares held in
his spouse's name.
(4) Mr. Pulver disclaims any beneficial ownership of 6,614 shares held in his
spouse's name.
(5) Mr. Stanberry disclaims any beneficial ownership of 495 shares held in his
spouse's name.
(6) 59,875 of Mr. Pulver's shares are pledged as security.
OTHER BENEFICIAL OWNERS
The following table sets forth certain information on each person known to the
Company to be the beneficial owner, as of February 15, 2007, of more than five
percent of the Company's Common Stock.
9
Shares Beneficially Percent of Total
Name and Address Owned Shares Outstanding
-------------------------------------- ------------------- ------------------
Columbia Wanger Asset Management, L.P. 1,095,618 6.25%
227 West Monroe Street, Suite 3000
Chicago, IL 60606
The Jay Newlin Trust 1,041,952 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 SEC and NASDAQ. Reporting persons are required by the SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. The Company has not received any Section 16(a) form indicating that any
one person owns more than 10 percent of the Company's stock. The Company does
not know of any one Shareholder who owns more than 10 percent of the Company's
stock. Based solely on its review of the copies of Section 16(a) forms received
from its directors and executive officers and written representations that no
other reports were required, the Company believes that all Section 16(a) reports
applicable to its directors and officers during 2006 were filed.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis describes the material
elements of compensation for the Company's executive officers identified in the
Summary Compensation Table ("Named Executive Officers"). The Board's
Compensation Committee makes recommendations to the entire Board concerning Mr.
Stanberry's compensation. The Board approves that compensation. The Compensation
Committee in consultation with Mr. Stanberry determines and approves the
compensation for the other Named Executive Officers.
Our compensation program is designed to achieve the following objectives:
1. Create shareholder value through employing talented and motivated
employees;
2. Provide our executive officers market rate compensation for
successfully implementing the Company's Mission Statement and
assisting the Board in developing successful strategic direction for
the long-term success of the Company; and
3. Provide the Company the ability to attract and retain qualified key
executives.
The factors reviewed and applied by the Compensation Committee while making
compensation decisions include:
1. The financial performance of the Company based on earnings per share
for the last fiscal year;
2. The financial performance of the Company's affiliates based on a
comparison of actual net income to budgeted net income;
3. The return on assets and return on equity of the Company or West Bank,
as appropriate, exceeding the return on assets and return on equity of
its peers by a predetermined percentage;
4. In the case of all executives except Mr. Stanberry, the Compensation
Committee considers his recommendations; and
5. Leadership, community involvement, and overall quality of contribution
to the strategic success of the Company and its affiliates.
The application of the factors is weighted differently for each Named Executive
Officer according to the person's position and annual strategic
responsibilities.
The Compensation Committee meets periodically throughout the fiscal year,
without the CEO or CFO present, to review compensation trends and the elements
of the compensation program. The Committee determines whether the Company's
compensation program is competitive with market compensation offerings by other
similar financial service businesses and reviews the financial performance of
the Company, its subsidiaries, and the senior executives.
10
The Committee has determined that annual compensation for the Named Executive
Officers should be composed of base salary, cash incentive bonus, and
traditional benefits, including health care insurance, dental insurance, short
and long-term disability insurance, term life insurance, tuition reimbursement,
holiday bonus, 401(k) match, paid time off, and wealth accumulation benefits
including profit sharing and restricted stock grants. The Committee has
established additional compensation for the Named Executive Officers in the
event of employment termination without cause or as a result of a change in
control.
Each Named Executive Officer's base salary is determined by reviewing
information from various sources regarding the base salary paid key executives
in publicly owned financial services organizations of similar size in the
Midwest and is set at a level that is comparable to that of such other key
executives. Traditional benefits are based on information available to the
Company regarding the type and amount of benefits made available to key
executives of similar companies located in the central and eastern Iowa regions.
Employee benefits for the Named Executive Officers are the same as the employee
benefits for all officers and employees of the Company and its affiliates and
are set at levels the Company believes to be competitive and fair.
Profit sharing and cash incentive bonuses are the elements of the compensation
program that are most directly tied to the performance of the Company. The
amount of the annual profit sharing award is determined by the Board based on
annual earnings. In recent years this amount has been set at seven percent of
base salary. Named Executive Officers receive the same profit sharing
distribution as other employees of the Company and its affiliates. The Named
Executive Officers are also eligible to receive a cash incentive bonus payment.
The Compensation Committee annually determines the target cash incentive bonus
each Named Executive Officer is eligible to receive in the following year.
Awards, if any, may be smaller or greater than the target. At the end of each
year the Compensation Committee reviews its compensation factors and other
material information and determines the percentage of the target cash incentive
bonus to actually award each of the Named Executive Officers. The most
significant compensation factors applied by the Compensation Committee while
determining cash incentive bonuses and the approximate weight of the factors in
the decision are as follows:
1. Actual net income as a percentage of budgeted net income on a
consolidated basis and by individual subsidiary (85%);
2. Return on assets exceeding 140 percent of the Company's peer group
average (5%); and
3. Return on equity exceeding 130 percent of the Company's peer group
average (5%).
The peer group consists of all bank holding companies in the United States with
total assets between $1 billion and $3 billion.
Mr. Winterbottom is awarded a cash incentive bonus tied to the compensation
factors for West Bank. Mr. Lorenzen's cash incentive bonus is currently set by
contract and is related to the specific operations he manages at WB Capital.
Cash incentive bonuses for Messrs. Stanberry and Gulling are based on the
compensation factors for the Company and achievement of a successful strategic
direction of the Company.
Restricted stock grants were authorized by the shareholders in 2005; however, no
grants have been awarded. The Board has determined that cash compensation paid
annually has been in the best interest of the Company to date. If granted in the
future, restricted stock grants would be intended as an additional long-term
incentive for the Named Executive Officers. The Company does not have a stock
option plan.
Mr. Eltjes' base salary was determined according to an employment agreement
assumed when VMF Capital was purchased by the Company in 2003 as modified in
2006. In 2006, the base salary and cash incentive bonus for Mr. Lorenzen were
determined by the terms of an employment agreement assumed when Investors
Management Group was purchased by the Company in 2005. The 2006 base salaries
for Messrs. Stanberry, Gulling, and Winterbottom were all set by the
Compensation Committee in 2005.
The 2006 cash incentive bonuses for Messrs. Stanberry, Winterbottom, and Gulling
were determined by the Compensation Committee in January 2007.
Each of the Named Executive Officers has a written employment agreement with his
employer, except Mr. Stanberry. A contract between the Company and Mr. Stanberry
is under negotiation and is expected to be signed before the Annual Meeting. The
employment contracts for Messrs Gulling, Winterbottom, Eltjes and Lorenzen each
provide additional compensation for termination without cause or in the event of
a change in control.
In the event of termination without cause, Messrs. Gulling and Winterbottom's
contracts require West Bank to pay them their base salaries for the remaining
term of their contracts, which expire December 31, 2007, plus one year's annual
base salary. The estimated payment amounts are $366,667 as of March 1, 2007, and
would be payable in a single, lump-sum payment. In the event of death, their
beneficiaries will receive salary through the month of their death plus three
additional months of base pay totaling $50,000. In the event of termination
after a change in control, the contracts require payment of a retention payment
of six months of salary within thirty days of the change in control, or
$100,000, each; a retention payment of six months of salary within six months of
the change in control, or $100,000; and a retention payment of one year's salary
within one year of a change in control, or $200,000. Their contracts also
include a covenant not to compete at another financial institution within West
Bank's market area for a period of one year after termination of employment for
any reason or the expiration of the employment contract.
11
In the event of termination without cause or in the event of employment
termination within twelve months following a change in control, Mr. Eltjes'
employment agreement requires WB Capital to pay him his base salary until
September 30, 2008. The estimated payment amount for base salary is $330,923 as
of March 1, 2007 and would be payable in a single, lump-sum payment. Mr. Eltjes'
contract also includes a covenant not to compete at another investment advisory
firm for a period of one year after termination of employment for any reason or
the expiration of the employment contract.
In the event of termination without cause or in the event of employment
termination within twelve months following a change in control, Mr. Lorenzen's
employment contract calls for him to receive his base salary until December 31,
2008, along with a bonus payment based on his performance through the date of
termination and WB Capital's performance for the calendar year. The estimated
payment amount for base salary is $392,524 as of March 1, 2007, and the
estimated bonus payment is $110,000 and would be payable in a single, lump-sum
payment. Mr. Lorenzen's contract also includes a covenant not to compete at a
competing company within Iowa or a contiguous state for a period of one year
after termination of employment for any reason or the expiration of the
employment contract.
In 2006, West Bank paid Messrs. Stanberry, Gulling, and Winterbottom rather than
the Company. Messrs. Eltjes and Lorenzen were paid by WB Capital.
SUMMARY COMPENSATION TABLE
Name Non-Equity All Other
and Principal Incentive Plan Compensation
Positions Year Salary Bonus Compensation (2) Total
------------- ---- -------- -------- -------------- ------------ --------
Thomas E. Stanberry, Chairman, President and 2006 $250,000 $ 5,000(1) $276,000 $27,762 $558,762
Chief Executive Officer of the Company
Chairman and Chief Executive Officer of West Bank
Chairman of WB Capital Management Inc.
Douglas R. Gulling, Executive Vice President and 2006 $200,000 $ 4,000(1) $ 46,000 $20,770 $270,770
Chief Financial Officer of the Company
Director and Chief Financial Officer of West Bank
Director and Treasurer of WB Capital Management Inc.
Brad L. Winterbottom, Executive Vice President 2006 $200,000 $ 4,000(1) $ 91,000 $27,242 $322,242
of the Company
Director and President of West Bank
Director of WB Capital Management Inc.
Scott D. Eltjes, Director and Chief Executive 2006 $209,000 $ 0 $ 0 $ 6,489 $215,489
Officer of WB Capital Management Inc.
Jeffrey D. Lorenzen, Director, President 2006 $209,000 $110,770 $ 0 $35,049 $354,819
and Chief Investment Officer of WB Capital
Management Inc.
(1) Consists of a holiday bonus equal to two percent of annual salary, which is
paid to all officers and employees of West Bank.
(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, which represent premiums
on group term life insurance coverage: Stanberry - $897; Gulling - $770;
Winterbottom - $503; Eltjes - $219; and Lorenzen $317; and club dues for
Stanberry - $4,865; Winterbottom - $6,739; and Lorenzen - $5,967.
12
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board, at the recommendation of the Audit Committee, 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 2007. McGladrey & Pullen,
LLP was also the principal accountant and performed the audit in 2006.
A representative from McGladrey & Pullen, LLP will be present at the Annual
Meeting. He will have the opportunity to make a statement and will be available
to respond to appropriate questions from Shareholders.
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, 2006, and 2005, and fees
billed for other services rendered by McGladrey & Pullen, LLP and its associated
entity RSM McGladrey, Inc.:
2006 2005
-------- --------
Audit fees (1) $162,849 $197,000
Audit-related fees (2) 21,472 30,102
Tax fees (3) 21,580 12,540
All other fees -- --
-------- --------
Total $205,901 $239,642
======== ========
(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 2006 and 2005 and agreed upon procedures for student lending.
(3) Tax fees represent fees for professional services related to tax
compliance, which included preparation of tax returns and tax advice
regarding acquisitions.
Independence: The Audit Committee considered whether the non-audit services
provided by McGladrey & Pullen, LLP and its associated entity RSM McGladrey,
Inc. to the Company 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.
GENERAL MATTERS
TRANSACTIONS WITH RELATED PERSONS
Certain directors and one executive officer of the Company have direct and
indirect material interests in loans made by West Bank involving more than
$120,000. All of the loans were made in West Bank's ordinary course of business,
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable loans with other persons not related
to West Bank or the Company, and did not involve more than the normal risk of
collectibility or present other unfavorable features. None of the loans have
been classified as non-accrual, past due, restructured, or potential problem
loans.
Mr. Coppola is President and one-third owner of a corporation that leases three
buildings to West Bank. Rent for the three branch bank sites was approximately
$229,000 in 2006. That amount is less than five percent of the annual
consolidated gross revenues of both the Company and Mr. Coppola's corporation.
Each of the properties has a separate lease. Two of the leases expire in 2026
and the third expires in 2030. The aggregate amount of all rent due after
January 1, 2007, during the current terms of the leases is approximately
$7,170,000. The Company considers all terms of the leases, including the amount
of rent, to be usual and customary in the market place.
The Audit Committee's Charter requires the Committee to review and approve all
related party transactions that must be disclosed. All transactions between the
Company or its subsidiaries and any related person, including loans made by West
Bank, involving $120,000 or more are reviewed to determine whether all material
facts of the transaction are known to the Committee, the transaction complies
with known legal requirements, and the transaction is fair to the Company or its
subsidiaries. The Audit Committee completed the required review of the fiscal
year 2006 related party transactions and all transactions were approved and
ratified.
13
2008 SHAREHOLDER PROPOSALS
In order for any proposals of Shareholders to be presented as an item of
business at the Annual Meeting of Shareholders of the Company to be held in
2008, the proposal must be received at the Company's principal executive offices
no later than November 13, 2007, 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 the Shareholder, or the Shareholder's representative who is
qualified under state law to present the proposal on his or her 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 under the Securities Exchange Act of 1934 shall be
considered untimely unless received no later than January 25, 2008.
Shareholders wishing to recommend names of individuals for possible nomination
to the Board may do so according to the following procedures:
1. Contact the Secretary of the Company to obtain the Board Membership
Criteria established by the Board.
2. Make typewritten 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. Submit the recommendation to the Company by 120 days prior to the
expected mailing date of the proxy.
4. Prove the person making the recommendation is a Shareholder who owns
shares with a market value of at least $2,000 and who has held those
shares for at least one year at the time the submission is made.
5. If the person being recommended is aware of the submission, he or she
must sign a statement so indicating.
6. If the person being recommended 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
SHAREHOLDER COMMUNICATIONS
It is the general policy of the Board that management speaks for the Company. To
the extent shareholders would like to communicate with a Company representative,
they may do so by contacting Doug Gulling, Chief Financial Officer, Suite 209,
1601 22nd Street, West Des Moines, Iowa 50266. Mr. Gulling may be reached by
telephone at 515/222-2300 or by email at dgulling@westbankiowa.com.
The Company has a process for shareholders to send communications to the Board
or any of its individual members. Any shareholder wishing to communicate with
one or more Board members should address a written communication to Mr. Gulling
at one of the addresses noted above. Mr. Gulling will forward all shareholder
communications to the full Board or its individual members as appropriate.
FORM 10-K
The Company will provide, when available, a copy of its annual report on Form
10-K as filed with the SEC, without charge to each Shareholder solicited, upon
the written or oral request of any such Shareholder. Such request should be
directed to the Chief Financial Officer, West Bancorporation, Inc., 1601 22nd
Street, West Des Moines, Iowa 50266 or by calling 515-222-2300. The Company's
Form 10-K will also be available on the SEC's internet website at
http://www.sec.gov/edgar/searchedgar/webusers.htm and through a link in the
Investor Relations section of the Company's website (www.westbankiowa.com).
14
DELIVERY OF DOCUMENTS TO SHAREHOLDERS SHARING AN ADDRESS
In some instances only one annual report or proxy statement is being delivered
to two or more Shareholders who share an address. The Company has not received
contrary instructions from any Shareholder. However, the Company will promptly
deliver additional copies of its annual report or proxy statement to any
Shareholder who makes such a request. Any Shareholder who wishes to receive
separate copies of the annual report or proxy statement in the future may notify
Alice E. Jensen, Corporate Secretary, at 1601 22nd Street, West Des Moines,
Iowa, or 515-222-2300. Alternatively, any Shareholders sharing an address who
are receiving multiple copies of the annual reports or proxy statements may also
notify Ms. Jensen to request delivery of only one copy.
By Order of the Board of Directors,
/s/ Alice A. Jensen
----------------------------------------
Alice A. Jensen, Secretary
March 12, 2007
15
WEST BANCORPORATION, INC.
APPENDIX TO THE PROXY STATEMENT
FISCAL YEAR 2006
TABLE OF CONTENTS
PAGE
----
General Information...................................................... 2
Selected Financial Data.................................................. 3
Management's Discussion and Analysis..................................... 4
Reports of Independent Registered Public Accounting Firm................. 27
Management's Report on Internal Control over Financial Reporting......... 30
Consolidated Balance Sheets.............................................. 31
Consolidated Statements of Income........................................ 32
Consolidated Statements of Stockholders' Equity.......................... 33
Consolidated Statements of Cash Flows.................................... 34
Notes to Consolidated Financial Statements............................... 36
Stock Information........................................................ 64
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 (the "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, trust
services and interest on fixed income securities.
On October 1, 2003, the Company, through a new wholly-owned subsidiary, WB
Capital Management Inc. ("WB Capital"), purchased the assets of VMF Capital,
L.L.C., a registered investment advisor. On December 30, 2005, the Company
purchased Investors Management Group, Ltd. ("IMG"), an asset management company.
In the fourth quarter of 2006, the two investment advisory subsidiaries merged
and are operating as WB Capital, with offices in West Des Moines and Cedar
Rapids, Iowa. WB Capital provides portfolio management services to individuals,
retirement plans, corporations, public funds, mutual funds, foundations,
endowments and high net worth individuals.
West Bancorporation Capital Trust I (the "Trust") was formed in 2003 for the
purpose of issuing trust preferred securities. The Trust is recorded on the
books of the Company using the equity method of accounting.
The Company's stock trades on the NASDAQ Global Market under the symbol WTBA.
2
WEST BANCORPORATION, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Years Ended December 31
(in thousands, except ------------------------------------------------------------
per share amounts) 2006 2005 2004 2003 2002
--------------------- ---------- ---------- ---------- ---------- --------
Operating Results
Interest income $ 79,736 $ 63,475 $ 49,599 $ 43,461 $ 44,640
Interest expense 40,669 25,102 13,952 11,139 13,650
---------- ---------- ---------- ---------- --------
Net interest income 39,067 38,373 35,647 32,322 30,990
Provision for loan losses 1,725 1,775 1,200 850 910
---------- ---------- ---------- ---------- --------
Net interest income after
provision for loan losses 37,342 36,598 34,447 31,472 30,080
---------- ---------- ---------- ---------- --------
Noninterest income 15,871 11,517 10,706 9,305 6,614
Noninterest expense 24,678 18,645 16,968 14,694 11,220
---------- ---------- ---------- ---------- --------
Income before income taxes 28,535 29,470 28,185 26,083 25,474
Income taxes 9,128 9,395 9,571 8,800 9,098
---------- ---------- ---------- ---------- --------
Net income $ 19,407 $ 20,075 $ 18,614 $ 17,283 $ 16,376
========== ========== ========== ========== ========
Dividends and Per Share Data (1)
Cash dividends $ 10,956 $ 10,689 $ 10,484 $ 10,279 $ 9,957
Cash dividends per share 0.625 0.610 0.595 0.580 0.562
Basic earnings per share 1.11 1.14 1.06 0.98 0.92
Average common shares outstanding 17,537 17,537 17,599 17,706 17,706
Year End Balances
Total assets $1,268,536 $1,244,380 $1,148,435 $1,000,612 $886,116
Investment securities 261,578 274,719 347,052 274,913 212,292
Loans 904,422 867,504 725,845 599,355 488,453
Allowance for loan losses (8,494) (7,615) (6,527) (5,975) (4,494)
Deposits 925,334 944,893 865,932 705,074 613,099
Long-term borrowings 106,019 99,188 101,893 106,024 51,600
Stockholders' equity 113,812 104,521 97,620 92,896 85,824
Equity to assets ratio 8.97% 8.40% 8.50% 9.28% 9.69%
Years Ended December 31
----------------------------------------------------------
(dollars in thousands) 2006 2005 2004 2003 2002
---------------------- ---------- ---------- ---------- -------- --------
Net income $ 19,407 $ 20,075 $ 18,614 $ 17,283 $ 16,376
Average assets 1,298,410 1,192,208 1,066,511 932,907 837,938
Average stockholders' equity 107,345 100,392 94,209 88,742 81,904
Return on assets (net income
divided by average assets) 1.49% 1.68% 1.75% 1.85% 1.95%
Return on equity (net income
divided by average equity) 18.08% 20.00% 19.76% 19.48% 19.99%
Efficiency ratio (noninterest
expense divided by noninterest
income plus taxable equivalent
net interest income) 43.42% 36.22% 35.78% 34.78% 29.19%
Dividend payout ratio (dividends
paid divided by net income) 56.45% 53.25% 56.32% 59.26% 60.78%
Equity to assets ratio (average
equity divided by average
assets) 8.27% 8.42% 8.83% 9.51% 9.77%
(1) In July 2006, 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, and its
wholly-owned investment advisory subsidiary, WB 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 statements are 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: interest rate risk, 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 based on 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 loans.
On a quarterly basis, management reviews the appropriate level for the allowance
for loan losses incorporating a variety of risk considerations, both
quantitative and qualitative. Quantitative factors include the Company's
historical loss experience, delinquency and charge-off trends, collateral
values, known information about individual loans and other factors. Qualitative
factors include the general economic environment in the Company's market areas
and the expected trend of those economic conditions. 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 - 2006 COMPARED TO 2005
OVERVIEW
For the year ended December 31, 2006, the Company recorded net income of
$19,407,000, a decline of 3.3 percent from net income of $20,075,000 in 2005.
Earnings per share were $1.11 in 2006 compared to $1.14 in 2005. The decline was
primarily due to lower net income from WB Capital and the interest expense
associated with the debt incurred to fund the acquisition of IMG.
4
The Company's return on average assets (ROA) was 1.49 percent in 2006, compared
to 1.68 percent in 2005. The return on average equity (ROE) was 18.08 percent,
compared to 20.00 percent for the prior year.
The flattening yield curve during 2006 caused the net interest margin to decline
24 basis points from a year ago. The decline is the result of the cost of
short-term borrowings and jumbo certificates of deposit rising more than the
yields on the loan and investment portfolios.
Year-to-date noninterest income was higher than last year primarily due to
investment advisory fees associated with IMG.
Year-to-date noninterest expense was 32 percent higher than a year ago also
primarily due to expenses associated with IMG.
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, 2006, the
Company's efficiency ratio was 43.42 percent, up from the prior year's ratio of
36.22 percent. This ratio for both years is significantly better than peer group
averages, which are generally around 60 percent according to data in the
September 2006 Bank Holding Company Performance Report, a report prepared by the
Federal Reserve Board's Division of Banking Supervision and Regulation. The
Company expects the efficiency ratio for 2007 to be similar to 2006.
Net Interest Income
Net interest income increased 1.8 percent to $39,067,000 for 2006 primarily due
to the increase in loan volume. Average loans grew by 17 percent. The average
yield on earning assets increased 86 basis points, while the average rate on
interest-bearing liabilities increased 127 basis points. The net interest
spread, which is the difference between the yield earned on assets and the rate
paid on liabilities, declined to 2.66 percent from 3.07 percent a year earlier.
Net interest margin, which is tax-equivalent net interest income as a percent of
average earning assets, was 3.38 percent in 2006, down from 3.62 percent in
2005. During most of 2006, the yield curve was flat or inverted which means that
long-term rates were similar to or lower than short-term rates. It is expected
that the yield curve will remain flat or inverted throughout 2007.
Loan Growth/Loan Quality
At December 31, 2006, total loans increased approximately $36 million to $904
million from $868 million a year earlier. Most of the growth came in commercial,
construction and commercial real estate loans. Loan quality remained good with
non-performing loans at December 31, 2006 totaling $650,000, or .07 percent of
total loans. At December 31, 2005, non-performing loans totaled $4,912,000, or
0.57 percent of total loans. Non-performing loans include loans on non-accrual
status, loans that have been renegotiated to below market interest rates or
terms (of which there were none), and loans past due 90 days or more.
The allowance for loan losses, which totaled $8,494,000, represented 1,307
percent of non-accrual loans and loans past due more than 90 days at the end of
2006, compared to 155 percent for 2005. The provision for loan losses totaled
$1,725,000 for 2006, down from $1,775,000 for 2005. The Company's net
charge-offs as a percent of average loans were 0.09 percent for 2006, the same
as 2005. The amount of loans charged off in 2006 totaled $1,140,000 compared to
$823,000 in 2005. Recoveries in 2006 from loans previously charged off were
$294,000, up from $136,000 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, 2006. 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, 2006
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
-------------------------------------
2006 2005 Change Change-%
------- ------- ------ --------
Noninterest income
Service charges on deposit accounts $ 4,821 $ 4,660 $ 161 3.45%
Trust services 767 820 (53) -6.46%
Investment advisory fees 8,040 3,349 4,691 140.07%
Increase in cash value of bank-owned
life insurance 857 843 14 1.66%
Net realized gains (losses) on sales
of securities (171) 291 (462) -158.76%
Other income:
VISA/MasterCard income 166 132 34 25.76%
Debit card usage fees 237 194 43 22.16%
ATM surcharge fees 69 86 (17) -19.77%
Check printing fees 150 142 8 5.63%
Gain on sale of residential mortgages 81 119 (38) -31.93%
Other loan fees 69 178 (109) -61.24%
Gain on sale of fixed assets 112 -- 112 100.00%
All other income 673 703 (30) -4.27%
------- ------- ------ -------
Total other income 1,557 1,554 3 0.19%
------- ------- ------ -------
Total noninterest income $15,871 $11,517 $4,354 37.80%
======= ======= ====== =======
Service charges on deposit accounts increased slightly because of implementation
of pricing changes for returned check charges in the third quarter of 2006.
Service charges collected on commercial accounts declined slightly from the
prior year as higher earnings credits reduced those fees. Income from trust
services was down. Certain types of trusts, such as estates, can cause
fluctuations in earned fees.
Investment advisory fees are fees earned by WB Capital. The significant increase
in investment advisory fees in the current year was due to the acquisition of
IMG on the last day of 2005. The two subsidiaries were merged in the fourth
quarter of 2006. Revenue from the combined company did not meet expectations as
the time involved in merging the two companies detracted from new sales efforts.
Combining the two companies will allow for more effective client service.
The Company recognized losses from the sale of investment securities in 2006 as
lower yielding investments were sold, with the proceeds being reinvested at
higher yields. The increase in VISA/MasterCard income was due to increases in
customer usage. The increase in debit card usage fees was the result of higher
volumes as customers continued to expand utilization of this convenient payment
method. The decline in the ATM card usage fees was due to changes in behavior as
non-customers seek to avoid surcharges when using an ATM. Gains from sale of
residential mortgages originated for sale in the secondary market were down
because increases in market interest rates have reduced the volume of
originations. Noninterest-related loan fees in 2005 included the recognition of
a fee for a loan commitment that was terminated by a customer. The gain on the
sale of fixed assets represents the gain recognized on the sale of one of the
Bank's branch offices. That office was relocated to a new leased facility.
Noninterest Expense
Total noninterest expense increased 32.4 percent to $24,678,000 in 2006 from
$18,645,000 in 2005.
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
-------------------------------------
2006 2005 Change Change-%
------- ------- ------ --------
Noninterest expense:
Salaries and employee benefits $13,937 $10,308 $3,629 35.21%
Occupancy 3,433 2,497 936 37.48%
Data processing 1,920 1,428 492 34.45%
Other expenses:
Insurance 253 160 93 58.13%
Marketing 554 369 185 50.14%
Business development 287 250 37 14.80%
Professional fees 672 531 141 26.55%
Consulting fees 206 284 (78) -27.46%
Intangible amortization 884 339 545 160.77%
All other expenses 2,532 2,479 53 2.14%
------- ------- ------ ------
Total other expenses 5,388 4,412 976 22.12%
------- ------- ------ ------
Total noninterest expense $24,678 $18,645 $6,033 32.36%
======= ======= ====== ======
The increase in salaries and benefits included compensation and benefits for
approximately 24 employees related to the acquisition of IMG, approximately 15
more employees at West Bank in 2006 than in the prior year due to growth of the
bank, annual compensation adjustments and higher medical insurance premiums.
Occupancy expenses were higher in 2006 because of one additional location
related to IMG and increased depreciation expense related to remodeling
projects, including furniture and equipment purchases throughout the Company.
Early in the year the Clive office of WB Capital was relocated to the same
facility as IMG, and is using space that was already leased. Additional excess
space in that new location is available for subleasing and is being actively
marketed. A new tenant has utilized the former Clive office and the landlord
canceled WB Capital's remaining lease. A charge of approximately $32,000 was
recorded to occupancy expense in the second quarter of 2006 as a result of
terminating the lease. In the third quarter, one of the Des Moines metropolitan
branches was relocated to a higher traffic location. The former branch was sold
in the fourth quarter and resulted in a gain of approximately $112,000.
Data processing expense and insurance expense were higher primarily due to the
acquisition of IMG. Marketing and business development related costs increased
as a result of significant efforts to increase and expand current and new
customer relationships at the Bank and at WB Capital.
Professional fees increased due to the acquisition of IMG, higher audit fees and
higher legal fees. Consulting fees for 2006 included expenses incurred by IMG,
but have declined as 2005 expense included fees for implementation of software
programs to assist with asset-liability management and profitability
measurement. Intangible amortization increased as the result of recording client
base and employment/noncompete intangibles in the acquisition of IMG.
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, disallowed
interest expense, tax deductible dividends paid into the employee savings and
stock ownership plan and state income taxes. Also, during 2005, management
determined that with the acquisition of IMG, the Company will be able to utilize
the existing state operating loss carryforwards. The valuation allowance was
recognized as a reduction in tax expense in December 2005. The effective rate of
income tax expense as a percent of income before income taxes was 32.0 percent
for 2006, compared to 31.9 percent for 2005. The federal income tax expense was
approximately $7,783,000 and $7,950,000 for 2006 and 2005, respectively, while
state income tax expense was approximately $1,345,000 and $1,450,000,
respectively.
7
RESULTS OF OPERATIONS - 2005 COMPARED TO 2004
OVERVIEW
For the year ended December 31, 2005, the Company recorded net income of
$20,075,000, an increase of 7.8 percent from net income of $18,614,000 in 2004.
Earnings per share were $1.14 in 2005 compared to $1.06 in 2004. Earnings per
share for both years were restated to reflect a 5 percent common stock dividend,
which was authorized in July 2006. The increase was primarily due to higher net
interest income, which increased $2,726,000 due to significant loan growth.
Average loans grew approximately 22 percent over the prior year. The provision
for loan losses was $575,000 higher than the prior year. Noninterest income
increased by $811,000, while noninterest expenses were $1,677,000 higher in
2005.
The Company's return on average assets was 1.68 percent in 2005, compared to
1.75 percent in 2004. The return on average equity was 20.00 percent, compared
to 19.76 percent for the prior year.
The flattening yield curve during 2005 caused the net interest margin to decline
9 basis points from 2004. The decline was the result of the cost of short-term
borrowings and jumbo certificates of deposit rising more than the yields on the
loan and investment portfolios.
Year-to-date noninterest income was higher than the prior year due to investment
advisory fees earned by WB Capital, increased trust fees, higher loan-related
fees (not subject to deferral and amortization), and increased gains on sale of
investment securities.
Year-to-date noninterest expense was 9.9 percent higher than 2004 due to
increases in compensation related expenses, occupancy costs, consulting fees and
net other real estate owned expense.
For the year ended December 31, 2005, the Company's efficiency ratio was 36.22
percent, up from the prior year's ratio of 35.78 percent.
Net Interest Income
Net interest income increased 7.6 percent to $38,373,000 for 2005 primarily due
to the increase in loan volume, which more than offset the rising rates paid on
deposits and borrowings. Average loans grew by 21.6 percent and the average
balance of the investment portfolio was up 3.7 percent. The average yield on
earning assets increased 77 basis points, while the average rate on
interest-bearing liabilities increased 106 basis points. The net interest spread
declined to 3.07 percent from 3.36 percent a year earlier. Net interest margin
was 3.62 percent in 2005, down from 3.71 percent in 2004.
Loan Growth/Loan Quality
At December 31, 2005, total loans increased approximately $142 million to $868
million from $726 million a year earlier. Most of the growth came in commercial,
construction and commercial real estate loans. Loan quality remained good with
non-performing loans at December 31, 2005, totaling $4,912,000, or 0.57 percent
of total loans. One loan accounted for $3,867,000 of this total. The loan was a
commercial loan secured by commercial real estate used in the operation of the
customer's business and farmland. It was placed on non-accrual status due to the
time period that was believed to be involved in resolving the loan. At December
31, 2004, non-performing loans totaled $860,000 or 0.12 percent of total loans.
The allowance for loan losses, which totaled $7,615,000, represented 155 percent
of non-accrual loans and loans past due more than 90 days at the end of 2005,
compared to 759 percent for 2004. The provision for loan losses totaled
$1,775,000 for 2005, up from $1,200,000 for 2004. The Company's net charge-offs
as a percent of average loans were 0.09 percent for 2005, compared to 0.10
percent for 2004. The amount of loans charged off in 2005 totaled $823,000,
compared to $815,000 in 2004. Recoveries in 2005 from loans previously charged
off were $136,000, down from $167,000 in the prior year.
8
Management considered the allowance for loan losses at December 31, 2005
sufficient to absorb probable loan losses within the portfolio.
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
-------------------------------------
2005 2004 Change Change-%
------- ------- ------ --------
Noninterest income
Service charges on deposit accounts $ 4,660 $ 4,968 $(308) -6.20%
Trust services 820 632 188 29.75%
Investment advisory fees 3,349 2,683 666 24.82%
Increase in cash value of bank-owned
life insurance 843 869 (26) -2.99%
Net realized gains on sales of securities 291 199 92 46.23%
Other income:
VISA/MasterCard income 132 175 (43) -24.57%
Debit card usage fees 194 156 38 24.36%
ATM surcharge fees 86 96 (10) -10.42%
Gain on sale of residential mortgages 119 152 (33) -21.71%
Gain on sale of commercial loans 51 -- 51 N/A
Other loan fees 178 -- 178 N/A
All other income 794 776 18 2.32%
------- ------- ----- ------
Total other income 1,554 1,355 199 14.69%
------- ------- ----- ------
Total noninterest income $11,517 $10,706 $ 811 7.58%
======= ======= ===== ======
Service charges on deposit accounts declined for two reasons. First, higher
interest rates resulted in a higher earnings credit on commercial checking
accounts, which resulted in lower service charges. Second, return check charges
declined in 2005 due to fewer customers overdrawing their accounts. Income from
trust services was up due to a higher amount of custodial assets and assets
under management. Also, certain types of trusts, such as estates, can cause
fluctuations in earned fees. The increase in investment advisory fees was due to
sales efforts throughout the past year, which resulted in total average assets
under management increasing from $715 million in 2004 to $800 million in 2005.
The decline in VISA/MasterCard income was due to a decline in the number of
merchant customers and lower sales activity at certain merchants. The increase
in debit card usage fees was the result of higher volumes as customers continued
to expand utilization of this convenient payment method. The decline in the ATM
card usage fees was due to changes in behavior as non-customers sought to avoid
surcharges when using an ATM. Gains from sale of residential mortgages
originated for sale in the secondary market declined because of lower volume due
to rising interest rates and increased pricing competition. The gains from the
sale of commercial loans resulted from the sale of the United States Department
of Agriculture (USDA) guaranteed portion of commercial loans in the first half
of 2005. Noninterest related loan fees included the recognition of a fee for a
loan commitment that was terminated by a customer in the second quarter of 2005.
Noninterest Expense
Total noninterest expense increased 9.9 percent to $18,645,000 in 2005 from
$16,968,000 in 2004.
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
-------------------------------------
2005 2004 Change Change-%
------- ------- ------ --------
Noninterest expense:
Salaries and employee benefits $10,308 $ 9,680 $ 628 6.49%
Occupancy 2,497 2,057 440 21.39%
Data processing 1,428 1,361 67 4.92%
Other expenses:
Professional fees 531 567 (36) -6.35%
Insurance 160 129 31 24.03%
Marketing 369 324 45 13.89%
Postage and courier 398 373 25 6.70%
Consulting fees 284 84 200 238.10%
Other real estate owned expense 9 (175) 184 105.14%
Miscellaneous operating losses 183 110 73 66.36%
All other expenses 2,478 2,458 20 0.81%
------- ------- ------ ------
Total other expenses 4,412 3,870 542 14.01%
------- ------- ------ ------
Total noninterest expense $18,645 $16,968 $1,677 9.88%
======= ======= ====== ======
The increase in salaries and benefits was the result of staff additions, annual
compensation adjustments and certain benefit costs, primarily medical insurance.
As of the end of 2005, the Company had 158 full-time equivalent employees
excluding IMG, which was acquired on December 30, 2005, compared to 145
full-time equivalent employees at December 31, 2004. As of the end of 2005, IMG
had 25 full-time equivalent employees. Occupancy expenses were higher in 2005
due to one additional location (Coralville, Iowa), and increased depreciation
expense related to remodeling projects and technology upgrades throughout the
Company. Professional fees declined from the prior year due to lower legal fees.
Insurance expense was higher because the Company's director's and officer's
policy renewed in the third quarter of 2004 at premiums that were significantly
higher than at the previous renewal period. Marketing expense increased as a
result of additional targeted marketing campaigns. The increase in consulting
fees was due to a change in the contract with the Company's former chairman from
that of an employment agreement to a consulting agreement, and the hiring of an
outside consultant to help with the implementation of software programs to
assist with asset-liability management and profitability measurement. The net
expense for other real estate owned increased as 2004 included gains from the
sale of several other real estate properties.
Income Taxes
The effective rate of income tax expense as a percent of income before income
taxes was 31.9 percent for 2005, compared to 34.0 percent for 2004. The reasons
for the decline in the effective rate were the significant increase in
tax-exempt municipal income and the recognition of a previously established
valuation allowance related to a state net operating loss carryforward. The
valuation allowance was recognized as a reduction in tax expense in December
2005. The federal income tax expense was approximately $7,950,000 and $8,200,000
for 2005 and 2004, respectively, while state income tax expense was
approximately $1,450,000 and $1,350,000, respectively.
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. Interest income and the resulting net
interest income are shown on a fully taxable basis.
10
2006 2005 2004
------------------------------ ------------------------------ ------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
(dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
Assets
Interest-earning assets:
Loans: (2)(3)
Commercial $ 343,659 $26,534 7.72% $ 278,135 $18,078 6.50% $ 275,554 $14,812 5.38%
Real estate (1) 560,673 39,971 7.13% 492,283 31,624 6.42% 351,456 21,517 6.12%
Consumer and other loans 14,660 1,026 7.00% 14,746 962 6.53% 18,865 1,171 6.21%
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
Total loans 918,992 67,531 7.35% 785,164 50,664 6.45% 645,875 37,500 5.81%
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
Investment securities:
Taxable 172,265 7,925 4.60% 210,966 8,957 4.25% 240,601 9,442 3.92%
Tax-exempt (1) 98,219 5,105 5.20% 102,049 5,317 5.21% 61,117 2,977 4.87%
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
Total investment securities 270,484 13,030 4.82% 313,015 14,274 4.56% 301,718 12,419 4.12%
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
Federal funds sold and other
short-term investments 17,465 903 5.17% 12,211 412 3.37% 46,588 948 2.03%
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
Total interest-earning assets (1) 1,206,941 81,464 6.75% 1,110,390 65,350 5.89% 994,181 50,867 5.12%
---------- ------- ==== ---------- ------- ==== ---------- ------- ====
Noninterest-earning assets:
Cash and due from banks 28,831 34,393 28,326
Premises and equipment, net 5,511 4,632 3,794
Other, less allowance for loan
losses 57,127 42,793 40,210
---------- ---------- ----------
Total noninterest-earning assets 91,469 81,818 72,330
---------- ---------- ----------
Total assets $1,298,410 $1,192,208 $1,066,511
========== ========== ==========
(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 non-accrual loans. Interest income on
non-accrual loans has been excluded.
(3) Interest income on loans includes amortization of loan fees, which is not
material.
11
2006 2005 2004
---------------------------- ---------------------------- ----------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
(dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
Liabilites and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings, checking with interest,
and money markets $ 306,254 $ 7,912 2.58% $ 333,507 $ 5,482 1.64% $ 395,757 $ 3,682 0.93%
Time deposits 498,455 23,557 4.73% 333,912 10,459 3.13% 193,379 3,760 1.94%
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
Total deposits 804,709 31,469 3.91% 667,419 15,941 2.39% 589,136 7,442 1.26%
Other borrowed funds 189,967 9,200 4.84% 223,346 9,161 4.10% 203,064 6,510 3.21%
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 994,676 40,669 4.09% 890,765 25,102 2.82% 792,200 13,952 1.76%
---------- ------- ==== ---------- ------- ==== ---------- ------- ====
Noninterest-bearing liabilities:
Demand deposits 186,894 194,957 175,605
Other liabilities 9,495 6,094 4,497
Stockholders' equity 107,345 100,392 94,209
---------- ---------- ----------
Total liabilities and stockholders'
equity $1,298,410 $1,192,208 $1,066,511
========== ========== ==========
Net interest income (1) $40,795 $40,248 $36,915
======= ======= =======
Margin Analysis
Interest income/yield on
interest-earning assets (1) $81,464 6.75% $65,350 5.89% $50,867 5.12%
Interest expense/rate on
interest-bearing liabilities 40,669 4.09% 25,102 2.82% 13,952 1.76%
------- ---- ------- ---- ------- ----
Net interest income/net interest
spread (1) $40,795 2.66% $40,248 3.07% $36,915 3.36%
======= ==== ======= ==== ======= ====
Net interest margin (1) 3.38% 3.62% 3.71%
==== ==== ====
(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 of net income is net interest income, which is
the difference between interest earned on earning assets that are primarily
loans and investments and interest paid on interest-bearing liabilities that 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. Tax-equivalent net interest income divided by average
earning assets is referred to as net interest margin. For the years ending
December 31, 2006, 2005 and 2004, the Company's net interest margin was 3.38
percent, 3.62 percent and 3.71 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)
2006 Compared to 2005 2005 Compared to 2004
--------------------------- ---------------------------
Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- -------
Interest Income
Loans: (2)
Commercial $ 4,704 $ 3,752 $ 8,456 $ 140 $ 3,126 $ 3,266
Real estate (3) 4,663 3,684 8,347 9,000 1,107 10,107
Consumer and other loans (6) 70 64 (266) 57 (209)
------- ------- ------- ------- ------- -------
Total loans (including fees) 9,361 7,506 16,867 8,874 4,290 13,164
------- ------- ------- ------- ------- -------
Investment securities:
Taxable (1,737) 705 (1,032) (1,220) 735 (485)
Tax-exempt (3) (199) (13) (212) 2,120 220 2,340
------- ------- ------- ------- ------- -------
Total investment securities (1,936) 692 (1,244) 900 955 1,855
------- ------- ------- ------- ------- -------
Federal funds sold and other
short-term investments 219 272 491 (943) 407 (536)
------- ------- ------- ------- ------- -------
Total interest income (3) 7,644 8,470 16,114 8,831 5,652 14,483
------- ------- ------- ------- ------- -------
Interest Expense
Deposits:
Savings, checking with interest,
and money markets (480) 2,910 2,430 (655) 2,455 1,800
Time deposits 6,444 6,654 13,098 3,639 3,060 6,699
------- ------- ------- ------- ------- -------
Total deposits 5,964 9,564 15,528 2,984 5,515 8,499
Other borrowed funds (1,481) 1,520 39 698 1,953 2,651
------- ------- ------- ------- ------- -------
Total interest expense 4,483 11,084 15,567 3,682 7,468 11,150
------- ------- ------- ------- ------- -------
Net interest income (3) $ 3,161 $(2,614) $ 547 $ 5,149 $(1,816) $ 3,333
======= ======= ======= ======= ======= =======
(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 non-accrual 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 following table sets forth the composition of the Company's securities
available for sale for the past three years ending December 31, 2006, 2005 and
2004 (dollars in thousands).
As of December 31
------------------------------
2006 2005 2004
-------- -------- --------
U.S. Government agencies and corporations $137,620 $147,047 $186,301
States of the United States and political subdivisions 97,162 103,947 58,728
Corporate notes and other investments 21,949 19,340 36,081
-------- -------- --------
Total $256,731 $270,334 $281,110
======== ======== ========
The following table sets forth the composition of the Company's securities held
to maturity for the past three years ending December 31, 2006, 2005 and 2004
(dollars in thousands).
As of December 31
---------------------
2006 2005 2004
---- ---- -------
U.S. Government agencies and corporations $-- $-- $13,001
States of the United States and political subdivisions -- -- 38,185
Corporate notes and other investments -- -- 8,234
--- --- -------
Total $-- $-- $59,420
=== === =======
During 2005, the Company transferred all held to maturity investment securities
to the available for sale category. The decision to transfer all held to
maturity securities to the available for sale category was made to allow the
entire investment portfolio to be managed on a total return basis.
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, 2006
(dollars in thousands)
After one year After five years
Within one but within five but within ten After ten
year years years years Total
---------- --------------- ---------------- --------- --------
U.S. Government agencies and corporations $ 3,943 $ 88,945 $37,255 $ 7,477 $137,620
States of the United States and political subdivisions 6,246 15,412 23,789 51,715 97,162
Corporate notes and other investments -- 3,540 6,809 11,600 21,949
------- -------- ------- ------- --------
Total $10,189 $107,897 $67,853 $70,792 $256,731
======= ======== ======= ======= ========
Weighted average yield:
U.S. Government agencies and corporations 3.50% 4.23% 4.80% 3.95%
States of the United States and political subdivisions (1) 4.71% 5.03% 5.63% 5.44%
Corporate notes and other investments -- 4.68% 4.27% 6.07%
------- -------- ------- -------
Total 4.24% 4.36% 5.04% 5.39%
======= ======== ======= =======
(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.
14
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, 2006, 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.
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, 2006 (dollars in thousands).
As of December 31
----------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Commercial $327,985 $311,086 $260,706 $233,035 $223,135
Real Estate:
Construction, land and land development 143,928 134,581 90,115 48,681 30,523
1-4 family residential 89,114 86,485 79,580 76,853 56,939
Commercial 328,514 321,561 281,956 211,853 154,222
Consumer and other loans 15,752 14,957 14,545 29,643 23,755
-------- -------- -------- -------- --------
Total loans 905,293 868,670 726,902 600,065 488,574
Deferred loan fees, net 871 1,166 1,057 710 121
-------- -------- -------- -------- --------
Total loans, net of deferred fees $904,422 $867,504 $725,845 $599,355 $488,453
======== ======== ======== ======== ========
The Company's loan portfolio primarily consists of commercial, commercial real
estate, real estate construction, land and land development, residential real
estate, and consumer loans. As of December 31, 2006, gross loans totaled
approximately $905 million, which equals approximately 98 percent of total
deposits and 71 percent of total assets. As of December 31, 2006, 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 either 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. The loan policy is
reviewed annually and updated as considered necessary. 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.
15
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.
Loans as of December 31, 2006
(dollars in thousands)
After
one but
within After
Within five five
one year years years Total
-------- -------- ------- --------
Commercial $176,616 $135,189 $16,180 $327,985
Real Estate:
Construction, land and land development 102,320 40,384 1,224 143,928
1-4 family residential 19,973 55,911 13,230 89,114
Commercial 36,426 231,274 60,814 328,514
Consumer and other loans 8,196 7,479 77 15,752
-------- -------- ------- --------
Total Loans $343,531 $470,237 $91,525 $905,293
======== ======== ======= ========
After one but
within five After five
years years
------------- ----------
Loan maturities after one year with:
Fixed rates $388,716 $54,385
Variable rates 81,521 37,140
-------- -------
$470,237 $91,525
======== =======
Risk Elements
The following table sets forth information concerning the Company's
non-performing assets for the past five years ending December 31, 2006 (dollars
in thousands).
Years Ended December 31
-------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------- ------ ------
Non-accrual loans $ 495 $4,145 $ 785 $1,668 $1,354
Loans past due 90 days and still
accruing interest 155 767 75 125 545
------ ------ ------ ------ ------
Total non-performing loans 650 4,912 860 1,793 1,899
Other real estate owned 2,002 497 175 441 529
------ ------ ------ ------ ------
Total non-performing assets $2,652 $5,409 $1,035 $2,234 $2,428
====== ====== ====== ====== ======
Non-performing loans to total loans 0.07% 0.57% 0.12% 0.30% 0.39%
Non-performing assets to total loans 0.29% 0.62% 0.14% 0.37% 0.50%
Non-performing assets to total assets 0.21% 0.43% 0.09% 0.22% 0.27%
16
The accrual of interest on past due and other impaired loans is generally
discontinued when loan payments are past due 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.
Outstanding loans of approximately $3,560,000 were placed on non-accrual status
during 2006, with total non-accrual loans equaling $495,000 as of December 31,
2006. The average balance of non-accrual loans during 2006 was approximately
$4.1 million. One loan totaling approximately $1.9 million accounted for over
half of the total placed on non-accrual status during 2006. This loan was paid
in full at year-end. The total amount of loans on non-accrual status as of
December 31, 2005 was $4,145,000. One loan accounted for approximately $3.9
million of the total non-accrual loans at December 31, 2005 and remained as a
non-accrual loan through most of 2006. This loan was secured by commercial real
estate and farmland. In the third quarter of 2006, the farmland was deemed to be
an in-substance foreclosure and transferred to other real estate owned at an
estimated net realizable value of $1,600,000. It remained in that category as of
December 31, 2006. The remaining portion of the loan was paid off at the end of
2006. Loans are placed on non-accrual status when there is doubt as to the
borrower's ability to make scheduled principal and interest payments. A loan may
be removed from non-accrual status when payments have resumed and it is
reasonable to expect continued payment performance. For the years ended December
31, 2006, 2005 and 2004, interest income that would have been recorded under the
original terms of such loans was approximately $306,000, $91,000, and $98,000,
respectively. For the periods shown above, there were no restructured loans. As
of December 31, 2006, there were no additional potential problem loans
identified that are not included in the table 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 whether the loan has other special or unusual characteristics that
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 uncollectible, 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
----------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Balance at beginning of period $ 7,615 $ 6,527 $ 5,975 $ 4,494 $ 4,240
Charge-offs:
Commercial 776 685 499 302 943
Real Estate:
Construction, land and land development 295 6 -- -- --
1-4 family residential 9 69 230 4 56
Commercial -- -- -- -- --
Consumer and other loans 60 63 86 179 195
-------- -------- -------- -------- --------
1,140 823 815 485 1,194
-------- -------- -------- -------- --------
Recoveries:
Commercial 270 78 33 145 499
Real Estate:
Construction, land and land development 6 -- -- -- --
1-4 family residential 1 22 80 -- --
Commercial -- -- -- -- --
Consumer and other loans 17 36 54 60 39
-------- -------- -------- -------- --------
294 136 167 205 538
-------- -------- -------- -------- --------
Net charge-offs 846 687 648 280 656
Allowance related to acquisition -- -- -- 911 --
Provision for loan losses charged
to operations 1,725 1,775 1,200 850 910
-------- -------- -------- -------- --------
Balance at end of period $ 8,494 $ 7,615 $ 6,527 $ 5,975 $ 4,494
======== ======== ======== ======== ========
Average loans outstanding $918,992 $785,164 $645,875 $531,033 $482,013
======== ======== ======== ======== ========
Ratio of net charge-offs during the period to
average loans outstanding 0.09% 0.09% 0.10% 0.05% 0.14%
======== ======== ======== ======== ========
Ratio of allowance for loan losses to average
loans outstanding 0.92% 0.97% 1.01% 1.13% 0.93%
======== ======== ======== ======== ========
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 2002, the
net charge-off ratio was 0.14 percent, which included charging off a number of
commercial loans, and was offset by diligent collection efforts to recover loans
charged off in previous years. The net charge-off ratio for 2003 was 0.05
percent, which is attributed to the close monitoring of the loan portfolio and
active collection efforts after a loan has been charged off. The net charge-off
ratios for 2004 and 2005 were 0.10 percent and 0.09 percent, respectively, which
were slightly higher than 2003, but still at levels that management considers
good when compared to our peers. The net charge-off ratio for 2006 was 0.09
percent. According to the September 2006 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 0.11 percent for the
first nine months of 2006.
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 2007 than it did in 2006. 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):
2006 2005 2004 2003 2002
-------------- -------------- -------------- -------------- --------------
Amount % * Amount % * Amount % * Amount % * Amount % *
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance at end of period applicable to:
Commercial $2,068 36.23% $2,717 35.81% $3,443 35.86% $3,659 38.84% $2,934 45.67%
Real Estate:
Construction, land and land development 1,168 15.90% 532 15.49% 298 12.40% 341 8.11% 279 6.25%
1-4 family residential 1,141 9.84% 894 9.96% 826 10.95% 179 12.81% 106 11.65%
Commercial 3,985 36.29% 3,326 37.02% 1,700 38.79% 1,211 35.30% 646 31.57%
Consumer and other loans 132 1.74% 146 1.72% 260 2.00% 585 4.94% 529 4.86%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$8,494 100.00% $7,615 100.00% $6,527 100.00% $5,975 100.00% $4,494 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
* Percent of loans in each category to total loans.
The allocation of the allowance for loan losses is dependent upon the change in
balances outstanding in the various categories, the historical net loss
experience by category, which can vary over time, and management's assessment of
economic factors that may influence potential losses in the loan portfolio.
DEPOSITS
Types 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 76 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 deposit in excess of $100,000 experience
somewhat higher volatility with regard to renewal volume as the Bank adjusts
rates based upon funding needs. In December 2006, management was utilizing
wholesale deposits of approximately $108 million as a source of funding. In the
event a substantial volume of certificates is 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, 2006, 2005, and 2004 (dollars in thousands).
Average Deposits by Type
---------------------------------------------------
2006 2005 2004
--------------- --------------- ---------------
Amount Rate Amount Rate Amount Rate
-------- ---- -------- ---- -------- ----
Noninterest-bearing demand
deposits $186,894 -- $194,957 -- $175,605 --
Interest-bearing demand deposits 46,434 1.00% 44,633 0.41% 42,360 0.20%
Money market deposits 204,722 3.24% 220,089 2.02% 259,012 1.09%
Savings deposits 55,098 1.47% 68,785 1.23% 94,385 0.81%
Time certificates 498,455 4.73% 333,912 3.13% 193,379 1.94%
-------- -------- --------
$991,603 $862,376 $764,741
======== ======== ========
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, 2006,
2005, and 2004 (in thousands).
As of December 31
------------------------------
2006 2005 2004
-------- -------- --------
3 months or less $ 97,854 $135,646 $ 77,090
Over 3 through 6 months 58,854 50,289 41,085
Over 6 through 12 months 38,671 43,614 25,154
Over 12 months 60,726 39,508 50,387
-------- -------- --------
$256,105 $269,057 $193,716
======== ======== ========
BORROWED FUNDS
The following table summarizes the outstanding amount of and the weighted
average rate on borrowed funds as of December 31, 2006, 2005, and 2004 (in
thousands).
As of December 31
---------------------------------------------------
2006 2005 2004
--------------- --------------- ---------------
Balance Rate Balance Rate Balance Rate
-------- ---- -------- ---- -------- ----
Trust preferred securities $ 20,619 7.04% $ 20,619 7.04% $ 20,619 7.04%
Long-term borrowings 85,400 4.87% 78,569 4.98% 81,274 4.48%
Federal funds purchased and securities sold
under agreements to repurchase 109,346 5.20% 84,748 3.94% 74,543 2.18%
Other short-term borrowings 1,929 5.04% 4,732 4.53% 4,668 2.43%
-------- ---- -------- ---- -------- ----
$217,294 5.24% $188,668 4.73% $181,104 3.77%
======== ==== ======== ==== ======== ====
Long-term borrowings consisted of Federal Home Loan Bank (FHLB) advances, an
installment note payable to VMF Capital, L.L.C. and a note payable to a
correspondent bank. Other short-term borrowings as of the end of each year
consisted of Treasury, Tax and Loan option notes. At December 31, 2005, other
short-term borrowings also included a note payable to VMF Capital L.L.C. and a
note payable to a correspondent bank. At December 31, 2004, other short-term
borrowings also included a note payable to VMF Capital L.L.C.
20
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,
2006, 2005 and 2004 (in thousands).
Years Ended December 31
-----------------------------------------------------------
2006 2005 2004
------------------ ----------------- ------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
-------- ------- -------- ------- --------- -------
Subordinated notes $ 20,619 7.04% $ 20,619 7.04% $ 20,619 7.04%
Long-term borrowings 84,654 4.35% 71,210 4.95% 82,121 4.55%
Federal funds purchased and securities
sold under agreements to repurchase 83,726 4.78% 81,222 3.06% 72,397 1.18%
Other short-term borrowings 968 4.77% 50,295 3.35% 27,927 1.59%
-------- ---- -------- ---- -------- ----
$189,967 4.84% $223,346 4.10% $203,064 3.21%
======== ==== ======== ==== ======== ====
2006 2005 2004
-------- -------- --------
Maximum amount outstanding during the
year:
Subordinated notes $ 20,619 $ 20,619 $ 20,619
Long-term borrowings 116,265 80,274 86,024
Federal funds purchased and securities
sold under agreements to repurchase 143,245 135,285 135,987
Other short-term borrowings 12,143 114,920 99,805
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, 2006 and 2005, the Company had commitments to extend credit of
approximately $262.7 million and $247.8 million, respectively, and standby
letters of credit of approximately $22.3 million and $23.2 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 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
commitments were funded, the Bank would be entitled to seek recovery from the
customer. At December 31, 2006 and 2005, no amounts had been recorded as
liabilities for the Bank's potential obligations under these guarantees.
21
CONTRACTUAL OBLIGATIONS
The following table sets forth the balance of contractual obligations by
maturity period as of December 31, 2006 (in thousands).
Payments due by period
-------------------------------------------------------------
Less than one One to three Three to five More than five
Total year years years years
-------- ------------- ------------ ------------- --------------
Subordinated notes $ 20,619 $ -- $ -- $ -- $20,619
Long-term borrowings:
Federal Home Loan Bank advances 75,900 900 5,000 20,000 50,000
Note payable, VMF Capital, L.L.C. 500 500 -- -- --
Note payable, correspondent bank 9,000 1,000 2,000 6,000 --
Operating lease commitments 12,086 1,327 2,243 1,560 6,956
-------- ------ ------ ------- -------
Total $118,105 $3,727 $9,243 $27,560 $77,575
======== ====== ====== ======= =======
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 and corporate demand notes declined from $40.7 million
in 2005 to $35.7 million in 2006. The Bank had additional borrowing capacity
available from the Federal Home Loan Bank ("FHLB") of approximately $76.7
million at December 31, 2006, and the Company has a $2.5 million unsecured line
of credit through a large regional correspondent bank. In addition, the Bank has
$95 million in borrowing capacity available through unsecured federal funds
lines of credit with correspondent banks. The Bank was utilizing $11.6 million
of those lines of credit at December 31, 2006. Net cash from operating
activities contributed $25.0 million, $22.3 million and $22.6 million to
liquidity for the years 2006, 2005 and 2004, 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, 2006.
The Company's total stockholders' equity increased to $113.8 million at December
31, 2006, from $104.5 million at December 31, 2005. Total equity increased due
to retention of earnings after dividend payments. At December 31, 2006,
stockholders' equity was 8.97 percent of total assets, compared to 8.40 percent
at December 31, 2005. 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, 2006.
In April 2006, the Company's Board of Directors authorized the buy-back of up to
$5 million of the Company's common stock for a period of twelve months. No
repurchases have taken place under this authorization.
On July 19, 2006, the Board of Directors of the Company declared a 5 percent
common stock dividend to be paid on August 14, 2006, to shareholders of record
on July 31, 2006. 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 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 a purchased 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.
22
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 2006 changed
compared to 2005.
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 -8.39%
200 basis points rising -5.43%
100 basis points rising -2.39%
Base --
100 basis points falling 1.85%
200 basis points falling 1.46%
300 basis points falling 0.05%
As shown above, at December 31, 2006, the estimated effect of an immediate 300
basis point increase in interest rates would cause the Company's net interest
income to decline by 8.39 percent or approximately $3,550,000 in 2007. The
estimated effect of an immediate 300 basis point decrease in rates would
increase the Company's net interest income by .05 percent or approximately
$20,000. 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 repricing should market interest rates decline considerably.
The following table sets forth the estimated maturity or repricing 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, 2006 (in thousands). 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 Total
-------- ---------- -------- -------- ----------
Interest-earning assets:
Loans $499,392 $ 80,752 $295,216 $ 29,062 $ 904,422
Securities available for sale 8,891 9,539 103,302 134,999 256,731
Federal funds sold and other
short-term investments 615 -- -- -- 615
Federal Home Loan Bank stock -- -- -- 4,847 4,847
-------- --------- -------- -------- ----------
Total interest-earning assets 508,898 90,291 398,518 168,908 1,166,615
-------- --------- -------- -------- ----------
Interest-bearing liabilities
Interest-bearing deposits:
Savings, money market and
interest-bearing demand 291,845 -- -- -- 291,845
Time 153,473 174,206 96,983 4,863 429,525
Federal funds purchased and
securities sold under agreement to
repurchase 109,346 -- -- -- 109,346
Other short-term borrowings 1,929 -- -- -- 1,929
Long-term borrowings 10,400 -- 25,000 70,619 106,019
-------- --------- -------- -------- ----------
Total interest-bearing liabilities 566,993 174,206 121,983 75,482 938,664
-------- --------- -------- -------- ----------
Interest sensitivity gap per period $(58,095) $ (83,915) $276,535 $ 93,426 $ 227,951
======== ========= ======== ======== ==========
Cumulative interest sensitivity gap $(58,095) $(142,010) $134,525 $227,951 $ 227,951
======== ========= ======== ======== ==========
Interest sensitivity gap ratio 0.90 0.52 3.27 2.24 1.24
======== ========= ======== ======== ==========
Cumulative interest sensitivity gap ratio 0.90 0.81 1.16 1.24 1.24
======== ========= ======== ======== ==========
As of December 31, 2006, the Company's cumulative gap ratios for assets and
liabilities repricing within three months and within one year were 0.90 and
0.81, respectively, meaning that the Company is liability sensitive. 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.
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 indices assume the investment of $100 on December 31, 2001, 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.
24
WEST BANCORPORATION, INC.
(PERFORMANCE GRAPH)
PERIOD ENDING
---------------------------------------------------------------
INDEX 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
----- -------- -------- -------- -------- -------- --------
West Bancorporation, Inc. 100.00 134.36 158.75 176.49 194.15 200.55
NASDAQ Composite 100.00 68.76 103.67 113.16 115.57 127.58
SNL Midwest Bank Index 100.00 96.47 123.48 139.34 134.26 155.19
* Source: SNL Financial LC, Charlottesville, VA. Used with permission. All
rights reserved.
EFFECTS OF NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 155, Accounting for Certain Hybrid Financial Instruments. SFAS No. 155 is an
amendment of SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, and SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This Statement eliminates
the exemption from applying Statement 133 to interests in securitized financial
assets so that similar instruments are accounted for similarly regardless of the
form of the instruments. The Statement also allows an entity to elect fair value
measurement at acquisition, at issuance, or when a previously recognized
financial instrument is subject to a remeasurement event, on an
instrument-by-instrument basis. This Statement is effective for the Company
beginning on January 1, 2007. The Company does not expect this Statement to have
a material effect on its financial condition or results of operations.
25
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets. SFAS No. 156 is an amendment of SFAS No. 140. SFAS No. 156
requires an entity to recognize a servicing asset or liability each time it
undertakes an obligation to service a financial asset and requires each
servicing asset or liability to be initially measured at fair value. Entities
are permitted to choose the fair value measurement method or the amortization
method for subsequent reporting periods. This Statement is effective for the
Company beginning on January 1, 2007. The Company does not expect this Statement
to have a material effect on its financial condition or results of operations.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
in Income Taxes. Interpretation No. 48 provides clarification on accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with FASB No. 109, Accounting for Income Taxes. The Interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return, and provides for additional financial statement footnote
disclosure. Interpretation No. 48 is effective for the Company beginning on
January 1, 2007. The Company does not expect this Statement to have a material
effect on its financial condition or results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 establishes a framework for measuring fair value in generally accepted
accounting principles, expands disclosures about fair value measurements and
applies whenever other standards require or permit assets or liabilities to be
measured at fair value. It does not expand the use of fair value in any new
circumstances. This Statement is effective for the Company beginning on January
1, 2008. The Company does not expect this Statement to have a material effect on
its financial condition.
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 have 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 otherwise would be necessary.
26
McGladrey & Pullen
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 consolidated balance sheets of West Bancorporation, Inc. and
subsidiaries as of December 31, 2006 and 2005, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2006. 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 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 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, 2006 and 2005, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2006, in conformity with U.S. generally accepted accounting
principles.
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, 2006, 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 7, 2007 expressed an
unqualified opinion on management's assessment of the effectiveness of West
Bancorporation, Inc. and subsidiaries' internal control over financial reporting
and an unqualified opinion on the effectiveness of West Bancorporation, Inc. and
subsidiaries' internal control over financial reporting.
/s/ McGladrey & Pullen, LLP
Des Moines, Iowa
March 7, 2007
McGladrey & Pullen, LLP is an independent member firm of RSM International,
an affiliation of separate and independent legal entities.
27
McGladrey & Pullen
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 management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that West
Bancorporation, Inc. and subsidiaries maintained effective internal control over
financial reporting as of December 31, 2006, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). West Bancorporation, Inc. and
subsidiaries' 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. 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.
28
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. 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. and
subsidiaries maintained effective internal control over financial reporting as
of December 31, 2006 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. and subsidiaries maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2006, 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. and subsidiaries as of December 31, 2006 and 2005, and the
related statements of income, stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 2006, and our report dated
March 7, 2007 expresses an unqualified opinion.
/s/ McGladrey & Pullen, LLP
Des Moines, Iowa
March 7, 2007
29
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.'s management assessed the effectiveness of the
Company's internal control over financial reporting as of December 31, 2006. 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, 2006, 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
audit 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
30
WEST BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
(in thousands, except per share data) 2006 2005
------------------------------------- ---------- ----------
ASSETS
Cash and due from banks (Note 13) $ 35,063 $ 39,424
Federal funds sold and other short-term investments 615 1,241
---------- ----------
CASH AND CASH EQUIVALENTS 35,678 40,665
Securities available for sale (Notes 2, 7 and 9) 256,731 270,334
Federal Home Loan Bank stock, at cost (Note 9) 4,847 4,385
Loans (Notes 3, 7 and 9) 904,422 867,504
Allowance for loan losses (Note 3) (8,494) (7,615)
---------- ----------
Loans, net 895,928 859,889
Premises and equipment, net (Note 4) 5,375 5,650
Accrued interest receivable 8,587 7,862
Goodwill (Note 5) 24,930 23,245
Other intangible assets (Note 5) 2,987 3,871
Bank-owned life insurance 22,956 22,099
Other assets (Note 10) 10,517 6,380
---------- ----------
TOTAL ASSETS $1,268,536 $1,244,380
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand $ 203,964 $ 207,493
Interest-bearing demand 57,605 48,630
Savings 234,240 295,068
Time, in excess of $100 (Note 6) 256,105 269,057
Other time (Note 6) 173,420 124,645
---------- ----------
TOTAL DEPOSITS 925,334 944,893
Federal funds purchased and securities sold under
agreements to repurchase (Note 9) 109,346 84,748
Other short-term borrowings (Notes 2 and 7) 1,929 4,732
Accrued expenses and other liabilities 12,096 6,298
Subordinated notes (Note 8) 20,619 20,619
Long-term borrowings (Notes 2, 3 and 9) 85,400 78,569
---------- ----------
TOTAL LIABILITIES 1,154,724 1,139,859
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY (Notes 11 and 12)
Common stock, no par value; authorized 50,000,000 shares;
17,536,682 and 17,536,935 shares issued and outstanding
at December 31, 2006 and 2005, respectively 3,000 3,000
Additional paid-in capital 32,000 32,000
Retained earnings 80,397 71,951
Accumulated other comprehensive (loss) (1,585) (2,430)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 113,812 104,521
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,268,536 $1,244,380
========== ==========
See Notes to Consolidated Financial Statements.
31
WEST BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except per share data) 2006 2005 2004
------------------------------------- ------- ------- -------
Interest income:
Loans, including fees $67,176 $50,361 $37,169
Securities:
U.S. Treasury, government agencies and corporations 6,046 6,903 6,409
States and political subdivisions 4,117 4,099 2,399
Other 1,494 1,700 2,674
Federal funds sold and other short-term investments 903 412 948
------- ------- -------
TOTAL INTEREST INCOME 79,736 63,475 49,599
------- ------- -------
Interest expense:
Demand deposits 464 184 86
Savings deposits 7,448 5,298 3,596
Time deposits 23,557 10,459 3,760
Federal funds purchased and securities sold under
agreements to repurchase 4,002 2,484 857
Other short-term borrowings 46 1,683 444
Subordinated notes 1,472 1,472 1,475
Long-term borrowings 3,680 3,522 3,734
------- ------- -------
TOTAL INTEREST EXPENSE 40,669 25,102 13,952
------- ------- -------
NET INTEREST INCOME 39,067 38,373 35,647
Provision for loan losses (Note 3) 1,725 1,775 1,200
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 37,342 36,598 34,447
------- ------- -------
Noninterest income:
Service charges on deposit accounts 4,821 4,660 4,968
Trust services 767 820 632
Investment advisory fees 8,040 3,349 2,683
Increase in cash value of bank-owned life insurance 857 843 869
Net realized gains (losses) from securities
available for sale (171) 291 199
Other income 1,557 1,554 1,355
------- ------- -------
TOTAL NONINTEREST INCOME 15,871 11,517 10,706
------- ------- -------
Noninterest expense:
Salaries and employee benefits 13,937 10,308 9,680
Occupancy 3,433 2,497 2,057
Data processing 1,920 1,428 1,361
Other expenses 5,388 4,412 3,870
------- ------- -------
TOTAL NONINTEREST EXPENSE 24,678 18,645 16,968
------- ------- -------
INCOME BEFORE INCOME TAXES 28,535 29,470 28,185
Income taxes (Note 10) 9,128 9,395 9,571
------- ------- -------
NET INCOME $19,407 $20,075 $18,614
======= ======= =======
Earnings per share, basic $ 1.11 $ 1.14 $ 1.06
======= ======= =======
See Notes to Consolidated Financial Statements.
32
WEST BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
Accumulated
Additional Other
Comprehensive Common Paid-in Retained Comprehensive
(in thousands, except per share data) Income Stock Capital Earnings Income (Loss) Total
------------------------------------- ------------- ------ ---------- -------- ------------- --------
Balance, December 31, 2003 $3,000 $ 32,000 $ 56,797 $ 1,099 $ 92,896
Comprehensive income:
Net income $18,614 -- -- 18,614 -- 18,614
Other comprehensive loss, unrealized (losses) on
securities, net of reclassification adjustment,
net of tax (1,044) -- -- -- (1,044) (1,044)
-------
Total comprehensive income $17,570
=======
Cash dividends declared, $0.595 per share -- -- (10,484) -- (10,484)
Purchase of fractional shares resulting from stock
dividend -- -- (2) -- (2)
Shares reacquired under the common stock
repurchase plan -- -- (2,360) -- (2,360)
------ -------- -------- -------- --------
Balance, December 31, 2004 3,000 32,000 62,565 55 97,620
Comprehensive income:
Net income $20,075 -- -- 20,075 -- 20,075
Other comprehensive loss, unrealized (losses) on
securities, net of reclassification adjustment,
net of tax (2,485) -- -- -- (2,485) (2,485)
-------
Total comprehensive income $17,590
=======
Cash dividends declared, $0.610 per share -- -- (10,689) -- (10,689)
------ -------- -------- -------- --------
Balance, December 31, 2005 3,000 32,000 71,951 (2,430) 104,521
Comprehensive income:
Net income $19,407 -- -- 19,407 -- 19,407
Other comprehensive income, unrealized gains on
securities, net of reclassification adjustment,
net of tax 845 -- -- -- 845 845
-------
Total comprehensive income $20,252
=======
Purchase of fractional shares resulting from stock
dividend -- -- (5) -- (5)
Cash dividends declared, $0.625 per share -- -- (10,956) -- (10,956)
------ -------- -------- -------- --------
BALANCE, DECEMBER 31, 2006 $3,000 $ 32,000 $ 80,397 $ (1,585) $113,812
====== ======== ======== ======== ========
See Notes to Consolidated Financial Statements.
33
WEST BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands) 2006 2005 2004
-------------- -------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 19,407 $ 20,075 $ 18,614
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 1,725 1,775 1,200
Net amortization and accretion 395 1,021 1,911
(Gain) loss on disposition of fixed assets (97) 29 28
Net (gains) losses from sales of securities available for
sale 171 (291) (199)
Net gains from sales of loans held for sale (134) (170) (152)
Proceeds from sales of loans held for sale 11,288 15,831 12,977
Originations of loans held for sale (11,290) (15,537) (12,879)
Increase in cash value of bank-owned life insurance (857) (843) (870)
Depreciation 912 552 359
Deferred income taxes 131 (352) 487
Change in assets and liabilities:
(Increase) in accrued interest receivable (725) (1,357) (626)
Increase in accrued expenses and other liabilities 4,113 1,606 1,746
-------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 25,039 22,339 22,596
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales, calls and maturities of securities
available for sale 35,749 90,553 103,179
Purchases of securities available for sale (21,722) (44,479) (195,052)
Proceeds from maturities and calls of securities held to
maturity -- 19,431 48,453
Purchases of securities held to maturity -- -- (30,718)
Cash effect of Investors Management Group, Ltd. transaction -- (9,479) --
Acquisition of Federal Home Loan Bank stock (2,758) (14,999) (12,591)
Proceeds from redemption of Federal Home Loan Bank stock 2,296 17,137 11,266
Net (increase) in loans (39,407) (142,470) (127,084)
Proceeds from sales of premises and equipment 382 -- --
Purchases of premises and equipment (923) (1,410) (1,014)
Change in other assets (3,017) (1,977) (38)
-------- --------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (29,400) (87,693) (203,599)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (19,560) 78,961 160,858
Net change in federal funds purchased and securities
sold under agreements to repurchase 24,598 10,205 (10,900)
Net change in other short-term borrowings (2,803) (1,437) (5,023)
Proceeds from long-term borrowings 50,000 10,000 10,619
Principal payments on long-term borrowings (41,900) (10,900) (13,900)
Purchase of fractional shares resulting from stock dividend (5) -- (2)
Payment for shares reacquired under common stock
repurchase plan -- -- (2,360)
Cash dividends (10,956) (10,689) (10,484)
-------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (626) 76,140 128,808
-------- --------- ---------
(Continued)
34
WEST BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands) 2006 2005 2004
-------------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $(4,987) $10,786 $(52,195)
CASH AND CASH EQUIVALENTS
Beginning 40,665 29,879 82,074
------- ------- --------
Ending $35,678 $40,665 $ 29,879
======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest $39,276 $23,851 $ 12,940
Income taxes 9,269 9,542 8,548
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Assets and (liabilities) received in conjunction with
acquisition transactions:
Cash $ -- $ 521 $ --
Premises and equipment -- 512 --
Goodwill -- 8,393 --
Other intangibles -- 2,186 --
Other assets -- 245 --
Deferred tax liability -- (880) --
Other liabilities -- (977) --
------- ------- --------
-- 10,000 --
Less cash acquired -- (521) --
------- ------- --------
NET CASH USED IN TRANSACTIONS $ -- $ 9,479 $ --
======= ======= ========
See Notes to Consolidated Financial Statements.
35
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 that has two wholly owned subsidiaries: West Bank
(the Bank) and WB Capital Management Inc. (WB Capital) (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 was
formed in 2003 and is an investment advisory firm with offices located in West
Des Moines and Cedar Rapids, Iowa. In addition, the Company owns a
nonconsolidated subsidiary, West Bancorporation Capital Trust I (the Trust),
which was formed in 2003 for the purpose of issuing trust preferred securities.
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 disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses 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, fair
value of financial instruments, and the goodwill impairment assessment.
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. In accordance with Financial Accounting Standards Board
(FASB) Interpretation No. 46, Consolidation of Variable Interest Entities,
the Trust is not consolidated with the Company. The results of the Trust
are recorded on the books of the Company using the equity method of
accounting.
Other comprehensive income: 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 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 based on amortized cost.
36
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2005, the Company transferred all held to maturity investment
securities to the available for sale category. The related unrealized gains
at the date of transfer were included in other comprehensive income. The
decision to transfer all held to maturity securities to the available for
sale category was made to allow the entire investment portfolio to be
managed on a total return basis.
The amortized cost of debt securities classified as available for sale or
held to maturity is adjusted for accretion of discounts to maturity and
amortization of premiums over the estimated average life of each security,
or in the case of callable securities, through the first call date, using
the effective yield method. Such amortization and accretion is included in
interest income. Interest income on securities is recognized using the
interest method according to the terms of the security.
Declines in the fair value of individual securities, classified as either
available for sale or held to maturity, 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: Loans are stated at the principal amounts outstanding net of
unamortized loan fees and costs with interest income recognized on the
interest method based upon those outstanding loan balances. Loan
origination fees, net of certain direct origination costs, are deferred and
recognized as an adjustment of the related loan yield using the interest
method.
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. Unless considered
collectible, all interest accrued but not collected for loans that are
placed on nonaccrual or charged off is reversed against interest income, if
accrued in the current year, or charged to the allowance for loan losses if
accrued in the prior year. Interest income is subsequently recognized only
to the extent cash payments are received. Loans are returned to accrual
status when all principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
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.
37
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Revenue
associated with assets under management is recognized as income when
earned.
Goodwill and other intangible assets: The price paid over the net fair
value of the acquired businesses (goodwill) is not amortized. The
recoverability of goodwill is evaluated annually, at a minimum, or on an
interim basis if events or circumstances indicate a possible inability to
realize the carrying amount. Other intangible assets are amortized over
their estimated useful lives, using straight-line and accelerated methods.
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.
Transfer of financial assets: Transfers of financial assets are accounted
for as sales when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when the assets have
been isolated from the Company. The transferee obtains the right, free of
conditions that constrain it from taking advantage of that right, to pledge
or exchange the transferred assets. The Company does not maintain effective
control over the transferred assets through an agreement to repurchase them
before their maturity.
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 differences 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: In February 2006, FASB issued SFAS No.
155, Accounting for Certain Hybrid Financial Instruments. SFAS No. 155 is
an amendment of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, and SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This
Statement eliminates the exemption from applying SFAS No. 133 to interests
in securitized financial assets so that similar instruments are accounted
for similarly regardless of the form of the instruments. The Statement also
allows an entity to elect fair value measurement at acquisition, at
issuance, or when a previously recognized financial instrument is subject
to a remeasurement event, on an instrument-by-instrument basis. This
Statement is effective for the Company beginning on January 1, 2007. The
Company does not expect this Statement to have a material effect on its
financial condition or results of operations.
38
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets. SFAS No. 156 is an amendment of SFAS No. 140. SFAS No.
156 requires an entity to recognize a servicing asset or liability each
time it undertakes an obligation to service a financial asset and requires
each servicing asset or liability to be initially measured at fair value.
Entities are permitted to choose the fair value measurement method or the
amortization method for subsequent reporting periods. This Statement is
effective for the Company beginning on January 1, 2007. The Company does
not expect this Statement to have a material effect on its financial
condition or results of operations.
In July 2006, the FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes. FASB Interpretation No. 48 provides
clarification on accounting for uncertainty in income taxes recognized in
an enterprise's financial statements in accordance with FASB Statement No.
109, Accounting for Income Taxes. The Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a tax return, and provides for additional financial statement footnote
disclosure. FASB Interpretation No. 48 is effective for the Company
beginning on January 1, 2007. The Company does not expect this
Interpretation to have a material effect on its financial condition or
results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.
SFAS No. 157 establishes a framework for measuring fair value in generally
accepted accounting principles, expands disclosures about fair value
measurements and applies whenever other standards require or permit assets
or liabilities to be measured at fair value. It does not expand the use of
fair value in any new circumstances. This Statement is effective for the
Company beginning on January 1, 2008. The Company does not expect this
Statement to have a material effect on its financial condition.
Acquisitions: On December 30, 2005, the Company purchased 100% of the stock
of Investors Management Group, Ltd. (IMG), which was an investment advisor
focusing on fixed income assets, which complemented and added to the
investment advisory services offered through WB Capital. The transaction
was effective as of the end of 2005. The purchase price was paid by cash.
In conjunction with this acquisition, the Company borrowed $10,000,000 from
a regional correspondent bank. Goodwill of $8,393,000 (not deductible for
tax purposes) and identifiable intangible assets of $2,186,000 ($2,009,000
of which is not deductible for tax purposes) were recorded with this
transaction. The identifiable intangible assets are being amortized over
estimated lives of 4 - 10 years. During the fourth quarter of 2006, IMG was
merged with WB Capital.
The operations of IMG are included in the consolidated statements of
income, and in cash flows from the date of acquisition.
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 19, 2006, the Board of Directors of the Company declared a 5%
common stock dividend, which was effective on July 31, 2006. On July 14,
2004, the Board of Directors of the Company declared a 5% common stock
dividend, which was effective on August 2, 2004. Fractional shares
resulting from both stock dividends were paid in cash. The average number
of common shares outstanding and the earnings per common share have been
restated for the stock dividends as if they occurred on January 1, 2004.
39
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Presented below are 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.)
(in thousands, except per share amounts) 2006 2005 2004
------- ------- -------
Numerator, income available to common
stockholders $19,407 $20,075 $18,614
======= ======= =======
Denominator, weighted-average common
shares outstanding 17,537 17,537 17,599
======= ======= =======
Basic earnings per common share $ 1.11 $ 1.14 $ 1.06
======= ======= =======
NOTE 2. SECURITIES
Securities available for sale consist of the following as of December 31, 2006
and 2005:
2006
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS (LOSSES) VALUE
--------- ---------- ---------- --------
U.S. Government agencies and corporations $139,847 $ 26 $(2,253) $137,620
State and political subdivisions 97,157 585 (580) 97,162
Corporate notes and other investments 22,284 113 (448) 21,949
-------- ---- ------- --------
$259,288 $724 $(3,281) $256,731
======== ==== ======= ========
2005
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains (Losses) Value
--------- ---------- ---------- --------
U.S. Government agencies and corporations $150,094 $ 2 $(3,049) $147,047
State and political subdivisions 104,662 532 (1,247) 103,947
Corporate notes and other investments 19,496 155 (311) 19,340
-------- ---- ------- --------
$274,252 $689 $(4,607) $270,334
======== ==== ======= ========
40
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2005, the Company transferred all held to maturity investment securities
to the available for sale category. The net carrying amount of transferred
securities was $39,848,000. The related unrealized gains at the date of transfer
were $413,000, and were included in other comprehensive income. The decision to
transfer all held to maturity securities to the available for sale category was
made to allow the entire investment portfolio to be managed on a total return
basis.
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, 2006 and 2005:
2006
--------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL
-------------------- --------------------- ---------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
(in thousands) VALUE (LOSSES) VALUE (LOSSES) VALUE (LOSSES)
------- ---------- -------- ---------- -------- ----------
U.S. Government agencies and corporations $ 4,595 $(40) $126,156 $(2,213) $130,751 $(2,253)
State and political subdivisions 11,663 (43) 43,991 (537) 55,654 (580)
Corporate notes and other investments 1,592 (9) 9,733 (439) 11,325 (448)
------- ---- -------- ------- -------- -------
$17,850 $(92) $179,880 $(3,189) $197,730 $(3,281)
======= ==== ======== ======= ======== =======
41
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2005
--------------------------------------------------------------------
Less than 12 months 12 months or longer Total
--------------------- -------------------- ---------------------
Fair Unrealized Fair Unrealized Fair Unrealized
(in thousands) Value (Losses) Value (Losses) Value (Losses)
-------- ---------- ------- ---------- -------- ----------
U.S. Government agencies and
corporations $ 91,940 $(1,788) $52,104 $(1,261) $144,044 $(3,049)
State and political
subdivisions 45,784 (629) 26,831 (618) 72,615 (1,247)
Corporate notes and other
investments 5,801 (196) 4,592 (115) 10,393 (311)
-------- ------- ------- ------- -------- -------
$143,525 $(2,613) $83,527 $(1,994) $227,052 $(4,607)
======== ======= ======= ======= ======== =======
As of December 31, 2006, the investment portfolio included 56 U.S. agency
securities, 176 municipal securities and 5 corporate notes with current
unrealized losses that have existed for longer than one year. These securities
reside in the Company's and the Bank's available for sale portfolio. The
majority 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, and the Company and the
Bank have the ability and the intent to hold these securities for a period of
time sufficient to allow for a recovery, which may be at maturity. No other than
temporary impairment was recorded at December 31, 2006 or 2005.
The amortized cost and fair value of securities available for sale as of
December 31, 2006 and 2005 by contractual maturity are shown below:
2006 2005
-------------------- --------------------
AMORTIZED FAIR Amortized Fair
(in thousands) COST VALUE Cost Value
--------- -------- --------- --------
Due in one year or less $ 10,255 $ 10,189 $ 7,806 $ 7,773
Due after one year through five years 109,578 107,897 108,121 106,268
Due after five years through ten years 68,717 67,853 85,065 83,600
Due after ten years 70,738 70,792 73,260 72,693
-------- -------- -------- --------
$259,288 $256,731 $274,252 $270,334
======== ======== ======== ========
42
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2006, 2005 and 2004, proceeds from sales of
securities available for sale amounted to $22,433,000, $26,169,000 and
$12,389,000 respectively. Gross security gains of $10,000, $301,000 and $256,000
were realized for the years ended December 31, 2006, 2005 and 2004,
respectively. Gross security losses of $181,000, $10,000 and $57,000 were
realized for the years ended December 31, 2006, 2005 and 2004, respectively.
Securities with an amortized cost of approximately $231,824,000 and $239,200,000
as of December 31, 2006 and 2005, 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.
Securities sold under agreements to repurchase are held in safekeeping on behalf
of the Company.
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, 2006, 2005 and 2004, are as follows:
(in thousands) 2006 2005 2004
------ ------- -------
Unrealized holding gains (losses) arising during
the period including the reclassification of
held to maturity securities in 2005 $1,190 $(3,718) $(1,482)
Less reclassification adjustment for net (gains)
losses realized in net income 171 (291) (199)
------ ------- -------
OTHER COMPREHENSIVE INCOME (LOSS),
NET UNREALIZED GAINS (LOSSES)
ON SECURITIES AVAILABLE FOR
SALE BEFORE TAX (EXPENSE) CREDIT 1,361 (4,009) (1,681)
Tax (expense) credit (516) 1,524 637
------ ------- -------
OTHER COMPREHENSIVE INCOME (LOSS),
NET UNREALIZED GAINS (LOSSES) ON
SECURITIES AVAILABLE FOR SALE,
NET OF TAX $ 845 $(2,485) $(1,044)
====== ======= =======
43
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans consist of the following as of December 31, 2006 and 2005:
(in thousands) 2006 2005
-------- --------
Commercial $327,985 $311,086
Real estate:
Construction, land and land development 143,928 134,581
1-4 family residential 89,114 86,485
Commercial 328,514 321,561
Consumer and other loans 15,752 14,957
-------- --------
905,293 868,670
Net unamortized fees and costs 871 1,166
-------- --------
$904,422 $867,504
======== ========
The loan portfolio includes approximately $434,456,000 and $407,096,000 of fixed
rate loans and $470,837,000 and $461,574,000 of variable rate loans as of
December 31, 2006 and 2005, respectively.
Loans of approximately $720,000 and $1,210,000 as of December 31, 2006 and 2005,
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, 2006, 2005 and 2004:
(in thousands) 2006 2005 2004
------- ------ ------
Balance, at beginning of year $ 7,615 $6,527 $5,975
Provision for loan losses 1,725 1,775 1,200
Recoveries 294 136 167
Charge-offs (1,140) (823) (815)
------- ------ ------
Balance, at end of year $ 8,494 $7,615 $6,527
======= ====== ======
Impaired loans (nonaccrual loans) were approximately $495,000 and $4,145,000 as
of December 31, 2006 and 2005, respectively. The balance of impaired loans at
December 31, 2006 was comprised of eight different borrowers, and no specific
allowance was assigned to those loans. At December 31, 2005, one impaired loan
totaling $3,867,000 was specifically reviewed and it was determined that a loss
was not expected. The remaining balance of $278,000 consisted of five different
borrowers, and an allowance totaling $70,000 was assigned to those loans. The
average recorded investments in impaired loans during 2006 and 2005 totaled
approximately $4,070,000 and $1,910,000, respectively. Interest income foregone
on impaired loans was approximately $306,000 during 2006 and $91,000 during
2005. Loans past due 90 days or more and still accruing interest totaled
$155,000 and $767,000 at December 31, 2006 and 2005, respectively.
44
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2006 and 2005:
(in thousands) 2006 2005
------- -------
Balance, beginning of year $14,328 $14,547
New loans 7,286 9,357
Repayments (3,188) (9,576)
------- -------
Balance, end of year $18,426 $14,328
======= =======
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following as of December 31, 2006 and
2005:
(in thousands) 2006 2005
------ ------
Land $1,251 $1,307
Building 772 1,015
Furniture and equipment 5,659 5,194
Leasehold improvements 1,492 1,244
------ ------
9,174 8,760
Accumulated depreciation 3,799 3,110
------ ------
$5,375 $5,650
====== ======
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 evaluated
annually, at a minimum for impairment. The Company has determined that there is
no impairment of goodwill.
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 by deposit category and
employment/noncompete 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 category ranging from four to eight years. Employment/noncompete contracts
are being amortized over estimated lives which range from four to ten years.
45
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill and other intangible assets resulted from the acquisition of Hawkeye
State Bank, VMF Capital, L.L.C. and IMG. For the year ended December 31, 2006,
an additional contingent payment of approximately $1,685,000 was recorded as
additional goodwill and as a liability related to the acquisition of VMF
Capital, L.L.C. The following table summarizes the changes in the gross carrying
amount of intangible assets during 2006 and 2005:
Other Intangible Assets
-------------------------------------------------
Employment/
Noncompete
(in thousands) Goodwill Core Deposit Client Base Contracts Total
-------- ------------ ----------- ----------- ------
Balance, December 31, 2004 $14,537 $1,680 $ 499 $325 $2,504
Additions - 2005 8,708 -- 2,009 177 2,186
------- ------ ------ ---- ------
Balance, December 31, 2005 23,245 1,680 2,508 502 4,690
Additions - 2006 1,685 -- -- -- --
------- ------ ------ ---- ------
BALANCE, DECEMBER 31, 2006 $24,930 $1,680 $2,508 $502 $4,690
======= ====== ====== ==== ======
The gross carrying amount of intangible assets and the accumulated amortization
at December 31, 2006 and 2005 are presented in the following table:
2006 2005
---------------------- ----------------------
ACCUMULATED Accumulated
(in thousands) GROSS AMORTIZATION Gross Amortization
------- ------------ ------- ------------
Goodwill $24,930 $ -- $23,245 $ --
======= ====== ======= ====
Amortizing intangible assets:
Core deposit $ 1,680 $ 748 $ 1,680 $531
Client base 2,508 733 2,508 164
Employment/noncompete contracts 502 222 502 124
------- ------ ------- ----
Total other intangible assets $ 4,690 $1,703 $ 4,690 $819
======= ====== ======= ====
46
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amortization expense for the years ended December 31, 2006, 2005 and 2004
totaled $884,000, $339,000 and $358,000, respectively. The future scheduled
amortization as of December 31, 2006 is as follows:
Employment/
Noncompete
(in thousands) Core Deposit Client Base Contracts Total
------------ ----------- ----------- ------
2007 $217 $ 541 $ 98 $ 856
2008 238 391 98 727
2009 205 288 84 577
2010 148 208 -- 356
2011 124 126 -- 250
Thereafter -- 221 -- 221
---- ------ ---- ------
$932 $1,775 $280 $2,987
==== ====== ==== ======
NOTE 6. DEPOSITS
At December 31, 2006, the scheduled maturities of time deposits were as follows:
(in thousands)
2007 $328,448
2008 54,038
2009 26,890
2010 13,121
2011 and thereafter 7,028
--------
$429,525
========
NOTE 7. OTHER SHORT-TERM BORROWINGS
Short-term borrowings as of December 31, 2006 consisted of Treasury, Tax and
Loan option notes. Short-term borrowings as of December 31, 2005 consisted of
Treasury, Tax and Loan option notes, a note payable to VMF Capital, L.L.C. and a
note payable to a regional correspondent bank. The Treasury, Tax and Loan option
notes are collateralized by certain loans and investment securities.
NOTE 8. SUBORDINATED NOTES
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%. Interest is payable quarterly. The effective
cost of this security, including amortization of the discount fee, is 7.04%.
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 principles
related to this debt.
47
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. LONG-TERM BORROWINGS AND SUBSEQUENT EVENT
At December 31, 2006, long-term borrowings consisted of the following FHLB
advances, a note payable to VMF Capital, L.L.C. and a note payable to a regional
correspondent bank:
Interest
(dollars in thousands) Amount Rate Maturity
------- -------- --------
FHLB advances $ 900 4.86% 2007
5,000 4.99 2008(a)
20,000 5.96 2010(a)
50,000 4.12 2016(b)
-------
TOTAL FHLB ADVANCES 75,900
-------
Note payable, VMF Capital, L.L.C. 500 6.00 2007
Note payable, correspondent bank 1,000 6.50 2007
1,000 6.50 2008
1,000 6.50 2009
6,000 6.50 2010
-------
TOTAL NOTE PAYABLE TO
CORRESPONDENT BANK (c) 9,000
-------
TOTAL LONG-TERM BORROWINGS $85,400
=======
(a) These advances are callable on a quarterly basis.
(b) Two advances of $25 million each, callable in 2007 and 2009.
(c) The interest rate is variable and is tied to prime rate.
The FHLB advances are collateralized by FHLB stock, investment securities and
real estate loans as required by the FHLB's collateral policy. On January 9,
2007, an FHLB advance of $30 million with a 10-year maturity was obtained. The
advance is callable after three years and has a rate of 4.32%.
The $500,000 installment payable to VMF Capital, L.L.C. was 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 payment
equaled or exceeded assets under management as of October 1, 2003. This
threshold was exceeded and the payment was made subsequent to year-end.
On December 30, 2005, the Company obtained a $10 million note payable to a large
regional correspondent bank. The proceeds were used to acquire IMG on that date.
Principal is payable in 19 quarterly installments of $250,000 plus a final
payment which is due on December 30, 2010. Principal may be prepaid without
penalty. Interest is payable quarterly and the rate is variable and tied to
prime rate. The loan agreement covenants require the Company to maintain the
Bank's regulatory capital ratios in excess of those required to be
well-capitalized and to maintain the Bank's return on average assets in excess
of 1.25%.
48
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the fourth quarter of 2005, the Company obtained a $2.5 million unsecured
line of credit through a large regional correspondent bank. It was renewed in
the fourth quarter of 2006 and expires December 30, 2007. The interest rate is
variable and tied to LIBOR. This line was utilized once during 2006 and was not
used in 2005. No balance was outstanding at December 31, 2006.
At December 31, 2006, the Bank had arrangements to borrow $95 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,
totaling $30 million, expire at various times through December 2007. The others
have no stated expiration date. As of December 31, 2006, $11.6 million was
outstanding under these arrangements. The Bank also has additional borrowing
capacity of approximately $76.7 million at the FHLB as of December 31, 2006.
NOTE 10. INCOME TAXES
The components of income tax expense consisted of the following for the years
ended December 31, 2006, 2005 and 2004:
(in thousands) 2006 2005 2004
------ ------ ------
Current:
Federal $7,652 $8,301 $7,729
State 1,345 1,446 1,355
Deferred 131 (352) 487
------ ------ ------
$9,128 $9,395 $9,571
====== ====== ======
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,
---------------------------------------------------------------
2006 2005 2004
------------------- ------------------- -------------------
PERCENT Percent Percent
OF PRETAX of Pretax of Pretax
(dollars in thousands) AMOUNT INCOME Amount Income Amount Income
------- --------- ------- --------- ------ ----------
Computed "expected" tax
expense $ 9,987 35.0% $10,314 35.0% $9,865 35.0%
State income tax, net of
federal income tax benefit 873 3.1 917 3.1 902 3.2
Tax-exempt interest income (1,668) (5.8) (1,596) (5.4) (972) (3.4)
Nondeductible interest
expense to own
tax-exempts 283 1.0 188 0.6 78 0.3
Tax-exempt increase in
cash value of
life insurance (300) (1.1) (295) (1.0) (304) (1.1)
Other, net (47) (0.2) (133) (0.4) 2 --
------- ---- ------- ---- ------ ----
$ 9,128 32.0% $ 9,395 31.9% $9,571 34.0%
======= ==== ======= ==== ====== ====
49
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net deferred tax assets consist of the following as of December 31, 2006 and
2005:
(in thousands) 2006 2005
------ ------
Deferred tax assets:
Allowance for loan losses $3,228 $2,894
Net unrealized losses on securities available for sale 972 1,488
Purchase accounting on deposits and borrowings 17 519
State net operating loss carryforward 137 96
Other 152 100
------ ------
4,506 5,097
------ ------
Deferred tax liabilities:
Net deferred loan fees and costs 205 122
Intangibles 2,408 2,388
Premises and equipment 409 448
Other 147 155
------ ------
3,169 3,113
------ ------
NET DEFERRED TAX ASSET $1,337 $1,984
====== ======
The Company has approximately $2,287,000 of state operating loss carryforwards
available to the Holding Company and WB Capital to offset future state taxable
income. During 2006, the Company did not record 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 be utilized due to
projected taxable income of the nonbank affiliates. The valuation allowance
which was established prior to 2005 was recognized as a reduction to tax expense
in 2005. The state operating loss carryforwards expire as follows:
(in thousands)
Year expiring:
2007 $ 12
2008 --
2009 --
2010 --
2011 and thereafter 2,275
------
$2,287
======
50
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. REGULATORY CAPITAL REQUIREMENTS
The Company and West 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 which, 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 Company and the Bank must meet specific capital guidelines that
involve quantitative measures of their assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Company's and West Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. Prompt corrective action provisions are not applicable to the
Holding Company.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank 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 Company
and Bank met all capital adequacy requirements to which they were subject as of
December 31, 2006.
As of December 31, 2006, the most recent notification from regulatory agencies
categorized the Bank as well-capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since that
notification that management believes have changed the Bank's category.
51
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's and West Bank's capital amounts and ratios are presented in the
following table:
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- -----------------
(dollar amounts in thousands) Amount Ratio Amount Ratio Amount Ratio
-------- ----- ------- ----- -------- -----
AS OF DECEMBER 31, 2006:
TOTAL CAPITAL (TO RISK-
WEIGHTED ASSETS)
CONSOLIDATED $115,974 11.2% $82,588 8.0% N/A N/A
WEST BANK 121,096 11.8 82,291 8.0 $102,864 10.0%
TIER I CAPITAL (TO RISK-
WEIGHTED ASSETS)
CONSOLIDATED 107,480 10.4 41,294 4.0 N/A N/A
WEST BANK 92,602 9.0 41,146 4.0 61,719 6.0
TIER I CAPITAL (TO
AVERAGE ASSETS)
CONSOLIDATED 107,480 8.5 50,559 4.0 N/A N/A
WEST BANK 92,602 7.3 50,439 4.0 63,049 5.0
As of December 31, 2005:
Total Capital (to Risk-
Weighted Assets)
Consolidated $107,450 10.8% $79,227 8.0% n/a n/a
West Bank 111,303 11.3 78,926 8.0 $ 98,658 10.0%
Tier I Capital (to Risk-
Weighted Assets)
Consolidated 99,835 10.1 39,613 4.0 n/a n/a
West Bank 83,688 8.5 39,463 4.0 59,195 6.0
Tier I Capital (to
Average Assets)
Consolidated 99,835 8.3 48,019 4.0 n/a n/a
West Bank 83,688 7.0 48,122 4.0 60,152 5.0
The Bank is restricted as to the amount of dividends that 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, 2006, the Bank had approximately $10.5
million of retained earnings available for dividends.
52
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMON STOCK TRANSACTIONS
On July 19, 2006, the Board of Directors of the Company declared a 5% common
stock dividend for holders of record on July 31, 2006. As a result of this
action, 834,839 shares of common stock were issued. On July 14, 2004, the Board
of Directors declared a 5% common stock dividend for holders of record on July
26, 2004. As a result of this action, 834,962 shares (restated for the
subsequent 5% common stock dividend) of common stock were issued. Fractional
shares resulting from both 5% common stock dividends were paid in cash.
On April 19, 2006 and April 13, 2005, respectively, the Board of Directors
authorized the buy-back of the Company's common stock for periods of 12 months,
in amounts not to exceed $5 million each. Since those authorizations, there have
been no purchases of Company common stock and the earliest authorization expired
on April 12, 2006. On April 15, 2004, the Board of Directors authorized the
buy-back of the Company's common stock for a period of 12 months, in an amount
not to exceed $5 million. During the authorization period, which has expired,
169,378 shares (restated for both of the 5% common stock dividends) were
purchased in the second quarter of 2004 at a cost of $2,360,235.
On April 12, 2005, shareholders approved the West Bancorporation, Inc.
Restricted Stock Compensation Plan. The plan provides awards to be made until
March 1, 2015, with a maximum of 300,000 shares purchased in the open market to
be issued as awards, subject to certain restrictions. The Compensation Committee
of the Company's Board of Directors administers the Plan. As of December 31,
2006, no awards had been granted.
NOTE 13. COMMITMENTS AND CONTINGENCIES AND RELATED-PARTY LEASES
The Company leases real estate under several noncancelable operating lease
agreements. Rent expense was approximately $1,494,000, $994,000 and $881,000 for
the years ended December 31, 2006, 2005 and 2004, respectively.
The Company leases certain real estate from two directors of the Company. Terms
for two of the leases were renegotiated during 2006 and 2005, respectively, and
terms of another noncancelable operating lease were consummated during 2006. Two
leases expire in 2026 and the other expires in 2030. All terms are deemed to be
at arm's-length. Rent expense to the related parties totaled approximately
$266,000, $204,000 and $192,000 for the years ended December 31, 2006, 2005 and
2004, respectively.
The approximate total minimum rental commitments as of December 31, 2006
consisted of the following:
Related
(in thousands) Party Total
---------- -----------
2007 $ 321,000 $ 1,327,000
2008 310,000 1,142,000
2009 310,000 1,101,000
2010 310,000 973,000
2011 315,000 587,000
Thereafter 5,617,000 6,956,000
---------- -----------
$7,183,000 $12,086,000
========== ===========
53
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The lease for a portion of the main office of the Bank expires April 30, 2007.
The Company plans to remain in the current location and renew this lease which
currently has an annual rent of approximately $294,000.
Required reserve balances: The Bank is required to maintain an average reserve
balance with the Federal Reserve Bank. Required reserve balances were
approximately $1,203,000 and $6,052,000 as of December 31, 2006 and 2005,
respectively.
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, 2006 and 2005 consisted of the
following approximate amounts:
(in thousands) 2006 2005
-------- --------
Commitments to extend credit $262,717 $247,849
Standby letters of credit 22,301 23,230
-------- --------
$285,018 $271,079
======== ========
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. Commitments
to extend credit generally expire within one year. Home equity commitments to
extend credit of approximately $9,000,000 at December 31, 2006 expire within 10
years. 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, and generally expire
within one year. 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 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, 2006
and 2005, no amounts have been recorded as liabilities for the Bank's potential
obligations under these guarantees.
54
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTE 14. EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Company has 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 by which to obtain beneficial interest of ownership in company
stock. The stock ownership component of the plan, which is optional, is intended
to invest exclusively 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, 2006, 2005 and 2004 totaled approximately $522,000,
$358,000 and $413,000, 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, 2006, 2005 and 2004
totaled approximately $273,000, $180,000 and $170,000, respectively.
As of December 31, 2006 and 2005, the plan held 256,756 and 242,398 shares,
respectively, (adjusted for 5% stock dividend), 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.
55
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Federal Home Loan Bank stock: The fair value of this restricted 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 amounts 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 short-term borrowings: The carrying amounts of federal funds
purchased and securities sold under agreements to repurchase and certain
other short-term borrowings approximate their fair values. Fair values of
long-term borrowings including subordinated notes 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 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.
56
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying amounts and approximate fair values are as follows as of December
31, 2006 and 2005:
2006 2005
---------------------- ----------------------
CARRYING APPROXIMATE Carrying Approximate
(in thousands) AMOUNT FAIR VALUE Amount Fair Value
-------- ----------- -------- -----------
Financial assets:
Cash and due from banks $ 35,063 $ 35,063 $ 39,424 $ 39,424
Federal funds sold and other short-term investments 615 615 1,241 1,241
Securities available for sale 256,731 256,731 270,334 270,334
Federal Home Loan Bank stock 4,847 4,847 4,384 4,384
Loans, net 895,928 892,154 859,889 856,920
Accrued interest receivable 8,587 8,587 7,862 7,862
Financial liabilities:
Deposits 925,334 925,228 944,893 944,855
Federal funds purchased and securities sold
under agreements to repurchase 109,346 109,346 84,748 84,748
Other short-term borrowings 1,929 1,929 4,732 4,732
Accrued interest payable 4,275 4,275 2,882 2,882
Subordinated notes 20,619 21,090 20,619 21,769
Long-term borrowings 85,400 81,578 78,569 78,604
Off-balance-sheet financial instruments:
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
57
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. OPERATING SEGMENTS
An operating segment is generally defined as a component of a business for which
discreet financial information is available and whose operating results are
regularly reviewed by the chief operating decision-maker. The Company's primary
business segments are banking and investment advisory services. The banking
segment generates revenue through interest and fees on loans, service charges on
deposit accounts, interest on investment securities and fees for trust services.
The banking segment includes West Bank, the Holding Company and related
elimination entries between the two, as the Holding Company's operation is
similar to the bank. The investment advisory segment generates revenue by
providing investment portfolio management services to individuals, retirement
plans, corporations, foundations, endowments and public entities. The investment
advisory segment consists of WB Capital Management Inc. The "Other" column
represents the elimination of intercompany balances. Selected financial
information on the Company's segments is presented below for the years ended
December 31, 2006, 2005 and 2004.
2006
SEGMENTS
------------------------------------------------
INVESTMENT
(in thousands) BANKING ADVISORY OTHER CONSOLIDATED
---------- ---------- ------- ------------
Interest income $ 79,738 $ -- $ (2) $ 79,736
Interest expense 40,639 32 (2) 40,669
---------- ------- ------- ----------
Net interest income 39,099 (32) -- 39,067
Provision for loan losses 1,725 -- -- 1,725
---------- ------- ------- ----------
Net interest income after provision
for loan losses 37,374 (32) -- 37,342
Noninterest income 7,831 8,262 (222) 15,871
Noninterest expense 17,128 7,772 (222) 24,678
---------- ------- ------- ----------
Income before income taxes 28,077 458 -- 28,535
Income taxes 8,935 193 -- 9,128
---------- ------- ------- ----------
Net income $ 19,142 $ 265 $ -- $ 19,407
========== ======= ======= ==========
Depreciation and amortization $ 802 $ 994 $ -- $ 1,796
========== ======= ======= ==========
Goodwill $ 13,376 $11,554 $ -- $ 24,930
========== ======= ======= ==========
Total assets $1,253,618 $16,395 $(1,477) $1,268,536
========== ======= ======= ==========
58
2005
Segments
------------------------------------------------
Investment
(in thousands) Banking Advisory Other Consolidated
---------- ---------- ------- ------------
Interest income $ 63,475 $ -- $ -- $ 63,475
Interest expense 25,042 60 -- 25,102
---------- ------- ------- ----------
Net interest income 38,433 (60) -- 38,373
Provision for loan losses 1,775 -- -- 1,775
---------- ------- ------- ----------
Net interest income after provision
for loan losses 36,658 (60) -- 36,598
Noninterest income 8,168 3,544 (195) 11,517
Noninterest expense 16,020 2,820 (195) 18,645
---------- ------- ------- ----------
Income before income taxes 28,806 664 -- 29,470
Income taxes 9,131 264 -- 9,395
---------- ------- ------- ----------
Net income $ 19,675 $ 400 $ -- $ 20,075
========== ======= ======= ==========
Depreciation and amortization $ 722 $ 169 $ -- $ 891
========== ======= ======= ==========
Goodwill $ 13,376 $ 9,869 $ -- $ 23,245
========== ======= ======= ==========
Total assets $1,230,959 $15,337 $(1,916) $1,244,380
========== ======= ======= ==========
2004
Segments
------------------------------------------------
Investment
(in thousands) Banking Advisory Other Consolidated
---------- ---------- ------- ------------
Interest income $ 49,599 $ -- $ -- $ 49,599
Interest expense 13,862 90 -- 13,952
---------- ------ ----- ----------
Net interest income 35,737 (90) -- 35,647
Provision for loan losses 1,200 -- -- 1,200
---------- ------ ----- ----------
Net interest income after provision
for loan losses 34,537 (90) -- 34,447
Noninterest income 8,023 2,850 (167) 10,706
Noninterest expense 14,464 2,671 (167) 16,968
---------- ------ ----- ----------
Income before income taxes 28,096 89 -- 28,185
Income taxes 9,538 33 -- 9,571
---------- ------ ----- ----------
Net income $ 18,558 $ 56 $ -- $ 18,614
========== ====== ===== ==========
Depreciation and amortization $ 538 $ 173 $ -- $ 711
========== ====== ===== ==========
Goodwill $ 13,376 $1,162 $ -- $ 14,538
========== ====== ===== ==========
Total assets $1,145,686 $3,403 $(654) $1,148,435
========== ====== ===== ==========
59
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. WEST BANCORPORATION, INC. (PARENT COMPANY ONLY) CONDENSED FINANCIAL
STATEMENTS
BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
(in thousands) 2006 2005
-------- --------
ASSETS
Cash $ 2,318 $ 554
Investment in securities available for sale 766 4,874
Investment in West Bank 105,329 95,806
Investment in WB Capital Management Inc. 12,799 11,873
Investment in West Bancorporation Capital Trust I 619 619
Intercompany debentures from West Bank 20,000 20,000
Other assets 1,622 1,459
-------- --------
TOTAL ASSETS $143,453 $135,185
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued expenses and other liabilities $ 22 $ 45
Note payable 9,000 10,000
Subordinated notes 20,619 20,619
-------- --------
TOTAL LIABILITIES 29,641 30,664
-------- --------
STOCKHOLDERS' EQUITY
Common stock 3,000 3,000
Additional paid-in capital 32,000 32,000
Retained earnings 80,397 71,951
Accumulated other comprehensive (loss) (1,585) (2,430)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 113,812 104,521
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $143,453 $135,185
======== ========
60
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands) 2006 2005 2004
------- ------- -------
Operating income:
Equity in net income of West Bank $19,797 $19,670 $18,908
Equity in net income of WB Capital
Management Inc. 265 400 56
Equity in net income of West Bancorporation
Capital Trust I 44 44 44
Interest and dividend income 1,575 1,607 1,547
Net realized gains (losses) on sale of
investment securities (36) 42 9
------- ------- -------
21,645 21,763 20,564
------- ------- -------
Operating expenses:
Interest on notes payable 606 3 --
Interest on subordinated notes 1,472 1,472 1,475
Salaries and employee benefits 218 229 465
Other 594 369 293
------- ------- -------
2,890 2,073 2,233
------- ------- -------
INCOME BEFORE INCOME TAXES 18,755 19,690 18,331
Income tax (credits) (652) (385) (283)
------- ------- -------
NET INCOME $19,407 $20,075 $18,614
======= ======= =======
61
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands) 2006 2005 2004
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 19,407 $ 20,075 $ 18,614
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of West Bank (19,797) (19,670) (18,908)
Equity in net income of WB Capital Management Inc. (265) (400) (56)
Equity in net income of West Bancorporation Capital Trust I (44) (44) (44)
Dividends received from West Bank 11,100 10,800 15,275
Dividends received from West Bancorporation Capital
Trust I 44 44 44
(Gains) losses from sale of securities available for sale 36 (42) (9)
Amortization 37 49 40
Deferred income taxes 5 (83) (1)
Changes in assets and liabilities:
Increase in other assets (192) (826) (142)
Increase (decrease) in accrued expenses and
other liabilities (23) (221) 37
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,308 9,682 14,850
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 4,789 2,441 945
Purchases of securities available for sale (712) (2,151) (5,986)
Purchase of Investors Management Group, Ltd. -- (10,000) --
Additional capitalization of WB Capital Management Inc. (660) -- --
Capitalization of West Bancorporation Capital Trust I -- -- (619)
-------- -------- --------
NET CASH PROVIDED (USED IN) INVESTING ACTIVITIES 3,417 (9,710) (5,660)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of subordinated debentures -- -- 619
Proceeds from long-term borrowing -- 10,000 --
Principal payments on long-term borrowing (1,000) -- --
Purchase of fractional shares resulting from stock dividend (5) -- (2)
Payment for shares reacquired under common stock
repurchase plan -- -- (2,360)
Dividends paid (10,956) (10,689) (10,484)
-------- -------- --------
NET CASH (USED IN) FINANCING ACTIVITIES (11,961) (689) (12,227)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 1,764 (717) (3,037)
CASH
Beginning 554 1,271 4,308
-------- -------- --------
Ending $ 2,318 $ 554 $ 1,271
======== ======== ========
62
WEST BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2006
-----------------------------------------------
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------ -------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income $18,456 $20,204 $20,756 $20,320
Interest expense 8,913 10,367 11,034 10,355
------- ------- ------- -------
NET INTEREST INCOME 9,543 9,837 9,722 9,965
Provision for loan losses 450 450 450 375
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,093 9,387 9,272 9,590
Noninterest income 3,881 3,960 4,150 3,880
Noninterest expense 6,312 6,182 6,097 6,087
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 6,662 7,165 7,325 7,383
Income taxes 2,117 2,283 2,348 2,380
------- ------- ------- -------
NET INCOME $ 4,545 $ 4,882 $ 4,977 $ 5,003
======= ======= ======= =======
Net income per common share - basic $ 0.26 $ 0.28 $ 0.28 $ 0.29
======= ======= ======= =======
2005
-----------------------------------------------
Three months ended March 31 June 30 September 30 December 31
------------------ -------- ------- ------------ -----------
(in thousands, except per share data)
Interest income $14,457 $15,285 $16,152 $17,581
Interest expense 4,860 5,811 6,790 7,641
------- ------- ------- -------
NET INTEREST INCOME 9,597 9,474 9,362 9,940
Provision for loan losses 375 500 450 450
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,222 8,974 8,912 9,490
Noninterest income 2,527 3,008 3,032 2,950
Noninterest expense 4,590 4,616 4,654 4,785
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 7,159 7,366 7,290 7,655
Income taxes 2,317 2,381 2,327 2,370
------- ------- ------- -------
NET INCOME $ 4,842 $ 4,985 $ 4,963 $ 5,285
======= ======= ======= =======
Net income per common share - basic $ 0.28 $ 0.28 $ 0.28 $ 0.30
======= ======= ======= =======
63
STOCK INFORMATION
West Bancorporation, Inc. common stock is traded on the NASDAQ Global Market
and quotations are furnished by the NASDAQ System. There were 293 common
stockholders of record on December 31, 2006, and an estimated 940 additional
beneficial holders whose stock was held in street name by brokerage houses.
MARKET AND DIVIDEND INFORMATION (1) High Low Dividends
----------------------------------- ------ ------ ---------
2006
1st quarter $18.95 $16.67 $0.152
2nd quarter 19.98 15.24 0.152
3rd quarter 18.10 15.61 0.160
4th quarter 19.02 16.69 0.160
2005
1st quarter $18.33 $15.17 $0.152
2nd quarter 18.18 14.61 0.152
3rd quarter 19.07 16.43 0.152
4th quarter 19.00 16.67 0.152
(1) In July 2006, 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 Transfer 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 the 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
in the Investor Relations section of the Company's website at
www.westbankiowa.com.
64
(WEST BANCORPORATION LOGO)
West Bancorporation, Inc.
ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, APRIL 19, 2007 AT 4:00 P.M.
1601 22ND STREET, WEST DES MOINES, IA
YOU CAN VOTE IN ONE OF TWO WAYS: 1) BY MAIL, 2) BY INTERNET
See the reverse side of this sheet for instructions.
IF YOU ARE NOT VOTING BY INTERNET, COMPLETE BOTH SIDES OF PROXY CARD,
DETACH AND RETURN IN THE ENCLOSED ENVELOPE TO:
Illinois Stock Transfer Co.
209 West Jackson Boulevard, Suite 903
Chicago, Illinois 60606
DETACH ATTENDANCE CARD HERE AND
DETACH PROXY CARD HERE MAIL WITH PROXY CARD
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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) IN THE DISCRETION OF THE NAMED PROXIES UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
VOTER CONTROL NUMBER ABOVE NAME HERE
West Bancorporation, Inc.
If you plan to personally
Dated ______________, 2007 attend the Annual Meeting of
Shareholders, please check the
__________________________ box below and list names of
attendees on reverse side.
__________________________
Return this stub in the
__________________________ enclosed envelope with your
(PLEASE SIGN HERE) completed proxy card.
Please sign exactly as name appears above. When shares are held by joint tenants, both should I do plan to attend [ ]
sign. When signing as administrator, attorney, executor, guardian or trustee, please give full the 2007 meeting
title as such. If a corporation, authorized officer please sign full corporate name and indicate
office held.
TO VOTE BY MAIL
To vote by mail, complete both sides, sign and date the proxy card below. Detach the card below and return it in the envelope
provided.
TO VOTE BY INTERNET
Your Internet vote is quick, confidential and your vote is immediately submitted. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our internet voting site at HTTP://WWW.ILLINOISSTOCKTRANSFER.COM, click on the heading "Internet Voting" and follow
the instructions on the screen.
3. When prompted for your Voter Control Number, enter the number printed just above your name on the front of the proxy card.
Please note that all votes cast by Internet must be COMPLETED and SUBMITTED prior to Tuesday, April 17, 2007 at 11:59 p.m. Central
Time. Your Internet vote authorizes the named proxies to vote your shares to the same extent as if you marked, signed, dated and
returned the proxy card.
THIS IS A "SECURED" WEB PAGE SITE. YOUR SOFTWARE AND/OR INTERNET PROVIDER MUST BE "ENABLED" TO ACCESS THIS SITE. PLEASE CALL YOUR
SOFTWARE OR INTERNET PROVIDER FOR FURTHER INFORMATION IF NEEDED.
IF YOU VOTE BY INTERNET, PLEASE DO NOT RETURN YOUR PROXY CARD BY MAIL
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PLEASE LIST WEST BANCORPORATION, INC. WEST DES MOINES, IOWA PROXY
NAMES OF PERSONS ATTENDING
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS ON APRIL 19, 2007
__________________________
The undersigned hereby appoints Thomas E. Stanberry and Steven G. Chapman, 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 15, 2007, as fully as the undersigned could do if personally present, at the Annual Meeting of
Shareholders of said corporation to be held in the Conference Center at the headquarters of the
__________________________ Company, located at 1601 22nd Street, West Des Moines, Iowa, on Thursday, April 19, 2007 at 4:00 p.m.,
Central Time, and at any and all adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. Election of Directors: 01 Frank W. Berlin 05 Orville E. Crowley 08 Thomas E. Stanberry
02 Wendy L. Carlson 06 George D. Milligan 09 Jack G. Wahlig
03 Steven G. Chapman 07 Robert G. Pulver 10 Connie Wimer
04 Michael A. Coppola
[ ] Vote FOR all nominees listed above [ ] Vote WITHHELD from all nominees
(except as marked to the contrary below)
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. In accordance with their discretion, upon all other matters that may properly come before said
meeting and any adjournments or postponements thereof.
(Continued and to be signed and dated, on other side)