WEST BANCORPORATION INC - Annual Report: 2007 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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x
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Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
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For
the
fiscal year ended December 31, 2007
or
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o
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
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For
the
transition period
from
to
Commission
file number 0-49677
WEST
BANCORPORATION, INC.
(Exact
name of registrant as specified in its charter)
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IOWA
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42
- 1230603
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(State
of incorporation
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(I.R.S.
Employer Identification No.)
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or
organization)
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50266
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||
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code (515)
222-2300
Securities
registered pursuant to Section 12(b) of the Act: NONE
Securities
registered pursuant to Section 12(g) of the Act:
COMMON
STOCK, NO PAR VALUE
(Title
of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
o
Yes x
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
o
Yes x
No
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. x
Yes o
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K o.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o Accelerated
filer x Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
o
Yes x
No
The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2007, was approximately $273,686,000.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock as of the most recent practicable date, February 14, 2008.
17,403,882
shares Common Stock, no par value
DOCUMENTS
INCORPORATED BY REFERENCE
The
Appendix to the Proxy Statement for the 2007 calendar year, which was filed
on
March 7, 2008, is incorporated by reference into Part I, Part II, and Part
IV
hereof to the extent indicated in such Parts.
The
definitive proxy statement of West Bancorporation, Inc., which was filed on
March 7, 2008, is incorporated by reference into Part II and Part III hereof
to
the extent indicated in such Part.
TABLE
OF
CONTENTS
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PART
I
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PAGE
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ITEM
1.
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BUSINESS
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3
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ITEM
1A.
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RISK
FACTORS
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10
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ITEM
1B.
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UNRESOLVED
STAFF COMMENTS
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12
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ITEM
2.
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PROPERTIES
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12
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ITEM
3.
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LEGAL
PROCEEDINGS
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12
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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12
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PART
II
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ITEM
5.
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MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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13
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ITEM
6.
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SELECTED
FINANCIAL DATA
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14
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ITEM
7.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION
AND RESULTS OF OPERATIONS
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14
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ITEM
7A.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT
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MARKET
RISK
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14
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ITEM
8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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14
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ITEM
9.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
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ON
ACCOUNTING AND FINANCIAL DISCLOSURE
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14
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ITEM
9A.
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CONTROLS
AND PROCEDURES
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14
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ITEM
9B.
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OTHER
INFORMATION
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14
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PART
III
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ITEM
10.
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DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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15
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ITEM
11.
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EXECUTIVE
COMPENSATION
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17
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ITEM
12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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AND
RELATED STOCKHOLDER MATTERS
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17
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ITEM
13.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
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INDEPENDENCE
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17
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ITEM
14.
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PRINCIPAL
ACCOUNTING FEES AND SERVICES
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17
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PART
IV
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ITEM
15.
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EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
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17
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2
PART
I
ITEM
1.
BUSINESS
GENERAL
West
Bancorporation, Inc. (the “Company”) is an Iowa corporation and financial
holding company registered under the Bank Holding Company Act of 1956, as
amended by the Gramm-Leach-Bliley Act of 1999. The Company owns 100 percent
of
the stock of one state banking subsidiary, West Bank, and one registered
investment advisory firm, WB Capital Management Inc. (“WB Capital”), as
described below. All of West Bank’s operations are conducted primarily within
the Des Moines and Iowa City, Iowa, metropolitan areas in the State of Iowa.
The
Company’s registered investment advisory firm’s operations are conducted
primarily in the Des Moines and Coralville, Iowa, metropolitan areas, but they
also have clients throughout the United States. The Company does not engage
in
any material business activities apart from its ownership of its banking and
investment advisory subsidiaries. The principal executive offices of the Company
are located at 1601 22nd
Street,
West Des Moines, Iowa 50266, and its telephone number is (515) 222-2300. The
Company’s website address is www.westbankiowa.com.
The
Company was organized and incorporated on May 22, 1984, under the laws of the
State of Iowa, to serve as a holding company for its principal banking
subsidiary, West Bank, whose main office is located in West Des Moines, Iowa.
For the year ended December 31, 2007, West Bank generated approximately 92
percent of the Company’s total revenue.
The
principal sources of Company revenue are derived from: (1) interest and fees
earned on loans made; (2) service charges on deposit accounts; (3) interest
on
fixed income securities; (4) trust fees; and (5) investment advisory
fees.
West
Bank’s lending activities consist primarily of short-term and medium-term
commercial and real estate loans, business operating loans and lines of credit,
equipment loans, vehicle loans, personal loans and lines of credit, home
improvement loans, and conventional and secondary market mortgage loan
originations. West Bank also offers a variety of demand, savings and time
deposits, merchant credit card processing, safe deposit boxes, wire transfers,
debit cards, direct deposit of payroll and social security checks, automated
teller machine access, trust services, and correspondent bank
services.
The
Company’s investment advisory subsidiary, WB Capital, was formed on October 1,
2003, and is a registered investment advisor.
Information
regarding the Company’s operating segments appearing on pages 58 through 59 of
the Company’s Appendix to the Proxy Statement, which was filed on March 7, 2008,
is incorporated herein by reference.
BANKING
SUBSIDIARY
West
Bank, West Des Moines, Iowa.
West
Bank is a state-chartered commercial bank whose deposit accounts are insured
by
the Federal Deposit Insurance Corporation (“FDIC”). It was organized in 1893.
West Bank became a wholly-owned subsidiary of the Company in 1984. West Bank
provides full-service banking to businesses and residents primarily in the
Des
Moines and Iowa City metropolitan areas, as well as correspondent services
to
banking organizations primarily located in Iowa. It provides a variety of
products and services designed to meet the needs of the markets it serves.
It
has an experienced staff of bank officers who have spent the majority of their
banking careers with West Bank and local financial service organizations, and
who emphasize long-term customer relationships. West Bank conducts business
from
seven full-service offices within the Des Moines metropolitan area and three
full-service offices in the Iowa City metropolitan area.
As
of
December 31, 2007, West Bank had capital of $114,328,000. West Bank had net
income of $19,286,000 in 2007, $19,797,000 in 2006, and $19,670,000 in 2005.
West Bank’s total assets as of December 31, 2007, 2006, and 2005 were
$1,322,712,000, $1,250,740,000, and $1,224,010,000,
respectively.
INVESTMENT
ADVISORY SUBSIDIARY
WB
Capital Management Inc., West Des Moines, Iowa.
WB
Capital is a registered investment advisor, regulated by the Securities and
Exchange Commission, providing portfolio management services to individual
investors, retirement plans, corporations, foundations, endowments, insurance
companies, banks, political subdivisions, mutual funds, and other organizations.
The subsidiary specializes in domestic equity and fixed income strategies and
also provides customized strategies to meet specific investment objectives
of
clients.
As
of
December 31, 2007, WB Capital had approximately $4.5 billion in assets under
management. For the years ended December 31, 2007, 2006, and 2005 net income
was
$568,000, $265,000, and $400,000, respectively.
3
BUSINESS
STRATEGY AND OPERATIONS
The
Company is a financial holding company serving primarily the Des Moines and
Iowa
City metropolitan areas. In 2005 through 2007, growth resulted from expanding
existing relationships and acquiring new customer relationships. The Company’s
business strategy is to emphasize strong personal and business relationships,
and to provide products and services that meet the needs of its customers.
The
Company emphasizes strong cost controls while striving to achieve return on
equity and net income goals. To accomplish these goals, West Bank focuses on
small- to medium-sized businesses that traditionally wish to develop an
exclusive relationship with a single bank. West Bank has the size to give the
personal attention required by business owners, in addition to the credit
expertise to help businesses meet their goals.
West
Bank
offers a full range of deposit services that are typically available in most
financial institutions, including checking accounts, savings accounts, money
market accounts, and time certificates of deposit. The transaction accounts
and
time certificates are tailored to the marketplace at competitive rates. In
addition, West Bank offers retirement accounts such as Individual Retirement
Accounts. The FDIC insures all deposit accounts up to the maximum amount set
by
law. West Bank’s focus is on providing services to small- to medium-sized
businesses and to individuals who live and/or work within its market area.
The
Company does not believe that the loss of deposits of any one customer or of
a
few customers would have an adverse effect on West Bank’s operation or erode its
core deposit base.
Loans
are
made to creditworthy borrowers regardless of their race, color, national origin
or ancestry, religion, sex, age, marital status, sexual orientation, disability,
veteran status, receipt of public assistance, or any other basis prohibited
by
law. West Bank intends to fulfill this commitment while maintaining prudent
credit standards. In the course of fulfilling this obligation to meet the credit
needs of the marketplace it serves, West Bank will consider each credit
application without regard to the fact that the applicant may reside in a low
to
moderate income neighborhood, or to the geographic location of the residence,
property, or business within the market area.
West
Bank
provides quality financial products and services, such as telephone and internet
banking, remote deposit, and trust services that meet the banking needs of
its
customers and its market place. The loan programs and acceptance of certain
loans may vary from time to time depending on the funds available and
regulations governing the banking industry. West Bank offers all basic types
of
credit to its marketplace, including commercial, real estate, and consumer
loans.
West
Bank
offers trust services typically found in a commercial bank with trust powers,
including the administration of estates, conservatorships, personal and
corporate trusts, and agency accounts.
West
Bank
also earns fees from the origination of residential mortgages that are sold
in
the secondary real estate market without retaining the mortgage servicing
rights.
West
Bank
offers traditional banking services, such as safe deposit boxes, wire transfers,
direct deposit of payroll and social security checks, automated teller machine
access, and automatic drafts (ACH) for various accounts.
West
Bank
offers correspondent bank services to community banks located primarily in
Iowa.
These services include the buying and selling of federal funds as well as
purchases and sales of loan participations.
During
2007, West Bank worked with a local company named SmartyPig, LLC (“SmartyPig”)
to develop the banking platform for an innovative, internet-based savings and
rewards program developed by SmartyPig. West Bank will hold the deposit accounts
for the SmartyPig programs. In return for its development efforts, West Bank
acquired a 20 percent ownership interest in SmartyPig. SmartyPig is expected
to
publicly launch its programs in the first half of 2008. It is not currently
possible to predict the amount of business that may develop as a result of
this
transaction.
In
the
last half of 2007, the Company stated it was planning to enter the Phoenix,
Arizona market. The Company is still pursuing that objective, but is doing
so in
a very deliberate manner due to the slowdown in the economy in general and
the
real estate market in particular.
CREDIT
MANAGEMENT
West
Bank
strives to achieve sound credit risk management by establishing uniform credit
policies and underwriting criteria for its loan portfolio. West Bank diversifies
the types of loans offered and is subject to regular credit examinations by
regulators, annual external loan audits, internal loan reviews, and an annual
internal review of large loans. West Bank attempts to identify potential problem
loans early, charge off loans appropriately, and maintain an adequate allowance
for loan losses. West Bank has established credit guidelines for the lending
activities that include guidelines relating to the more commonly requested
loan
types, as follows:
Commercial
Real Estate Loans
-
Commercial real estate loans are normally based on loan-to-appraisal value
ratios of not more than 80 percent and are secured by a first priority lien
position. Loans are typically subject to interest rate adjustments no less
frequently than seven years from origination, with a maximum amortization period
of 30 years. Projections and cash flows that demonstrate ability to service
debt
within the amortization period are required. Property and casualty insurance
is
required to protect West Bank’s collateral interests. A major risk factor for
West Bank’s commercial real estate loan portfolio, as well as the other loan
types described below, is the geographic concentration in the Des Moines and
Iowa City metropolitan areas. Loans are generally guaranteed by the principal(s)
of the customer.
4
Commercial
Operating Lines
- These
loans are made to businesses with normal terms of up to twelve months. The
credit needs are generally seasonal with the source of repayment coming from
the
entity’s normal business cycle. Cash flow reviews are completed to establish the
ability to service the debt within the terms of the loan. A first priority
lien
on the general assets of the business normally secures these types of loans.
Loan-to-value limits vary and are dependent upon the nature and type of the
underlying collateral and the financial strength of the borrower. Loans are
generally guaranteed by the principal(s).
Commercial
Term Loans
- These
loans are made to businesses to finance equipment and other capital
expenditures. Terms are generally the lesser of seven years or the useful life
of the asset. Term loans are normally secured by the asset being financed and
are often additionally secured with the general assets of the business.
Loan-to-value is generally a maximum of 80 percent of the cost or value of
the
assets. Loans are normally guaranteed by the principal(s).
Construction
Loans
-
Construction loans on commercial real estate are normally based on a
loan-to-appraisal value ratio of not more than 80 percent and are secured by
a
first priority lien position. Loan payments typically consist of interest only
for a term of one and one half to two years. The interest rate is usually
variable, based on the prime rate. Residential construction loans are generally
for a term not to exceed one year based on a loan-to-appraisal value ratio
of
not more than 80 percent, and are secured by a first priority lien position.
Interest is normally paid monthly or quarterly based on a variable rate tied
to
prime.
Residential
First Mortgage Loans
-
Proceeds of these loans are used to buy or refinance the purchase of residential
real estate, with the loan secured by a first lien on the real estate. Most
of
the residential mortgage loans originated by West Bank during the past year
have
been sold (including servicing rights) in the secondary mortgage market due
to
the higher interest rate risk inherent in the 15- and 30-year fixed rate terms
consumers prefer. Loans that are originated and not sold in the secondary market
generally have higher interest rates and have rate adjustment periods normally
no longer than seven years. The maximum amortization of first mortgage
residential real estate loans is 30 years. The loan-to-value ratios normally
do
not exceed 80 percent. Property insurance is required on all loans to protect
West Bank’s collateral position.
Home
Equity Term Loans
- These
loans are normally for home improvement or other consumer purposes and are
secured by a junior mortgage on residential real estate. The loan-to-value
ratios normally do not exceed 90 percent.
Home
Equity Lines of Credit
- West
Bank offers a home equity line of credit with a maximum term of 120 months.
These loans are secured by a junior mortgage on residential real estate and
normally do not exceed a loan-to-value ratio of 90 percent, with the interest
adjusted quarterly.
Consumer
Loans
-
Consumer loans are normally made under the following guidelines: automobiles
-
loans on new and used automobiles generally will not exceed 80 and 75 percent
of
the value, respectively; recreational vehicles and boats - 75 percent of value;
modular home loans have a maximum term of 180 months with the loan-to-value
ratio generally not exceeding 80 percent. Each of these loans is secured by
a
first priority lien on the assets and requires insurance to protect West Bank’s
collateral position. The term for unsecured loans generally does not exceed
24
months.
EMPLOYEES
At
December 31, 2007, West Bank had a total of 156 full-time equivalent employees
and WB Capital had 37 full-time equivalent employees. The Company had no
employees. Employees are provided with a comprehensive program of benefits,
including comprehensive medical and dental plans, long-term and short-term
disability coverage, and a profit sharing plan with both 401(k) and employee
stock ownership features. Management considers its relations with employees
to
be satisfactory. No employees are represented by unions.
5
MARKET
AREA
West
Bank
has seven locations throughout the Des Moines, Iowa, metropolitan area and
three
locations in the Iowa City, Iowa, metropolitan area.
West
Bank’s main office is located in West Des Moines, Iowa, one of the fastest
growing communities in Iowa. The population of the Des Moines metropolitan
area
is nearly 500,000. Des Moines is the capital of Iowa. Major employers are the
State of Iowa, Principal Financial Group, Pioneer Hi-Bred International, Inc.,
Wells Fargo, Central Iowa Hospital Corporation, Mercy Medical Center, Hy-Vee
Food Stores, Inc., and the Des Moines Independent School District.
WB
Capital has offices in West Des Moines and Coralville, Iowa, and customers
throughout Iowa and the United States.
COMPETITION
The
geographic market area served by West Bank is highly competitive with respect
to
both loans and deposits. West Bank competes principally with other commercial
banks, savings and loan associations, credit unions, mortgage companies, finance
divisions of auto companies, and other financial service providers. Some of
these competitors are local, while others are statewide or nationwide. The
major
commercial bank competitors include Bankers Trust Company, NA and First American
Bank, local banking organizations; Bank of the West, a regional bank; and
several nationwide banks, including Bank of America, Regions Bank, U.S. Bank,
NA, and Wells Fargo Bank. Among the advantages such larger banks offer are
their
ability to pursue extensive advertising campaigns and to allocate their
investment assets to out of market geographic regions with potentially higher
yields. Such banks offer certain services, for example, international and
conduit financing transactions, that are not offered directly by West Bank,
but
that may be offered through correspondent banking institutions. These larger
banking organizations have much higher legal lending limits than West Bank,
and
thus, are better able to finance large regional, national, and global commercial
customers.
In
order
to compete, to the fullest extent possible, with the other financial
institutions in its primary trade area, West Bank uses the flexibility that
is
afforded by its local management. This includes an emphasis on specialized
services, local promotional activities, and personal contacts by West Bank’s
officers, directors, and employees. In particular, West Bank competes for
deposits principally by offering depositors a variety of deposit programs,
convenient office locations and hours, and other personalized services. West
Bank competes for loans primarily by offering competitive interest rates,
experienced lending personnel with local decision-making authority, and quality
products and services.
Pursuant
to the FDIC’s Summary of Deposits, as of June 30, 2007, there were 36 other
banks and savings and loan associations within Polk County, Iowa, where seven
of
West Bank’s offices are located. West Bank ranked fourth based on total deposits
of all banking offices in Polk County. As of June 30, 2007, there were 16 other
banks and savings and loan associations within Johnson County, Iowa, where
three
offices are located in the Iowa City area. West Bank ranked fourth based
on
total deposits of all banking offices in Johnson County. For the entire state,
West Bank ranked ninth in terms of deposit size.
West
Bank
also competes for funds in the financial markets for non-bank financial
products. Yields on corporate and government debt securities and commercial
paper affect the ability of commercial banks to attract and hold deposits.
Commercial banks also compete for funds with money market instruments and
similar investment vehicles offered by competitors including brokerage firms,
insurance companies, credit card issuers, and retailers such as Sears. Money
market funds offered by these types of organizations have provided substantial
competition for deposits. This trend will likely continue in the
future.
The
Company anticipates bank competition will continue to change significantly
over
the next several years as more banks, including the major regional and
nationwide banks, continue to consolidate. Smaller community banks continue
to
move their charters or open branches in larger metropolitan areas in an attempt
to capture market share in a more diverse and growing economic environment.
Credit unions, because of their income tax advantage, will continue to show
growth.
SUPERVISION
AND REGULATION
The
following discussion generally refers to certain statutes and regulations
affecting the banking industry. These references provide brief summaries and,
therefore, do not purport to be complete and are qualified in their entirety
by
reference to those statutes and regulations. In addition, due to the numerous
statutes and regulations that apply to and regulate the operation of the banking
industry, many are not referenced below.
6
The
Company and West Bank are subject to extensive federal and state regulation
and
supervision. Regulation and supervision of financial institutions is intended
primarily to protect depositors and the FDIC rather than shareholders of the
Company. The laws and regulations affecting banks and financial holding
companies have changed significantly over recent years, particularly with the
passage of the Financial Services Modernization Act and the USA Patriot Act
of
2001. There is reason to expect that similar changes will occur in the future.
Any change in applicable laws, regulations, or regulatory policies may have
a
material effect on the business, operations, and prospects of the Company.
The
Company is unable to predict the nature or the extent of the effects on its
business and earnings that any fiscal or monetary policies or new federal or
state legislation may have in the future.
The
Company
The
Company is a financial holding company and is registered as such with the Board
of Governors of the Federal Reserve System (the “Federal Reserve”). The Company
is subject to regulation under the Bank Holding Company Act of 1956, as amended
(the “BHCA”), which subjects the Company and West Bank to supervision and
examination by the Federal Reserve. Under the BHCA, the Company files with
the
Federal Reserve quarterly and annual reports of its operations and such
additional information as the Federal Reserve may require. The Company’s Federal
Reserve reports are available on-line at
www.ffiec.gov/nicpubweb/instituionProfile.aspx?parld_rssd=121066&pardt_end=99991231.
Financial
holding companies are permitted to engage in certain financial activities
through affiliates that had previously been prohibited activities for bank
holding companies. Such financial activities include securities and insurance
underwriting and merchant banking. During 2007, the Company elected to become
a
financial holding company. Having the financial holding company status gives
the
Company additional flexibility to engage in a broader range of financial and
other activities than are permissible for non-financial bank holding
companies.
Source
of Strength to West Bank.
The
Federal Reserve takes the position that a financial holding company is required
to serve as a source of financial strength to its subsidiary bank and may not
conduct its operations in an unsafe or unsound manner. In addition, it is the
Federal Reserve’s position that in serving as a source of strength to its
subsidiary bank, a financial holding company should use available resources
to
provide adequate capital funds to its subsidiary bank during periods of
financial stress or adversity. It should also maintain the financial flexibility
and capacity to obtain additional resources for providing assistance to its
subsidiary bank. A financial holding company’s failure to meet its obligations
to serve as a source of strength to its subsidiary bank will generally be
considered by the Federal Reserve to be an unsafe and unsound banking practice,
a violation of the Federal Reserve’s regulations, or both.
Federal
Reserve Approval.
Financial holding companies must obtain the approval of the Federal Reserve
before they: (1) acquire direct or indirect ownership or control of any voting
stock of any bank if, after such acquisition, they would own or control,
directly or indirectly, more than five percent of the voting stock of such
bank;
(2) merge or consolidate with another financial or bank holding company; or
(3)
acquire substantially all of the assets of any additional banks.
Non-Banking
Activities.
With
certain exceptions, the BHCA also prohibits financial holding companies from
acquiring direct or indirect ownership or control of voting stock in any company
other than a bank or bank holding company unless the Federal Reserve finds
the
company’s business to be incidental to the business of banking. When making this
determination, the Federal Reserve in part considers whether allowing a
financial holding company to engage in those activities would offer advantages
to the public that would outweigh possible adverse effects. The Company obtained
approval of the Federal Reserve to form WB Capital in 2003 and to acquire IMG
in
2005. A financial holding company may engage in permissible non-banking
activities on a de novo basis, if the holding company meets certain criteria and
notifies the Federal Reserve within ten business days after the activity has
commenced.
Control
Transactions.
The
Change in Bank Control Act of 1978, as amended, requires a person or group
of
persons acquiring “control” of a bank holding company to provide the Federal
Reserve with at least 60 days prior written notice of the proposed acquisition.
Following receipt of this notice, the Federal Reserve has 60 days to issue
a
notice disapproving the proposed acquisition, but the Federal Reserve may extend
this time period for up to another 30 days. An acquisition may be completed
before the disapproval period expires if the Federal Reserve issues written
notice of its intent not to disapprove the action. Under a rebuttable
presumption established by the Federal Reserve, the acquisition of ten percent
or more of a class of voting stock of a bank holding company with a class of
securities registered under Section 12 of the Securities Exchange Act of 1934,
as amended, would constitute the acquisition of control. In addition, any
“company” would be required to obtain the approval of the Federal Reserve under
the BHCA before acquiring 25 percent (or five percent if the “company” is a bank
holding company) or more of the outstanding shares of the Company, or otherwise
obtain control of the Company.
7
Affiliate
Transactions.
The
Company, West Bank, and WB Capital are deemed affiliates within the meaning
of
the Federal Reserve Act, and transactions between affiliates are subject to
certain restrictions. Generally, the Federal Reserve Act: (1) limits the extent
to which the financial institution or its subsidiaries may engage in "covered
transactions” with an affiliate; and (2) requires all transactions with an
affiliate, whether or not “covered transactions,” to be on terms substantially
the same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term “covered transaction” includes the making
of loans, purchase of assets, issuance of guarantees, and similar
transactions.
State
Law on Acquisitions.
Iowa law
permits bank holding companies to make acquisitions throughout the state,
subject to a deposit concentration limit of 15 percent of the total bank
deposits in the state.
Banking
Subsidiaries
Applicable
federal and state statutes and regulations governing a bank’s operations relate,
among other matters, to capital adequacy requirements, required reserves against
deposits, investments, loans, legal lending limits, certain interest rates
payable, mergers and consolidations, borrowings, issuance of securities, payment
of dividends, establishment of branches, and dealings with affiliated
persons.
West
Bank
is a state bank subject to primary federal regulation and supervision by the
Federal Deposit Insurance Corporation (the “FDIC”) and the Iowa Division of
Banking. The federal laws applicable to West Bank regulate, among other things,
the scope of its business, its investments, its reserves against deposits,
the
timing of the availability of deposited funds, and the nature and amount of
collateral for loans. The laws and regulations governing West Bank generally
have been promulgated to protect depositors and the deposit insurance fund
of
the FDIC, and not to protect stockholders of such institutions or their holding
companies. West Bank files with the Federal Financial Institutions Examination
Council (“FFIEC”) quarterly reports of its operations and such additional
information as the FFIEC may require. West Bank’s reports are available on-line
at https://cdr.ffiec.gov/public/searchfacsimiles.aspx.
The
FDIC
has authority to prohibit banks under its supervision from engaging in what
it
considers to be unsafe and unsound practices in conducting business. The Federal
Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires
federal banking regulators to adopt regulations or guidelines in a number of
areas to ensure bank safety and soundness, including internal controls, credit
underwriting, asset growth, earnings, management compensation, and ratios of
classified assets to capital. FDICIA also contains provisions that are intended
to change independent auditing requirements, restrict the activities of
state-chartered insured banks, amend various consumer banking laws, limit the
ability of “undercapitalized banks” to borrow from the Federal Reserve’s
discount window, require regulators to perform periodic on-site bank
examinations, and set standards for real estate lending.
Borrowing
Limitations.
West
Bank is subject to limitations on the aggregate amount of loans that it can
make
to any one borrower, including related entities. Subject to numerous exceptions
based on the type of loans and collateral, applicable statutes and regulations
generally limit loans to one borrower to 15 percent of total equity and
reserves. West Bank is in compliance with applicable loans to one borrower
requirements.
FDIC
Insurance.
Generally, customer deposit accounts in banks are insured by the FDIC for up
to
a maximum amount of $100,000, and some individual retirement accounts are
insured up to $250,000. The FDIC has adopted a risk-based insurance assessment
system under which depository institutions contribute funds to the FDIC
insurance fund based on their risk classification. The FDIC may terminate the
deposit insurance of any insured depository institution if it determines after
an administrative hearing that the institution has engaged or is engaging in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law.
Capital
Adequacy Requirements.
The
Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency
(“OCC”) (collectively, the “Agencies”) have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies and account for off-balance sheet items.
Failure to achieve and maintain adequate capital levels may give rise to
supervisory action through the issuance of a capital directive to ensure the
maintenance of required capital levels. West Bank is in compliance with
applicable regulatory capital level requirements.
The
current guidelines require all federally regulated banks to maintain a minimum
risk-based total capital ratio equal to eight percent, of which at least four
percent must be Tier 1 capital. Tier 1 capital includes common shareholders’
equity, qualifying perpetual preferred stock, and minority interests in equity
accounts of consolidated subsidiaries, but excludes goodwill and most other
intangibles, and the allowance for loan and lease losses. Tier 2 capital
includes the excess of any preferred stock not included in Tier 1 capital,
mandatory convertible securities, hybrid capital instruments, subordinated
debt
and intermediate term preferred stock, and general reserve for loan and lease
losses up to 1.25 percent of risk-weighted assets. West Bank has not received
any notice indicating that it will be subject to higher capital
requirements.
8
Under
these guidelines, bank assets are given risk weights of zero percent, 20
percent, 50 percent or 100 percent. Most loans are assigned to the 100 percent
risk category, except first mortgage loans fully secured by residential property
and, under certain circumstances, residential construction loans (both carry
a
50 percent rating). Most investment securities are assigned to the 20 percent
category, except for municipal or state revenue bonds (which have a 50 percent
rating) and direct obligations of or obligations guaranteed by the United States
Treasury or United States government agencies (which have a zero percent
rating).
The
Agencies have also implemented a leverage ratio, which is equal to Tier 1
capital as a percentage of average total assets less intangibles, to be used
as
a supplement to the risk-based guidelines. The principal objective of the
leverage ratio is to limit the maximum degree to which a bank may leverage
its
equity capital base. The minimum required leverage ratio for top-rated
institutions is three percent, but most institutions are required to maintain
an
additional cushion of at least 100 to 200 basis points. Any institution
operating at or near the three percent level is expected to be a strong banking
organization without any supervisory, financial, or operational weaknesses
or
deficiencies. Any institution experiencing or anticipating significant growth
would be expected to maintain capital ratios, including tangible capital
positions, well above the minimum levels.
Prompt
Corrective Action.
Regulations adopted by the Agencies impose even more stringent capital
requirements. The FDIC and other Agencies must take certain “prompt corrective
action” when a bank fails to meet capital requirements. The regulations
establish and define five capital levels: (1) “well-capitalized,” (2)
“adequately capitalized,” (3) “undercapitalized,” (4) “significantly
undercapitalized,” and (5) “critically undercapitalized.” Increasingly severe
restrictions are imposed on the payment of dividends and management fees, asset
growth, and other aspects of the operations of institutions that fall below
the
category of being “adequately capitalized.” Undercapitalized institutions are
required to develop and implement capital plans acceptable to the appropriate
federal regulatory agency. Such plans must require that any company that
controls the undercapitalized institution must provide certain guarantees that
the institution will comply with the plan until it is adequately capitalized.
As
of the date of this Annual Report on Form 10-K, neither the Company nor West
Bank was subject to any regulatory order, agreement, or directive to meet and
maintain a specific capital level for any capital measure. Furthermore, as
of
that same date, West Bank was categorized as “well-capitalized” under regulatory
prompt corrective action provisions.
Restrictions
on Dividends.
Dividends paid to the Company by West Bank are the major source of Company
cash
flow. Various federal and state statutory provisions limit the amount of
dividends banking subsidiaries are permitted to pay to their holding companies
without regulatory approval. Federal Reserve policy further limits the
circumstances under which bank holding companies may declare dividends. For
example, a bank holding company should not continue its existing rate of cash
dividends on its common stock unless its net income is sufficient to fully
fund
each dividend and its prospective rate of earnings retention appears consistent
with its capital needs, asset quality, and overall financial condition. In
addition, the Federal Reserve and the FDIC have issued policy statements
providing that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings. Federal and state banking
regulators may also restrict the payment of dividends by order.
West
Bank, as a state-chartered bank, is restricted under Iowa law to paying
dividends only out of its undivided profits. Additionally, the payment of
dividends by West Bank is affected by the requirement to maintain adequate
capital pursuant to applicable capital adequacy guidelines and regulations,
and
West Bank is generally prohibited from paying any dividends if, following
payment thereof, West Bank would be undercapitalized. As of December 31, 2007,
approximately $15.2 million was available to be paid as dividends by West Bank
to the Company without prior regulatory approval.
Reserves
Against Deposits.
The
Federal Reserve requires all depository institutions to maintain reserves
against their transaction accounts (primarily checking accounts) and
non-personal time deposits. Generally, reserves of three percent must be
maintained against total transaction accounts of $43,900,000 or less (subject
to
an exemption not in excess of the first $9,300,000 of transaction accounts).
A
reserve of $1,038,000 must be maintained in the event total transaction accounts
exceed $43,900,000. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve may be used to satisfy applicable liquidity
requirements. Because required reserves must be maintained in the form of vault
cash or a non-interest bearing account at a Federal Reserve Bank, the effect
of
this reserve requirement is to reduce the earning assets of West
Bank.
Bank
Offices.
Iowa
laws regulating the establishment of bank offices were changed in 2004, which
provided the Company with more flexibility in establishing additional offices
of
West Bank. Effective July 1, 2004, the geographical restrictions on bank office
locations were repealed. Also effective July 1, 2004, Iowa law restricting
the
ability of a bank to establish a de novo office within the limits of a municipal
corporation where there was already an established state or national bank or
bank office was repealed.
Nonbanking
Subsidiaries
WB
Capital is under the jurisdiction of the Investment Advisors Act of 1940 and
is
regulated by the Securities and Exchange Commission (“SEC”). WB Capital has
filed Form ADV with the SEC, which may be viewed at
www.adviserinfo.sec.gov/IAPD/content/search/iapd_orgsearch.aspx.
9
Regulatory
Developments
In
2001,
the USA Patriot Act of 2001 was enacted. The Patriot Act is intended to
strengthen U.S. law enforcements’ and the intelligence communities’ abilities to
work together to combat terrorism. The Patriot Act contains, among other things,
anti-money laundering and financial transparency laws, and imposes various
regulations, including standards for verifying client identification at account
opening, and rules to promote cooperation among financial institutions,
regulators, and law enforcement in identifying parties that may be involved
in
terrorism or money laundering. Included in the Patriot Act are requirements
for
financial institutions to establish anti-money laundering programs that include:
(1) internal policies, procedures and controls; (2) designation of an anti-money
laundering compliance officer; (3) ongoing employee training programs; and
(4)
an independent audit function to test the anti-money laundering program. West
Bank’s policies and procedures have been updated to meet the requirements of the
USA Patriot Act.
The
Deposit Insurance Reform Act of 2005 resulted in significant statutory changes
to the FDIC deposit insurance assessment program. It allowed eligible insured
depository institutions to share a one-time assessment credit pool of
approximately $4.7 billion. To be eligible, an institution must have been in
existence on December 31, 1996, and have paid a deposit insurance assessment
prior to that date. West Bank’s share of that credit was approximately $561,000.
West Bank’s credit will be fully utilized prior to the end of the first quarter
of 2008. During 2007, the FDIC Board of Directors approved final rules governing
assessments. Effective January 1, 2007, assessment rates vary by institution
based on their risk category. Rates range from five to seven basis points for
well-managed financial institutions to 43 basis points for institutions deemed
to be in the highest risk category. The FDIC has also set the fund’s reserve
ratio in a range between 1.15 and 1.50 percent of insured deposits. As of
December 31, 2007, the designated reserve ratio was at 1.25 percent and is
subject to an annual review.
On
February 8, 2006, the Budget Reconciliation Bill, which contained deposit
insurance reform provisions, was signed into law. Under the legislation, the
Bank Insurance Fund and the Savings Association Insurance Fund were merged
on
March 31, 2006; the $100,000 of depositor insurance limitation was indexed
to
inflation, was increased to $250,000 for some retirement accounts, and is
subject to increase every five years.
Regulatory
Enforcement Authority
The
enforcement powers available to federal and state banking regulators are
substantial and include, among other things, the ability to assess civil
monetary penalties, to issue cease-and-desist or removal orders, and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, enforcement actions must be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions, or inactions, may provide the basis for enforcement action, including
misleading or untimely reports filed with regulatory authorities. Applicable
law
also requires public disclosure on final enforcement actions by the federal
banking agencies.
National
Monetary Policies
In
addition to being affected by general economic conditions, the earnings and
growth of West Bank are affected by the regulatory authorities’ policies,
including those of the Federal Reserve. An important function of the Federal
Reserve is to regulate the money supply, credit conditions, and interest rates.
Among the instruments used to implement these objectives are open market
operations in U.S. Government securities, changes in reserve requirements
against bank deposits, and the Federal Reserve Discount Rate, which is the
rate
charged to banks borrowing from the Federal Reserve Bank. These instruments
are
used in varying combinations to influence overall growth and distribution of
credit, bank loans, investments, and deposits, and their use may also affect
interest rates charged on loans or paid on deposits.
The
monetary policies of the Federal Reserve have had a material impact on the
operating results of commercial banks in the past and are expected to do so
in
the future.
ITEM
1A.
RISK FACTORS
West
Bancorporation’s business is conducted through its two wholly-owned
subsidiaries: West Bank and WB Capital. The most substantial risks for our
stock
involve West Bank, which is the most significant portion of our operations
and
total assets. The largest component of our 2007 income was interest received
on
loans. The second largest component of income was interest income on investment
securities, Federal funds, and short-term investments. We believe the following
are the most significant risk factors for the next year. We are also subject
to
other risks, both known and unknown, that may significantly affect our stock
price. The reader, therefore, should consider all other information contained
in
this Form 10-K and in the Appendix to our Proxy Statement, which was filed
on
March 7, 2008. All of that information is incorporated herein by this
reference.
10
West
Bank Loan Portfolio
At
December 31, 2007, West Bank’s loan portfolio included approximately
$878,433,000 of commercial real estate loans, commercial lines of credit,
commercial term loans, and construction or land development loans. These loans
made up 89 percent of West Bank’s entire loan portfolio. These types of loans
typically have greater credit risks than one- to four-family residential
mortgages or consumer loans because repayment depends in significant part on
the
successful business operations of the borrowers. Our commercial loans also
typically include larger loan balances to single borrowers or groups of related
borrowers than do residential mortgages or consumer loans. In addition,
commercial real estate, construction, and real estate development loans may
be
more negatively affected than residential mortgage loans by adverse developments
in the real estate markets or the general economy. If the economy turns
downward, commercial borrowers may not be able to repay their loans, and the
value of their collateral may decrease. Commercial loans also involve some
additional risk, because they generally are not fully repaid over the loan
period and usually require a large payoff at maturity. A borrower’s ability to
make the maturity payment typically depends on being able to either refinance
the loan or make timely and profitable sales of the underlying property or
business collateral. The typical West Bank borrower is a small- or medium-sized
privately-owned business that usually has fewer resources and less ability
to
sustain losses over time than larger or publicly-owned businesses. In addition,
collateral securing small business loans may be more likely to depreciate over
time or be difficult to liquidate. The review and monitoring process by West
Bank’s directors, officers, and staff cannot avoid all these risks.
West
Bank’s management makes various business assumptions and judgments about the
collectibility of all of its loans. Despite its underwriting and review
policies, West Bank may experience loan losses that could have a material
adverse effect on its profits. If West Bank’s current allowance for loan losses
is found to be insufficient to cover actual loan losses, an increase in the
allowance would be necessary. West Bank may need to significantly increase
the
provision for loan losses if one or more large loans become delinquent, or
if
the percentage of its commercial real estate, construction, land development,
and commercial loans continues to grow. In addition, West Bank’s regulators
periodically review the loan portfolio and may require increases in its
provision for loan losses or loan charge-offs. Increases in West Bank’s
allowance for loan losses would decrease West Bank’s net income. West Bank
cannot be sure that its monitoring procedures and policies will successfully
avoid its lending risks, or that West Bank’s present allowance for loan losses
will be adequate to cover actual future charge-offs.
Unlike
regional and national banks that are more geographically diversified, West
Bank
provides banking and financial services to customers primarily in the Des Moines
and Iowa City, Iowa, metropolitan areas. The local economic conditions in the
market areas we serve have a significant impact on the type of loans
underwritten by West Bank, the ability of the borrowers to repay these loans,
and the value of the collateral securing these loans. A significant decline
in
general economic conditions in our limited market areas caused by factors beyond
West Bank’s control could adversely affect our financial condition and
profits.
There
has
been a significant amount of recent publicity regarding sub-prime single-family
mortgages and increases in foreclosure rates. West Bank has not and does not
originate sub-prime single-family mortgages. In addition, West Bank does not
directly invest in sub-prime mortgages in its investment portfolio and the
amount, if any, of sub-prime mortgages securing mortgage-backed securities
owned
by West Bank is not a material amount of the investment portfolio. While the
foreclosure rate in Iowa has been increasing, the Company does not expect this
to have a material impact on its operations. For several years, the majority
of
mortgage loans originated by West Bank have been sold in the secondary market
and not retained on the Company’s books. West Bank has owned a portfolio of
single-family loans for several years that may from time to time result in
foreclosures, but the number of foreclosures in its portfolio is not expected
to
be material.
As
of
December 31, 2007, West Bank had identified approximately $20 million of loans
to nine real estate developers who were still performing their loan obligations
despite experiencing varying degrees of increasing financial difficulty. It
is
not now possible to fully predict the degree of problems these loans may
develop. However, West Bank considers these loans to be potential problem loans,
and it intends to continue special monitoring of all real estate development
loans for the foreseeable future.
Interest
Rates
West
Bancorporation’s net income is also affected by interest rate risks. Interest
rate risks are the possibilities that changes in market interest rates may
adversely affect West Bank’s earnings and capital. Increases or decreases in
interest rates and the relationship between long-term and short-term rates
are
both factors of interest rate risks.
Net
interest income is the largest component of the Company’s net income. Net
interest income is the difference between interest earned (income) and interest
paid (expense). Interest is earned on loans made to customers and on investment
securities in the investment portfolio. Interest is paid on customers’ deposit
accounts and funds borrowed from other sources. The amounts of interest earned
and interest paid are the result of interest rates and the dollar balances
of
loans, investments, deposits, and borrowings outstanding.
11
Interest
rates on loans and investments may not change at the same time or in the same
amount as interest rates on deposits and borrowings. Various factors affect
the
interest rates associated with loans and investments, such as the credit rating
of the borrower and the term of the loan or investment. Generally, the longer
the term of the loan or investment, the higher the interest rate. Interest
rates
on investment securities are generally fixed for the term of the investment.
Interest rates on loans can be fixed for the term of the loan or can be variable
and change when there is a change in an associated index, such as the prime
rate. Interest rates on deposit accounts, such as savings and money market
accounts, generally change over time based upon changes in market interest
rates. Interest rates on certificates of deposit are usually fixed for the
term
of the certificate. Interest rates associated with borrowings can be either
fixed or variable.
Net
interest income is also affected by the volume of loans, investments, deposits,
and borrowings that are maturing, the dollar amounts of new loan and deposit
accounts being opened, and the amounts of early loan payoffs for any given
period. These events, which to varying degrees are beyond the control of West
Bank, affect the amount of dollars that may be reinvested as interest rates
change.
The
ultimate impact on net interest income over time will depend upon the direction
and significance of changes in market interest rates as well as the dollar
amounts of loans, investments, deposits, and borrowings subject to the changes
in market interest rates.
Economic
Conditions
The
general economy is slowing. Based upon increasing numbers of foreclosures and
slower sales of one-to-four family residences, it is generally agreed that
the
real estate market is in a slowdown. The Federal Reserve reduced the targeted
fed funds rate and the discount rate by 225 basis points between September
2007
and January 2008, indicating its concern about the slowing economy. It is
uncertain when this slowdown will turn around and the ripple effect it could
have on other parts of the economy. The duration and magnitude of any near-term
economic difficulties are not known.
ITEM
1B.
UNRESOLVED STAFF COMMENTS
There
are
no unresolved comments from the Commission staff.
ITEM
2.
PROPERTIES
The
Company is located in the main office building of West Bank, at 1601
22nd
Street
in West Des Moines, Iowa. The headquarters location is leased. West Bank rents
approximately 18,600 square feet and pays annual rent of approximately $398,000
for a full-service banking location that includes drive-up facilities and one
automated teller machine. West Bank also leases bank buildings and space for
seven other locations. These offices are full-service banking locations, with
drive-up facilities and automated teller machines, except an office in
Coralville, which does not have a drive-up. Annual lease payments for these
seven offices total approximately $605,000. West Bank also rents approximately
5,000 square feet in an additional facility for various operational departments,
and rents approximately 2,900 square feet of storage space, with the total
annual rents for both facilities of approximately $100,000. West Bank owns
two
full-service banking locations in Iowa City.
WB
Capital has leased offices in West Des Moines and Coralville, Iowa. In
Coralville, WB Capital leases space within West Bank’s branch office. Lease
payments for these offices were approximately $456,000 for the year ended
December 31, 2007.
ITEM
3.
LEGAL PROCEEDINGS
The
Company and its subsidiaries are not parties to any material pending legal
proceedings (other than ordinary litigation incidental to the entities’
businesses) and no property of these entities is the subject of any such
proceeding. The Company does not know of any proceeding contemplated by a
governmental authority against the Company, its subsidiaries, or any related
property.
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There
were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
12
PART
II
ITEM
5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The
information appearing on page 64 of the Company’s Appendix to the Proxy
Statement, which was filed on March 7, 2008, is incorporated herein by
reference.
There
were 278 holders of record of the Company’s no par value common stock as of
February 14, 2008, and an estimated 1,300 additional beneficial holders whose
stock was held in street name by brokerage houses. The closing price of the
Company’s common stock was $12.48 on February 14, 2008.
In
April
2007, the Company’s 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.
In the fourth quarter of 2007, 74,500 shares were repurchased at a cost of
approximately $974,000 or $13.08 per share. During January 2008, an additional
58,300 shares were repurchased at an average cost of $13.53 per share, totaling
approximately $789,000.
The
following table provides detailed information regarding the Company’s purchases
of its common stock during the fourth quarter of the year ended December 31,
2007:
|
Quarter
ended
December
31, 2007
|
Total
Number
of
Shares
Purchased
|
|
Average
Price
Paid
per
Share (1)
|
|
Total
Number
of Shares
Purchased
as
Part
of Publicly Announced
Plan
|
|
Maximum
Dollar
Amount of
Shares
that May
Yet
be Purchased
Under
the Plan
|
||||||
|
October
1 through October
31, 2007
|
-
|
$
|
-
|
-
|
$
|
5,000,000
|
|||||||
|
November
1 through November
30, 2007
|
-
|
-
|
-
|
5,000,000
|
|||||||||
|
December
1 through December
31, 2007
|
74,500
|
13.08
|
74,500
|
4,025,713
|
|||||||||
|
Total
|
74,500
|
$
|
13.08
|
74,500
|
$
|
4,025,713
|
|||||||
|
(1)
|
All
shares were purchased via open market
transactions.
|
Dividends
to common shareholders in 2007 were $0.64 per common share, a 2.4 percent
increase over $0.625 for 2006. Dividend declarations are evaluated and
determined by the Board of Directors on a quarterly basis. The ability of the
Company to continue to pay such dividends will depend primarily upon the
earnings of West Bank and its ability to pay dividends to the Company. It is
anticipated the Company will continue to pay dividends on a regular basis in
the
future.
The
ability of West Bank to pay dividends is governed by various statutes. West
Bank, as a state bank, is restricted to paying dividends only out of undivided
profits. These statutes provide that no bank shall declare or pay any dividends
in an amount greater than its retained earnings, without approval from governing
regulatory bodies. In addition, applicable bank regulatory authorities have
the
power to require any bank to suspend the payment of any and all dividends until
the bank complies with all requirements that may be imposed by such
authorities.
In
April
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 granted as
awards, subject to certain restrictions. The Compensation Committee of the
Company’s Board of Directors administers the Plan. As of December 31, 2007, no
awards had been granted. The table appearing on page 16 of the definitive Proxy
Statement, which was filed on March 7, 2008, is incorporated herein by
reference.
The
stock
price performance graph appearing on page 26 of the Company’s Appendix to the
Proxy Statement, which was filed on March 7, 2008, is incorporated herein by
reference.
13
ITEM
6.
SELECTED FINANCIAL DATA
The
information appearing on page 4 of the Company’s Appendix to the Proxy
Statement, which was filed on March 7, 2008, is incorporated herein by
reference.
ITEM
7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
information appearing on pages 5 through 27 of the Company’s Appendix to the
Proxy Statement, which was filed on March 7, 2008, is incorporated herein by
reference.
ITEM
7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
information appearing on pages 24 and 25 of the Company’s Appendix to the Proxy
Statement, which was filed on March 7, 2008, is incorporated herein by
reference.
ITEM
8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
information appearing on pages 28 through 63 of the Company’s Appendix to the
Proxy Statement, which was filed on March 7, 2008, is incorporated herein by
reference.
ITEM
9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Within
the two years prior to the date of the most recent financial statements, there
have been no changes in or disagreements with accountants of the
Company.
ITEM
9A.
CONTROLS AND PROCEDURES
As
of the
end of the period covered by this report, an evaluation of the effectiveness
of
the Company’s disclosure controls and procedures (as defined in Exchange Act
Rule 240.13a-15(e)) was performed under the supervision and with the
participation of the Company’s Chief Executive Officer and Chief Financial
Officer. Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that the Company’s current disclosure controls
and procedures are effective to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized, and reported within
the
time periods specified in the Securities and Exchange Commission’s rules and
forms.
Management’s
annual report on internal control over financial reporting appears on page
31 of
the Company’s Appendix to the Proxy Statement, which was filed on March 7, 2008,
and is incorporated herein by reference.
The
audit
report of the Company’s independent registered public accounting firm on the
effectiveness of the Company’s internal control over financial reporting appears
on pages 29 and 30 of the Company’s Appendix to the Proxy Statement, which was
filed on March 7, 2008, and is incorporated herein by reference.
There
were no changes in the Company’s internal control over financial reporting that
occurred during the fourth fiscal quarter of 2007 that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
ITEM
9B.
OTHER INFORMATION
The
registrant has no information to be disclosed under this item.
14
PART
III
ITEM
10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following table sets forth summary information about the directors and executive
officers of the Company and certain executive officers of West Bank and WB
Capital Management Inc.
|
Name
|
Age
|
Position
with Company, West Bank or
WB
Capital Management Inc.
|
||
|
Frank
W. Berlin
|
62
|
Director
of Company and Bank
|
||
|
Wendy
L. Carlson
|
47
|
Director
of Company
|
||
|
Orville
E. Crowley
|
81
|
Director
of Company
|
||
|
George
D. Milligan
|
51
|
Director
of Company and Bank
|
||
|
Robert
G. Pulver
|
60
|
Director
of Company and Bank
|
||
|
Thomas
E. Stanberry
|
53
|
Chairman,
President and Chief Executive Officer
|
||
|
|
|
of
Company; Chairman and Chief Executive Officer
|
||
|
|
|
of
Bank; Chairman of WB Capital Management Inc.
|
||
|
Jack
G. Wahlig
|
75
|
Director
of Company and Bank
|
||
|
Connie
Wimer
|
75
|
Director
of Company and Bank
|
||
|
Scott
D. Eltjes
|
42
|
Director
and Chief Executive Officer of WB Capital Management
Inc.
|
||
|
Douglas
R. Gulling
|
54
|
Executive
Vice President and Chief Financial Officer
|
||
|
|
of
Company; Director and Chief Financial Officer of Bank;
|
|||
|
|
Director
and Treasurer of WB Capital Management Inc.
|
|||
|
Jeffrey
D. Lorenzen
|
42
|
Director,
President and Chief Investment Officer of
|
||
|
|
WB
Capital Management Inc.
|
|||
|
Sharen
K. Surber
|
63
|
Executive
Vice President of Bank
|
||
|
Brad
L. Winterbottom
|
51
|
Executive
Vice President of Company; Director and President
|
||
|
|
of
Bank; Director of WB Capital Management
Inc.
|
During
2007, and until December 2007, the Board of Directors was comprised of ten
members. During December 2007, Steven G. Chapman and Michael A. Coppola resigned
from the Board. Since December 2007, the Board of Directors was and will be
comprised of eight members. Subsequent to the annual meeting, the majority
of
the Board will continue to be “independent” pursuant to NASD Rule 4350(c)(1).
Directors are elected at each annual meeting of shareholders to hold office
until the next annual meeting of shareholders after their election and until
their successor shall be elected and shall qualify or until their earlier
resignation, removal from office, death, or incapacity. The shareholders may
at
any time remove any director, with or without cause, by majority vote of the
outstanding shares and elect a successor to fill the vacancy. The executive
officers of the Company are elected on an annual basis by the Board of Directors
of the Company. An executive officer may be removed by the Board of Directors
whenever in its judgment the best interests of the Company will be served
thereby.
The
principal occupation or business and experience of the directors, and executive
officers of the Company and certain executive officers of West Bank and WB
Capital for the past five years are set forth below:
FRANK
W.
BERLIN is president of Frank W. Berlin & Associates, an insurance broker.
Mr. Berlin has served as a director of the Company and West Bank since
1995.
WENDY
L.
CARLSON is chief financial officer and general counsel of American Equity
Investment Life Holding Company. She has served in this capacity since 1999.
Ms.
Carlson has been a director of the Company since April 2007.
15
ORVILLE
E. CROWLEY is president and chief operating officer of Linden Lane Farms
Company, a family farm corporation involved in growing row crops in Madison
and
Warren counties in Iowa. Mr. Crowley has been a director of the Company since
1984.
GEORGE
D.
MILLIGAN is president of The Graham Group, Inc., a Des Moines, Iowa based real
estate development company. He has served as a director of the Company since
2005 and West Bank since 1994.
ROBERT
G.
PULVER is president and chief executive officer of All-State Industries, Inc.,
an industrial rubber products manufacturer. He has been a director of the
Company since 1984 and West Bank since 1981.
THOMAS
E.
STANBERRY joined the Company in March 2003 as chairman, president, and chief
executive officer. Effective January 1, 2005, he became chairman and chief
executive officer of West Bank. He has been a director of West Bank since May
2003 and of WB Capital since October 2003. From 1989 until February 2003, Mr.
Stanberry served in a variety of capacities for U.S. Bancorp Piper Jaffray,
most
recently as a managing director in its Fixed Income Capital Markets
division.
JACK
G.
WAHLIG is president of Integrus Financial, L.C. He is a retired partner of
the
certified public accounting firm, McGladrey & Pullen, LLP. Mr. Wahlig has
been a director of the Company since 2001 and West Bank since 1997.
CONNIE
WIMER is chairman of Business Publications Corporation. She has been a director
of the Company and West Bank since 1985.
SCOTT
D.
ELTJES was named chief executive officer of WB Capital in July 2006 and was
named a member of the Company’s executive management team and head of WB Capital
effective January 2005. He has been a director of WB Capital since October
2003.
From May 1999 until October 2003, he was a managing partner of VMF Capital
L.L.C., from which the Company purchased certain assets and liabilities to
form
WB Capital.
DOUGLAS
R. GULLING joined the Company in November 2001 as chief financial officer,
and
was elected chief financial officer of the Bank in February 2002. He has been
a
director and treasurer of WB Capital since October 2003. He was elected
executive vice president of the Company in April 2004. In May 2005, he was
elected to the Board of Directors of West Bank.
JEFFREY
D. LORENZEN was named president and chief investment officer of WB Capital
in
July 2006, and was named a member of the Company’s executive management team
effective February 2006. He became a director of WB Capital in October 2006.
He
had been president of Investors Management Group since April 2005 and chief
investment officer since March 2003. From August 2000 until October 2003, he
served as IMG’s supervising fixed income manager.
SHAREN
K.
SURBER is executive vice president-operations of West Bank and has served in
that capacity since 2001. Prior to that time, she was senior vice
president-operations. She has been with West Bank since 1975.
BRAD
L.
WINTERBOTTOM is executive vice president of the Company and president of West
Bank and has served as a director and president of West Bank since 2000. He
has
been a director of WB Capital since October 2003. He joined West Bank in
1992.
Identification
of Audit Committee and Audit Committee Financial Expert
The
information for this matter as required pursuant to Item 407(d)(4) and (d)(5)
of
Regulation S-K can be found at page 5 in the Company’s definitive Proxy
Statement, which was filed on March 7, 2008, and is incorporated herein by
reference.
Shareholder
Recommendations for Nominees to the Board of Directors
The
information for this matter as required pursuant to Item 407(c)(3) of Regulation
S-K can be found at page 18 in the Company’s definitive Proxy Statement, which
was filed on March 7, 2008, and is incorporated herein by
reference.
Section
16(a) Beneficial Ownership Reporting Compliance
The
information for this matter as required pursuant to Item 405 of Regulation
S-K
can be found at page 11 in the Company’s definitive Proxy Statement, which was
filed on March 7, 2008, and is incorporated herein by reference.
Code
of Ethics
The
Company has adopted a code of conduct that applies to all directors, officers,
and employees, including the chairman, president and chief executive officer,
the executive vice president and chief financial officer, and the vice president
and controller. A copy of the code of conduct is available in the investor
relations section of the Company’s website at www.westbankiowa.com.
16
ITEM
11.
EXECUTIVE COMPENSATION
The
information for this matter as required pursuant to Item 402, Item 407 (e)(4)
and Item 407(e)(5) of Regulation S-K can be found at pages 6, 8, 9, and 11
through 16 in the Company’s definitive Proxy Statement, which was filed on March
7, 2008, and is incorporated herein by reference.
ITEM
12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
information for this matter as required pursuant to Item 201(d) and Item 403
of
Regulation S-K can be found at pages 10 and 16 in the Company’s definitive Proxy
Statement, which was filed on March 7, 2008, and is incorporated herein by
reference.
ITEM
13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The
information for this matter as required pursuant to Item 404 and Item 407(a)
of
Regulation S-K can be found at pages 5, 6, 17, and 18 in the Company’s
definitive Proxy Statement, which was filed on March 7, 2008, and is
incorporated herein by reference.
ITEM
14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The
information for this matter as required pursuant to Item 9(e) of Schedule 14A
can be found at page 17 in the Company’s definitive Proxy Statement, which was
filed on March 7, 2008, and is incorporated herein by
reference.
PART
IV
ITEM
15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The
following exhibits and financial statement schedules of the Company are filed
as
part of this report:
| (a) | 1. |
Financial
Statements
|
See
the
financial statements on pages 28 through 63 of the Company’s Appendix to the
Proxy Statement, which was filed on March 7, 2008, and which is incorporated
herein by reference.
| 2. |
Financial
Statement Schedules
|
All
schedules are omitted because they are not applicable, not required, or because
the required information is included in the consolidated financial statements
or
notes thereto.
|
3.
|
Exhibits
(not covered by independent registered public accounting firms’
reports)
|
|
|
3.1
|
Restated
Articles of Incorporation of the
Company(1)
|
|
3.2
|
Amendment
to Bylaws of West Bancorporation,
Inc.(10)
|
|
10.1
|
Lease
for Main Bank Facility(1)
|
|
10.2
|
Supplemental
Agreement to Lease for Main Bank
Facility(1)
|
|
10.3
|
Short-term
Lease related to Main Bank
Facility(1)
|
|
10.4
|
Assignment(1)
|
|
10.5
|
Lease
Modification Agreement No. 1 for Main Bank
Facility(1)
|
|
10.6
|
Memorandum
of Real Estate Contract(1)
|
|
10.7
|
Affidavit(1)
|
|
10.8
|
Addendum
to Lease for Main Bank Facility(1)
|
|
10.9
|
Data
Processing Contract(1)
|
|
10.10
|
Employment
Contract for certain Executive
Officers(1)
|
|
10.11
|
Intentionally
omitted
|
|
10.12
|
Data
Processing Contract Amendment(2)
|
|
10.13
|
Intentionally
omitted
|
|
10.14
|
Intentionally
omitted
|
|
10.15
|
The
Employee Savings and Stock Ownership Plan, as
amended(3)
|
17
|
10.16
|
Amendment
to Lease Agreement(4)
|
|
10.17
|
Employment
Agreement with Scott Eltjes(4)
|
|
10.18
|
Consulting
Agreement with David L. Miller(6)
|
|
10.19
|
West
Bancorporation, Inc. Restricted Stock Compensation
Plan(5)
|
|
10.20
|
Employment
Agreement between Investors Management Group and Jeff
Lorenzen(7)
|
|
10.21
|
Assignment
and Assumption of Lease and Consent to
Assignment(8)
|
|
10.22
|
2007
Amendment to Lease Agreement(9)
|
|
10.23
|
The
Appendix to the Proxy Statement for West Bancorporation, Inc. for
the 2007
calendar year(11)
|
|
21
|
Subsidiaries
|
|
23
|
Consent
of Independent Registered Public Accounting
Firm
|
|
31.1
|
Certification
of Chief Executive Officer under Section 302 of the Sarbanes-Oxley
Act of
2002
|
|
31.2
|
Certification
of Chief Financial Officer under Section 302 of the Sarbanes-Oxley
Act of
2002
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
(1)
|
Incorporated
herein by reference to the related exhibit filed with the Form
10 on March
11, 2002.
|
|
(2)
|
Incorporated
herein by reference to the related exhibit filed with the Form
10-K on
March 26, 2003.
|
|
(3)
|
Incorporated
herein by reference to the related exhibit filed with the Form
S-8 on
October 29, 2004.
|
|
(4)
|
Incorporated
herein by reference to the related exhibit filed with the Form
10-K on
March 3, 2005.
|
|
(5)
|
Incorporated
herein by reference to the definitive proxy statement 14A filed
on March
10, 2005.
|
|
(6)
|
Incorporated
herein by reference to the related exhibit filed with the Form
10-Q on May
6, 2005.
|
|
(7)
|
Incorporated
herein by reference to the related exhibit filed with the Form
8-K on
February 22, 2006.
|
|
(8)
|
Incorporated
herein by reference to the related exhibit filed with the Form
10-K on
March 8, 2006.
|
|
(9)
|
Incorporated
herein by reference to the related exhibit filed with the Form
10-Q on May
4, 2007.
|
|
(10)
|
Incorporated
herein by reference to the related exhibit filed with the Form
8-K on
November 13, 2007.
|
|
(11)
|
Incorporated
herein by reference to the definitive proxy statement 14A filed
on March
7, 2008.
|
The
Company will furnish to any person, upon request, and upon payment of a fee
of
$0.50 per page, a copy of any exhibit. Requests for copies of exhibits should
be
directed to Chief Financial Officer, West Bancorporation, Inc., 1601
22nd
Street,
West Des Moines, Iowa 50266.
18
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
| WEST BANCORPORATION, INC.
(Registrant)
|
||
| |
|
|
| March 7, 2008 | By: | /s/ Thomas E. Stanberry |
|
Thomas E. Stanberry |
||
| Chairman, President and Chief Executive Officer | ||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
| March 7, 2008 | By: | /s/ Thomas E. Stanberry |
|
Thomas E. Stanberry |
||
| Chairman, President and Chief Executive Officer | ||
| March 7, 2008 | By: | /s/ Douglas R. Gulling |
|
Douglas R. Gulling |
||
| Executive Vice President and Chief Financial Officer | ||
| March 7, 2008 | By: | /s/ Marie I. Roberts |
|
Marie I. Roberts |
||
| Vice President and Controller | ||
| BOARD OF DIRECTORS | ||
| March 7, 2008 | By: | /s/ Frank W. Berlin |
|
Frank W. Berlin |
||
| March 7, 2008 | By: | /s/ Wendy L. Carlson |
|
Wendy L. Carlson |
||
| March 7, 2008 | By: | /s/ Orville E. Crowley |
|
Orville E. Crowley |
||
| March 7, 2008 | By: | /s/ George D. Milligan |
|
George D. Milligan |
||
| March 7, 2008 | By: | /s/ Robert G. Pulver |
|
Robert G. Pulver |
||
| March 7, 2008 | By: | /s/ Jack G. Wahlig |
|
Jack G. Wahlig |
||
| March 7, 2008 | By: | /s/ Connie Wimer |
|
Connie Wimer |
||
19
EXHIBIT
INDEX
The
following exhibits are filed herewith:
|
Exhibit
No.
|
Description
|
|
|
21
|
Subsidiaries
|
|
|
23
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
31.1
|
Certification
of Chief Executive Officer under Section 302 of the Sarbanes-Oxley
Act of
2002
|
|
|
31.2
|
Certification
of Chief Financial Officer under Section 302 of the Sarbanes-Oxley
Act of
2002
|
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
20