West Bancorporation
Annual Report 2016

Plain-text annual report

2016 Annual Report FINANCIAL PERFORMANCE Return on average equity Return on average assets 16.00% 15.00% 14.00% 13.00% 12.00% 11.00% 10.00% 1.35% 1.30% 1.25% 1.20% 1.15% 1.10% 1.05% 1.00% 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Net income Diluted earnings per share Dividends per share $24,000 $22,000 $20,000 s d n a s u o h T $18,000 $16,000 $14,000 $12,000 $10,000 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 - 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 - 2012 2013 2014 2015 2016 Total loans Total deposits s d n a s u o h T $1,500,000 $1,400,000 $1,300,000 $1,200,000 $1,100,000 $1,000,000 $900,000 $800,000 $700,000 s d n a s u o h T $1,600,000 $1,500,000 $1,400,000 $1,300,000 $1,200,000 $1,100,000 $1,000,000 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 W E S T B A N C O R P O R A T I O N , I N C . A N D S U B S I D I A R Y | 2 0 1 6 A N N U A L R E P O R T Dear Stockholders: Your Company had another great year. In fact, 2016 was another record year - the second consecutive record year, which includes a string of ten consecutive record quarters (for each respective quarter). While we may not believe this string of record performance will last forever, it is fun while it lasts. What you can count on is every employee putting forth their best effort to achieve at a level that is enviable in our industry. Based upon the most recent information available, we continue to perform in the upper quartile of our peer group. Our vision is not about being a certain size by a certain time. Our vision is to achieve and sustain a position of industry envy and admiration. Along with our record performance, our dividends are at record levels and our stock price hit a record high during December 2016. Late in 2016, our new Rochester, Minnesota, office opened. Together with our facility in eastern Iowa, which opened during 2015, we now have new, efficient facilities to serve both of those markets. These stunning buildings are in stark contrast to our early Valley Junction headquarters 123 years ago, all of which are pictured within this annual report. Our loan portfolio totaled approximately $1.4 billion at the end of 2016. This was an increase of 12.3 percent for the year. Keeping pace, our deposits grew 7.3 percent to total approximately $1.5 billion at December 31, 2016. All three markets (central Iowa, eastern Iowa and Rochester, Minnesota) contributed to our growth. This growth was accomplished with only a 3.6 percent increase in operating expenses. Over time, credit quality is arguably the most important measure of a financial institution. Our credit quality remains at a high level by all measures. The credit quality measure we focus on is the Texas ratio. This ratio divides total nonperforming assets by the sum of tangible common equity plus the allowance for loan losses. The lower the value of this ratio, the better. Our ratio at December 31, 2016 was 0.56 percent. The average Texas ratio for all bank holding companies in the United States with total assets between $1 billion and $3 billion as of September 30, 2016 (latest number available) was 6.9 percent. But by far, the most significant factor contributing to our success is our people. We have knowledgeable, long-term employees. Our turnover is low. In fact, we had 100 percent retention of key personnel during 2016! We look forward to 2017 with reserved confidence. Potential changes in Washington, D.C., that would be beneficial to our Company include a lower corporate tax rate and reduced red tape. Time will tell if we experience actual progress in these areas. Even absent these changes, we believe we are well positioned to continue delivery of superior service to our customers, which should, in turn, result in positive performance for our stockholders. Sincerely, David D. Nelson CEO and President, West Bancorporation, Inc.; Chairman and CEO, West Bank W E S T B A N C O R P O R A T I O N , I N C . A N D S U B S I D I A R Y | 2 0 1 6 A N N U A L R E P O R T FROM HUMBLE BEGINNINGS... In 1893, Herman and Anna Raaz were among the first to issue loans to small businesses and families in Valley Junction. As founders of First Valley Junction Savings Bank, which later became known as West Des Moines State Bank and then West Bank, Mr. and Mrs. Raaz gave the small railroad town the financial boost it needed to grow into one of the original settlements in West Des Moines. Anna Raaz was the first female banker in Iowa, serving as cashier for the entire 15 years the Raazes owned the bank. Her aptitude for business earned her the respect of community leaders in Valley Junction and across the Midwest. In addition to managing the bank, Herman Raaz was heavily involved in the community. He volunteered as treasurer for the local school district, participated in a number of fraternal organizations and contributed to several philanthropic efforts. From humble beginnings in 1893, West Bank has built a strong foundation on our commitment to earning our customers’ trust while earning recognition by our peers and industry experts as one of the best banks in America. Most importantly, we continue to be a vital part of the community we proudly call home. ...TO WEST BANK STRONG As the oldest remaining business of any type founded in what is now West Des Moines, we celebrated our centennial in 1993 — the same year as West Des Moines — and listed our stock on Nasdaq during 2002. We now have eight locations in Central Iowa, two in Eastern Iowa and one in Rochester, Minnesota. We opened a beautiful new Coralville facility in 2015 to better serve our growing Iowa City and Coralville client base. This state-of-the-art building features three drive-up lanes, a 24-hour ATM and a full range of banking services. Our new Rochester facility, built in 2016, features a spacious and natural light-filled lobby, an interactive drive-up ATM and a rooftop terrace for entertaining. The stunning new structure was designed to be a point of pride for Rochester residents. Over the years, we’ve enjoyed receiving national recognition from esteemed institutions such as the American Bankers Association, Raymond James & Associates and Sandler O’Neill + Partners; as well as respected publications that include American Banker Magazine and Bank Director Magazine. But our greatest point of pride has always been serving our loyal customers. Together with our dedicated staff and supportive community, we are West Bank Strong. West Bank Teams Rochester team from left to right: Vice President Mike Schletty, Vice President Don Paulson, CEO Dave Nelson, Market President Mike Zinser, 1st Vice President Michele Sursely and 2nd Vice President Natalie Jones Coralville team from left to right: Portfolio Manager Kelly Schaer, Senior Vice President Tom Cilek, 1st Vice President Minda Hamann, Commercial Lender Joe Vens and Market President Jim Conard BOARD OF DIRECTORS David Milligan* Chairman, West Bancorporation Dave Nelson* CEO and President, West Bancorporation; Chairman and CEO, West Bank Douglas Gulling** EVP, Treasurer and Chief Financial Officer, West Bancorporation; EVP and Chief Financial Officer, West Bank Brad Winterbottom** EVP, West Bancorporation; President, West Bank Harlee Olafson** EVP and Chief Risk Officer, West Bancorporation; EVP and Chief Risk Officer, West Bank Frank Berlin* Frank W. Berlin & Associates Joyce Chapman* Retired, West Bank Executive Steven Gaer* R & R Realty Group; Mayor, West Des Moines Mike Gerdin* Heartland Express, Inc. Kaye Lozier* Lozier Consulting Sean McMurray* AgSolver, Inc. George Milligan* The Graham Group, Inc. Jim Noyce* Retired Bob Pulver* All-State Industries, Inc. Lou Ann Sandburg* Retired Jason Worth* Gilcrest/Jewett Lumber Company * Director of West Bancorporation, Inc. and West Bank ** Director of West Bank W E S T B A N C O R P O R A T I O N , I N C . A N D S U B S I D I A R Y | 2 0 1 6 A N N U A L R E P O R T CENTRAL IOWA COMMUNITY BOARD* Jerry Deegan Dowling Catholic High School Darin Ferguson Ferguson Commercial Real Estate Services Ryan Flynn, CPA Flynn + Sweeney, LLC Kevin Grimm Wexford & James, LLC Greg LaMair LMC Insurance and Risk Service Gene Loffredo Loffredo Fresh Produce Co., Inc. Austin Palmer The Palmer Group Kirk Tyler Atlantic Bottling Company Victoria Veiock Wicker Works, LTD Mark Wackerbarth Denman & Company Nancy Williams American Land and Redevelopment, Corp. Jeff Yurgae Mueller-Yurgae West Bank invests a great deal in relationships because we believe they’re the cornerstone of our success — it’s one of the reasons we form a community board wherever we do business. We turn to these leaders for their insight, perspective and collective wisdom. We know it’s impossible to be a community bank without local connections and support, so we’re grateful for their assistance in helping us achieve our business, government and community relations goals. * All three of our community boards are non-voting advisory boards with knowledge of the communities we serve. W E S T B A N C O R P O R A T I O N , I N C . A N D S U B S I D I A R Y | 2 0 1 6 A N N U A L R E P O R T EASTERN IOWA COMMUNITY BOARD* Jesse Allen Allen Homes, Inc. Rodney Anderson Pancheros Mexican Grill Jill Armstrong Skogman Realty David Barker Barker Apartments Kevin Digmann Hodge Construction Andy Meardon In Memorium 1960-2016 Mark Mysnyk Steindler Orthopedic Clinic, PLC Ravi Patel Hawkeye Hotels Luke Recker Stryker Instruments Chuck Skaugstad The Mansion Leighton Smith BerganKDV ROCHESTER COMMUNITY BOARD* Gus Chafoulias Titan Development & Investments Patrick Deutsch Pace International Greg Groves Universal Marine & RV, Inc. Norb Harrington Retired Regional Banking President Hal Henderson HGA Architects and Engineers Charlie Kuehn Kuehn Motors Dick Kuehn Kuehn Motors David Pederson Dunlap & Seeger, P.A. Joe Powers Powers Ventures Peter Schuller A.B. Systems, Inc. Ed Stanley Merit Building Enclosure Systems Tim Weir Olmsted Medical Center * All three of our community boards are non-voting advisory boards with knowledge of the communities we serve. W E S T B A N C O R P O R A T I O N , I N C . A N D S U B S I D I A R Y | 2 0 1 6 A N N U A L R E P O R T FINANCIAL HIGHLIGHTS Years ended December 31, 2016, 2015 and 2014 (dollars in thousands, except per share data) Results of operation Net interest income Provision for loan losses Noninterest income Noninterest expense Income before income taxes Net income Per common share Cash dividends Basic earnings Diluted earnings Closing stock price Book value Year-end balances Assets Investment securities Loans Nonperforming loans Other real estate owned Deposits Stockholders’ equity Ratios Return on average assets Return on average equity Texas ratio* Efficiency ratio* Dividend payout ratio Dividend yield Net interest margin Allowance for loan losses as % of loans Net charge-offs (recoveries) as % of average loans Nonperforming loans as % of loans Tangible common equity to tangible assets *A lower ratio is better. 2016 2015 2014 $ 57,118 $ 54,154 $ 49,145 1,000 7,982 31,148 32,952 23,016 850 8,203 30,068 31,439 21,742 750 10,296 32,002 26,689 20,040 $ 0.67 $ 0.62 $ 0.49 1.43 1.42 24.70 10.25 1.35 1.35 19.75 9.49 $1,854,204 $1,748,396 319,794 1,399,870 1,022 - 1,546,605 165,376 1.27% 14.35% 0.56% 46.03% 46.92% 2.71% 3.49% 1.15% (0.01)% 0.07% 8.92% 384,420 1,246,688 1,461 - 1,440,729 152,377 1.30% 14.88% 0.87% 46.30% 45.77% 3.14% 3.59% 1.20% (0.04)% 0.12% 8.71% 1.25 1.25 17.02 8.75 $1,615,566 339,208 1,184,045 1,937 2,235 1,270,462 140,175 1.32% 15.19% 2.71% 49.93% 39.13% 2.88% 3.59% 1.15% 0.09% 0.16% 8.68% W E S T B A N C O R P O R A T I O N , I N C . A N D S U B S I D I A R Y | 2 0 1 6 A N N U A L R E P O R T CONSOLIDATED BALANCE SHEETS December 31, 2016 and 2015 (dollars in thousands) Assets Cash and due from banks Federal funds sold Cash and cash equivalents Investment securities available for sale, at fair value Investment securities held to maturity, at amortized cost (fair value of $47,789 and $51,918 at December 31, 2016 and 2015, respectively) Federal Home Loan Bank stock, at cost Loans Allowance for loan losses Loans, net Premises and equipment, net Accrued interest receivable Bank-owned life insurance Deferred tax assets, net Other assets Total assets Liabilities and stockholders’ equity Liabilities Deposits Noninterest-bearing demand Interest-bearing demand Savings Time of $250,000 or more Other time Total deposits Federal funds purchased Short-term borrowings Subordinated notes, net Federal Home Loan Bank advances, net Long-term debt, net Accrued expenses and other liabilities Total liabilities Stockholders’ equity Preferred stock, $0.01 par value; authorized 50,000,000 shares; no shares issued and outstanding at December 31, 2016 and 2015 Common stock, no par value; authorized 50,000,000 shares; 16,137,999 and 16,064,435 shares issued and outstanding at December 31, 2016 and 2015, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) Total stockholders’ equity Total liabilities and stockholders’ equity 2016 2015 $ 40,943 $ 57,329 35,893 76,836 260,637 48,386 10,771 1,399,870 (16,112) 1,383,758 23,314 5,321 33,111 6,957 5,113 15,322 72,651 320,714 51,259 12,447 1,246,688 (14,967) 1,231,721 11,562 4,688 32,834 6,670 3,850 $1,854,204 $1,748,396 $ 479,311 $ 486,707 282,592 668,688 10,446 105,568 267,824 570,391 14,749 101,058 1,546,605 1,440,729 9,690 - 20,398 99,886 5,126 7,123 2,760 19,000 20,385 98,385 8,405 6,355 1,688,828 1,596,019 - - 3,000 21,462 141,956 (1,042) 165,376 $1,854,204 3,000 20,067 129,740 (430) 152,377 $1,748,396 W E S T B A N C O R P O R A T I O N , I N C . A N D S U B S I D I A R Y | 2 0 1 6 A N N U A L R E P O R T CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2016, 2015 and 2014 (dollars in thousands, except per share data) Interest income Loans, including fees Investment securities: Taxable Tax-exempt Federal funds sold Total interest income Interest expense Deposits Federal funds purchased Short-term borrowings Subordinated notes Federal Home Loan Bank advances Long-term debt Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Noninterest Income Service charges on deposit accounts Debit card usage fees Trust services Revenue from residential mortgage banking Increase in cash value of bank-owned life insurance Gain from bank-owned life insurance Gain (loss) on disposition of premises and equipment Realized investment securities gains, net Other income Total noninterest income Noninterest expense Salaries and employee benefits Occupancy Data processing FDIC insurance Other real estate owned Professional fees Director fees Other expenses Total noninterest expense Income before income taxes Income taxes Net income Earnings per common share: Basic Diluted 2016 2015 2014 $57,419 $52,556 $47,440 4,201 3,266 108 64,994 3,391 5 42 728 3,565 145 7,876 57,118 1,000 56,118 2,461 1,825 1,310 151 647 443 (4) 66 1,083 7,982 16,731 4,033 2,510 937 - 774 888 5,275 31,148 32,952 9,936 $23,016 $ 1.43 $ 1.42 4,363 3,147 81 60,147 2,185 9 37 705 2,825 232 5,993 54,154 850 53,304 2,609 1,830 1,286 163 727 - (6) 47 1,547 8,203 16,065 4,105 2,329 839 10 748 881 5,091 30,068 31,439 9,697 $21,742 $ 1.35 $ 1.35 4,938 2,878 45 55,301 2,426 11 40 754 2,628 297 6,156 49,145 750 48,395 2,790 1,764 1,327 1,394 731 - 1,069 223 998 10,296 16,086 4,165 2,241 757 1,865 944 714 5,230 32,002 26,689 6,649 $20,040 $ 1.25 $ 1.25 W E S T B A N C O R P O R A T I O N , I N C . A N D S U B S I D I A R Y | 2 0 1 6 A N N U A L R E P O R T CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Years ended December 31, 2016, 2015 and 2014 (in thousands, except per share data) Balance, December 31, 2013 Net income Other comprehensive income, net of tax Cash dividends declared, $0.49 per common share Stock-based compensation costs Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes Excess tax benefits from vesting of restricted stock units Balance, December 31, 2014 Net income Other comprehensive loss, net of tax Cash dividends declared, $0.62 per common share Stock-based compensation costs Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes Excess tax benefits from vesting of restricted stock units Balance, December 31, 2015 Net income Other comprehensive loss, net of tax Cash dividends declared, $0.67 per common share Stock-based compensation costs Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes Excess tax benefits from vesting of restricted stock units Balance, December 31, 2016 Preferred stock Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total $ - $3,000 $18,411 $105,752 $(3,538) $123,625 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 633 (189) 116 20,040 - (7,842) - - - 3,000 18,971 117,950 - - - - - - - - - 1,166 (225) 155 21,742 - (9,952) - - - - 3,792 - - - - 254 - (684) - - - - 20,040 3,792 (7,842) 633 (189) 116 140,175 21,742 (684) (9,952) 1,166 (225) 155 3,000 20,067 129,740 (430) 152,377 - - - - - - - - - 23,016 - (10,800) 1,684 (394) 105 - - - - (612) - - - - 23,016 (612) (10,800) 1,684 (394) 105 $ - $3,000 $21,462 $141,956 $(1,042) $165,376 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of West Bancorporation, Inc. We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of West Bancorporation, Inc. and subsidiary as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income (not presented herein), stockholders’ equity, and cash flows (not presented herein) for each of the three years in the period ended December 31, 2016, and in our report dated March 1, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. Des Moines, Iowa | March 1, 2017 W E S T B A N C O R P O R A T I O N , I N C . A N D S U B S I D I A R Y | 2 0 1 6 A N N U A L R E P O R T STOCK INFORMATION West Bancorporation’s common stock is traded on the Nasdaq Global Select Market, and quotations are furnished by the Nasdaq System. We had 194 common stockholders of record on December 31, 2016, and an estimated 2,400 additional beneficial holders whose stock was held in street name by brokerages or fiduciaries. Market and dividend information (1) High Low Close Dividends 2016 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Total 2015 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Total $ 25.05 20.52 19.65 19.58 $ 18.75 17.65 17.33 16.04 $ 24.70 19.60 18.59 18.23 $ 21.09 20.99 20.46 19.94 $ 17.74 17.67 17.98 16.00 $ 19.75 18.75 19.84 19.89 $ 0.17 0.17 0.17 0.16 $ 0.67 $ 0.16 0.16 0.16 0.14 $ 0.62 (1) The prices shown are the high, low and closing sale prices for the Company’s common stock. The market quotations, reported by Nasdaq, do not include retail markup, markdown or commissions. FORM 10-K A copy of the Company’s annual report to the Securities and Exchange Commission on Form 10-K will be available on the Securities and Exchange Commission’s website at www.sec.gov and through a link on the Company’s website, WestBankStrong.com, at Investor Relations, SEC Filings. A copy of the annual report can also be obtained upon request to Alice Jensen at 515-222-2300 or ajensen@westbankstrong.com. TRANSFER AGENT/DIVIDEND PAYING AGENT American Stock Transfer & Trust Company, LLC 6201 15th Avenue, Brooklyn, New York 11219 718-921-8200 | www.amstock.com FORWARD-LOOKING STATEMENTS Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to the Company’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may appear throughout this report. These forward-looking statements are generally identified by the words “believes,” “expects,” “intends,” “anticipates,” “projects,” “future,” “may,” “should,” “will,” “strategy,” “plan,” “opportunity,” “will be,” “will likely result,” “will continue” or similar references, or references to estimates, predictions or future events. Such forward-looking statements are based upon certain underlying assumptions, risks and uncertainties. Because of the possibility that the underlying assumptions are incorrect or do not materialize as expected in the future, actual results could differ materially from these forward-looking statements. Risks and uncertainties that may affect future results include: interest rate risk; competitive pressures; pricing pressures on loans and deposits; changes in credit and other risks posed by the Company’s loan and investment portfolios, including declines in commercial or residential real estate values or changes in the allowance for loan losses dictated by new market conditions or regulatory requirements; actions of bank and nonbank competitors; changes in local, national and international economic conditions; changes in regulatory requirements, limitations and costs; changes in customers’ acceptance of the Company’s products and services; cyber-attacks; unexpected outcomes of existing or new litigation involving the Company; and any other risks described in the “Risk Factors” sections of other reports filed by the Company with the Securities and Exchange Commission. The Company undertakes no obligation to revise or update such forward-looking statements to reflect current or future events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. W E S T B A N C O R P O R A T I O N , I N C . A N D S U B S I D I A R Y | 2 0 1 6 A N N U A L R E P O R T Branch Locations CENTRAL IOWA Main Bank 1601 22nd St. West Des Moines City Center Branch Drive-up only express 809 6th Ave. Des Moines North Branch Drive-up only express 3839 Merle Hay Rd. Des Moines Urbandale Branch Drive-up only express 3255 99th St. Urbandale Grand Branch 125 Grand Ave. West Des Moines East Branch 2440 E Euclid Ave. Des Moines South Branch 3920 SW 9th St. Des Moines Waukee Branch 955 E Hickman Rd. Waukee EASTERN IOWA Coralville Branch 401 10th Ave. Coralville Iowa City Branch 1910 Lower Muscatine Rd. Iowa City SOUTHEASTERN MINNESOTA Rochester Branch 2188 Superior Dr. NW Rochester 2016 Annual Report © West Bancorporation, Inc. and Subsidiary 

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