FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED COMMISSION FILE NUMBER
- --------------------------------------------------------------------------------
March 31, 2003 0-49677
WEST BANCORPORATION, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
IOWA 42-1230603
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1601 22nd Street, West Des Moines, Iowa 50266
Telephone Number (515) 222-2300
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ x ] No [ ]
As of May 13, 2003, there were 16,060,271 shares of common stock, no par value
outstanding.
1
PART I -- Item 1. Financial Statements
West Bancorporation, Inc. and Subsidiary
Consolidated Balance Sheets
(unaudited)
March 31, December 31,
2003 2002
-------------------------------
Assets
Cash and due from banks $ 25,834,054 $ 23,022,298
Federal funds sold and other short-term investments 102,595,635 158,191,770
-------------------------------
Cash and cash equivalents 128,429,689 181,214,068
-------------------------------
Securities available for sale 103,312,687 70,862,435
Securities held to maturity (approximate market value of $122,897,000
and $141,267,000 at March 31, 2003 and December 31, 2002, respectively) 120,023,063 138,299,566
Federal Home Loan Bank stock, at cost 3,129,700 3,129,700
-------------------------------
Total securities 226,465,450 212,291,701
-------------------------------
Loans 483,746,800 488,452,911
Allowance for loan losses (4,615,248) (4,493,583)
-------------------------------
Loans, net 479,131,552 483,959,328
-------------------------------
Premises and equipment, net 1,412,098 1,394,649
Accrued interest receivable 5,445,253 5,204,203
Other assets 12,143,358 2,052,114
--------------------------------
Total assets $ 853,027,400 $ 886,116,063
================================
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing $ 136,528,631 $ 145,208,492
Savings and interest bearing demand 321,412,468 338,775,544
Time, in excess of $100,000 66,987,521 88,592,994
Other time 37,948,379 40,521,470
-------------------------------
Total deposits 562,876,999 613,098,500
Federal funds purchased and securities sold under agreements to repurchase 145,828,306 127,418,671
Other short-term borrowings 509,522 5,096,872
Accrued expenses and other liabilities 4,889,384 3,077,858
Long-term borrowings 51,600,000 51,600,000
-------------------------------
Total liabilities 765,704,211 800,291,901
-------------------------------
Stockholders' Equity
Common stock, no par value; authorized 50,000,000 shares; shares issued and
outstanding: 2003 and 2002, 16,060,271 3,000,000 3,000,000
Additional paid-in capital 32,000,000 32,000,000
Retained earnings 51,273,638 49,792,716
Accumulated other comprehensive income 1,049,551 1,031,446
--------------------------------
Total stockholders' equity 87,323,189 85,824,162
--------------------------------
Total liabilities and stockholders' equity $ 853,027,400 $ 886,116,063
================================
See accompanying notes to consolidated financial statements.
2
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Income
(unaudited)
Three Months Ended March 31,
2003 2002
-----------------------------
Interest income:
Loans ........................................................ $ 7,701,836 $ 8,253,270
Securities:
U.S Treasury, government agencies and corporations ........ 1,175,048 1,581,688
States and political subdivisions ......................... 415,242 431,146
Other ..................................................... 641,989 261,132
Federal funds sold and other short-term investments .......... 439,493 502,671
-------------------------
Total interest income .................................. 10,373,608 11,029,907
-------------------------
Interest expense:
Demand deposits .............................................. 25,261 33,247
Savings deposits ............................................. 768,697 998,835
Time deposits ................................................ 816,060 1,344,928
Federal funds purchased and securities sold under
agreements to repurchase .................................. 396,157 531,906
Other short-term borrowings .................................. 1,575 12,178
Long-term borrowings ......................................... 708,040 687,754
-------------------------
Total interest expense ................................. 2,715,790 3,608,848
-------------------------
Net interest income .................................... 7,657,818 7,421,059
Provision for loan losses ........................................ 200,000 230,000
-------------------------
Net interest income after provision for loan losses .... 7,457,818 7,191,059
-------------------------
Noninterest income:
Service charges on deposit accounts .......................... 1,056,193 1,003,620
Trust services ............................................... 132,000 157,977
Net realized gains from sales of securities available for sale 99,740 --
Other income ................................................. 416,489 324,220
-------------------------
Total noninterest income ............................... 1,704,422 1,485,817
-------------------------
Noninterest expense:
Salaries and employee benefits ............................... 1,719,277 1,584,484
Occupancy expenses ........................................... 370,249 318,534
Data processing expenses ..................................... 243,285 264,823
Other expenses ............................................... 573,294 606,393
-------------------------
Total noninterest expense .............................. 2,906,105 2,774,234
-------------------------
Income before income taxes ............................. 6,256,135 5,902,642
Income taxes ..................................................... 2,205,570 2,083,341
-------------------------
Net income ............................................. $ 4,050,565 $ 3,819,301
=========================
Basic earnings per share ......................................... $ 0.25 $ 0.24
=========================
Cash dividends per share ......................................... $ 0.16 $ 0.15
=========================
See accompanying notes to consolidated financial statements.
3
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(unaudited)
Three Months Ended March 31,
2003 2002
----------------------------
Common Stock
Beginning of year balance ...................... $ 3,000,000 $ 3,000,000
----------------------------
End of period balance .......................... 3,000,000 3,000,000
----------------------------
Additional Paid-in Capital
Beginning of year balance ...................... 32,000,000 32,000,000
----------------------------
End of period balance .......................... 32,000,000 32,000,000
----------------------------
Retained Earnings
Beginning of year balance ...................... 49,792,716 43,374,281
Net income ..................................... 4,050,565 3,819,301
Dividends on common stock; per share amounts
2003 $0.16; 2002 $0.15 ...................... (2,569,643) (2,409,041)
----------------------------
End of period balance .......................... 51,273,638 44,784,541
----------------------------
Accumulated Other Comprehensive Income (Loss)
Beginning of year balance ...................... 1,031,446 637,980
Unrealized gain (loss) on securities, net of tax 18,105 (354,878)
----------------------------
End of period balance .......................... 1,049,551 283,102
----------------------------
Total Stockholders' Equity ......................... $ 87,323,189 $ 80,067,643
============================
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
Three Months Ended March 31,
2003 2002
----------------------------
Net Income ........................................ $ 4,050,565 $ 3,819,301
Other comprehensive income, unrealized gains on
securities, net of reclassification adjustment,
net of tax .................................... 18,105 (354,878)
---------------------------
Comprehensive income .............................. $ 4,068,670 $ 3,464,423
===========================
See accompanying notes to consolidated financial statements.
4
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended March 31,
2003 2002
------------------------------
Cash Flows from Operating Activities
Net income ..................................................................... $ 4,050,565 $ 3,819,301
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses ................................................... 200,000 230,000
Net amortization ............................................................ 229,954 138,713
Net gains from sales of securities available for sale and loans held for sale (142,630) --
Proceeds from sales of loans held for sale .................................. 2,546,140 2,366,950
Originations of loans held for sale ......................................... (2,344,400) (2,372,950)
Depreciation ................................................................ 53,581 37,145
Deferred income taxes ....................................................... (11,002) 217,490
Change in assets and liabilities:
Decrease (increase) in accrued interest receivable ....................... (241,050) 123,210
Increase in accrued expenses and other liabilities ....................... 1,811,526 1,061,538
------------------------------
Net cash provided by operating activites ............................... 6,152,684 5,621,397
------------------------------
Cash Flows from Investing Activities
Proceeds from sales, calls, and maturities of securities available for sale .... 2,130,095 2,009,824
Purchases of securities available for sale ..................................... (34,659,792) (19,222,938)
Proceeds from sales, calls, and maturities of securities held to maturity ...... 25,232,034 25,220,000
Purchases of securities held to maturity ....................................... (6,969,238) (13,592,794)
Net decrease in loans .......................................................... 4,468,926 11,340,800
Purchases of bank premises and equipment ....................................... (71,030) (41,014)
Purchase of bank-owned life insurance .......................................... (10,000,000) --
Change in other assets ......................................................... (99,199) 192,774
-----------------------------
Net cash provided by (used in) investing activities .................... (19,968,204) 5,906,652
-----------------------------
Cash Flows from Financing Activities
Net decrease in deposits ....................................................... (50,221,501) (8,597,082)
Net increase in federal funds purchased and securities sold under
agreements to repurchase .................................................... 18,409,635 6,223,103
Net decrease in other short-term borrowings .................................... (4,587,350) (4,928,902)
Proceeds from long-term borrowings ............................................. -- 3,600,000
Cash dividends ................................................................. (2,569,643) (2,409,041)
------------------------------
Net cash used in financing activities .................................. (38,968,859) (6,111,922)
------------------------------
Net increase (decrease) in cash and cash equivalents ................... (52,784,379) 5,416,127
Cash and Cash Equivalents
Beginning ...................................................................... 181,214,068 128,450,240
------------------------------
End ............................................................................ $ 128,429,689 $ 133,866,367
==============================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest .................................................................... $ 2,603,824 $ 3,501,399
Income taxes ................................................................ 256,733 284,037
See accompanying notes to consolidated financial statements.
5
Part I - Item 1. Financial Statements, continued
West Bancorporation, Inc.
Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying consolidated statements of income, stockholders' equity,
comprehensive income, and cash flows for the three months ended March 31, 2003
and 2002, and the consolidated balance sheets as of March 31, 2003 and December
31, 2002 include the accounts and transactions of the Company and its
wholly-owned subsidiary, West Des Moines State Bank. All material intercompany
balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
interim consolidated financial statements be read in conjunction with the
company's most recent audited financial statements and notes thereto. In the
opinion of management, the accompanying consolidated financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position as of March 31, 2003, and the results
of operations and cash flows for the three months ended March 31, 2003 and 2002.
The results for these interim periods may not be indicative of results for the
entire year or for any other period.
2. Earnings Per Common Share
Earnings per share represents income available to common shareholders divided by
the weighted average number of shares outstanding during the period. The Company
has no common equivalent shares that could cause dilution. The average number of
shares outstanding for the three months ended March 31, 2003 and 2002 was
16,060,271.
3. Commitments
In the noraml course of business, the Company enters into a number of
off-balance sheet commitments. These commitments expose the Company to varying
degrees of credit and market risk and are subject to the same credit reviews as
those recorded on the balance sheet.
The Company enters into commitments to extend credit such as loan commitments
and standby letters of credit to meet the financing needs of its customers. For
additional information on credit extension commitments see Note 10 of the
Company's 2002 consolidated financial statements. The Company's commitments as
of March 31, 2003 and December 31, 2002 are approximately as follows:
March 31, 2003 December 31, 2002
----------------------------------
Commitments to extend credit ........... $138,905,000 $136,434,000
Standby letters of credit .............. 14,578,000 15,804,000
-------------------------------
$153,483,000 $152,228,000
===============================
4. Impact of New Financial Accounting Standards
The Financial Accounting Standards Board has issued Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others - an interpretation of FASB
Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this Interpretation are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. The Company has
adopted this Interpretation. The adoption did not have any effect on the
Company's financial position or results of operations.
6
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 ("FIN 46"), "Consolidated Variable Interest Entities". The
objective of this Interpretation is to provide guidance on how to identify a
variable interest entity and determine when the assets, liabilities,
non-controlling interests, and results of operations of a variable interest in
an entity need to be included in a company's consolidated financial statements.
A company that holds variable interests in an entity will need to consolidate
the entity if the company's interest in the variable interest entity is such
that the company will absorb a majority of the variable interest entity's losses
and/or receive a majority of the entity's expected residual returns, if they
occur. FIN 46 also requires additional disclosures by primary beneficiaries and
other significant variable interst holders. The provisions of this
interpretation are effective upon issuance. The Company is not impacted by the
provisions of FIN 46.
In December 2002, the FASB issued SFAS No. 108, "Accounting for Stock-Based
Compensation - Transition and Disclosures - an amendment of SFAS 123 ("SFAS
148"). SFAS 148 permits two additional transition methods for entities that
adopt the fair value based method of accounting for stock-based employee
compensation. Since the Company does not have any stock based compensation
plans, this pronouncement does not have any effect on the Company.
In April 2003, the FASB issued Statement No. 149, "Amendment of Statement No.
133, Accounting for Derivative Insturments and Hedging Activities." This
statement clarifies the definition of a derivative and incorpoates certain
decisions made by the Board as part of the Derivatives Implementation Group
process. This statement is effective for contracts entered into or modified, and
for hedging relationships designated after June 30, 2003 and should be applied
prospectively. The Company is not impacted by this Statement.
5. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. A significant estimate that is
particularly sensitive to change is the allowance for loan losses.
7
PART I -- Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
THREE MONTHS ENDED MARCH 31, 2003
SELECTED FINANCIAL RESULTS
The following table shows selected financial results and measures for the three
months ended March 31, 2003 compared with the same period in 2002.
Three Months Ended March 31,
------------------------------------------------------------------
2003 2002 Change Change -%
------------------------------------------------------------------
Net income ................. $ 4,050,565 $ 3,819,301 $ 231,264 6.1%
Average assets ............. 867,385,825 824,761,433 42,624,392 5.2%
Average stockholders' equity 86,395,979 79,512,180 6,883,799 8.7%
Return on assets ........... 1.89% 1.88% 0.01% 0.5%
Return on equity ........... 19.01% 19.48% -0.47% -2.4%
Efficiency ratio ........... 30.57% 30.30% 0.27% 0.9%
Dividend payout ratio ...... 63.44% 63.08% 0.36% 0.6%
Equity to assets ratio ..... 9.96% 9.64% 0.32% 3.3%
Definition of ratios:
Return on assets - annualized net income divided by average assets.
Return on equity - annualized net income divided by average stockholders'
equity.
Efficiency ratio - noninterest expense divided by noninterest income (excluding
securities gains) plus taxable equivalent net interest income.
Dividend payout ratio - dividends per share divided by net income per share.
Equity to assets ratio - average equity divided by average assets.
RESULTS OF OPERATIONS
Net income for the first quarter of 2003 is higher than the previous year
primarily because of increased net interest income, gains from securities
available for sale and new sources of noninterest income. Return on equity has
declined slightly even though net income has increased because growth in equity
has been at a higher rate than the growth in net income.
Net Interest Income
The following table shows average balances and related interest income or
interest expense, with the resulting average yield or rate by category of
interest earning assets or interest bearing liabilities. Interest income and the
resulting net interest income are shown on a fully taxable basis.
8
Data for the three months ended March 31 (dollars in thousands).
Average Balance Interest Income/Expense Yield/Rate
-------------------------------------- ----------------------------------- ---------------------
2003 2002 Change Change-% 2003 2002 Change Change-% 2003 2002 Change
---------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans:
Commercial ................... $251,021 $250,215 $ 806 0.32% $ 3,552 $ 3,794 $ (242) -6.38% 5.74% 6.15% -0.41%
Real estate .................. 197,543 197,820 (277) -0.14% 3,595 3,829 (234) -6.11% 7.38% 7.85% -0.47%
Consumer ..................... 19,574 19,493 81 0.42% 361 414 (53) -12.80% 7.48% 8.62% -1.14%
Other ........................ 14,431 16,071 (1,640) -10.20% 284 313 (29) -9.27% 7.99% 7.89% 0.10%
---------------------------------------------------------------------------------------------------
Total Loans .................. 482,569 483,599 (1,030) -0.21% 7,792 8,350 (558) -6.68% 6.55% 7.00% -0.45%
---------------------------------------------------------------------------------------------------
Investment securities:
Taxable ...................... 176,860 162,793 14,067 8.64% 1,901 1,927 (26) -1.35% 4.30% 4.74% -0.44%
Tax-exempt ................... 32,667 29,561 3,106 10.51% 485 501 (16) -3.19% 5.94% 6.78% -0.84%
---------------------------------------------------------------------------------------------------
Total investment securities .. 209,527 192,354 17,173 8.93% 2,386 2,428 (42) -1.73% 4.56% 5.05% -0.49%
---------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments .... 142,724 115,077 27,647 24.02% 439 503 (64) -12.72% 1.25% 1.77% -0.52%
---------------------------------------------------------------------------------------------------
Total interest-earning assets $834,820 $791,030 $ 43,790 5.54% $10,617 $11,281 (664) -5.89% 5.14% 5.77% -0.63%
======================================-------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
Checking with interest, savings
and money markets ........ $328,517 $273,769 $ 54,748 20.00% $ 794 $ 1,032 (238) -23.06% 0.98% 1.53% -0.55%
Time deposits ............... 116,211 135,457 (19,246) -14.21% 816 1,345 (529) -39.33% 2.85% 4.03% -1.18%
---------------------------------------------------------------------------------------------------
Total deposits .............. 444,728 409,226 35,502 8.68% 1,610 2,377 (767) -32.27% 1.47% 2.36% -0.89%
---------------------------------------------------------------------------------------------------
Other borrowed funds ........ 199,347 192,971 6,376 3.30% 1,106 1,232 (126) -10.23% 2.25% 2.59% -0.34%
---------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities ............... $644,075 $602,197 $ 41,878 6.95% $ 2,716 $ 3,609 (893) -24.74% 1.71% 2.43% -0.72%
======================================-------------------------------------------------------------
Tax-equivalent net interest
income ..................... $ 7,901 $ 7,672 $ 229 2.98%
===================================
Net interest spread .............. 3.43% 3.34% 0.09%
====================
Net interest margin .............. 3.82% 3.93% -0.11%
====================
Net interest income is computed by subtracting total interest expense from total
interest income. Fluctuations in net interest income can result from the changes
in the volumes of assets and liabilities as well as changes in interest rates.
Net interest margin is a measure of the net return on interest-earning assets
and is computed by dividing annualized net interest income by the average of
total interest-earning assets for the period. The Federal Reserve lowered the
targeted fed funds rate by 50 basis points in November 2002. As a result, the
prime rate and fed funds rate are 50 basis points lower than they were in the
first quarter of last year. The Company's tax-equivalent net interest income for
the quarter ended March 31, 2003 increased $229,000 compared to the three months
ended March 31, 2002. The increase is primarily attributable to a higher level
of earning assets. For the first quarter of 2003, earning assets averaged $43.8
million higher than the same period last year.
Taxable-equivalent interest income and fees on loans decreased $558,000 in the
first quarter of 2003 compared to the same period in 2002, mainly due to lower
interest rates on loans. The average yield on loans decreased to 6.55 percent
for the first quarter of 2003, compared to 7.00 percent in the first quarter of
2002. The yield on the Company's loan portfolio is affected by the amount of
nonaccrual loans, the mix of the portfolio, the effects of competition, and the
interest rate environment. The interest rate environment can influence the
volume of new loan originations and the mix of variable rate versus fixed rate
loans. Competition for loans in the market area served by the Company remains
strong as customers seek to refinance loans to obtain lower interest rates.
9
The average balance of investment securities is $17.2 million higher than last
year while the yield has declined 49 basis points. The mix of investment
securities has been changed to result in a higher percentage of the portfolio
invested in corporate bonds, which are included in the category "Other
Investments". Yields on treasury and agency securities are 100 to 200 basis
points lower than during the first quarter of 2002. In order to compensate for
that decline, the Company has purchased corporate bonds with a maturity
generally less than 2 1/2 years and a credit rating of BBB+ or better. As of
March 31, 2003, corporate bonds in the investment portfolio totaled $51 million,
with a weighted average yield of 4.20 percent and a weighted average maturity of
1.3 years.
The average rate on deposits declined to 1.47 percent from 2.36 percent for the
first quarter of last year. This decline is the result of a decrease in market
interest rates and a change in the mix of deposits. Compared to the first
quarter of 2002, the average balance of higher rate certificates of deposit was
down $19 million, while the average balance of money market and savings
accounts, which typically have lower rates, was $49 million higher.
The average balance of borrowings for the first quarter of 2003 was $6.4 million
higher than a year ago. The increase is attributable to higher balances in fed
funds purchased from downstream correspondent banks.
Provision for Loan Losses
The following table sets forth the activity in the Allowance for Loan Losses
for the three months ended March 31, 2003 and 2002, as well as common ratios
related to the allowance for loan losses.
Three Months Ended March 31,
-------------------------------------------------
2003 2002 Change
-------------------------------------------------
Balance at beginning of period ...... $ 4,493,583 $ 4,239,990
Charge offs ......................... (122,953) (140,476) $ (17,523)
Recoveries .......................... 44,618 10,297 34,321
-------------------------------
Net charge offs ..................... (78,335) (130,179) (51,844)
Provision charged to operations ..... 200,000 230,000 (30,000)
-------------------------------
Balance at end of period ............ $ 4,615,248 4,339,811
===============================
Average loans outstanding ........... $ 482,569,447 $ 483,598,502
Ratio of net charge-offs during the
period to average loans outstanding 0.02% 0.03%
Ratio of allowance for loan losses
to average loans outstanding ...... 0.96% 0.90%
Management determines an appropriate provision based on its evaluation of the
adequacy of the allowance for loan losses in relationship to a continuing review
of problem loans, the current economic conditions, actual loss experience and
industry trends. The allowance for loan losses is management's best estimate of
probable losses inherent in the loan portfolio as of the balance sheet date;
however, changes in the loan portfolio and the uncertainty of the general
economy require that management continue to evaluate the adequacy of the
allowance for loan losses and make additional provisions in future periods as
deemed necessary. See also the discussion of nonperforming assets later in this
report.
10
Noninterest Income
The following table shows the variance from the prior year period in the
noninterest income categories shown in the Consolidated Statements of Income. In
addition, accounts within the Other Income category that represent significant
variances are shown.
Three Months Ended March 31,
-----------------------------------------------
2003 2002 Change Change-%
-----------------------------------------------
Noninterest income
Service charges on deposit accounts $1,056,193 $1,003,620 $ 52,573 5.2%
Trust services .................... 132,000 157,977 (25,977) -16.4%
Other:
Letter of credit fees ........... 14,579 31,984 (17,405) -54.4%
VISA/Mastercard income .......... 38,248 49,400 (11,152) -22.6%
Gain on sale of real estate loans 42,890 34,901 7,989 22.9%
Debit card income ............... 36,882 19,931 16,951 85.0%
ATM surcharge fees .............. 28,795 -- 28,795 --
Increase in cash value of bank
owned life insurance .......... 64,646 -- 64,646 --
All other ....................... 190,449 188,004 2,445 1.3%
-----------------------------------------------
Total other ..................... 416,489 324,220 92,269 28.5%
-----------------------------------------------
Gain on sale of securities ........ 99,740 -- 99,740 --
-----------------------------------------------
Total noninterest income .... $1,704,422 $1,485,817 218,605 14.7%
===============================================
Noninterest income results from the charges and fees collected by the Company
from its customers for various services performed and miscellaneous other income
and gains (or losses) from the sale of investment securities held in the
available for sale category. Service charges on deposit accounts grew due to
higher volumes. There were no pricing changes since last year. Income from trust
services was down due to a decline in asset values under management as a result
of market conditions. Letter of credit fees are lower due to volume. The decline
in VISA/Mastercard income was due to reduced retail activity at the Bank's
merchant customers. Debit card income is up because of increased promotion of
debit cards to the Bank's customer base. ATM surcharge fees were not implemented
until the second quarter of 2002. Bank-owned life insurance was purchased during
the first quarter of this year.
Noninterest Expense
The following table shows the variance from the prior year in the noninterest
expense categories shown in the Consolidated Statements of Income. In addition,
accounts within the Other expense category that represent significant variances
are shown.
Three months ended March 31,
--------------------------------------------
2003 2002 Change Change-%
--------------------------------------------
Noninterest expense:
Salaries and employee benefits $1,719,277 $1,584,484 $ 134,793 8.5%
Occupancy expenses ............ 370,249 318,534 51,715 16.2%
Data processing expenses ...... 243,285 264,823 (21,538) -8.1%
Other:
Miscellaneous losses ........ 12,440 67,166 (54,726) -81.5%
Advertising ................. 47,842 40,105 7,737 19.3%
Trust expense ............... 60,163 77,598 (17,435) -22.5%
Professional fees ........... 90,276 78,808 11,468 14.6%
All other ................... 362,573 342,716 19,857 5.8%
--------------------------------------------
Total other ............. 573,294 606,393 (33,099) -5.5%
--------------------------------------------
Total noninterest expense $2,906,105 $2,774,234 $ 131,871 4.8%
============================================
11
The increase in salaries and benefits includes one-time relocation expenses for
the Company's newly hired chief executive officer totaling $52,500. Without
those expenses, salaries and employee benefits expense for the first quarter of
2003 would have increased 5.2 percent over the same period last year. Occupancy
expenses were higher this year due to increased lease payments at the main bank
location, higher maintenance costs due to snow removal and increased
depreciation expense related to technology purchases. Miscellaneous losses are
significantly lower as the first quarter of 2002 included a higher level of
losses from forged and fraudulently deposited checks. The increase in
advertising expense was the result of a higher budget for that category for
2003. Trust expenses have declined because of the loss of a large custodial
account and lower investment management fees. The increase in professional fees
were the result of more legal and accounting services due to the Company being
registered with the Securities and Exchange Commission, which became effective
in the second quarter of last year.
Income Tax Expense
The Company incurred income tax expense of $2,205,570 for the three months ended
March 31, 2003 compared with $2,083,341 for the three months ended March 31,
2002. The effective income tax rate as a percent of income before taxes for the
three months ended March 31, 2003 and 2002 was 35.3 percent.
FINANCIAL CONDITION
Total assets as of March 31, 2003 were $853,027,000, a slight decrease from
$886,116,000 at December 31, 2002.
Investment Securities
Investment securities available for sale increased $32,450,000 from December 31,
2002 to $103,313,000 on March 31, 2003. From December 31, 2002, investment
securities classified as held to maturity declined $18,277,000 to $120,023,000
as of March 31, 2003. The increase in the available for sale category was
accomplished to allow for increased liquidity and flexibility. Most of the
corporate bonds that have been purchased over the past few months have been
classified as available for sale.
Loans
Loans outstanding declined $4,706,000 from December 31, 2002 to March 31, 2003.
The decline can be attributed to commercial loans that were refinanced by
competitors at interest rates considered low by West Bank standards and a
general decline in borrowing activity by commercial customers.
Deposits
Total deposits as of March 31, 2003 were $562,877,000 compared with $613,099,000
as of December 31, 2002. Savings accounts were $17,363,000 lower at March 31,
2003 than at December 31, 2002. The balance was somewhat higher than normal at
December 31, 2002. Noninterest bearing deposits at March 31, 2003 were
$8,680,000 lower than at December 31, 2002. It is not unusual to see this kind
of fluctuation at any given point in time. Certificates of deposit as of March
31, 2003 were $104,936,000, down $24,179,000 from December 31, 2002. That
decline is mostly in large certificates of deposit, $100,000 and over. The
Company has chosen to not bid as aggressively for these deposits as have some
competitors.
Borrowings
The balance of Federal funds purchased and securities sold under agreement to
repurchase was $145,828,000 at March 31, 2003, up from $127,419,000 at December
31, 2002. Most of this increase relates to Federal funds purchased, which are
Federal funds sold to West Bank by approximately 40 banks throughout Iowa. This
is a correspondent bank service provided by West Bank. Federal funds sold to
West Bank by these downstream correspondent banks are invested in Federal funds
sold to upstream correspondent banks or other short-term investments. The
balance of other short-term borrowings consisted entirely of Treasury, Tax and
Loan option notes at March 31, 2003 and December 31, 2002.
12
Nonperforming Assets
The following table sets forth the amount of non-performing loans and assets
carried by the Company and common ratio measurements of those items.
March 31, December 31,
2003 2002 Change
-------------------------------
Nonaccrual loans ........................... $ 785 $1,354 $ (569)
Loans past due 90 days and still
accruing interest ....................... 296 545 (249)
-------------------------------
Total non-performing loans ................. 1,081 1,899 (818)
Other real estate owned .................... 488 529 (41)
-------------------------------
Total non-performing assets ................ $1,569 $2,428 $ (859)
===============================
Non-performing assets to total loans ....... 0.32% 0.50% -0.18%
Non-performing assets to total assets ...... 0.18% 0.27% -0.09%
The reduction in nonaccrual loans is primarily the result of the resolution of a
commercial real estate loan. The sale of a single family residential lot
accounted for the decline in other real estate owned. In the opinion of
management, loans past due 90 days and still accruing interest are adequately
collateralized to cover any unpaid interest.
Reference is also made to the information and discussion earlier in this report
under the heading "Provision for Loan Losses".
Capital Resources
Total shareholders' equity was 10.2 percent of total assets as of March 31, 2003
and 9.7 percent on December 31, 2002.
The table below shows the various measures of regulatory capital and related
ratios.
December 31,
March 31, 2003 2002
----------------------------
Total shareholders' equity .................. $ 87,323,189 $ 85,824,162
Less: net unrealized gains on
available for sale securities ............ (1,049,551) (1,031,446)
Less: intangible assets ..................... (39,775) (47,730)
----------------------------
Tier 1 capital .............................. 86,233,863 84,744,986
Plus: allowance for loan losses ............. 4,615,248 4,493,583
----------------------------
Total risk-based capital .................... $ 90,849,111 $ 89,238,569
============================
Regulatory
requirements to be: Actual Regulatory
-------------------------- Capital Ratios as of:
Adequately Well- ---------------------------------------
Capitalized Capitalized March 31, 2003 December 31, 2002
-------------------------------------------------------------------
Total risk-based capital
as % of risk-weighted assets ................. 8.0% 10.0% 13.8% 13.8%
Tier 1 capital as % of risk-weighted assets ..... 4.0% 6.0% 13.1% 13.1%
Tier 1 capital as % average assets .............. 4.0% 5.0% 9.9% 9.7%
Risk-based capital guidelines require the classification of assets and some
off-balance sheet items in terms of credit-risk exposure and the measuring of
capital as a percentage of the risk adjusted asset totals. Management believes,
and data in the above table supports that, as of March 31, 2003 and December 31,
2002, the Company met all capital adequacy requirements to which it is subject.
As of those dates, West Bank was "well capitalized" under regulatory prompt
corrective action provisions.
13
Liquidity
Liquidity management involves meeting the cash flow requirements of depositors
and borrowers. Liquidity management is conducted on both a daily and a long-term
basis. Investments in liquid assets are adjusted based on expected loan demand,
projected loan maturities and payments, expected deposit flows, and the
objectives set by the Company's funds management policy. The Company had liquid
assets (cash and cash equivalents) of $128,430,000 as of March 31, 2003,
compared with $181,214,000 as of December 31, 2002. (The amount of liquid assets
at December 31, 2002 was higher than normal and was the result of higher than
normal deposits.) Securities available for sale may be sold prior to maturity to
meet liquidity needs, to respond to market changes or to adjust the Company's
interest rate risk position. In addition, the Bank maintains lines of credit
with correspondent banks totaling $80 million that would allow it to borrow
Federal funds on a short-term basis, if necessary and has additional borrowing
capacity of $28 million at the Federal Home Loan Bank. Management believes that
the Company has sufficient liquidity as of March 31, 2003 to meet the needs of
borrowers and depositors.
Market Risk Management
Market risk is the risk of earnings volatility that results from adverse changes
in interest rates and market prices. The Company's market risk is primarily
interest rate risk arising from its core banking activities of lending and
deposit taking. Interest rate risk is the risk that changes in market interest
rates may adversely affect the Company's net interest income. Management
continually develops and implements strategies to mitigate this risk. The
analysis of the Company's interest rate risk was presented in the Form 10-K
filed with the Securities and Exchange Commission on March 26, 2003. The Company
has not experienced any material changes to its market risk position since
December 31, 2002. Management does not believe the Company's primary market risk
exposures and how those exposures were managed in the first three months of 2003
changed when compared to 2002.
Commitments and Contingencies
In the ordinary course of business, the Company is engaged in various issues
involving litigation. Management believes that none of this litigation is
material to the Company's results of operations.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
With the exception of the historical information contained in this report, the
matters described herein contain forward-looking statements that involve risk
and uncertainties that individually or mutually impact the matters herein
described, including but not limited to financial projections, product demand
and market acceptance, the effect of economic conditions, the impact of
competitive products and pricing, governmental regulations, results of
litigation, technological difficulties and/or other factors outside the control
of the Company, which are detailed from time to time in the Company's SEC
reports. The Company disclaims any intent or obligation to update these
forward-looking statements.
Part I - Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The information appearing on page 14 of Item 2 under the heading "Market Risk
Management" is incorporated herein by reference.
Part 1 - Item 4. Controls and Procedures
a. Evaluation of disclosure controls and procedures. The Company's principal
executive officer and principal financial officer have concluded that the
Company's disclosure controls and procedures (as defined in Exchange Act
Rule 13a-14(c)), based on their evaluation of such controls and procedures
conducted within 90 days prior to the date hereof, are effective to ensure
that information required to be disclosed by the Company in the reports it
files under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission and that such
information is accumulated and communicated to the Company's management,
including its principal executive officer and principal financial officer,
as appropriate to allow timely decisions regarding required disclosure.
b. Changes in internal controls. There have been no significant changes in the
Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation referred to
above.
14
Part II - Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report:
Exhibits
3.1 Restated Articles of Incorporation of the Company *
3.2 By-laws of the Company *
10.1 Lease for Main Bank Facility*
10.2 Supplemental Agreement to Lease for Main Bank Facility*
10.3 Short-term Lease related to Main Bank facility*
10.4 Assignment *
10.5 Lease Modification Agreement No. 1 for Main Bank Facility*
10.6 Memorandum of Real Estate Contract *
10.7 Affidavit *
10.8 Addendum to Lease for Main Bank Facility*
10.9 Data Processing Contract *
10.10 Employment Contract *
10.11 Consulting Contract *
10.12 Data Processing Contract Amendment**
10.13 Purchase and Assumption Agreement between West Des Moines State
Bank and Hawkeye State Bank
99.1 Certification Under Section 906 of the Sarbanes-Oxley Act of 2002
* Incorporated herein by reference to the related exhibit filed with the
Form 10 on March 11, 2002.
** Incorporated herein by reference to the related exhibit filed with the
Form 10-K on March 26, 2003.
(b) Reports on Form 8-K: During the three months ended March 31, 2003, the
Company filed a Form 8-K on January 8, 2003 which contained a press release
announcing the quarterly dividend, a Form 8-K on January 27, 2003 which
contained a press release announcing earnings for the three and twelve
months ended December 31, 2002, and a Form 8-K on February 12, 2003
announcing the appointment of Thomas E. Stanberry as the Company's
Chairman, President and Chief Executive Officer effective March 1, 2003.
15
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)
May 15, 2003 By: /s/ Thomas E. Stanberry
- ------------ -------------------------------------
Dated Thomas E. Stanberry
Chairman, President and Chief
Executive Officer
May 15, 2003 By: /s/ Douglas R. Gulling
- ------------ -------------------------------------
Dated Douglas R. Gulling
Chief Financial Officer
(Principal Accounting Officer)
16
Certification of Disclosure
I, Thomas E. Stanberry, certify that:
1. I have reviewed this quarterly report on Form 10-Q of West Bancorporation,
Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
the quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
May 15, 2003
/s/ Thomas E. Stanberry
- ------------------------------------------------
Thomas E. Stanberry
Chairman, President and Chief Executive Officer
17
Certification of Disclosure
I, Douglas R. Gulling, certify that:
1. I have reviewed this quarterly report on Form 10-Q of West Bancorporation,
Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
the quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
May 15, 2003
/s/ Douglas R. Gulling
- -----------------------
Douglas R. Gulling
Chief Financial Officer
18