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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
September 30, 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 November 13, 2003, there were 16,060,271 shares of common stock, no par
value outstanding.
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
West Bancorporation, Inc. and Subsidiary
Consolidated Balance Sheets
(unaudited)
September 30, December 31,
2003 2002
------------- -------------
Assets
Cash and due from banks $ 15,263,321 $ 23,022,298
Federal funds sold and other short-term investments 49,014,909 158,191,770
------------------------------
Cash and cash equivalents 64,278,230 181,214,068
------------------------------
Securities available for sale 170,569,305 70,862,435
Securities held to maturity (approximate market value of $103,474,000
and $141,267,000 at September 30, 2003 and December 31, 2002, respectively) 101,006,555 138,299,566
Federal Home Loan Bank stock, at cost 5,151,500 3,129,700
------------------------------
Total securities 276,727,360 212,291,701
------------------------------
Loans 580,134,688 488,452,911
Allowance for loan losses (5,879,375) (4,493,583)
------------------------------
Loans, net 574,255,313 483,959,328
------------------------------
Premises and equipment, net 3,479,258 1,394,649
Accrued interest receivable 6,229,098 5,204,203
Goodwill and other intangible assets 14,964,400 47,730
Other assets 23,186,346 2,004,384
------------------------------
Total assets $ 963,120,005 $ 886,116,063
==============================
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing $ 150,467,680 $ 145,208,492
Interest-bearing:
Demand 49,616,142 38,240,910
Savings 312,242,571 300,534,634
Time, in excess of $100,000 53,755,147 88,592,994
Other time 68,934,342 40,521,470
------------------------------
Total deposits 635,015,882 613,098,500
Federal funds purchased and securities sold under agreements to repurchase 121,758,980 127,418,671
Other short-term borrowings 3,324,254 5,096,872
Accrued expenses and other liabilities 3,442,679 3,077,858
Long-term borrowings 108,445,736 51,600,000
------------------------------
Total liabilities 871,987,531 800,291,901
------------------------------
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 54,949,057 49,792,716
Accumulated other comprehensive income 1,183,417 1,031,446
------------------------------
Total stockholders' equity 91,132,474 85,824,162
------------------------------
Total liabilities and stockholders' equity $ 963,120,005 $ 886,116,063
==============================
See accompanying notes to consolidated financial statements.
2
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Income
(unaudited)
Three Months Ended
September 30,
2003 2002
------------ ------------
Interest income:
Loans $ 8,636,379 $ 8,224,343
Securities:
U.S Treasury, government agencies and corporations 1,189,844 1,746,041
States and political subdivisions 430,999 396,868
Other 943,083 314,500
Federal funds sold and other short-term investments 124,779 437,466
----------------------------
Total interest income 11,325,084 11,119,218
----------------------------
Interest expense:
Demand deposits 37,082 35,981
Savings deposits 733,141 888,570
Time deposits 571,024 1,284,800
Federal funds purchased and securities sold under
agreements to repurchase 318,784 456,662
Other short-term borrowings 2,825 7,998
Long-term borrowings 1,154,703 723,774
----------------------------
Total interest expense 2,817,559 3,397,785
----------------------------
Net interest income 8,507,525 7,721,433
Provision for loan losses 250,000 250,000
----------------------------
Net interest income after provision for loan losses 8,257,525 7,471,433
----------------------------
Noninterest income:
Service charges on deposit accounts 1,258,686 1,194,710
Trust services 132,000 138,000
Net realized gains (losses) from sales of securities available for sale (48,626) 91,509
Other income 814,956 387,336
----------------------------
Total noninterest income 2,157,016 1,811,555
----------------------------
Noninterest expense:
Salaries and employee benefits 1,954,613 1,612,135
Occupancy expenses 378,899 327,599
Data processing expenses 283,133 238,820
Other expenses 776,662 615,707
----------------------------
Total noninterest expense 3,393,307 2,794,261
----------------------------
Income before income taxes 7,021,234 6,488,727
Income taxes 2,457,389 2,318,538
----------------------------
Net income $ 4,563,845 $ 4,170,189
============================
Basic earnings per share $ 0.28 $ 0.26
============================
Cash dividends per share $ 0.16 $ 0.16
============================
Nine Months Ended
September 30,
2003 2002
------------ ------------
Interest income:
Loans $ 24,005,693 $ 24,785,573
Securities:
U.S Treasury, government agencies and corporations 3,452,676 5,235,606
States and political subdivisions 1,290,336 1,236,981
Other 2,346,593 855,516
Federal funds sold and other short-term investments 943,459 1,299,694
---------------------------
Total interest income 32,038,757 33,413,370
---------------------------
Interest expense:
Demand deposits 86,357 103,564
Savings deposits 2,227,010 2,820,280
Time deposits 2,091,692 3,988,605
Federal funds purchased and securities sold under
agreements to repurchase 1,207,135 1,423,678
Other short-term borrowings 6,182 24,381
Long-term borrowings 2,578,650 2,127,435
---------------------------
Total interest expense 8,197,026 10,487,943
---------------------------
Net interest income 23,841,731 22,925,427
Provision for loan losses 625,000 710,000
---------------------------
Net interest income after provision for loan losses 23,216,731 22,215,427
---------------------------
Noninterest income:
Service charges on deposit accounts 3,536,562 3,313,446
Trust services 386,000 437,634
Net realized gains (losses) from sales of securities available for sale 146,981 91,509
Other income 1,730,928 1,029,563
---------------------------
Total noninterest income 5,800,471 4,872,152
---------------------------
Noninterest expense:
Salaries and employee benefits 5,360,055 4,792,458
Occupancy expenses 1,102,022 966,317
Data processing expenses 775,307 769,162
Other expenses 1,940,197 1,942,048
---------------------------
Total noninterest expense 9,177,581 8,469,985
---------------------------
Income before income taxes 19,839,621 18,617,594
Income taxes 6,974,350 6,619,178
---------------------------
Net income $ 12,865,271 $ 11,998,416
===========================
Basic earnings per share $ 0.80 $ 0.75
===========================
Cash dividends per share $ 0.48 $ 0.46
===========================
See accompanying notes to consolidated financial statements.
Certain minor reclassifications were made to agree with the current year
presentation.
3
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(unaudited)
Nine Months Ended
September 30,
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 12,865,271 11,998,416
Dividends on common stock (7,708,930) (7,387,725)
----------------------------
End of period balance 54,949,057 47,984,972
----------------------------
Accumulated Other Comprehensive Income (Loss)
Beginning of year balance 1,031,446 637,980
Unrealized gain on securities, net of tax 151,971 345,854
----------------------------
End of period balance 1,183,417 983,834
----------------------------
Total Stockholders' Equity $ 91,132,474 $ 83,968,806
============================
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Nine Months Ended
September 30,
Net Income $12,865,271 $11,998,416
Other comprehensive income, unrealized gains on
securities, net of reclassification adjustment,
net of tax 151,971 345,854
-------------------------
Comprehensive income $13,017,242 $12,344,270
=========================
See accompanying notes to consolidated financial statements.
4
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
2003 2002
------------- -------------
Cash Flows from Operating Activities
Net income $ 12,865,271 $ 11,998,416
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 625,000 710,000
Net amortization 1,235,220 473,830
Net gains from sales of securities available for sale
and loans held for sale (456,358) (220,865)
Loss on disposition of fixed assets - 28,665
Proceeds from sales of loans held for sale 30,844,808 7,865,424
Originations of loans held for sale (31,381,728) (8,337,780)
Depreciation 169,731 120,665
Deferred income taxes 87,579 296,461
Change in assets and liabilities:
Increase in accrued interest receivable (1,024,895) (346,000)
Decrease in accrued expenses and other liabilities (85,058) (945,338)
------------------------------
Net cash provided by operating activities 12,879,570 11,643,478
------------------------------
Cash Flows from Investing Activities
Proceeds from sales, calls, and maturities of securities available for sale 36,983,248 4,432,866
Purchases of securities available for sale (129,061,840) (21,876,919)
Proceeds from calls and maturities of securities held to maturity 62,551,334 103,965,544
Purchases of securities held to maturity (16,401,785) (120,236,162)
Cash effect of Hawkeye State Bank transaction 21,364,851 -
Acquisition of Federal Home Loan Bank stock (229,900) -
Proceeds from redemption of Federal Home Loan Bank stock 20,500 -
Net (increase) decrease in loans (6,349,447) 11,617,139
Purchases of bank premises and equipment (98,096) (382,817)
Purchase of bank-owned life insurance (20,000,000) -
Change in other assets (98,889) 274,324
------------------------------
Net cash used in investing activities (51,320,024) (22,206,025)
------------------------------
continued
See accompanying notes to consolidated financial statements.
5
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows - continued
(unaudited)
Cash Flows from Financing Activities
Net decrease in deposits (80,401,896) (791,653)
Net increase (decrease) in federal funds purchased and securities sold
under agreements to repurchase (7,004,756) 1,169,406
Net decrease in other short-term borrowings (1,772,618) (1,672,578)
Proceeds from long-term borrowings 20,000,000 3,600,000
Payments on Federal Home Loan Bank advances (1,607,184) -
Cash dividends (7,708,930) (7,387,725)
------------------------------
Net cash used in financing activities (78,495,384) (5,082,550)
------------------------------
Net decrease in cash and cash equivalents (116,935,838) (15,645,097)
Cash and Cash Equivalents
Beginning 181,214,068 128,450,240
------------------------------
End $ 64,278,230 $ 112,805,143
==============================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 8,624,180 $ 11,225,791
Income taxes 6,674,183 6,996,675
==============================
Assets and liabilities received in conjunction with Hawkeye State Bank
transaction:
Investment securities $ 17,424,813
Federal Home Loan Bank stock 1,812,400
Loans, net 83,725,241
Premises and equipment 2,156,244
Goodwill 13,304,720
Core deposit intangible 1,679,655
Other assets 1,173,349
Deposits (102,319,278)
Federal Home Loan Bank advances (38,614,630)
Securities sold under agreement to repurchase (1,345,065)
Other liabilities (362,300)
-------------
$ (21,364,851)
=============
See accompanying notes to consolidated financial statements.
6
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 and nine months ended
September 30, 2003 and 2002, and the consolidated balance sheets as of September
30, 2003 and December 31, 2002 include the accounts and transactions of the
Company and its wholly-owned subsidiary, West 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 September 30, 2003, and the
results of operations and cash flows for the three and nine months ended
September 30, 2003 and 2002.
As of the close of business on July 18, 2003, West Bank acquired certain assets
and assumed certain liabilities of Hawkeye State Bank ("the Hawkeye State Bank
transaction"). The Results of Operations include income and expense subsequent
to July 18, 2003 associated with the Hawkeye State Bank transaction.
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 represent 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 and nine months ended September 30, 2003 and
2002 was 16,060,271.
3. Commitments
In the normal course of business, 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. 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. For additional information on
credit extension commitments see Note 10 of the Company's 2002 consolidated
financial statements. The Company's commitments as of September 30, 2003 and
December 31, 2002 are approximately as follows:
September 30, 2003 December 31, 2002
------------------ -----------------
Commitments to extend credit $ 146,065,000 $ 136,424,000
Standby letters of credit 17,531,000 15,804,000
---------------------------------------
$ 163,596,000 $ 152,228,000
=======================================
7
4. Impact of New Financial Accounting Standards
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 interest 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, 148, "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 Instruments and Hedging Activities." This
statement clarifies the definition of a derivative and incorporates 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.
SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity," establishes standards for how an issuer
classifies, measures and discloses in its financial statements certain financial
instruments with characteristics of both liabilities and equity. SFAS 150
requires that an issuer classify financial instruments that are within its scope
as liabilities, in most circumstances. Such financial instruments include (i)
financial instruments that are issued in the form of shares that are mandatorily
redeemable; (ii) financial instruments that embody an obligation to repurchase
the issuer's equity shares, or are indexed to such an obligation, and that
require the issuer to settle the obligation by transferring assets; (iii)
financial instruments that embody an obligation that the issuer may settle by
issuing a variable number of its equity shares if, at inception, the monetary
value of the obligation is predominantly based on a fixed amount, variations in
something other than the fair value of the issuer's equity shares or variations
inversely related to changes in the fair value of the issuer's equity shares;
and (iv) certain freestanding financial instruments. SFAS 150 is effective for
contracts entered into or modified after May 31, 2003, and is otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. Adoption of SFAS 150 on July 1, 2003 did not have an impact on the
Company's financial statements.
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.
6. Critical Accounting Policies
Management has identified its most critical accounting policy to be that related
to the allowance for loan losses. The allowance for loan losses is established
through a provision for loan losses charged to expense. Loans are charged
against the allowance for loan losses when management believes that
collectibility of the principal is unlikely. The Company has policies and
procedures for evaluating the overall credit quality of its loan portfolio
including timely identification of potential problem credits. On a quarterly
8
basis, management reviews the appropriate level for the allowance for loan
losses incorporating a variety of risk considerations, both quantitative and
qualitative. Quantitative factors include the Company's historical loss
experience, delinquency and charge-off trends, collateral values, known
information about individual loans and other factors. Qualitative factors
include the general economic environment in the Company's market area and the
expected trend of those economic conditions. To the extent actual results differ
from forecasts and management's judgment, the allowance for loan losses may be
greater or less than future charge-offs.
7. Acquisition Subsequent to September 30, 2003
On October 1, 2003, the Company closed its previously announced acquisition of
VMF Capital, L.L.C. ("VMF"). The Company formed a new wholly-owned subsidiary,
WB Capital Management Inc. ("WB Capital"). WB Capital purchased most of the
assets and assumed most of the liabilities of VMF. WB Capital will operate under
the trade name of VMF Capital for the foreseeable future. WB Capital is a
registered investment advisor and has approximately $420 million in assets under
management. Net income of WB Capital is expected to be immaterial to the
consolidated operating results of the Company for the fourth quarter of 2003.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
The information contained in this report may contain forward-looking statements
about the Company's growth and acquisition strategies, new products and
services, and future financial performance, including earnings and dividends per
share, return on average assets, return on average equity, efficiency ratio and
capital ratio. Certain statements in this report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking information is based upon certain underlying
assumptions, risks and uncertainties. Because of the possibility of change in
the underlying assumptions, actual results could differ materially from these
forward-looking statements. Risks and uncertainties that may affect future
results include: competitive pressures, pricing pressures on loans and deposits,
actions of bank and non-bank competitors, changes in local and national economic
conditions, changes in regulatory requirements, actions of the Securities and
Exchange Commission and/or the Federal Reserve Board, and customer acceptance of
the Company's products and services. The Company undertakes no obligation to
revise or update such forward-looking statements to reflect current events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003
SELECTED FINANCIAL RESULTS
The following table shows selected financial results and measures for the three
and nine months ended September 30, 2003 compared with the same periods in 2002.
Three months ended September 30,
2003 2002 Change Change-%
--------------- --------------- ------------ --------
Net income $ 4,563,845 $ 4,170,189 $ 393,656 9.4%
Average assets 963,656,348 832,573,412 131,082,936 15.7%
Average stockholders'
equity 88,408,514 82,864,058 5,544,456 6.7%
Return on assets 1.88% 1.99% -0.11% -5.5%
Return on equity 20.48% 19.97% 0.51% 2.6%
Efficiency ratio 31.03% 28.88% 2.15% 7.4%
Dividend payout ratio 57.14% 61.54% -4.40% -7.1%
Average equity to average assets 9.17% 9.95% -0.78% -7.8%
Nine months ended September 30,
2003 2002 Change Change-%
--------------- --------------- ------------ --------
Net income $ 12,865,271 $ 11,998,416 $ 866,855 7.2%
Average assets 906,918,258 825,094,390 81,823,868 9.9%
Average stockholders'
equity 87,640,752 81,052,795 6,587,957 8.1%
Return on assets 1.90% 1.94% -0.04% -2.1%
Return on equity 19.63% 19.79% -0.16% -0.8%
Efficiency ratio 30.40% 29.79% 0.61% 2.0%
Dividend payout ratio 60.00% 61.33% -1.33% -2.2%
Average equity to average assets 9.66% 9.82% -0.16% -1.6%
Definitions 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 or losses) 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.
10
RESULTS OF OPERATIONS
On July 18, 2003, West Bank acquired certain assets and assumed certain
liabilities of Hawkeye State Bank in Iowa City, Iowa. Net income for the first
nine months of 2003 is higher than the previous year because of the Hawkeye
State Bank transaction and new sources of noninterest income. The Hawkeye State
Bank transaction added approximately $200,000 to net income for the third
quarter of 2003.
Net Interest Income
The following tables show average balances and related interest income or
interest expense, with the resulting average yield or rate by category of
average earning assets or interest bearing liability. Interest income and the
resulting net interest income are shown on a fully taxable basis.
Data for the three months ended September 30 (dollars in thousands):
Average Balance
--------------------------------------------
2003 2002 Change Change-%
Interest-earning assets:
Loans:
Commercial $273,653 $253,995 $ 19,658 7.74%
Real estate 262,655 189,497 73,158 38.61%
Consumer 18,835 20,635 (1,800) -8.72%
Other 10,997 15,510 (4,513) -29.10%
-------------------------------------------
Total Loans 566,140 479,637 86,503 18.04%
-------------------------------------------
Investment securities:
Taxable 237,678 190,527 47,151 24.75%
Tax-exempt 43,320 27,885 15,435 55.35%
-------------------------------------------
Total investment securities 280,998 218,412 62,586 28.66%
-------------------------------------------
Federal funds sold and
short-term investments 51,094 100,097 (49,003) -48.96%
-------------------------------------------
Total interest-earning assets $898,232 $798,146 $ 100,086 12.54%
===========================================
Interest-bearing liabilities:
Deposits:
Checking with interest, savings
and money markets $353,478 $277,970 $ 75,508 27.16%
Time deposits 113,765 155,697 (41,932) -26.93%
-------------------------------------------
Total deposits 467,243 433,667 33,576 7.74%
-------------------------------------------
Other borrowed funds 246,700 170,418 76,282 44.76%
-------------------------------------------
Total interest-bearing liabilities $713,943 $604,085 $ 109,858 18.19%
===========================================
Interest Income/Expense Yield/Rate
--------------------------------------- ----------------------
2003 2002 Change Change-% 2003 2002 Change
Interest-earning assets:
Loans:
Commercial $ 3,803 $ 3,898 $ (95) -2.44% 5.51% 6.09% -0.58%
Real estate 4,334 3,708 626 16.88% 6.55% 7.76% -1.22%
Consumer 363 407 (44) -10.81% 7.65% 7.83% -0.18%
Other 199 305 (106) -34.75% 7.18% 7.80% -0.62%
--------------------------------------- ---------------------
Total Loans 8,699 8,318 381 4.58% 6.10% 6.88% -0.78%
--------------------------------------- ---------------------
Investment securities:
Taxable 2,217 2,145 72 3.36% 3.70% 4.47% -0.77%
Tax-exempt 507 453 54 11.92% 4.64% 6.45% -1.80%
--------------------------------------- ---------------------
Total investment securities 2,724 2,598 126 4.85% 3.85% 4.72% -0.87%
--------------------------------------- ---------------------
Federal funds sold and
short-term investments 125 437 (312) -71.40% 0.97% 1.73% -0.76%
--------------------------------------- ---------------------
Total interest-earning assets 11,548 11,353 195 1.72% 5.10% 5.64% -0.54%
--------------------------------------- ---------------------
Interest-bearing liabilities:
Deposits:
Checking with interest, savings
and money markets $ 770 $ 925 (155) -16.76% 0.86% 1.32% -0.46%
Time deposits 571 1,285 (714) -55.56% 1.99% 3.27% -1.28%
--------------------------------------- ---------------------
Total deposits 1,341 2,210 (869) -39.32% 1.14% 2.02% -0.88%
--------------------------------------- ---------------------
Other borrowed funds 1,477 1,188 289 24.33% 2.38% 2.77% -0.39%
--------------------------------------- ---------------------
Total interest-bearing liabilities 2,818 3,398 (580) -17.07% 1.57% 2.26% -0.69%
--------------------------------------- ---------------------
Tax-equivalent net interest income $ 8,730 $ 7,955 $ 775 9.74%
=======================================
Net interest spread 3.53% 3.38% 0.15%
=====================
Net interest margin 3.86% 3.95% -0.09%
=====================
11
Data for the nine months ended September 30 (dollars in thousands):
Average Balance
------------------------------------------
2003 2002 Change Change-%
Interest-earning assets:
Loans:
Commercial $260,880 $250,561 $ 10,319 4.12%
Real estate 222,760 193,643 29,117 15.04%
Consumer 18,497 20,664 (2,167) -10.49%
Other 11,697 15,814 (4,117) -26.03%
------------------------------------------
Total Loans 513,834 480,682 33,152 6.90%
------------------------------------------
Investment securities:
Taxable 202,983 183,395 19,588 10.68%
Tax-exempt 39,298 28,554 10,744 37.63%
------------------------------------------
Total investment securities 242,281 211,949 30,332 14.31%
------------------------------------------
Federal funds sold and
short-term investments 105,183 98,467 6,716 6.82%
------------------------------------------
Total interest-earning assets $861,298 $791,098 $ 70,200 8.87%
==========================================
Interest-bearing liabilities:
Deposits:
Checking with interest, savings
and money markets $335,041 $277,161 $ 57,880 20.88%
Time deposits 111,099 146,940 (35,841) -24.39%
------------------------------------------
Total deposits 446,139 424,101 22,038 5.20%
------------------------------------------
Other borrowed funds 226,036 175,745 50,291 28.62%
------------------------------------------
Total interest-bearing liabilities $672,175 $599,846 $ 72,329 12.06%
==========================================
Interest Income/Expense Yield/Rate
----------------------------------------- ----------------------
2003 2002 Change Change-% 2003 2002 Change
Interest-earning assets:
Loans:
Commercial $10,969 $11,481 $ (512) -4.46% 5.62% 6.13% -0.51%
Real estate 11,527 11,411 116 1.02% 6.92% 7.88% -0.96%
Consumer 1,051 1,253 (202) -16.12% 7.60% 8.11% -0.51%
Other 671 926 (255) -27.54% 7.67% 7.83% -0.16%
----------------------------------------- ----------------------
Total Loans 24,218 25,071 (853) -3.40% 6.30% 6.97% -0.67%
----------------------------------------- ----------------------
Investment securities:
Taxable 6,051 6,344 (293) -4.62% 3.99% 4.63% -0.64%
Tax-exempt 1,516 1,423 93 6.52% 5.16% 6.66% -1.51%
----------------------------------------- ----------------------
Total investment securities 7,567 7,767 (200) -2.58% 4.18% 4.90% -0.72%
----------------------------------------- ----------------------
Federal funds sold and
short-term investments 943 1,300 (357) -27.46% 1.20% 1.76% -0.56%
----------------------------------------- ----------------------
Total interest-earning assets 32,728 34,138 (1,410) -4.13% 5.08% 5.77% -0.69%
----------------------------------------- ----------------------
Interest-bearing liabilities:
Deposits:
Checking with interest, savings
and money markets $ 2,313 $ 2,924 (611) -20.88% 0.92% 1.41% -0.49%
Time deposits 2,092 3,989 (1,897) -47.56% 2.52% 3.63% -1.11%
----------------------------------------- ----------------------
Total deposits 4,405 6,913 (2,508) -36.28% 1.32% 2.18% -0.86%
----------------------------------------- ----------------------
Other borrowed funds 3,792 3,575 217 6.07% 2.24% 2.72% -0.48%
----------------------------------------- ----------------------
Total interest-bearing liabilities 8,197 10,488 (2,291) -21.84% 1.63% 2.34% -0.71%
----------------------------------------- ----------------------
Tax-equivalent net interest income $24,531 $23,650 $ 881 3.73%
=========================================
Net interest spread 3.45% 3.43% 0.02%
======================
Net interest margin 3.81% 4.00% -0.19%
======================
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 and by 25 basis
points in June 2003. As a result, the prime rate and fed funds rate are 75 basis
points lower than they were in the first nine months of last year. The Company's
tax-equivalent net interest income for the nine months ended September 30, 2003
increased $881,000 compared to the nine months ended September 30, 2002. The
increase is primarily attributable to an increase in the volume of earning
assets as a result of the Hawkeye State Bank transaction and the decline in both
the rate and volume of time deposits.
Taxable-equivalent interest income and fees on loans decreased $853,000 in the
first nine months of 2003 compared to the same period in 2002, due to lower
interest rates on loans. The average yield on loans decreased to 6.30 percent
for the first nine months of 2003, compared to 6.97 percent for the same period
in 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 areas served by the Company remains
strong as customers seek to refinance loans to obtain lower interest rates.
12
The average balance of investment securities was $30 million higher than last
year while the yield has declined 72 basis points. The mix of investment
securities has been changed to result in a higher percentage of the portfolio
invested in corporate bonds. The Company has purchased corporate bonds with a
maturity generally less than 2 1/2 years and a credit rating of BBB+ or better.
The average rate paid on deposits for the first nine months of 2003 declined to
1.32 percent from 2.18 percent for the first nine months of 2002. This decline
is the result of a decrease in market interest rates and a change in the mix of
deposits. Compared to the first nine months of last year, the average balance of
higher rate certificates of deposit was down $36 million, while the average
balance of money market and savings accounts, which typically have lower rates,
was $58 million higher.
The average balance of borrowings for the first nine months of 2003 was $50
million higher than a year ago. The increase is attributable to higher balances
in fed funds purchased from downstream correspondent banks. In addition,
approximately $38 million in Federal Home Loan Bank advances was assumed from
Hawkeye State Bank and the Company issued $20,000,000 in trust preferred
securities in July of 2003.
Provision for Loan Losses and the Related Allowance for Loan Losses
The following table sets forth the activity in the Allowance for Loan Losses for
the three and nine months ended September 30, 2003 and the same respective
periods for 2002 as well as common ratios related to the allowance for loan
losses.
Three months ended September 30,
2003 2002 Change
------------- ------------- -------------
Balance at beginning of period $ 4,796,329 $ 4,475,600 $ 320,729
Allowances related to acquisitions 911,000 - 911,000
Charge-offs (110,465) (396,581) 286,116
Recoveries 32,511 31,970 541
-------------------------------------------------
Net charge-offs (77,954) (364,611) 286,657
Provision charged to operations 250,000 250,000 -
-------------------------------------------------
Balance at end of period $ 5,879,375 $ 4,360,989 $ 1,518,386
=================================================
Average loans outstanding $ 566,139,731 $ 479,637,329
Loans outstanding at end of period 580,134,688 481,535,302
Ratio of net charge-offs during the
period to average loans outstanding 0.01% 0.08%
Ratio of allowance for loan losses
to loans outstanding at end of period 1.01% 0.91%
Nine months ended September 30,
2003 2002 Change
------------- ------------- -------------
Balance at beginning of period $ 4,493,583 $ 4,239,990 $ 253,593
Allowances related to acquisitions 911,000 - 911,000
Charge-offs (271,146) (788,875) 517,729
Recoveries 120,938 199,874 (78,936)
------------- ------------- -------------
Net charge-offs (150,208) (589,001) 438,793
Provision charged to operations 625,000 710,000 (85,000)
------------- ------------- -------------
Balance at end of period $ 5,879,375 $ 4,360,989 $ 1,518,386
============= ============= =============
Average loans outstanding $ 513,834,406 $ 480,681,908
Loans outstanding at end of period 580,134,688 481,535,302
Ratio of net charge-offs during the
period to average loans outstanding 0.03% 0.12%
Ratio of allowance for loan losses
to loans outstanding at end of period 1.01% 0.91%
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 and industry trends in
addition to the actual loss experience. 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.
13
Noninterest Income
The following table shows the variance from the prior year in the noninterest
income categories shown in the Consolidated Statements of Income. In addition,
accounts within the Other Income category that represent significant variances
are shown.
Three months ended September 30,
2003 2002 Change Change-%
----------- ----------- ----------- ---------
Noninterest income
Service charges on deposit accounts $ 1,258,686 $ 1,194,710 $ 63,976 5.35%
Trust services 132,000 138,000 (6,000) -4.35%
Other:
Letter of credit fees 40,704 21,340 19,364 90.74%
VISA/Mastercard income 39,321 38,255 1,066 2.79%
Gain on sale of real estate loans 263,596 66,015 197,581 299.30%
Debit card income 38,695 24,814 13,881 55.94%
ATM surcharge fees 27,888 32,967 (5,079) -15.41%
Increase in cash value of bank
owned life insurance 222,833 - 222,833 -
All other 181,919 203,945 (22,026) -10.80%
-----------------------------------------------------
Total other 814,956 387,336 427,620 110.40%
-----------------------------------------------------
Gain (loss) on sale of securities (48,626) 91,509 (140,135) -153.14%
-----------------------------------------------------
Total noninterest income $ 2,157,016 $ 1,811,555 $ 345,461 19.07%
=====================================================
Nine months ended September 30,
2003 2002 Change Change-%
----------- ----------- ----------- ---------
Noninterest income
Service charges on deposit accounts $ 3,536,562 $ 3,313,446 $ 223,116 6.73%
Trust services 386,000 437,634 (51,634) -11.80%
Other:
Letter of credit fees 74,819 64,336 10,483 16.29%
VISA/Mastercard income 113,766 139,287 (25,521) -18.32%
Gain on sale of real estate loans 348,355 129,356 218,999 169.30%
Debit card income 105,027 64,945 40,082 61.72%
ATM surcharge fees 83,917 39,501 44,416 112.44%
Increase in cash value of bank
owned life insurance 414,180 - 414,180 -
All other 590,864 592,138 (1,274) -0.22%
-----------------------------------------------------
Total other 1,730,928 1,029,563 701,365 68.12%
-----------------------------------------------------
Gain on sale of securities 146,981 91,509 55,472 60.62%
-----------------------------------------------------
Total noninterest income $ 5,800,471 $ 4,872,152 $ 928,319 19.05%
=====================================================
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 and an increase in nonsufficient funds fees. Income from trust
services was down due to a decrease in the number of trust accounts and a
decline in asset values under management as a result of market conditions. 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 and third quarters of this year. The increase in the
gain on sale of real estate loans is due to the increased loan volume as a
result of the lower interest rate environment and the addition of loan volume
through the banking offices acquired in Iowa City, Iowa. The volume of loans
originated and sold in the secondary market and the resulting gains on those
sales is expected to decline as interest rates move higher.
14
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 September 30,
2003 2002 Change Change-%
---- ---- ------ --------
Noninterest expense:
Salaries and employee benefits $ 1,954,613 $1,612,135 $342,478 21.24%
Occupancy expenses 378,899 327,599 51,300 15.66%
Data processing expenses 283,133 238,820 44,313 18.56%
Other:
Supplies 52,590 35,548 17,042 47.94%
Advertising 51,667 52,336 (669) -1.28%
Trust expense 72,082 78,666 (6,584) -8.37%
Professional fees 59,933 50,803 9,130 17.97%
Deposit premium amortization 51,795 7,955 43,840 551.10%
Other real estate owned expense 43,707 2,194 41,513 1892.11%
Postage and courier 94,286 75,154 19,132 25.46%
Charitable contributions 46,546 30,972 15,574 50.28%
All other 304,056 282,079 21,977 7.79%
-----------------------------------------------------
Total other 776,662 615,707 160,955 26.14%
-----------------------------------------------------
Total noninterest expense $ 3,393,307 $2,794,261 $599,046 21.44%
=====================================================
Nine months ended September 30,
2003 2002 Change Change-%
---- ---- ------ --------
Noninterest expense:
Salaries and employee benefits $ 5,360,055 $4,792,458 $ 567,597 11.84%
Occupancy expenses 1,102,022 966,317 135,705 14.04%
Data processing expenses 775,307 769,162 6,145 0.80%
Other:
Supplies 134,057 109,862 24,195 22.02%
Advertising 149,471 160,341 (10,870) -6.78%
Trust expense 190,742 229,962 (39,220) -17.06%
Professional fees 218,657 211,419 7,238 3.42%
Deposit premium amortization 67,705 24,311 43,394 178.50%
Other real estate owned expense 46,993 6,588 40,405 613.31%
Postage and courier 244,806 205,700 39,106 19.01%
Charitable contributions 112,669 86,960 25,709 29.56%
All other 775,097 906,905 (131,808) -14.53%
----------------------------------------------------
Total other 1,940,197 1,942,048 (1,851) -0.10%
----------------------------------------------------
Total noninterest expense $ 9,177,581 $8,469,985 $ 707,596 8.35%
====================================================
The year-to-date increase in salaries and benefits includes one-time relocation
expenses for the Company's newly hired chief executive officer totaling $52,500
and the salaries of the officers and employees in the offices acquired in Iowa
City. 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. Contributing to
the increase in occupancy expenses in the third quarter of 2003 are expenses
associated with the two offices acquired in Iowa City. Trust expenses have
declined because of the loss of a large custodial account and lower investment
management fees.
Income Tax Expense
The Company incurred income tax expense of $6,974,350 for the nine months ended
September 30, 2003 compared to $6,619,178 for the nine months ended September
30, 2002. The effective income tax rate as a percent of income before taxes for
the three and nine months ended September 30, 2003 was 35.0 percent and 35.2
percent, respectively, compared to 35.7 percent and 35.6 percent, respectively,
for the same periods last year. The decline in the effective tax rate for 2003
compared to 2002 is because the increase in cash value of bank-owned life
insurance is exempt from income taxes.
FINANCIAL CONDITION
Total assets as of September 30, 2003 were $963,120,000, up from $886,116,000 at
December 31, 2002. The acquisition of certain assets of Hawkeye State Bank added
approximately $135,000,000 to total Company assets. Without the addition of
assets from Hawkeye State Bank, the Company's assets at September 30, 2003 would
have been approximately $60,000,000 lower than at December 31, 2002. That
decline is primarily the result of planned reductions in public fund deposits.
Investment Securities
Investment securities available for sale increased $99,707,000 from December 31,
2002 to $170,569,000. Since December 31, 2002, investment securities classified
as held to maturity declined $37,293,000 to $101,007,000 as of September 30,
2003. The increase in the available for sale category was accomplished to allow
for increased liquidity and flexibility. Corporate bonds which have been
purchased over the past nine months have been classified as available for sale.
Approximately $16,000,000 in investment securities acquired from Hawkeye State
Bank were added to the available for sale portfolio.
15
Loans
Loans outstanding increased $91,682,000 from December 31, 2002 to September 30,
2003. Approximately $75,000,000 of the increase relates to loans acquired from
Hawkeye State Bank. It is anticipated that loans in the Iowa City market will
decline in the near future as the Company applies its loan administration
standards and procedures in that market and from somewhat normal customer
attrition due to the ownership and management changes. It is anticipated that
loans attributable to the Iowa City market could decline $10 - $15 million
during the fourth quarter of 2003.
Deposits
Total deposits as of September 30, 2003 were $635,016,000 compared with
$613,099,000 as of December 31, 2002. Deposits at September 30, 2003 that were
acquired from Hawkeye State Bank totaled approximately $99,000,000. Total
deposits were somewhat higher than normal at December 31, 2002. Certificates of
deposit as of September 30, 2003, excluding those acquired from Hawkeye State
Bank, were $83,080,000, down $46,034,000 from December 31, 2002. That decline is
primarily 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 $121,759,000 at September 30, 2003, down from $127,419,000 at
December 31, 2002. The decrease 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. It is not unusual for
this category to fluctuate over time. 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 September 30, 2003 and December 31, 2002. Long-term borrowings increased
because of the assumption of Federal Home Loan Bank advances with a fair market
value of $38,614,630 associated with the Hawkeye State Bank transaction and the
issuance of trust preferred securities in the amount of $20,000,000. The
issuance of the trust preferred securities was done to ensure the total
risk-based capital ratio exceeded the requirement for being well-capitalized
after the Hawkeye State Bank transaction.
16
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. (dollars in
thousands)
September 30, 2003 December 31, 2002 Change
------------------ ----------------- -------
Nonaccrual loans $ 1,816 $ 1,354 $ 462
Loans past due 90 days and still
accruing interest $ 2,691 $ 545 2,146
-----------------------------------------------------
Total non-performing loans $ 4,507 $ 1,899 $ 2,608
Other real estate owned 674 529 145
-----------------------------------------------------
Total non-performing assets $ 5,181 $ 2,428 $ 2,753
=====================================================
Non-performing assets to total loans 0.90% 0.50% 0.40%
Non-performing assets to total assets 0.54% 0.27% 0.27%
The increase in nonaccrual loans and loans past due 90 days or more is primarily
due to loans acquired from Hawkeye State Bank. The Company is diligently
applying its loan administration standards to the portfolio acquired from
Hawkeye State Bank. It is not possible to predict the trend of nonaccrual loans
in the acquired portfolio. In the opinion of management, loans past due 90 days
and still accruing interest are adequately collateralized to cover any unpaid
principal and interest.
Reference is also made to the information and discussion earlier in this report
under the heading of "Provision for Loan Losses and the Related Allowance for
Loan Losses".
Capital Resources
Total stockholders' equity was 9.5 percent of total assets as of September 30,
2003 and 9.7 percent on December 31, 2002.
The table below shows the various measures of regulatory capital and related
ratios.
September 30, 2003 December 31, 2002
------------------ -----------------
Total stockholders' equity $ 91,132,474 $ 85,824,162
Less: net unrealized gains on available for sale securities (1,183,417) (1,031,446)
Less: intangible assets (14,964,400) (47,730)
Plus: trust preferred securities 20,000,000 -
-----------------------------------
Tier 1 capital 94,984,657 84,744,986
Plus: allowance for loan losses 5,879,375 4,493,583
-----------------------------------
Total risk-based capital $ 100,864,032 $ 89,238,569
===================================
Regulatory requirements to be:
Adequately Well- Actual Regulatory Capital Ratios as of:
Capitalized Capitalized September 30, 2003 December 31, 2002
----------- ----------- ------------------ -----------------
Total risk-based capital as % of risk-weighted assets 8.0% 10.0% 13.5% 13.8%
Tier 1 capital as % of risk-weighted assets 4.0% 6.0% 12.7% 13.1%
Tier 1 capital as % average assets 4.0% 5.0% 10.0% 9.7%
Risk-based capital guidelines require the classification of assets and some
off-balance 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 show that, as of September 30, 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.
17
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 $64,278,000 as of September 30, 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 approximately $12 million at the Federal Home Loan Bank. The Company
has a $5 million unsecured line of credit through a large regional correspondent
bank. The line has not been used. Management believes that the Company has
sufficient liquidity as of September 30, 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 and is
incorporated herein by reference. 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 nine months of 2003 changed when compared to 2002.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The information appearing above under the heading "Market Risk Management" is
incorporated herein by reference.
Item 4. Controls and Procedures
a. Evaluation of disclosure controls and procedures. As of the end of the
period covered by this report, an evaluation was performed under the supervision
and with the participation of the Company's Chief Executive Officer and Chief
Financial Officer of the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rule 240.13a-15(e)) as of the end of the
period covered by this report. 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 Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms.
b. Changes in internal controls over financial reporting. There were no
changes in the Company's internal control over financial reporting that occurred
during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
18
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
West Bank from time to time is a party to various legal actions arising in the
normal course of business. Management believes, as of the date of this Form
10-Q, that there is no threatened or pending proceeding against the Company or
West Bank, which, if determined adversely, would have a material adverse effect
on the business or financial position of the Company or West Bank.
Item 5. Other Items
On July 18, 2003, the Company issued $20,000,000 in long-term subordinated debt
through a pooled trust preferred security. This security is a hybrid capital
instrument that is included as Tier 1 capital for regulatory purposes, yet is
non-dilutive to common shareholders and to return on equity. The trust preferred
security has a 30 year maturity, does not require any principal amortization and
is callable in seven years at par at the Company's option. The interest rate is
fixed for seven years at 6.975% and then becomes variable at 305 basis points
over the 90 day LIBOR rate. Interest is payable quarterly. Proceeds were used to
fund the purchase of Hawkeye State Bank and general corporate purposes. Pursuant
to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company agrees to furnish a
copy of such agreement to the Securities and Exchange Commission upon request.
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 ***
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 under Section 906 of
the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer 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.
*** Incorporated herein by reference to the related exhibit filed
with the Form 10-Q on May 15, 2003
(b) Reports on Form 8-K: During the three months ended September 30, 2003, the
Company filed a Form 8-K on July 11, 2003 which contained a press release
announcing the quarterly dividend, a Form 8-K on July 29, 2003 which contained a
press release announcing earnings for the three and six months ended June 30,
2003, a Form 8-K on July 17, 2003 which contained a press release announcing the
acquisition of VMF Capital, L.L.C., and a Form 8-K on July 22, 2003 announcing
completion of the transaction to acquire most of the assets and assume most of
the liabilities of Hawkeye State Bank.
19
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)
November 13, 2003 By: /s/ Thomas E. Stanberry
- ----------------- -----------------------
Dated Thomas E. Stanberry
Chairman, President, Chief Executive Officer
November 13, 2003 By: /s/ Douglas R. Gulling
- ----------------- ----------------------
Dated Douglas R. Gulling
Chief Financial Officer
(Principal Accounting Officer)
20
EXHIBIT INDEX
The following exhibits are filed herewith:
Exhibit No. Description
- ---------- --------------------------------------------------------------------------------------------
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 under Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002
21