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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
-------------------------- to-------------------
Commission file number 0-30505
WEST POINTE BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Illinois 36-4149655
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
West Pointe Bancorp, Inc.
5701 West Main Street
Belleville, Illinois 62226
-------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(618) 234-5700
------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
[X] Yes [ ] 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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Class Outstanding at November 10, 2004
----- --------------------------------
Common stock $1 par value 1,002,626
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20
ITEM 4. CONTROLS AND PROCEDURES 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 5. OTHER INFORMATION 22
ITEM 6. EXHIBITS 22
SIGNATURE PAGE 23
EXHIBIT INDEX 24
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEST POINTE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2004 2003
---- ----
Assets
Cash and due from banks $ 10,705,638 $ 8,875,108
Interest bearing due from banks 5,511,264 104,775
------------- -------------
Cash and cash equivalents 16,216,902 8,979,883
Federal Home Loan Bank stock 13,103,500 12,520,600
Securities:
Available-for-sale, at fair value 160,009,464 166,700,103
Loans held for sale 390,090 338,729
Loans 236,174,589 216,754,989
Allowance for loan losses (2,952,274) (2,697,139)
------------- -------------
Net Loans 233,222,315 214,057,850
Bank premises and equipment 12,025,047 11,914,722
Cash surrender value of life insurance 10,470,589 8,374,188
Accrued interest and other assets 2,928,875 2,264,366
------------- -------------
Total Assets $ 448,366,782 $ 425,150,441
============= =============
Liabilities
Deposits:
Noninterest bearing $ 44,805,325 $ 41,470,256
Interest bearing 333,544,766 319,450,628
------------- -------------
Total Deposits 378,350,091 360,920,884
Repurchase agreements 26,572,111 19,185,867
Other borrowings 1,012,100 1,237,100
Federal Home Loan Bank advances 5,000,000 9,400,000
Accrued interest and other liabilities 4,450,550 3,675,177
------------- -------------
Total Liabilities 415,384,852 394,419,028
Stockholders' Equity
Preferred stock, $1 par value - 50,000 shares authorized and unissued -- --
Common stock, $1 par value - 10,000,000 shares authorized; 1,020,376
and 1,008,698 shares issued at September 30, 2004 and December 31,
2003, respectively 1,020,376 1,008,698
Surplus 13,957,011 13,482,395
Retained earnings 17,955,286 15,943,128
Treasury stock, 17,750 shares (648,575) (648,575)
Accumulated other comprehensive income 697,832 945,767
------------- -------------
Total Stockholders' Equity 32,981,930 30,731,413
------------- -------------
Total Liabilities and Stockholders' Equity $ 448,366,782 $ 425,150,441
============= =============
See the accompanying notes to consolidated financial statements.
3
WEST POINTE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2004 2003 2004 2003
---- ---- ---- ----
Interest and Fee Income:
Loans
Taxable $ 3,503,218 $ 3,525,846 $ 10,183,746 $ 11,054,796
Non-taxable 46,351 41,807 125,295 136,878
Securities
Taxable 1,127,459 986,289 3,436,963 3,040,282
Non-taxable 351,006 353,173 1,142,214 1,097,318
Deposits with banks 30,211 33,088 42,832 91,500
------------- ------------- ----------- -----------
Total Interest and Fee Income 5,058,245 4,940,203 14,931,050 15,420,774
Interest Expense:
Deposits 1,480,546 1,537,373 4,268,283 5,054,367
Repurchase agreements 89,674 72,373 222,685 245,035
Other borrowings 9,747 11,729 29,748 38,702
Federal Home Loan Bank advances 72,074 71,939 223,262 213,471
------------- ------------- ----------- -----------
Total Interest Expense 1,652,041 1,693,414 4,743,978 5,551,575
------------- ------------- ----------- -----------
Net Interest Income 3,406,204 3,246,789 10,187,072 9,869,199
Provision for Loan Losses 60,000 160,000 658,000 850,000
------------- ------------- ----------- -----------
Net Interest Income After
Provision For Loan Losses 3,346,204 3,086,789 9,529,072 9,019,199
Noninterest Income:
Service charges on deposits 413,172 331,336 1,155,129 999,410
Mortgage banking 117,775 228,806 354,651 789,559
Trust fees 151,632 165,062 502,672 513,835
Brokerage and insurance services 88,088 93,551 263,175 232,919
Credit card income 106,859 88,230 293,808 289,140
Increase in cash surrender value of life insurance 93,144 123,560 287,674 373,202
Gain on sale of securities, net --- --- 314,048 461,064
Other 59,369 51,145 157,132 182,768
------------- ------------- ----------- -----------
Total Noninterest Income 1,030,039 1,081,690 3,328,289 3,841,897
Noninterest Expense:
Employee compensation and benefits 1,686,096 1,647,654 5,149,917 4,877,715
Occupancy, net 204,686 194,693 557,871 527,087
Furniture and equipment 211,174 170,405 592,716 501,493
Legal and professional fees 285,835 257,148 565,705 830,666
Data processing 114,446 112,285 345,585 346,738
Advertising 99,387 100,483 301,262 282,355
Other 653,359 664,188 2,145,078 2,030,609
------------- ------------- ----------- -----------
Total Noninterest Expense 3,254,983 3,146,856 9,658,134 9,396,663
------------- ------------- ----------- -----------
Income Before Income Taxes 1,121,260 1,021,623 3,199,227 3,464,433
Income Tax Expense 277,800 236,200 739,000 834,600
------------- ------------- ----------- -----------
Net Income $ 843,460 $ 785,423 $ 2,460,227 $ 2,629,833
============= ============= =========== ===========
Average Shares Outstanding:
Basic 1,000,827 984,754 996,127 981,674
Diluted 1,046,215 1,019,996 1,039,093 1,014,699
Per Share Data:
Net income:
Basic $ .84 $ .80 $ 2.47 $ 2.68
Diluted $ .81 $ .77 $ 2.37 $ 2.59
Dividends declared $ .16 $ .14 $ .45 $ .40
See the accompanying notes to consolidated financial statements.
4
WEST POINTE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2004 2003 2004 2003
---- ---- ---- ----
Net Income $ 843,460 $ 785,423 $ 2,460,227 $ 2,629,833
Other Comprehensive Income (Loss), Net Of Tax
Unrealized holding gains (losses) on securities available for sale (net of
income tax (benefit) of $906,660 and $(32,621) for the three and nine months
ended September 30, 2004 and $(606,767) and $(740,573) for the three and
nine months ended September 30, 2003, respectively) 1,479,285 (989,989) (53,225) (1,208,303)
Less adjustment for realized gains included in net
income (net of income taxes of $119,338 and
$175,204 for the nine months ended September 30,
2004 and 2003, respectively) --- --- 194,710 285,860
---------- --------- ----------- -----------
Other Comprehensive Income (Loss) 1,479,285 (989,989) (247,935) (1,494,163)
---------- --------- ----------- -----------
Comprehensive Income (Loss) $2,322,745 $(204,566) $ 2,212,292 $ 1,135,670
========== ========= =========== ===========
See the accompanying notes to consolidated financial statements.
5
WEST POINTE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2004 2003
---- ----
Operating Activities
Net income $ 2,460,227 $ 2,629,833
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 609,967 535,615
Net amortization on securities 651,098 1,086,623
Gain on sale of securities, net (314,048) (461,064)
Gain on sale of mortgage loans (260,007) (717,151)
Gain on sale of foreclosed property (3,275) (25,948)
Loss on disposition of bank premises and equipment --- 9,895
Federal Home Loan Bank stock dividends (582,900) (595,300)
Provision for loan losses 658,000 850,000
Proceeds from sales of mortgage loans held for sale 15,862,325 46,759,745
Originations of mortgage loans held for sale (15,653,679) (43,726,282)
Increase in cash surrender value of life insurance policies (287,674) (373,202)
Increase in other assets and other liabilities, net 851,998 1,519,685
---------------- ------------
Net Cash Provided By Operating Activities 3,992,032 7,492,449
Investing Activities
Proceeds from sales of securities available for sale 8,680,559 13,132,978
Proceeds from maturities of securities available for sale 19,824,032 76,086,591
Purchases of securities available for sale (22,550,897) (120,638,262)
Net (increase) decrease in loans (20,555,666) 6,541,500
Purchases of life insurance policies (1,752,000) ----
Proceeds from sale of foreclosed property 90,575 129,160
Purchases of bank premises and equipment (720,292) (922,695)
---------------- ------------
Net Cash Used In Investing Activities (16,983,689) (25,670,728)
Financing Activities
Net increase (decrease) in noninterest bearing deposits 3,335,069 (524,715)
Net increase in interest bearing deposits 14,094,138 16,040,877
Net increase repurchase agreements 7,386,244 2,020,539
Decrease in other borrowings (225,000) (225,000)
Repayment of FHLB advances (4,400,000) ----
Proceeds from issuance of common stock 486,294 370,940
Dividends paid (448,069) (392,793)
---------------- ------------
Net Cash Provided By Financing Activities 20,228,676 17,289,848
---------------- ------------
Net Increase (Decrease) in Cash and Cash Equivalents 7,237,019 (888,431)
Cash and cash equivalents - Beginning of year 8,979,883 22,474,026
---------------- ------------
Cash and cash equivalents - End of Period $ 16,216,902 $ 21,585,595
================ ============
Supplemental Disclosure of Cash Flow Information
Interest paid $ 4,712,001 $ 5,766,449
Income taxes paid 585,000 345,000
Real estate acquired in settlement of loans 733,201 103,212
See the accompanying notes to consolidated financial statements.
6
WEST POINTE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- PRINCIPLES OF ACCOUNTING
The consolidated financial statements of West Pointe Bancorp, Inc. ("West
Pointe") or ("the Company") have been prepared in accordance with accounting
principles generally accepted in the United States of America for the banking
industry and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for annual reporting. Reference is hereby made to the notes to
consolidated financial statements contained in West Pointe's Annual Report on
Form 10-K for the year ended December 31, 2003. The foregoing consolidated
financial statements are unaudited. However, in the opinion of management, all
adjustments necessary for a fair presentation of the consolidated financial
statements have been made. All such adjustments are of a normal recurring
nature. The results of operations for the interim periods presented herein are
not necessarily indicative of the results to be expected for the full year. The
consolidated balance sheet of the Company as of December 31, 2003 has been
derived from the audited consolidated balance sheet of the Company as of that
date.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary West Pointe Bank And Trust Company (the "Bank"),
an Illinois chartered commercial bank. All material intercompany transactions
and balances are eliminated. West Pointe is a bank holding company that engages
in its business through its sole subsidiary.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated balance sheet and revenues and
expenses for the period. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of allowance for loan losses and the valuation of
real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses and
the valuation of real estate acquired by foreclosure, management obtains
independent appraisals for significant properties.
Certain 2003 amounts have been reclassified where appropriate to conform
to the consolidated financial statement presentation used in 2004.
The Company has a stock-based employee compensation plan, which is
described more fully in West Pointe's annual report on Form 10-K for the year
ended December 31, 2003. The Company accounts for this plan under the
recognition and measurement principles of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the grant date. The following
table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
to stock-based employee compensation:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2004 2003 2004 2003
---- ---- ---- ----
Net income, as reported $ 843,460 $ 785,423 $ 2,460,227 $ 2,629,833
Less: Total stock-based employee
compensation cost determined under the fair
value based method, net of income taxes (49,525) (54,454) (155,366) (163,362)
------------ ---------- ------------ ------------
Pro forma net income $ 793,935 $ 730,969 $ 2,304,861 $ 2,466,471
============ ========== ============ ============
Earnings per share:
Basic - as reported $ .84 $ .80 $ 2.47 $ 2.68
Basic - pro forma .79 .74 2.31 2.51
Diluted - as reported .81 .77 2.37 2.59
Diluted - pro forma .76 .72 2.22 2.43
7
NOTE B -- NET INCOME PER SHARE
The calculation of net income per share is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2004 2003 2004 2003
---- ---- ---- ----
Basic
Net Income $ 843,460 $ 785,423 $ 2,460,227 $ 2,629,833
============ ============ ============= ==============
Average common shares outstanding 1,000,827 984,754 996,127 981,674
============ ============ ============= ==============
Net income per common share - basic $ .84 $ .80 $ 2.47 $ 2.68
============ ============ ============= ==============
Diluted
Net Income $ 843,460 $ 785,423 $ 2,460,227 $ 2,629,833
============ ============ ============= ==============
Average common shares outstanding 1,000,827 984,754 996,127 981,674
Dilutive potential due to stock options 45,388 35,242 42,966 33,025
------------ ------------ ------------- --------------
Average common shares outstanding 1,046,215 1,019,996 1,039,093 1,014,699
============ ============ ============= ==============
Net income per common share - diluted $ .81 $ .77 $ 2.37 $ 2.59
============ ============ ============= ==============
NOTE C -- NEW ACCOUNTING STANDARDS
Emerging Issues Task Force (EITF) Issue 03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments",
contains accounting guidance regarding other-than-temporary impairment of
securities that was to take effect for the quarter ended September 30, 2004.
However, the effective date of portions of this guidance has been delayed, and
more interpretive guidance is to be issued in the near future. The effect of
this new and pending guidance on the Company's financial statements is not
known, but it is possible this guidance could change management's assessment of
other-than-temporary impairment in future periods.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion describes West Pointe's results of operations
during the three-month and nine-month periods ended September 30, 2004 and 2003,
and its financial condition, asset quality, and capital resources as of
September 30, 2004 and December 31, 2003. This discussion should be read in
conjunction with West Pointe's unaudited consolidated financial statements and
notes thereto. The results of operations for the interim periods presented
herein are not necessarily indicative of the results to be expected for the full
year.
FORWARD-LOOKING STATEMENTS
This filing and future filings made by West Pointe with the Securities and
Exchange Commission (the "SEC"), as well as other filings, reports and press
releases made or issued by West Pointe, and oral statements made by executive
officers or directors of West Pointe may include forward-looking statements.
These forward-looking statements are not based on historical information, but
rather are based on assumptions and describe future plans, strategies,
projections and expectations of West Pointe and are generally identified by use
of terms "believe", "expect", "intend", "anticipate", "estimate", "project", or
similar words. West Pointe's ability to predict results or the actual effect of
future plans or strategies is uncertain. Factors which could have a material
adverse effect on West Pointe's operations include, but are not limited to,
changes in interest rates, general economic conditions, legislative/regulatory
changes, monetary and fiscal policies of the U. S. Government, including
policies of the U. S. Treasury and the Board of Governors of the Federal Reserve
System, the quality and composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
West Pointe's market areas and accounting principles and guidelines.
Additionally, the policies of the Federal Deposit Insurance Corporation (the
"FDIC"), the State of Illinois Department of Financial and Professional
Regulation, the Financial Accounting Standards Board (the "FASB"), the Public
Company Accounting Oversight Board (the "PCAOB") and the SEC could cause actual
results to differ from those currently anticipated. All of these uncertainties,
as well as others, are present in a banking operation and stockholders are
cautioned that management's view of the future on which it prices its products,
evaluates collateral, sets loan reserves and estimates costs of operations and
regulation may prove to be other than anticipated. West Pointe assumes no
obligation to update any forward-looking statements that are made from time to
time.
OVERVIEW
Net income for the third quarter of 2004 was $843,460 or $.81 per diluted
common share compared to net income of $785,423 or $.77 per diluted common share
for the third quarter of 2003. Net income for the first nine months of 2004 was
$2,460,227 or $2.37 per diluted common share compared to net income of
$2,629,833 or $2.59 per diluted common share for the first nine months of 2003.
Return on average assets for the third quarter and first nine months of 2004 was
..77% and .76%, respectively, compared to .74% and .84% for the third quarter and
first nine months of 2003, respectively. Return on average equity for the third
quarter and first nine months of 2004 was 10.61% and 10.39%, respectively,
compared to 10.58% and 12.01% for the third quarter and first nine months of
2003, respectively.
The decrease in net income, for the nine-month periods compared, was
primarily attributable to a decrease in noninterest income and an increase in
noninterest expense, partially offset by an increase in net interest income and
a decrease in the provision for loan losses. The increase in net income, for the
quarters compared, was primarily attributable to an increase in net interest
income and a decrease in the provision for loan losses, partially offset by
increases in noninterest expense and income tax expense.
Total assets at September 30, 2004 increased modestly to $448,366,782 from
$425,150,441 at December 31, 2003. At September 30, 2004, loans totaled
$236,174,589 compared to $216,754,989 at December 31, 2003. At September 30,
2004, securities totaled $160,009,464 compared to $166,700,103 at December 31,
2003. West Pointe's primary funding source for assets is deposits, which totaled
$378,350,091 at September 30, 2004 compared to $360,920,884 at December 31,
2003.
9
RESULTS OF OPERATIONS
Table 1 summarizes West Pointe's statements of income and the change in
each category for the periods presented.
TABLE 1 - Comparative Statements of Income
Three Months Ended
September 30, Change
-------------------------- -------------------------
2004 2003 Amount Percent
---------------- ---------------- ------------- -------
Total interest income
(fully tax-equivalent) $ 5,229,923 $ 5,114,798 $ 115,125 2.3%
Total interest expense 1,652,041 1,693,414 (41,373) (2.4)
---------------- ---------------- ------------
Net interest income 3,577,882 3,421,384 156,498 4.6
Provision for loan losses 60,000 160,000 (100,000) (62.5)
Noninterest income:
Service charges on deposits 413,172 331,336 81,836 24.7
Mortgage banking 117,775 228,806 (111,031) (48.5)
Trust fees 151,632 165,062 (13,430) (8.1)
Brokerage and insurance services 88,088 93,551 (5,463) (5.8)
Credit card income 106,859 88,230 18,629 21.1
Increase in cash surrender value of life insurance 93,144 123,560 (30,416) (24.6)
Other 59,369 51,145 8,224 16.1
---------------- ---------------- ------------
Total Noninterest Income 1,030,039 1,081,690 (51,651) (4.8)
---------------- ---------------- ------------
Noninterest Expense:
Employee compensation and benefits 1,686,096 1,647,654 38,442 2.3
Occupancy, net 204,686 194,693 9,993 5.1
Furniture and equipment 211,174 170,405 40,769 23.9
Legal and professional fees 285,835 257,148 28,687 11.2
Data processing 114,446 112,285 2,161 1.9
Advertising 99,387 100,483 (1,096) (1.1)
Other 653,359 664,188 (10,829) (1.6)
---------------- ---------------- ------------
Total Noninterest Expense 3,254,983 3,146,856 108,127 3.4
---------------- ---------------- ------------
Income Before Income Taxes 1,292,938 1,196,218 96,720 8.1
Less: tax-equivalent adjustment 171,678 174,595 (2,917) (1.7)
Income tax expense 277,800 236,200 $ 41,600 17.6
---------------- ---------------- ------------
Net Income $ 843,460 $ 785,423 58,037 7.4%
================ ================ ============
10
Nine Months Ended
September 30, Change
------------- ------
2004 2003 Amount Percent
---- ---- ------ -------
Total interest income
(fully tax-equivalent) $ 15,490,052 $ 15,959,219 $ (469,167) (2.9)%
Total interest expense 4,743,978 5,551,575 (807,597) (14.5)
---------------- ---------------- ------------
Net interest income 10,746,074 10,407,644 338,430 3.3
Provision for loan losses 658,000 850,000 (192,000) (22.6)
Noninterest income:
Service charges on deposits 1,155,129 999,410 155,719 15.6
Mortgage banking 354,651 789,559 (434,908) (55.1)
Trust fees 502,672 513,835 (11,163) (2.2)
Brokerage and insurance services 263,175 232,919 30,256 13.0
Credit card income 293,808 289,140 4,668 1.6
Increase in cash surrender value of life
insurance 287,674 373,202 (85,528) (22.9)
Gain on sale of securities, net 314,048 461,064 (147,016) (31.9)
Other 157,132 182,768 (25,636) (14.0)
---------------- ---------------- ------------
Total Noninterest Income 3,328,289 3,841,897 (513,608) (13.4)
---------------- ---------------- ------------
Noninterest expense:
Employee compensation and benefits 5,149,917 4,877,715 272,202 5.6
Occupancy, net 557,871 527,087 30,784 5.8
Furniture and equipment 592,716 501,493 91,223 18.2
Legal and professional fees 565,705 830,666 (264,961) (31.9)
Data processing 345,585 346,738 (1,153) (0.3)
Advertising 301,262 282,355 18,907 6.7
Other 2,145,078 2,030,609 114,469 5.6
---------------- ---------------- ------------
Total Noninterest Expense 9,658,134 9,396,663 261,471 2.8
---------------- ---------------- ------------
Income before income taxes 3,758,229 4,002,878 (244,649) (6.1)
Less: tax-equivalent adjustment 559,002 538,445 20,557 3.8
Income tax expense 739,000 834,600 (95,600) (11.5)
---------------- ---------------- ------------
Net Income $ 2,460,227 $ 2,629,833 $ (169,606) (6.4)%
================ ================ ============
NET INTEREST INCOME
Tax-equivalent net interest income increased $156,498 or 4.6% for the
third quarter of 2004 compared to the same period of 2003 and increased $338,430
or 3.3% for the first nine months of 2004 compared to the same period of 2003.
The increase in tax-equivalent net interest income for the third quarter of 2004
compared to the third quarter of 2003 was attributable to an increase in
tax-equivalent interest income and a decrease in interest expense. The increase
in tax-equivalent net interest income for the first nine months of 2004 compared
to the first nine months of 2003 was attributable to a decrease in interest
expense, partially offset by a decrease in tax-equivalent interest income.
Total tax-equivalent interest income increased $115,125 or 2.3% for the
third quarter of 2004 compared to the same period of 2003 and decreased $469,167
or 2.9% for the first nine months of 2004 compared to the same period of 2003.
The increase in tax-equivalent interest income for the quarters compared was
primarily due to higher volumes of interest earning assets. The decrease in
tax-equivalent interest income for the nine-month periods compared was primarily
attributable to the lower interest rate environment, partially offset by higher
volumes of interest-earning assets. Average earning assets increased $13,654,309
or 3.5% for the third quarter of 2004 compared to the same quarter of 2003 and
increased $13,815,183 or 3.6% for the first nine months of 2004 compared to the
same period of 2003. The yield on average earning assets decreased 5 basis
points for the third quarter of 2004 compared to the same quarter of 2003 and
decreased 36 basis points for the first nine months of 2004 compared to the same
period of 2003. The increases in the volume of average earning assets for the
periods compared were primarily due to internal growth in the loan and
securities portfolios. The decreases in the yields on average earning assets
were primarily the result of a declining interest rate environment.
11
Total interest expense decreased $41,373 or 2.4% for the third quarter of
2004 compared to the same period of 2003 and decreased $807,597 or 14.5% for the
first nine months of 2004 compared to the same period of 2003. The decreases in
interest expense were primarily attributable to the lower interest rate
environment, partially offset by higher volumes of interest-bearing liabilities.
Average interest-bearing liabilities increased $4,393,888 for the third quarter
of 2004 compared to the same period of 2003 and increased $4,878,300 for the
first nine months of 2004 compared to the same period of 2003. The average rate
paid on interest-bearing liabilities decreased 7 basis points to 1.84% for the
third quarter of 2004 compared to the same period of 2003. The average rate paid
on interest-bearing liabilities decreased 34 basis points to 1.79% for the first
nine months of 2004 compared to the same period of 2003. The decreases in the
average rate paid for the periods compared were primarily due to a declining
interest rate environment.
The net interest margin was 3.52% for the third quarter of 2004 compared
to 3.48% for the third quarter of 2003. The net interest margin for the first
nine months of 2004 was 3.60% compared to 3.61% for the first nine months of
2003. West Pointe management continues efforts to monitor and maintain the
Company's net interest margin.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $60,000 and $658,000 for the third
quarter and first nine months of 2004, respectively, compared to $160,000 and
$850,000 for the third quarter and first nine months of 2003, respectively. The
provision for loan losses represents management's judgment of the cost
associated with credit risk inherent in the loan portfolio. Factors which
influence management's determination of the provision for loan losses include,
among other things, a review of individual loans, size and quality of the loan
portfolio, current and projected economic conditions, regulatory guidelines, and
historical loan loss experience. Management's reviews of the loan portfolio and
the current status of nonperforming loans, the third quarter 2004 receipt of a
recovery on a loan to a commercial borrower that was previously charged off and
an overall analysis of the allowance for loan losses resulted in decreases in
the provision for loan losses for the quarters and nine-month periods compared.
Activity in the allowance for loan losses and nonperforming loan data are
presented under "ASSET QUALITY."
NONINTEREST INCOME
Total noninterest income was $1,030,039 for the third quarter of 2004
compared to $1,081,690 for the third quarter of 2003. Noninterest income totaled
$3,328,289 for the first nine months of 2004 compared to $3,841,897 for the same
period of 2003. Service charges on deposit accounts increased $81,836 for the
third quarter of 2004 compared to the third quarter of 2003 and increased
$155,719 for the nine-month periods compared. The increases in service charges
on deposit accounts for the periods compared were primarily attributable to
growth in the volume of deposit accounts on which service charges are assessed
coupled with increases in various service charges that resulted from an analysis
of the Company's service charge schedule. The results of that analysis,
completed during the fourth quarter of 2003, were implemented on January 1,
2004. Income from mortgage banking services decreased $111,031 for the third
quarter of 2004 compared to the third quarter of 2003 and decreased $434,908 for
the nine-month periods compared. The decreases in mortgage banking income for
the periods compared were primarily attributable to a slightly higher interest
rate environment associated with West Pointe's mortgage activities. This
slightly higher interest rate environment resulted in a reduced level of
mortgage originations and refinancing activities. Assuming that interest rates
remain stable and the local real estate market remains strong, Company
management anticipates that the level of mortgage banking income will remain
stable during the remainder of 2004. Income from trust fees remained relatively
constant for the quarters and nine-month periods compared. Income from brokerage
and insurance services decreased $5,463 for the third quarter of 2004 compared
to the third quarter of 2003 and increased $30,256 for the nine-month periods
compared. The increase in income from brokerage and insurance services for the
nine-month periods compared was primarily attributable to commissions earned on
annuity product renewals and continuing new business development. Credit card
income increased $18,629 for the third quarter of 2004 compared to the third
quarter of 2003 and increased $4,668 for the nine-month periods compared. The
increases in credit card income for the periods compared were primarily
attributable to higher levels of merchant processing fees for credit card
transactions and additional interchange fees received on transactions of West
Pointe's cardholders. During the third quarter and first nine months of 2004,
West Pointe recorded increases in cash surrender value of life insurance of
$93,144 and $287,674, respectively, compared to increases of $123,560 and
$373,202 recorded during the third quarter and first nine months of 2003,
respectively. These cash surrender value increases
12
relate to various bank owned life insurance ("BOLI") policies, which generally
serve as funding mechanisms for West Pointe's director fee deferral program and
West Pointe's salary continuation plans which have been established for various
officers of the Company. The remaining policies were purchased to provide
additional life insurance benefits to certain Company officers. These BOLI
policies provide certain benefits to the Company including, but not limited to,
the exclusion from income taxes on the increase in their cash surrender values.
The decreases in income from this component of noninterest income, for the
periods compared, were primarily attributable to lower interest rates earned on
the BOLI policies. Net securities gains recorded during the first nine months of
2004 totaled $314,048 compared to net securities gains of $461,064 recorded
during the first nine months of 2003, respectively. Net securities gains
recorded during 2004 resulted from opportunities in the marketplace to take such
gains. Net securities gains recorded during 2003 resulted from management's
decisions to decrease interest income on non-taxable securities to minimize
alternative minimum tax and to reconfigure certain segments of the investment
portfolio to limit potential interest rate risk that could result from a rising
interest rate environment. Other noninterest income increased $8,224 for the
third quarter of 2004 compared to the third quarter of 2003 and decreased
$25,636 for the nine-month periods compared. Other noninterest income includes
such items as interchange fees on automated teller machine ("ATM") transactions,
safe deposit box rental fees, check printing fees and other miscellaneous fees.
The decrease in other noninterest income for the nine-month periods compared
resulted from modest declines in a number of categories of other noninterest
income.
NONINTEREST EXPENSE
Total noninterest expense was $3,254,983 for the third quarter of 2004
compared to $3,146,856 for the third quarter of 2003. For the first nine months
of 2004, total noninterest expense was $9,658,134 compared to $9,396,663 for the
same period of 2003. The increase in noninterest expense for the quarters
compared was primarily attributable to increases in employee compensation and
benefits and expenses associated with furniture and equipment. The increase in
noninterest expense for the nine-month periods compared was primarily
attributable to increases in employee compensation and benefits and other
noninterest expense, partially offset by decreases in legal and professional
fees. Employee compensation and benefit expenses increased $38,442 for the third
quarter of 2004 compared to the third quarter of 2003 and increased $272,202 for
the nine-month periods compared. The increases in employee compensation and
benefits for the quarters and nine-month periods compared were primarily
attributable to normal merit increases and staff additions associated with
overall growth in banking operations. Net occupancy expenses increased $9,993
for the third quarter of 2004 compared to the third quarter of 2003 and
increased $30,784 for the nine-month periods compared. The increases in net
occupancy expenses for the periods compared were primarily attributable to
increased real estate taxes associated with West Pointe's banking locations.
Furniture and equipment expenses increased $40,769 for the third quarter of 2004
compared to the third quarter of 2003 and increased $91,223 for the nine-month
periods compared. The increases in furniture and equipment expenses for the
periods compared were primarily attributable to higher levels of depreciation
expense associated with West Pointe's furniture and equipment. Legal and
professional fees increased $28,687 for the third quarter of 2004 compared to
the third quarter of 2003 and decreased $264,961 for the nine-month periods
compared. The increase in legal and professional fees for the quarters compared
is primarily attributable to normal operations. The decrease in legal and
professional fees for the nine-month periods compared was primarily attributable
to the recovery of approximately $371,000 from the Company's insurance carrier
of legal fees previously paid in connection with certain lawsuits of which the
Bank was a party to in the ordinary course of business. Data processing expenses
for the periods compared remained relatively stable. Advertising expenses
decreased slightly for the quarters compared and increased $18,907 for the
nine-month periods compared. The increase in advertising expenses for the
nine-month periods compared was primarily attributable to expanded promotional
activities associated with the Company's operations. Other noninterest expenses
decreased modestly for the third quarter of 2004 compared to the third quarter
of 2003 and increased $114,469 for the nine-month periods compared. Other
noninterest expense includes such items as FDIC insurance premiums, mortgage
banking expenses, telephone expenses, postage costs, certain credit card program
expenses and other miscellaneous expenses. The increase in other noninterest
expense for the nine-month periods compared was primarily attributable to
expenses associated with certain nonperforming loans.
13
INCOME TAX EXPENSE
West Pointe recorded income tax expense of $277,800 for the third quarter
of 2004 compared to $236,200 for the third quarter of 2003. For the first nine
months of 2004, income tax expense was $739,000 compared to $834,600 for the
same period of 2003. The increase for the quarters compared primarily resulted
from a higher level of income before income taxes. The decrease in income tax
expense for the nine-month periods compared primarily resulted from lower levels
of income before income taxes. The effective income tax rates were 24.8% and
23.1% for the third quarter and first nine months of 2004, respectively,
compared to effective income tax rates of 23.1% and 24.1% for the comparable
periods in 2003. The slight changes in the effective income tax rates for the
2004 periods compared to the 2003 periods were attributable to the levels of
taxable income and to changes in mix of taxable and non-taxable revenues.
FINANCIAL CONDITION
GENERAL
Certain components of West Pointe's consolidated balance sheet at
September 30, 2004 compared to December 31, 2003 are presented in summary form
in Table 2. Total assets increased $23,216,341 to $448,366,782 compared to
$425,150,441 at December 31, 2003. The increase in total assets was primarily
due to an increase in loans.
TABLE 2 - Selected Comparative Balance Sheet Items
September 30, December 31,
2004 2003
---- ----
Total assets $ 448,366,782 $ 425,150,441
Loans 236,174,589 216,754,989
Securities 160,009,464 166,700,103
Deposits 378,350,091 360,920,884
Repurchase agreements 26,572,111 19,185,867
Other borrowings 1,012,100 1,237,100
Federal Home Loan Bank advances 5,000,000 9,400,000
Stockholders' equity 32,981,930 30,731,413
LOANS
Loans increased 9.0%, or $19,419,600, from year-end 2003 to September 30,
2004. The majority of this increase was derived from growth in the commercial,
financial and agricultural and commercial real estate segments of the portfolio.
West Pointe also experienced a modest increase in the 1-4 family residential
real estate segment of the portfolio. When compared to several previous
quarters, West Pointe's loan demand increased considerably during the second and
third quarters of 2004.
14
Table 3 presents the composition of the loan portfolio by type of borrower
and major loan category and the percentage of each to the total portfolio for
the periods presented.
TABLE 3 - Loan Portfolio Composition
September 30, December 31,
2004 2003
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
Commercial borrowers:
Commercial, financial and agricultural $ 62,309,357 26.4% $ 55,147,337 25.5%
Commercial real estate 86,970,356 36.8 79,620,879 36.7
Real estate construction 23,672,076 10.0 19,489,319 9.0
-------------- ----- -------------- -----
Total commercial 172,951,789 73.2 154,257,535 71.2
-------------- ----- -------------- -----
Consumer borrowers:
1-4 family residential real estate 53,130,897 22.5 52,059,308 24.0
Other consumer loans 10,091,903 4.3 10,438,146 4.8
-------------- ----- -------------- -----
Total consumer 63,222,800 26.8 62,497,454 28.8
-------------- ----- -------------- -----
Total loans $ 236,174,589 100.0% $ 216,754,989 100.0%
============== ===== ============== =====
SECURITIES
Total securities decreased $6,690,639 to $160,009,464 at September 30,
2004 compared to $166,700,103 at year-end 2003. The security portfolio provides
a balance to interest rate and credit risk in other categories of the balance
sheet while providing a vehicle for the investment of available funds not needed
to fund loan demand. The security portfolio also supplies securities as required
collateral for certain deposits and for repurchase agreements. The majority of
this decrease resulted from principal payments received on the Company's
mortgage-backed securities and from management's decision to sell certain
securities, which resulted from favorable opportunities in the market place.
Proceeds from the aforementioned principal payments and sales were used to fund
West Pointe's increased loan demand. Additional information regarding West
Pointe's repurchase agreements is presented and discussed under "Borrowings."
All of West Pointe's securities are classified as available for sale.
Available-for-sale securities are recorded at fair value. Net unrealized gains
on available-for-sale securities totaled $1,125,536 at September 30, 2004,
compared to net unrealized gains of $1,525,430 at December 31, 2003. The change
in net unrealized gains and losses from December 31, 2003 to September 30, 2004
was primarily attributable to the slightly higher interest rate environment.
Table 4 presents the composition of securities at their carrying values
for the periods presented.
TABLE 4 - Security Portfolio Composition
September 30, December 31,
2004 2003
---- ----
Available-for-sale securities:
U.S. government agencies 3,995,000 --
Mortgage-backed securities 119,404,645 126,843,672
Obligations of states and political subdivisions 36,609,819 39,856,431
---------------- ----------------
Total available-for-sale $ 160,009,464 $ 166,700,103
================ ================
15
Table 5 presents the composition of securities with unrealized losses at
September 30, 2004, presented by length of time in an unrealized loss position.
TABLE 5 - Composition of Securities with Unrealized Losses
Less than 12 Months 12 Months or More Total
------------------- ----------------- -----
Fair Unrealized Fair Unrealized Fair Unrealized
Value Loss Value Loss Value Loss
----- ---- ----- ---- ----- ----
U.S. government agencies $ 3,995,000 $ (5,965) $ -- $ -- $ 3,995,000 $ (5,965)
Mortgage-backed securities 50,847,609 (200,142) 20,203,253 (281,164) 71,050,862 (481,306)
Obligations of states and
political subdivisions 6,964,604 (62,055) -- -- 6,964,604 (62,055)
----------- ----------- ------------- ------------ ------------ ---------
Total temporarily impaired $61,807,213 $ (268,162) $ 20,203,253 $ (281,164) $ 82,010,466 $(549,326)
=========== =========== ============= ============ ============ =========
West Pointe management does not currently expect any losses to result
from any unrealized losses in the portfolio, as maturities of securities and
other funding sources should meet the Company's liquidity needs. Any losses
taken will result from strategic or discretionary decisions to adjust the
security portfolio.
DEPOSITS
West Pointe's deposit base is its primary source of liquidity and consists
of deposits originating within the communities served by its banking locations.
Deposits are West Pointe's primary and most reliable funding source for
interest-earning assets.
Total deposits increased $17,429,207 to $378,350,091 at September 30, 2004
from year-end 2003. The noninterest bearing demand deposit, interest bearing
demand deposit and time deposit components of the deposit portfolio increased
$3,335,069, $793,830 and $14,302,360, respectively, from year-end 2003. The
increase in the noninterest bearing demand deposit and interest bearing demand
deposit components of the deposit portfolio were primarily attributable to
seasonal fluctuations. The majority of the increase in time deposits was
attributable to additional deposits received from one public entity. Savings and
money market deposit account balances decreased modestly from year-end 2003 to
September 30, 2004 and resulted from normal fluctuations.
Table 6 sets forth the composition of deposits and the percentage of each
category to total deposits for the periods presented.
TABLE 6 - Deposit Liability Composition
September 30, December 31,
2004 2003
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
Noninterest bearing demand deposits $ 44,805,325 11.8% $ 41,470,256 11.5%
Interest bearing demand deposits 34,739,204 9.2 33,945,374 9.4
Savings and money market deposits 116,098,083 30.7 117,100,135 32.4
Time deposits $100,000 or more 72,736,967 19.2 59,379,919 16.5
Time deposits less than $100,000 109,970,512 29.1 109,025,200 30.2
---------------- ----- --------------- -----
Total deposits $ 378,350,091 100.0% $ 360,920,884 100.0%
================ ===== =============== =====
BORROWINGS
Total borrowings amounted to $32,584,211 at September 30, 2004, compared
to $29,822,967 at year-end 2003. At September 30, 2004 and December 31, 2003,
borrowings consisted of repurchase agreements, Federal Home Loan Bank advances
and a short-term borrowing with an unaffiliated bank.
Repurchase agreements increased $7,386,244 from year-end 2003. These
borrowings serve as an alternative funding source to deposits. The majority of
the increase in repurchase agreements was in the form of cash management
repurchase agreement accounts. Such accounts involve the daily transfer of
excess funds from
16
noninterest bearing deposit accounts into interest bearing cash management
repurchase agreement accounts. Cash management repurchase agreement accounts are
marketed to commercial and individual deposit customers and are considered to be
a stable source of funds. Repurchase agreements, other than cash management
repurchase agreements, generally represent an alternative to short-term
certificates of deposit.
At September 30, 2004 and December 31, 2003, the Bank had one $5,000,000
Federal Home Loan Bank term advance, which reflected an interest rate of 5.63%
and had a scheduled maturity of December 13, 2004. This advance is callable on a
quarterly basis. In addition to the term advance, the Bank, at December 31,
2003, had an overnight advance in the amount of $4,400,000. This overnight
advance served as a funding alternative to federal funds purchased.
At September 30, 2004, other borrowings consisted of a $1,012,100
borrowing under a line of credit with an unaffiliated bank. This line of credit
allows for borrowings, by West Pointe, of up to $5,000,000. The line of credit
matures on January 7, 2005, and bears interest at a rate of 50 basis points
under the prime-lending rate. As of December 31, 2003, the amount of this
borrowing totaled $1,237,100.
ASSET QUALITY
West Pointe's asset quality management program, particularly with regard
to loans, is designed to analyze potential risk elements and to support the
growth of a high quality loan portfolio. The existing loan portfolio is
monitored via West Pointe's loan rating system. The loan rating system is used
to determine the adequacy of the allowance for loan losses. West Pointe's loan
analysis process proactively identifies, monitors and works with borrowers for
whom there are indications of future repayment difficulties. West Pointe's
lending philosophy is to invest in the communities served by its banking centers
so that it can effectively monitor and control credit risk.
At September 30, 2004, nonperforming assets totaled $6,204,008 or 1.38% of
total assets, compared to nonperforming assets at year-end 2003 of $2,504,550 or
..59% of total assets. Nonperforming assets at September 30, 2004, included
$874,000 relating to two parcels of foreclosed property. All foreclosed property
is held for sale and is initially recorded on an individual property basis at
estimated fair value less cost to sell. Subsequent to foreclosure, management
evaluates the foreclosed properties and a valuation allowance is established if
the estimated fair value declines. As of September 30, 2004, management does not
anticipate any significant losses upon the disposition of the remaining
foreclosed property. Nonperforming loans in the commercial real estate segment
of the portfolio increased $3,133,215 from December 31, 2003. The majority of
this increase is related to loans to two commercial borrowers. Management is in
various stages of workout to remedy or liquidate these and other nonperforming
loans. The remaining categories of nonperforming loans remained relatively
stable at September 30, 2004 compared to December 31, 2003.
17
Table 7 sets forth a summary of West Pointe's loan portfolio mix and
nonperforming assets.
TABLE 7 - Loan Portfolio Mix and Nonperforming Assets
September 30, 2004 December 31, 2003
------------------------------ ------------------------------
Loans and Loans and
Foreclosed Non-performing Foreclosed Non-performing
Property Assets Property Assets
------------ -------------- ------------ --------------
Commercial borrowers:
Commercial, financial and agricultural $ 62,309,357 $ 199,634 $ 55,147,337 $ 60,753
Commercial real estate 86,970,356 4,080,092 79,620,879 946,877
Real estate construction 23,672,076 ---- 19,489,319 ----
------------ ------------ ------------ ------------
Total commercial 172,951,789 4,279,726 154,257,535 1,007,630
Consumer borrowers:
1-4 family residential
real estate 53,130,897 993,941 52,059,308 1,213,500
Other consumer loans 10,091,903 56,341 10,438,146 53,420
------------ ------------ ------------ ------------
Total consumer 63,222,800 1,050,282 62,497,454 1,266,920
------------ ------------ ------------ ------------
Total loans 236,174,589 5,330,008 216,754,989 2,274,550
Foreclosed property 874,000 874,000 230,000 230,000
------------ ------------ ------------ ------------
Total $237,048,589 $ 6,204,008 $216,984,989 $ 2,504,550
============ ============ ============ ============
Nonaccrual loans $ 4,789,396 $ 1,676,187
Accruing loans past due 90 days or more 540,612 598,363
------------ ------------
Total nonperforming loans 5,330,008 2,274,550
Foreclosed property 874,000 230,000
------------ ------------
Total nonperforming assets $ 6,204,008 $ 2,504,550
============ ============
Nonperforming loans to total loans 2.26% 1.05%
Nonperforming assets to total loans
and foreclosed property 2.62% 1.15%
Nonperforming assets to total assets 1.38% .59%
Net charge-offs for the third quarter of 2004 totaled $68,080 compared to
$562,659 for the third quarter of 2003. During the first nine months of 2004,
net charge-offs totaled $402,865 compared to $870,949 for the first nine months
of 2003. Net charge-offs recorded during the first nine months of 2004 in the
residential real estate segment of the loan portfolio primarily related to
several loans to one borrower. The Company recorded net recoveries during the
third quarter and first nine months of 2004 in the commercial, financial and
agricultural segment of the portfolio. These net recoveries were primarily
attributable to a recovery on a loan to one commercial borrower. Net charge-offs
recorded in the commercial, financial and agricultural segment during the third
quarter and first nine months of 2003 were primarily related to loans to four
borrowers. Charge-offs and recoveries recorded during the third quarter and
first nine months of 2004 and 2003 in all other segments of the loan portfolio
were not significant.
West Pointe's allowance for loan losses at September 30, 2004 increased to
$2,952,274 from $2,697,139 at December 31, 2003. The increase in the allowance
for loan losses was primarily due to overall growth in the loan portfolio as
well as an increase in non-performing loans that was primarily associated with
loans to two commercial borrowers. At September 30, 2004, the allowance for loan
losses represented 55.39% of nonperforming loans compared to 113.01% at
September 30, 2003. The ratio of the allowance for loan losses to total loans
was 1.25% at September 30, 2004 compared to 1.13% at September 30, 2003.
Management believes that the allowance for loan losses at September 30, 2004 was
adequate to absorb probable incurred losses in the loan portfolio. However, past
loan loss experience as it relates to current portfolio mix, evaluation of
potential losses in the portfolio, subsequent changes in economic conditions and
other factors may require changes in the levels of the allowance for loan
losses.
18
Table 8 presents information pertaining to the activity in and an analysis
of West Pointe's allowance for loan losses for the periods presented.
TABLE 8 - Allowance For Loan Losses
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Balance at beginning of period $2,960,354 $2,791,156 $2,697,139 $2,409,446
Loans charged off:
Commercial, financial and agricultural 69,642 520,323 84,744 749,423
Real estate:
Commercial 100,000 23,874 100,924 23,874
Residential 20,758 3,310 377,079 92,700
---------- ---------- ---------- ----------
Total real estate 120,758 27,184 478,003 116,574
Consumer 48,737 16,291 80,114 56,704
---------- ---------- ---------- ----------
Total charge-offs 239,137 563,798 642,861 922,701
---------- ---------- ---------- ----------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 138,212 275 142,242 49,614
Real estate:
Commercial 23,874 --- 23,874 ---
Residential 2,882 --- 66,698 ---
---------- ---------- ---------- ----------
Total real estate 26,756 --- 90,572 ---
Consumer 6,089 864 7,182 2,138
---------- ---------- ---------- ----------
Total recoveries 171,057 1,139 239,996 51,752
---------- ---------- ---------- ----------
Net charge-offs 68,080 562,659 402,865 870,949
Provision for loan losses 60,000 160,000 658,000 850,000
---------- ---------- ---------- ----------
Balance at end of period $2,952,274 $2,388,497 $2,952,274 $2,388,497
========== ========== ========== ==========
Net charge-offs (annualized) as a
percent of average total loans .12% 1.04% .24% .53%
Allowance for loan losses to total loans 1.25% 1.13% 1.25% 1.13%
Allowance for loan losses to
nonperforming loans 55.39% 113.01% 55.39% 113.01%
CAPITAL RESOURCES
CAPITAL RESOURCES
Total stockholders' equity increased $2,250,517 from $30,731,413 at
December 31, 2003 to $32,981,930 at September 30, 2004. Net income for the
nine-month period ended September 30, 2004 was $2,460,227. The increase to total
stockholders' equity resulting from net income was partially offset by the
change in accumulated other comprehensive income. Accumulated other
comprehensive income decreased $247,935 to $697,832 at September 30, 2004 from
$945,767 at December 31, 2003. The change in accumulated other comprehensive
income is comprised of the unrealized gain or loss on available-for-sale
securities.
Financial institutions are required to maintain ratios of capital to
assets in accordance with guidelines promulgated by the federal banking
regulators. The guidelines are commonly known as "Risk-Based Guidelines" as they
define the capital level requirements of a financial institution based upon the
level of credit risk associated with holding various categories of assets. The
Risk-Based Guidelines require minimum ratios of Tier 1 and Total Capital to
risk-weighted assets of 4% and 8%, respectively. At September 30, 2004, West
Pointe's Tier 1 and Total Capital ratios were 12.03% and 13.13%, respectively.
In addition to the Risk-Based Guidelines, the federal banking agencies have
established a minimum leverage ratio guideline for financial institutions (the
"Leverage Ratio Guideline"). The Leverage Ratio Guideline provides for a minimum
ratio of Tier 1 capital to average assets of 4%. West Pointe's
19
leverage ratio at September 30, 2004, was 7.39%. Accordingly, West Pointe has
satisfied these regulatory guidelines.
RECENT ACCOUNTING PRONOUNCEMENTS
EITF Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments", contains accounting guidance regarding
other-than-temporary impairment of securities that was to take effect for the
quarter ended September 30, 2004. However, the effective date of portions of
this guidance has been delayed, and more interpretive guidance is to be issued
in the near future. The effect of this new and pending guidance on the Company's
financial statements is not known, but it is possible this guidance could change
management's assessment of other-than-temporary impairment in future periods.
CRITICAL ACCOUNTING POLICIES
There have been no significant changes in the Company's critical
accounting policies from those disclosed as of December 31, 2003.
CONTRACTUAL OBLIGATIONS
The Company enters into certain contractual obligations in the ordinary
course of operations. The required payments under these contracts represent
future cash requirements of the Company. The Company's significant fixed and
determinable contractual obligations, as of September 30, 2004, are set forth in
the following table:
Payments Due
-----------------------------------------------------------------------
After After
One Year Three Years
One Year Through Through After
or Less Three Years Five Years Five Years Total
------------ ----------- ------------ ---------- ------------
Time certificates of deposit $135,494,097 $38,766,528 $8,438,096 $8,758 $182,707,479
Federal Home Loan Bank advances 5,000,000 -- -- -- 5,000,000
Other borrowings 1,012,100 -- -- -- 1,012,100
Operating leases 47,520 95,040 7,920 -- 150,480
------------ ----------- ---------- ------ ------------
Total contractual cash obligations $141,553,717 $38,861,568 $8,446,016 $8,758 $188,870,059
============ =========== ========== ====== ============
OFF- BALANCE SHEET ARRANGEMENTS
For information on the Company's significant off-balance sheet commitments
as of December 31, 2003, see the information incorporated by reference under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change to the market risk position from that
disclosed as of December 31, 2003, the end of the last fiscal year.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company's
principal executive officer and principal financial officer carried out an
evaluation, with the participation of the Company's other management, of the
effectiveness of the Company's disclosure controls and procedures. Based upon
this evaluation, the principal executive officer and principal financial officer
have concluded that the Company's disclosure controls and procedures are
effective in ensuring that information required to be disclosed by the Company
in reports that it files or submits under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms. It should be
noted that the design of the Company's disclosure controls and procedures is
based in part upon certain reasonable assumptions
20
about the likelihood of future events, and there can be no reasonable assurance
that any design of disclosure controls and procedures will succeed in achieving
its stated goals under all potential future conditions, regardless of how
remote. However, the Company's principal executive officer and principal
financial officer have concluded that the Company's disclosure controls and
procedures are, in fact, effective at a reasonable assurance level.
CHANGES IN INTERNAL CONTROL
There have been no changes in the Company's internal control over
financial reporting identified in connection with the evaluation described in
the above paragraph that occurred during the Company's last fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings
before any court, administrative agency or tribunal, nor is the Company
aware of any litigation threatened against it in any court,
administrative agency, or other tribunal. The Company's wholly-owned
subsidiary, the Bank, is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary course of business
from time to time. The Bank's management is of the opinion, based upon
present information, including evaluations by outside counsel, that the
Bank's financial condition, results of operations or cash flows will
not be materially affected by the ultimate resolution of pending or
threatened legal proceedings.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The Company does not have any plans or programs to repurchase shares of
its common stock, nor has the Company made any repurchases of its
securities during the third quarter of 2004.
ISSUER PURCHASES OF EQUITY SECURITIES
--------------------------------------------------------------------------------
Total Number of Maximum Number of
Shares Purchased as Shares that May Yet
Part of Publicly Be Purchased Under
Total Number of Average Price Paid Announced Plans or the Plans or
Period Shares Purchased per Share Programs Programs
------ ---------------- ------------------ ------------------ -------------------
July 2004 -- -- -- --
August 2004 -- -- -- --
September 2004 -- -- -- --
Total -- -- -- --
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibits: See Exhibit Index on page 24 hereof.
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SIGNATURES
Pursuant to the requirements 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 POINTE BANCORP, INC.
------------------------------------
(Registrant)
DATE: November 12, 2004 By: /s/ Terry W. Schaefer
----------------------------
Terry W. Schaefer
President and Chief
Executive Officer
(on behalf of the Registrant)
DATE: November 12, 2004 By: /s/ Bruce A. Bone
----------------------------
Bruce A. Bone
Executive Vice President and
Chief Financial Officer
(as principal financial officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Articles of Incorporation (1)
3.2 Bylaws of West Pointe Bancorp, Inc. (1)
10.1 Amendment to Salary Continuation Agreement with Bonnie M.
Hettenhausen (2)
10.2 Salary Continuation Agreement with Anthony Holdener, Jr. (2)
10.3 Split Dollar Agreement with Anthony Holdener, Jr. (2)
11.1 Computation of Net Income Per Share (incorporated by reference
to Note B of West Pointe's unaudited interim consolidated
financial statements included herein).
31.1 Certification of President and Chief Executive Officer
Pursuant to Rule 13a-14(a) or 15d-15(e) of the Exchange Act,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of Executive Vice President and Chief Financial
Officer Pursuant to Rule 13a-14(a) or 15d-15(e) of the
Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of President and Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Executive Vice President and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(1) Documents incorporated by reference to the Company's Registration Statement
on Form 10 (file no. 000-30505) at the corresponding exhibit. All such
previously filed documents are hereby incorporated by reference in
accordance with Item 601 of Regulation S-K.
(2) Documents incorporated by reference to the Company's Current Report on Form
8-K filed October 6, 2004 (file no. 000-30505) at the corresponding exhibit.
All such previously filed documents are hereby incorporated by reference in
accordance with Item 601 of Regulation S-K.
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