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 June 30, 2005 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 August 3, 2005, there were 16,701,843 shares of common stock, no par value outstanding. 1
PART I - FINANCIAL INFORMATION Item 1. Financial Statements West Bancorporation, Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) <TABLE> <CAPTION> June 30, December 31, 2005 2004 -------------- --------------- <S> <C> <C> Assets Cash and due from banks $ 30,695,489 $ 18,686,360 Federal funds sold and other short-term investments 5,493,964 11,193,099 -------------- --------------- Cash and cash equivalents 36,189,453 29,879,459 -------------- --------------- Securities available for sale 268,006,743 281,110,020 Securities held to maturity (approximate market value of $40,893,000 and $60,141,000 at June 30, 2005 and December 31, 2004, respectively) 40,303,828 59,419,549 Federal Home Loan Bank stock, at cost 7,811,900 6,522,800 -------------- --------------- Total securities 316,122,471 347,052,369 -------------- --------------- Loans 789,192,734 725,845,003 Allowance for loan losses (7,080,196) (6,526,824) -------------- --------------- Loans, net 782,112,538 719,318,179 -------------- --------------- Premises and equipment, net 4,680,884 4,309,597 Accrued interest receivable 6,673,825 6,505,047 Goodwill and other intangible assets 16,392,235 16,561,810 Bank-owned life insurance 21,672,633 21,256,138 Other assets 3,948,417 3,551,911 -------------- --------------- Total assets $1,187,792,456 $ 1,148,434,510 ============== =============== Liabilities and Stockholders' Equity Liabilities Deposits: Noninterest bearing demand $ 194,426,673 $ 186,710,245 Savings and interest bearing demand 361,631,132 422,560,048 Time, in excess of $100,000 285,586,519 193,716,248 Other time 71,556,605 62,945,833 -------------- --------------- Total deposits 913,200,929 865,932,374 Federal funds purchased and securities sold under agreements to repurchase 74,627,706 74,543,033 Other short-term borrowings 2,868,981 4,668,451 Accrued expenses and other liabilities 4,928,968 3,777,903 Subordinated notes 20,619,000 20,619,000 Federal Home Loan Bank advances and other long-term borrowings 69,721,270 81,273,773 -------------- --------------- Total liabilities 1,085,966,854 1,050,814,534 -------------- --------------- Stockholders' Equity Common stock, no par value; authorized 50,000,000 shares; 16,701,843 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively 3,000,000 3,000,000 Additional paid-in capital 32,000,000 32,000,000 Retained earnings 67,047,724 62,565,046 Accumulated other comprehensive income (loss) (222,122) 54,930 -------------- --------------- Total stockholders' equity 101,825,602 97,619,976 -------------- --------------- Total liabilities and stockholders' equity $1,187,792,456 $ 1,148,434,510 ============== =============== </TABLE> See accompanying notes to consolidated financial statements. 2
West Bancorporation, Inc. and Subsidiaries Consolidated Statements of Income (unaudited) <TABLE> <CAPTION> Three Months Ended June 30, Six Months Ended June 30, 2005 2004 2005 2004 ------------ ----------- ------------ ------------ <S> <C> <C> <C> <C> Interest income: Loans $ 11,930,863 $ 8,832,357 $ 22,815,920 $ 17,579,507 Securities: U.S. Treasury, government agencies and corporations 1,726,410 1,429,510 3,657,551 2,717,387 States and political subdivisions 1,025,574 506,722 1,983,668 968,119 Other 481,453 690,926 1,026,005 1,439,906 Federal funds sold and other short-term investments 120,637 179,399 259,037 367,146 ------------ ----------- ------------ ------------ Total interest income 15,284,937 11,638,914 29,742,181 23,072,065 ------------ ----------- ------------ ------------ Interest expense: Demand deposits 43,406 20,182 70,168 39,804 Savings deposits 1,287,618 849,039 2,407,457 1,577,757 Time deposits 2,356,534 696,986 3,937,811 1,292,152 Federal funds purchased and securities sold under agreements to repurchase 599,149 137,504 1,024,100 333,338 Other short-term borrowings 283,759 57,433 749,177 82,231 Subordinated notes 366,872 366,872 729,749 733,744 Long-term borrowings 873,060 927,585 1,752,578 1,856,873 ------------ ----------- ------------ ------------ Total interest expense 5,810,398 3,055,601 10,671,040 5,915,899 ------------ ----------- ------------ ------------ Net interest income 9,474,539 8,583,313 19,071,141 17,156,166 Provision for loan losses 500,000 225,000 875,000 450,000 ------------ ----------- ------------ ------------ Net interest income after provision for loan losses 8,974,539 8,358,313 18,196,141 16,706,166 ------------ ----------- ------------ ------------ Noninterest income: Service charges on deposit accounts 1,244,253 1,273,472 2,286,807 2,420,569 Trust services 188,825 132,500 328,825 258,500 Investment advisory fees 823,642 622,196 1,573,879 1,189,021 Increase in cash value of bank-owned life insurance 210,226 221,739 416,496 444,965 Net realized gains from sales of securities available for sale 44,377 243,006 43,188 243,006 Other income 496,700 334,546 885,534 707,524 ------------ ----------- ------------ ------------ Total noninterest income 3,008,023 2,827,459 5,534,729 5,263,585 ------------ ----------- ------------ ------------ Noninterest expense: Salaries and employee benefits 2,585,938 2,425,732 5,164,258 4,889,403 Occupancy 603,240 494,110 1,192,889 1,005,173 Data processing 362,096 352,148 689,808 689,159 Other expenses 1,064,896 978,884 2,158,865 1,962,666 ------------ ----------- ------------ ------------ Total noninterest expense 4,616,170 4,250,874 9,205,820 8,546,401 ------------ ----------- ------------ ------------ Income before income taxes 7,366,392 6,934,898 14,525,050 13,423,350 Income taxes 2,381,605 2,381,798 4,697,782 4,608,283 ------------ ----------- ------------ ------------ Net income $ 4,984,787 $ 4,553,100 $ 9,827,268 $ 8,815,067 ============ =========== ============ ============ Earnings per share, basic $ 0.30 $ 0.27 $ 0.59 $ 0.52 ============ =========== ============ ============ Cash dividends per share $ 0.160 $ 0.152 $ 0.320 $ 0.304 ============ =========== ============ ============ </TABLE> See accompanying notes to consolidated financial statements. 3
West Bancorporation, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (unaudited) <TABLE> <CAPTION> Six Months Ended June 30, 2005 2004 ------------- ------------ <S> <C> <C> 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 62,565,046 56,796,771 Net income 9,827,268 8,815,067 Dividends on common stock (5,344,590) (5,139,286) Shares reacquired under the common stock repurchase plan - (2,360,235) ------------- ------------ End of period balance 67,047,724 58,112,317 ------------- ------------ Accumulated other comprehensive income (loss): Beginning of year balance 54,930 1,099,573 Unrealized gains (losses) on securities, net of tax (277,052) (1,972,240) ------------- ------------ End of period balance (222,122) (872,667) ------------- ------------ Total stockholders' equity $ 101,825,602 $ 92,239,650 ============= ============ </TABLE> West Bancorporation, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (unaudited) <TABLE> <CAPTION> Six Months Ended June 30, 2005 2004 ----------- ----------- <S> <C> <C> Net income $ 9,827,268 $ 8,815,067 Other comprehensive income (loss), unrealized gains (losses) on securities, net of reclassification adjustment, net of tax (277,052) (1,972,240) ----------- ----------- Comprehensive income $ 9,550,216 $ 6,842,827 =========== =========== </TABLE> See accompanying notes to consolidated financial statements. 4
West Bancorporation, Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) <TABLE> <CAPTION> Six Months Ended June 30, 2005 2004 ------------ ------------ <S> <C> <C> Cash Flows from Operating Activities Net income $ 9,827,268 $ 8,815,067 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 875,000 450,000 Net amortization and accretion 616,626 1,117,916 Loss on disposition of fixed assets 635 - Net gains from sales of securities available for sale and loans held for sale (142,115) (321,783) Proceeds from sales of loans held for sale 7,796,951 6,838,887 Originations of loans held for sale (8,164,049) (6,690,110) Depreciation 250,985 168,141 Deferred income taxes (135,440) 415,048 Change in assets and liabilities: (Increase) decrease in accrued interest receivable (168,778) 86,629 Increase in accrued expenses and other liabilities 1,151,065 907,766 ------------ ------------ Net cash provided by operating activities 11,908,148 11,787,561 ------------ ------------ Cash Flows from Investing Activities Proceeds from sales, calls, and maturities of securities available for sale 47,796,744 50,764,241 Purchases of securities available for sale (35,584,912) (75,347,371) Proceeds from maturities and calls of securities held to maturity 19,006,000 26,598,000 Purchases of securities held to maturity - (25,082,002) Acquisition of Federal Home Loan Bank stock (8,528,500) (5,238,700) Proceeds from redemption of Federal Home Loan Bank stock 7,239,400 3,302,300 Net increase in loans (63,203,334) (32,802,461) Purchases of premises and equipment (622,907) (237,477) Change in other assets (509,813) 140,835 ------------ ------------ Net cash (used) in investing activities (34,407,322) (57,902,635) ------------ ------------ Cash Flows from Financing Activities Net change in deposits 47,268,555 50,563,426 Net change in federal funds purchased and securities sold under agreements to repurchase 84,673 (39,322,508) Net change in other short-term borrowings (2,299,470) 24,171,881 Proceeds from long-term borrowings - 10,619,000 Principal payments on long-term borrowings (10,900,000) (13,900,000) Payment for shares reacquired under common stock repurchase plan - (2,360,235) Cash dividends (5,344,590) (5,139,286) ------------ ------------ Net cash provided by financing activities 28,809,168 24,632,278 ------------ ------------ Net increase (decrease) in cash and cash equivalents 6,309,994 (21,482,796) Cash and Cash Equivalents Beginning 29,879,459 82,073,799 ------------ ------------ End $ 36,189,453 $ 60,591,003 ============ ============ Supplemental Disclosures of Cash Flow Information Cash payments for: Interest $ 10,352,710 $ 5,729,400 Income taxes 4,830,763 3,637,000 </TABLE> See accompanying notes to consolidated financial statements. 5
West Bancorporation, Inc. Notes to Consolidated Financial Statements (unaudited) 1. Basis of Presentation The accompanying consolidated statements of income, stockholders' equity, comprehensive income (loss), and cash flows for the three and six months ended June 30, 2005 and 2004, and the consolidated balance sheets as of June 30, 2005 and December 31, 2004 include the accounts and transactions of the Company and its wholly-owned subsidiaries, West Bank and WB Capital Management Inc. d/b/a VMF Capital. 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 June 30, 2005, and the results of operations and cash flows for the three and six months ended June 30, 2005 and 2004. 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 months ended June 30, 2005 and 2004 was 16,701,843 and 16,779,402, respectively, and the average number of shares outstanding for the six months ended June 30, 2005 and 2004 was 16,701,843 and 16,821,343, respectively. 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 13 of the Company's 2004 consolidated financial statements. The Company's commitments as of June 30, 2005 and December 31, 2004 are approximately as follows: <TABLE> <CAPTION> June 30, 2005 December 31, 2004 ------------- ----------------- <S> <C> <C> Commitments to extend credit $ 252,102,000 $ 188,495,000 Standby letters of credit 23,234,000 22,181,000 ------------- ----------------- $ 275,336,000 $ 210,676,000 ============= ================= </TABLE> 6
4. Segment Information An operating segment is generally defined as a component of a business for which discrete financial information is available and whose operating results are regularly reviewed by the chief operating decision-maker. The Company's primary business segment is banking. The banking segment generates revenue through interest and fees on loans, service charges on deposit accounts, interest on investment securities and fees for trust services. The banking segment includes West Bank and the Company, as the holding company's operation is similar to the bank. The "Other" segment represents the Company's investment management subsidiary and intercompany eliminations. Selected financial information on the Company's segments is presented below for the three and six months ended June 30, 2005 and 2004 (dollars in thousands). <TABLE> <CAPTION> Three months ended June 30, 2005 2004 Segments Segments --------------------------------------------------------------------- Banking Other Consolidated Banking Other Consolidated -------- ----- ------------ -------- ----- ------------ <S> <C> <C> <C> <C> <C> <C> Interest income $ 15,285 $ - $ 15,285 $ 11,639 $ - $ 11,639 Interest expense 5,795 15 5,810 3,033 23 3,056 -------- ----- -------- -------- ----- -------- Net interest income 9,490 (15) 9,475 8,606 (23) 8,583 Provision for loan losses 500 - 500 225 - 225 -------- ----- -------- -------- ----- -------- Net interest income after provision for loan losses 8,990 (15) 8,975 8,381 (23) 8,358 Noninterest income 2,184 824 3,008 2,206 622 2,828 Noninterest expense 3,946 670 4,616 3,601 650 4,251 -------- ----- -------- -------- ----- -------- Income before income taxes 7,228 139 7,367 6,986 (51) 6,935 Income taxes 2,324 58 2,382 2,399 (17) 2,382 -------- ----- -------- -------- ----- -------- Net income $ 4,904 $ 81 $ 4,985 $ 4,587 $ (34) $ 4,553 ======== ===== ======= ======== ===== ======= Depreciation and amortization $ 173 $ 44 $ 217 $ 134 $ 44 $ 178 ======== ===== ======= ======== ===== ======= </TABLE> <TABLE> <CAPTION> Six months ended June 30, 2005 2004 Segments Segments -------------------------------------------------------------------- Banking Other Consolidated Banking Other Consolidated ---------- ------- ------------ ---------- ------- ------------ <S> <C> <C> <C> <C> <C> <C> Interest income $ 29,742 $ - $ 29,742 $ 23,072 $ - $ 23,072 Interest expense 10,641 30 10,671 5,871 45 5,916 ---------- ------- ------------ ---------- ------- ------------ Net interest income 19,101 (30) 19,071 17,201 (45) 17,156 Provision for loan losses 875 - 875 450 - 450 ---------- ------- ------------ ---------- ------- ------------ Net interest income after provision for loan losses 18,226 (30) 18,196 16,751 (45) 16,706 Noninterest income 3,961 1,574 5,535 4,075 1,189 5,264 Noninterest expense 7,909 1,297 9,206 7,271 1,276 8,547 ---------- ------- ------------ ---------- ------- ------------ Income before income taxes 14,278 247 14,525 13,555 (132) 13,423 Income taxes 4,597 101 4,698 4,653 (45) 4,608 ---------- ------- ------------ ---------- ------- ------------ Net income $ 9,681 $ 146 $ 9,827 $ 8,902 $ (87) $ 8,815 ========== ======= ============ ========== ======= ============ Depreciation and amortization $ 335 $ 86 $ 421 $ 266 $ 88 $ 354 ========== ======= ============ ========== ======= ============ Total assets at end of period $1,185,053 $ 2,739 $ 1,187,792 $1,030,354 $ 2,487 $ 1,032,841 ========== ======= ============ ========== ======= ============ </TABLE> 7
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. Material estimates that are particularly susceptible to significant change in the near term are the allowance for loan losses and fair value of financial instruments. 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 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. Adjustments Due to Stock Dividend In July 2004, the Company's Board of directors authorized a 5% common stock dividend. Per share numbers in this report for 2004 have been adjusted for that stock dividend. 8
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: interest rate risk, 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 SIX MONTHS ENDED JUNE 30, 2005 OVERVIEW The following discussion is provided for the consolidated operations of the Company, which includes its wholly-owned banking subsidiary, West Bank ("Bank") and its wholly-owned investment advisory subsidiary, WB Capital Management Inc. d/b/a VMF Capital ("VMF Capital"). It focuses on the consolidated results of operations for the three and six months ended June 30, 2005, compared to the same periods in 2004 and on the consolidated financial condition of the Company and its subsidiaries at June 30, 2005, compared to December 31, 2004. Net income for the three months ended June 30, 2005 increased 9.5 percent to $4,985,000 compared to $4,553,000 for the same period in 2004. The increase was primarily due to a 10.4 percent increase in net interest income which was the result of significant loan growth. For the first six months of 2005, net income was $9,827,000, or $.59 per share, which is an 11.5 percent increase over last year. Net interest income for the first six months of 2005 is $1,915,000 higher than the previous year primarily because of the $164 million increase in average earning assets. Provision for loan losses was $425,000 higher than a year ago because of the combination of a partial charge-off on one loan of $300,000 and the significant increase in loans outstanding. The year-to-date and second quarter net interest margins have each declined 14 basis points from the same periods one year ago. The decline is the result of the cost of short-term borrowings and jumbo certificates of deposit rising more than the yields on the loan and investment portfolios. Year-to-date noninterest income was higher than last year due to a $385,000 increase in investment advisory fees earned by VMF Capital and the recognition of $155,000 in fees due to a loan commitment being terminated by a customer. Year-to-date noninterest expense was 7.7% higher than a year ago due to increases in compensation related expenses, occupancy costs and net other real estate owned expenses. 9
RESULTS OF OPERATIONS The following table shows selected financial results and measures for the three and six months ended June 30, 2005 compared with the same periods in 2004 (dollars in thousands): <TABLE> <CAPTION> Three months ended June 30, Six months ended June 30, 2005 2004 Change Change-% 2005 2004 Change Change-% ---- ---- ------ -------- ---- ---- ------ -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Net income $ 4,985 $ 4,553 $ 432 9.5% $ 9,827 $ 8,815 $ 1,012 11.5% Average assets 1,182,254 1,019,175 163,079 16.0% 1,177,320 1,002,529 174,791 17.4% Average stockholders' equity 99,184 93,297 5,887 6.3% 98,486 93,615 4,871 5.2% Return on assets 1.69% 1.80% -0.11% 1.68% 1.77% -0.09% Return on equity 20.16% 19.63% 0.53% 20.12% 18.94% 1.18% Efficiency ratio 35.77% 37.11% -1.34% 36.10% 37.62% -1.52% Dividend payout ratio 53.33% 57.14% -3.81% 54.24% 58.18% -3.94% Equity to assets ratio 8.39% 9.15% -0.76% 8.37% 9.34% -0.97% </TABLE> 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) 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. 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 liabilities. Interest income and the resulting net interest income are shown on a fully taxable basis. 10
Data for the three months ended June 30 (dollars in thousands): <TABLE> <CAPTION> Average Balance Interest Income/Expense Yield/Rate ----------------------------------------- ----------------------------------- -------------------- 2005 2004 Change Change-% 2005 2004 Change Change-% 2005 2004 Change <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Interest-earning assets: Loans: Commercial $ 273,418 $272,913 $ 505 0.19% $ 4,299 $ 3,536 $ 763 21.58% 6.31% 5.21% 1.10% Real estate 463,530 318,228 145,302 45.66% 7,280 4,847 2,433 50.20% 6.30% 6.13% 0.17% Consumer 10,668 13,153 (2,485) -18.89% 194 234 (40) -17.09% 7.30% 7.16% 0.14% Other 20,729 20,580 149 0.72% 224 313 (89) -28.43% 4.34% 6.12% -1.78% ---------- -------- --------- ------- ------- ------- ------ ------- ---- ---- ----- Total Loans 768,345 624,874 143,471 22.96% 11,997 8,930 3,067 34.34% 6.26% 5.75% 0.51% ---------- -------- --------- ------- ------- ------- ------ ------- ---- ---- ----- Investment securities: Taxable 214,949 233,358 (18,409) -7.89% 2,296 2,215 81 3.66% 4.27% 3.80% 0.47% Tax-exempt 103,185 51,366 51,819 100.88% 1,337 601 736 122.46% 5.18% 4.68% 0.50% ---------- -------- --------- ------- ------- ------- ------ ------- ---- ---- ----- Total investment securities 318,134 284,724 33,410 11.73% 3,633 2,816 817 29.01% 4.57% 3.96% 0.61% ---------- -------- --------- ------- ------- ------- ------ ------- ---- ---- ----- Federal funds sold and short-term investments 14,443 38,538 (24,095) -62.52% 121 179 (58) -32.40% 3.35% 1.87% 1.48% ---------- -------- --------- ------- ------- ------- ------ ------- ---- ---- ----- Total interest-earning assets $1,100,922 $948,136 $ 152,786 16.11% 15,751 11,925 3,826 32.08% 5.74% 5.06% 0.68% ========== ======== ========= ======= ------- ------- ------ ------- ---- ---- ----- Interest-bearing liabilities: Deposits: Checking with interest, savings and money markets $ 338,177 $404,721 $ (66,544) -16.44% 1,331 869 462 53.16% 1.58% 0.86% 0.72% Time deposits 331,802 159,786 172,016 107.65% 2,356 697 1,659 238.02% 2.85% 1.75% 1.10% ---------- -------- --------- ------- ------- ------- ------ ------- ---- ---- ----- Total deposits 669,979 564,507 105,472 18.68% 3,687 1,566 2,121 135.44% 2.21% 1.12% 1.09% ---------- -------- --------- ------- ------- ------- ------ ------- ---- ---- ----- Other borrowed funds 211,837 186,839 24,998 13.38% 2,123 1,489 634 42.58% 4.02% 3.21% 0.81% ---------- -------- --------- ------- ------- ------- ------ ------- ---- ---- ----- Total interest-bearing liabilities $ 881,816 $751,346 $ 130,470 17.36% 5,810 3,055 2,755 90.18% 2.64% 1.64% 1.00% ========== ======== ========= ======= ------- ------- ------ ------- ---- ---- ----- Tax-equivalent net interest income $ 9,941 $ 8,870 $ 1,071 12.07% ======= ======= ======= ======= Net interest spread 3.10% 3.42% -0.32% ==== ==== ===== Net interest margin 3.62% 3.76% -0.14% ==== ==== ===== </TABLE> Data for the six months ended June 30 (dollars in thousands): <TABLE> <CAPTION> Average Balance Interest Income/Expense Yield/Rate ----------------------------------------- ---------------------------------- --------------------- 2005 2004 Change Change-% 2005 2004 Change Change-% 2005 2004 Change <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Interest-earning assets: Loans: Commercial $ 268,518 $293,849 $ (25,331) -8.62% $ 8,148 $ 7,771 $ 377 4.85% 6.12% 5.32% 0.80% Real estate 451,568 285,121 166,447 58.38% 13,935 8,850 5,085 57.46% 6.22% 6.24% -0.02% Consumer 10,763 16,012 (5,249) -32.78% 396 562 (166) -29.54% 7.42% 7.06% 0.36% Other 19,213 18,619 594 3.19% 482 576 (94) -16.32% 5.06% 6.22% -1.16% ---------- -------- --------- ------ ------- ------- ------ ------ ---- ---- ----- Total Loans 750,062 613,601 136,461 22.24% 22,961 17,759 5,202 29.29% 6.17% 5.82% 0.35% ---------- -------- --------- ------ ------- ------- ------ ------ ---- ---- ----- Investment securities: Taxable 229,269 226,733 2,536 1.12% 4,861 4,337 524 12.08% 4.24% 3.83% 0.41% Tax-exempt 100,691 49,501 51,190 103.41% 2,599 1,152 1,447 125.61% 5.16% 4.65% 0.51% ---------- -------- --------- ------ ------- ------- ------ ------ ---- ---- ----- Total investment securities 329,960 276,234 53,726 19.45% 7,460 5,489 1,971 35.91% 4.52% 3.98% 0.54% ---------- -------- --------- ------ ------- ------- ------ ------ ---- ---- ----- Federal funds sold and short-term investments 16,927 42,710 (25,783) -60.37% 259 367 (108) -29.43% 3.09% 1.73% 1.36% ---------- -------- --------- ------ ------- ------- ------ ------ ---- ---- ----- Total interest-earning assets $1,096,949 $932,545 $ 164,404 17.63% 30,680 23,615 7,065 29.92% 5.64% 5.09% 0.55% ========== ======== ========= ====== ------- ------- ------ ------ ---- ---- ----- Interest-bearing liabilities: Deposits: Checking with interest, savings and money markets $ 356,785 $391,599 $ (34,814) -8.89% 2,477 1,618 859 53.09% 1.40% 0.83% 0.57% Time deposits 297,956 147,985 149,971 101.34% 3,938 1,292 2,646 204.80% 2.67% 1.76% 0.91% ---------- -------- --------- ------ ------- ------- ------ ------ ---- ---- ----- Total deposits 654,741 539,584 115,157 21.34% 6,415 2,910 3,505 120.45% 1.98% 1.08% 0.90% ---------- -------- --------- ------ ------- ------- ------ ------ ---- ---- ----- Other borrowed funds 226,931 196,106 30,825 15.72% 4,256 3,006 1,250 41.58% 3.78% 3.08% 0.70% ---------- -------- --------- ------ ------- ------- ------ ------ ---- ---- ----- Total interest-bearing liabilities $ 881,672 $735,690 $ 145,982 19.84% 10,671 5,916 4,755 80.38% 2.44% 1.62% 0.82% ========== ======== ========= ====== ------- ------- ------ ------ ---- ---- ----- Tax-equivalent net interest income $20,009 $17,699 $2,310 13.05% ======= ======= ====== ====== Net interest spread 3.20% 3.47% -0.27% ==== ==== ===== Net interest margin 3.68% 3.82% -0.14% ==== ==== ===== </TABLE> 11
Fluctuations in net interest income can result from the combination of changes in the volumes of asset and liability categories and changes in interest rates. Net interest margin is a measure of the net return on interest-earning assets and is computed by dividing annualized tax-equivalent net interest income by the average of total interest-earning assets for the period. The net interest margin for the second quarter was 3.62 percent, which was 14 basis points lower than the same quarter last year and 10 basis points less than the first quarter of 2005. The decline from the prior quarter was due to continued increases in market rates on deposits and borrowings which have increased faster than the yields on earning assets. The Company's tax-equivalent net interest income for the six months ended June 30, 2005 increased $2,310,000 compared to the six months ended June 30, 2004. The increase is primarily attributable to a higher level of earning assets. Taxable-equivalent interest income and fees on loans increased $5,202,000 in the first six months of 2005 compared to the same period in 2004, due to a higher volume of outstanding loans. Average loans were $136.5 million higher than the first six months of last year. The average yield on loans increased to 6.17 percent for the first six months of 2005, compared to 5.82 percent for the same period in 2004. The yield on the Company's loan portfolio is affected by the amount of non-accrual 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. The average balance of investment securities was $53.7 million higher than last year while the yield has increased 54 basis points. Most purchases of investment securities during the first six months of 2005 have been agency bonds and tax-exempt municipal bonds with a maturity of ten years or less. The average rate paid on deposits for the first six months of 2005 increased to 1.98 percent from 1.08 percent for the same period last year. This increase is primarily the result of an increase in market interest rates. Compared to the first six months of last year, the average balance of higher rate certificates of deposit was up $150 million. The increase consisted of jumbo certificates of deposit which generally bear higher interest rates than the other deposit categories. The average balance of money market and savings accounts, which typically have lower rates, were $12.6 million and $27.2 million lower, respectively. The average balance of borrowings for the first six months of 2005 was $30.8 million higher than a year ago. Average short-term borrowings which consisted primarily of borrowings from the Federal Home Loan Bank of Des Moines (FHLB) increased by $36.2 million. Long-term borrowings which include fixed-rate FHLB advances and subordinated notes averaged $10.2 million less than a year ago. The decline was due to a maturity of an FHLB advance in the first quarter of 2005. 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 six months ended June 30, 2005 and 2004 as well as common ratios related to the allowance for loan losses (dollars in thousands). <TABLE> <CAPTION> Three months ended June 30, Six months ended June 30, 2005 2004 Change 2005 2004 Change ---- ---- ------ ---- ---- ------ <S> <C> <C> <C> <C> <C> <C> Balance at beginning of period $ 6,901 $ 5,955 $ 946 $ 6,527 $ 5,975 $ 552 Charge-offs (353) (205) (148) (387) (467) 80 Recoveries 32 57 (25) 65 74 (9) --------- --------- ------- --------- --------- ------- Net charge-offs (321) (148) (173) (322) (393) 71 Provision charged to operations 500 225 275 875 450 425 --------- --------- ------- --------- --------- ------- Balance at end of period $ 7,080 $ 6,032 $ 1,048 $ 7,080 $ 6,032 $ 1,048 ========= ========= ======= ========= ========= ======= Average loans outstanding $ 768,345 $ 624,874 $ 750,062 $ 613,601 Ratio of net charge-offs during the period to average loans outstanding 0.04% 0.02% 0.04% 0.06% Ratio of allowance for loan losses to average loans outstanding 0.92% 0.97% 0.94% 0.98% </TABLE> 12
The provision for loan losses represents charges made to earnings to maintain an adequate allowance for loan losses. The allowance for loan losses is management's best estimate of probable losses inherent in the loan portfolio as of the balance sheet date. Factors considered in establishing an appropriate allowance include: an assessment of the financial condition of the borrower; a realistic determination of value and adequacy of underlying collateral; the condition of the local economy and the condition of the specific industry of the borrower; an analysis of the levels and trends of loan categories; and a review of delinquent and classified loans. The adequacy of the allowance for loan losses is evaluated quarterly by management and reviewed by the Bank's Board of Directors. This evaluation focuses on specific loan reviews, changes in the type and volume of the loan portfolio given the current and forecasted economic conditions and historical loss experience. Any one of the following conditions may result in the review of a specific loan: concern about whether the customer's cash flow or net worth is sufficient to repay the loan; delinquency status; criticism of the loan in a regulatory examination; the suspension of interest accrual; or other reasons including when the loan has other special or unusual characteristics which suggest special monitoring is warranted. While management uses available information to recognize losses on loans, further reduction in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Company to recognize additional losses based on their judgment about information available to them at the time of their examination. See also the discussion of nonperforming assets later in this report. 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 (dollars in thousands). <TABLE> <CAPTION> Three months ended June 30, 2005 2004 Change Change-% ------- ------- ------ -------- <S> <C> <C> <C> <C> Noninterest income Service charges on deposit accounts $ 1,244 $ 1,273 $ (29) -2.3% Trust services 189 133 56 42.5% Investment advisory fees 824 622 202 32.4% Increase in cash value of bank-owned life insurance 210 222 (12) -5.2% Other: VISA/Mastercard income 37 39 (2) -3.4% Debit card usage fees 53 39 14 36.0% ATM card usage fees 23 25 (2) -8.8% Gain on sale of residential mortgages 38 35 3 6.8% Gain on sale of commercial loans 8 - 8 100.0% Other loan fees 162 - 162 100.0% All other 176 197 (21) -10.0% ------- ------- ------ -------- Total other 497 335 162 48.5% ------- ------- ------ -------- Gain on sale of securities 44 243 (199) -81.7% ------- ------- ------ -------- Total noninterest income $ 3,008 $ 2,828 $ 180 6.4% ======= ======= ====== ======== </TABLE> 13
<TABLE> <CAPTION> Six months ended June 30, Noninterest income 2005 2004 Change Change-% ------- ------- ------ -------- <S> <C> <C> <C> <C> Service charges on deposit accounts $ 2,287 $ 2,420 $ (133) -5.5% Trust services 329 259 70 27.2% Investment advisory fees 1,574 1,189 385 32.4% Increase in cash value of bank-owned life insurance 416 445 (29) -6.4% Other: VISA/Mastercard income 76 88 (12) -13.8% Debit card usage fees 102 67 35 51.7% ATM card usage fees 42 52 (10) -17.8% Gain on sale of residential mortgages 59 79 (20) -25.3% Gain on sale of commercial loans 51 - 51 100.0% Other loan fees 162 - 162 100.0% All other 394 422 (28) -6.5% ------- ------- ------ -------- Total other 886 708 178 25.2% ------- ------- ------ -------- Gain on sale of securities 43 243 (200) -82.2% ------- ------- ------ -------- Total noninterest income $ 5,535 $ 5,264 $ 271 5.2% ======= ======= ====== ======== </TABLE> 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 declined for two reasons: 1) higher interest rates resulted in a higher earnings credit on commercial checking accounts which results in lower service charges; and 2) return check charges have been declining in 2005 due to fewer customers overdrawing their accounts. Investment advisory fees are fees earned by VMF Capital. The increase in fees was the result of sales efforts throughout the past year. The decrease in VISA/MasterCard income is due to a decline in the number of merchant customers and lower sales activity at certain merchants. The increase in debit card usage fees was the result of higher usage as customers continue to expand utilization of this convenient payment method. The decline in the ATM card usage fees was due to changes in behavior as non-customers seek to avoid surcharges when using an ATM. Gains from sale of residential mortgages originated for sale in the secondary market declined because of pricing competition. The gains from the sale of commercial loans resulted from the sale of the SBA (Small Business Administration) guaranteed portion of commercial loans. Noninterest related loan fees included the recognition of a fee for a loan commitment which was terminated by a customer. 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 (dollars in thousands). 14
<TABLE> <CAPTION> Three months ended June 30, Noninterest expense: 2005 2004 Change Change-% ------- ------- ------ -------- <S> <C> <C> <C> <C> Salaries and employee benefits $ 2,586 $ 2,426 $ 160 6.6% Occupancy 603 494 109 22.1% Data processing 362 352 10 2.8% Other: Insurance 40 28 12 43.7% Supplies 82 59 23 37.7% Marketing 64 148 (84) -57.0% Postage and courier 100 89 11 12.6% Consulting fees 68 19 49 264.5% OREO expense 5 (108) 113 104.3% All other 706 744 (38) -5.1% ------- ------- ------ -------- Total other 1,065 979 86 8.8% ------- ------- ------ -------- Total noninterest expense $ 4,616 $ 4,251 $ 365 8.6% ======= ======= ====== ======== </TABLE> <TABLE> <CAPTION> Six months ended June 30, Noninterest expense: 2005 2004 Change Change-% ------- ------- ------ -------- <S> <C> <C> <C> <C> Salaries and employee benefits $ 5,164 $ 4,890 $ 274 5.6% Occupancy 1,193 1,005 188 18.7% Data processing 690 689 1 0.1% Other: Insurance 78 51 27 53.1% Supplies 179 131 48 35.9% Marketing 165 193 (28) 14.5% Postage and courier 202 176 26 15.0% Consulting fees 109 26 83 321.5% OREO expense 6 (101) 107 105.7% All other 1,420 1,487 (67) -4.5% ------- ------- ------ -------- Total other 2,159 1,963 196 10.0% ------- ------- ------ -------- Total noninterest expense $ 9,206 $ 8,547 $ 659 7.7% ======= ======= ====== ======== </TABLE> The increase in salaries and benefits was the result of annual compensation adjustments and certain benefit costs, primarily medical insurance. Occupancy expenses were higher this year due to one additional location (Coralville, Iowa) and increased depreciation expense related to furniture and equipment additions throughout the Company. Insurance expense is higher because the Company's director's and officer's policy renewed in the third quarter of 2004 at premiums that were significantly higher. That policy had been in force since the summer of 2001. Supplies are higher because additional brochures were printed as a result of product and pricing changes. Postage expense is higher because many of those brochures were mailed to clients. Marketing expenses on a year-to-date basis are lower than in the prior year because the prior year included implementation of a new corporate logo. The increase in consulting fees is due to a change in the contract with the Bank's former chairman from that of an employment agreement to a consulting agreement and the hiring of an outside consultant to help with the implementation of software programs to assist with asset-liability management and profitability measurement. The net expense for other real estate owned increased from the prior year as 2004 included gains from the sale of several other real estate properties. Income Tax Expense The Company incurred income tax expense of $4,698,000 for the six months ended June 30, 2005 compared to $4,608,000 for the six months ended June 30, 2004. The effective income tax rate as a percent of income before taxes for the three and six months ended June 30, 2005 was 32.3 percent, compared to 34.3 percent for the same periods last year. The effective income tax rate is slightly lower in 2005 because of acquiring higher levels of tax-exempt municipal securities. 15
FINANCIAL CONDITION Total assets as of June 30, 2005 were $1.2 billion, a slight increase from $1.1 billion at December 31, 2004. The increase is primarily due to increased loan volumes. The loan growth was funded primarily by an increase in time deposits in excess of $100,000. Investment Securities Investment securities available for sale declined approximately $13 million from December 31, 2004 to $268.0 million. Since December 31, 2004, investment securities classified as held to maturity declined approximately $19 million to $40.3 million as of June 30, 2005 due to maturities and calls. The reduction in the available for sale category was accomplished to fund loan growth. Loans and Non-performing Assets Loans outstanding increased approximately $63 million from December 31, 2004 to June 30, 2005. The increase was primarily attributable to growth in real estate construction, commercial real estate and commercial loans. The following table sets forth the amount of non-performing loans and assets held by the Company and common ratio measurements of those items (dollars in thousands). <TABLE> <CAPTION> June 30, 2005 December 31, 2004 Change ------------- ----------------- ------- <S> <C> <C> <C> Non-accrual loans $ 2,730 $ 785 $ 1,945 Loans past due 90 days and still accruing interest 686 75 611 ------------- ----------------- ------- Total non-performing loans 3,416 860 2,556 Other real estate owned - 175 (175) ------------- ----------------- ------- Total non-performing assets $ 3,416 $ 1,035 $ 2,381 ============= ================= ======= Non-performing assets to total loans 0.43% 0.14% 0.29% Non-performing assets to total assets 0.29% 0.09% 0.20% </TABLE> The increase in non-accrual loans is primarily the result of a commercial loan of approximately $2.2 million that was placed on non-accrual status at the end of the first quarter of 2005. In the opinion of management, the operations of the project will not continue to support the loan. Management felt a partial charge-off of $300,000 in the second quarter was prudent based upon the information available at the present time. In the opinion of management, loans past due 90 days and still accruing interest are adequately collateralized to cover any unpaid interest. All other real estate owned held as of December 31, 2004 has been sold in the six months ended June 30, 2005. 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". Deposits Total deposits as of June 30, 2005 were $913 million compared with $866 million as of December 31, 2004. While total deposits did not change significantly, there was a change in the mix of deposits. Money market accounts, which are liquid accounts and therefore pay relatively lower interest rates, declined approximately $54 million. A significant portion of those funds moved into the time certificates of deposit in excess of $100,000 category. That category increased approximately $92 million and primarily consisted of public unit deposits. Public unit deposits are generally obtained through a bidding process. The Company offers interest rate bids on public unit deposits at levels that are lower than the cost of alternative borrowings. Other changes included the super saver category decreasing approximately $5 million and non-interest bearing demand accounts rising approximately $8 million. The shift in the deposit mix during the first half can be described as movements between categories in an attempt by customers to maximize the interest rate earned on those funds. It is expected that this trend will continue. 16
Borrowings Short-term borrowings were virtually unchanged from December 31, 2004. Long-term borrowings consisted of fixed rate Federal Home Loan Bank advances and subordinated notes. Advances totaling $10,900,000 were paid off at maturity during the first quarter of 2005. Liquidity and Capital Resources The objective of liquidity management is to ensure the availability of sufficient cash flows to meet the requirements of depositors and borrowers, all corporate financial commitments and to capitalize on opportunities for profitable business expansion. The Company's principal source of funds is deposits including demand, money market, savings and certificates of deposit. Other sources include principal repayments on loans, proceeds from the maturity and sale of investment securities, federal funds purchased, repurchase agreements, advances from the Federal Home Loan Bank and funds provided by operations. 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 asset-liability management policy. The Company had liquid assets (cash and cash equivalents) of $36.2 million as of June 30, 2005, compared with $29.9 million as of December 31, 2004. 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. The Company had additional borrowing capacity available from the Federal Home Loan Bank ("FHLB") of approximately $62 million at June 30, 2005 and has a $5 million unsecured line of credit through a large regional correspondent bank. In addition, the Bank has $100 million available through unsecured federal funds lines of credit with correspondent banks. The Bank was utilizing $15 million of those lines of credit at June 30, 2005. Management believes the combination of high levels of potentially liquid assets, cash flows from operations and additional borrowing capacity provided strong liquidity for the Company at June 30, 2005 to meet the needs of borrowers and depositors. The Company's total stockholders' equity increased to $101.8 million at June 30, 2005, from $97.6 million at December 31, 2004. Total stockholders' equity was 8.6 percent of total assets as of June 30, 2005 and 8.5 percent on December 31, 2004. No material capital expenditures or material changes in the capital resource mix are anticipated at this time. In April 2005, the Company's Board of Directors authorized the buy-back of the Company's common stock for a period of twelve months, in an amount not to exceed $5 million. No repurchases took place during the six months ended June 30, 2005. 17
The table below shows the various measures of regulatory capital and related ratios (dollars in thousands). Regulatory capital: <TABLE> <CAPTION> June 30, 2005 December 31, 2004 ------------- ----------------- <S> <C> <C> Total shareholders' equity $ 101,826 $ 97,620 Plus: net unrealized losses on available for sale securities 222 - Less: net unrealized gains on available for sale securities - (55) Less: intangible assets (16,392) (16,562) Plus: subordinated notes 20,000 20,000 ------------- --------- Tier 1 capital 105,656 101,003 Plus: allowance for loan losses 7,080 6,527 ------------- --------- Total risk-based capital $ 112,736 $ 107,530 ============= ========= </TABLE> <TABLE> <CAPTION> Regulatory requirements to be: Actual Regulatory Adequately Well- Capital Ratios as of: Capitalized Capitalized June 30, 2005 December 31, 2004 ----------- ----------- ------------- ----------------- <S> <C> <C> <C> <C> Total risk-based capital as % of risk-weighted assets 8.0% 10.0% 12.2% 12.3% Tier 1 capital as % of risk-weighted assets 4.0% 6.0% 11.4% 11.6% Tier 1 capital as % average assets 4.0% 5.0% 9.1% 8.6% </TABLE> 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 June 30, 2005 and December 31, 2004, 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. 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 3, 2005 and is incorporated herein by reference. The Company has not experienced any material changes to its market risk position since December 31, 2004. Management does not believe the Company's primary market risk exposures and how those exposures were managed in the first six months of 2005 changed when compared to 2004. 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. 18
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. Part II - OTHER INFORMATION Item 1. Legal Proceedings The Company and its subsidiaries from time to time are 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, West Bank or VMF Capital, which, if determined adversely, would have a material adverse effect on the business or financial position of the Company, West Bank or VMF Capital. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no purchases during the six months ended June 30, 2005 of the Company's common shares under the $5 million stock buy-back plan approved by the Board of Directors on April 13, 2005 or the previous stock buy-back plan approved in April of 2004. Item 4. Submission of Matters to a Vote of Security Holders The Company's annual meeting of shareholders was held on April 12, 2005. The record date for determination of shareholders entitled to vote at the meeting was February 7, 2005. There were 16,701,843 shares outstanding as of that date, each such share being entitled to one vote. At the shareholders' meeting the holders of 15,107,096 or 90 percent of the outstanding shares were represented in person or by proxy, which constituted a quorum. The following proposals were voted on at the meeting: Proposal I - Election of Directors Nine directors were elected to serve for a one year term or until their successors shall have been elected and qualified. At the shareholders' meeting, the individuals received the number of votes set opposite their names: <TABLE> <CAPTION> Vote For Withheld ---------- -------- <S> <C> <C> Frank W. Berlin 15,102,444 4,652 Steven G. Chapman 15,070,059 37,037 Michael A. Coppola 14,987,947 119,149 Orville E. Crowley 15,101,639 5,457 George D. Milligan 15,100,686 6,410 Robert G. Pulver 15,058,199 48,897 Thomas E. Stanberry 15,101,639 5,457 Jack G. Wahlig 15,057,775 49,321 Connie Wimer 15,010,069 97,027 </TABLE> Proposal 2 - Approval of West Bancorporation, Inc. Restricted Stock Compensation Plan The West Bancorporation, Inc. Restricted Stock Compensation Plan was approved at the shareholder's meeting with 81 percent of the shares represented voting in favor of the plan. 19
Item 6. Exhibits The following exhibits are filed as part of this report: Exhibits 3.1 Restated Articles of Incorporation of the Company(1) 3.2 By-laws of the Company(1) 10.1 Lease for Main Bank Facility(1) 10.2 Supplemental Agreement to Lease for Main Bank Facility(1) 10.3 Short-term Lease related to Main Bank Facility(1) 10.4 Assignment(1) 10.5 Lease Modification Agreement No. 1 for Main Bank Facility(1) 10.6 Memorandum of Real estate contract(1) 10.7 Affidavit(1) 10.8 Addendum to Lease for Main Bank Facility(1) 10.9 Data Processing Contract(1) 10.10 Employment Contract(1) 10.12 Data Processing Contract Amendment(2) 10.13 Purchase and Assumption Agreement between West Des Moines State Bank and Hawkeye State Bank(3) 10.14 Employment Agreement effective March 1, 2003, which was consummated in the first quarter of 2004(4) 10.15 The Employee Savings and Stock Ownership Plan, as amended(5) 10.16 Amendment to Lease Agreement(6) 10.17 Employment Agreement(6) 10.18 Consulting Agreement(7) 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 (1) Incorporated herein by reference to the related exhibit filed with the Form 10 on March 11, 2002. (2) Incorporated herein by reference to the related exhibit filed with the Form 10-K on March 26, 2003. (3) Incorporated herein by reference to the related exhibit filed with the Form 10-Q on May 15, 2003. (4) Incorporated herein by reference to the related exhibit filed with the Form 10-K on February 26, 2004. (5) Incorporated herein by reference to the related exhibit filed with the Form S-8 on October 29, 2004. (6) Incorporated herein by reference to the related exhibit filed with the Form 10-K on March 3, 2005. (7) Incorporated herein by reference to the related exhibit filed with the Form 10-Q on May 6, 2005. 20
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) August 4, 2005 By: /s/ Thomas E. Stanberry ---------------------------------------------------- Dated Thomas E. Stanberry Chairman, President and Chief Executive Officer August 4, 2005 By: /s/ Douglas R. Gulling ---------------------------------------------------- Dated Douglas R. Gulling Executive Vice President and Chief Financial Officer (Principal Accounting Officer) 21
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 22