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The loss for the second quarter and resulting year-to-date loss are primarily due to goodwill impairment of $23 million and a provision for loan losses totaling $15 million for the second quarter. The second quarter provision for loan losses combined with the first quarter provision of $3.5 million results in a year-to-date provision of $18.5 million.
Goodwill impairment was reviewed for the interim period because the Company's stock traded at a market price of less than its per share book value. The Company hired a third party valuation firm to assist in determining if goodwill had been impaired. "It has not been unusual for companies that have made acquisitions in the past few years to be experiencing goodwill impairment during these economic times," said Doug Gulling, Executive Vice President and Chief Financial Officer. "It is important to note that the charge does not impact the Company's tangible equity and has a negligible impact on its regulatory capital ratios."
The Company's goodwill consisted of two pieces. Goodwill totaling $13.3 million was associated with the acquisition of Hawkeye State Bank in Iowa City in 2003 and $11.6 million was associated with the acquisitions of VMF Capital in 2003 and Investors Management Group, Ltd. in 2005, which combined constitute WB Capital Management Inc. It has been determined that all of the goodwill associated with the bank acquisition has been impaired and $9.7 million of the goodwill associated with WB Capital has been impaired.
This goodwill impairment has no impact on the Company's liquidity, cash flows or tangible capital ratios and a negligible impact on the Company's other regulatory capital ratios. The Company and its banking subsidiary, West Bank, exceed the regulatory requirements for being well-capitalized.
The following are the regulatory capital ratios as of June 30, 2009:
Requirements to Be
Well-Capitalized Actual
------------------ --------
Amount Ratio Amount Ratio
-------- ------ -------- ------
As of June 30, 2009:
Total Capital (to Risk-Weighted
Assets)
Consolidated n/a n/a $166,522,000 13.1%
West Bank $126,461,000 10.0% 162,384,000 12.8
Tier I Capital (to Risk-Weighted
Assets)
Consolidated n/a n/a 150,560,000 11.9
West Bank 75,877,000 6.0 136,479,000 10.8
Tier I Capital (to Average Assets)
Consolidated n/a n/a 150,560,000 8.6
West Bank 87,073,000 5.0 136,479,000 7.8
In recognition of the weakened Iowa economy, the Company made a $15 million provision for loan losses in the second quarter. The second quarter provision was the result of net loans charged off during the quarter that totaled $9.4 million, including $4.6 million to one customer, and continued deterioration in collateral values on certain loans. "Additions to the loan loss reserves reflect our thorough and aggressive stance to monitor loans that show signs of stress," said David R. Milligan, Interim Chief Executive Officer. "It is important to remember that, as a community bank, we reflect both the successes and struggles of our community."
The allowance for loan losses as a percentage of average loans outstanding during the first six months of 2009 was 2.11 percent. Management believes the allowance is adequate to absorb the losses inherent in the loan portfolio, although the economic environment will be a significant determinant of future provisions for loan losses. "Our opinion is that we have not seen a turn around in the economy at this point in time," said Milligan.
The net loss of $(22.3) million for the second quarter of 2009 was in contrast to net income of $4.5 million for the second quarter of 2008. The common stock loss per share for the second quarter of 2009, after a preferred stock dividend of $450,000 and preferred stock discount amortization of $120,000, was $(1.32) compared to earnings per common share of $0.26 for the second quarter of 2008.
For the first half of 2009, the net loss was $(19.3) million compared to net income of $5.9 million for the first half of 2008. The common stock loss per share for the first half of 2009, after a preferred stock dividend of $900,000 and preferred stock discount amortization of $237,000, was $(1.18) compared to earnings per common share of $0.34 for the first half of 2008.
For the second quarter of 2009, noninterest income is $491,000 lower than the same period last year. The category with the largest decline was investment advisory fees which were $367,000 lower because of the decline in the value of assets under management.
Noninterest expenses, excluding goodwill impairment, for the second quarter of 2009 were $1,053,000 higher than the second quarter of last year. The most significant increase was in FDIC insurance expense, which was $1,130,000 higher, including a special assessment of $695,000.
During the first half of 2009, loans, not including those held for sale, grew by $14.6 million. Total deposits grew by $22.1 million.
Non-performing assets were $64.3 million at June 30, 2009, compared to $35.8 million at the end of 2008. The allowance for loan losses as a percent of total loans was 2.12 percent as of June 30, 2009, compared to 1.40 percent at the end of 2008. Non-performing assets as a percentage of total assets at June 30, 2009, was 4.25 percent compared to 2.30 percent at 2008 year end.
The Company filed its second quarter Form 10-Q with the Securities and Exchange Commission today. It is available on the Investor Relations section of the Company's website at www.westbankiowa.com.
The Company will discuss its results for the second quarter and first half of 2009 during a conference call scheduled for 2:00 p.m. central time today, Thursday, July 30, 2009. The telephone number for the conference call is 800-860-2442. A recording of the call will be available until August 14, 2009, at 877-344-7529, pass code: 426995.
West Bancorporation, Inc. is headquartered in West Des Moines, Iowa. Serving Iowans since 1893, West Bank, a wholly-owned subsidiary of West Bancorporation, Inc., is a community bank that focuses on lending, deposit services, and trust services for consumers and small- to medium-sized businesses. West Bank has two full-service offices in Iowa City, one full-service office in Coralville, and eight full-service offices in the greater Des Moines area. WB Capital Management Inc., also a wholly-owned subsidiary of West Bancorporation, Inc., has offices in West Des Moines and Coralville. It provides portfolio management services to retirement plans, corporations, public funds, mutual funds, foundations, endowments, and high net worth individuals.
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 ratios. Certain statements in this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements preceded by, followed by or that include the words "believes," "expects," "intends," "should," or "anticipates," or similar references or references to estimates or similar expressions. Such forward-looking statements are 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; changes in credit and other risks posed by the Company's loan and investment portfolios, including declines in commercial or residential real estate values or changes in the allowance for loan losses dictated by new market conditions or regulatory requirements; actions of bank and non-bank competitors; changes in local and national economic conditions; changes in regulatory requirements, including actions of the Securities and Exchange Commission and/or the Federal Reserve Board; changes in the Treasury's Capital Purchase Program; and customers' 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.
WEST BANCORPORATION, INC. AND SUBSIDIARIES
Financial Information (unaudited)
(in thousands, except per share data)
June 30, June 30,
CONSOLIDATED STATEMENTS OF CONDITION 2009 2008
------------------------------------ ---- ----
Assets
Cash and due from banks $23,985 $55,657
Short-term investments 64,254 6,453
Securities 255,596 178,385
Loans held for sale 7,213 2,229
Loans 1,115,324 1,057,830
Allowance for loan losses (23,662) (10,557)
------- -------
Loans, net 1,091,662 1,047,273
Goodwill and other intangible assets 2,989 26,702
Bank-owned life insurance 24,986 24,790
Other assets 43,216 27,378
------ ------
Total assets $1,513,901 $1,368,867
========== ==========
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing $209,893 $189,596
Interest-bearing
Demand 132,597 88,868
Savings 348,275 226,574
Time of $100,000 or more 250,202 264,836
Other time 235,927 168,597
------- -------
Total deposits 1,176,894 938,471
Short-term borrowings 52,200 124,333
Long-term borrowings 145,619 173,119
Other liabilities 10,520 15,111
Stockholders' equity 128,668 117,833
------- -------
Total liabilities and stockholders'
equity $1,513,901 $1,368,867
========== ==========
PER COMMON SHARE MARKET INFORMATION(1)
Net Income Dividends High Low
---------- --------- ---- ---
2009
1st quarter $0.14 $0.08 $12.40 $4.36
2nd quarter (1.32) 0.01 9.50 5.00
2008
1st quarter $0.08 $0.16 $14.43 $11.71
2nd quarter 0.26 0.16 13.48 8.63
3rd quarter (0.02) 0.16 16.21 7.30
4th quarter 0.12 0.16 13.50 8.67
(1) The prices shown are the high and low sale prices for the Company's
common stock, which trades on the NASDAQ Global Select Market, under the
symbol WTBA. The market quotations reported by NASDAQ do not include
retail markup, markdown or commissions.
WEST BANCORPORATION, INC. AND SUBSIDIARIES
Financial Information (continued) (unaudited)
(in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
CONSOLIDATED STATEMENTS OF
INCOME (LOSS) 2009 2008 2009 2008
-------------------------- ---- ---- ---- ----
Interest income
Loans $15,102 $15,313 $30,124 $31,690
Securities 1,961 1,942 3,798 4,268
Other 208 75 311 235
--- -- --- ---
Total interest income 17,271 17,330 34,233 36,193
------ ------ ------ ------
Interest expense
Deposits 5,305 4,538 10,570 10,510
Short-term borrowings 84 719 175 2,012
Long-term borrowings 1,687 1,838 3,356 3,560
----- ----- ----- -----
Total interest expense 7,076 7,095 14,101 16,082
----- ----- ------ ------
Net interest income 10,195 10,235 20,132 20,111
Provision for loan losses 15,000 1,000 18,500 6,600
------ ----- ------ -----
Net interest income after
provision for loan losses (4,805) 9,235 1,632 13,511
------ ----- ----- ------
Noninterest income
Service charges on deposit
accounts 1,073 1,250 2,042 2,296
Trust services 179 204 359 398
Gains and fees on sales of
residential mortgages 237 135 535 220
Investment advisory fees 1,593 1,960 3,009 3,898
Increase in cash value of
bank-owned life insurance 181 257 363 449
Proceeds from bank-owned
life insurance - - 840 -
Other income 527 475 1,031 947
--- --- ----- ---
Total noninterest income 3,790 4,281 8,179 8,208
----- ----- ----- -----
Investment securities gains
(losses), net
Total other-than-temporary
impairment losses (1,013) - (2,428) -
Portion of loss recognized
in other comprehensive
income (loss) before taxes 738 - 738 -
--- --- --- ---
Net impairment losses
recognized in earnings (275) - (1,690) -
Realized securities gains
(losses), net - - 1,453 5
--- --- ----- ---
Investment securities gains
(losses), net (275) - (237) 5
---- --- ---- ---
Noninterest expense
Salaries and employee
benefits 3,308 3,634 6,972 7,365
Occupancy 1,163 899 2,103 1,799
Data processing 579 611 1,125 1,198
FDIC insurance expense 1,283 153 1,736 185
Goodwill impairment 23,036 - 23,036 -
Other expense 1,781 1,764 3,681 3,279
----- ----- ----- -----
Total noninterest expense 31,150 7,061 38,653 13,826
------ ----- ------ ------
Income (loss) before income
taxes (32,440) 6,455 (29,079) 7,898
Income taxes (benefits) (10,161) 1,941 (9,741) 2,010
------- ----- ------ -----
Net income (loss) $(22,279) $4,514 $(19,338) $5,888
======== ====== ======== ======
Preferred stock dividends
and accretion of discount (570) - (1,137) -
---- --- ------ ---
Net income (loss) available
to common stockholders $(22,849) $4,514 $(20,475) $5,888
======== ====== ======== ======
PERFORMANCE HIGHLIGHTS
----------------------
Return on average equity -58.33% 15.23% -25.54% 9.83%
Return on average assets -5.10% 1.39% -2.34% 0.90%
Net interest margin 2.63% 3.56% 2.74% 3.47%
Efficiency ratio 212.65% 47.05% 130.59% 47.25%
SOURCE West Bancorporation, Inc.
http://www.westbankiowa.com
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