West Bancorporation, Inc. - Q1 2011 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2011. West Bancorporation, Inc. operates primarily through its subsidiary, West Bank, providing commercial and consumer banking services in Iowa. The company is an accelerated filer and reported 17,403,882 shares of common stock outstanding as of April 27, 2011.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Net Income | $4,530,000 | $3,339,000 |
| Net Income Available to Common | $3,959,000 | $2,770,000 |
| Earnings Per Share (Basic/Diluted) | $0.23 | $0.16 |
| Total Assets | $1,291,587,000 | $1,305,463,000 (Dec 31, 2010) |
| Total Loans | $830,578,000 | $888,649,000 (Dec 31, 2010) |
| Total Deposits | $950,074,000 | $972,072,000 (Dec 31, 2010) |
| Net Interest Income | $10,477,000 | $10,134,000 |
| Provision for Loan Losses | $500,000 | $2,000,000 |
| Return on Average Assets | 1.39% | 0.83% |
| Return on Average Equity | 12.48% | 10.04% |
Material Changes vs. Prior Period
- Profitability: Net income increased by 35.7% year-over-year, driven by a $1.5 million reduction in the provision for loan losses, a $343,000 increase in net interest income, and a $637,000 one-time gain from bank-owned life insurance (BOLI) due to the death of an officer.
- Loan Portfolio: Total loans declined by approximately $58 million from the prior quarter due to payoffs exceeding new originations, reflecting weak loan demand in the market.
- Asset Quality: Nonperforming assets decreased by $8.0 million (24.0% decline from year-end 2010). Nonaccrual loans dropped to $6.3 million, and troubled debt restructured (TDR) loans fell to $1.5 million.
- Interest Rates: The net interest margin improved to 3.62% from 2.84% in the prior year, aided by lower funding costs following the transfer of high-yield SmartyPig deposits and the maturity of higher-cost borrowings.
Guidance, Outlook, and Risks
- Outlook: Management expects loan portfolio growth by year-end 2011 and anticipates the net interest margin to remain at current levels. A quarterly common stock dividend of $0.05 per share was declared.
- Capital: The company is evaluating options to redeem its $36 million of senior preferred stock issued under the Treasury's Capital Purchase Program. It remains "well-capitalized" under regulatory standards.
- Investment Risks: Significant unrealized losses exist in the Trust Preferred Securities (TPS) portfolio. One pooled TPS is classified as Other Than Temporarily Impaired (OTTI) with a fair value of $1.4 million against a cost of $4.5 million. Management believes no further credit loss will be recognized in earnings for this security in the near term.
- Legal: The company is defending a class-action lawsuit regarding non-sufficient funds fees, which management believes are factually and legally inaccurate.
Investor Verification Checklist
- TPS Valuation: Verify the assumptions used to value the pooled Trust Preferred Security (ALESCO Preferred Funding X, Ltd.) and the likelihood of future credit loss recognition.
- Loan Demand: Monitor loan originations to confirm management's expectation of portfolio growth in subsequent quarters.
- Nonperforming Assets: Track the resolution of the $16.1 million in Other Real Estate Owned (OREO) and the $6.3 million in nonaccrual loans.
- Preferred Stock Redemption: Watch for updates on the plan to redeem the Treasury-issued preferred stock and the funding source for such redemption.
- Legal Proceedings: Review the status of the class-action lawsuit regarding NSF fees for potential liability exposure.