West Bancorporation, Inc. 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2008. West Bancorporation, Inc. operates primarily through its subsidiary, West Bank, and its investment advisory subsidiary, WB Capital Management Inc. The company is an accelerated filer based in West Des Moines, Iowa.
Key Financial Metrics
| Metric | Q1 2008 | Q1 2007 |
|---|---|---|
| Net Income | $1,374,000 | $4,444,000 |
| Earnings Per Share (Basic) | $0.08 | $0.25 |
| Total Assets | $1,332,941,000 | $1,330,097,000 (Dec 31, 2007) |
| Total Deposits | $883,851,000 | $910,925,000 (Dec 31, 2007) |
| Net Interest Income | $9,876,000 | $9,311,000 |
| Provision for Loan Losses | $5,600,000 | $300,000 |
| Cash and Cash Equivalents | $95,851,000 | $49,943,000 (Dec 31, 2007) |
| Return on Average Assets | 0.42% | 1.38% |
| Return on Average Equity | 4.54% | 15.86% |
Material Changes vs. Prior Period
- Sharp Decline in Net Income: Net income decreased by 69.1% year-over-year. This decline is entirely attributable to a significant increase in the provision for loan losses.
- Provision for Loan Losses: The provision increased from $300,000 in Q1 2007 to $5,600,000 in Q1 2008. This was driven by a $5 million charge related to a large Iowa real estate developer that ceased operations. The bank holds approximately $22 million in loans to entities related to this developer.
- Non-Performing Assets: Total non-performing assets increased 122% to $13.396 million from $6.032 million at year-end 2007. Non-accrual loans rose to $11.82 million.
- Net Interest Margin: Despite declining yields on loans due to lower market rates, the net interest margin improved to 3.38% from 3.24% in the prior year, aided by a significant reduction in the cost of interest-bearing liabilities.
- Deposit Base: Total deposits declined 3.0% from the previous quarter as the company allowed higher-cost wholesale certificates of deposit to mature rather than renew them.
Outlook, Risks, and Management Commentary
- Credit Risk: Management highlights the slowing economy and real estate market slowdown as key risks. The allowance for loan losses is considered adequate but is subject to change based on the resolution of the developer-related loans and general economic conditions.
- Liquidity: The company maintains strong liquidity with cash and cash equivalents of $95.9 million and significant unused borrowing capacity ($18 million from FHLB and $110 million in federal funds lines).
- Capital Adequacy: The company met all regulatory capital requirements as of March 31, 2008, with a total risk-based capital ratio of 11.3%.
- Future Expenses: Noninterest expenses are expected to increase in the remainder of 2008 due to the re-establishment of FDIC assessments after a one-time credit was utilized in 2007.
- Stock Repurchase: The Board authorized an additional $5 million for stock buy-backs in April 2008. During Q1, 58,300 shares were repurchased at an average price of $13.53.
Investor Verification Checklist
- Developer Exposure: Verify the status of the $22 million in loans to entities related to the ceased operations of the Iowa homebuilder and the sufficiency of the $5 million provision.
- Non-Performing Loan Trends: Monitor the ratio of non-performing assets to total loans, which rose to 1.33%.
- Deposit Stability: Assess the impact of the 3% decline in deposits and the success of new core deposit products ("Reward Me Checking").
- Dividend Sustainability: Note that the dividend payout ratio was 202.7% in Q1 2008, meaning dividends exceeded net income for the period.
- Interest Rate Sensitivity: Review the company's asset-liability management strategy given the declining interest rate environment and its impact on net interest income.