.



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x (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, 2009

For the quarterly period ended June 30, 2009

or

¨or
 o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from __________ to __________
For the transition period from                                                              to                                                              

Commission File Number:  0-49677
Commission File Number 0-49677


WEST BANCORPORATION, INC.
(Exact Name of Registrant as Specified in its Charter)


IOWA42-1230603
(State of Incorporation)(I.R.S. Employer Identification No.)


1601 22nd Street, West Des Moines, Iowa 50266

Telephone Number Number:  (515) 222-2300


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.

Yes  x                      No  ¨o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ¨o                      No  ¨o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer¨ oAccelerated filerx
Non-accelerated filer¨ oSmaller reporting company¨  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨o                      No  x

As of July 29,October 28, 2009, there were 17,403,882 shares of common stock, no par value outstanding.

1

PART 1 – FINANCIAL INFORMATION
Item 1.  Financial StatementsWEST BANCORPORATION, INC.

West Bancorporation, Inc. and SubsidiariesINDEX
Consolidated Balance Sheets
(unaudited)
Page Number
PART I.FINANCIAL INFORMATION
Item 1.
Consolidated Financial Statements (Unaudited)
3
Consolidated Balance Sheets at September 30, 2009 and December 31, 2008
3
Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008
4
Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2009 and 2008
6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008
7
Notes to the Consolidated Financial Statements
9
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
23
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
39
Item 4.
Controls and Procedures
39
PART II.OTHER INFORMATION
Item 1.
Legal Proceedings
39
Item 1A.
Risk Factors
39
Item 6.
Exhibits
40
Signatures
42
Index to Exhibits
43


  June 30,  December 31, 
(in thousands, except per share data) 2009  2008 
       
Assets      
Cash and due from banks $23,985  $23,712 
Federal funds sold and other short-term investments  64,254   173,257 
Cash and cash equivalents  88,239   196,969 
Securities available for sale  245,840   181,434 
Federal Home Loan Bank stock, at cost  9,756   8,174 
Loans held for sale  7,213   1,018 
Loans  1,115,324   1,100,735 
Allowance for loan losses  (23,662)  (15,441)
Loans, net  1,091,662   1,085,294 
Premises and equipment, net  5,108   4,916 
Accrued interest receivable  7,122   6,415 
Goodwill  1,894   24,930 
Other intangible assets  1,095   1,404 
Bank-owned life insurance  24,986   25,277 
Other real estate owned  6,137   4,352 
Other assets  24,849   13,005 
Total assets $1,513,901  $1,553,188 
         
Liabilities and Stockholders' Equity        
Liabilities        
         
Deposits:        
Noninterest-bearing demand $209,893  $174,635 
Interest-bearing demand  132,597   97,853 
Savings  348,275   238,058 
Time of $100,000 or more  250,202   274,825 
Other time  235,927   369,416 
Total deposits  1,176,894   1,154,787 
         
Federal funds purchased and securities sold under agreements to repurchase  48,938   93,111 
Other short-term borrowings  3,262   245 
Accrued expenses and other liabilities  10,520   9,363 
Subordinated notes  20,619   20,619 
Long-term borrowings  125,000   125,000 
Total liabilities  1,385,233   1,403,125 
         
Stockholders' Equity        
         
Preferred stock, $0.01 par value, with a liquidation preference of $1,000 per share; authorized 50,000,000 shares; 36,000 shares issued and  outstanding at June 30, 2009 and December 31, 2008, respectively  33,785   33,548 
Common stock, no par value; authorized 50,000,000 shares; 17,403,882 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively  3,000   3,000 
Additional paid-in capital  34,387   34,452 
Retained earnings  62,377   82,793 
Accumulated other comprehensive (loss)  (4,881)  (3,730)
Total stockholders' equity  128,668   150,063 
Total liabilities and stockholders' equity $1,513,901  $1,553,188 

See accompanying Notes to Consolidated Financial Statements.

 
2
 

West Bancorporation, Inc. and Subsidiaries
ConsolidatedPART 1 – FINANCIAL INFORMATION
Item 1.  Financial Statements of Income (Loss)
(unaudited)


  Three Months Ended June 30,  Six Months Ended June 30, 
(in thousands, except per share data) 2009  2008  2009  2008 
Interest income:            
Loans, including fees $15,102  $15,313  $30,124  $31,690 
Securities:                
U.S Treasury, government agencies and corporations  607   536   1,219   1,521 
States and political subdivisions  1,120   967   2,220   1,910 
Corporate notes and other investments  234   439   359   837 
Federal funds sold and other short-term investments  208   75   311   235 
Total interest income  17,271   17,330   34,233   36,193 
Interest expense:                
Demand deposits  671   233   1,148   523 
Savings deposits  1,147   926   1,531   2,419 
Time deposits  3,487   3,379   7,891   7,568 
Federal funds purchased and securities sold under  agreements to repurchase  84   714   175   1,978 
Other short-term borrowings  -   5   -   34 
Subordinated notes  367   367   730   734 
Long-term borrowings  1,320   1,471   2,626   2,826 
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 comphehensive income (loss) before taxes  738   -   738   - 
Net impairment losses recognized in earnings  (275)  -   (1,690)  - 
Realized securities gains, 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 expenses  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 
Earnings (loss) per common share, basic $(1.32) $0.26  $(1.18) $0.34 
Earnings (loss) per common share, diluted $(1.32) $0.26  $(1.18) $0.34 
Cash dividends per common share $0.01  $0.16  $0.09  $0.32 
West Bancorporation, Inc. and Subsidiaries
      
Consolidated Balance Sheets      
(unaudited)      
  September 30,  December 31, 
(in thousands, except per share data) 2009  2008 
       
Assets      
Cash and due from banks $28,631  $23,712 
Federal funds sold and other short-term investments  123,685   173,257 
Cash and cash equivalents  152,316   196,969 
Securities available for sale  212,103   181,384 
Federal Home Loan Bank stock, at cost  10,423   8,174 
Loans held for sale  1,152   1,018 
Loans  1,062,333   1,100,735 
Allowance for loan losses  (19,658)  (15,441)
Loans, net  1,042,675   1,085,294 
Premises and equipment, net  5,056   4,639 
Accrued interest receivable  6,889   6,415 
Goodwill  -   13,376 
Other intangible assets  309   477 
Bank-owned life insurance  25,186   25,277 
Other real estate owned  18,089   4,352 
Other assets  22,187   12,926 
Assets of discontinued operations held for sale  3,226   13,975 
Total assets $1,499,611  $1,554,276 
         
Liabilities and Stockholders' Equity        
Liabilities        
         
Deposits:        
Noninterest-bearing demand $201,813  $174,980 
Interest-bearing demand  164,092   97,853 
Savings  380,497   238,058 
Time of $100,000 or more  206,167   274,825 
Other time  208,579   369,416 
Total deposits  1,161,148   1,155,132 
         
Federal funds purchased and securities sold under agreements to repurchase  48,444   93,111 
Other short-term borrowings  1,860   245 
Accrued expenses and other liabilities  8,945   8,783 
Subordinated notes  20,619   20,619 
Long-term borrowings  125,000   125,000 
Liabilities of discontinued operations held for sale  1,217   1,323 
Total liabilities  1,367,233   1,404,213 
Stockholders' Equity        
         
Preferred stock, $0.01 par value, with a liquidation preference of $1,000
     per share; authorized 50,000,000 shares; 36,000 shares issued and
     outstanding at September 30, 2009 and December 31, 2008, respectively
  33,906   33,548 
Common stock, no par value; authorized 50,000,000 shares; 17,403,882 shares
     issued and outstanding at September 30, 2009 and December 31, 2008, respectively
  3,000   3,000 
Additional paid-in capital  34,387   34,452 
Retained earnings  63,711   82,793 
Accumulated other comprehensive (loss)  (2,626)  (3,730)
Total stockholders' equity  132,378   150,063 
Total liabilities and stockholders' equity $1,499,611  $1,554,276 

See accompanying Notes to Consolidated Financial Statements.

 
3
 

West Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(unaudited)
West Bancorporation, Inc. and Subsidiaries
            
Consolidated Statements of Operations            
(unaudited)            
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands, except per share data) 2009  2008  2009  2008 
             
Interest income:            
Loans, including fees $14,914  $15,987  $45,038  $47,677 
Securities:                
U.S. Treasury, government agencies and corporations  694   667   1,913   2,188 
States and political subdivisions  1,096   1,083   3,316   2,993 
Corporate notes and other investments  439   413   798   1,250 
Federal funds sold and other short-term investments  73   36   384   271 
Total interest income  17,216   18,186   51,449   54,379 
Interest expense:                
Demand deposits  704   334   1,852   857 
Savings deposits  1,295   897   2,826   3,316 
Time deposits  2,673   4,173   10,564   11,741 
Federal funds purchased and securities sold under
     agreements to repurchase
  65   587   240   2,565 
Other short-term borrowings  -   4   -   38 
Subordinated notes  371   371   1,101   1,105 
Long-term borrowings  1,335   1,433   3,961   4,259 
Total interest expense  6,443   7,799   20,544   23,881 
Net interest income  10,773   10,387   30,905   30,498 
Provision for loan losses  3,000   7,000   21,500   13,600 
Net interest income after provision for loan losses  7,773   3,387   9,405   16,898 
Noninterest income:                
Service charges on deposit accounts  1,078   1,287   3,120   3,583 
Trust services  222   207   581   605 
Gains and fees on sales of residential mortgages  324   136   859   356 
Increase in cash value of bank-owned life insurance  199   248   562   697 
Proceeds from bank-owned life insurance  -   -   840   - 
Other income  528   468   1,559   1,412 
Total noninterest income  2,351   2,346   7,521   6,653 
Investment securities gains (losses), net:                
Total other-than-temporary impairment losses  (986)  (1,725)  (3,414)  (1,725)
Portion of loss recognized in other comprehensive income
     (loss) before taxes
  159   -   897   - 
Net impairment losses recognized in earnings  (827)  (1,725)  (2,517)  (1,725)
Realized securities gains, net  507   66   1,960   71 
Investment securities gains (losses), net  (320)  (1,659)  (557)  (1,654)
Noninterest expense:                
Salaries and employee benefits  2,294   2,482   7,494   7,541 
Occupancy  794   748   2,637   2,242 
Data processing  455   426   1,312   1,357 
FDIC insurance expense  531   209   2,267   394 
Goodwill impairment  -   -   13,376   - 
Other expenses  1,834   1,406   5,120   4,135 
Total noninterest expense  5,908   5,271   32,206   15,669 
Income (loss) before income taxes  3,896   (1,197)  (15,837)  6,228 
Income taxes (benefits)  906   (1,015)  (8,021)  796 
Income (loss) from continuing operations  2,990   (182)  (7,816)  5,432 

(Continued on next page)

4


                 Accumulated    
           Additional     Other    
  Comprehensive  Preferred  Common  Paid-in  Retained  Comprehensive    
(in thousands, except per share data)
 
Income (Loss)
  
Stock
  
Stock
  
Capital
  
Earnings
  
Income (Loss)
  
Total
 
                      
Balance, January 1, 2008    $-  $3,000  $32,000  $87,084  $(478) $121,606 
Comprehensive income:                           
Net income $5,888   -   -   -   5,888   -   5,888 
Other comprehensive (loss), unrealized (losses) on securities, net of reclassification adjustment, net of tax  (3,303)  -   -   -   -   (3,303)  (3,303)
Total comprehensive income $2,585                         
Shares reaquired and retired under the common stock repurchase plan      -   -   -   (788)  -   (788)
Cash dividends declared, $0.32 per common share      -   -   -   (5,570)  -   (5,570)
Balance, June 30, 2008     $-  $3,000  $32,000  $86,614  $(3,781) $117,833 
                             
Balance, January 1, 2009     $33,548  $3,000  $34,452  $82,793  $(3,730) $150,063 
Cumulative effect accounting adjustment, net of tax (1)      -   -   -   1,625   (1,625)  - 
Comprehensive (loss):                            
Net (loss) $(19,338)  -   -   -   (19,338)  -   (19,338)
Other comprehensive income, unrealized gains on securities, net of reclassification adjustment, net of tax  474   -   -   -   -   474   474 
Total comprehensive (loss) $(18,864)                        
Preferred stock discount accretion      237   -   -   (237)  -   - 
Preferred stock issuance costs      -   -   (65)  -   -   (65)
Cash dividends declared, $0.09 per common share      -   -   -   (1,566)  -   (1,566)
Preferred stock dividends      -   -   -   (900)  -   (900)
Balance, June 30, 2009     $33,785  $3,000  $34,387  $62,377  $(4,881) $128,668 
West Bancorporation, Inc. and Subsidiaries            
Consolidated Statements of Operations (continued)            
(unaudited)            
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands, except per share data) 2009  2008  2009  2008 
             
Discontinued operations:            
Income (loss) from discontinued operations before income taxes  (1,048)  (301)  (10,394)  172 
Income taxes (benefits)  37   (123)  (777)  76 
Income (loss) from discontinued operations  (1,085)  (178)  (9,617)  96 
Net income (loss) $1,905  $(360) $(17,433) $5,528 
Preferred stock dividends and accretion of discount  (571)  -   (1,708)  - 
Net income (loss) available to common stockholders $1,334  $(360) $(19,141) $5,528 
Basic and diluted earnings (loss) per common share
     from continuing operations
 $0.14  $(0.01) $(0.55) $0.31 
Basic and diluted earnings (loss) per common share
     from discontinued operations
 $(0.06) $(0.01) $(0.55) $0.01 
Basic and diluted earnings (loss) per common share $0.08  $(0.02) $(1.10) $0.32 
Cash dividends per common share $-  $0.16  $0.09  $0.48 
See accompanying Notes to Consolidated Financial Statements.

(1)
Represents reclassifications of noncredit-related components of previously recorded other-than-temporary losses pursuant to the adoption of    FSP 115-2 and 124-2, Recognition and Presentation of Other-Than-Temporary Impairments.


5


West Bancorporation, Inc. and Subsidiaries
                     
Consolidated Statements of Stockholders’ Equity                     
(unaudited)                     
                 Accumulated    
           Additional     Other    
  Comprehensive  Preferred  Common  Paid-in  Retained  Comprehensive    
(in thousands, except per share data) Income (Loss)  Stock  Stock  Capital  Earnings  Income (Loss)  Total 
                      
Balance, January 1, 2008    $-  $3,000  $32,000  $87,084  $(478) $121,606 
Comprehensive income:                           
Net income $5,528   -   -   -   5,528   -   5,528 
Other comprehensive (loss), unrealized (losses) on
     securities, net of reclassification adjustment, net of tax
  (3,131)  -   -   -   -   (3,131)  (3,131)
Total comprehensive income $2,397                         
Shares reacquired and retired under the common stock
     repurchase plan
      -   -   -   (788)  -   (788)
Cash dividends declared, $0.48 per common share      -   -   -   (8,354)  -   (8,354)
Balance, September 30, 2008     $-  $3,000  $32,000  $83,470  $(3,609) $114,861 
                             
Balance, January 1, 2009     $33,548  $3,000  $34,452  $82,793  $(3,730) $150,063 
Cumulative effect accounting adjustment, net of tax (1)      -   -   -   1,625   (1,625)  - 
Comprehensive (loss):                            
Net (loss) $(17,433)  -   -   -   (17,433)  -   (17,433)
Other comprehensive income, unrealized gains on
     securities, net of reclassification adjustment, net of tax
  2,729   -   -   -   -   2,729   2,729 
Total comprehensive (loss) $(14,704)                        
Preferred stock discount accretion      358   -   -   (358)  -   - 
Preferred stock issuance costs      -   -   (65)  -   -   (65)
Cash dividends declared, $0.09 per common share      -   -   -   (1,566)  -   (1,566)
Preferred stock dividends declared      -   -   -   (1,350)  -   (1,350)
Balance, September 30, 2009     $33,906  $3,000  $34,387  $63,711  $(2,626) $132,378 

(1) Represents reclassifications of noncredit-related components of previously recorded other-than-temporary losses pursuant to FASB ASC 320-10-35.

See accompanying Notes to Consolidated Financial Statements.


6


West Bancorporation, Inc. and Subsidiaries
      
Consolidated Statements of Cash Flows      
(unaudited)      
  Nine Months Ended September 30, 
(in thousands) 2009  2008 
       
Cash Flows from Operating Activities:      
Net income (loss) $(17,433) $5,528 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Provision for loan losses  21,500   13,600 
Goodwill impairment of banking operations  13,376   - 
Goodwill impairment of discontinued operations  11,160   - 
Net amortization and accretion  548   390 
Loss on disposition of premises and equipment  4   22 
Securities gains, net  (1,960)  (71)
Investment securities impairment losses  2,517   1,725 
Proceeds from sales of loans held for sale  58,052   24,882 
Originations of loans held for sale  (58,186)  (23,101)
Proceeds from bank-owned life insurance  (840)  - 
Increase in value of bank-owned life insurance  (562)  (697)
Depreciation  521   523 
Deferred income taxes  (7,957)  (2,704)
Other  (1,543)  (96)
Change in assets and liabilities:        
(Increase) decrease in accrued interest receivable  (474)  502 
Increase in other assets  (2,938)  (1,424)
Decrease in accrued expenses and other liabilities  (63)  (3,068)
Net cash provided by operating activities - continuing operations  15,722   16,011 
Net cash provided by operating activities - discontinued operations  1,046   651 
Net cash provided by operating activities  16,768   16,662 
Cash Flows from Investing Activities:        
Proceeds from sales, calls, and maturities of securities available for sale  133,027   111,954 
Purchases of securities available for sale  (160,269)  (71,311)
Purchases of Federal Home Loan Bank stock  (2,249)  (5,264)
Proceeds from redemption of Federal Home Loan Bank stock  -   3,405 
Net change in loans  2,998   (119,930)
Net proceeds from the sale of other real estate owned  4,333   3,463 
Proceeds from sales of premises and equipment  2   10 
Purchases of premises and equipment  (944)  (264)
Proceeds of principal and earnings from bank-owned life insurance  1,493   - 
Net cash (used in) investing activities - continuing operations  (21,609)  (77,937)
Net cash (used in) investing activities - discontinued operations  (20)  (176)
Net cash (used in) investing activities  (21,629)  (78,113)
Cash Flows from Financing Activities:        
Net change in deposits  6,016   207,523 
Net change in federal funds purchased and securities sold under agreements to repurchase  (44,667)  (97,486)
Net change in other short-term borrowings  1,615   (1,245)
Proceeds from long-term borrowings  -   75,000 
Principal payments on long-term borrowings  -   (50,750)
Payment for shares reacquired under common stock repurchase plan  -   (788)
Common stock cash dividends  (1,566)  (8,354)
Preferred stock dividends paid  (1,125)  - 
Preferred stock issuance costs  (65)  - 
Net cash provided by (used in) financing activities - continuing operations  (39,792)  123,900 
Net cash provided by (used in) financing activities - discontinued operations  -   - 
Net cash provided by (used in) financing activities  (39,792)  123,900 
(Continued on next page)

7


West Bancorporation, Inc. and Subsidiaries      
Consolidated Statements of Cash Flows (continued)
      
(unaudited)      
  Nine Months Ended September 30, 
(in thousands) 2009  2008 
       
Net increase (decrease) in cash and cash equivalents  (44,653)  62,449 
Cash and Cash Equivalents:        
Beginning  196,969   49,943 
End $152,316  $112,392 
         
         
Supplemental Disclosures of Cash Flow Information        
Cash payments for:        
Interest $21,394  $24,351 
Income taxes  2,276   3,751 
Supplemental Disclosure of Noncash Investing and Financing Activities        
Transfer of loans to other real estate owned $18,121  $4,042 

See accompanying Notes to Consolidated Financial Statements.

 
4

West Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)

  Six Months Ended June 30, 
(in thousands) 2009  2008 
Cash Flows from Operating Activities:      
Net income (loss) $(19,338) $5,888 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Provision for loan losses  18,500   6,600 
Goodwill impairment  23,036   - 
Net amortization and accretion  478   468 
Loss on disposition of premises and equipment�� 3   23 
Securities gains, net  (1,453)  (5)
Investment securities impairment losses  1,690   - 
Proceeds from sales of loans held for sale  39,043   16,714 
Originations of loans held for sale  (45,238)  (17,086)
Proceeds from bank-owned life insurance  (840)  - 
Increase in value of bank-owned life insurance  (363)  (449)
Depreciation  437   457 
Deferred income taxes  (9,723)  (539)
Change in assets and liabilities:        
(Increase) decrease in accrued interest receivable  (707)  1,630 
Increase in other assets  (2,417)  (1,289)
Increase in accrued expenses and other liabilities  933   895 
Net cash provided by operating activities  4,041   13,307 
Cash Flows from Investing Activities:        
Proceeds from sales, calls, and maturities of securities available for sale  74,486   104,176 
Purchases of securities available for sale  (138,525)  (47,983)
Purchases of Federal Home Loan Bank stock  (1,582)  (4,929)
Proceeds from redemption of Federal Home Loan Bank stock  -   2,299 
Net change in loans  (30,748)  (79,923)
Net proceeds from the sale of other real estate owned  4,092   144 
Proceeds from sales of premises and equipment  2   10 
Purchases of premises and equipment  (634)  (353)
Proceeds of principal and earnings from bank-owned life insurance  1,493   - 
Net cash used in investing activities  (91,416)  (26,559)
Cash Flows from Financing Activities:        
Net change in deposits  22,107   27,546 
Net change in federal funds purchased and securities sold under agreements to repurchase  (44,173)  (44,097)
Net change in other short-term borrowings  3,017   (1,172)
Proceeds from long-term borrowings  -   75,000 
Principal payments on long-term borrowings  -   (25,500)
Payment for shares reacquired under common stock repurchase plan  -   (788)
Common stock cash dividends  (1,566)  (5,570)
Preferred stock dividends paid  (675)  - 
Preferred stock issuance costs  (65)  - 
Net cash provided by (used in) financing activities  (21,355)  25,419 
Net (decrease) increase in cash and cash equivalents  (108,730)  12,167 
Cash and Cash Equivalents:        
Beginning  196,969   49,943 
End $88,239  $62,110 

58
 

Consolidated Statements of Cash Flows (continued)
(unaudited)

  Six Months Ended June 30, 
(in thousands) 2009  2008 
Supplemental Disclosures of Cash Flow Information      
Cash payments for:      
Interest $13,988  $16,044 
Income taxes  2,276   3,751 
Supplemental Disclosure of Noncash Investing and Financing Activities        
Transfer of loans to other real estate owned $5,813  $680 

See accompanying Notes to Consolidated Financial Statements.

6

West Bancorporation, Inc.
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except per share information)

1.  Basis of Presentation

The accompanying consolidated statements of income (loss)operations for the three and sixnine months ended JuneSeptember 30, 2009 and 2008, and the consolidated statements of stockholders’ equity, comprehensive income (loss), and cash flows for the sixnine months ended JuneSeptember 30, 2009 and 2008, and the consolidated balance sheets as of JuneSeptember 30, 2009 and December 31, 2008, include the accounts of West Bancorporation, Inc. (the Company), West Bank, West Bank’s wholly-owned subsidiary, WB Funding Corporation (which owns an interest in a partnership), and West Bank’s 99.9 percent owned subsidiary, ICD IV, LLC (a community development partnership), and.  The accounts of WB Capital Management Inc. (WB Capital). are included in the accompanying financial statements as discontinued operations as a result of the Company entering into a definitive agreement to sell all of the stock in WB Capital.  See Note 4 for additional details.  All significant intercompany transactions and balances have been eliminated in consolidation.  In accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation of Variable Interest Entities, now included in the FASB Accounting Standards CodificationTM (Codification) as part of FASB ASC 810-10-15, a subsidiary, West Bancorporation Capital Trust I (the Trust) is not consolidated with the Company.  The results of the Trust are recorded on the books of the Company using the equity method of accounting.

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 understandable, 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 necessary to present fairly the financial position as of JuneSeptember 30, 2009, the results of operations for the three and sixnine months ended JuneSeptember 30, 2009 and 2008, and cash flows for the sixnine months ended JuneSeptember 30, 2009 and 2008.  The results for these interim periods may not be indicative of results for the entire year or for any other period.

CertainAs a result of the decision to sell WB Capital, certain items in the financial statements as of JuneSeptember 30, 2008 and December 31, 2008, were reclassified to be consistent with the classifications used in the JuneSeptember 30, 2009 financial statements.  The reclassification has no effect on net income (loss) or stockholders’ equity.

2.  Use of Estimates in the Preparation of Financial Statements

The consolidated financial statements have been prepared in conformity with generally accepted accounting principles.  In preparing the financial statements, management is required 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 for 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 (including the determination of the value of impaired loans), and fair value of financial instruments, and the goodwill impairment assessment.instruments.

3.  Current Accounting Developments

In April 2009, the Financial Accounting Standards Board (FASB) issued Financial Statement of Position FAS 115−2 and FAS 124−2, “Recognition and Presentation of Other−Than−Temporary Impairments” (“FSP FAS 115−2/124−2”).  FSP FAS 115−2/124−2, now included in the Codification as part of FASB ASC 320-10-35.  This standard requires entities to separate an other−than−temporary impairment (OTTI) of a debt security into two components when there are credit-related losses associated with the impaired debt security for which management asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis.  The amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors is recorded in other comprehensive income (loss).  FSP FAS 115−2/124−2 is effective for periods ending after June 15, 2009.  The Company adopted FSP FAS 115−2/124−2this standard effective for the quarter ending June 30, 2009.  The Company recorded a cumulative effect accounting adjustment that increased retained earnings and decreased accumulated other comprehensive income (loss) by $2,622 pre-tax or $1,625 after tax, relating to the $4,739 of impairment losses recorded during 2008.

9


In April 2009, the FASB issued FSP FAS 157−4, “Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are Not Orderly” (“FSP FAS 157−4”)., now included in the Codification as part of FASB ASC 820-10-35.  Under FSP FAS 157−4,this standard, if an entity determines that there has been a significant decrease in the volume and level of activity for the asset or the liability in relation to the normal market activity for the asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value.  In addition, if there is evidence that the transaction for the asset or liability is not orderly; the entity shall place little, if any, weight on that transaction price as an indicator of fair value.  FSP FAS 157−4 is effective for periods ending after June 15, 2009.  The Company adopted FSP FAS 157−4this standard effective for the quarter ending June 30, 2009.  The adoption of this FSPstandard did not have a material impact on the Company’s financial position or results of operations.

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In April 2009, the FASB issued FSP FAS 107−1 and APB 28−1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107−1 and APB 28−1”).  FSP FAS 107−1 and APB 28−1 require, now included in the Codification as part of FASB ASC 270-10-05.  This standard requires disclosures about fair value of financial instruments in interim and annual financial statements.  FSP FAS 107−1 and APB 28−1 is effective for periods ending after June 15, 2009.  The Company adopted FSP FAS 107−1 and APB 28−1this standard effective for the quarter ending June 30, 2009.  The adoption did not have an impact on the Company’s financial position or results of operations.

In May 2009, the FASB issued FASB Statement No. 165, “Subsequent Events” (“SFAS No. 165”).  SFAS No. 165, now included in the Codification as part of FASB ASC 855-10-55.  This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  The Company adopted this statementstandard effective for the quarter ending June 30, 2009.

In June 2009, the FASB issued FASB Statement No. 166 (not incorporated into the Codification yet), “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140,” to improve the reporting for the transfer of financial assets resulting from (1) practices that have developed since the issuance of FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” that are not consistent with the original intent and key requirements of that Statement and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors.  This Statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter.  Earlier application is prohibited.  The Company will review the requirements of FASB No. 166 and comply with its requirements.  The Company does not expect that the adoption of this Statement will have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167 (not incorporated into the Codification yet), “Amendments to FASB Interpretation No. 46(R)” to amend certain requirements of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements.  The Statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter.  Earlier application is prohibited.  The Company will review the requirements of FASB No. 167 and comply with its requirements.  The Company does not expect that the adoption of this Statement will have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.”  UnderThe change initiated by this Statement is now included in the Statement,Codification as FASB ASC 105-10-10 and establishes the The FASBFinancial Accounting Standards Board (FASB) Accounting Standards Codification (Codification) will becomeTM as the source of authoritative U.S. generally accepted accounting principles (GAAP)and standards recognized by the FASB to be applied by nongovernmental entities.entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP).   Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this Statement,standard, the Codification will supersedesuperseded all then-existing non-SEC accounting and reporting standards.  All other non-grandfathered non-SEC accounting literature not included in the Codification will becomebecame non-authoritative.  This Statementstandard is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  In the FASB’s view, the issuance of this Statement and the Codification willdoes not change GAAP, except for those nonpublic nongovernmental entities that must now apply the American Institute of Certified Public Accountants Technical Inquiry Service Section 5100, “Revenue Recognition,” paragraphs 38–76.76, now included as part of FASB ASC Topic 985.  The Company doesadopted FASB ASC Topic 105-10-10 effective for the quarter ending September 30, 2009.  The adoption did not expecthave an impact on the Company’s financial position or results of operations.

10


In August, 2009, the FASB issued Accounting Standards Update 2009-05, “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value,” which updates ASC 820-10.  The update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques:

1.  A valuation technique that uses a.) the quoted price of an identical liability when traded as an asset, or b.) quoted prices for similar liabilities or similar liabilities when traded as assets.
2.  Another valuation technique that is consistent with the principles of Topic 820, examples include an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability.

This standard is effective for financial statements issued for interim and annual periods ending after August 2009.  The Company adopted Update 2009-05 effective for the quarter ending September 30, 2009.  The adoption of this Statement willdid not have a material impact on the Company’s consolidated financial statements.disclosures.

4.  Discontinued Operations

On October 1, 2009, the Company entered into a definitive agreement to sell all of its stock ownership interest in WB Capital.  After receiving solicitations from third parties to purchase WB Capital, the Company’s Board of Director’s decided to exit this business line and focus on community banking.  The sale, which is subject to customary terms and conditions, including certain approvals and consents of clients of WB Capital, is expected to close by December 31, 2009.  The assets and liabilities of WB Capital have been classified as discontinued operations held for sale for both the current period and prior period and the results of operations and cash flows of WB Capital have been reflected on those statements as discontinued operations for both the current period and prior periods reported.  Summarized financial information for discontinued operations is set forth below:


  September 30, 2009  December 31, 2008 
Assets of discontinued operations held for sale:      
Cash and due from banks $395  $345 
Securities available for sale  -   50 
Premises and equipment, net  167   277 
Goodwill  394   11,554 
Other intangible assets  637   927 
Other assets  1,633   822 
Total assets of discontinued operations held for sale $3,226  $13,975 
Liabilities of discontinued operations held for sale:        
Accrued expenses and other liabilities  1,217   1,323 
Total liabilities of discontinued operations held for sale $1,217  $1,323 



  Three Months Ended September 30,  Nine Months Ended September 30, 
  2009  2008  2009  2008 
Revenue from discontinued operations:            
Interest income $-  $-  $-  $- 
Interest expense  -   1   -   1 
Net interest income  -   (1)  -   (1)
Noninterest income  1,594   1,932   4,687   5,929 
Noninterest expense  2,642   2,232   15,081   5,756 
Income (loss) from discontinued operations before income taxes  (1,048)  (301)  (10,394)  172 
Income taxes (benefits)  37   (123)  (777)  76 
Income (loss) from discontinued operations $(1,085) $(178) $(9,617) $96 

WB Capital was the only activity in the Company’s previously reported investment advisory segment disclosures.  The remainder of the Company was reported in the banking segment.  Therefore, the Company is no longer disclosing segment information.

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The sales agreement includes a provision that the Company will not be involved in the investment advisory business for five years after closing, except as is currently being performed by the West Bank trust department.  The new owner of WB Capital will be allowed to make its investment advisory services available to West Bank’s trust department customers and will manage West Bank’s bond portfolio for the next three years.  The annual continuing cash flows to the buyer for these services are not expected to be significant.

5.  Critical Accounting Policies

Management has identified its most critical accounting policies to be those related to the allowance for loan losses, goodwill, and fair value of available for sale investment securities.

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 collectability 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 loans.  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 areas 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.

8

Goodwill is the excess of the cash paid over the net fair value of assets acquired and liabilities assumed in an acquisition, less the amount of identifiable intangible assets.  Goodwill is deemed to have an indefinite life, is not subject to amortization, and is instead tested for impairment at least annually.  Goodwill is also tested for impairment on an interim basis if events or circumstances indicate a possible inability to realize the carrying amount.  Goodwill impairment was reviewed for the interim periodas of June 30, 2009, because the Company’s stock traded at a market price of less than its per share book value.  Therefore, the Company hired a third party valuation firm to assist management in determining whether goodwill had been impaired.  The Company’s goodwill consisted of two pieces.  Goodwill totaling $13,376 was associated with the acquisition of Hawkeye State Bank in 2003.  Goodwill totaling $11,554 was associated with the acquisitions of VMF Capital in 2003 and Investors Management Group, Ltd. in 2005, which combined constitute WB Capital.

With the assistance of management, the third party valuation firm, management prepared an estimate of the fair value of a 100 percent controlling marketable interest in the outstanding stock of West Bank and of WB Capital as of June 30, 2009, in accordance with FASB No. 142, “Goodwill and Other Intangible Assets.”ASC 350-20-35.  FASB No. 142ASC 350-20-35 requires the use of fair value measurements as defined in FASB No. 157.ASC 820-10-50.  In determining the fair value of West Bank a combination of the income and market approaches were used.  Under the income approach, the primary factor considered was the ability of West Bank to generate future cash flows.  A discount rate was estimated by utilizing the build-up method which factors in the following components:  a risk-free rate of return, an equity risk premium, an industry risk premium or discount, a size premium and risk associated specifically with West Bank.  A discount rate of 12.04 percent was then applied to projected future cash flows of West Bank.  Under the market approach, stock market data regularly published on publicly traded companies considered to be similar to West Bank were utilized in determining market value.  The two indicated values were then weighted to represent the relative importance a market participant might reasonably be expected to place on the results of each method.  For WB Capital, a discount rate of 16.66 percent, calculated under the same methodology as for West Bank, was applied to projected future cash flows to determine market value.  No weighting was given to the market approach for WB Capital as identified comparable companies were significantly larger and more diversified than WB Capital and comparable merger and acquisition transactions did not sufficiently reflect market conditions as of June 30, 2009.

Based on the above analysis, an impairment of $23,036 was recorded in the quarter ending June 30, 2009.  The impairment represented all of the goodwill of West Bank and $9,660 of WB Capital’s goodwill.goodwill, which is included in the discontinued operations section of the consolidated statement of operations.  During the quarter ending September 30, 2009, an additional $1,500 of goodwill impairment was recorded at WB Capital.  The additional goodwill impairment charge was necessary because the Company determined the fair value of WB Capital was less than originally estimated.  The additional goodwill impairment of WB Capital is also reflected in the loss on discontinued operations in the consolidated statement of operations.  The impairment chargecharges had no impact on the Company’s liquidity, cash flows, or tangible capital ratios.  In addition, goodwill is not included in the calculation of regulatory capital, so the impairment had a negligible impact on the Company’s and West Bank’s risk-based capital ratios.  As of JuneSeptember 30, 2009, the Company and West Bank exceed the regulatory requirements for being well-capitalized.

12


Securities available for sale are reported at fair value, with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of deferred income taxes.  The Company conducts quarterly reviews to identify and evaluate each investment that has an unrealized loss, in accordance with FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.”FASB ASC 320-10-35.  In June 2009, the Company adopted FSP FAS 115-2/124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” now included in the Codification as part of FASB ASC 320-10-35, which changed the accounting requirements for OTTI for debt securities, and in certain circumstances, separates the amount of total impairment into credit and noncredit-related amounts.  The review takes into consideration current market conditions, issuer rating changes and trends, the credit worthiness of the obligator of the security, current analysts’ evaluations, failure of the issuer to make scheduled interest or principal payments, the Company’s lack of intent to not sell the security or whether it is more-likely-than-not that the Company will be required to sell the debt security before its anticipated recovery, as well as other qualitative factors.  The term OTTI is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.  Declines in the fair value of securities below their amortized cost basis that are deemed to be OTTI are carried at fair value.  Any portion of a decline in value associated with credit loss is recognized in income with the remaining noncredit-related component being recognized in other comprehensive income.  A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered, by comparing the present value of cash flows expected to be collected from the security, computed using original yield as the discount rate, to the amortized cost basis of the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the “credit loss.”

9

5.6.  Securities Available for Sale

For securities available for sale, the following table shows the amortized cost, unrealized gains and losses (pre-tax) included in accumulated other comprehensive income (loss), and estimated fair value by security type as of JuneSeptember 30, 2009 and December 31, 2008.  Included in gross unrealized losses as of JuneSeptember 30, 2009, is an OTTI loss of $3,360$3,519 relating to a pooled trust preferred security, which represents the noncredit-related portion of the overall impairment.


 June 30, 2009  September 30, 2009 
    Gross  Gross        Gross  Gross    
 Amortized  Unrealized  Unrealized  Fair  Amortized  Unrealized  Unrealized  Fair 
 Cost  Gains  (Losses)  Value  Cost  Gains  (Losses)  Value 
                        
U.S. Treasury and government agencies and corporations $100,123  $154  $(723) $99,554 
U.S. government agencies
and corporations
 $79,412  $244  $(85) $79,571 
State and political subdivisions  104,177   1,776   (2,348)  103,605   94,193   2,671   (537)  96,327 
Mortgage-backed securities  11,184   40   -   11,224   12,240   77   -   12,317 
Trust preferred securities (1)  8,952   -   (5,606)  3,346   7,422   -   (4,924)  2,498 
Corporate notes and other investments  29,277   22   (1,188)  28,111   23,070   152   (1,832)  21,390 
 $253,713  $1,992  $(9,865) $245,840  $216,337  $3,144  $(7,378) $212,103 
                                
 December 31, 2008  December 31, 2008 
     Gross  Gross          Gross  Gross     
 Amortized  Unrealized  Unrealized  Fair  Amortized  Unrealized  Unrealized  Fair 
 Cost  Gains  (Losses)  Value  Cost  Gains  (Losses)  Value 
                                
U.S. Treasury and government agencies and corporations $58,895  $2,155  $-  $61,050  $58,895  $2,155  $-  $61,050 
State and political subdivisions  109,682   1,271   (3,778)  107,175   109,682   1,271   (3,778)  107,175 
Mortgage-backed securities  1,234   -   -   1,234   1,234   -   -   1,234 
Trust preferred securities (2)  8,025   -   (2,756)  5,269   8,025   -   (2,756)  5,269 
Corporate notes and other investments  9,614   3   (2,911)  6,706   9,564   3   (2,911)  6,656 
 $187,450  $3,429  $(9,445) $181,434  $187,400  $3,429  $(9,445) $181,384 

 (1)During the quarter ended June 30, 2009, pursuant to FSP FAS 115-2,FASB ASC 320-10-35, which states that previously recorded impairment charges which did not relate to credit losses should be reclassified from retained earnings to accumulated other comprehensive income (loss), the Company recorded a cumulative effect adjustment that increased retained earnings and decreased other comprehensive income (loss) by $2,622, or $1,625 net of tax, respectively.
 (2)The Company recorded OTTI charges in this category of $2,622 for the year ending December 31, 2008 related to one pooled trust preferred security.  For the security deemed impaired, the amortized cost was written down to the fair value of the security.

13


Securities with an amortized cost of approximately $160,931$142,076 and $161,765 as of JuneSeptember 30, 2009 and December 31, 2008, respectively, were pledged as collateral on the Treasury, Tax, and Loan option notes, securities sold under agreements to repurchase, and for other purposes as required or permitted by law or regulation.  Securities sold under agreements to repurchase are held in safekeeping on behalf of the Company.

The amortized cost and fair value of securities available for sale as of JuneSeptember 30, 2009, by contractual maturity are shown below.  Expected maturities will differ from contractual maturities, because issuers may have the right to call or prepay obligations with or without prepayment penalties.


  June 30, 2009 
  Amortized  Fair 
  Cost  Value 
       
Due in one year or less $12,529  $12,424 
Due after one year through five years  122,862   121,895 
Due after five years through ten years  59,094   59,069 
Due after ten years  59,228   52,452 
  $253,713  $245,840 

  September 30, 2009 
  Amortized  Fair 
  Cost  Value 
       
Due in one year or less $20,176  $19,661 
Due after one year through five years  87,383   86,745 
Due after five years through ten years  55,398   56,389 
Due after ten years  53,380   49,308 
  $216,337  $212,103 
10


For the three and sixnine months ended JuneSeptember 30, 2009, proceeds from the sales of securities available for sale were $0$53,694 and $10,502,$108,037, respectively.  Gross security gains of $0$722 and $1,453$2,175 were realized for the three and sixnine months ended JuneSeptember 30, 2009, respectively, and no losses of $215 were recognized during these time periods.the three and nine months ended September 30, 2009.  For the three and sixnine months ended JuneSeptember 30, 2008, proceeds from the sales of securities available for sale were $0$5,958 and $3,604,$9,562, respectively.  Gross security gains of $0$66 and $5$71 were realized for the three and sixnine months ended JuneSeptember 30, 2008, respectively, and no losses were recognized during these time periods.  Realized gains and losses on sales are computed on a specific identification basis and are based on amortized cost.

See Note 45 for a discussion of financial reporting for securities with unrealized losses.

14


The following tables show the fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, as of JuneSeptember 30, 2009 and December 31, 2008.  The table includes one trust preferred security for which a portion of an OTTI has been recognized in other comprehensive income (loss).


 June 30, 2009  September 30, 2009 
 Less than 12 months  12 months or longer  Total  Less than 12 months  12 months or longer  Total 
 Fair  Unrealized  Fair  Unrealized  Fair  Unrealized  Fair  Unrealized  Fair  Unrealized  Fair  Unrealized 
 Value  (Losses)  Value  (Losses)  Value  (Losses)  Value  (Losses)  Value  (Losses)  Value  (Losses) 
                                    
U.S. Treasury and government agencies and corporations $71,394  $(723) $-  $-  $71,394  $(723)
                  
U.S. government agencies
and corporations
 $19,060  $(85) $-  $-  $19,060  $(85)
State and political subdivisions  29,418   (1,372)  12,683   (976)  42,101   (2,348)  6,831   (144)  11,842   (393)  18,673   (537)
Mortgage-backed securities  -   -   -   -   -   -   -   -   -   -   -   - 
Trust preferred securities  235   (515)  2,990   (5,091)  3,225   (5,606)  -   -   5,539   (4,924)  5,539   (4,924)
Corporate notes and other investments  13,837   (56)  4,853   (1,132)  18,690   (1,188)  -   -   4,154   (1,832)  4,154   (1,832)
 $25,891  $(229) $21,535  $(7,149) $47,426  $(7,378)
 $114,884  $(2,666) $20,526  $(7,199) $135,410  $(9,865)                        
                         December 31, 2008 
 December 31, 2008  Less than 12 months  12 months or longer  Total 
 Less than 12 months  12 months or longer  Total  Fair  Unrealized  Fair  Unrealized  Fair  Unrealized 
 Fair  Unrealized  Fair  Unrealized  Fair  Unrealized  Value  (Losses)  Value  (Losses)  Value  (Losses) 
 Value  (Losses)  Value  (Losses)  Value  (Losses)                         
                                                
U.S. Treasury and government agencies and corporations $-  $-  $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
State and political subdivisions  41,901   (3,109)  5,937   (669)  47,838   (3,778)  41,901   (3,109)  5,937   (669)  47,838   (3,778)
Mortgage-backed securities  -   -   -   -   -   -   -   -   -   -   -   - 
Trust preferred securities  2,401   (1,799)  292   (957)  2,693   (2,756)  2,401   (1,799)  292   (957)  2,693   (2,756)
Corporate notes and other investments  1,512   (488)  1,560   (2,423)  3,072   (2,911)  1,512   (488)  1,560   (2,423)  3,072   (2,911)
 $45,814  $(5,396) $7,789  $(4,049) $53,603  $(9,445) $45,814  $(5,396) $7,789  $(4,049) $53,603  $(9,445)

As of JuneSeptember 30, 2009, the available for sale investment portfolio included 3628 municipal securities, 53 trust preferred securities, and 2 corporate notes with current unrealized losses that have existed for longer than one year.

The unrealized losses on the Company’s investments in state and political subdivisions are due to market conditions, not in estimated cash flows.  The Company does not have the intent to sell these securities and does not anticipate that these securities will be required to be sold before anticipated recovery, and expects full principal and interest to be collected.  Therefore, the Company does not consider these investments to be OTTI at JuneSeptember 30, 2009.

The unrealized losses in fourtwo single-issuer trust preferred securities are due to reduced demand for these securities, and interest rate fluctuations and illiquid markets, not estimated cash flows.  The Company does not have the intent to sell these securities and does not anticipate that these securities will be required to be sold before anticipated recovery, and expects full principal and interest will be collected.  Therefore, the Company does not consider these investments to be OTTI at JuneSeptember 30, 2009.

11

For the year ended December 31, 2008, the Company recorded OTTI on a pooled trust preferred security, which resulted in a reduction of non-interestnoninterest income of $2,622.  Pursuant to FSP FAS 115-2/124-2,FASB ASC 320-10-35, which states that previously recorded impairment charges which did not relate to a credit loss should be reclassified from retained earnings to other comprehensive income, during the second quarter of 2009 the Company recorded a cumulative effect adjustment that increased retained earnings and decreased other comprehensive income (loss) by $2,622, or $1,625, net of tax.  None of the previously recorded impairment loss was considered a credit loss as of April 1, 2009, the date of adoption of this accounting pronouncement.

15


The Company engaged an independent consulting firm to assist in the valuation of this security as of June 30, 2009 and September 30, 2009.  Based on the consulting firm’s findings, management determined the security had an estimated market value of $1,266$1,091 which resulted in $3,635$3,535 of total impairment, or an additional impairment of $1,013 and $174 in the second quarterand third quarters of 2009.2009, respectively.  To determine the credit loss on this security, the investment consulting firm projected cash flows for the security and discounted the cash flows at the original purchased yield.  The consulting firm analyzed each underlying bank or insurance company and assigned a probability of default.  Those default assumptions were then used to determine the projected cash flows of the security.  In addition, the consulting firm assumed no prepayments of the underlying debt.  If the net present value of the cash flows was less than the cost basis of the security, the difference was considered credit-related and recorded through earnings.  Based on this calculation, $275an additional $15, or $290 on a year-to-date basis of the total impairment was considered to be a credit loss which was recognized in the 2009 secondthird quarter and nine months ended September 30, 2009 income statementstatements and the remaining amortized cost of the security was reduced to create a new cost basis.  The remaining change in fair market value of $3,360$3,519 is reflected in other comprehensive income (loss), net of taxes of $1,277.$1,337.  The Company will continue to estimate the present value of cash flows expected to be collected over the life of the security.

For the first quarter of 2009, the Company recognized an OTTI of $1,380 on two trust preferred securities.  The carrying values of these securities were written down to $120 as of March 31, 2009, and were considered credit losses.  Therelosses, with the balances remaining the same at June 30, 2009.  During the third quarter of 2009, one of these trust preferred securities was sold with a realized loss of $62.  The subsidiary bank of the other trust preferred security was closed by the FDIC during the quarter and the security is considered to be uncollectible.  The decision was made to minimize the credit risk in the investment portfolio during the third quarter of 2009.  Therefore, the Company recognized an OTTI of $812 on three single-issuer trust preferred securities for which the Company now has the intent to sell.  The carrying values of these securities were no changeswritten down to the credit-related component during the second quarterestimated market value which totaled $479 as of September 30, 2009.

The Company’s unrealized loss on investments in corporate bonds is due to market conditions, not in estimated cash flows.  The Company does not have the intent to sell these securities and does not anticipate that these securities will be required to be sold before anticipated recovery, and expects full principal and interest to be collected.  Therefore, the Company does not consider these investments to be OTTI at JuneSeptember 30, 2009.

The following table provides a roll forward of the amount of credit-related losses recognized in earnings for which a portion of OTTI has been recognized in other comprehensive income (loss) through JuneSeptember 30, 2009:


Beginning balance as of December 31, 2008 $- 
Current period credit loss recognized in earnings  275 
Reductions for securities sold during the period  - 
Reductions for securities where there is an intent to sell    
  or requirement to sell  - 
Reductions for increases in cash flows expected to be collected  - 
Balance as of June 30, 2009 $275 
  Three Months Ended  Nine Months Ended 
  September 30, 2009  September 30, 2009 
Balance at beginning of period $275  $- 
Current period credit loss recognized in earnings  15   290 
Reductions for securities sold during the period  -   - 
Reductions for securities where there is an intent to sell
     or requirement to sell
  -   - 
Reductions for increases in cash flows expected to be collected  -   - 
Balance as of September 30, 2009 $290  $290 

6.
7.  Impaired Loans and Allowance for Loan Losses

A loan is impaired when it is probable that West Bank will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement.  Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or at the fair value of the collateral if the loan is collateral dependent.  The amount of the impairment is included in the allowance for loan losses.  The following is a recap of impaired loans at the dates shown:


 June 30, 2009  December 31, 2008  September 30, 2009  December 31, 2008 
Impaired loans without an allowance $14,136  $18,067  $17,966  $18,067 
Impaired loans with an allowance  51,671   23,044   29,246   23,044 
Total impaired loans $65,807  $41,111  $47,212  $41,111 
Allowance for loan losses related to impaired loans $9,761  $3,590  $5,419  $3,590 


 
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The following table reconciles the balance of non-accrualnonaccrual loans with impaired loans carried at fair value as of the dates shown below.


 June 30, 2009  December 31, 2008  September 30, 2009  December 31, 2008 
Non-accrual loans $29,591  $21,367 
Nonaccrual loans $14,455  $21,367 
Restructured loans  12,855   7,376   16,881   7,376 
Other impaired loans still accruing interest  23,361   12,368   15,876   12,368 
Total impaired loans $65,807  $41,111  $47,212  $41,111 


Changes in the allowance for loan losses were as follows for the periods shown below:


 Three Months Ended June 30,  Six Months Ended June 30,  Three Months Ended September 30,  Nine Months Ended September 30, 
 2009  2008  Change  2009  2008  Change  2009  2008  Change  2009  2008  Change 
Balance at beginning of period $18,015  $14,260  $3,755  $15,441  $8,935  $6,506  $23,662  $10,557  $13,105  $15,441  $8,935  $6,506 
Charge-offs  (9,366)  (4,740)  (4,626)  (10,553)  (5,121)  (5,432)  (7,131)  (1,118)  (6,013)  (17,684)  (6,239)  (11,445)
Recoveries  13   37   (24)  274   143   131   127   45   82   401   188   213 
Net charge-offs  (9,353)  (4,703)  (4,650)  (10,279)  (4,978)  (5,301)  (7,004)  (1,073)  (5,931)  (17,283)  (6,051)  (11,232)
Provision charged to operations  15,000   1,000   14,000   18,500   6,600   11,900   3,000   7,000   (4,000)  21,500   13,600   7,900 
Balance at end of period $23,662  $10,557  $13,105  $23,662  $10,557  $13,105  $19,658  $16,484  $3,174  $19,658  $16,484  $3,174 

7.
8.  Fair Value Measurements

Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements, FASB ASC 820-10-50, requires disclosure for those assets and liabilities carried in the balance sheet on a fair value basis.  Effective January 1, 2009, the Company adopted the nonfinancial assets and liabilities portion of SFAS No. 157,ASC 820-10-50, which requires recognition at fair value of nonfinancial assets and liabilities on a nonrecurring basis.  TheIn June 2009, the Company adopted FSP FAS 157-4, now included in the Codification as part of FASB ASC 820-10-35, which was discussed above in Note 3, in June 2009, and has applied its guidance in estimating fair values for securities where the market volume and level of activity have significantly decreased.  The application of FSP FAS 157-4this accounting pronouncement did not result in a change in valuation technique or related inputs.

The Company’s balance sheet contains securities available for sale that are recorded at fair value on a recurring basis.  SFAS No. 157FASB ASC 820-10-50 establishes a three-level valuation hierarchy for disclosure of fair value.  The three levels for determining fair value are as follows:

Level 1 uses quoted market prices in active markets for identical assets or liabilities.

Level 2 uses observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3 uses unobservable inputs that are not corroborated by market data.  These may be internally developed, using the Company’s best information and assumptions that a market participant would consider.

When available, quoted market prices are used to determine the fair value of investment securities and such items are classified within Level 1 of the fair value hierarchy.  An example is U.S. Treasury securities.  For other securities, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar bonds where a price for the identical bond is not observable.  Securities measured at fair value by such methods are classified as Level 2.  Certain securities are not valued based on observable transactions and are, therefore, classified as Level 3.  The fair value of these securities is based on management’s best estimates.

 
1317
 


The following table presents the balances of assets and liabilities measured at fair value on a recurring basis by level as of JuneSeptember 30, 2009:


    Quoted Prices           Quoted Prices       
    in Active Markets  Significant Other  Significant     in Active Markets  Significant Other  Significant 
    for Identical Assets  Observable Inputs  Unobservable Inputs     for Identical Assets  Observable Inputs  Unobservable Inputs 
Description Total  (Level 1)  (Level 2)  (Level 3)  Total  (Level 1)  (Level 2)  (Level 3) 
                        
Assets:                        
U.S. Treasury and government            
agencies and corporations $99,554  $2,029  $97,525  $- 
U.S. government agencies
and corporations
 $79,571  $-  $79,571  $- 
State and political subdivisions  103,605   -   103,605   -   96,327   -   96,327   - 
Mortgage-backed securities  11,224   -   11,224   -   12,317   -   12,317   - 
Trust preferred securities  3,346   -   2,030   1,316   2,498   -   1,332   1,166 
Corporate notes and other investments  28,111   -   28,111   -   21,390   -   21,390   - 
Total $245,840  $2,029  $242,495  $1,316  $212,103  $-  $210,937  $1,166 


The following table presents changes in securities available for sale with significant unobservable inputs (Level 3) for the three and sixnine months ended JuneSeptember 30, 2009:


 3 Months Ended  Six Months Ended  Three Months Ended  Nine Months Ended 
Securities available for sale: June 30, 2009  June 30, 2009  September 30, 2009  September 30, 2009 
Beginning balance $2,344  $2,325  $1,316  $2,325 
Transfer into Level 3  -   250   -   250 
Total gains or losses:                
Included in earnings  (275)  (275)  (191)  (466)
Included in other comprehensive income  (738)  (938)
Included in other comprehensive income (loss)  41   (897)
Principal payments  (15)  (46)  -   (46)
Ending balance $1,316  $1,316  $1,166  $1,166 


The table above includes one pooled trust preferred security which was transferred to Level 3 during 2008.  Market pricing for this security varies widely from one pricing service to another based on a lack of trading so it was considered to no longer have readily observable market data.  The fair value as of JuneSeptember 30, 2009, was determined by discounting the expected cash flows over the life of the security.  The discount rate included an estimate for illiquidity, credit risk, and the time value of money.  An additional credit loss of $15 was recognized during the quarter ended September 30, 2009.  One additionalother trust preferred security, with a carrying value of $250, was transferred to Level 3 during the first quarter of 2009.  The bank holding company that issued the trust preferred security is not a public company had been deferring interest payments on the trust preferred securities, and has been losing money for over a year. Subsequent to June 30, 2009, deferred interest payments have been received. This security was estimated by management to have a fair market value of $50$75 at JuneSeptember 30, 2009.  During the quarter ended September 30, 2009, the Company decided to sell this security, so it was deemed OTTI, and an impairment loss was recognized in earnings.

Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following table presents the assets carried on the balance sheet by caption and by level within the SFAS No. 157FASB ASC 820-10-50 valuation hierarchy as of JuneSeptember 30, 2009:


    Quoted Prices           Quoted Prices       
    in Active Markets  Significant Other  Significant     in Active Markets  Significant Other  Significant 
    for Identical Assets  Observable Inputs  Unobservable Inputs     for Identical Assets  Observable Inputs  Unobservable Inputs 
Description Total  (Level 1)  (Level 2)  (Level 3)  Total  (Level 1)  (Level 2)  (Level 3) 
                        
Assets:                        
Loans $41,910  $-  $-  $41,910  $23,827  $-  $-  $23,827 
Goodwill  1,894   -   -   1,894 
Other real estate owned  6,137   -   -   6,137   18,089   -   -   18,089 
Total $49,941  $-  $-  $49,941  $41,916  $-  $-  $41,916 


 
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Loans in the table above consist of impaired loans held for investment less the portion of the allowance for loan losses related to these loans.  Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value and are classified as a Level 3 in the fair value hierarchy.  Fair value is measured based on the value of the collateral securing these loans.  Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and is determined based on appraisals by qualified licensed appraisers hired by the Company.  Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business.  Other real estate owned in the table above consists of property acquired through foreclosures and settlements of loans.  Property acquired is carried at the lower of the principal amount of loans outstanding, or the estimated fair value of the property, less disposal costs, and is classified as a Level 3 in the fair value hierarchy.

SFAS 107, “Disclosures about Fair Value of Financial Instruments,”FASB ASC 825-10-50 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurringnonrecurring basis.  The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurringnonrecurring basis are discussed above.  The methodologies for other financial assets and financial liabilities are discussed below:

Cash and due from banks:  The carrying amount approximates fair value.

Federal funds sold and other short-term investments:  The carrying amount approximates fair value.

Federal Home Loan Bank stock:  The fair value of this restricted stock is estimated at its carrying value and redemption price of $100 per share.

Loans held for sale:  The fair values of loans held for sale are based on estimated selling prices.

Loans:  Fair values of loans are estimated using discounted cash flow analysis based on observable market interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

Deposits:  The carrying amounts for demand and savings deposits, which represent the amounts payable on demand, approximate their fair values.  Fair values for fixed-rate and variable-rate certificates of deposit are estimated using discounted cash flow analysis, based on observable market interest rates currently being offered on certificates with similar terms.

Accrued interest receivable and payable:  The fair values of both accrued interest receivable and payable approximate their carrying amounts.

Short-term and long-term borrowings:  The carrying amounts of federal funds purchased and securities sold under agreements to repurchase and certain other short-term borrowings approximate their fair values.  Fair values of long-term borrowings including subordinated notes are estimated using discounted cash flow analysis, based on observable market interest rates currently being offered with similar terms.

Commitments to extend credit and standby letters of credit:  The approximate fair values of commitments and standby letters of credit are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and creditworthiness of the counterparties.

 
1519
 


The carrying amounts and approximate fair values are as follows as of JuneSeptember 30, 2009 and December 31, 2008:


 June 30, 2009  December 31, 2008  September 30, 2009  December 31, 2008 
 Carrying  Approximate  Carrying  Approximate  Carrying  Approximate  Carrying  Approximate 
 Amount  Fair Value  Amount  Fair Value  Amount  Fair Value  Amount  Fair Value 
Financial assets:                        
Cash and due from banks $23,985  $23,985  $23,712  $23,712  $28,631  $28,631  $23,712  $23,712 
Federal funds sold and other                
short-term investments  64,254   64,254   173,257   173,257 
Federal funds sold and other
short-term investments
  123,685   123,685   173,257   173,257 
Securities available for sale  245,840   245,840   181,434   181,434   212,103   212,103   181,434   181,434 
Federal Home Loan Bank stock  9,756   9,756   8,174   8,174   10,423   10,423   8,174   8,174 
Loans held for sale  7,213   7,224   1,018   1,022   1,152   1,160   1,018   1,022 
Loans, net  1,091,662   1,101,017   1,085,294   1,091,071   1,042,675   1,049,063   1,085,294   1,091,071 
Accrued interest receivable  7,122   7,122   6,415   6,415   6,889   6,889   6,415   6,415 
Financial liabilities:                                
Deposits  1,176,894   1,180,140   1,154,787   1,160,620   1,161,148   1,165,310   1,155,132   1,160,965 
Federal funds purchased and securities                
sold under agreements to repurchase  48,938   48,938   93,111   93,111 
Federal funds purchased and securities
sold under agreements to repurchase
  48,444   48,444   93,111   93,111 
Other short-term borrowings  3,262   3,262   245   245   1,860   1,860   245   245 
Accrued interest payable  4,112   4,112   3,995   3,995   3,150   3,150   3,995   3,995 
Subordinated notes  20,619   14,902   20,619   21,026   20,619   15,253   20,619   21,026 
Long-term borrowings  125,000   124,877   125,000   127,053   125,000   127,194   125,000   127,053 
Off-balance-sheet financial instruments:                                
Commitments to extend credit  -   -   -   -   -   -   -   - 
Standby letters of credit  -   -   -   -   -   -   -   - 

8.  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 segments are banking and investment advisory services.  The banking segment generates revenue through interest and fees on loans, interest on investment securities, service charges on deposit accounts, gains and fees on sale of residential mortgages, and fees for trust services.  The banking segment includes West Bank, the Company, and related elimination entries between the two, as the Company’s operation is similar to that of West Bank.  The investment advisory segment generates revenue by providing investment portfolio management services to individuals, retirement plans, corporations, foundations, endowments, and public entities.  The investment advisory segment consists of WB Capital Management Inc.  The “Other” column represents the elimination of intercompany balances.  Selected financial information on the Company’s segments is presented below for the three and six months ended June 30, 2009 and 2008.

 
1620
 

  Three Months Ended June 30, 
  2009  2008 
  Segments  Segments 
     Investment           Investment       
  Banking  Advisory  Other  Consolidated  Banking  Advisory  Other  Consolidated 
Interest income $17,271  $-  $-  $17,271  $17,330  $-  $-  $17,330 
Interest expense  7,076   -   -   7,076   7,095   -   -   7,095 
Net interest income  10,195   -   -   10,195   10,235   -   -   10,235 
Provision for loan losses  15,000   -   -   15,000   1,000   -   -   1,000 
Net interest income after                                
provision for loan losses  (4,805)  -   -   (4,805)  9,235   -   -   9,235 
Noninterest income  1,922   1,634   (41)  3,515   2,321   2,007   (47)  4,281 
Noninterest expense  20,204   10,987   (41)  31,150   5,341   1,767   (47)  7,061 
Income (loss) before income taxes  (23,087)  (9,353)  -   (32,440)  6,215   240   -   6,455 
Income taxes (benefits)  (9,344)  (817)  -   (10,161)  1,840   101   -   1,941 
Net income (loss) $(13,743) $(8,536) $-  $(22,279) $4,375  $139  $-  $4,514 
                                 
Depreciation and amortization $239  $141  $-  $380  $238  $176  $-  $414 
                                 
Goodwill impairment included                                
  in noninterest expense $13,376  $9,660  $-  $23,036  $-  $-  $-  $- 

  Six Months Ended June 30, 
  2009  2008 
  Segments  Segments 
     Investment           Investment       
  Banking  Advisory  Other  Consolidated  Banking  Advisory  Other  Consolidated 
Interest income $34,233  $-  $-  $34,233  $36,193  $-  $-  $36,193 
Interest expense  14,101   -   -   14,101   16,082   -   -   16,082 
Net interest income  20,132   -   -   20,132   20,111   -   -   20,111 
Provision for loan losses  18,500   -   -   18,500   6,600   -   -   6,600 
Net interest income after                                
provision for loan losses  1,632   -   -   1,632   13,511   -   -   13,511 
Noninterest income  4,933   3,093   (84)  7,942   4,312   3,996   (95)  8,213 
Noninterest expense  26,298   12,439   (84)  38,653   10,398   3,523   (95)  13,826 
Income (loss) before income taxes  (19,733)  (9,346)  -   (29,079)  7,425   473   -   7,898 
Income taxes (benefits)  (8,927)  (814)  -   (9,741)  1,811   199   -   2,010 
Net income (loss) $(10,806) $(8,532) $-  $(19,338) $5,614  $274  $-  $5,888 
                                 
Depreciation and amortization $465  $281  $-  $746  $468  $349  $-  $817 
                                 
Goodwill impairment included                                
in noninterest expense $13,376  $9,660  $-  $23,036  $-  $-  $-  $- 
                                 
Goodwill $-  $1,894  $-  $1,894  $13,376  $11,554  $-  $24,930 
                                 
Total assets $1,510,229  $4,555  $(883) $1,513,901  $1,355,443  $14,219  $(795) $1,368,867 

9.  Earnings (Loss) per Common Share

Basic earnings (loss) per common share isfrom continuing and discontinued operations are computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period.  Income (loss) available to common stockholders is net income (loss) less preferred stock dividends and accretion of discount on preferred stock, treated as preferred stock dividends.  Diluted earnings (loss) per common share reflectsfrom continuing and discontinued operations reflect the potential dilution that could occur if the Company’s outstanding stock warrant was exercised and converted into common stock.  The dilutive effect is computed using the treasury stock method, which assumes all outstanding warrants are exercised.  The incremental shares, to the extent they would have been dilutive, are included in the denominator of the diluted earnings (loss) per common share calculation.  The calculation of earnings (loss) per common share and diluted earnings (loss) per common share for the three and sixnine months ended JuneSeptember 30, 2009 and 2008 is presented below.

17

 Three Months Ended June 30,  Six Months Ended June 30,  Three Months Ended September 30,  Nine Months Ended September 30, 
 2009  2008  2009  2008  2009  2008  2009  2008 
Basic earnings (loss) per common share:            
Income (loss) from continuing operations $2,990  $(182) $(7,816) $5,432 
Income (loss) from discontinued operations  (1,085)  (178)  (9,617)  96 
Net income (loss) $(22,279) $4,514  $(19,338) $5,888  $1,905  $(360) $(17,433) $5,528 
Preferred stock dividends*  (450)  -   (900)  -   (450)  -   (1,350)  - 
Preferred stock discount accretion*  (120)  -   (237)  -   (121)  -   (358)  - 
Net income (loss) available to common stockholders $(22,849) $4,514  $(20,475) $5,888  $1,334  $(360) $(19,141) $5,528 
Weighted average common shares outstanding  17,404   17,404   17,404   17,406   17,404   17,404   17,404   17,406 
Common stock warrant**  -   -   -   - 
Diluted weighted average common shares outstanding  17,404   17,404   17,404   17,406 
                
Basic earnings (loss) per common share from continuing operations $0.14  $(0.01) $(0.55) $0.31 
Basic earnings (loss) per common share from discontinued operations $(0.06) $(0.01) $(0.55) $0.01 
Basic earnings (loss) per common share $(1.32) $0.26  $(1.18) $0.34  $0.08  $(0.02) $(1.10) $0.32 
                                
Diluted earnings (loss) per common share:                
Net income (loss) available to common stockholders $(22,849) $4,514  $(20,475) $5,888 
Weighted average common shares outstanding  17,404   17,404   17,404   17,406 
Effect of dilutive securities:                
Common stock warrant**  -   -   -   - 
Total diluted average common shares issued and outstanding  17,404   17,404   17,404   17,406 
Diluted earnings (loss) per common share from continuing operations $0.14  $(0.01) $(0.55) $0.31 
Diluted earnings (loss) per common share from discontinued operations $(0.06) $(0.01) $(0.55) $0.01 
Diluted earnings (loss) per common share $(1.32) $0.26  $(1.18) $0.34  $0.08  $(0.02) $(1.10) $0.32 
*  Preferred stock and the common stock warrant were issued on December 31, 2008, and therefore had no effect in 2008.
** The average closing price of the Company’s common stock for the three and sixnine months ended JuneSeptember 30, 2009, was $7.03$5.47 and $7.68,$6.91, respectively.  This was less than the $11.39 exercise price of the common stock warrant to purchase 474,100 shares of common stock; therefore, the warrant was not dilutive.

10.  Other Comprehensive Income (Loss)

Under FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other–Than-Temporary Impairments,”FASB ASC 320-10-35, credit-related losses on debt securities with OTTI are recorded in current earnings, while the noncredit-related portion of the reduction in fair value is recorded in other comprehensive income (loss).  The Company’s other component of other comprehensive income (loss) consists of the unrealized holding gains and losses on available for sale investment securities which are considered temporary in nature.


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The components of other comprehensive income (loss), presented net of taxes for the sixnine months ended JuneSeptember 30, 2009 and 2008, are as follows:


 Six Months Ended June 30,  Nine Months Ended September 30, 
 2009  2008  2009  2008 
            
Net income (loss) $(19,338) $5,888  $(17,433) $5,528 
Other comprehensive income (loss):                
Securities for which a portion of an other-than-temporary impairment has been recorded in earnings:                
Unrealized holding losses  (1,013)  -   (1,187)  - 
Loss recognized in earnings  275   -   290   - 
Net unrealized (losses) on securities with other-than-temporary impairment before tax benefit  (738)  -   (897)  - 
Tax benefit  280   -   341   - 
Net unrealized (losses) on securities with other-than-temporary impairment, net of tax in other comprehensive income (loss)  (458)  -   (556)  - 
Other securities:                
Unrealized holding gains (losses) arising during the period  2,957   (5,329)  7,261   (4,985)
Realized net (gains) recognized into net income (loss)  (1,453)  (5)  (1,960)  (71)
Net unrealized gains (losses) on other securities before tax (expense) benefit  1,504   (5,334)  5,301   (5,056)
Tax (expense) benefit  (572)  2,031   (2,016)  1,925 
Net unrealized gains (losses) on other securities, net of tax in other comprehensive income (loss)  932   (3,303)  3,285   (3,131)
Other comprehensive income (loss) $(18,864) $2,585  $(14,704) $2,397 


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The components of accumulated other comprehensive income (loss), presented net of taxes, as of JuneSeptember 30, 2009, are shown in the following table:


  June 30, 2009 
Accumulated other comprehensive (loss):   
Unrealized (losses) on available for sale securities for which a portion of   
other-than-temporary impairment has been recorded in earnings $(2,084)
Unrealized (losses) on available for sale securities which are not other    
other-than-temporarily impaired  (2,797)
  $(4,881)
  September 30, 2009 
Accumulated other comprehensive (loss):   
Unrealized (losses) on available for sale securities for which a portion of
     other-than-temporary impairment has been recorded in earnings
 $(2,182)
Unrealized (losses) on available for sale securities which are not other
     other-than-temporarily impaired
  (444)
  $(2,626)


11.  Deferred Income Taxes

Tax effects of temporary differences that give rise to net deferred tax assets consist of the following as of JuneSeptember 30, 2009, and December 31, 2008:


 June 30, 2009  December 31, 2008  September 30, 2009  December 31, 2008 
Allowance for loan losses $8,991  $5,868  $7,470  $5,868 
Intangibles  3,388   (2,676)  2,580   (2,331)
Net unrealized losses on securities available for sale  2,991   2,286   1,608   2,286 
Other  (77)  383   828   380 
Total deferred taxes $15,293  $5,861  $12,486  $6,203 


The significant increase in deferred tax assets since December 31, 2008, is the result of the increase in the allowance for loan losses from $15,441 to $23,662$19,658 at JuneSeptember 30, 2009, and recording impairment of goodwill of $23,036$13,376 in the quarter ended June 30, 2009.

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Based upon the Company’s level of anticipated future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these net deductible differences.  Management believes the deferred tax asset related to unrealized losses on securities available for sale is recoverable because the Company hasdoes not have the intent to not sell the related securities and it is more-likely-than-not the Company will not be required to sell the securities until recovery of the unrealized loss amounts.

12.  Commitments

In the normal course of business, the Company enters into commitments to extend credit in the form of 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 policies as are loans recorded on the balance sheet.  For additional information on credit extension commitments and the characteristics of these obligations, see Note 13 of the Company’s 2008 consolidated financial statements (pages 54-56 of Appendix to Proxy Statement).  The Company’s commitments as of the dates shown are approximately as follows:


 June 30, 2009  December 31, 2008  September 30, 2009  December 31, 2008 
Commitments to extend credit $221,454  $301,214  $212,934  $301,214 
Standby letters of credit  18,598   19,788   20,161   19,788 
 $240,052  $321,002  $233,095  $321,002 


13.  Subsequent Events

Subsequent events have been evaluated through July 30,October 29, 2009, the date financial statements are filed with the Securities and Exchange Commission.  Through that date, there were no events requiring disclosure.

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disclosure, except for the definitive agreement to sell WB Capital which was signed on October 1, 2009, and is disclosed in Note 4.


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 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.predictions.  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.

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THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2009
(dollars in thousands, except per share amounts)

OVERVIEW

The following discussion describes the consolidated operations of the Company, including West Bank, West Bank’s wholly-owned subsidiary, WB Funding Corporation, and West Bank’s 99.9 percent owned subsidiary ICD IV, LLC, andLLC.  The accounts of WB Capital Management Inc. (WB Capital). are included in the accompanying financial statements as discontinued operations as a result of the Company entering into an agreement to sell all of the stock in WB Capital.  As a result of the decision to sell WB Capital, certain items in the prior period financial statements were reclassified to be consistent with the classifications used in the September 30, 2009, financial statements.  The reclassification has no effect on net income (loss) or stockholders’ equity.  Consolidated results of operations for the three and sixnine months ended JuneSeptember 30, 2009, are compared to the results for the same periods in 2008 and the consolidated financial condition of the Company at JuneSeptember 30, 2009, is compared to the December 31, 2008, position.

Net lossTotal net income for the three monthsquarter ended JuneSeptember 30, 2009, was $(22,279)$1,905, compared to a net loss of ($360) for the quarter ended September 30, 2008.  Net income for the current quarter consisted of net income from continuing operations of $4,514$2,990 and a loss from discontinued operations of ($1,085).  Net loss from continuing operations for the three monthsquarter ended JuneSeptember 30, 2008.  Basic2008 was ($182) and net loss from the discontinued operations of WB Capital for the same period was ($178).  Total basic and diluted earnings (loss) per common share were ($1.32)$0.08 and $0.26,($0.02), respectively, for the same periods.quarters ended September 30, 2009, and September 30, 2008.  The Company’s annualized return on average equity and return on average assets for the three months ended JuneSeptember 30, 2009, were (58.33)5.74 percent and (5.10)0.49 percent, respectively, compared to 15.23(1.22) percent and 1.39(0.10) percent, respectively, for the three months ended JuneSeptember 30, 2008.

Results for continuing operations for the three monthsquarter ended JuneSeptember 30, 2009, were $26,793 lower$3,172 higher than the same period last year due to goodwill impairment of $23,036 ($16,997 net of tax) and a $14,000 increase in provision for loan losses.  Goodwill impairment was reviewed during the second quarter of 2009 because the Company’s stock traded at a market price of less than it’s per share book value.  The analysis resulted in management’s decision to record a goodwill impairment charge of $13,376 for all of West Bank’s goodwill balance and a charge of $9,660 for WB Capital.  The increase$4,000 decline in provision for loan losses, $507 of gains from the sale of investment securities, lower investment security impairment losses, and a $386 increase in net interest income.  These positive changes were partially offset by a $322 increase in FDIC insurance expense and a $334 increase in deposit operations expenses.

The ($1,085) net loss from discontinued operations for the quarter ended September 30, 2009, included an additional goodwill impairment of $1,500.  The additional goodwill impairment charge was attributed to $9,353necessary because the Company determined the fair value of WB Capital was less than originally estimated.

Total net charge-offs duringloss for the second quarter of 2009 and the continued economic downturn which has negatively affected West Bank’s customers.   In addition, other noninterest expenses were $1,053 higher than in the threenine months ended JuneSeptember 30, 2008, primarily due to increased FDIC insurance expenses, including a special assessment of $695.

For the first six months of 2009, net loss was $(19,338)($17,433) compared to net income of $5,888$5,528 for the first sixnine months of 2008.  Basic and diluted earnings (loss) per common share were ($1.18) and $0.34, respectively.  The annualized return on average equity and return on average assets for the sixnine months ended JuneSeptember 30, 2009, were (25.54)(16.01) percent and (2.34)(1.44) percent, respectively, compared to 9.836.18 percent and 0.900.55 percent, respectively, for the sixnine months ended JuneSeptember 30, 2008.

For the first nine months of 2009, net loss from continuing operations was ($7,816) compared to net income of $5,432 for the first nine months of 2008.  Basic and diluted earnings (loss) per common share from continuing operations were ($0.55) and $0.31, respectively.  The difference between the year-to-date net loss from continuing operations in 2009 and the 2008 net income was due in substantial part to the previously reported goodwill impairment discussed above andat West Bank of $13,376, the $11,900$7,900 increase in provision for loan losses.losses, and the $1,873 increase in FDIC insurance expense.

Year-to-date net interest income improved in 2009 by $407 due to higher levels of earning assets.  Year-to-date noninterest income was $29 lower$868 higher than last year due to declines in investment advisory fees of $889 and a $254 decline in service charges on deposit accounts.  Offsetting these reductions was $840 of proceeds received in the first quarter of 2009 from a bank-owned life insurance policy due to the death of a West Bank officer and an increase of $315$503 in gains and fees on the sale of residential mortgages sold into the secondary market, andmarket.  Offsetting these positive factors was a $117 increase$463 decline in debit card fees.

service charges on deposit accounts due to lower returned check charges.
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Noninterest expense (exclusive of goodwill impairment) increased $1,791,$3,161, or 13.020.2 percent in the first sixnine months of 2009 compared to 2008.  The growth in noninterest expense included a $1,551the previously mentioned increase in FDIC insurance expense, a $304$395 increase in occupancy expense, and a $339$673 increase in deposit operations expense.  The increases were somewhatpartially offset by a $393 decline in salaries and benefits and a $131$158 reduction in marketing expenses.

24


On October 1, 2009, the Company entered into a definitive agreement to sell all of its stock in WB Capital.  After receiving solicitations from third parties to purchase WB Capital, the Company’s Board of Directors decided to exit this business line and focus on community banking.  The sale, which is subject to customary terms and conditions, including certain approvals and consents of clients of WB Capital, is expected to close by December 31, 2009.  WB Capital’s year-to-date net loss was $(8,532)($9,617) for the sixnine months ended JuneSeptember 30, 2009 compared to net income of $274$96 for the same period in 2008.  The loss was the result of $9,660 (net of tax $8,720)$11,160 of goodwill impairment recorded at WB Capital during the 2009 second quarter.and third quarters of 2009.  Revenues were lower than a year ago because of the severe decline in stock values and lower levels of assets under management.  Operating expenses (exclusive of goodwill impairment) were $744$1,835 lower during the first halfnine months of 2009 compared to the same 2008 period.  This was accomplished throughperiod primarily due to staff attrition and a concerted effort to reduce operating costs.  WB Capital’s net loss for the three months ended June 30, 2009, was $(8,536) compared to net income of $139 in the same period of 2008 due to the reasons mentioned previously.

RESULTS OF OPERATIONS

The following table shows selected financial results and measures for the three and sixnine months ended JuneSeptember 30, 2009, compared with the same periods in 2008.

 Three Months Ended June 30,  Six Months Ended June 30,  Three Months Ended September 30,  Nine Months Ended September 30, 
 
2009
  
2008
  
Change
  
Change %
  
2009
  
2008
  
Change
  
Change %
  2009  2008  Change  Change %  2009  2008  Change  Change % 
Income (loss) from continuing operations $2,990  $(182) $3,172   1742.9% $(7,816) $5,432  $(13,248)  -243.9%
Income (loss) from discontinued operations  (1,085)  (178)  (907)  509.6%  (9,617)  96   (9,713)  -10117.7%
Net income (loss) $(22,279) $4,514  $(26,793)  -593.6% $(19,338) $5,888  $(25,226)  -428.4%  1,905   (360)  2,265   629.2%  (17,433)  5,528   (22,961)  -415.4%
                                
Average assets  1,753,534   1,302,161   451,373   34.7%  1,668,246   1,312,684   355,562   27.1%  1,534,591   1,388,016   146,575   10.6%  1,623,205   1,337,978   285,227   21.3%
Average stockholders' equity  153,203   119,178   34,025   28.5%  152,673   120,444   32,229   26.8%  131,724   117,727   13,997   11.9%  145,613   119,532   26,081   21.8%
                                                                
Return on assets  -5.10%  1.39%  -6.49%      -2.34%  0.90%  -3.24%      0.49%  -0.10%  0.59%      -1.44%  0.55%  -1.99%    
                                                                
Return on equity  -58.33%  15.23%  -73.56%      -25.54%  9.83%  -35.37%      5.74%  -1.22%  6.96%      -16.01%  6.18%  -22.19%    
                                                                
Efficiency ratio  212.65%  47.05%  165.60%      130.59%  47.25%  83.34%      42.84%  39.71%  3.13%      46.63%  40.55%  6.08%    
                                                                
Dividend payout ratio  -0.78%  61.69%  -62.47%      -8.10%  94.59%  -102.69%     NM  NM  NM       -8.98%  151.13%  -160.11%    
                                                                
Average equity to average                                
assets ratio  8.74%  9.15%  -0.41%      9.15%  9.18%  -0.03%    
Average equity to average
assets ratio
  8.58%  8.48%  0.10%      8.97%  8.93%  0.04%    
                                                                
Equity to assets ratio -                                
at end of period                  8.50%  8.61%  -0.11%    
Equity to assets ratio -
at end of period
                  8.83%  7.84%  0.99%    
                                                                
Tangible common equity ratio -                                
end of period                  6.08%  6.79%  -0.71%    
Tangible common equity ratio -
end of period
                  6.48%  6.14%  0.34%    
Definitions of ratios:

 Return on assets – annualized net income (loss) divided by average assets.
 Return on equity – annualized net income (loss) divided by average stockholders’ equity.
 Efficiency ratio – noninterest expense (excluding goodwill impairment and discontinued operations) divided by noninterest income (excluding securities gains)gains and net impairment losses and discontinued operations) plus taxable equivalent net interest income.
 Dividend payout ratio – dividends paid divided by net income (loss).
 Equity to assets ratio – equity divided by assets.
 
Tangible common equity ratio – common equity less intangible assets divided by tangible assets.
NM – not meaningful.

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 interest-earning assets or interest-bearing liabilities.  Interest income and the resulting net interest income are shown on a fully taxable basis.

 
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Data for the three months ended JuneSeptember 30:

 Average Balance  Interest Income/Expense  Yield/Rate  Average Balance  Interest Income/Expense  Yield/Rate 
 2009  2008  Change  Change-%  2009  2008  Change  Change-%  2009  2008  Change  2009  2008  Change  Change-%  2009  2008  Change  Change-%  2009  2008  Change 
Interest-earning assets:                                                                  
Loans:                                                                  
Commercial $411,466  $367,983  $43,483   11.82% $4,967  $5,175  $(208)  -4.02%  4.84%  5.66%  -0.82% $409,707  $416,689  $(6,982)  -1.68% $5,054  $5,841  $(787)  -13.47%  4.89%  5.58%  -0.69%
Real estate  707,689   641,854   65,835   10.26%  10,151   10,034   117   1.17%  5.75%  6.29%  -0.54%  684,799   663,213   21,586   3.25%  9,912   10,046   (134)  -1.33%  5.74%  6.03%  -0.29%
Consumer and other  10,840   14,537   (3,697)  -25.43%  172   219   (47)  -21.46%  6.37%  6.07%  0.30%  9,719   14,391   (4,672)  -32.46%  153   217   (64)  -29.49%  6.26%  6.00%  0.26%
Total loans  1,129,995   1,024,374   105,621   10.31%  15,290   15,428   (138)  -0.89%  5.43%  6.06%  -0.63%  1,104,225   1,094,293   9,932   0.91%  15,119   16,104   (985)  -6.12%  5.43%  5.85%  -0.42%
                                                                                        
Investment securities:                                                                                        
Taxable  107,770   84,022   23,748   28.26%  935   1,070   (135)  -12.62%  3.47%  5.09%  -1.62%  161,446   91,712   69,734   76.04%  1,219   1,174   45   3.83%  3.02%  5.12%  -2.10%
Tax-exempt  97,650   87,808   9,842   11.21%  1,503   1,249   254   20.34%  6.15%  5.69%  0.46%  97,380   96,733   647   0.67%  1,477   1,415   62   4.38%  6.07%  5.85%  0.22%
Total investment securities  205,420   171,830   33,590   19.55%  2,438   2,319   119   5.13%  4.75%  5.40%  -0.65%  258,826   188,445   70,381   37.35%  2,696   2,589   107   4.13%  4.17%  5.50%  -1.33%
                                                                                        
Federal funds sold and                                            
short-term investments  320,865   13,565   307,300   2265.39%  208   75   133   177.33%  0.26%  2.23%  -1.97%
Federal funds sold and
short-term investments
  97,188   7,154   90,034   1258.51%  73   36   37   102.78%  0.30%  2.00%  -1.70%
Total interest-earning assets $1,656,280  $1,209,769  $446,511   36.91%  17,936   17,822   114   0.64%  4.34%  5.92%  -1.58% $1,460,239  $1,289,892  $170,347   13.21%  17,888   18,729   (841)  -4.49%  4.86%  5.78%  -0.92%
                                                                                        
Interest-bearing liabilities:                                                                                        
Deposits:                                                                                        
Checking with interest, savings                                            
and money markets $555,565  $324,312  $231,253   71.31%  1,818   1,159   659   56.86%  1.31%  1.44%  -0.13%
Checking with interest, savings
and money markets
 $534,134  $325,101  $209,033   64.30%  1,999   1,231   768   62.39%  1.49%  1.51%  -0.02%
Time deposits  580,781   354,778   226,003   63.70%  3,486   3,379   107   3.17%  2.41%  3.83%  -1.42%  443,460   476,489   (33,029)  -6.93%  2,673   4,173   (1,500)  -35.95%  2.39%  3.48%  -1.09%
Total deposits  1,136,346   679,090   457,256   67.33%  5,304   4,538   766   16.88%  1.87%  2.69%  -0.82%  977,594   801,590   176,004   21.96%  4,672   5,404   (732)  -13.55%  1.90%  2.68%  -0.78%
Other borrowed funds  250,197   309,531   (59,334)  -19.17%  1,772   2,557   (785)  -30.70%  2.84%  3.32%  -0.48%  205,785   272,084   (66,299)  -24.37%  1,771   2,395   (624)  -26.05%  3.41%  3.50%  -0.09%
Total interest-bearing liabilities $1,386,543  $988,621  $397,922   40.25%  7,076   7,095   (19)  -0.27%  2.05%  2.89%  -0.84% $1,183,379  $1,073,674  $109,705   10.22%  6,443   7,799   (1,356)  -17.39%  2.16%  2.89%  -0.73%
                                                                                        
Tax-equivalent net interest income                 $10,860  $10,727  $133   1.24%            Tax-equivalent net interest income              $11,445  $10,930  $515   4.71%            
Net interest spread                                  2.29%  3.03%  -0.74%                                  2.70%  2.89%  -0.19%
Net interest margin                                  2.63%  3.56%  -0.93%                                  3.11%  3.37%  -0.26%

Data for the sixnine months ended JuneSeptember 30:

  Average Balance  Interest Income/Expense  Yield/Rate 
  2009  2008  Change  Change-%  2009  2008  Change  Change-%  2009  2008  Change 
Interest-earning assets:                                 
Loans:                                 
Commercial $406,040  $381,777  $24,263   6.36% $14,772  $16,889  $(2,117)  -12.53%  4.86%  5.91%  -1.05%
Real estate  699,945   643,849   56,096   8.71%  30,315   30,458   (143)  -0.47%  5.79%  6.32%  -0.53%
Consumer and other  10,757   14,206   (3,449)  -24.28%  509   672   (163)  -24.26%  6.33%  6.32%  0.01%
Total loans  1,116,742   1,039,832   76,910   7.40%  45,596   48,019   (2,423)  -5.05%  5.46%  6.17%  -0.71%
                                             
Investment securities:                                            
Taxable  118,826   98,430   20,396   20.72%  2,985   3,720   (735)  -19.76%  3.35%  5.04%  -1.69%
Tax-exempt  96,739   90,136   6,603   7.33%  4,444   3,857   587   15.22%  6.13%  5.71%  0.42%
Total investment securities  215,565   188,566   26,999   14.32%  7,429   7,577   (148)  -1.95%  4.59%  5.36%  -0.77%
                                             
Federal funds sold and
     short-term investments
  203,625   14,626   188,999   1292.21%  384   271   113   41.70%  0.25%  2.48%  -2.23%
Total interest-earning assets $1,535,932  $1,243,024  $292,908   23.56%  53,409   55,867   (2,458)  -4.40%  4.65%  6.00%  -1.35%
                                             
Interest-bearing liabilities:                                            
Deposits:                                            
Checking with interest, savings
     and money markets
 $477,760  $325,557  $152,203   46.75%  4,678   4,173   505   12.10%  1.31%  1.71%  -0.40%
Time deposits  558,609   402,979   155,630   38.62%  10,564   11,741   (1,177)  -10.02%  2.53%  3.89%  -1.36%
Total deposits  1,036,369   728,536   307,833   42.25%  15,242   15,914   (672)  -4.22%  1.97%  2.92%  -0.95%
Other borrowed funds  232,615   295,912   (63,297)  -21.39%  5,302   7,967   (2,665)  -33.45%  3.05%  3.60%  -0.55%
Total interest-bearing liabilities $1,268,984  $1,024,448  $244,536   23.87%  20,544   23,881   (3,337)  -13.97%  2.16%  3.11%  -0.95%
                                             
Tax-equivalent net interest income              $32,865  $31,986  $879   2.75%            
Net interest spread                                  2.49%  2.89%  -0.40%
Net interest margin                                  2.86%  3.44%  -0.58%
  Average Balance  Interest Income/Expense  Yield/Rate 
  2009  2008  Change  Change-%  2009  2008  Change  Change-%  2009  2008  Change 
Interest-earning assets:                                 
Loans:                                 
Commercial $404,177  $364,130  $40,047   11.00% $9,718  $11,048  $(1,330)  -12.04%  4.85%  6.10%  -1.25%
Real estate  707,643   634,060   73,583   11.61%  20,403   20,412   (9)  -0.04%  5.81%  6.47%  -0.66%
Consumer and other  11,284   14,113   (2,829)  -20.05%  356   455   (99)  -21.76%  6.36%  6.49%  -0.13%
Total loans  1,123,104   1,012,303   110,801   10.95%  30,477   31,915   (1,438)  -4.51%  5.47%  6.34%  -0.87%
                                             
Investment securities:                                            
Taxable  97,163   101,825   (4,662)  -4.58%  1,766   2,547   (781)  -30.66%  3.63%  5.00%  -1.37%
Tax-exempt  96,413   86,802   9,611   11.07%  2,967   2,442   525   21.50%  6.15%  5.63%  0.52%
Total investment securities  193,576   188,627   4,949   2.62%  4,733   4,989   (256)  -5.13%  4.89%  5.29%  -0.40%
                                             
Federal funds sold and                                            
short-term investments  257,725   18,403   239,322   1300.45%  311   235   76   32.34%  0.24%  2.57%  -2.33%
Total interest-earning assets $1,574,405  $1,219,333  $355,072   29.12%  35,521   37,139   (1,618)  -4.36%  4.54%  6.12%  -1.58%
                                             
Interest-bearing liabilities:                                            
Deposits:                                            
Checking with interest, savings                                            
and money markets $449,106  $325,787  $123,319   37.85%  2,679   2,942   (263)  -8.94%  1.20%  1.82%  -0.62%
Time deposits  617,138   365,820   251,318   68.70%  7,891   7,568   323   4.27%  2.58%  4.16%  -1.58%
Total deposits  1,066,244   691,607   374,637   54.17%  10,570   10,510   60   0.57%  2.00%  3.06%  -1.06%
Other borrowed funds  246,252   307,957   (61,705)  -20.04%  3,531   5,572   (2,041)  -36.63%  2.89%  3.64%  -0.75%
Total interest-bearing liabilities $1,312,496  $999,564  $312,932   31.31%  14,101   16,082   (1,981)  -12.32%  2.17%  3.24%  -1.07%
                                             
Tax-equivalent net interest income                 $21,420  $21,057  $363   1.72%            
Net interest spread                                  2.37%  2.88%  -0.51%
Net interest margin                                  2.74%  3.47%  -0.73%


 
2226
 


Fluctuations in net interest income can result from the combination of changes in the balances of asset and liability categories and changes in interest rates.  Interest rates earned and paid are also affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies, and the action of regulatory authorities.  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 three months ended JuneSeptember 30, 2009, was 2.63 percent,3.11 percent; a decline of 9326 basis points compared to the same quarter last year and 24was 48 basis points lowerhigher than the firstsecond quarter of 2009.  The decreaseincrease from the prior quarter was due to a significant increasereduction in low-yielding federal funds sold and short-term investments.  As reported in the second quarter of 2009, two commercial customers had temporarily deposited a significant amount of funds in money market deposit accounts.  By late in the average amount of assets held in low-yielding federal funds sold due to maintaining a high level of liquidity during the current uncertain economy and a temporary significant influx of money market deposits by two commercial customers.  Late in thesecond quarter, the deposits had flowed back out and additional investmentsinvestment securities were purchased, which should help improve the margin in future quarters.had been purchased.  The decline in the net interest margin for the secondthird quarter of 2009 compared to 2008 was caused by the yield on earning assets declining more than the rates paid on interest-bearing liabilities.  The Company’s tax-equivalent net interest income for the three months ended JuneSeptember 30, 2009, increased slightlyby $515 compared to the three months ended JuneSeptember 30, 2008, due to growth in interest-earning assets.

For the sixnine months ended JuneSeptember 30, 2009, the net interest margin declined to 2.742.86 percent, which was a 7358 basis point decline compared to the sixnine months ended JuneSeptember 30, 2008.  Despite the drop in the net interest margin, tax-equivalent net interest income for the sixnine months ended JuneSeptember 30, 2009, increased $363$879 as growth in earning assets exceeded growth in interest-bearing liabilities when compared to the sixnine months ended JuneSeptember 30, 2008.  The high level of competition in the local markets, the Federal Reserves’ targeted federal funds rate of zero to 25 basis points, and the high level of non-accrualnonaccrual loans are expected to keep pressure on the net interest margin of the Company.

Tax-equivalent interest income and fees on loans declined $1,438$2,423 in the first sixnine months of 2009 compared to the same period in 2008, as the combination of lower rates and a higher volume of non-accrualnonaccrual loans exceeded the positive impact of the $111$76.9 million increase in the average volume of outstanding loans.  The average yield on loans declined to 5.475.46 percent for the first sixnine months of 2009, compared to 6.346.17 percent for the same period in 2008.  The yield on the Company’s loan portfolio is affected by the mix of the portfolio, the effects of competition, the interest rate environment, the amount of non-accrualnonaccrual loans, and reversals of previously accrued interest on charged-off loans.  The interest rate environment can influence the volume of new loan originations and the mix of variable rate versus fixed rate loans.  Loan pricing in the Company’s market areas remains competitive, while the level of demand for new loans has declined as business customers assess the long-termongoing effects of the recession.

For the first sixnine months of 2009, the average balance of investment securities was $5$27.0 million higher than in the first sixnine months of 2008, and the yield declined 4077 basis points.  The decline in yield was caused by reversing $117a total of $139 of interest on securities deemed impaired during the first quarterand third quarters of 2009.  Investment securities totaling approximately $74$133 million were sold, called or matured in the first sixnine months of 2009 and approximately $140$160 million of investment securities were purchased during the same period.  In order to decrease credit risk in the investment portfolio certain trust preferred securities were sold in the third quarter.

The average balance of federal funds sold and short-term investments increased over $239$189.0 million during the first sixnine months of 2009 compared to the same time period in 2008.  Despite the significant increase in volume, net interest income on these assets increased only $76$113 due to the 233223 basis point drop in rates.  As mentioned above, this high level of federal funds sold was reduced by the end of the quarter in order to enhance net interest income in the coming months.

The average rate paid on deposits for the first sixnine months of 2009 declined to 2.001.97 percent from 3.062.92 percent for the same period last year.  Despite theThe significant drop in rates paid caused interest expense increasedto decline by $60 due to$672 despite a sizable increase in average balances.  The average balance of interest-bearing demand and savings accounts grew due to the temporary spike of $50 million in average money market balances mentioned above as well as an additional $54a $56 million increase in average Reward Me Checking product balances which currently are paid a rate in excess of certificate of deposit rates, and a $37$75 million increase in average SmartyPig savings account balances.  Both of the latter types of accounts pay interest at rates in excess of rates paid on short-term certificates of deposit.  The maximum deposit amount on which the incentive rate will be paid on the Reward Me Checking product is being lowered from $50 to $30 in October 2009, so interest expense on this product should decline in the fourth quarter.  The average balance of time deposits increased $251over $155 million in the first sixnine months of 2009 compared to the same time period in 2008 with all of that increase in brokered time deposits.  The balance is expected to remain higher as more customers are participating in the Certificate of Deposit Account Registry Service (CDARS) program in order to obtain FDIC insurance on their deposits.  CDARS is a program that coordinates a network of banks to spread deposits exceeding the FDIC insurance coverage limits out to numerous institutions in order to provide insurance coverage for all participating deposits.  Even though these depositorsOf the total deposits in the CDARS program as of September 30, 2009, 47.6 percent are customerson behalf of West Bank banking regulations currently require these depositscustomers and are required to be classified as brokered.brokered deposits, but the nature of these deposits is not “brokered.”

27


The average rate paid on other borrowings declined by 7555 basis points compared to the first sixnine months of 2008.  The average balance of borrowings for the first sixnine months of 2009 was $62$63.3 million lower than a year ago.  Overnight borrowings in the form of federal funds purchased from correspondent banks and securities sold under agreements to repurchase averaged $43$46 million less than during the first sixnine months of last year.  The average rate paid on overnight borrowings declined 244223 basis points in 2009 compared to the first sixnine months of 2008.  Average long-term borrowings declined $17 million, while the average rates paid on borrowings increased 2423 basis points compared to 2008.
23

Provision for Loan Losses and the Related Allowance for Loan Losses

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 West Bank’s Board of Directors.  This evaluation focuses on factors such as specific loan reviews, changes in the components 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 whether the loan has other special or unusual characteristics that suggest special monitoring is warranted.

While management uses available information to recognize potential losses on loans, further reduction in the carrying amounts of loans may be necessary based on changes in circumstances or later acquired information.  Furthermore, changes in future economic activity are always uncertain.  Identifiable sectors within the general economy are subject to additional volatility, which at any time may have a substantial impact on the loan portfolio.  In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans.  Such agencies may require West Bank to recognize additional losses based on their judgment about information available to them at the time of their examination.

West Bank’s policy is to charge off loans when, in management’s opinion, the loan is deemed uncollectible, although concerted efforts are made to maximize future recoveries.  The following table summarizes the activity in the allowance for loan losses for the three and sixnine months ended JuneSeptember 30, 2009 and 2008, as well as common ratios related to the allowance for loan losses.


 Three Months Ended June 30,  Six Months Ended June 30,  Three Months Ended September 30,  Nine Months Ended September 30, 
 
2009
  
2008
  
Change
  
2009
  
2008
  
Change
  2009  2008  Change  2009  2008  Change 
Balance at beginning of period $18,015  $14,260  $3,755  $15,441  $8,935  $6,506  $23,662  $10,557  $13,105  $15,441  $8,935  $6,506 
Charge-offs (9,366) (4,740) (4,626) (10,553) (5,121) (5,432)  (7,131)  (1,118)  (6,013)  (17,684)  (6,239)  (11,445)
Recoveries  13   37   (24)  274   143   131   127   45   82   401   188   213 
Net charge-offs (9,353) (4,703) (4,650) (10,279) (4,978) (5,301)  (7,004)  (1,073)  (5,931)  (17,283)  (6,051)  (11,232)
Provision charged to operations  15,000   1,000   14,000   18,500   6,600   11,900   3,000   7,000   (4,000)  21,500   13,600   7,900 
Balance at end of period $23,662  $10,557  $13,105  $23,662  $10,557  $13,105  $19,658  $16,484  $3,174  $19,658  $16,484  $3,174 
                                                
Average loans outstanding $1,129,995  $1,024,374      $1,123,104  $1,012,303      $1,104,225  $1,094,293      $1,116,742  $1,039,832     
                                                
Ratio of net charge-offs during the period to average loans outstanding  0.83%  0.46%      0.92%  0.49%      0.63%  0.10%      1.55%  0.58%    
Ratio of allowance for loan losses to average loans outstanding  2.09%  1.03%      2.11%  1.04%      1.78%  1.51%      1.76%  1.59%    

The provision for loan losses was increased to $15 million for the second quarter of 2009.  The provision increased due to higher charge-offs, including $4.6 million for a loan to one customer, and continued deterioration in collateral values on certain loans.  The 2009 year-to-date provision is also higher than historic levels as a result of the economy remaining in a recession with significant difficulty being experienced in the construction and real estate development, commercial real estate, and commercial business sectors.  Over $5 million of the third quarter charge-offs consisted of three loans including one with continued deterioration in collateral values.  A specific allowance had been established in the second quarter of 2009 for two of these loans and they were transferred to other real estate owned during the third quarter.

Net charge-offs during the first sixnine months of 2009 were $5.3$11.2 million higher than in the same period in 2008.  The majority of the 2009 year-to-date charge-offs were related to seven customers.

28


The allowance for loan losses represented 41.961.6 percent of non-performingnonperforming loans at JuneSeptember 30, 2009, compared to 53.5 percent at December 31, 2008.  The ratio has declined primarily due to the significant increase in non-performing loans.  However, aA significant portion of non-accrualnonaccrual loans are collateralized by real estate which means it is unlikely those loans wouldwill suffer a total loss of principal amount.principal.

24
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”“Other” category that represent significant variances are shown.


 Three Months Ended September 30, 
Noninterest income: 2009  2008  Change  Change % 
Service charges on deposit accounts $1,078  $1,287  $(209)  -16.2%
Trust services  222   207   15   7.2%
Gains and fees on sales of residential mortgages  324   136   188   138.2%
Increase in cash value of bank-owned
life insurance
  199   248   (49)  -19.8%
Other:                
Debit card usage fees  296   235   61   26.0%
All other  232   233   (1)  -0.4%
Total other  528   468   60   12.8%
Total noninterest income $2,351  $2,346  $5   0.2%
 Three Months Ended June 30,                 
 2009  2008  Change  Change %  Nine Months Ended September 30, 
Noninterest income:                2009   2008  Change  Change % 
Service charges on deposit accounts $1,073  $1,250  $(177)  -14.2% $3,120  $3,583  $(463)  -12.9%
Trust services 179  204  (25)  -12.3%  581   605   (24)  -4.0%
Gains and fees on sales of residential mortgages 237  135  102   75.6%  859   356   503   141.3%
Investment advisory fees 1,593  1,960  (367)  -18.7%
Increase in cash value of bank-owned                
life insurance 181  257  (76)  -29.6%
Increase in cash value of bank-owned
life insurance
  562   697   (135)  -19.4%
Proceeds from bank-owned life insurance -  -  -   N/A   840   -   840   N/A 
Other:                                
Debit card usage fees 281  222  59   26.6%  825   647   178   27.5%
All other  246   253   (7)  -2.8%  734   765   (31)  -4.1%
Total other  527   475   52   10.9%  1,559   1,412   147   10.4%
Total noninterest income $3,790  $4,281  $(491)  -11.5% $7,521  $6,653  $868   13.0%

  Six Months Ended June 30, 
  2009  2008  Change  Change % 
Noninterest income:                 
Service charges on deposit accounts $2,042  $2,296  $(254)  -11.1%
Trust services  359   398   (39)  -9.8%
Gains and fees on sales of residential mortgages  535   220   315   143.2%
Investment advisory fees  3,009   3,898   (889)  -22.8%
Increase in cash value of bank-owned                
life insurance  363   449   (86)  -19.2%
Proceeds from bank-owned life insurance  840   -   840   N/A 
Other:                
Debit card usage fees  529   412   117   28.4%
All other  502   535   (33)  -6.2%
Total other  1,031   947   84   8.9%
Total noninterest income $8,179  $8,208  $(29)  -0.4%

Service charges on deposit accounts declined for the secondthird quarter of 2009 asdue to return check charges dropped by $151falling compared to the same period in 2008.  In the current uncertain economy, customers appear to be more conscientious about monitoring their checking account balances.  For the first sixnine months of 2009 return check charges have declined $251,$447, while other service charges have held steady.

Trust fees have declinedincreased for both the secondthird quarter of 2009 due to new business and on a year-to-date basis comparedhigher asset values due to positive movement in the same time periods in 2008stock market.  Year-to-date trust revenue is still somewhat lower than the prior year as a result of lower asset values due to the overall decline in the stock market.market during 2008.

The volume of originations of residential mortgages sold into the secondary market in the secondthird quarter and the first sixnine months of 2009 more than doubled compared to the same time periods in 2008.  The growth of this line of business is expected to continue as long as historically low interest rates allow consumers to refinance existing mortgages in order to reduce their monthly costs.  Despite the low level of home sales, consumers are selectively purchasing real estate while locking in relatively low long-term rates.

Investment advisory fees are fees earned by WB Capital.  Most of the second quarter and year-to-date 2009 reduction in fee income resulted from the decline in advisory fees due to the severe decline in stock values and business lost due to the uncertain markets.  Partially offsetting the decline was a 25 percent, or $169, year-to-date increase in public funds revenue due to increased asset levels.

The secondthird quarter and year-to-date 2009 decline in the increase in cash value of bank-owned life insurance was due to lower market interest rates.  As previously discussed, West Bank received tax-exempt income from life insurance proceeds as the result of the death of one of its officers in the first quarter of 2009.

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Debit card usage fees continued to increase in the first sixnine months of 2009 as West Bank’s interest-bearing checking accountthe Reward Me Checking product grew by over 1,5001,800 accounts and approximately $39$50 million in balances compared to December 31, 2008.  This product was introduced in April 2008 and encourages the use of electronic payments.  This source of revenue is expected to continue to grow due to the convenience of this payment method.method and the potential interest rate paid on the first tier of the account balance.  The growth rate may decline, going forwardhowever, due to the implementationOctober 2009 lowering of a West Bank requirementthe amount of the account balance that new account ownersmay be Iowa residents.paid the incentive rate from $50 to $30.

Investment Securities Gains (Losses)

During the second quarter of 2009, West Bank had one pooled trust preferred investment security with other-than-temporary impairment (OTTI) of $1,013.  Of this amount, $275 was recognized as an impairment loss.  Additional detailsOTTI losses on this recognized loss are available in Note 5.  During the first quarter of 2009, total impairment losses of $1,415 were recognized on twofour trust preferred securities held by West Banktotaling $986, of which $827 was recognized through earnings during the third quarter of 2009.  For the nine months ended September 30, 2009, investment security impairment losses totaling $2,517 have been recognized through earnings.  During the third quarter, the decision was made to reduce the credit risk in the investment portfolio and one unit investmentfour trust heldpreferred securities were sold at the Company.  Realizedlosses totaling $215.  Selected municipal and agency securities were also sold with realized gains of $1,453 were recognizedtotaling $2,175 in the first quarternine months of 2009 on the sale of agency and municipal securities, while realized gains in the first quarter of 2008 totaled $5.2009.

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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 expenses” category that represent significant variances are shown.

  Three months ended June 30, 
  2009  2008  Change  Change % 
Noninterest expense:                 
Salaries and employee benefits $3,308  $3,634  $(326)  -9.0%
Occupancy  1,163   899   264   29.4%
Data processing  579   611   (32)  -5.2%
FDIC insurance expense  1,283   153   1,130   738.6%
Goodwill impairment  23,036   -   23,036   N/A 
Other:                
Marketing  124   232   (108)  -46.6%
Professional fees  246   294   (48)  -16.3%
Consulting fees  117   80   37   46.3%
Deposit operations expense  288   35   253   722.9%
Bank service charges  92   57   35   61.4%
Other real estate owned expense  90   105   (15)  -14.3%
Charitable contributions  -   42   (42)  -100.0%
Intangible amortization  154   183   (29)  -15.8%
All other  670   736   (66)  -9.0%
Total other  1,781   1,764   17   1.0%
Total noninterest expense $31,150  $7,061  $24,089   341.2%

  Three months ended September 30, 
Noninterest expense: 2009  2008  Change  Change % 
Salaries and employee benefits $2,294  $2,482  $(188)  -7.6%
Occupancy  794   748   46   6.1%
Data processing  455   426   29   6.8%
FDIC insurance expense  531   209   322   154.1%
Other expenses:                
Marketing  118   148   (30)  -20.3%
Professional fees  313   227   86   37.9%
Consulting fees  74   51   23   45.1%
Deposit operations expense  390   56   334   596.4%
Bank service charges  100   59   41   69.5%
Other real estate owned expense  90   (2)  92   4600.0%
Charitable contributions  -   35   (35)  -100.0%
Intangible amortization  52   61   (9)  -14.8%
All other  697   771   (74)  -9.6%
Total other  1,834   1,406   428   30.4%
Total noninterest expense $5,908  $5,271  $637   12.1%
                 
  Nine months ended September 30, 
Noninterest expense:  2009   2008  Change  Change % 
Salaries and employee benefits $7,494  $7,541  $(47)  -0.6%
Occupancy  2,637   2,242   395   17.6%
Data processing  1,312   1,357   (45)  -3.3%
FDIC insurance expense  2,267   394   1,873   475.4%
Goodwill impairment  13,376   -   13,376   N/A 
Other expenses:                
Marketing  403   561   (158)  -28.2%
Professional fees  804   734   70   9.5%
Consulting fees  235   149   86   57.7%
Deposit operations expense  767   94   673   716.0%
Bank service charges  255   157   98   62.4%
Other real estate owned expense  215   89   126   141.6%
Charitable contributions  200   101   99   98.0%
Intangible amortization  168   176   (8)  -4.5%
All other  2,073   2,074   (1)  0.0%
Total other  5,120   4,135   985   23.8%
Total noninterest expense $32,206  $15,669  $16,537   105.5%
  Six months ended June 30, 
  2009  2008  Change  Change % 
Noninterest expense:             
Salaries and employee benefits $6,972  $7,365  $(393)  -5.3%
Occupancy  2,103   1,799   304   16.9%
Data processing  1,125   1,198   (73)  -6.1%
FDIC insurance expense  1,736   185   1,551   838.4%
Goodwill impairment  23,036   -   23,036   N/A 
Other:                
Marketing  288   419   (131)  -31.3%
Professional fees  525   538   (13)  -2.4%
Consulting fees  200   130   70   53.8%
Deposit operations expense  377   38   339   892.1%
Bank service charges  174   114   60   52.6%
Other real estate owned expense  125   91   34   37.4%
Charitable contributions  200   78   122   156.4%
Intangible amortization  309   360   (51)  -14.2%
All other  1,483   1,511   (28)  -1.9%
Total other  3,681   3,279   402   12.3%
Total noninterest expense $38,653  $13,826  $24,827   179.6%

27

The decline in salaries and benefits resulted from reductions inthe discontinuance of bonus accruals, resulting in a decline of $353 and $544$733 for the second quarter of 2009 and year-to-date 2009 respectively, compared to the same time periods of 2008.  Partially offsetting the lower bonus accruals was a year-to-date decline in salary deferrals relatedcost deferred for new loans originations due to a lower volume of new loans issued and a 5.79.9 percent increase in the cost of employee healthcaremedical insurance coverage.  During the third quarter of 2009, the Board of Directors decided to eliminate a 2009 profit sharing contribution.  This resulted in quarter and year-to-date reductions of $208 and $268, respectively.

Occupancy expenses increased in the secondthird quarter and six months ended JuneSeptember 30, 2009, due tobecause of the February 2009 opening of a new branch in Waukee.  Year-to-date expense was up because of the new office location and a second quarter $190 one-time lease buyout for unused space leased by the Company in the facility in which WB Capital is located in West Des Moines and the February 2009 opening of a new branch in Waukee.Moines.

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Data processing expense declined becauseincreased in the 2009 third quarter compared to the 2008 third quarter as a result of new terms in West Bank’s contract with its data processing provider.  Those savings were somewhat offset by increased costs related to higher volumes of pin and signature-based debit/ATM card transactions and higher volumes of transactions and accounts on West Bank’s various deposit and loan application systems.  On a year-to-date basis, data processing expense declined because of new terms in West Bank’s contract with its data processing provider.

FDIC insurance expense increased as a result of the full utilization of the FDIC assessment credit during the first quarter of 2008,2009 rate increases, and an emergency special assessment in the second quarter of 2009.2009, and significantly higher average deposits.  The rate assessed to each bank wasis based upon risk factors including past due and non-performingnonperforming loans, net loan charge-offs, and net income (loss) before taxes.  The FDIC has imposed an emergency special assessment of 5 basis points multiplied by June 30, 2009 total assets less Tier 1 capital aswas part of the FDIC’s restoration plan for the Deposit Insurance Fund.  The impact on West Bank was an additional second quarter expense of $695 with payment to occur on September 30, 2009.$695.  The FDIC also has the ability to collect up to twoan additional emergency assessmentsassessment prior to the end of 2009 with an announcement datesdate as late as the last day of each quarter.  With the continued increased numberyear.  During the third quarter of bank failures throughout2009, the country, it is highly likely thatFDIC proposed an alternative to an additional special assessment, which would negatively impact all banks’ earnings.  The alternative is to have all banks prepay three and a quarter years worth of FDIC assessments mayon December 31, 2009.  The proposed prepayment, which includes assumptions about deposit growth, would be required to maintain a positive balance inbased on average third quarter deposits.  The prepaid amount would be amortized over the FDIC’s Deposit Insurance Fund throughprepayment period.  If approved, West Bank’s estimated prepayment would be approximately $7.2 million.  While the endprepayment would decrease the amount of 2009.investable assets, the effect on earnings would be the lost earnings on the amount of prepayment, which is significantly less than the impact of an additional special assessment.

As discussed previously, theThe second quarter 2009 goodwill impairment consisted of writing off all goodwill at West Bank, or $13,376, and a substantial part of WB Capital’s goodwill, or $9,660.$13,376.  The impairment analysis was completed at an interim period due to the Company’s common stock price falling to levels below book value.

Marketing expense for 2009 compared to 2008 declined as a result of prior year expense including costs for launching a new product.  Professional fees declinedincreased as both legal fees and accounting fees increased.  Legal fees increased due to lower legalthe higher volume of impaired loans and accounting fees in the second quarterincreased because of additional work done on investment securities valuations and year-to-date 2009.goodwill valuation issues.  Consulting fees increased due to the implementation of a customer relationship management system beginning in the second half of 2008, investment securities valuations completed by a consulting firm, and hiring a third party firm to assist in evaluating goodwill for impairment.

Deposit operations expense increased for secondthird quarter and year-to-date 2009 due to costs associated with SmartyPig savings and Reward Me Checking interest-bearing checking products which have both grown substantially compared to the prior year.  Expenses related to SmartyPig are expected to be significantly lower in the fourth quarter of 2009 due to migrating ACH transactions to another provider.  West Bank’s service charges paid have increased for secondthird quarter and year-to-date 2009 as a result of technological improvements in cash letter processing that allows better availability of funds from incoming deposits.  The improved availability results in a loss of earnings credit used to offset the charges assessed by the processor.  Service charges also increased due to retaining WB Capital to manage West Bank’s investment portfolio effective in September 2009.

Other real estate owned expense declinedincreased during the secondthird quarter of 2009 due to recognizing a net gain on properties sold, while year-to-date 2009 expense increased due to operating costs for a higher number of properties held.

Charitable contributions increased in the first sixnine months of 2009 because $200 of the previously mentioned bank-owned life insurance proceeds was contributed to the West Bancorporation Foundation in the first quarter.  The Company does not anticipate funding additional contribution expensescontributions for the remainder of 2009.

Income Tax Expense (Benefits)

The Company recorded income tax benefits on continuing operations of $9,741$8,021 for the sixnine months ended JuneSeptember 30, 2009, compared with expense of $2,010$796 for the sixnine months ended JuneSeptember 30, 2008.  The effective income tax rates as a percent of income (loss) before taxes for the second quarter ofnine months ended September 30, 2009 and 2008, was a benefit of 31.350.6 percent and expense of 30.112.8 percent, respectively, and was a benefit of 33.5 percent and expense of 25.4 percent, respectively, for the six months ended June 30, 2009 and 2008.respectively.  The Company’s consolidated income tax rate varies from the statutory rate primarily due to tax-exempt income, including interest on municipal securities, increase in the cash value of bank-owned life insurance, and the life insurance proceeds, and approximately $7 million of non-deductible goodwill impairment.proceeds.  The effective tax rate for both years was also impacted by West Bank’s 2007 investment in a qualified community development entity, which generated a federal new market tax credit.  The credit, which totals $2,730, is being recognized over a seven-year period.  Income tax benefits on discontinued operations were affected by approximately $8.1 million of non-deductible goodwill impairment.

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FINANCIAL CONDITION

Total assets were approximately $1.51$1.5 billion as of JuneSeptember 30, 2009, a slight decrease3.5 percent decline compared to December 31, 2008.  The declinereduction was primarily due to lower federal funds purchased from downstream correspondent banks.sold and short-term investment securities.  A summary of changes in the components of the balance sheet are described in the following paragraphs.

Investment Securities

Investment securities available for sale increased approximately $64$31 million from December 31, 2008, to $245.8$212.1 million at JuneSeptember 30, 2009.  The increase was primarily the result of purchasing government agency, mortgage-backed, and corporate securities in an effort to improve the Company’s net interest margin.  To reduce the level of credit risk within the portfolio, four trust preferred and certain municipal securities were sold during the third quarter of 2009.

The Company conducts quarterly reviews to identify and evaluate each investment that has an unrealized loss for other-than-temporary impairment (OTTI).  In June 2009, the Company adopted FSP FAS 115-2/124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” now included in the Codification as part of FASB ASC 320-10-35, which changed the accounting requirements for OTTI for debt securities, and in certain circumstances, separates the total impairment into credit and noncredit-related amounts.  The review takes into consideration current market conditions, issuer rating changes and trends, the credit worthiness of the obligor of the security, current analysts’ evaluations, failure of the issuer to make scheduled interest or principal payments, the Company’s intent to sell the security or whether it is more-likely-than-not that the Company will be required to sell the debt security before its anticipated recovery, as well as other qualitative factors.  The term OTTI is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.  Declines in the fair value of securities below their amortized cost basis that are deemed to be OTTI are carried at fair value.  Any portion of a decline in value associated with a credit loss is recognized in income with the remaining noncredit-related component being recognized in other comprehensive income.  A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered, by comparing the present value of cash flows expected to be collected from the security to the amortized cost basis of the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the “credit loss.”

During the third quarter of 2009, West Bank recognized impairment losses totaling $812 on three trust preferred securities issued by banks that are experiencing financial difficulties.  The three securities were considered to have credit losses which were recognized through earnings.  As of JuneSeptember 30, 2009, one pooled trust preferred security had an amortized cost of $4,901$4,626 and an estimated market value of $1,266$1,091 which resulted in $3,635$3,535 of total impairment, or an additional impairment of $1,013$174 in the secondthird quarter of 2009.  With the assistance of an investment consulting firm, the Company estimated the fair value of the security using a discounted cash flow method.  To determine the credit loss on this security, the investment consulting firm projected cash flows for the security and discounted the cash flows at the original purchased yield.  Based on this calculation, $275an additional $15 of the total impairment was considered to be a credit loss which was recognized in the 2009 secondthird quarter income statement and the remaining amortized cost of the security was reduced to create a new cost basis.  The remaining change in fair market value of $3,360$3,519 is reflected in other comprehensive income (loss), net of taxes of $1,277.$1,337.  On a quarterly basis, the Company will continue to estimate the present value of cash flows expected to be collected over the life of the security.

At JuneSeptember 30, 2009, the most significant risk of a future impairment charge relates to West Bank’s investment in trust preferred securities of other banks.banks and a note issued by CIT Group, a small business lender.  As of JuneSeptember 30, 2009, sixin addition to the pooled trust preferred security discussed above, two trust preferred securities with a cost basis of $4.2$2.3 million were valued at $2.0$0.9 million.  In accordance with SFAS No. 115,FASB ASC 320-10-50, the decline in fair market value has been charged against equity on an after income tax basis.  Management has concluded these securities are not OTTI.  Any potential future loss that would be considered OTTI would negatively impact net income and regulatory capital; however, as previously noted the fair market value adjustment at JuneSeptember 30, 2009, has already been recorded against equity.  The note issued by CIT Group Inc. has a par value of $2 million and market value of $1.4 million as of September 30, 2009.  CIT Group is experiencing liquidity issues and its future is uncertain.  Management will continue to monitor this security which is scheduled to mature in the fourth quarter of 2009. The investment securities portfolio also includes a note issued by SLM Corporation, also know as Sallie Mae.  The cost of the note was $4 million and the current market value improved to $3.0was $2.7 million as of JuneSeptember 30, 2009, compared to $1.5 million a quarter earlier.2009.  The value of the note has been impacted byimproved since the U.S. Government’s decision to continue to use Sallie Mae to service student loans.  Also, included in the portfolio is a note issued by CIT Group Inc. with a par value of $2 million and market value of $1.9 million as of June 30, 2009.  CIT Group, a small business lender, is experiencing liquidity issues and the U.S. Treasury, the Federal Reserve, and the FDIC are not currently willing to provide additional government assistance to the lender.  On July 20, 2009, CIT Group announced it had secured $3 billion in short-term funding from private sources.  Management will continue to monitor this security which is scheduled to mature in the fourth quarter of 2009.


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As of JuneSeptember 30, 2009, the available for sale investment securities portfolio consists of approximately 4038 percent U.S. government and government agency securities, 4245 percent municipal securities, 56 percent mortgage-backed securities, and 1311 percent corporate and trust preferred securities.

Loans and Non-performingNonperforming Assets

Loans outstanding increaseddeclined approximately $15$38 million from December 31, 2008, to JuneSeptember 30, 2009.  The increasereduction was primarily attributable to growthpayoffs in commercial, construction, multifamily and commercial real estate loans.  Meanwhile, multifamily, residential real estate, and consumerCommercial loans declined somewhatgrew slightly compared to December 31, 2008.  NewDespite its interest in making loans to credit-worthy borrowers, West Bank is receiving fewer new loan fundingrequests compared to a year ago.  Therefore, no net loan growth is expected in the first six months of 2009 totaled approximately $70 million.  West Bank has fewer new loans in process which should result in little to no growth in the thirdfourth quarter of 2009.  West Bank stands ready to provide loans to those credit-worthy customers requesting additional funding; however, in this economic environment, loan requests are at a reduced level.

The following tables show a breakdown of West Bank’s three major components of its loan portfolio (construction, commercial real estate, and commercial) as of JuneSeptember 30, 2009.

Construction loans:

  September 30, 2009 
   $   % 
Land development       
1-4 family $7,876   6%
Multifamily  17,935   13%
Construction        
1-4 family        
Owner occupied  1,944   1%
Non-owner occupied  10,299   8%
Multifamily  9,614   7%
Industrial, commercial and other  89,423   65%
  $137,091   100%


Commercial Real Estate Loans:

  September 30, 2009 
   $   % 
Owner occupied $214,474   51%
Nonowner occupied        
Medical/Retirement  51,843   12%
Retail  45,602   11%
Multifamily  36,421   9%
Office  34,662   8%
Warehouse  15,969   4%
Hotel  8,191   2%
Other  13,632   3%
Total nonowner occupied  206,320   49%
  $420,794   100%


Construction loans:      
  June 30, 2009 
   $  % 
Land development       
1-4 family $8,331   5%
Multifamily  19,403   13%
Construction        
1-4 family        
Owner occupied  4,292   3%
Non-owner occupied  34,823   23%
Multifamily  14,751   10%
Industrial, commercial and other  71,147   46%
  $152,747   100%
Commercial Real Estate Loans:      
  June 30, 2009 
   $  % 
Owner occupied $217,036   50%
Non-owner occupied        
Medical/Retirement  60,945   14%
Retail  46,665   11%
Multifamily  37,635   9%
Office  36,056   8%
Warehouse  15,407   3%
Hotel  7,334   2%
Other  15,060   3%
Total non-owner occupied  219,102   50%
  $436,138   100%
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Commercial Loans:
Commercial Loans:      
 June 30, 2009  September 30, 2009 
 $   %   $   % 
Finance and insurance $87,146   21% $89,449   22%
Real estate and rental/leasing 54,212   13%  51,985   13%
Manufacturing 46,664   11%  43,212   11%
Publishing, broadcasting and information services 30,112   7%  30,320   8%
Construction 20,638   5%  18,477   5%
Wholesale trade 15,635   3%  13,056   3%
Building trades 16,796   4%  19,948   5%
Transportation and warehousing 19,785   5%  15,492   4%
Retail 11,250   3%  10,477   2%
Arts, entertainment and recreation 11,694   3%  11,384   3%
Other  106,916   25%  95,272   24%
 $420,848   100% $399,072   100%


The following table sets forth the amount of non-performingnonperforming loans and assets held by the Company and common ratio measurements of those items.


  June 30, 2009  December 31, 2008  Change 
Non-accrual loans $29,591  $21,367  $8,224 
Loans past due 90 days and still            
accruing interest  14,012   92   13,920 
Restructured loans  12,855   7,376   5,479 
Total non-performing loans  56,458   28,835   27,623 
Other real estate owned  6,137   4,352   1,785 
Non-accrual investment securities  1,746   2,575   (829)
Total non-performing assets $64,341  $35,762  $28,579 
             
Non-performing loans to total loans  5.06%  2.62%  2.44%
Non-performing assets to total assets  4.25%  2.30%  1.95%
  September 30, 2009  December 31, 2008  Change 
Nonaccrual loans $14,455  $21,367  $(6,912)
Loans past due 90 days and still
     accruing interest
  596   92   504 
Restructured loans  16,881   7,376   9,505 
Total nonperforming loans  31,932   28,835   3,097 
Other real estate owned  18,089   4,352   13,737 
Nonaccrual investment securities  1,735   2,575   (840)
Total nonperforming assets $51,756  $35,762  $15,994 
             
Nonperforming loans to total loans  3.01%  2.62%  0.39%
Nonperforming assets to total assets  3.45%  2.30%  1.15%


Total non-performingnonperforming assets have increased 79.944.7 percent since the end of 2008.  The balance of non-performingnonperforming loans grew during the first sixnine months of 2009, with the increase consisting of 1-4 family construction, other construction and development, commercial real estate and commercial (many tied to the construction industry) loan customers experiencing financial difficulties.  If the economy does not improve in the near future, it is expected that commercial customers in various retail industries could experience financial difficulties as well.  West Bank loan officers are in frequent contact with loan customers to aid in monitoring any potential problem loans.  Of

Other real estate owned has grown to over $18 million as the increase inresolution for some loans past due 90 days and still accruing interest, $8,661 relates to a customer who sold a significant business asset in mid-July which broughthas taken the loan current.form of repossessing collateral.

Reference is also made to the information and discussion earlier in this report under the heading “Provision for Loan Losses and the Related Allowance for Loan Losses” and Notes 67 and 78 to the Financial Statements.

Deposits

Total deposits as of JuneSeptember 30, 2009, were approximately $1.18$1.16 billion, compared with $1.15 billion as of December 31, 2008, an increase of 1.90.5 percent.  All deposit categories except certificates of deposit increased during this time period.  CertificatesThree factors caused certificates of deposit declinedoutstanding at September 30, 2009, to decline approximately $158$229 million by June 30, 2009 compared to December 31, 2008, with the majority of the change attributable to three factors.2008.  These factors include one customer who opted to move a portion of their CDARS deposits into other investment vehicles, letting West Bank’s wholesale CDARS deposits mature, and the decision to reduce public funds.

35


In order to maintain and build core deposits, West Bank introduced a product called “Reward Me Checking” in April 2008.  This product, which pays a certificate of deposit-like rate if the customer performs a certain number of electronic banking transactions and agrees to receive monthly statements electronically, grew by approximately $39$50 million in the first sixnine months of 2009.  Also, West Bank is the banking partner for a savings program called SmartyPig.  SmartyPig is an internet-based savings and rewards program developed by SmartyPig, LLC, which is partially owned by WB Funding, a subsidiary of West Bank.  As of JuneSeptember 30, 2009, this program had gathered $102$172 million in deposits, including over $93$163 million in the first sixnine months of 2009.
31

Borrowings

The balance of federal funds purchased and securities sold under agreements to repurchase was $48.9$48.4 million at JuneSeptember 30, 2009, down from $93.1 million at December 31, 2008.  The reduction was principally in federal funds purchased, which consists of funds sold to West Bank by approximately 1510 Iowa banks as part of the correspondent bank services provided by West Bank.  The balance of federal funds purchased from correspondent banks fluctuates depending upon the loan demand and investment strategy of those banks.  The balance of other short-term borrowings consisted of Treasury, Tax, and Loan option notes.  Long-term borrowings have not changed since December 31, 2008.

Liquidity and Capital Resources

The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all corporate financial commitments and to capitalize on opportunities for profitable business expansion.  The Company’s principal source of funds is deposits, which include 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 FHLB, 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 $88$152 million as of JuneSeptember 30, 2009, compared with $197 million as of December 31, 2008.  West Bank has additional borrowing capacity available from the FHLB of approximately $75$58 million.  In addition, West Bank has $78$73 million in borrowing capacity available through unsecured federal funds lines of credit with correspondent banks.  West Bank was not drawing on any of these lines of credit as of JuneSeptember 30, 2009.  The combination of high levels of potentially liquid assets, cash flows from operations, and additional borrowing capacity provided strong liquidity for the Company at JuneSeptember 30, 2009.

On December 31, 2008, the Company received $36 million from the U.S. Department of the Treasury in exchange for 36,000 shares of cumulative senior preferred stock and a warrant to purchase 474,100 shares of common stock under the Capital Purchase Program (CPP).  The senior preferred shares qualify as Tier 1 capital for regulatory purposes and rank senior to common stock and bear a cumulative dividend rate of five percent per annum for the first five years they are outstanding and a rate of nine percent per annum thereafter.  The Board of Directors and management believed it was prudent to participate in the CPP because (i) the cost of capital under the program was significantly lower than the cost of capital otherwise available to the Company at the time, and (ii) despite being well-capitalized, additional capital provided the Company and West Bank additional flexibility to meet future capital needs throughout the current uncertain economic environment.

The Company’s total stockholders’ equity declined to $128.7$132.4 million at JuneSeptember 30, 2009, from $150.1 million at December 31, 2008.  Total equity declined due to the year-to-date net loss and dividends paid.  Total stockholders' equity was 8.508.83 percent and 9.669.65 percent of total assets as of JuneSeptember 30, 2009, and December 31, 2008, respectively.  No material capital expenditures or material changes in the capital resource mix are anticipated at this time.

The Company and West Bank are subject to various regulatory capital requirements administered by Federal and State banking agencies.  Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators which, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.  Under capital adequacy guidelines and regulatory framework for prompt corrective action, the Company and West Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Company’s and West Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The quantitative measures of the Company and West Bank of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets are set forth in the following table along with the minimum required ratios.  Management believes the capital levels of the Company and West Bank met all capital adequacy requirements to which they were subject at JuneSeptember 30, 2009.  Prompt corrective action provisions are not applicable to the Holding Company.  Management monitors the capital ratios of the Company and West Bank to ensure they stay in compliance with the well-capitalized guidelines.

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             To Be Well-              To Be Well- 
             Capitalized Under              Capitalized Under 
       For Capital  Prompt Corrective        For Capital  Prompt Corrective 
 Actual  Adequacy Purposes  Action Provisions  Actual  Adequacy Purposes  Action Provisions 
 Amount  Ratio  Amount  Ratio  Amount  Ratio  Amount  Ratio  Amount  Ratio  Amount  Ratio 
                                    
As of June 30, 2009:                  
As of September 30, 2009:                  
Total Capital (to Risk-Weighted Assets)                                    
Consolidated $166,522   13.1% $101,538   8.0%  n/a   n/a  $168,793   14.0% $96,460   8.0%  n/a   n/a 
West Bank 162,384   12.8  101,169   8.0  $126,461   10.0%  164,435   13.7   95,978   8.0  $119,973   10.0%
                                                
Tier I Capital (to Risk-Weighted Assets)                                                
Consolidated 150,560   11.9  50,769   4.0   n/a   n/a   153,664   12.7   48,230   4.0   n/a   n/a 
West Bank 136,479   10.8  50,585   4.0  75,877   6.0   139,381   11.6   47,989   4.0   71,984   6.0 
                                                
Tier I Capital (to Average Assets)                                                
Consolidated 150,560   8.6  70,188   4.0   n/a   n/a   153,664   10.0   61,330   4.0   n/a   n/a 
West Bank 136,479   7.8  69,658   4.0  87,073   5.0   139,381   9.1   61,332   4.0   76,665   5.0 
                                                
As of December 31, 2008:                          ��                     
Total Capital (to Risk-Weighted Assets)                                                
Consolidated $165,458   13.3% $99,383   8.0%  n/a   n/a  $165,458   13.3% $99,383   8.0%  n/a   n/a 
West Bank 161,790   13.1  99,073   8.0  $123,841   10.0%  161,790   13.1   99,073   8.0  $123,841   10.0%
                                                
Tier I Capital (to Risk-Weighted Assets)                                                
Consolidated 150,017   12.1  49,692   4.0   n/a   n/a   150,017   12.1   49,692   4.0   n/a   n/a 
West Bank 136,349   11.0  49,536   4.0  74,305   6.0   136,349   11.0   49,536   4.0   74,305   6.0 
                                                
Tier I Capital (to Average Assets)                                                
Consolidated 150,017   10.3  58,244   4.0   n/a   n/a   150,017   10.3   58,244   4.0   n/a   n/a 
West Bank 136,349   9.4  58,066   4.0  72,583   5.0   136,349   9.4   58,066   4.0   72,583   5.0 


The goodwill impairment charge discussed earlier had a negligible impact on regulatory capital measurements.  Goodwill and other intangible assets are not included in capital or assets when calculating regulatory capital ratios.

Likewise, goodwill and other intangible assets are not considered when calculating the tangible common equity ratio.  This ratio is getting more attention from the investing community.  The Company’s tangible common equity ratio at JuneSeptember 30, 2009, was 6.086.48 percent, up from 5.91 percent at December 31, 2008.

In April 2008, the Company’s Board of Directors authorized the buyback of up to $5 million of the Company’s common stock for a period of twelve months.  No shares were repurchased under this authorization which expired in April 2009.

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 6, 2009, and is incorporated herein by reference.  The Company has not experienced any material changes to its market risk position since December 31, 2008.  Management does not believe the Company's primary market risk exposures and how those exposures were managed in the first sixnine months of 2009 changed when compared to 2008.

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Effects of New Statements of Financial Accounting Standards

In April 2009, the Financial Accounting Standards Board (FASB) issued Financial Statement of Position FAS 115−2 and FAS 124−2, “Recognition and Presentation of Other−Than−Temporary Impairments” (“FSP FAS 115−2/124−2”).  FSP FAS 115−2/124−2, now included in the Codification as part of FASB ASC 320-10-35.  This standard requires entities to separate an other−than−temporary impairment (OTTI) of a debt security into two components when there are credit-related losses associated with the impaired debt security for which management asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis.  The amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors is recorded in other comprehensive income (loss).  FSP FAS 115−2/124−2 is effective for periods ending after June 15, 2009.  The Company adopted FSP FAS 115−2/124−2this standard effective for the quarter ending June 30, 2009.  The Company recorded a cumulative effect accounting adjustment that increased retained earnings and decreased accumulated other accumulated comprehensive income (loss) by $2,622 pre-tax or $1,625 after tax, relating to the $4,739 of impairment losses recorded during 2008.

In April 2009, the FASB issued FSP FAS 157−4, “Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are Not Orderly” (“FSP FAS 157−4”)., now included in the Codification as part of FASB ASC 820-10-35.  Under FSP FAS 157−4,this standard, if an entity determines that there has been a significant decrease in the volume and level of activity for the asset or the liability in relation to the normal market activity for the asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value.  In addition, if there is evidence that the transaction for the asset or liability is not orderly; the entity shall place little, if any weight on that transaction price as an indicator of fair value.  FSP FAS 157−4 is effective for periods ending after June 15, 2009.  The Company adopted FSP FAS 157−4this standard effective for the quarter ending June 30, 2009.  The adoption of this FSPstandard did not have a material impact on the Company’s financial position or results of operations.

In April 2009, the FASB issued FSP FAS 107−1 and APB 28−1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107−1 and APB 28−1”).  FSP FAS 107−1 and APB 28−1 require, now included in the Codification as part of FASB ASC 270-10-05.  This standard requires disclosures about fair value of financial instruments in interim and annual financial statements.  FSP FAS 107−1 and APB 28−1 are effective for periods ending after June 15, 2009.  The Company adopted FSP FAS 107−1 and APB 28−1this standard effective for the quarter ending June 30, 2009.  The adoption did not have an impact on the Company’s financial position or results of operations.

In May 2009, the FASB issued FASB Statement No. 165, “Subsequent Events” (“SFAS No. 165”).  SFAS No. 165, now included in the Codification as part of FASB ASC 855-10-55.  This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  The Company adopted this statementstandard effective for the quarter ending June 30, 2009.

In June 2009, the FASB issued FASB Statement No. 166 (not incorporated into the Codification yet), “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140,” to improve the reporting for the transfer of financial assets resulting from (1) practices that have developed since the issuance of FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” that are not consistent with the original intent and key requirements of that Statement and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors.  This Statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter.  Earlier application is prohibited.  The Company will review the requirements of FASB No. 166 and comply with its requirements.  The Company does not expect that the adoption of this Statement will have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167 (not incorporated into the Codification yet), “Amendments to FASB Interpretation No. 46(R)” to amend certain requirements of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements.  The Statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter.  Earlier application is prohibited.  The Company will review the requirements of FASB No. 167 and comply with its requirements.  The Company does not expect that the adoption of this Statement will have a material impact on the Company’s consolidated financial statements.

 
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In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.”  UnderThe change initiated by this Statement is now included in the Statement,Codification as FASB ASC 105-10-10 and establishes the The FASBFinancial Accounting Standards Board (FASB) Accounting Standards Codification (Codification) will become TM as the source of authoritative U.S. generally accepted accounting principles (GAAP)and standards recognized by the FASB to be applied by nongovernmental entities.entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP).   Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this Statement,standard, the Codification will supersedesuperseded all then-existing non-SEC accounting and reporting standards.  All other non-grandfathered non-SEC accounting literature not included in the Codification will becomebecame non-authoritative.  This Statementstandard is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  In the FASB’s view, the issuance of this Statement and the Codification willdoes not change GAAP, except for those nonpublic nongovernmental entities that must now apply the American Institute of Certified Public Accountants Technical Inquiry Service Section 5100, “Revenue Recognition,” paragraphs 38–76.76, now included as part of FASB ASC Topic 985.  The Company doesadopted FASB ASC Topic 105-10-10 effective for the quarter ending September 30, 2009.  The adoption did not expecthave an impact on the Company’s financial position or results of operations.

In August, 2009, the FASB issued Accounting Standards Update 2009-05, “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value,” which updates ASC 820-10.  The update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques:

1.  A valuation technique that uses a.) the quoted price of an identical liability when traded as an asset, or b.) quoted prices for similar liabilities or similar liabilities when traded as assets.
2.  Another valuation technique that is consistent with the principles of Topic 820, examples include an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability.

This standard is effective for financial statements issued for interim and annual periods ending after August 2009.  The Company adopted Update 2009-05 effective for the quarter ending September 30, 2009.  The adoption of this Statement willdid not have a material impact on the Company’s consolidated financial statements.disclosures.

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 of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 240.13a-15(f)) was performed under the supervision and with the participation of the Company’s Interim Chief Executive Officer and Chief Financial Officer.  Based on that evaluation, the Interim 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.

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 have materially affected, or are 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 are not parties to any material pending legal proceedings (other than ordinary litigation incidental to the entities’ businesses) and no property of these entities is the subject of any such proceeding.  The Company does not know of any proceeding contemplated by a governmental authority against the Company, its subsidiaries, or any related property.

Item 1A.  Risk Factors

Management of the Company does not believe there have been any material changes in the risk factors that were disclosed in the Form 10-K filed with the Securities and Exchange Commission on March 6, 2009.  However, management believesManagement does believe the current economic environment continues to remain uncertain.presents more than ordinary risks for the Company and its customers.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

There were no purchases of the Company’s common shares during the second quarter of 2009 under the $5 million stock buy-back plan approved by the Board of Directors on April 16, 2008, which expired on April 15, 2009.

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Item 4.  Submission of Matters to a Vote of Security Holders

The Company’s annual meeting of shareholders was held on April 16, 2009.  The record date for determination of shareholders entitled to vote at the meeting was February 20, 2009.  There were 17,403,882 shares outstanding as of that date, each such share being entitled to one vote.  At the shareholders’ meeting the holders of 15,546,230 shares or approximately 89.3 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

Thirteen 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:

     Vote 
  For  Withheld 
Frank W. Berlin  14,448,190   1,098,040 
Thomas A. Carlstrom  14,458,065   1,088,165 
Joyce A. Chapman  14,451,488   1,094,742 
Orville E. Crowley  13,933,546   1,612,684 
Douglas R. Gulling  14,413,485   1,132,745 
Kaye R. Lozier  14,434,770   1,111,460 
David R. Milligan  13,974,073   1,572,157 
George D. Milligan  14,451,536   1,094,694 
Robert G. Pulver  14,400,160   1,146,070 
Thomas E. Stanberry  13,629,162   1,917,068 
Jack G. Wahlig  13,941,872   1,604,358 
Connie Wimer  14,437,797   1,108,433 
Brad L. Winterbottom  13,659,483   1,886,747 

Proposal II – Approve, on a non-binding basis, the 2008 executive compensation disclosed in the Proxy Statement

The vote to approve the above proposal was as follows:

        Vote 
  For  Against  Withheld 
Approval of executive compensation  13,534,832   891,876   1,119,522 

Proposal III – Ratify the Appointment of Independent Registered Public Accounting Firm

The vote to ratify the above proposal was as follows:

        Vote 
  For  Against  Withheld 
McGladrey & Pullen, LLP  14,728,174   274,598   543,458 

Item 6.  Exhibits

The following exhibits are filed as part of this report:

ExhibitsDescription
3.12.1
Stock Purchase Agreement by and among Miles Capital Holdings, Inc. and West Bancorporation, Inc. and WB Capital Management Inc. dated October 1, 2009 (incorporated herein by reference to Exhibit 2.1 filed with the Form 8-K on October 6, 2009.)
3.1
Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 filed with the Form 10 on March 11, 2002.)
3.2
Articles of Amendment to the Restated Articles of Incorporation filed with the Secretary of State on December 24, 2008 (incorporated herein by reference to Exhibit 3.1 filed with the Form 8-K on December 31, 2008.)
3.3
Articles of Amendment to the Restated Articles of Incorporation filed with the Iowa Secretary of State on December 24, 2008, designating the terms of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated herein by reference to Exhibit 3.2 filed with the Form 8-K on December 31, 2008.)
3.4
Bylaws of the Company as amended through October 17, 2007 (incorporated herein by reference to Exhibit 4.1 filed with the Form S-3 on January 30, 2009.)

36

4.1
Warrant for Purchase of Shares of Common Stock (incorporate herein by reference to Exhibit 4.1 filed with the Form 8-K on December 31, 2008.)
4.2
Letter Agreement, dated December 31, 2008, between the Company and the UST, which includes the Securities Purchase Agreement attached hereto, with respect to the issuance and sale of the Preferred Stock and the Warrant (incorporated herein by reference to Exhibit 10.1 filed with the Form 8-K on December 31, 2008.)
10.1
Lease for Main Bank Facility (incorporated herein by reference to Exhibit 10.1 filed with the Form 10 on March 11, 2002.)
10.2
Supplemental Agreement to Lease for Main Bank Facility (incorporated herein by reference to Exhibit 10.2 filed with the Form 10 on March 11, 2002.)
10.3
Short-term Lease related to Main Bank Facility (incorporated herein by reference to Exhibit 10.3 filed with the Form 10 on March 11, 2002.)
10.4
Assignment (incorporated herein by reference to Exhibit 10.4 filed with the Form 10 on March 11, 2002.)
10.5
Lease Modification Agreement No. 1 for Main Bank Facility (incorporated herein by reference to Exhibit 10.5 filed with the Form 10 on March 11, 2002.)
10.6
Memorandum of Real Estate Contract (incorporated herein by reference to Exhibit 10.6 filed with the Form 10 on March 11, 2002.)
10.7
Affidavit (incorporated herein by reference to Exhibit 10.7 filed with the Form 10 on March 11, 2002.)
10.8
Addendum to Lease for Main Bank Facility (incorporated herein by reference to Exhibit 10.8 filed with the Form 10 on March 11, 2002.)
10.9
Data Processing Contract (incorporated herein by reference to Exhibit 10.9 filed with the Form 10 on March 11, 2002.)
10.10*
Employment Contract (incorporated herein by reference to Exhibit 10.10 filed with the Form 10 on March 11, 2002.)
10.11
Data Processing Contract Amendment (incorporated herein by reference to Exhibit 10.12 filed with the Form 10-K on March 26, 2003.)
10.12
The Employee Savings and Stock Ownership Plan, as amended (incorporated herein by reference to Exhibit 4.1 filed with the Form S-8 on October 29, 2004.)
10.13
Amendment to Lease Agreement (incorporated herein by reference to Exhibit 10.16 filed with the Form 10-K on March 3, 2005.)
10.14*
Employment Agreement with Scott D. Eltjes (incorporated herein by reference to Exhibit 10.17 filed with the Form 10-K on March 3, 2005.)
10.1510.14
Consulting Agreement with David L. Miller (incorporated herein by reference to Exhibit 10.18 filed with the Form 10-Q on May 6, 2005.)
10.16*10.15*
West Bancorporation, Inc. Restricted Stock Compensation Plan (incorporated herein by reference to Exhibit B of the definitive proxy statement 14A filed on March 10, 2005.)
10.17*10.16*
Employment Agreement between Investors Management Group Ltd. and Jeff Lorenzen (incorporated herein by reference to Exhibit 99 filed with the Form 8-K on February 22, 2006.)
10.1810.17
Assignment and Assumption of Lease and Consent to Assignment (incorporated herein by reference to Exhibit 10.21 filed with the Form 10-K on March 8, 2006.)
10.1910.18
2007 Amendment to Lease Agreement (incorporated herein by reference to Exhibit 10.22 filed with the Form 10-Q on May 4, 2007.)
10.20*10.19*
Employment Agreement with Thomas E. Stanberry (incorporated herein by reference to Exhibit 10.24 filed with the Form 8-K on May 23, 2008.)
10.21*10.20*
Employment Agreement with Douglas R. Gulling (incorporated herein by reference to Exhibit 10.25 filed with the Form 8-K on May 23, 2008.)
10.22*10.21*
Employment Agreement with Brad L. Winterbottom (incorporated herein by reference to Exhibit 10.26 filed with the Form 8-K on May 23, 2008.)
40
10.2310.22
Data Processing Contract Amendment (incorporated herein by reference to Exhibit 10.23 filed with the Form 10-Q on October 30, 2008.).
10.24*10.23*
Letter agreement dated July 15, 2009, between West Bancorporation, Inc. and David R. Milligan (incorporated herein by reference to Exhibit 10.24 filed with the Form 8-K on July 15, 2009.)
1210.24*Separation Agreement and Release with Thomas E. Stanberry
12Computation of Ratios of Earnings (Loss) to Fixed Charges and Preferred Dividends
31.1Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Indicates management contract or compensatory plan or arrangement.
* Indicates management contract or compensatory plan or arrangement.

 
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SIGNATURESSIGNATURES

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 Bancorporation, Inc.  
(Registrant)  
   
July 30,
October 29, 2009
By:
/s/ David R. Milligan
DateDavid R. Milligan
 Interim Chief Executive Officer
   
July 30,October 29, 2009By:
By: /s/ Douglas R. Gulling
DateDouglas R. Gulling
 Executive Vice President and Chief Financial Officer
 (Principal Accounting Officer)



 
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EXHIBIT INDEX

The following exhibits are filed herewith:

Exhibit No.DescriptionPage Number
10.24Separation Agreement and Release with Thomas E. Stanberry44
12Ratios of Earnings (Loss) to Fixed Charges and Preferred Dividends47
31.1Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 200248
31.2Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 200249
32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200250
32.2Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200251
Exhibit No. Description Page Number
12 Ratios of Earnings (Loss) to Fixed Charges and Preferred Dividends 40
31.1 Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 41
31.2 Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 42
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted 43
  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted 44
  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  



 
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