FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED COMMISSION FILE NUMBER
- --------------------------------------------------------------------------------
September 30, 2002 0-49677
WEST BANCORPORATION, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
IOWA 42-1230603
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1601 22nd Street, West Des Moines, Iowa 50266
Telephone Number (515) 222-2300
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes __x__ No___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ____ No_x__
As of November 13, 2002, there were 16,060,271 shares of common stock, no par
value outstanding.
1
West Bancorporation, Inc. and Subsidiary
Consolidated Balance Sheets
(unaudited)
September 30, December 31,
2002 2001
------------------------------
Assets
Cash and due from banks ....................................................... $ 38,067,323 $ 34,461,369
Federal funds sold and other short term investments ........................... 74,737,820 93,988,871
------------------------------
Cash and cash equivalents ................................................. 112,805,143 128,450,240
------------------------------
Securities available for sale ................................................. 49,588,663 32,959,504
Securities held to maturity (approximate market value of $173,698,000
and $153,892,000 at September 30, 2002 and December 31, 2001, respectively) 170,486,240 153,383,948
Federal Home Loan Bank stock, at cost ......................................... 3,129,700 3,129,700
------------------------------
Total securities .......................................................... 223,204,603 189,473,152
------------------------------
Loans ......................................................................... 481,535,302 493,398,442
Allowance for loan losses ................................................. (4,360,989) (4,239,990)
------------------------------
Loans, net .................................................................... 477,174,313 489,158,452
------------------------------
Premises and equipment, net ................................................... 1,380,637 1,147,150
Accrued interest receivable ................................................... 5,448,592 5,102,592
Other assets .................................................................. 2,273,336 2,638,656
------------------------------
Total assets .............................................................. $ 822,286,624 $ 815,970,242
==============================
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing ....................................................... $ 156,636,239 $ 144,512,495
Interest-bearing:
Demand ................................................................. 34,645,866 31,570,399
Savings ................................................................ 227,533,508 249,729,844
Time ................................................................... 152,123,024 145,917,552
------------------------------
Total deposits ............................................................ 570,938,637 571,730,290
Federal funds purchased and securities sold under agreements to repurchase .... 109,001,341 107,831,935
Other short-term borrowings ................................................... 4,327,422 6,000,000
Accrued expenses and other liabilities ........................................ 2,450,418 3,395,756
Long-term borrowings .......................................................... 51,600,000 48,000,000
------------------------------
Total liabilities ......................................................... 738,317,818 736,957,981
-----------------------------
Stockholders' Equity
Common stock, no par value; authorized 50,000,000 shares; shares issued and
outstanding: 2002 and 2001, 16,060,271 .................................... 3,000,000 3,000,000
Additional paid-in capital .................................................... 32,000,000 32,000,000
Retained earnings ............................................................. 47,984,972 43,374,281
Accumulated other comprehensive income ........................................ 983,834 637,980
-----------------------------
Total stockholders' equity ................................................ 83,968,806 79,012,261
------------------------------
Total liabilities and stockholders' equity ................................ $ 822,286,624 $ 815,970,242
==============================
See Accompanying Notes to Consolidated Financial Statements.
2
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Income
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
-----------------------------------------------------
Interest income:
Loans .................................................. $ 8,224,343 $ 9,718,214 $24,785,573 $30,167,885
Securities:
U.S Treasury, government agencies and corporations .. 1,746,041 2,012,710 5,235,606 8,221,365
States and political subdivisions ................... 396,868 408,506 1,236,981 1,133,383
Other ............................................... 314,500 156,446 855,516 511,817
Federal funds sold and other short-term investments .... 437,466 1,133,221 1,299,694 2,469,370
-----------------------------------------------------
Total interest income ............................. 11,119,218 13,429,097 33,413,370 42,503,820
-----------------------------------------------------
Interest expense:
Demand deposits ........................................ 35,981 45,081 103,564 192,021
Savings deposits ....................................... 888,570 1,826,026 2,820,280 5,578,048
Time deposits .......................................... 1,284,800 1,854,492 3,988,605 7,462,745
Federal funds purchased and securities sold under
agreements to repurchase ............................ 456,662 1,263,729 1,423,678 4,814,521
Other short-term borrowings ............................ 7,998 22,644 24,381 449,553
Long-term borrowings ................................... 723,774 735,847 2,127,435 2,130,328
-----------------------------------------------------
Total interest expense ............................ 3,397,785 5,747,819 10,487,943 20,627,216
-----------------------------------------------------
Net interest income ............................... 7,721,433 7,681,278 22,925,427 21,876,604
Provision for loan losses .................................. 250,000 300,000 710,000 762,500
-----------------------------------------------------
Net interest income after provision for loan losses 7,471,433 7,381,278 22,215,427 21,114,104
-----------------------------------------------------
Noninterest income:
Service charges on deposit accounts .................... 1,194,710 1,164,418 3,313,446 3,277,244
Trust services ......................................... 138,000 122,647 437,634 419,123
Other income ........................................... 387,336 325,430 1,029,563 933,739
Realized gains from securities available for sale ...... 91,509 -- 91,509 --
-----------------------------------------------------
Total noninterest income .......................... 1,811,555 1,612,495 4,872,152 4,630,106
-----------------------------------------------------
Noninterest expense:
Salaries and employee benefits ......................... 1,618,790 1,604,693 4,818,602 4,756,662
Occupancy expenses ..................................... 327,599 296,975 966,317 905,711
Data processing expenses ............................... 238,820 267,741 769,162 731,294
Other expenses ......................................... 609,052 544,786 1,915,904 1,629,120
-----------------------------------------------------
Total noninterest expense ......................... 2,794,261 2,714,195 8,469,985 8,022,787
-----------------------------------------------------
Income before income taxes ........................ 6,488,727 6,279,578 18,617,594 17,721,423
Income taxes ............................................... 2,318,538 2,232,500 6,619,178 6,307,753
-----------------------------------------------------
Net income ........................................ $ 4,170,189 $ 4,047,078 $11,998,416 $11,413,670
=====================================================
Basic earnings per share ................................... $ 0.26 $ 0.25 $ 0.75 $ 0.71
=====================================================
Cash dividends per share ................................... $ 0.16 $ 0.15 $ 0.46 $ 0.45
=====================================================
See Accompanying Notes to Consolidated Financial Statements.
3
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(unaudited)
Nine Months Ended September 30,
2002 2001
-------------------------------
Common Stock
Beginning of year balance .................. $ 3,000,000 $ 3,000,000
----------------------------
End of period balance ...................... 3,000,000 3,000,000
----------------------------
Additional Paid-in Capital
Beginning of year balance .................. 32,000,000 32,000,000
----------------------------
End of period balance ...................... 32,000,000 32,000,000
----------------------------
Retained Earnings
Beginning of year balance .................. 43,374,281 37,274,004
Net income ................................. 11,998,416 11,413,670
Dividends on common stock .................. (7,387,725) (7,227,122)
----------------------------
End of period balance ...................... 47,984,972 41,460,552
----------------------------
Accumulated Other Comprehensive Income (Loss)
Beginning of year balance .................. 637,980 (1,428,660)
Unrealized gain on securities, net of tax .. 345,854 2,261,659
----------------------------
End of period balance ...................... 983,834 832,999
----------------------------
Total Stockholders' Equity ..................... $ 83,968,806 $ 77,293,551
============================
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Nine Months Ended September 30,
2002 2001
-------------------------------
Net Income .......... .......................... $11,998,416 $11,413,670
Other comprehensive income, increase in
unrealized gains on securities, net of
reclassification adjustment, net of tax ..... 345,854 2,261,659
-------------------------
Comprehensive income ........................... $12,344,270 $13,675,329
=========================
See Accompanying Notes to Consolidated Financial Statements.
4
West Bancorporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30,
2002 2001
-------------------------------
Cash Flows from Operating Activities
Net income ................................................................ $ 11,998,416 $ 11,413,670
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses .............................................. 710,000 762,500
Net amortization ....................................................... 473,830 26,033
Loss on disposition of fixed assets .................................... 28,665 --
Gains on the sale of loans and securities available for sale ........... 220,865 108,345
Proceeds from sales of loans held for sale ............................. 7,865,424 6,631,228
Originations of loans held for sale .................................... (8,337,780) (6,741,573)
Depreciation ........................................................... 120,665 105,066
Deferred income taxes .................................................. (145,269) (544,776)
Change in assets and liabilities:
Decrease (increase) in accrued interest receivable .................. (346,000) 3,048,821
(Decrease) in accrued expenses and other liabilities ................ (945,338) (600,787)
------------------------------
Net cash provided by operating activites .......................... 11,643,478 14,208,527
------------------------------
Cash Flows from Investing Activities
Proceeds from sales, calls, and maturities of securities available for sale 4,432,866 121,802,006
Purchase of securities available for sale ................................. (21,876,919) --
Proceeds from calls and maturities of securities held to maturity ......... 103,965,544 98,398,225
Purchase of securities held to maturity ................................... (120,236,162) (78,632,256)
Proceeds from redemption of Federal Home Loan Bank stock .................. -- 8,002,200
Net decrease in loans ..................................................... 11,617,139 6,554,330
Purchases of bank premises and equipment .................................. (382,817) (146,223)
Change in other assets .................................................... 274,324 387,277
------------------------------
Net cash provided by (used in) investing activities ............... (22,206,025) 156,365,559
------------------------------
Cash Flows from Financing Activities
Net (decrease) in deposits ................................................ (791,653) (21,967,499)
Net increase (decrease) in federal funds purchased and securities sold
under agreements to repurchase ......................................... 1,169,406 (5,122,511)
Net increase (decrease) in other short-term borrowings .................... (1,672,578) 865,540
Proceeds from long-term borrowings ........................................ 3,600,000 10,000,000
Principal payments on long-term borrowings ................................ -- (10,000,000)
Cash dividends ............................................................ (7,387,725) (7,227,122)
------------------------------
Net cash (used in) financing activities ........................... (5,082,550) (33,451,592)
------------------------------
Net increase (decrease) in cash and cash equivalents .............. (15,645,097) 137,122,494
Cash and Cash Equivalents
Beginning ................................................................. 128,450,240 26,510,756
------------------------------
End ....................................................................... $ 112,805,143 $ 163,633,250
==============================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest ............................................................... $ 11,225,791 $ 22,328,620
Income taxes ........................................................... 6,996,675 6,137,452
See Accompanying Notes to Consolidated Financial Statements.
5
PART I - Item 1. Financial Statements, Continued
West Bancorporation, Inc.
Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying consolidated statements of income, stockholders' equity,
comprehensive income, and cash flows for the three and nine months ended
September 30, 2002 and 2001, and the consolidated balance sheets as of September
30, 2002 and December 31, 2001 include the accounts and transactions of the
Company and its wholly-owned subsidiary, West Des Moines State Bank. All
material intercompany balances and transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
interim consolidated financial statements be read in conjunction with the
company's most recent audited financial statements and notes thereto. In the
opinion of management, the accompanying consolidated financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position as of September 30, 2002, and the
results of operations and cash flows for the three and nine months ended
September 30, 2002 and 2001.
The results for these interim periods may not be indicative of results for the
entire year or for any other period.
2. Earnings Per Common Share
Earnings per share represents income available to common shareholders divided by
the weighted average number of shares outstanding during the period. The Company
has no common equivalent shares that could cause dilution. The average number of
shares outstanding for the three and nine months ended September 30, 2002 and
2001 was 16,060,271.
3. Impact of New Financial Accounting Standards
In October 2002, the FASB issued SFAS No. 147, which addresses the financial
accounting and reporting for the acquisition of all or part of a financial
institution, except for a transaction between two or more mutual enterprises.
Transaction provisions for previously recognized unidentifiable intangible
assets are effective on October 1, 2002, with earlier application permitted. The
carrying amount of an unidentifiable intangible asset shall continue to be
amortized after October 1, 2002, unless the transaction in which the asset arose
was a business combination. If the transaction that gave rise to the
unidentifiable intangible asset was a business combination, the carrying amount
of the asset shall be reclassified to goodwill as of the later of the date of
acquisition or the date SFAS No. 142 was applied in its entirety. The Company
has no unidentifiable intangible assets recorded as of September 30, 2002, and
therefore believes SFAS No. 147 has no effect on the accompanying consolidated
financial statements.
4. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. A significant estimate that is
particularly sensitive to change is the allowance for loan losses.
6
PART I -- Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002
SELECTED FINANCIAL RESULTS
The following table shows selected financial results and measures for the three
and nine months ended September 30, 2002 compared with the same periods in 2001.
Three months ended September 30, Nine months ended September 30,
------------------------------------------------- ----------------------------------------------------
2002 2001 Change Change-% 2002 2001 Change Change-%
-------------------------------------------------------------------------------------------------------
Net income .............. $ 4,170,189 $ 4,047,078 $ 123,111 3.0% $ 11,998,416 $ 11,413,670 $ 584,746 5.1%
Average assets .......... 832,573,412 834,568,766 (1,995,354) -0.2% 825,094,390 834,931,602 (9,837,212) -1.2%
Average stockholders'
equity ................ 82,864,058 75,907,530 6,956,528 9.2% 81,052,795 73,932,271 7,120,524 9.6%
Return on assets ........ 1.99% 1.92% 0.06% 3.3% 1.94% 1.83% 0.12% 6.4%
Return on equity ........ 19.97% 21.15% -1.19% -5.6% 19.79% 20.64% -0.85% -4.1%
Efficiency ratio ........ 28.88% 28.50% 0.38% 1.3% 29.79% 29.59% 0.20% 0.7%
Dividend payout ratio ... 61.54% 60.00% 1.54% 2.6% 61.33% 63.38% -2.05% -3.2%
Equity to assets ratio .. 9.95% 9.10% 0.86% 9.4% 9.82% 8.85% 0.97% 10.9%
Definitions of ratios:
Return on assets - annualized net income divided by average assets.
Return on equity - annualized net income divided by average stockholders'
equity.
Efficiency ratio - noninterest expense divided by noninterest income plus
taxable equivalent net interest income.
Dividend payout ratio - dividends per share divided by net income per
share.
Equity to assets ratio - average equity divided by average assets.
Net income for the first nine months of 2002 is higher than the previous year
primarily because of increased net interest income (see discussion of net
interest income below). Net income for the third quarter of 2002 is higher than
the third quarter of 2001 mostly because of increased non-interest income (see
discussion of noninterest income later in this report). Return on average equity
has declined slightly even though net income has increased because growth in
equity has been at a higher rate than the growth in net income. Return on
average assets is higher than last year for both periods because net income is
higher and average assets are slightly lower. Average assets are lower because
funds from maturing investment securities were used to reduce short-term
borrowings.
7
RESULTS OF OPERATIONS
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.
Data for the three months ended September 30 (dollars in thousands).
Average Balance Interest Income/Expense Yield/Rate
--------------------------------------- -------------------------------------- ----------------------
2002 2001 Change Change-% 2002 2001 Change Change-% 2002 2001 Change
-------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans:
Commercial .............. $ 253,995 $255,211 $ (1,216) -0.48% $ 3,898 $ 5,061 $(1,163) -22.97% 6.09% 7.87% -1.78%
Real estate ............. 189,497 200,582 (11,085) -5.53% 3,708 3,951 (242) -6.14% 7.76% 7.81% -0.05%
Consumer ................ 20,635 20,369 265 1.30% 407 471 (64) -13.57% 7.83% 9.18% -1.35%
Other ................... 15,511 18,336 (2,825) -15.41% 305 330 (25) -7.67% 7.79% 7.14% 0.65%
-------------------------------------------------------------------------------------------------------
Total Loans ............. 479,637 494,498 (14,860) -3.01% 8,318 9,813 (1,495) -15.23% 6.88% 7.87% -0.99%
-------------------------------------------------------------------------------------------------------
Investment securities:
Taxable ................. 190,527 151,668 38,860 25.62% 2,145 2,239 (94) -4.21% 4.47% 5.86% -1.39%
Tax-exempt .............. 27,884 27,508 376 1.37% 453 473 (20) -4.30% 6.44% 6.82% -0.38%
-------------------------------------------------------------------------------------------------------
Total investment
securities ............ 218,412 179,176 39,236 21.90% 2,598 2,712 (114) -4.23% 4.72% 6.01% -1.29%
-------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 100,097 127,817 (27,720) -21.69% 437 1,133 (696) -61.40% 1.73% 3.52% -1.78%
-------------------------------------------------------------------------------------------------------
Total interest-earning
assets ................ $ 798,146 $801,490 $ (3,344) -0.42% 11,353 13,658 (2,305) -16.87% 5.64% 6.76% -1.12%
=======================================================================================================
Interest-bearing liabilities:
Deposits:
Checking with interest,
savings and money
markets ................ $ 277,970 $273,889 $ 4,081 1.49% $ 925 $ 1,871 (946) -50.59% 1.32% 2.71% -1.39%
Time deposits ............ 155,697 141,074 14,623 10.37% 1,285 1,854 (569) -30.72% 3.27% 5.22% -1.94%
-------------------------------------------------------------------------------------------------------
Total deposits ........... 433,667 414,964 18,703 4.51% 2,210 3,725 (1,515) -40.70% 2.02% 3.56% -1.54%
-------------------------------------------------------------------------------------------------------
Other borrowed funds ..... 170,418 207,376 (36,958) -17.58% 1,188 2,022 (834) -41.23% 2.77% 3.87% -1.10%
-------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities ............ $ 604,085 $622,339 $(18,255) -2.93% 3,398 5,747 (2,349) -40.89% 2.26% 3.70% -1.45%
======================================-----------------------------------------------------------------
Tax-equivalent net
interest income ........ $ 7,955 $ 7,911 $ 44 0.57%
========================================
Net interest spread ...... 3.38% 3.06% 0.32%
=======================
Net interest margin ...... 3.95% 3.92% 0.03%
=======================
8
Data for the nine months ended September 30 (dollars in thousands).
Average Balance Interest Income/Expense Yield/Rate
------------------------------------------ ------------------------------------- -----------------------
2002 2001 Change Change-% 2002 2001 Change Change-% 2002 2001 Change
----------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans:
Commercial .............. $ 250,560 $251,391 $ (831) -0.33% $11,481 $15,450 $(3,969) -25.69% 6.13% 8.22% -2.09%
Real estate ............. 193,643 205,701 (12,057) -5.86% 11,412 12,505 (1,094) -8.75% 7.88% 8.13% -0.25%
Consumer ................ 20,664 21,229 (564) -2.66% 1,253 1,482 (229) -15.42% 8.11% 9.33% -1.22%
Other ................... 15,814 17,934 (2,120) -11.82% 926 1,001 (76) -7.56% 7.83% 7.46% 0.36%
----------------------------------------------------------------------------------------------------------
Total Loans ............. 480,682 496,254 (15,572) -3.14% 25,071 30,438 (5,367) -17.63% 6.97% 8.20% -1.23%
----------------------------------------------------------------------------------------------------------
Investment securities:
Taxable ................. 183,395 193,485 (10,090) -5.22% 6,344 8,943 (2,599) -29.06% 4.63% 6.18% -1.55%
Tax-exempt .............. 28,555 24,571 3,984 16.21% 1,423 1,265 158 12.51% 6.66% 6.88% -0.22%
----------------------------------------------------------------------------------------------------------
Total investment
securities ............ 211,950 218,056 (6,107) -2.80% 7,767 10,208 (2,441) -23.91% 4.90% 6.26% -1.36%
----------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 98,467 81,867 16,600 20.28% 1,300 2,469 (1,170) -47.37% 1.76% 4.03% -2.27%
----------------------------------------------------------------------------------------------------------
Total interest-earning
assets $ 791,098 $ 796,177 $ (5,079) -0.64% 34,138 43,116 (8,978) -20.82% 5.77% 7.24% -1.47%
=========================================-----------------------------------------------------------------
Interest-bearing
liabilities:
Deposits:
Checking with interest,
savings and money
markets ............. $ 277,161 $ 242,090 $ 35,071 14.49% $ 2,924 $ 5,770 (2,846) -49.32% 1.41% 3.19% -1.78%
Time deposits ......... 146,939 171,934 (24,994) -14.54% 3,989 7,463 (3,474) -46.55% 3.63% 5.80% -2.17%
----------------------------------------------------------------------------------------------------------
Total deposits ........ 424,101 414,024 10,077 2.43% 6,913 13,233 (6,320) -47.76% 2.18% 4.27% -2.09%
----------------------------------------------------------------------------------------------------------
Other borrowed funds .. 175,745 211,767 (36,022) -17.01% 3,575 7,394 (3,819) -51.65% 2.72% 4.67% -1.95%
----------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities ......... $ 599,846 $625,791 $(25,945) -4.15% 10,488 20,627 (10,139) -49.15% 2.34% 4.41% -2.07%
=========================================-----------------------------------------------------------------
Tax-equivalent net
interest income ..... $23,650 $22,489 $ 1,161 5.17%
======================================
Net interest spread ... 3.43% 2.83% 0.60%
======================
Net interest margin ... 4.00% 3.78% 0.22%
======================
Net interest income is computed by subtracting total interest expense from total
interest income. Net interest spread is calculated by subtracting the average
rate paid on interest bearing liabilities from the average yield on interest
earning assets. Net interest margin is a measure of the net return on
interest-earning assets and is computed by dividing annualized net interest
income by the average of total interest-earning assets for the period.
Fluctuations in net interest income can result from the changes in the volumes
of assets and liabilities as well as changes in interest rates. Interest rates
moved down throughout the year 2001. Through the first nine months of 2002, the
Federal Reserve has not changed the target rate for Federal funds, although
market interest rates showed a fairly significant decline in the later part of
the third quarter.
9
The yield on the Company's loan portfolio is affected by the amount of
nonaccrual loans, the mix of the portfolio, the effects of competition, and the
interest rate environment. The interest rate environment can influence the
volume of new loan originations and the mix of variable rate versus fixed rate
loans. Competition for loans in the market area served by the Company remains
strong as customers seek to refinance loans to obtain lower interest rates. The
yield on loans has been fairly constant during the first nine months of 2002,
with the exception of consumer loans. The yield on consumer loans should
continue to decline somewhat because new loan rates are lower than the rates on
maturing loans and for the most part, the Company has discontinued the purchase
of dealer paper.
In 2001, the average balance of investment securities was declining as maturity
proceeds were used to pay off short-term debt. Throughout 2002, the average
balance of investment securities has been increasing which is the result of
slightly declining loan balances and the investment of some funds that had been
in Federal funds sold and other short-term investments.
The average rate paid on deposits is lower than last year and has continued to
decline this year. As discussed elsewhere in this report, some maturing time
deposits are being invested upon maturity in money market savings accounts. This
accounts for an increase in the money market category for the first nine months
of 2002 and lowers the overall cost of deposits since the rate on money market
accounts is lower than time deposits. Competition for deposits remains intense
in the market area served by the Company.
During the first quarter of 2001, the Company was borrowing on a short-term
basis from the Federal Home Loan Bank. Those borrowings were paid off in the
second quarter of 2001 resulting in a decrease in average borrowings for the
first nine months of 2002 of $10.5 million. The remaining decline in average
borrowings for the first nine months of this year compared to last year is due
to Federal funds purchased, down $13 million, and securities sold under
agreement to repurchase, down $14 million. The decline in average borrowings for
the third quarter of 2002 compared to 2001 is due to Federal funds purchased,
lower by $19 million, and securities sold under agreement to repurchase, lower
by $16 million.
Provision for Loan Losses and the Related Allowance for Loan Losses
The following table sets forth the activity in the Allowance for Loan Losses for
the three and nine months ended September 30, 2002 and the same respective
periods for 2001 as well as common ratios related to the allowance for loan
losses.
Three months ended Sept 30, Nine months ended Sept 30,
------------------------------------------------------------------------------------
2002 2001 Change 2002 2001 Change
------------------------------------------------------------------------------------
Balance at beginning of period ....... $ 4,475,600 $ 3,936,825 $ 4,239,990 $ 4,194,498
Charge-offs .......................... (396,581) (190,319) $ (206,262) (788,875) (931,834) $142,959
Recoveries ........................... 31,970 9,887 22,083 199,874 31,229 168,645
------------------------------------------------------------------------------------
Net charge-offs ...................... (364,611) (180,432) (184,179) (589,001) (900,605) 311,604
Provision charged to operations ...... 250,000 300,000 (50,000) 710,000 762,500 (52,500)
------------------------------------------------------------------------------------
Balance at end of period ............. $ 4,360,989 $ 4,056,393 $ 4,360,989 $ 4,056,393
=========================== ============================
Average loans outstanding ............ $479,637,329 $494,497,551 $480,681,908 $496,254,060
Ratio of net charge-offs during the
period to average loans outstanding 0.08% 0.04% 0.12% 0.18%
Ratio of allowance for loan losses
to average loans outstanding ...... 0.91% 0.82% 0.91% 0.82%
10
Charge-offs for the first nine months of 2002 compared to 2001 are approximately
$143,000 lower. Recoveries on loans previously charged-off are $169,000 higher
in 2002 than 2001. The net effect of these trends is that net charge-offs, as
shown above, are significantly lower this year than the prior year. The positive
trends in charge-offs and recoveries coupled with the analysis of the adequacy
of the allowance for loan losses resulted in a provision for loan losses for the
third quarter and first nine months of 2002 that was slightly lower than last
year. Included in charge-offs during the third quarter of 2002 was a charge-off
of $375,000 for a commercial loan relationship that had been placed on
nonaccrual status in the first quarter of this year. The business is being
liquidated. Proceeds from the sale of inventory and equipment were not as
favorable as anticipated. There are more assets to be liquidated, which
depending on the values received, may result in an additional charge-off in
subsequent periods. Management believes the allowance for loan losses is
adequate to absorb any future loss that may be incurred on this commercial loan.
Management determines an appropriate provision based on its evaluation of the
adequacy of the allowance for loan losses in relationship to a continuing review
of problem loans, the current economic conditions and industry trends in
addition to the actual loss experience. The allowance for loan losses is
management's best estimate of probable losses inherent in the loan portfolio as
of the balance sheet date; however, changes in the loan portfolio and the
uncertainty of the general economy require that management continue to evaluate
the adequacy of the allowance for loan losses and make additional provisions in
future periods as deemed necessary.
Noninterest Income
The following table shows the variance from the prior year in the noninterest
income categories shown in the Consolidated Statements of Income. In addition,
accounts within the Other Income category that represent significant variances
are shown.
Three months ended Sept 30, Nine months ended Sept 30,
-------------------------------------------------------------------------------------------
Noninterest income 2002 2001 Change Change-% 2002 2001 Change Change-%
-------------------------------------------------------------------------------------------
Service charges on deposit accounts ... $1,194,710 $1,164,418 $ 30,292 2.60% $3,313,446 $3,277,244 $ 36,202 1.10%
Trust services ........................ 138,000 122,647 15,353 12.52% 437,634 419,123 18,511 4.42%
Other:
Letter of credit fees ............. 21,340 27,371 (6,031) -22.03% 64,336 45,218 19,118 42.28%
VISA/Mastercard income ............ 38,255 43,200 (4,945) -11.45% 139,287 125,650 13,637 10.85%
Gain on sale of real estate loans . 66,015 27,233 38,782 142.41% 129,356 108,345 21,011 19.39%
Income from check sales ........... 42,936 41,300 1,636 3.96% 120,736 106,500 14,236 13.37%
ATM surcharge fees ................ 32,967 -- 32,967 -- 39,501 -- 39,501 --
All other ......................... 185,823 186,326 (503) -0.27% 536,347 548,026 (11,679) -2.13%
-------------------------------------------------------------------------------------------
Total other ....................... 387,336 325,430 61,906 19.02% 1,029,563 933,739 95,824 10.26%
-------------------------------------------------------------------------------------------
Gain on sale of securities ............ 91,509 -- 91,509 -- 91,509 -- 91,509 --
-------------------------------------------------------------------------------------------
Total noninterest income .......... $1,811,555 $1,612,495 $199,060 12.34% $4,872,152 $4,630,106 $242,046 5.23%
===========================================================================================
Noninterest income results from the charges and fees collected by the Company
from its customers for various services performed and miscellaneous other
income. VISA/MasterCard income is up because the Bank converted to a lower cost
processor that is also within the Bank's market area and results in improved
service for the Bank and its merchant customers, although the timing of certain
conversion costs, which are netted against gross revenues, caused third quarter
2002 income to be slightly lower than last year. The gain on the sale of real
estate loans is higher this year because of increased sales volume. Income from
check sales is higher this year because of more favorable pricing terms
negotiated in the contract that was renewed in the second half of 2001. ATM
surcharge fees are a new source of revenue for financial institutions in Iowa
after the banking laws were changed in the second quarter of 2002 to allow such
fees.
11
Noninterest Expense
The following table shows the variance from the prior year in the noninterest
expense categories shown in the Consolidated Statements of Income. In addition,
accounts within the Other expense category that represent significant variances
are shown.
Three months ended Sept 30, Nine months ended Sept 30,
---------------------------------------------------------------------------------------------
Noninterest expense: 2002 2001 Change Change-% 2002 2001 Change Change-%
---------------------------------------------------------------------------------------------
Salaries and employee benefits ... $1,618,790 $1,604,693 $ 14,097 0.88% $4,818,602 $4,756,662 $ 61,940 1.30%
Occupancy expenses ............... 327,599 296,975 30,624 10.31% 966,317 905,711 60,606 6.69%
Data processing expenses ......... 238,820 267,741 (28,921) -10.80% 769,162 731,294 37,868 5.18%
Other:
Miscellaneous losses ........ 66,372 40,036 26,336 65.78% 184,797 89,318 95,479 106.90%
Advertising ................. 52,336 48,553 3,783 7.79% 160,341 137,977 22,364 16.21%
Trust expense ............... 78,666 55,096 23,570 42.78% 229,962 196,383 33,579 17.10%
Nasdaq filing fee and related
professional fees ......... -- -- -- -- 155,487 -- 155,487 --
All other ................... 411,678 401,101 10,577 2.64% 1,185,317 1,205,442 (20,125) -1.67%
---------------------------------------------------------------------------------------------
Total other ................. 609,052 544,786 64,266 11.80% 1,915,904 1,629,120 286,784 17.60%
---------------------------------------------------------------------------------------------
Total noninterest expense ... $2,794,261 $2,714,195 $ 80,066 2.95% $8,469,985 $8,022,787 $447,198 5.57%
=============================================================================================
Noninterest expense includes all the costs incurred to operate the Company
except for interest expense, the provision for loan losses, and income tax
expense. The increase in Occupancy expenses, particularly in the third quarter
is a combination of increases in property taxes, maintenance and repairs, and
lease payments. Data processing expenses for the first nine months are higher
than last year because certain item processing functions were outsourced during
the third quarter of 2001. That also contributes to the low increases in the
Salaries and Employee Benefits category. Data processing expenses for the third
quarter of 2002 are lower than last year because of lower net processing costs
related to ATM's. The increase in miscellaneous losses is due to: 1) losses
involving forged and fraudulently deposited checks the Company experienced in
early 2002; 2) a loss of approximately $29,000 during the second quarter of 2002
on the disposition of personal computers that were replaced in order to run
updated software programs and 3) the write-off of an investment in a venture
capital fund totaling $47,000. The investment in the venture capital fund was
made several years ago. There had been distributions that reduced the original
investment, but at this time, the fund is in the process of liquidation with
very little value remaining for investors. Advertising expense has increased due
to specific marketing programs that have been implemented. Trust expenses are
higher in 2002 because an outside, third-party investment manager was hired in
the third quarter of 2001 to manage the Trust Department assets with
discretionary investment authority. The Company paid Nasdaq an initial listing
fee of $100,000 during the second quarter of 2002. The remaining costs relate to
legal and accounting services associated with registering the Company's common
stock with the Securities and Exchange Commission. These are one-time costs,
however, legal and accounting fees will be somewhat higher on an ongoing basis
due to the SEC reports the Company is now required to file.
Income Tax Expense
There has been no change in strategy concerning income taxes. The effective
income tax rate as a percent of income before taxes for the three and nine
months ended September 30, 2002 was 35.7 percent and 35.6 percent, respectively,
compared to 35.6 percent and 35.6 percent respectively for the same periods last
year. Included in the effective rate is the State of Iowa franchise tax payable
by the Bank. The franchise tax is 5% of income before taxes and is deductible
for Federal income tax purposes.
12
FINANCIAL CONDITION
Total assets as of September 30, 2002 were $822,287,000, up slightly from
$815,970,000 at December 31, 2001.
Investment Securities
Investment securities available for sale as of September 30, 2002 have increased
$16,629,000 from December 31, 2001. Since December 31, 2001, investment
securities classified as held to maturity have increased $17,102,000. Investment
securities have increased as a result of a decline in loans and by the
investment of funds that had been in Federal funds sold.
Loans
Loans outstanding declined $11,863,000 from December 31, 2001 to September 30,
2002. The category with the largest decline is 1-4 family residential real
estate loans, which are down $9,200,000. In this low interest rate environment,
the Company has not been adding to its portfolio. Most new loans are sold in the
secondary market to avoid the interest rate risk associated with holding
long-term, lower interest rate loans. The next largest decline is in the
commercial real estate loan category, which declined $2,600,000 from December
31, 2001. Loans are expected to increase when economic conditions improve. At
this time, it is difficult to predict when that might occur.
Deposits
Total deposits as of September 30, 2002 were $570,939,000 compared with
$571,730,000 as of December 31, 2001. Deposits as of these two points in time
have not substantially changed. However, with deposits, it is sometimes more
appropriate to look at average balances because the balances on any given day,
particularly quarter end, can fluctuate significantly. (Please refer to the
average balances shown in the table under Net Interest Income.) Year-to-date
average time deposits are lower than last year and transaction accounts are
higher. Generally, customers have been less inclined to lock in low rate
certificates of deposit and have kept their funds in money market or savings
accounts waiting for interest rates to move higher. Time deposits increased
somewhat in the third quarter of 2002 and averaged $14,600,000 higher than the
third quarter of 2001. The increase is in public unit time deposits. For the
first nine months of 2002, non-interest-bearing checking accounts averaged
$141,000,000 compared to $130,000,000 for the first nine months of 2001
Borrowings
During the first quarter of 2002, the Company borrowed an additional $3,600,000
from the Federal Home Loan Bank (FHLB), bringing the total FHLB advances to
$51,600,000. The new advances had a weighted average maturity of 4.11 years and
a weighted average rate of 4.76%. There have been no other changes in long-term
borrowings during 2002. The balance of Federal funds purchased and securities
sold under agreement to repurchase was $109,001,000 at September 30, 2002,
virtually unchanged from $107,832,000 at December 31, 2001. The balance of other
short-term borrowings consisted entirely of Treasury, Tax and Loan option notes
at September 30, 2002 and December 31, 2001
Nonperforming Assets
The following table sets forth the amount of non-performing loans and assets
carried by the Company and common ratio measurements of those items.
September 30, 2002 December 31, 2001 Change
----------------------------------------------------
Nonaccrual loans .................... $1,580,240 $ 878,009 $ 702,231
Other real estate owned ............. 800,366 1,089,346 (288,980)
------------------------------------------------
Total non-performing assets ......... $2,380,606 $1,967,355 $ 413,251
================================================
Non-performing assets to total loans 0.49% 0.40% 0.10%
Non-performing assets to total assets 0.29% 0.24% 0.05%
Loans past due 90 days and still
accruing interest ................ $ 204,873 $ 395,431 $ (190,558)
13
The increase in non-accrual loans primarily relates to one commercial
relationship, which as of September 30, 2002 accounts for $1,189,000 of total
non-accrual loans. The relationship includes loans secured by real estate and
operating loans. During the third quarter, loans to a commercial customer
totaling $254,000 were placed on nonaccrual status. The borrowers closed the
business and are in the process of liquidating assets. The Small Business
Administration guarantees a portion of the loans, however, a loss is possible,
depending upon the liquidation values realized. The year-to-date decline in
Other Real Estate Owned relates to the sale of lots associated with a
development project that accounts for $630,000 of this category. The remaining
balance in Other Real Estate Owned consists of one single-family house and one
residential lot. There was no activity in Other Real Estate Owned during the
third quarter of 2002. In the opinion of management, loans past due 90 days and
still accruing interest are adequately collateralized to cover any unpaid
interest. Reference is also made to the information and discussion earlier in
this report under the heading of "Provision for Loan Losses and Allowance for
Loan Losses".
Based on the inherent risk in the loan portfolio, management believes that as of
September 30, 2002, the allowance for loan losses provides for probable losses
in the loan portfolio.
Capital Resources
Total shareholders' equity was 10.2 percent of total assets as of September 30,
2002 and 9.7 percent on December 31, 2001.
The table below shows the various measures of regulatory capital and related
ratios.
September 30, December 31,
2002 2001
----------------------------
Total shareholders' equity ................................ $ 83,968,806 $ 79,012,261
Less: net unrealized gains on available for sale securities (983,834) (637,980)
Less: intangible assets ................................... (55,685) (79,551)
----------------------------
Tier 1 capital ............................................ 82,929,287 78,294,730
Plus: allowance for loan losses ........................... 4,360,989 4,239,990
----------------------------
Total risk-based capital .................................. $ 87,290,276 $ 82,534,720
============================
Regulatory requirements to be:
------------------------------
Adequately Well- Actual Regulatory Capital Ratios as of:
Capitalized Capitalized September 30, 2002 December 31, 2001
----------------------------------------------------------------------
Total risk-based capital as % of risk-weighted assets 8.0% 10.0% 14.4% 13.6%
Tier 1 capital as % of risk-weighted assets 4.0% 6.0% 13.7% 12.9%
Tier 1 capital as % average assets 4.0% 5.0% 9.9% 9.3%
Risk-based capital guidelines require the classification of assets and some
off-balance items in terms of credit-risk exposure and the measuring of capital
as a percentage of the risk adjusted assets totals. Management believes, and
data in the above table show that, as of September 30, 2002 and December 31,
2001, the Company met all capital adequacy requirements to which it is subject.
As of those dates, West Bank was "well capitalized" under regulatory prompt
corrective action provisions.
14
Liquidity
Liquidity management involves meeting the cash flow requirements of depositors
and borrowers. 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 funds management policy. The Company had liquid
assets (cash and cash equivalents) of $112,805,000 as of September 30, 2002,
compared with $128,450,000 as of December 31, 2001. Securities available for
sale may be sold prior to maturity to meet liquidity needs, to respond to market
changes or to adjust the Company's interest rate risk position. In addition, the
Bank maintains lines of credit with correspondent banks totaling $ 74 million
and has collateral at the Federal Home Loan Bank that would allow it to borrow
an additional $ 60 million, if necessary. Management believes that the Company
has sufficient liquidity and sources of funds as of September 30, 2002 to meet
the needs of borrowers and depositors.
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
Company uses an in-house computer software simulation-modeling program to
measure its exposure to potential interest rate changes. For various assumed
hypothetical changes in market interest rates, numerous other assumptions are
made such as prepayment speeds on loans backed by mortgages, the slope of the
Treasury yield curve, the rates and volumes of the Company's deposits and the
rates and volumes of the Company's loans. This analysis measures the estimated
change in net interest income in the event of hypothetical changes in interest
rates. The analysis of the Company's interest rate risk was presented in the
Form 10 filed by the Company on March 11, 2002. Management does not believe the
Company's primary market risk exposures and how those exposures were managed in
the first nine months of 2002 changed when compared to 2001.
Commitments and Contingencies
In the ordinary course of business, the Company is engaged in various issues
involving litigation. Management believes that none of this litigation is
material to the Company's results of operations.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
With the exception of the historical information contained in this report, the
matters described herein contain forward-looking statements that involve risk
and uncertainties that individually or mutually impact the matters herein
described, including but not limited to financial projections, product demand
and market acceptance, the effect of economic conditions, the impact of
competitive products and pricing, governmental regulations, results of
litigation, technological difficulties and/or other factors outside the control
of the Company, which are detailed from time to time in the Company's SEC
reports. The Company disclaims any intent or obligation to update these
forward-looking statements.
Part I - Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The information appearing above under the heading "Market Risk Management" is
incorporated herein by reference.
15
Part 1 - Item 4. Controls and Procedures
a. Evaluation of disclosure controls and procedures. The Company's principal
executive officer and principal financial officer have concluded that the
Company's disclosure controls and procedures (as defined in Exchange Act Rule
13a-14(c)), based on their evaluation of such controls and procedures conducted
within 90 days prior to the date hereof, are effective to ensure that
information required to be disclosed by the Company in the reports it files
under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission and that such information is
accumulated and communicated to the Company's management, including its
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.
b. Changes in internal controls. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation referred to above.
Part II - Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report:
Exhibits
- --------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Company *
3.2 By-laws of the Company *
10.1 Lease *
10.2 Supplemental *
10.3 Short-term Lease *
10.4 Assignment *
10.5 Lease Modification Agreement No. 1 *
10.6 Memorandum of Real estate contract *
10.7 Affidavit *
10.8 Addendum to Lease *
10.9 Data Processing Contract *
10.10 Employment Contract*
10.11 Consulting Contract*
99.1 Certification under Section 906 of the Sarbanes-Oxley Act of 2002
* Incorporated herein by reference to the related exhibit filed with the Form
10 on March 11, 2002.
(b) Reports on Form 8-K: During the three months ended September 30, 2002, the
Company filed a Form 8-K on July 11, 2002 which contained a press release
announcing the quarterly dividend and another Form 8-K on July 29, 2002
which contained a press release announcing earnings for the three and six
months ended June 30, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
West Bancorporation, Inc.
- -------------------------
(Registrant)
November 14, 2002 By: /s/ David L. Miller
- ----------------- --------------------------------------------
Dated David L. Miller
Chairman, President, Chief Executive Officer
November 14, 2002 By: /s/ Douglas R. Gulling
- ----------------- --------------------------------------------
Dated Douglas R. Gulling
Chief Financial Officer
(Principal Accounting Officer)
16
Certification of Disclosure
I, David L. Miller, certify that:
1. I have reviewed this quarterly report on Form 10-Q of West Bancorporation,
Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
the quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in the
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
November 14, 2002
/s/ David L. Miller
- ------------------------------------------------
David L. Miller
Chairman, President and Chief Executive Officer
17
Certification of Disclosure
I, Douglas R. Gulling, certify that:
1. I have reviewed this quarterly report on Form 10-Q of West Bancorporation,
Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
the quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in the
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
November 14, 2002
/s/ Douglas R. Gulling
- ------------------------------------------------
Douglas R. Gulling
Chief Financial Officer
18