UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





(Mark
      One)


xQUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the
      quarterly period ended September 30, 2009







or






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









Commission
      File Number:  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 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
            o
            Accelerated
      filer
            xNon-accelerated
      filer
            o
            Smaller
      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
October 28, 2009, there were 17,403,882 shares of common stock, no par value
outstanding.






1




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


PART 1 –
FINANCIAL INFORMATION


Item 1.  Financial Statements








WestBancorporation, Inc. and
      SubsidiariesConsolidated
      Balance Sheets(unaudited)September
      30,
            
            
            December
      31,(in
      thousands, except per share data)
            
            2009
            
            
            2008AssetsCash
      and due from banks
            
            $
            28,631
            
            
            $
            23,712Federal
      funds sold and other short-term investments
            
            
            123,685
            
            
            
            173,257Cash
      and cash equivalents
            
            
            152,316
            
            
            
            196,969Securities
      available for sale
            
            
            212,103
            
            
            
            181,384Federal
      Home Loan Bank stock, at cost
            
            
            10,423
            
            
            
            8,174Loans
      held for sale
            
            
            1,152
            
            
            
            1,018Loans
            
            
            1,062,333
            
            
            
            1,100,735Allowance
      for loan losses
            
            
            (19,658
            )
            
            
            (15,441
            )Loans,
      net
            
            
            1,042,675
            
            
            
            1,085,294Premises
      and equipment, net
            
            
            5,056
            
            
            
            4,639Accrued
      interest receivable
            
            
            6,889
            
            
            
            6,415Goodwill
            
            
            -
            
            
            
            13,376Other
      intangible assets
            
            
            309
            
            
            
            477Bank-owned
      life insurance
            
            
            25,186
            
            
            
            25,277Other
      real estate owned
            
            
            18,089
            
            
            
            4,352Other
      assets
            
            
            22,187
            
            
            
            12,926Assets
      of discontinued operations held for sale
            
            
            3,226
            
            
            
            13,975Total
      assets
            
            $
            1,499,611
            
            
            $
            1,554,276Liabilities and Stockholders'
      EquityLiabilitiesDeposits:Noninterest-bearing
      demand
            
            $
            201,813
            
            
            $
            174,980Interest-bearing
      demand
            
            
            164,092
            
            
            
            97,853Savings
            
            
            380,497
            
            
            
            238,058Time
      of $100,000 or more
            
            
            206,167
            
            
            
            274,825Other
      time
            
            
            208,579
            
            
            
            369,416Total
      deposits
            
            
            1,161,148
            
            
            
            1,155,132Federal
      funds purchased and securities sold under agreements to
      repurchase
            
            
            48,444
            
            
            
            93,111Other
      short-term borrowings
            
            
            1,860
            
            
            
            245Accrued
      expenses and other liabilities
            
            
            8,945
            
            
            
            8,783Subordinated
      notes
            
            
            20,619
            
            
            
            20,619Long-term
      borrowings
            
            
            125,000
            
            
            
            125,000Liabilities
      of discontinued operations held for sale
            
            
            1,217
            
            
            
            1,323Total
      liabilities
            
            
            1,367,233
            
            
            
            1,404,213Stockholders'
      EquityPreferred
      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
            
            
            
            33,548Common
      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
            
            
            
            3,000Additional
      paid-in capital
            
            
            34,387
            
            
            
            34,452Retained
      earnings
            
            
            63,711
            
            
            
            82,793Accumulated
      other comprehensive (loss)
            
            
            (2,626
            )
            
            
            (3,730
            )Total
      stockholders' equity
            
            
            132,378
            
            
            
            150,063Total
      liabilities and stockholders' equity
            
            $
            1,499,611
            
            
            $
            1,554,276





See
accompanying Notes to Consolidated Financial Statements.


3





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





(Continued
on next page)


4





West
      Bancorporation, Inc. and SubsidiariesConsolidated
      Statements of Operations (continued)(unaudited)Three
      Months Ended September 30,
            
            
            Nine
      Months Ended September 30,(in
      thousands, except per share data)
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Discontinued
      operations:Income
      (loss) from discontinued operations before income taxes
            
            
            (1,048
            )
            
            
            (301
            )
            
            
            (10,394
            )
            
            
            172Income
      taxes (benefits)
            
            
            37
            
            
            
            (123
            )
            
            
            (777
            )
            
            
            76Income
      (loss) from discontinued operations
            
            
            (1,085
            )
            
            
            (178
            )
            
            
            (9,617
            )
            
            
            96Net
      income (loss)
            
            $
            1,905
            
            
            $
            (360
            )
            
            $
            (17,433
            )
            
            $
            5,528Preferred
      stock dividends and accretion of discount
            
            
            (571
            )
            
            
            -
            
            
            
            (1,708
            )
            
            
            -Net
      income (loss) available to common stockholders
            
            $
            1,334
            
            
            $
            (360
            )
            
            $
            (19,141
            )
            
            $
            5,528Basic
      and diluted earnings (loss) per common share
              from
      continuing operations
            
            $
            0.14
            
            
            $
            (0.01
            )
            
            $
            (0.55
            )
            
            $
            0.31Basic
      and diluted earnings (loss) per common share
              from
      discontinued operations
            
            $
            (0.06
            )
            
            $
            (0.01
            )
            
            $
            (0.55
            )
            
            $
            0.01Basic
      and diluted earnings (loss) per common share
            
            $
            0.08
            
            
            $
            (0.02
            )
            
            $
            (1.10
            )
            
            $
            0.32Cash
      dividends per common share
            
            $
            -
            
            
            $
            0.16
            
            
            $
            0.09
            
            
            $
            0.48





See
accompanying Notes to Consolidated Financial Statements.








5





WestBancorporation, Inc. and SubsidiariesConsolidated
      Statements of Stockholders’ Equity(unaudited)AccumulatedAdditional
            
            
            
            
            
            OtherComprehensive
            
            
            Preferred
            
            
            Common
            
            
            Paid-in
            
            
            Retained
            
            
            Comprehensive(in
      thousands, except per share data)
            
            Income
      (Loss)
            
            
            Stock
            
            
            Stock
            
            
            Capital
            
            
            Earnings
            
            
            Income
      (Loss)
            
            
            TotalBalance,
      January 1, 2008
            
            
            
            
            $
            -
            
            
            $
            3,000
            
            
            $
            32,000
            
            
            $
            87,084
            
            
            $
            (478
            )
            
            $
            121,606Comprehensive
      income:Net
      income
            
            $
            5,528
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,528
            
            
            
            -
            
            
            
            5,528Other
      comprehensive (loss), unrealized (losses) on
              securities,
      net of reclassification adjustment, net of tax
            
            
            (3,131
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,131
            )
            
            
            (3,131
            )Total
      comprehensive income
            
            $
            2,397Shares
      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
            )
            
            $
            114,861Balance,
      January 1, 2009
            
            
            
            
            
            $
            33,548
            
            
            $
            3,000
            
            
            $
            34,452
            
            
            $
            82,793
            
            
            $
            (3,730
            )
            
            $
            150,063Cumulative
      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
            
            
            
            2,729Total
      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
    SubsidiariesConsolidated
      Statements of Cash Flows(unaudited)Nine
      Months Ended September 30,(in
      thousands)
            
            2009
            
            
            2008Cash
      Flows from Operating Activities:Net
      income (loss)
            
            $
            (17,433
            )
            
            $
            5,528Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Provision
      for loan losses
            
            
            21,500
            
            
            
            13,600Goodwill
      impairment of banking operations
            
            
            13,376
            
            
            
            -Goodwill
      impairment of discontinued operations
            
            
            11,160
            
            
            
            -Net
      amortization and accretion
            
            
            548
            
            
            
            390Loss
      on disposition of premises and equipment
            
            
            4
            
            
            
            22Securities
      gains, net
            
            
            (1,960
            )
            
            
            (71
            )Investment
      securities impairment losses
            
            
            2,517
            
            
            
            1,725Proceeds
      from sales of loans held for sale
            
            
            58,052
            
            
            
            24,882Originations
      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
            
            
            
            523Deferred
      income taxes
            
            
            (7,957
            )
            
            
            (2,704
            )Other
            
            
            (1,543
            )
            
            
            (96
            )Change
      in assets and liabilities:(Increase)
      decrease in accrued interest receivable
            
            
            (474
            )
            
            
            502Increase
      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
            
            
            
            16,011Net
      cash provided by operating activities - discontinued
      operations
            
            
            1,046
            
            
            
            651Net
      cash provided by operating activities
            
            
            16,768
            
            
            
            16,662Cash
      Flows from Investing Activities:Proceeds
      from sales, calls, and maturities of securities available for
      sale
            
            
            133,027
            
            
            
            111,954Purchases
      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
            
            
            -
            
            
            
            3,405Net
      change in loans
            
            
            2,998
            
            
            
            (119,930
            )Net
      proceeds from the sale of other real estate owned
            
            
            4,333
            
            
            
            3,463Proceeds
      from sales of premises and equipment
            
            
            2
            
            
            
            10Purchases
      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
            
            
            
            207,523Net
      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
            
            
            -
            
            
            
            75,000Principal
      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
            )
            
            
            123,900Net
      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 SubsidiariesConsolidated Statements of Cash
      Flows(continued)(unaudited)Nine
      Months Ended September 30,(in
      thousands)
            
            2009
            
            
            2008Net
      increase (decrease) in cash and cash equivalents
            
            
            (44,653
            )
            
            
            62,449Cash
      and Cash Equivalents:Beginning
            
            
            196,969
            
            
            
            49,943End
            
            $
            152,316
            
            
            $
            112,392Supplemental
      Disclosures of Cash Flow InformationCash
      payments for:Interest
            
            $
            21,394
            
            
            $
            24,351Income
      taxes
            
            
            2,276
            
            
            
            3,751Supplemental
      Disclosure of Noncash Investing and Financing ActivitiesTransfer
      of loans to other real estate owned
            
            $
            18,121
            
            
            $
            4,042





See
accompanying Notes to Consolidated Financial Statements.


8


West Bancorporation, Inc.


Notes
to Consolidated Financial Statements


(unaudited)


(in
thousands, except per share information)





1.  Basis
of Presentation





The
accompanying consolidated statements of operations for the three and nine months
ended September 30, 2009 and 2008, and the consolidated statements of
stockholders’ equity, comprehensive income (loss), and cash flows for the nine
months ended September 30, 2009 and 2008, and the consolidated balance sheets as
of September 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).  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 September 30, 2009, the results of operations for the
three and nine months ended September 30, 2009 and 2008, and cash flows for the
nine months ended September 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.





As a
result of the decision to sell WB Capital, certain items in the financial
statements as of September 30, 2008 and December 31, 2008, 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.





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.





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”), 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).  The Company adopted this 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
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.  The Company adopted this standard effective for the quarter
ending June 30, 2009.  The adoption of this standard 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”), 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.  The Company adopted this
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”), 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 standard
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
CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement No.
162.”The change initiated by this Statement is now included
in the Codification as FASB ASC 105-10-10and establishes the
Financial Accounting Standards
Board (FASB) Accounting Standards CodificationTMas the source of
authoritative principles and standards recognized by the FASB to be applied by
nongovernmental 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 standard, the Codification
superseded all then-existing non-SEC accounting and reporting
standards.  All other non-grandfathered non-SEC accounting literature
not included in the Codification became non-authoritative.  This
standard is effective for financial statements issued for interim and annual
periods ending after September 15, 2009.  In the FASB’s view, the
Codification does not change GAAP, except for those nonpublic nongovernmental
entities that must apply the American Institute of Certified Public Accountants
Technical Inquiry Service Section 5100, “Revenue Recognition,” paragraphs
38–76, now included as part of FASB ASC Topic 985.  The Company
adopted FASB ASC Topic 105-10-10 effective for the quarter ending September 30,
2009.  The adoption did not have 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 did
not have a material impact on the Company’s 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, 2008Assets
      of discontinued operations held for sale:Cash
      and due from banks
            
            $
            395
            
            
            $
            345Securities
      available for sale
            
            
            -
            
            
            
            50Premises
      and equipment, net
            
            
            167
            
            
            
            277Goodwill
            
            
            394
            
            
            
            11,554Other
      intangible assets
            
            
            637
            
            
            
            927Other
      assets
            
            
            1,633
            
            
            
            822Total
      assets of discontinued operations held for sale
            
            $
            3,226
            
            
            $
            13,975Liabilities
      of discontinued operations held for sale:Accrued
      expenses and other liabilities
            
            
            1,217
            
            
            
            1,323Total
      liabilities of discontinued operations held for sale
            
            $
            1,217
            
            
            $
            1,323











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


11





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.





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 as 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 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 ASC 350-20-35.  FASB ASC 350-20-35 requires the
use of fair value measurements as defined in FASB 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, 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 charges 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 September 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 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 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.”





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
September 30, 2009 and December 31, 2008.  Included in gross
unrealized losses as of September 30, 2009, is an OTTI loss of $3,519 relating
to a pooled trust preferred security, which represents the noncredit-related
portion of the overall impairment.








September
      30, 2009Gross
            
            
            GrossAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            (Losses)
            
            
            ValueU.S.
      government agencies
              and
      corporations
            
            $
            79,412
            
            
            $
            244
            
            
            $
            (85
            )
            
            $
            79,571State
      and political subdivisions
            
            
            94,193
            
            
            
            2,671
            
            
            
            (537
            )
            
            
            96,327Mortgage-backed
      securities
            
            
            12,240
            
            
            
            77
            
            
            
            -
            
            
            
            12,317Trust
      preferred securities (1)
            
            
            7,422
            
            
            
            -
            
            
            
            (4,924
            )
            
            
            2,498Corporate
      notes and other investments
            
            
            23,070
            
            
            
            152
            
            
            
            (1,832
            )
            
            
            21,390$
            216,337
            
            
            $
            3,144
            
            
            $
            (7,378
            )
            
            $
            212,103December
      31, 2008Gross
            
            
            GrossAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            (Losses)
            
            
            ValueU.S.
      Treasury and government
              agencies
      and corporations
            
            $
            58,895
            
            
            $
            2,155
            
            
            $
            -
            
            
            $
            61,050State
      and political subdivisions
            
            
            109,682
            
            
            
            1,271
            
            
            
            (3,778
            )
            
            
            107,175Mortgage-backed
      securities
            
            
            1,234
            
            
            
            -
            
            
            
            -
            
            
            
            1,234Trust
      preferred securities (2)
            
            
            8,025
            
            
            
            -
            
            
            
            (2,756
            )
            
            
            5,269Corporate
      notes and other investments
            
            
            9,564
            
            
            
            3
            
            
            
            (2,911
            )
            
            
            6,656$
            187,400
            
            
            $
            3,429
            
            
            $
            (9,445
            )
            
            $
            181,384





(1)
            During
      the quarter ended June 30, 2009, pursuant to 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 $142,076 and $161,765 as of September
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 September
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.








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








For the
three and nine months ended September 30, 2009, proceeds from the sales of
securities available for sale were $53,694 and $108,037,
respectively.  Gross security gains of $722 and $2,175 were realized
for the three and nine months ended September 30, 2009, respectively, and losses
of $215 were recognized during the three and nine months ended September 30,
2009.  For the three and nine months ended September 30, 2008,
proceeds from the sales of securities available for sale were $5,958 and $9,562,
respectively.  Gross security gains of $66 and $71 were realized for
the three and nine months ended September 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
5 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 September 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).








September
      30, 2009Less
      than 12 months
            
            
            12
      months or longer
            
            
            TotalFair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedValue
            
            
            (Losses)
            
            
            Value
            
            
            (Losses)
            
            
            Value
            
            
            (Losses)U.S.
      government agencies
              and
      corporations
            
            $
            19,060
            
            
            $
            (85
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            19,060
            
            
            $
            (85
            )State
      and political subdivisions
            
            
            6,831
            
            
            
            (144
            )
            
            
            11,842
            
            
            
            (393
            )
            
            
            18,673
            
            
            
            (537
            )Mortgage-backed
      securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Trust
      preferred securities
            
            
            -
            
            
            
            -
            
            
            
            5,539
            
            
            
            (4,924
            )
            
            
            5,539
            
            
            
            (4,924
            )Corporate
      notes and other investments
            
            
            -
            
            
            
            -
            
            
            
            4,154
            
            
            
            (1,832
            )
            
            
            4,154
            
            
            
            (1,832
            )$
            25,891
            
            
            $
            (229
            )
            
            $
            21,535
            
            
            $
            (7,149
            )
            
            $
            47,426
            
            
            $
            (7,378
            )December
      31, 2008Less
      than 12 months
            
            
            12
      months or longer
            
            
            TotalFair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedValue
            
            
            (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
            )Mortgage-backed
      securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Trust
      preferred securities
            
            
            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
            )$
            45,814
            
            
            $
            (5,396
            )
            
            $
            7,789
            
            
            $
            (4,049
            )
            
            $
            53,603
            
            
            $
            (9,445
            )





As of
September 30, 2009, the available for sale investment portfolio included 28
municipal securities, 3 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 September 30, 2009.





The
unrealized losses in two 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 September 30, 2009.





For the
year ended December 31, 2008, the Company recorded OTTI on a pooled trust
preferred security, which resulted in a reduction of noninterest income of
$2,622.  Pursuant to 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 $1,091 which resulted in $3,535 of total impairment,
or an additional impairment of $1,013 and $174 in the second and third quarters
of 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, an 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 third quarter and nine months ended September
30, 2009 income statements and the remaining amortized cost of the security was
reduced to create a new cost basis.  The remaining change in fair
market value of $3,519 is reflected in other comprehensive income (loss), net of
taxes of $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,
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 written
down to the estimated 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 September 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 September 30, 2009:








Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30, 2009
            
            
            September
      30, 2009Balance
      at beginning of period
            
            $
            275
            
            
            $
            -Current
      period credit loss recognized in earnings
            
            
            15
            
            
            
            290Reductions
      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








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 following is a recap of impaired loans at the dates
shown:








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





16





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








September
      30, 2009
            
            
            December
      31, 2008Nonaccrual
      loans
            
            $
            14,455
            
            
            $
            21,367Restructured
      loans
            
            
            16,881
            
            
            
            7,376Other
      impaired loans still accruing interest
            
            
            15,876
            
            
            
            12,368Total
      impaired loans
            
            $
            47,212
            
            
            $
            41,111








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








Three
      Months Ended September 30,
            
            
            Nine
      Months Ended September 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            ChangeBalance
      at beginning of period
            
            $
            23,662
            
            
            $
            10,557
            
            
            $
            13,105
            
            
            $
            15,441
            
            
            $
            8,935
            
            
            $
            6,506Charge-offs
            
            
            (7,131
            )
            
            
            (1,118
            )
            
            
            (6,013
            )
            
            
            (17,684
            )
            
            
            (6,239
            )
            
            
            (11,445
            )Recoveries
            
            
            127
            
            
            
            45
            
            
            
            82
            
            
            
            401
            
            
            
            188
            
            
            
            213Net
      charge-offs
            
            
            (7,004
            )
            
            
            (1,073
            )
            
            
            (5,931
            )
            
            
            (17,283
            )
            
            
            (6,051
            )
            
            
            (11,232
            )Provision
      charged to operations
            
            
            3,000
            
            
            
            7,000
            
            
            
            (4,000
            )
            
            
            21,500
            
            
            
            13,600
            
            
            
            7,900Balance
      at end of period
            
            $
            19,658
            
            
            $
            16,484
            
            
            $
            3,174
            
            
            $
            19,658
            
            
            $
            16,484
            
            
            $
            3,174








8.  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 ASC
820-10-50, which requires recognition at fair value of nonfinancial assets and
liabilities on a nonrecurring basis.  In 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, 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 this
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.  FASB 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.


17





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








Quoted
      Pricesin
      Active Markets
            
            
            Significant
      Other
            
            
            Significantfor
      Identical Assets
            
            
            Observable
      Inputs
            
            
            Unobservable
      InputsDescription
            
            Total
            
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)Assets:U.S.
      government agencies
              and
      corporations
            
            $
            79,571
            
            
            $
            -
            
            
            $
            79,571
            
            
            $
            -State
      and political subdivisions
            
            
            96,327
            
            
            
            -
            
            
            
            96,327
            
            
            
            -Mortgage-backed
      securities
            
            
            12,317
            
            
            
            -
            
            
            
            12,317
            
            
            
            -Trust
      preferred securities
            
            
            2,498
            
            
            
            -
            
            
            
            1,332
            
            
            
            1,166Corporate
      notes and other investments
            
            
            21,390
            
            
            
            -
            
            
            
            21,390
            
            
            
            -Total
            
            $
            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 nine months ended
September 30, 2009:








Three
      Months Ended
            
            
            Nine
      Months EndedSecurities
      available for sale:
            
            September
      30, 2009
            
            
            September
      30, 2009Beginning
      balance
            
            $
            1,316
            
            
            $
            2,325Transfer
      into Level 3
            
            
            -
            
            
            
            250Total
      gains or losses:Included
      in earnings
            
            
            (191
            )
            
            
            (466
            )Included
      in other comprehensive income (loss)
            
            
            41
            
            
            
            (897
            )Principal
      payments
            
            
            -
            
            
            
            (46
            )Ending
      balance
            
            $
            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 September 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 other 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 and has been losing money for over a
year.This security
was estimated by management to have a fair market value of $75 at September 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 FASB ASC
820-10-50 valuation hierarchy as of September 30, 2009:








Quoted
      Pricesin
      Active Markets
            
            
            Significant
      Other
            
            
            Significantfor
      Identical Assets
            
            
            Observable
      Inputs
            
            
            Unobservable
      InputsDescription
            
            Total
            
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)Assets:Loans
            
            $
            23,827
            
            
            $
            -
            
            
            $
            -
            
            
            $
            23,827Other
      real estate owned
            
            
            18,089
            
            
            
            -
            
            
            
            -
            
            
            
            18,089Total
            
            $
            41,916
            
            
            $
            -
            
            
            $
            -
            
            
            $
            41,916





18





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.





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 nonrecurring basis.  The methodologies for estimating the
fair value of financial assets and financial liabilities that are measured at
fair value on a recurring or nonrecurring 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.


19





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








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








20





9.  Earnings
(Loss) per Common Share





Basic
earnings (loss) per common share from 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 from 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 nine
months ended September 30, 2009 and 2008 is presented below.








Three
      Months Ended September 30,
            
            
            Nine
      Months Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Income
      (loss) from continuing operations
            
            $
            2,990
            
            
            $
            (182
            )
            
            $
            (7,816
            )
            
            $
            5,432Income
      (loss) from discontinued operations
            
            
            (1,085
            )
            
            
            (178
            )
            
            
            (9,617
            )
            
            
            96Net
      income (loss)
            
            $
            1,905
            
            
            $
            (360
            )
            
            $
            (17,433
            )
            
            $
            5,528Preferred
      stock dividends*
            
            
            (450
            )
            
            
            -
            
            
            
            (1,350
            )
            
            
            -Preferred
      stock discount accretion*
            
            
            (121
            )
            
            
            -
            
            
            
            (358
            )
            
            
            -Net
      income (loss) available to common stockholders
            
            $
            1,334
            
            
            $
            (360
            )
            
            $
            (19,141
            )
            
            $
            5,528Weighted
      average common shares outstanding
            
            
            17,404
            
            
            
            17,404
            
            
            
            17,404
            
            
            
            17,406Common
      stock warrant**
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Diluted
      weighted average common shares outstanding
            
            
            17,404
            
            
            
            17,404
            
            
            
            17,404
            
            
            
            17,406Basic
      earnings (loss) per common share from continuing
operations
            
            $
            0.14
            
            
            $
            (0.01
            )
            
            $
            (0.55
            )
            
            $
            0.31Basic
      earnings (loss) per common share from discontinued
    operations
            
            $
            (0.06
            )
            
            $
            (0.01
            )
            
            $
            (0.55
            )
            
            $
            0.01Basic
      earnings (loss) per common share
            
            $
            0.08
            
            
            $
            (0.02
            )
            
            $
            (1.10
            )
            
            $
            0.32Diluted
      earnings (loss) per common share from continuing
operations
            
            $
            0.14
            
            
            $
            (0.01
            )
            
            $
            (0.55
            )
            
            $
            0.31Diluted
      earnings (loss) per common share from discontinued
    operations
            
            $
            (0.06
            )
            
            $
            (0.01
            )
            
            $
            (0.55
            )
            
            $
            0.01Diluted
      earnings (loss) per common share
            
            $
            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 nine
months ended September 30, 2009, was $5.47 and $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
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.





21


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








Nine
      Months Ended September 30,2009
            
            
            2008Net
      income (loss)
            
            $
            (17,433
            )
            
            $
            5,528Other
      comprehensive income (loss):Securities
      for which a portion of an other-than-temporary impairment has
      been
              recorded
      in earnings:Unrealized
      holding losses
            
            
            (1,187
            )
            
            
            -Loss
      recognized in earnings
            
            
            290
            
            
            
            -Net
      unrealized (losses) on securities with other-than-temporary
      impairment
              before
      tax benefit
            
            
            (897
            )
            
            
            -Tax
      benefit
            
            
            341
            
            
            
            -Net
      unrealized (losses) on securities with other-than-temporary
      impairment,
              net
      of tax in other comprehensive income (loss)
            
            
            (556
            )
            
            
            -Other
      securities:Unrealized
      holding gains (losses) arising during the period
            
            
            7,261
            
            
            
            (4,985
            )Realized
      net (gains) recognized into net income (loss)
            
            
            (1,960
            )
            
            
            (71
            )Net
      unrealized gains (losses) on other securities before tax (expense)
      benefit
            
            
            5,301
            
            
            
            (5,056
            )Tax
      (expense) benefit
            
            
            (2,016
            )
            
            
            1,925Net
      unrealized gains (losses) on other securities, net of tax in
      other
              comprehensive
      income (loss)
            
            
            3,285
            
            
            
            (3,131
            )Other
      comprehensive income (loss)
            
            $
            (14,704
            )
            
            $
            2,397








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








September
      30, 2009Accumulated
      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 September 30, 2009, and December 31,
2008:








September
      30, 2009
            
            
            December
      31, 2008Allowance
      for loan losses
            
            $
            7,470
            
            
            $
            5,868Intangibles
            
            
            2,580
            
            
            
            (2,331
            )Net
      unrealized losses on securities available for sale
            
            
            1,608
            
            
            
            2,286Other
            
            
            828
            
            
            
            380Total
      deferred taxes
            
            $
            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 $19,658
at September 30, 2009, and recording impairment of goodwill of $13,376 in the
quarter ended June 30, 2009.


22





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 does not have the intent to 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:








September
      30, 2009
            
            
            December
      31, 2008Commitments
      to extend credit
            
            $
            212,934
            
            
            $
            301,214Standby
      letters of credit
            
            
            20,161
            
            
            
            19,788$
            233,095
            
            
            $
            321,002








13.  Subsequent
Events





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


23





THREE AND
NINE MONTHS ENDED SEPTEMBER 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.  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 nine months ended September 30, 2009, are compared to the results for
the same periods in 2008 and the consolidated financial condition of the Company
at September 30, 2009, is compared to the December 31, 2008,
position.





Total net
income for the quarter ended September 30, 2009, was $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
$2,990 and a loss from discontinued operations of ($1,085).  Net loss
from continuing operations for the quarter ended September 30, 2008 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 $0.08 and ($0.02), respectively, for the 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 September 30,
2009, were 5.74 percent and 0.49 percent, respectively, compared to (1.22)
percent and (0.10) percent, respectively, for the three months ended September
30, 2008.





Results
for continuing operations for the quarter ended September 30, 2009, were $3,172
higher than the same period last year due to a $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 necessary because the Company
determined the fair value of WB Capital was less than originally
estimated.





Total net
loss for the nine months ended September 30, 2009, was ($17,433) compared to net
income of $5,528 for the first nine months of 2008.  The annualized
return on average equity and return on average assets for the nine months ended
September 30, 2009, were (16.01) percent and (1.44) percent, respectively,
compared to 6.18 percent and 0.55 percent, respectively, for the nine months
ended September 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 at West Bank of $13,376, the $7,900 increase in provision
for loan 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 $868 higher than last
year due to $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 $503 in gains and fees on the sale of residential mortgages sold
into the secondary market.  Offsetting these positive factors was a
$463 decline in service charges on deposit accounts due to lower returned check
charges.





Noninterest
expense (exclusive of goodwill impairment) increased $3,161, or 20.2 percent in
the first nine months of 2009 compared to 2008.  The growth in
noninterest expense included the previously mentioned increase in FDIC insurance
expense, a $395 increase in occupancy expense, and a $673 increase in deposit
operations expense.  The increases were partially offset by a $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 ($9,617) for the nine
months ended September 30, 2009 compared to net income of $96 for the same
period in 2008.  The loss was the result of $11,160 of goodwill
impairment recorded at WB Capital during the second and third quarters of
2009.  Revenues were lower than a year ago because of the decline in
stock values and lower levels of assets under management.  Operating
expenses (exclusive of goodwill impairment) were $1,835 lower during the first
nine months of 2009 compared to the same 2008 period primarily due to staff
attrition and a concerted effort to reduce operating costs.





RESULTS
OF OPERATIONS





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








Three
      Months Ended September 30,
            
            
            Nine
      Months Ended September 30,2009
            
            
            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)
            
            
            1,905
            
            
            
            (360
            )
            
            
            2,265
            
            
            
            629.2
            %
            
            
            (17,433
            )
            
            
            5,528
            
            
            
            (22,961
            )
            
            
            -415.4
            %Average
      assets
            
            
            1,534,591
            
            
            
            1,388,016
            
            
            
            146,575
            
            
            
            10.6
            %
            
            
            1,623,205
            
            
            
            1,337,978
            
            
            
            285,227
            
            
            
            21.3
            %Average
      stockholders' equity
            
            
            131,724
            
            
            
            117,727
            
            
            
            13,997
            
            
            
            11.9
            %
            
            
            145,613
            
            
            
            119,532
            
            
            
            26,081
            
            
            
            21.8
            %Return
      on assets
            
            
            0.49
            %
            
            
            -0.10
            %
            
            
            0.59
            %
            
            
            
            
            
            
            -1.44
            %
            
            
            0.55
            %
            
            
            -1.99
            %Return
      on equity
            
            
            5.74
            %
            
            
            -1.22
            %
            
            
            6.96
            %
            
            
            
            
            
            
            -16.01
            %
            
            
            6.18
            %
            
            
            -22.19
            %Efficiency
      ratio
            
            
            42.84
            %
            
            
            39.71
            %
            
            
            3.13
            %
            
            
            
            
            
            
            46.63
            %
            
            
            40.55
            %
            
            
            6.08
            %Dividend
      payout ratio
            
            NM
            
            
            NM
            
            
            NM
            
            
            
            
            
            
            
            -8.98
            %
            
            
            151.13
            %
            
            
            -160.11
            %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
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8.83
            %
            
            
            7.84
            %
            
            
            0.99
            %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 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.


25





Data for
the three months ended September 30:





Average
      Balance
            
            
            Interest
      Income/Expense
            
            
            Yield/Rate2009
            
            
            2008
            
            
            Change
            
            
            Change-%
            
            
            2009
            
            
            2008
            
            
            Change
            
            
            Change-%
            
            
            2009
            
            
            2008
            
            
            ChangeInterest-earning
      assets:Loans:Commercial
            
            $
            409,707
            
            
            $
            416,689
            
            
            $
            (6,982
            )
            
            
            -1.68
            %
            
            $
            5,054
            
            
            $
            5,841
            
            
            $
            (787
            )
            
            
            -13.47
            %
            
            
            4.89
            %
            
            
            5.58
            %
            
            
            -0.69
            %Real
      estate
            
            
            684,799
            
            
            
            663,213
            
            
            
            21,586
            
            
            
            3.25
            %
            
            
            9,912
            
            
            
            10,046
            
            
            
            (134
            )
            
            
            -1.33
            %
            
            
            5.74
            %
            
            
            6.03
            %
            
            
            -0.29
            %Consumer
      and other
            
            
            9,719
            
            
            
            14,391
            
            
            
            (4,672
            )
            
            
            -32.46
            %
            
            
            153
            
            
            
            217
            
            
            
            (64
            )
            
            
            -29.49
            %
            
            
            6.26
            %
            
            
            6.00
            %
            
            
            0.26
            %Total
      loans
            
            
            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
            
            
            161,446
            
            
            
            91,712
            
            
            
            69,734
            
            
            
            76.04
            %
            
            
            1,219
            
            
            
            1,174
            
            
            
            45
            
            
            
            3.83
            %
            
            
            3.02
            %
            
            
            5.12
            %
            
            
            -2.10
            %Tax-exempt
            
            
            97,380
            
            
            
            96,733
            
            
            
            647
            
            
            
            0.67
            %
            
            
            1,477
            
            
            
            1,415
            
            
            
            62
            
            
            
            4.38
            %
            
            
            6.07
            %
            
            
            5.85
            %
            
            
            0.22
            %Total
      investment securities
            
            
            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
            
            
            97,188
            
            
            
            7,154
            
            
            
            90,034
            
            
            
            1258.51
            %
            
            
            73
            
            
            
            36
            
            
            
            37
            
            
            
            102.78
            %
            
            
            0.30
            %
            
            
            2.00
            %
            
            
            -1.70
            %Total
      interest-earning assets
            
            $
            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
            
            $
            534,134
            
            
            $
            325,101
            
            
            $
            209,033
            
            
            
            64.30
            %
            
            
            1,999
            
            
            
            1,231
            
            
            
            768
            
            
            
            62.39
            %
            
            
            1.49
            %
            
            
            1.51
            %
            
            
            -0.02
            %Time
      deposits
            
            
            443,460
            
            
            
            476,489
            
            
            
            (33,029
            )
            
            
            -6.93
            %
            
            
            2,673
            
            
            
            4,173
            
            
            
            (1,500
            )
            
            
            -35.95
            %
            
            
            2.39
            %
            
            
            3.48
            %
            
            
            -1.09
            %Total
      deposits
            
            
            977,594
            
            
            
            801,590
            
            
            
            176,004
            
            
            
            21.96
            %
            
            
            4,672
            
            
            
            5,404
            
            
            
            (732
            )
            
            
            -13.55
            %
            
            
            1.90
            %
            
            
            2.68
            %
            
            
            -0.78
            %Other
      borrowed funds
            
            
            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
            
            $
            1,183,379
            
            
            $
            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
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            11,445
            
            
            $
            10,930
            
            
            $
            515
            
            
            
            4.71
            %Net
      interest spread
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2.70
            %
            
            
            2.89
            %
            
            
            -0.19
            %Net
      interest margin
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3.11
            %
            
            
            3.37
            %
            
            
            -0.26
            %





Data for
the nine months ended September 30:





Average
      Balance
            
            
            Interest
      Income/Expense
            
            
            Yield/Rate2009
            
            
            2008
            
            
            Change
            
            
            Change-%
            
            
            2009
            
            
            2008
            
            
            Change
            
            
            Change-%
            
            
            2009
            
            
            2008
            
            
            ChangeInterest-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
            %





26





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 September
30, 2009, was 3.11 percent; a decline of 26 basis points compared to the same
quarter last year and was 48 basis points higher than the second quarter of
2009.  The increase from the prior quarter was due to a significant
reduction 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 second quarter, the
deposits had flowed back out and additional investment securities had been
purchased.  The decline in the net interest margin for the third
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 September 30, 2009, increased by $515 compared to the three
months ended September 30, 2008, due to growth in interest-earning
assets.





For the
nine months ended September 30, 2009, the net interest margin declined to 2.86
percent, which was a 58 basis point decline compared to the nine months ended
September 30, 2008.  Despite the drop in the net interest margin,
tax-equivalent net interest income for the nine months ended September 30, 2009,
increased $879 as growth in earning assets exceeded growth in interest-bearing
liabilities when compared to the nine months ended September 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 nonaccrual loans are expected to keep pressure on the net interest
margin of the Company.





Tax-equivalent
interest income and fees on loans declined $2,423 in the first nine months of
2009 compared to the same period in 2008, as the combination of lower rates and
a higher volume of nonaccrual loans exceeded the positive impact of the $76.9
million increase in the average volume of outstanding loans.  The
average yield on loans declined to 5.46 percent for the first nine months of
2009, compared to 6.17 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 nonaccrual
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 ongoing effects of the recession.





For the
first nine months of 2009, the average balance of investment securities was
$27.0 million higher than in the first nine months of 2008, and the yield
declined 77 basis points.  The decline in yield was caused by
reversing a total of $139 of interest on securities deemed impaired during the
first and third quarters of 2009.  Investment securities totaling
approximately $133 million were sold, called or matured in the first nine months
of 2009 and approximately $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
$189.0 million during the first nine 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 $113 due to the 223 basis point
drop in rates.





The
average rate paid on deposits for the first nine months of 2009 declined to 1.97
percent from 2.92 percent for the same period last year.  The
significant drop in rates paid caused interest expense to decline by $672
despite a sizable increase in average balances.  The average balance
of interest-bearing demand and savings accounts grew due to the temporary spike
in average money market balances mentioned above as well as a $56 million
increase in average Reward Me Checking balances and a $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 over $155 million in the first nine 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.  Of the total
deposits in the CDARS program as of September 30, 2009, 47.6 percent are on
behalf of West Bank customers and are required to be classified as brokered
deposits, but the nature of these deposits is not “brokered.”


27





The
average rate paid on other borrowings declined by 55 basis points compared to
the first nine months of 2008.  The average balance of borrowings for
the first nine months of 2009 was $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
$46 million less than during the first nine months of last year.  The
average rate paid on overnight borrowings declined 223 basis points in 2009
compared to the first nine months of 2008.  Average long-term
borrowings declined $17 million, while the average rates paid on borrowings
increased 23 basis points compared to 2008.





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 nine months ended September 30, 2009
and 2008, as well as common ratios related to the allowance for loan
losses.








Three
      Months Ended September 30,
            
            
            Nine
      Months Ended September 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            ChangeBalance
      at beginning of period
            
            $
            23,662
            
            
            $
            10,557
            
            
            $
            13,105
            
            
            $
            15,441
            
            
            $
            8,935
            
            
            $
            6,506Charge-offs
            
            
            (7,131
            )
            
            
            (1,118
            )
            
            
            (6,013
            )
            
            
            (17,684
            )
            
            
            (6,239
            )
            
            
            (11,445
            )Recoveries
            
            
            127
            
            
            
            45
            
            
            
            82
            
            
            
            401
            
            
            
            188
            
            
            
            213Net
      charge-offs
            
            
            (7,004
            )
            
            
            (1,073
            )
            
            
            (5,931
            )
            
            
            (17,283
            )
            
            
            (6,051
            )
            
            
            (11,232
            )Provision
      charged to operations
            
            
            3,000
            
            
            
            7,000
            
            
            
            (4,000
            )
            
            
            21,500
            
            
            
            13,600
            
            
            
            7,900Balance
      at end of period
            
            $
            19,658
            
            
            $
            16,484
            
            
            $
            3,174
            
            
            $
            19,658
            
            
            $
            16,484
            
            
            $
            3,174Average
      loans outstanding
            
            $
            1,104,225
            
            
            $
            1,094,293
            
            
            
            
            
            
            $
            1,116,742
            
            
            $
            1,039,832Ratio
      of net charge-offs during the
              period
      to average loans outstanding
            
            
            0.63
            %
            
            
            0.10
            %
            
            
            
            
            
            
            1.55
            %
            
            
            0.58
            %Ratio
      of allowance for loan losses
              to
      average loans outstanding
            
            
            1.78
            %
            
            
            1.51
            %
            
            
            
            
            
            
            1.76
            %
            
            
            1.59
            %





The 2009
year-to-date provision is 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 nine months of 2009 were $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 61.6 percent of nonperforming loans at
September 30, 2009, compared to 53.5 percent at December 31, 2008.  A
significant portion of nonaccrual loans are collateralized by real estate which
means it is unlikely those loans will suffer a total loss of
principal.





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” 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
            %Nine
      Months Ended September 30,Noninterest
      income:
            
            
            2009
            
            
            
            2008
            
            
            Change
            
            
            Change %Service
      charges on deposit accounts
            
            $
            3,120
            
            
            $
            3,583
            
            
            $
            (463
            )
            
            
            -12.9
            %Trust
      services
            
            
            581
            
            
            
            605
            
            
            
            (24
            )
            
            
            -4.0
            %Gains
      and fees on sales of residential mortgages
            
            
            859
            
            
            
            356
            
            
            
            503
            
            
            
            141.3
            %Increase
      in cash value of bank-owned
              life
      insurance
            
            
            562
            
            
            
            697
            
            
            
            (135
            )
            
            
            -19.4
            %Proceeds
      from bank-owned life insurance
            
            
            840
            
            
            
            -
            
            
            
            840
            
            
            
            N/AOther:Debit
      card usage fees
            
            
            825
            
            
            
            647
            
            
            
            178
            
            
            
            27.5
            %All
      other
            
            
            734
            
            
            
            765
            
            
            
            (31
            )
            
            
            -4.1
            %Total
      other
            
            
            1,559
            
            
            
            1,412
            
            
            
            147
            
            
            
            10.4
            %Total
      noninterest income
            
            $
            7,521
            
            
            $
            6,653
            
            
            $
            868
            
            
            
            13.0
            %








Service
charges on deposit accounts declined for the third quarter of 2009 due to return
check charges falling 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 nine months
of 2009 return check charges have declined $447, while other service charges
have held steady.





Trust
fees increased for the third quarter of 2009 due to new business and higher
asset values due to positive movement in the stock
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 during 2008.





The
volume of originations of residential mortgages sold into the secondary market
in the third quarter and the first nine 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.





The third
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.


29





Debit
card usage fees continued to increase in the first nine months of 2009 as the
Reward Me Checking product grew by over 1,800 accounts and approximately $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 and the potential interest rate paid
on the first tier of the account balance.  The growth rate may
decline, however, due to the October 2009 lowering of the amount of the account
balance that may be paid the incentive rate from $50 to $30.





Investment
Securities Gains (Losses)





West Bank
had OTTI losses on four trust preferred securities totaling $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 four trust preferred securities were sold at losses totaling
$215.  Selected municipal and agency securities were also sold with
realized gains totaling $2,175 in the first nine months of
2009.


30





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 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/AOther
      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
            %








The
decline in salaries and benefits resulted from the discontinuance of bonus
accruals, resulting in a decline of $733 for year-to-date 2009 compared to the
same time periods of 2008.  Partially offsetting the lower bonus
accruals was a year-to-date decline in salary cost deferred for new loans
originations due to a lower volume of new loans and a 9.9 percent increase in
the cost of employee medical 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 third quarter ended September 30, 2009, because 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.


31





Data
processing expense increased in the 2009 third quarter compared to the 2008
third quarter as a result of 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 2009 rate increases, an emergency
special assessment in the second quarter of 2009, and significantly higher
average deposits.  The rate assessed to each bank is based upon risk
factors including past due and nonperforming loans, net loan charge-offs, and
net income (loss) before taxes.  The emergency special assessment was
part of the FDIC’s restoration plan for the Deposit Insurance
Fund.  The impact on West Bank was additional second quarter expense
of $695.  The FDIC also has the ability to collect an additional
emergency assessment prior to the end of 2009 with an announcement date as late
as the last day of the year.  During the third quarter of 2009, the
FDIC 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 on December 31,
2009.  The proposed prepayment, which includes assumptions about
deposit growth, would be based on average third quarter deposits.  The
prepaid amount would be amortized over the prepayment period.  If
approved, West Bank’s estimated prepayment would be approximately $7.2
million.  While the prepayment would decrease the amount of 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.





The
second quarter 2009 goodwill impairment consisted of writing off all goodwill at
West Bank, or $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
increased as both legal fees and accounting fees increased.  Legal
fees increased due to the higher volume of impaired loans and accounting fees
increased because of additional work done on investment securities valuations
and 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 third quarter and year-to-date 2009 due to
costs associated with SmartyPig savings and Reward Me Checking interest-bearing
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 third
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 increased during the third quarter of 2009 due to
increased operating costs for a higher number of properties held.





Charitable
contributions increased in the first nine 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 contributions for the remainder of
2009.





Income
Tax Expense (Benefits)





The
Company recorded income tax benefits on continuing operations of $8,021 for the
nine months ended September 30, 2009, compared with expense of $796 for the nine
months ended September 30, 2008.  The effective income tax rates as a
percent of income (loss) before taxes for the nine months ended September 30,
2009 and 2008, was a benefit of 50.6 percent and expense of 12.8 percent,
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.  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.


32





FINANCIAL
CONDITION





Total
assets were approximately $1.5 billion as of September 30, 2009, a 3.5 percent
decline compared to December 31, 2008.  The reduction was primarily
due to lower federal funds 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 $31 million from December
31, 2008, to $212.1 million at September 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 September
30, 2009, one pooled trust preferred security had an amortized cost of $4,626
and an estimated market value of $1,091 which resulted in $3,535 of total
impairment, or an additional impairment of $174 in the third 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, an
additional $15 of the total impairment was considered to be a credit loss which
was recognized in the 2009 third 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 $3,519 is
reflected in other comprehensive income (loss), net of taxes of
$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
September 30, 2009, the most significant risk of a future impairment charge
relates to West Bank’s investment in trust preferred securities of other banks
and a note issued by CIT Group, a small business lender.  As of
September 30, 2009, in addition to the pooled trust preferred security discussed
above, two trust preferred securities with a cost basis of $2.3 million were
valued at $0.9 million.  In accordance with 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 September 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
was $2.7 million as of September 30, 2009.  The value of the note has
improved since the U.S. Government’s decision to continue to use Sallie Mae to
service student loans.





33





As of
September 30, 2009, the available for sale investment securities portfolio
consists of approximately 38 percent U.S. government agency securities, 45
percent municipal securities, 6 percent mortgage-backed securities, and 11
percent corporate and trust preferred securities.





Loans and
Nonperforming Assets





Loans
outstanding declined approximately $38 million from December 31, 2008, to
September 30, 2009.  The reduction was primarily attributable to
payoffs in construction, multifamily and commercial real estate
loans.  Commercial loans grew slightly compared to December 31,
2008.  Despite its interest in making loans to credit-worthy
borrowers, West Bank is receiving fewer new loan requests compared to a year
ago.  Therefore, no net loan growth is expected in the fourth quarter
of 2009.





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
September 30, 2009.





Construction
loans:





September
      30, 2009$
            
            
            
            %Land
      development1-4
      family
            
            $
            7,876
            
            
            
            6
            %Multifamily
            
            
            17,935
            
            
            
            13
            %Construction1-4
      familyOwner
      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
      occupiedMedical/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
            %





34





Commercial
Loans:





September
      30, 2009$
            
            
            
            %Finance
      and insurance
            
            $
            89,449
            
            
            
            22
            %Real
      estate and rental/leasing
            
            
            51,985
            
            
            
            13
            %Manufacturing
            
            
            43,212
            
            
            
            11
            %Publishing,
      broadcasting and information services
            
            
            30,320
            
            
            
            8
            %Construction
            
            
            18,477
            
            
            
            5
            %Wholesale
      trade
            
            
            13,056
            
            
            
            3
            %Building
      trades
            
            
            19,948
            
            
            
            5
            %Transportation
      and warehousing
            
            
            15,492
            
            
            
            4
            %Retail
            
            
            10,477
            
            
            
            2
            %Arts,
      entertainment and recreation
            
            
            11,384
            
            
            
            3
            %Other
            
            
            95,272
            
            
            
            24
            %$
            399,072
            
            
            
            100
            %








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








September 30, 2009
            
            
            December 31, 2008
            
            
            ChangeNonaccrual
      loans
            
            $
            14,455
            
            
            $
            21,367
            
            
            $
            (6,912
            )Loans
      past due 90 days and still
              accruing
      interest
            
            
            596
            
            
            
            92
            
            
            
            504Restructured
      loans
            
            
            16,881
            
            
            
            7,376
            
            
            
            9,505Total
      nonperforming loans
            
            
            31,932
            
            
            
            28,835
            
            
            
            3,097Other
      real estate owned
            
            
            18,089
            
            
            
            4,352
            
            
            
            13,737Nonaccrual
      investment securities
            
            
            1,735
            
            
            
            2,575
            
            
            
            (840
            )Total
      nonperforming assets
            
            $
            51,756
            
            
            $
            35,762
            
            
            $
            15,994Nonperforming
      loans to total loans
            
            
            3.01
            %
            
            
            2.62
            %
            
            
            0.39
            %Nonperforming
      assets to total assets
            
            
            3.45
            %
            
            
            2.30
            %
            
            
            1.15
            %








Total
nonperforming assets have increased 44.7 percent since the end of
2008.  The balance of nonperforming loans grew during the first nine
months of 2009, with the increase consisting of 1-4 family 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.





Other
real estate owned has grown to over $18 million as the resolution for some loans
has taken the 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 7 and 8 to the Financial Statements.





Deposits





Total
deposits as of September 30, 2009, were approximately $1.16 billion, an increase
of 0.5 percent.  All deposit categories except certificates of deposit
increased during this time period.  Three factors caused certificates
of deposit outstanding at September 30, 2009, to decline approximately $229
million compared to December 31, 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 $50 million in the first nine 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 September 30, 2009, this program had
gathered $172 million in deposits, including over $163 million in the first nine
months of 2009.





Borrowings





The
balance of federal funds purchased and securities sold under agreements to
repurchase was $48.4 million at September 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 10 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 $152 million as of September 30, 2009, compared with
$197 million as of December 31, 2008.  West Bank has additional
borrowing capacity available from the FHLB of approximately $58
million.  In addition, West Bank has $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 September 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 September 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 $132.4 million at September 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 8.83 percent and 9.65 percent of total assets as of
September 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
September 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.


36








To
      Be Well-Capitalized
      UnderFor
      Capital
            
            
            Prompt
      CorrectiveActual
            
            
            Adequacy
      Purposes
            
            
            Action
      ProvisionsAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            RatioAs
      of September 30, 2009:Total
      Capital (to Risk-Weighted Assets)Consolidated
            
            $
            168,793
            
            
            
            14.0
            %
            
            $
            96,460
            
            
            
            8.0
            %
            
            
            n/a
            
            
            
            n/aWest
      Bank
            
            
            164,435
            
            
            
            13.7
            
            
            
            95,978
            
            
            
            8.0
            
            
            $
            119,973
            
            
            
            10.0
            %Tier
      I Capital (to Risk-Weighted Assets)Consolidated
            
            
            153,664
            
            
            
            12.7
            
            
            
            48,230
            
            
            
            4.0
            
            
            
            n/a
            
            
            
            n/aWest
      Bank
            
            
            139,381
            
            
            
            11.6
            
            
            
            47,989
            
            
            
            4.0
            
            
            
            71,984
            
            
            
            6.0Tier
      I Capital (to Average Assets)Consolidated
            
            
            153,664
            
            
            
            10.0
            
            
            
            61,330
            
            
            
            4.0
            
            
            
            n/a
            
            
            
            n/aWest
      Bank
            
            
            139,381
            
            
            
            9.1
            
            
            
            61,332
            
            
            
            4.0
            
            
            
            76,665
            
            
            
            5.0As
      of December 31, 2008:Total
      Capital (to Risk-Weighted Assets)Consolidated
            
            $
            165,458
            
            
            
            13.3
            %
            
            $
            99,383
            
            
            
            8.0
            %
            
            
            n/a
            
            
            
            n/aWest
      Bank
            
            
            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/aWest
      Bank
            
            
            136,349
            
            
            
            11.0
            
            
            
            49,536
            
            
            
            4.0
            
            
            
            74,305
            
            
            
            6.0Tier
      I Capital (to Average Assets)Consolidated
            
            
            150,017
            
            
            
            10.3
            
            
            
            58,244
            
            
            
            4.0
            
            
            
            n/a
            
            
            
            n/aWest
      Bank
            
            
            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 September 30, 2009, was 6.48 percent, up from 5.91 percent at December
31, 2008.








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
nine months of 2009 changed when compared to 2008.


37





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”), 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).  The Company adopted this 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.





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
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.  The Company adopted this standard effective for the quarter
ending June 30, 2009.  The adoption of this standard 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”), 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.  The Company adopted this
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”), 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 standard
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.


38





In June
2009, the FASB issued Statement No. 168, “The FASB Accounting Standards
CodificationTMand the Hierarchy of
Generally Accepted Accounting Principles—a replacement of FASB Statement No.
162.”The change initiated by this Statement is now included
in the Codification as FASB ASC 105-10-10and establishes the
Financial Accounting Standards
Board (FASB) Accounting Standards CodificationTMas the
source of authoritative principles and standards recognized by the FASB to be
applied by nongovernmental 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 standard, the Codification
superseded all then-existing non-SEC accounting and reporting
standards.  All other non-grandfathered non-SEC accounting literature
not included in the Codification became non-authoritative.  This
standard is effective for financial statements issued for interim and annual
periods ending after September 15, 2009.  In the FASB’s view, the
Codification does not change GAAP, except for those nonpublic nongovernmental
entities that must apply the American Institute of Certified Public Accountants
Technical Inquiry Service Section 5100, “Revenue Recognition,” paragraphs
38–76, now included as part of FASB ASC Topic 985.  The Company
adopted FASB ASC Topic 105-10-10 effective for the quarter ending September 30,
2009.  The adoption did not have 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 did
not have a material impact on the Company’s 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.  Management does believe the
current economic environment presents more than ordinary risks for the Company
and its customers.






39





Item 6.  Exhibits





The
following exhibits are filed as part of this report:





Exhibits
            Description2.1
            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.)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
            Consulting
      Agreement with David L. Miller (incorporated herein by
      reference to Exhibit 10.18 filed with the Form 10-Q on May 6,
      2005.)10.15*
            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.)10.16*
            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.)10.17
            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.)10.18
            2007
      Amendment to Lease Agreement (incorporated herein by
      reference to Exhibit 10.22 filed with the Form 10-Q on May 4,
      2007.)10.19*
            Employment
      Agreement with Thomas E. Stanberry (incorporated herein by
      reference to Exhibit 10.24 filed with the Form 8-K on May 23,
      2008.)10.20*
            Employment
      Agreement with Douglas R. Gulling (incorporated herein by
      reference to Exhibit 10.25 filed with the Form 8-K on May 23,
      2008.)10.21*
            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




10.22
            Data
      Processing Contract Amendment (incorporated herein by
      reference to Exhibit 10.23 filed with the Form 10-Q on October 30,
      2008.)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.)10.24*
            Separation
      Agreement and Release with Thomas E. Stanberry12
            Computation
      of Ratios of Earnings (Loss) to Fixed Charges and Preferred
      Dividends31.1
            Certification
      of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of
      200231.2
            Certification
      of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of
      200232.1
            Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  200232.2
            Certification
      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.


41


SIGNATURES





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)October 29, 2009
            
            By:
      /s/ David
      R. MilliganDate
            
            David
      R. MilliganInterim
      Chief Executive OfficerOctober 29, 2009
            
            By:
      /s/ Douglas R.
      GullingDate
            
            Douglas
      R. GullingExecutive
      Vice President and Chief Financial Officer(Principal
      Accounting Officer)








42


EXHIBIT INDEX





The
following exhibits are filed herewith:





Exhibit
      No.
            Description
            Page
      Number10.24
            Separation
      Agreement and Release with Thomas E. Stanberry
            4412
            Ratios
      of Earnings (Loss) to Fixed Charges and Preferred
Dividends
            4731.1
            Certification
      of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of
      2002
            4831.2
            Certification
      of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of
      2002
            4932.1
            Certification
      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
            5032.2
            Certification
      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
            51








43