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| FWV > SEC Filings for FWV > Form 10-Q on 14-Nov-2008 | All Recent SEC Filings |
14-Nov-2008
Quarterly Report
Table One
SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended Years ended
September 30, September 30, December 31,
2008 2007 2008 2007 2007 2006 2005
SUMMARY OF OPERATIONS
Total interest income $ 3,367 $ 3,454 $ 10,179 $ 10,216 $ 13,708 $ 13,772 $ 13,128
Total interest expense 1,330 1,398 3,980 4,033 5,431 4,943 4,070
Net interest income 2,037 2,056 6,199 6,183 8,277 8,829 9,058
Provision for loan losses - (100 ) - (100 ) (100 ) - 180
Total other income 354 370 1,147 1,005 1,410 1,433 1,378
Total other expenses 1,735 1,787 5,221 5,439 7,272 7,614 7,451
Income before income taxes 656 739 2,125 1,849 2,515 2,648 2,804
Net income 522 580 1,669 1,501 2,036 2,144 2,262
PER SHARE DATA
Net income $ 0.34 $ 0.38 $ 1.09 $ 0.98 $ 1.33 $ 1.40 $ 1.48
Cash dividends declared 0.19 0.19 0.57 0.57 0.76 0.76 0.76
Book value per share 17.78 17.13 17.78 17.13 17.81 16.54 15.68
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 119,491 $ 120,087 $ 119,932 $ 120,022 $ 120,409 $ 129,997 $ 144,528
Investment securities 111,161 108,402 107,646 110,468 109,278 109,533 102,882
Deposits - interest bearing 184,540 181,763 182,146 183,466 182,682 190,160 200,902
Stockholders' equity 27,472 26,264 27,193 26,080 26,223 25,416 24,409
Total assets 262,155 253,290 257,701 253,335 253,930 262,946 270,500
SELECTED RATIOS
Return on average assets 0.79 % 0.91 % 0.87 % 0.79 % 0.80 % 0.82 % 0.84 %
Return on average equity 7.56 % 8.76 % 8.20 % 7.69 % 7.76 % 8.44 % 9.27 %
Average equity to average
assets 10.48 % 10.37 % 10.55 % 10.29 % 10.33 % 9.67 % 9.02 %
Dividend payout ratio 55.88 % 50.00 % 52.29 % 58.16 % 57.14 % 54.29 % 51.35 %
Loan to Deposit ratio 57.75 % 58.59 % 57.75 % 58.59 % 59.93 % 57.37 % 61.79 %
(Unaudited)
September 30, December 31,
2008 2007 2007 2006 2005
BALANCE SHEET
Investments $ 107,506 $ 105,045 $ 106,647 $ 110,894 $ 107,998
Loans 121,220 119,942 121,739 120,709 135,214
Allowance for loan losses (1,947 ) (2,110 ) (2,043 ) (2,297 ) (2,320 )
Other assets 35,299 32,794 26,844 25,132 25,321
Total Assets $ 262,078 $ 255,671 $ 253,187 $ 254,438 $ 266,213
Deposits $ 209,891 $ 204,713 $ 203,127 $ 210,409 $ 218,817
Federal funds purchased and
repurchase agreements 12,739 14,178 12,196 15,240 19,084
FHLB borrowings 10,948 9,310 9,298 2,343 2,385
Long term debt - - - - 1,000
Other liabilities 1,323 1,294 1,351 1,169 968
Stockholders' equity 27,177 26,176 27,215 25,277 23,959
Total Liabilities and
Stockholders' equity $ 262,078 $ 255,671 $ 253,187 $ 254,438 $ 266,213
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Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Forward-Looking Information: Certain information contained in this report, which are not historical facts, may be forward-looking statements that involve risks and uncertainties. These statements are subject to important factors that could cause action results to differ materially from those contemplated by such statements, including without limitation, the effect of changing economic conditions, changes in interest rates, changes in lending activities, changes in state and federal regulations, and other external factors which may materially impact the Company's operational and financial performance.
Critical Accounting Policies: The Company's accounting policies are integral to understanding the results reported. The accounting policies are described in detail in Note 1 of the Consolidated Financial Statements. Our most complex accounting policies require management's judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. Detailed policies and control procedures have been established and are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.
Other Than Temporary Impairment of Equity Securities: Equity securities are evaluated periodically to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term "other than temporary" is not intended to indicate that the decline is permanent. It indicates that the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.
Allowance for Loan Losses: Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Company's allowance for loan losses provides for probable losses based upon evaluations of known, and inherent risks in the loan portfolio. Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business environment; as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. For a full discussion of the Company's methodology of assessing the adequacy of the reserve for loan losses, refer to Note 1 of the Consolidated Financial Statements.
Goodwill and Other Intangible Assets: As discussed in Note 1 of the notes to the Consolidated Financial Statements, the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows were less than the recorded goodwill and other intangible assets balances, we would be required to take a charge against earnings to write down the assets to the lower value.
Deferred Tax Assets: The Company uses an estimate of future earnings to support its position that the benefit of the deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced. The deferred tax assets are described further in Note 1 of the Consolidated Financial Statements.
OVERVIEW
The Company reported net income of $1,669,463 or $1.09 per share for the nine months ended September 30, 2008 compared to $1,501,031 or $.98 per share for the same period during 2007. The increase in net income for the nine months ended September 30, 2008 as compared to the same period in 2007 of $168,432 or 11.2% was primarily the result of the increases in net interest income and noninterest income combined with the decrease in noninterest expenses and the increase in the provision for loan losses offset in part by the increase in income tax expense. As compared to the same period in the prior year, net interest income increased $15,139 or .2%, primarily due to the increase in the income earned on investment securities and other interest income, offset in part by an increase in the interest expense paid on interest bearing liabilities combined with the decline in the interest and fees earned on loans. Noninterest income increased $142,654 or 14.2% primarily due to the change in the gains (losses) on sales of investment securities combined with the increase in other operating income, offset in part by the decrease in service charges and other fee income. Noninterest expenses declined $218,965 or 4.0% during the nine month period ended September 30, 2008 as compared to the same period in 2007 due to the decreases in salary and employee benefits expense and in other operating expenses, offset in part by a increase in occupancy expenses. The ROA was .87% for the nine months ended September 30, 2008 as compared to .79% for the same period of the prior year. For the nine months ended September 30, 2008 compared to September 30, 2007, the ROE was 8.20% and 7.69%, respectively.
For the third quarter of 2008, net income was $521,905 or $.34 per share as compared to $579,613 or $.38 per share for the same period in 2007. The decrease in earnings was primarily due to decreases in net interest income and noninterest income, offset in part by decreases in noninterest expenses and in income taxes and the increase in the provision for loan losses. Noninterest expenses were reduced $52,585 or 2.9% during the three month period ended September 30, 2008 as compared to the same period in 2007 primarily due to the decreases in salary and employee benefits expense and other operating expenses, offset in part by the increase in occupancy expenses. Net interest income decreased $19,524 or 1.0% primarily due to the decrease in the interest earned on loans, offset in part by an increase in the interest earned on investment securities and the decrease in the interest paid on interest bearing liabilities. The decline in noninterest income was primarily due to the decrease in service charges and other fee income combined with change in the gains (losses) on sales of investment securities, offset in part by the increase in other operating income. The ROA was .79% for the three months ended September 30, 2008 as compared to .91% for the same period of the prior year. For the three months ended September 30, 2008 compared to September 30, 2007, the ROE was 7.56% and 8.76%, respectively.
Table One is a summary of Selected Financial Data of the Company. The sections that follow discuss in more detail the information summarized in Table One.
Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
EARNINGS ANALYSIS - For the nine months ended September 30, 2008
Net Interest Income
Net interest income, which is the primary source of earnings for the Company, is the difference between interest earned on loans and investments and interest paid on deposits and other liabilities. Changes in the volume and mix of earning assets and interest bearing liabilities combined with changes in market rates of interest greatly effect net interest income. Table Two presents the average balance sheets and an interest rate analysis for the nine months ended September 30, 2008 and 2007 and the year ended December 31, 2007.
For the nine months ended September 30, 2008, net interest income was $6,198,500, an increase of $15,139 or .2%, from the same period in 2007. Net interest income rose primarily due to the increase in average volume of earning assets offset in part by the decline in the taxable equivalent yield on earning assets. The average earning assets increased approximately $4.3 million or 1.8% from September 30, 2007 to 2008. The taxable equivalent net yield on earning assets decreased from 3.88% at September 30, 2007 to 3.80% at September 30, 2008.
Interest income on investment securities during the first nine months of 2008 increased $172,149 or 4.5% as compared to the same period of the prior year. The increase in interest income on investment securities during the first nine months of 2008 was primarily due to the rise in the yields earned which was partially offset by a decline in the average volume. The taxable equivalent yield on investment securities rose 32 basis points in 2008, from 5.10% at December 31, 2007 to 5.42% at September 30, 2008 and increased 32 basis points from September 30, 2007. The average volume of investment securities have decreased approximately $2.8 million or 2.6% since September 30, 2007.
Interest and fees on loans decreased $180,417 or 2.9%, from the same period in 2007 due to the decline in the average yield on loans, offset in part by the increase in the average loan volume. The taxable equivalent yield on loans fell 24 basis points in 2008 from 7.20% at December 31, 2007 to 6.96% at September 30, 2008 and fell 22 basis points from September 30, 2007. The average loan volume fell approximately $.1 million or .1% since September 30, 2007.
During the nine months ended September 30, 2008, interest expense decreased $52,291 or 1.3% as compared to the same period in 2007. The decline in the yield paid on interest bearing liabilities, offset in part by the increase in the average volume primarily contributed to the decrease in interest expense during the nine month period ended September 30, 2008. The average yield paid on interest bearing liabilities fell 9 basis points from 2.69% at December 31, 2007 to 2.60% at September 30, 2008.
Noninterest Income
Noninterest income increased $142,654 or 14.2% for the nine months ended September 30, 2008 as compared to same period of the prior year. The increase in noninterest income was primarily due to the change in the net gains (losses) on sales of investment securities combined with the increase in other operating income, partially offset by a decline in service charges and other fee income.
The net gains (losses) on investment securities increased $161,870 or 311.5% for the nine month period ended September 30, 2008 as compared to the same period in 2007. The increase in net gains (losses) on sales of investment securities was primarily attributable to sales recorded by the Company and its subsidiary bank. The Company's subsidiary bank sold approximately $6.9 million of investment securities during the first quarter of 2008 to take advantage of reinvestment opportunities within the current market interest rate environment. A net gain was recorded related to those sales of investment securities and amounted to $112,713. During the first quarter of 2007, the Company's subsidiary bank sold approximately $4.2 million of lower yielding taxable investment securities to purchase higher yielding taxable investment securities to improve the overall long-term average yield. A loss was incurred related to those sales of investment securities and amounted to $54,673. The Company elected to take the loss in the short-term in order to take advantage of the higher yields offered at the time these investment purchases were made as well as improving the long-term earnings. The Company accounted for securities gains of $114,687 and securities losses of $4,778 during the nine month period ended September 30, 2008 and securities gains of $6,904 and securities losses of $58,865 during the nine month period ended September 30, 2007.
Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Table Two Average Balance Sheets and Interest Rate Analysis (dollars in thousands)
The following table presents an average balance sheet, interest earned on interest bearing assets, interest paid on interest bearing liabilities, average interest rates and interest differentials for the nine months ended September 30, 2008 and 2007 and the year ended December 31, 2007. Average balance sheet information for the periods ended September 30, 2008 and 2007 and December 31, 2007 was compiled using the daily averages. Loan fees and unearned discounts were included in income for average rate calculation purposes. Average yields on investment securities available for sale have been calculated based on amortized cost. Non-accrual loans were included in the average balance computations; however, no interest was included in income subsequent to the non-accrual status classification.
(Unaudited) (Unaudited)
For the nine months ended For the nine months ended
September 30, 2008 December 31, 2007 September 30, 2007
Average Average Average Average Average Average
Volume Interest Rate Volume Interest Rate Volume Interest Rate
ASSETS:
Investment securities:
U.S. Treasury and U.S. Government
agencies $ 22,891 $ 867 5.06 % $ 31,375 $ 1,333 4.25 % $ 32,178 $ 1,028 4.27 %
Mortgage backed securities 62,819 2,443 5.19 % 54,359 2,776 5.11 % 54,577 2,086 5.11 %
States and political subdivisions 20,774 608 3.91 % 23,196 887 3.82 % 23,362 667 3.82 %
Other securities 1,162 47 5.40 % 348 23 6.61 % 351 12 4.57 %
Total Investment securities: 107,646 3,965 4.92 % 109,278 5,019 4.59 % 110,468 3,793 4.59 %
Interest bearing deposits 3,873 66 2.28 % 1,779 84 4.72 % 917 35 5.10 %
Federal funds sold 9,029 136 2.01 % 5,582 274 4.91 % 5,131 195 5.08 %
Loans, net of unearned income 119,932 5,971 6.65 % 120,409 8,273 6.87 % 120,022 6,152 6.85 %
Other earning assets 1,316 41 4.16 % 1,051 58 5.52 % 998 41 5.49 %
Total earning assets 241,796 10,179 5.62 % 238,099 13,708 5.76 % 237,536 10,216 5.75 %
Other assets 17,891 17,873 18,053
Allowance for loan losses (1,986 ) (2,042 ) (2,254 )
Total Assets $ 257,701 $ 253,930 $ 253,335
LIABILITIES
Time deposits $ 95,272 $ 3,033 4.25 % $ 95,603 $ 4,130 4.32 % $ 95,913 $ 3,084 4.30 %
Savings deposits 52,085 329 0.84 % 52,513 415 0.79 % 53,106 312 0.79 %
Interest bearing demand deposits 34,789 111 0.43 % 34,566 135 0.39 % 34,447 98 0.38 %
Federal funds purchased and
repurchase agreements 11,990 131 1.46 % 14,086 486 3.45 % 14,349 391 3.64 %
FHLB and other long-term
borrowings 9,965 376 5.04 % 5,351 265 4.95 % 4,018 148 4.92 %
Total interest bearing liabilities 204,101 3,980 2.60 % 202,119 5,431 2.69 % 201,833 4,033 2.67 %
Demand deposits 25,004 24,321 24,192
Other liabilities 1,403 1,267 1,230
Total Liabilities 230,508 227,707 227,255
STOCKHOLDERS' EQUITY 27,193 26,223 26,080
Total Liabilities and
Stockholders' Equity $ 257,701 $ 253,930 $ 253,335
Net yield on earning assets $ 6,199 3.42 % $ 8,277 3.48 % $ 6,183 3.48 %
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The fully taxable equivalent basis of interest income from obligations of states and political subdivisions has been determined using a combined Federal and State corporate income tax rate of 40% for the nine months ended September 30, 2008 and 2007, and the year ended December 31, 2007, respectively. The effect of this adjustment is presented below.
Investment securities $ 107,646 $ 4,370 5.42 % $ 109,278 $ 5,578 5.10 % $ 110,468 $ 4,216 5.10 % Loans 119,932 6,247 6.96 % 120,409 8,664 7.20 % 120,022 6,445 7.18 % Total earning assets $ 241,796 $ 10,860 6.00 % $ 238,099 $ 14,658 6.16 % $ 237,536 $ 10,932 6.15 % Taxable equivalent net yield on earning assets $ 6,880 3.80 % $ 9,227 3.88 % $ 6,899 3.88 % |
Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
EARNINGS ANALYSIS - For the nine months ended September 30, 2008 (Continued)
Other operating income represents fees from safe deposit box rentals, sales of checkbooks, sales of cashiers' checks and money orders, utility collections, ATM charges and card fees, home equity credit line fees, credit life commissions, credit card fees and commissions and various other charges and fees related to normal customer banking relationships. For the nine month period ended September 30, 2008, other operating income increased $53,790 or 14.6% compared to the same period in 2007. The increase in other operating income during the nine month period ended September 30, 2008 as compared to the same period in the prior year was primarily due to increases in ATM fees, credit card fees, filing fee income and an increase in the earnings related to the cash surrender value of the bank owned life insurance on its key officers, offset in part by declines in safe deposit box rents, utility bill and collection fees, checkbook sales and credit life commissions and other miscellaneous income.
Noninterest Expense
Noninterest expense decreased $218,965 or 4.0% for the nine months ended September 30, 2008 as compared to same period of the prior year. The decrease in noninterest expense was primarily due to decreases in salary and employee benefits expenses and other operating expenses, offset in part by an increase in occupancy expenses.
Salary and employee benefits decreased $212,344 or 7.2% during the nine months ended September 30, 2008 over the same period in 2007. Salary and employee benefit expense in 2008 compared to 2007 decreased primarily as a result of the decline in salary expenses combined with the reduction in employee benefits expense.
Other operating expense decreased $99,354, or 6.0%, compared to the same period of the prior year. The decline in other operating expenses was attributable primarily to a reduction in directors' fees, advertising expenses, postage and transportation expenses, service expenses, other expense, and regulatory assessments, offset in part by increases in stationery and supplies expenses and other taxes.
Other operating expenses for the nine months ended September 30 included the following:
Unaudited 2008 2007
Directors' fees $ 97,400 $ 99,700
Stationery and supplies 160,678 104,894
Regulatory assessment and deposit insurance 79,636 80,762
Advertising 62,307 136,531
Postage and transportation 125,372 142,432
Other taxes 150,494 142,644
Service expense 310,061 344,824
Other 583,888 617,403
Total $ 1,569,836 $ 1,669,190
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Net occupancy expenses of premises increased $92,733 or 11.2% during the nine months ended September 30, 2008 compared to the same period in 2007. The increase in furniture and fixture and building depreciation expenses and the increase in expenses for other real estate owned property, offset in part by the reduction in lease expenses due to the closure of the subsidiary bank's supermarket branch office contributed to the increase in occupancy expenses in 2008 as compared to 2007.
Income Taxes
Income tax expense for the nine month period ended September 30, 2008 was $455,939, increasing 31.2% compared to the same period in 2007. Income tax expense increased primarily due to the increase in pre-taxable income of $276,758, offset in part by the decrease in tax-exempt income during the first nine months of 2008 over the same period in 2007. Components of the income tax . . .
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