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| FWV > SEC Filings for FWV > Form 10-Q on 13-May-2009 | All Recent SEC Filings |
13-May-2009
Quarterly Report
Table One
SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Years ended
March 31, December 31,
2009 2008 2008 2007 2006 2005
SUMMARY OF OPERATIONS
Total interest income $ 3,304 $ 3,483 $ 13,514 $ 13,708 $ 13,772 $ 13,128
Total interest expense 1,194 1,353 5,275 5,431 4,943 4,070
Net interest income 2,110 2,130 8,239 8,277 8,829 9,058
Provision for loan losses - - - (100 ) - 180
Total other income 290 460 1,488 1,410 1,433 1,378
Total other expenses 1,737 1,762 7,009 7,272 7,614 7,451
Income before income taxes 663 828 2,718 2,515 2,648 2,804
Net income 524 636 2,206 2,036 2,144 2,262
PER SHARE DATA (1)
Net income $ 0.33 $ 0.40 $ 1.39 $ 1.28 $ 1.35 $ 1.42
Cash dividends declared 0.19 0.18 0.74 0.73 0.73 0.73
Book value per share 18.50 17.74 18.08 17.12 15.90 15.07
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 126,147 $ 120,667 $ 120,722 $ 120,409 $ 129,997 $ 144,528
Investment securities 109,658 103,279 108,114 109,278 109,533 102,882
Deposits - interest bearing 186,922 180,264 182,450 182,682 190,160 200,902
Stockholders' equity 28,961 26,926 27,295 26,223 25,416 24,409
Total assets 262,290 254,260 258,275 253,930 262,946 270,500
BALANCE SHEET
Investments $ 114,794 $ 105,086 $ 112,366 $ 106,647 $ 110,894 $ 107,998
Loans 127,509 120,954 124,635 121,739 120,709 135,214
Allowance for loan losses (1,889 ) (2,038 ) (1,923 ) (2,043 ) (2,297 ) (2,320 )
Other assets 27,325 34,694 23,086 26,844 25,132 25,321
Total Assets $ 267,739 $ 258,696 $ 258,164 $ 253,187 $ 254,438 $ 266,213
Deposits $ 214,814 $ 207,850 $ 206,385 $ 203,127 $ 210,409 $ 218,817
Federal funds purchased and
repurchase agreements 11,555 11,828 11,013 12,196 15,240 19,084
FHLB borrowings 10,911 9,287 10,929 9,298 2,343 2,385
Other long term borrowings - - - - - 1,000
Other liabilities 1,060 1,541 1,100 1,351 1,169 968
Stockholders' equity 29,399 28,190 28,737 27,215 25,277 23,959
Total Liabilities and Stockholders'
equity $ 267,739 $ 258,696 $ 258,164 $ 253,187 $ 254,438 $ 266,213
SELECTED RATIOS
Return on average assets 0.81 % 1.01 % 0.85 % 0.80 % 0.82 % 0.84 %
Return on average equity 7.34 % 9.50 % 8.08 % 7.76 % 8.44 % 9.27 %
Average equity to average assets 11.04 % 10.59 % 10.57 % 10.33 % 9.67 % 9.02 %
Dividend payout ratio (1) 57.58 % 45.00 % 53.24 % 57.03 % 54.07 % 51.41 %
Loan to Deposit ratio 59.36 % 58.19 % 60.39 % 59.93 % 57.37 % 61.79 %
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(1) Adjusted for the 4 percent common stock dividend to stockholders of record as of October 1, 2008.
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 $523,594 or $.33 per share for the three months ended March 31, 2009 as compared to $636,341 or $.40 per share for the same period during 2008. The decline in net income for the three months ended March 31, 2009 as compared to the same period in 2008 of $112,747 or 17.7% was primarily the result of the decrease in net interest income and noninterest income, offset in part by the decrease in noninterest expenses and the decrease in income tax expense. As compared to the prior year, noninterest income declined $170,977 or 37.1% primarily due to decreases in the net gains (losses) on sales of investment securities, service charges and other fee income and in other operating income. Net interest income decreased $19,278 or .9%, primarily due to the decrease in the interest and fees earned on loans, offset in part by the increase in the income earned on investment securities combined with the decrease in the interest paid on interest bearing liabilities. Noninterest expenses decreased $25,459 or 1.4% during the first quarter of 2009 as compared to 2008 primarily due to decreases in salary and employee benefits expenses and other operating expenses, offset in part by increases in occupancy expenses.
The ROA was .81% for the three months ended March 31, 2009 as compared to 1.01% for the same period of the prior year. For the three months ended March 31, 2009 compared to March 31, 2008, the ROE was 7.34% and 9.50%, 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 three months ended March 31, 2009
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 three months ended March 31, 2009 and 2008 and the year ended December 31, 2008.
For the three months ended March 31, 2009, net interest income fell $19,278 or .9%, from the same period in 2008. The decrease in net interest income was primarily due to the decline in the interest earned on loans, offset in part by the increase in the interest earned on investment securities and the decrease in the interest paid on interest bearing liabilities. The changes in the volume and mix of earning assets and interest bearing liabilities combined with the changes in market rates of interest resulted in taxable equivalent net yield on average earning assets of 3.83% at March 31, 2009 as compared to 3.97% at March 31, 2008. The average earning assets increased $6.4 million or 2.7% from March 31, 2008 to 2009.
Interest and fees on loans decreased $145,594 or 7.0%, from the same period in 2008 due to the decrease in the yield earned on loans, offset in part by the increase in the average loan volume. The taxable equivalent yield on loans fell 72 basis points, to 6.48% at March 31, 2009 from 7.20% at March 31, 2008. The average balance on loans increased $5.4 million or 4.5% since December 31, 2008. The increase in loan volume was primarily due to an increased demand for commercial and commercial real estate loans.
During the first quarter of 2009, interest income on investment securities increased $72,144 or 5.5% as compared to the same period of the prior year. The increase in interest income on investment securities was due to the rise in the yields earned combined with the increase in the average volume. The taxable equivalent yield on investment securities rose 12 basis points, to 5.51% at March 31, 2009 from 5.39% at December 31, 2008 and fell 9 basis points from March 31, 2008. The activity of the investment portfolio increased with the average volume increasing approximately $1.5 million or 1.4% since December 31, 2008 and $6.4 million or 6.2% since March 31, 2008.
Interest expense decreased $159,410 or 11.8% during the three months ended March 31, 2009 as compared to the same period in 2008. The decrease in interest expense was primarily due to decreases in the average interest rates paid on interest bearing liabilities which were offset in part by an increase in the average balances of interest bearing liabilities. The average yield on interest bearing liabilities fell 37 basis points, from 2.69% at March 31, 2008 to 2.32% at March 31, 2009, while the average volume grew $6.3 million or 3.1% during this same period. The decline in the average yield on interest bearing liabilities was primarily due to the decline in the interest rates on certificates of deposit accounts. The yield paid on certificate of deposit accounts fell 45 basis points, to 3.75% at March 31, 2009 from 4.20% at December 31, 2008 and fell 64 basis points from March 31, 2008. The increase in the average volume was primarily in savings and interest bearing demand deposits.
Noninterest Income
Noninterest income decreased $170,977 or 37.1% for the three months ended March 31, 2009 as compared to same period of the prior year. The decrease in noninterest income was primarily due to the change in the net gains (losses) on sales of investment securities combined with the decline in service charges and other fee income and the decrease in other operating income.
The net gains (losses) on investment securities decreased $119,894 or 106.6% for the three month period ended March 31, 2009 as compared to the same period in 2008. The decrease in net gains (losses) on sales of investment securities was primarily attributable to sales recorded by the Company and its subsidiary bank in 2008. During the first quarter of 2008 the Company's subsidiary bank sold approximately $6.9 million of investment securities 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. The Company accounted for securities losses of $7,393 during the three month period ended March 31, 2009 and securities gains of $114,253 and securities losses of $1,752 during the three month period ended March 31, 2008.
Service charges and other fees represent the major component of noninterest income. These charges are earned from assessments made on checking and savings accounts. Service charges and other fee income fell $46,133 in the first three months of 2009 as compared to the same period in 2008, down 22.6%, from 2008. The decrease was primarily due to a decline in overdraft charges of approximately $41,800. Also service charges on deposit accounts declined.
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, credit life commissions, credit card fees and commissions, income earned on bank owned life insurance and various other charges and fees related to normal customer banking relationships. Other operating income decreased $4,950 or 3.5% in the three month period ended March 31, 2009 as compared to the same period in 2008. During the first quarter of 2009, the decline in other operating income was primarily due to decreases in credit card fees, checkbook sales, other miscellaneous income and a decrease in the earnings related to the cash surrender value of the bank owned life insurance on its key officers, offset in part by increases in ATM fees and FHLB fee income.
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 three months ended March 31, 2009 and 2008 and the year ended December 31, 2008. Average balance sheet information for the periods ended March 31, 2009 and 2008 and December 31, 2008 was compiled using the daily averages. Total loans are gross of the allowance for loan losses, net of unearned income and include loans held for sale. Non-accrual loans were included in the average balance computations; however, no interest was included in income subsequent to the non-accrual status classification. 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.
(Unaudited) (Unaudited)
March 31, 2009 December 31, 2008 March 31, 2008
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 $ 26,750 $ 335 5.08 % $ 23,179 $ 1,169 5.04 % $ 22,902 $ 338 5.94 %
Mortgage backed securities 62,188 833 5.43 % 63,200 3,296 5.22 % 57,785 746 5.19 %
States and political subdivisions 18,933 185 3.96 % 20,412 797 3.90 % 22,258 216 3.90 %
Other securities 1,787 24 5.45 % 1,323 73 5.52 % 334 5 6.02 %
Total Investment securities: 109,658 1,377 5.09 % 108,114 5,335 4.93 % 103,279 1,305 5.08 %
Interest bearing deposits 2,359 - 0.00 % 3,631 69 1.90 % 4,827 33 2.75 %
Federal funds sold 5,533 - 0.00 % 8,566 141 1.65 % 8,793 61 2.79 %
Loans, net of unearned income 126,147 1,923 6.18 % 120,722 7,917 6.56 % 120,667 2,068 6.89 %
Other earning assets 1,450 4 1.12 % 1,349 52 3.85 % 1,199 16 5.37 %
Total earning assets 245,147 3,304 5.47 % 242,382 13,514 5.58 % 238,765 3,483 5.87 %
Other assets 19,052 17,816 17,538
Allowance for loan losses (1,909 ) (1,923 ) (2,043 )
Total Assets $ 262,290 $ 258,275 $ 254,260
LIABILITIES
Time deposits $ 94,427 $ 874 3.75 % $ 94,845 $ 3,979 4.20 % $ 95,725 $ 1,044 4.39 %
Savings deposits 56,659 121 0.87 % 52,738 458 0.87 % 50,865 101 0.80 %
Interest bearing demand deposits 35,836 35 0.40 % 34,867 151 0.43 % 33,674 34 0.41 %
Federal funds purchased and
repurchase agreements 10,722 28 1.06 % 12,090 173 1.43 % 12,670 57 1.81 %
FHLB and other long-term
borrowings 10,920 136 5.05 % 10,209 514 5.03 % 9,293 117 5.06 %
Total interest bearing liabilities 208,564 1,194 2.32 % 204,749 5,275 2.58 % 202,227 1,353 2.69 %
Demand deposits 23,783 24,839 23,614
Other liabilities 982 1,392 1,493
Total Liabilities 233,329 230,980 227,334
STOCKHOLDERS' EQUITY 28,961 27,295 26,926
Total Liabilities and
Stockholders' Equity $ 262,290 $ 258,275 $ 254,260
Net yield on earning assets $ 2,110 3.49 % $ 8,239 3.40 % $ 2,130 3.59 %
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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 three months ended March 31, 2009 and 2008, and the year ended December 31, 2008, respectively. The effect of this adjustment is presented below.
Investment securities $ 109,658 $ 1,491 5.51 % $ 108,114 $ 5,829 5.39 % $ 103,279 $ 1,439 5.60 % Loans 126,147 2,017 6.48 % 120,722 8,289 6.87 % 120,667 2,159 7.20 % Total earning assets $ 245,147 $ 3,512 5.81 % $ 242,382 $ 14,380 5.93 % $ 238,765 $ 3,708 6.25 % Taxable equivalent net yield on earning assets $ 2,318 3.83 % $ 9,105 3.76 % $ 2,355 3.97 % |
Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
EARNINGS ANALYSIS - For the three months ended March 31, 2009 (Continued)
Noninterest Expense
Noninterest expense decreased $25,459 or 1.4% for the three months ended March 31, 2009 as compared to same period of the prior year. Noninterest expense declined primarily due to decreased salary and employee benefits expenses and other operating expenses, offset in part by an increase in occupancy expenses.
Salary and employee benefits decreased $49,735 or 5.2% during the three months ended March 31, 2009 over the same period in 2008. Salary and employee benefit expense in 2009 compared to 2008 decreased primarily as a result of the decline in salary expenses, offset in part by an increase in employee benefits expense and payroll taxes.
Other operating expenses decreased $5,149, or 1.0%, compared to the same period of the prior year. The decline in other operating expenses was attributable primarily to a decrease in stationery and supplies expense, service expenses, postage and transportation expenses, directors' fees and other taxes, offset in part by increased regulatory assessments, other expenses and advertising expenses.
Other operating expenses for the three months ended March 31 included the following:
Unaudited 2009 2008
Directors' fees $ 27,050 32,875
Stationery and supplies 26,051 45,993
Regulatory assessment and deposit insurance 56,444 25,576
Advertising 8,849 7,853
Postage and transportation 35,886 44,993
Other taxes 50,563 51,386
Service expense 92,306 103,944
Other 196,083 185,761
Total $ 493,232 $ 498,381
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Income Taxes
Income tax expense for the three month period ended March 31, 2009 was $139,457, decreasing 27.2% compared to the same period in 2008. Income tax expense decreased primarily due to the decline in pre-taxable income of $164,796 combined with the decrease in tax-exempt income of $25,070 during the first three months of 2009 over the same period in 2008. Components of the income tax expense for March 31, 2009 were $113,052 for federal taxes and $26,405 for West Virginia corporate net income taxes.
Federal income tax rates and West Virginia corporate net income tax rates remain consistent at 34% and 9%, respectively, for the three months ended March 31, 2009 and 2008 and for the year ended December 31, 2008.
Balance Sheet Analysis
Investments
Investment securities increased approximately $2.4 million or 2.2% from December 31, 2008 to March 31, 2009. The investment portfolio is managed to attempt to achieve an optimum mix of asset quality, liquidity and maximum yield on investment. The investment portfolio consists of U.S. Treasury securities, U.S. Government agency and corporation securities, obligations of states and political subdivisions, corporate debt securities, mortgage-backed securities and equity securities. Taxable securities comprised 84.7% of total securities at March 31, 2009, as compared to 84.1% at December 31, 2008. Other than the normal risks inherent in purchasing U.S. Treasury securities, U.S. Government agency and corporation securities, corporate debt securities, mortgage-backed securities and obligations of states and political subdivisions, i.e., interest rate risk, management has no knowledge of other market or credit risk involved in these investments. The Company does not have any high risk hybrid/derivative instruments.
Investment securities that are classified available for sale are available for sale at any time based upon management's assessment of changes in economic or financial market conditions. These securities are carried at fair value and the unrealized holding gains and losses, net of taxes, are reflected as a separate component of stockholder's equity until realized. As the investment portfolio consists primarily of fixed rate debt securities, changes in the market rates of interest will effect the carrying value of securities available for sale, adjusted upward or downward under the requirements of FAS 115 and represent temporary adjustments in values. The carrying value of securities available for . . .
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