Add
PWOD to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| PWOD > SEC Filings for PWOD > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
Quarterly Report
EARNINGS SUMMARY
Comparison of the Three and Six Months Ended June 30, 2009 and 2008
Summary Results
Net income for the three months ended June 30, 2009 was $832,000 compared to $2,057,000 for the same period of 2008 as after-tax securities losses increased $1,210,000 (from a loss of $166,000 to a loss of $1,376,000). Included within the change in after-tax securities losses was an other than temporary impairment charge relating to certain equity securities held in the investment portfolio of $2,251,000. Basic and diluted earnings per share for the three months ended June 30, 2009 were $0.22 compared to $0.53 for the three months ended June 30, 2008. Return on average assets and return on average equity were 0.51% and 5.45% for the three months ended June 30, 2009 compared to 1.30% and 11.73% for the corresponding period of 2008. Net income from core operations ("operating earnings") remained stable at $2,208,000 for the three months ended June 30, 2009 compared to $2,223,000 for the same period of 2008. Operating earnings per share for the three months ended June 30, 2009 were $0.58 basic and dilutive compared to $0.58 basic and $0.57 dilutive for the three months ended June 30, 2008.
The six months ended June 30, 2009 generated net income of $1,671,000 compared to $4,188,000 for the same period of 2008. Comparable results were impacted by an increase in after-tax securities losses of $2,799,000 (from a loss of $141,000 to a loss of $2,940,000). Earnings per share, basic and diluted, for the six months ended June 30, 2009 were $0.44 as compared to $1.08 for the comparable period of 2008. Return on average assets and return on average equity were 0.51% and 5.54% for the six months ended June 30, 2009 compared to 1.33% and 11.87% for the corresponding period of 2008. Operating earnings increased 6.5% to $4,611,000 for the six months ended June 30, 2009 compared to $4,329,000 for the comparable period of 2008, resulting in basic and dilutive operating earnings per share increasing 7.1% to $1.20 from $1.12 for the six month periods ended June 30, 2009 and 2008, respectively.
Management uses the non-GAAP measure of net income from core operations, or operating earnings, in its analysis of the Company's performance. This measure, as used by the Company, adjusts net income by excluding significant gains or losses that are unusual in nature. Because certain of these items and their impact on the Company's performance are difficult to predict, management believes the presentation of financial measures excluding the impact of such items provides useful supplemental information in evaluating the operating results of the Company's core businesses. For purposes of this Quarterly Report on Form 10-Q, net income from core operations, or operating earnings, means net income adjusted to exclude after-tax net securities gains or losses. These disclosures should not be viewed as a substitute for net income determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Reconciliation of GAAP and non-GAAP Income
Three Months Ended Six Months Ended
June 30, June 30,
(In Thousands) 2009 2008 2009 2008
GAAP net income 832 2,057 1,671 4,188
Securities losses, net of tax (1,376 ) (166 ) (2,940 ) (141 )
Non-GAAP operating earnings 2,208 2,223 4,611 4,329
|
Interest And Dividend Income
Interest and dividend income for the three months ended June 30, 2009 increased $77,000 to $9,013,000 compared to $8,936,000 for the same period of 2008. The increase in interest income was the result of an increase in loan interest of $103,000 which offset the slight decline in investment securities income of $26,000. The increase in loan interest is the result of growth in the average gross loan portfolio of $26,772,000. The growth offset a decline in the average taxable equivalent yield of 26 basis points ("bp") caused by the low interest rate environment that has existed over the past year. Dividend income decreased as a direct result of the current status of the economy that has caused many of the issuers of equity holdings in our portfolio to decrease or suspend their dividend. In addition, the Federal Home Loan Bank of Pittsburgh ("FHLB") has suspended payment of dividends on shares of its common stock, which resulted in a decrease of approximately $81,000 in dividend income the second quarter of 2009. On a taxable equivalent basis, total interest income increased $143,000 as the tax-exempt loan and investment securities portfolios were able to obtain better yields than in the comparable period of 2008.
During the six months ended June 30, 2009, interest and dividend income was $17,930,000, a decrease of $54,000 over the same period in 2008. Interest income on the loan portfolio remained stable as the growth in the portfolio countered a 44 bp decline in average yield. The investment portfolio interest income was negatively impacted by approximately $160,000 due to the suspension of FHLB dividends which resulted in total interest income from investment securities being flat to the comparable period of 2008. Tax-equivalent interest income increased $69,000 due to better yields on the loan and investment tax-exempt portfolios, an overall increase in earning assets of $17,732,000, and a shift in the earning asset portfolio towards loans from investments.
Interest and dividend income composition for the three and six months ended June 30, 2009 and 2008 was as follows:
For The Three Months Ended
June 30, 2009 June 30, 2008 Change
(In Thousands) Amount % Total Amount % Total Amount %
Loans including fees $ 6,349 70.4 % $ 6,246 69.9 % $ 103 1.6 %
Investment securities:
Taxable 1,374 15.2 1,276 14.3 98 7.7
Tax-exempt 1,249 13.9 1,210 13.5 39 3.2
Dividend and other interest income 41 0.5 204 2.3 (163 ) (79.9 )
Total interest and dividend income $ 9,013 100.0 % $ 8,936 100.0 % $ 77 0.9 %
For The Six Months Ended
June 30, 2009 June 30, 2008 Change
(In Thousands) Amount % Total Amount % Total Amount %
Loans including fees $ 12,568 70.1 % $ 12,625 70.2 % $ (57 ) (0.5 )%
Investment securities:
Taxable 2,737 15.3 2,466 13.7 271 11.0
Tax-exempt 2,495 13.9 2,436 13.6 59 2.4
Dividend and other
interest income 130 0.7 457 2.5 (327 ) (71.6 )
Total interest and
dividend income $ 17,930 100.0 % $ 17,984 100.0 % $ (54 ) (0.3 )%
|
Interest Expense
Interest expense for the three months ended June 30, 2009 decreased $572,000 to $3,208,000 compared to $3,780,000 for the same period of 2008. The decreased expense of $347,000 associated with deposits is primarily the result of a reduction of 110 bp in rates paid on time deposits. Factors that led to the rate decreases include, but are not limited to, Federal Open Market Committee ("FOMC") interest rate actions and campaigns conducted by the Company during the past two years to attract short-term CDs resulting in an increased repricing frequency. Short-term borrowings interest expense decreased $179,000 as the average balance of such borrowings decreased $23,284,000, while the rate paid declined 72 bp. Long-term borrowing interest expense decreased $46,000 as the average balance of such borrowings increased slightly, while the average rate decreased 21 bp to 4.22%. The change in average balance and rate is reflective of various long-term borrowing maturities and acquisitions during 2008.
Interest expense for the six months ended June 30, 2009 decreased $1,659,000 from the same period of 2008. The reasons noted for the decline in interest expense for the three month period comparison also apply to the six month period.
Interest expense composition for the three and six months ended June 30, 2009 and 2008 was as follows:
For The Three Months Ended
June 30, 2009 June 30, 2008 Change
(In Thousands) Amount % Total Amount % Total Amount %
Deposits $ 2,204 68.7 % $ 2,551 67.5 % $ (347 ) (13.6 )%
Short-term borrowings 78 2.4 257 6.8 (179 ) (69.6 )
Long-term borrowings, FHLB 926 28.9 972 25.7 (46 ) (4.7 )
Total interest expense $ 3,208 100.0 % $ 3,780 100.0 % $ (572 ) (15.1 )%
For The Six Months Ended
June 30, 2009 June 30, 2008 Change
(In Thousands) Amount % Total Amount % Total Amount %
Deposits $ 4,209 66.9 % $ 5,092 64.1 % $ (883 ) (17.3 )%
Short-term borrowings 236 3.8 686 8.6 (450 ) (65.6 )
Long-term borrowings, FHLB 1,843 29.3 2,169 27.3 (326 ) (15.0 )
Total interest expense $ 6,288 100.0 % $ 7,947 100.0 % $ (1,659 ) (20.9 )%
|
Net Interest Margin
The net interest margin ("NIM") for the three months ended June 30, 2009 was 4.36% compared to 4.01% for the corresponding period of 2008. The increase in the NIM was driven by a 62 bp decline in the rate paid on interest bearing liabilities that more than compensated for a 6 bp decline in the yield on earning assets. The decrease in earning asset yield is due to the impact on the loan portfolio of the current low rate environment offset in part by an increase in yield for the investment portfolio. The increase in the investment portfolio yield was driven by a strategic initiative to increase tax equivalent net interest income by purchasing tax-exempt and taxable municipal bonds in anticipation of the decreasing rate environment that has continued to date. The decrease in the cost of interest bearing liabilities to 2.50% from 3.12% was driven by a reduction in the rate paid on time deposits of 110 bp. The reduction in the rate paid on time deposits was the result of a shortening of the time deposit portfolio that has resulted in an increasing repricing frequency during this period of decreasing rates.
The NIM for the six months ended June 30, 2009 was 4.42% compared to 3.95% for the same period of 2008. The impact of the items mentioned in the three month discussion also applies to the six month period. A 127 bp decline in the rate paid on time deposits served as the foundation for an 84 bp decline in rate paid on deposits, while the FOMC and general market actions affected the yield on earning assets and cost of borrowings.
The following is a schedule of average balances and associated yields for the three and six months ended June 30, 2009 and 2008:
AVERAGE BALANCES AND INTEREST RATES
Three Months Ended Three Months Ended
June 30, 2009 June 30, 2008
Average Average
(In Thousands) Balance Interest Average Rate Balance Interest Average Rate
Assets:
Tax-exempt loans $ 16,934 $ 271 6.42 % $ 8,506 $ 135 6.31 %
All other loans 377,324 6,170 6.56 % 358,980 6,157 6.82 %
Total loans 394,258 6,441 6.55 % 367,486 6,292 6.81 %
Taxable investment
securities 101,984 1,415 5.55 % 105,295 1,480 5.62 %
Tax-exempt
investment
securities 103,848 1,892 7.29 % 108,670 1,833 6.75 %
Total securities 205,832 3,307 6.43 % 213,965 3,313 6.19 %
Interest bearing
deposits 1,371 - 0.00 % 34 - 0.00 %
Total
interest-earning
assets 601,461 9,748 6.52 % 581,485 9,605 6.58 %
Other assets 55,793 50,186
Total assets $ 657,254 $ 631,671
Liabilities and
shareholders'
equity:
Savings $ 61,383 81 0.53 % $ 61,197 115 0.75 %
Super Now deposits 56,645 131 0.93 % 54,327 183 1.34 %
Money market
deposits 64,374 367 2.29 % 26,803 146 2.17 %
Time deposits 224,918 1,625 2.90 % 209,539 2,107 4.00 %
Total deposits 407,320 2,204 2.17 % 351,866 2,551 2.88 %
Short-term
borrowings 18,035 78 1.73 % 41,319 257 2.45 %
Long-term
borrowings, FHLB 86,778 926 4.22 % 85,789 972 4.43 %
Total borrowings 104,813 1,004 3.79 % 127,108 1,229 3.79 %
Total
interest-bearing
liabilities 512,133 3,208 2.50 % 478,974 3,780 3.12 %
Demand deposits 73,930 73,485
Other liabilities 10,113 9,095
Shareholders'
equity 61,078 70,117
Total liabilities
and shareholders'
equity $ 657,254 $ 631,671
Interest rate
spread 4.02 % 3.46 %
Net interest
income/margin $ 6,540 4.36 % $ 5,825 4.01 %
|
1. Information on this table has been calculated using average daily balance sheets to obtain average balances.
2. Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
3. Income and rates on a fully taxable equivalent basis include an adjustment for the difference between annual income from tax-exempt obligations and the taxable equivalent of such income at the standard 34% tax rate.
AVERAGE BALANCES AND INTEREST RATES
Six Months Ended Six Months Ended
June 30, 2009 June 30, 2008
Average Average
(In Thousands) Balance Interest Average Rate Balance Interest Average Rate
Assets:
Tax-exempt loans $ 16,420 $ 538 6.61 % $ 8,277 $ 262 6.37 %
All other loans 375,687 12,213 6.56 % 356,830 12,453 7.02 %
Total loans 392,107 12,751 6.56 % 365,107 12,715 7.00 %
Taxable securities 101,937 2,867 5.63 % 103,013 2,923 5.68 %
Tax-exempt
securities 102,757 3,780 7.36 % 111,630 3,691 6.61 %
Total securities 204,694 6,647 6.49 % 214,643 6,614 6.16 %
Interest bearing
deposits 700 - 0.00 % 19 - 0.00 %
Total
interest-earning
assets 597,501 19,398 6.53 % 579,769 19,329 6.69 %
Other assets 55,459 49,325
Total assets $ 652,960 $ 629,094
Liabilities and
shareholders'
equity:
Savings $ 60,517 159 0.53 % $ 59,880 224 0.75 %
Super Now deposits 55,276 260 0.95 % 50,347 338 1.35 %
Money market
deposits 52,888 580 2.21 % 25,064 273 2.19 %
Time deposits 215,069 3,210 3.01 % 200,233 4,257 4.28 %
Total Deposits 383,750 4,209 2.21 % 335,524 5,092 3.05 %
Short-term
borrowings 39,641 236 1.19 % 46,216 686 2.95 %
Other borrowings 86,778 1,843 4.22 % 95,661 2,169 4.48 %
Total borrowings 126,419 2,079 3.27 % 141,877 2,855 3.99 %
Total
interest-bearing
liabilities 510,169 6,288 2.48 % 477,401 7,947 3.33 %
Demand deposits 72,633 71,864
Other liabilities 9,870 9,280
Shareholders'
equity 60,288 70,459
Total liabilities
and shareholders'
equity $ 652,960 $ 629,004
Interest rate
spread 4.05 % 3.36 %
Net interest
income/margin $ 13,110 4.42 % $ 11,382 3.95 %
|
1. Information on this table has been calculated using average daily balance sheets to obtain average balances.
2. Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
3. Income and rates on a fully taxable equivalent basis include an adjustment for the difference between annual income from tax-exempt obligations and the taxable equivalent of such income at the standard 34% tax rate.
The following table presents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the three and six months ended June 30, 2009 and 2008.
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(In Thousands) 2009 2008 2009 2008
Total interest income $ 9,013 $ 8,936 $ 17,930 $ 17,984
Total interest expense 3,208 3,780 6,288 7,947
Net interest income 5,805 5,156 11,642 10,037
Tax equivalent adjustment 735 669 1,468 1,345
Net interest income (fully
taxable equivalent) $ 6,540 $ 5,825 $ 13,110 $ 11,382
|
The following table sets forth the respective impact that both volume and rate changes have had on net interest income on a fully taxable equivalent basis for the three month periods ended June 30, 2009 and 2008:
Three Months Ended June 30, Six Months Ended June 30,
2009 vs 2008 2009 vs 2008
Increase (Decrease) Increase (Decrease)
Due to Due to
(In Thousands) Volume Rate Net Volume Rate Net
Interest income:
Loans, tax-exempt $ 134 $ 2 $ 136 $ 256 $ 20 $ 276
Loans 277 (264 ) 13 990 (1,230 ) (240 )
Taxable investment
securities (48 ) (17 ) (65 ) (22 ) (34 ) (56 )
Tax-exempt investment
securities (79 ) 138 59 (401 ) 490 89
Interest bearing
deposits - - - - - -
Total
interest-earning
assets 284 (141 ) 143 823 (754 ) 69
Interest expense:
Savings deposits - (34 ) (34 ) 5 (70 ) (65 )
Super Now deposits 8 (60 ) (52 ) 56 (134 ) (78 )
Money market deposits 213 8 221 302 5 307
Time deposits 142 (624 ) (482 ) 550 (1,597 ) (1,047 )
Short-term borrowings (65 ) (114 ) (179 ) (50 ) (400 ) (450 )
Long-term borrowings,
FHLB 9 (55 ) (46 ) (200 ) (126 ) (326 )
Total
interest-bearing
liabilities 307 (879 ) (572 ) 663 (2,322 ) (1,659 )
Change in net
interest income $ (23 ) $ 738 $ 715 $ 160 $ 1,568 $ 1,728
|
Provision for Loan Losses
The provision for loan losses is based upon management's quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets served. An external independent loan review is also performed annually for the Bank. Management remains committed to an aggressive program of problem loan identification and resolution.
The allowance for loan losses is determined by applying loss factors to outstanding loans by type, excluding loans for which a specific allowance has been determined. Loss factors are based on management's consideration of the nature of the portfolio segments, changes in mix and volume of the loan portfolio, and historical loan loss experience. In addition, management considers industry standards and trends with respect to non-performing loans and its knowledge and experience with specific lending segments.
Although management believes it uses the best information available to make such determinations and that the allowance for loan losses is adequate at June 30, 2009, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy, increased unemployment, and delays in receiving financial information from borrowers could result in increased levels of nonperforming assets, charge-offs, loan loss provisions, and reductions in income. Additionally, as an integral part of the examination process, bank regulatory agencies periodically review the Bank's loan loss allowance. The banking agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.
While determining the appropriate allowance level, management has attributed the allowance for loan losses to various portfolio segments; however, the allowance is available for the entire portfolio as needed.
The allowance for loan losses increased from $4,356,000 at December 31, 2008 to $4,377,000 at June 30, 2009. At June 30, 2009 and December 31, 2008, the allowance for loan losses to total loans was 1.12% and 1.14%, respectively.
The provision for loan losses totaled $186,000 and $312,000 for the three and six months ended June 30, 2009, compared to $60,000 and $120,000 for the same period in 2008. The amount of the increase in the provision was the result of several factors, including but not limited to, an increase in gross loans of $10,596,000 since December 31, 2008, a ratio of net charge offs to average loans of 0.07% for the six months ended June 30, 2009, a ratio of nonperforming loans to total loans of 0.68%, and a ratio of the allowance for loan losses to nonperforming loans of 164.12% at June 30, 2009. As noted in the following schedules, there has been an increase in nonperforming loans and net charge-offs over the past year. The following increases, coupled with the ratios noted previously, dictated an increase in the provision for loan losses: continued uncertainty surrounding the economy and internal loan review and analysis. The increase did not equate to the increase in charge-offs and nonperforming loans due to the well collateralized status of the nonperforming loans and overall loan portfolio in general, which limits the loan specific allocation of the allowance for loan losses.
Following is a table showing the changes in the allowance for loan losses for the six month periods ended June 30, 2009 and 2008:
(In Thousands) 2009 2008 Balance at beginning of period $ 4,356 $ 4,130 Charge-offs: Real estate 192 9 Commercial and industrial 64 31 Installment loans to individuals 90 92 Total charge-offs 346 132 Recoveries: Real estate 8 11 Commercial and industrial - 37 Installment loans to individuals 47 41 Total recoveries 55 89 Net charge-offs 291 43 Additions charged to operations 312 120 . . . |
|
|