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| FWV > SEC Filings for FWV > Form 10-Q on 14-Aug-2012 | All Recent SEC Filings |
14-Aug-2012
Quarterly Report
Table One
SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)
Three Months Ended Six Months Ended Years ended
June 30, June 30, December 31,
2012 2011 2012 2011 2011 2010 2009
SUMMARY OF OPERATIONS
Total interest income $ 2,489 $ 2,883 $ 5,020 $ 5,744 11,207 11,858 $ 12,914
Total interest expense 458 562 946 1,164 2,229 3,056 4,328
Net interest income 2,031 2,321 4,074 4,580 8,978 8,802 8,586
Provision for loan losses - 570 - 600 600 220 184
Total other income 658 546 966 832 2,034 1,977 1,791
Total other expenses 1,929 1,908 3,833 3,811 7,626 7,723 7,592
Income before income taxes 760 389 1,207 1,001 2,786 2,836 2,601
Net income 670 409 1,140 959 2,454 2,339 2,305
PER SHARE DATA (1)
Net income $ 0.41 $ 0.25 $ 0.69 $ 0.58 1.48 1.42 $ 1.39
Cash dividends declared 0.19 0.19 0.38 0.38 0.76 0.73 0.73
Book value per share 21.32 19.49 21.32 19.49 20.89 18.82 18.64
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 106,059 $ 116,006 $ 107,014 $ 117,775 115,415 124,074 $ 128,206
Investment securities 155,019 136,513 150,152 133,387 136,409 116,990 112,142
Deposits - interest bearing 208,169 205,421 207,881 204,462 204,616 198,042 190,981
Stockholders' equity 31,412 30,456 31,347 30,267 30,498 29,415 28,192
Total assets 293,694 283,943 291,583 281,816 283,734 273,778 266,414
SELECTED RATIOS
Return on average assets 0.92 % 0.58 % 0.79 % 0.69 % 0.86 % 0.85 % 0.87 %
Return on average equity 8.58 % 5.39 % 7.31 % 6.39 % 8.05 % 7.95 % 8.18 %
Average equity to average assets 10.70 % 10.73 % 10.75 % 10.74 % 10.75 % 10.74 % 10.58 %
Dividend payout ratio (1) 46.34 % 76.00 % 55.07 % 65.52 % 51.35 % 51.41 % 52.52 %
Loan to Deposit ratio 44.09 % 50.36 % 44.09 % 50.36 % 45.75 % 53.12 % 58.12 %
June 30, December 31,
2012 2011 2011 2010 2009
BALANCE SHEET
Investments $ 164,344 $ 140,908 $ 150,961 $ 133,169 $ 115,997
Loans 105,470 117,248 109,428 121,367 128,581
Allowance for loan losses (2,514 ) (2,529 ) (2,504 ) (2,059 ) (1,894 )
Other assets 28,223 28,570 35,373 25,482 28,447
Total Assets $ 295,523 $ 284,197 $ 293,258 $ 277,959 $ 271,131
Deposits $ 239,236 $ 232,828 $ 239,177 $ 228,475 $ 221,246
Federal funds purchased and
repurchase agreements 16,440 14,591 14,013 13,477 11,025
FHLB borrowings 3,650 3,735 3,693 3,776 7,354
Other liabilities 956 829 1,848 1,130 700
Stockholders' equity 35,241 32,214 34,527 31,101 30,806
Total Liabilities and
Stockholders' equity $ 295,523 $ 284,197 $ 293,258 $ 277,959 $ 271,131
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(1) Adjusted for the 4 percent common stock dividend to stockholders of record as of December 20, 2010 and the 4 percent common stock dividend to shareholders of record on October 1, 2008.
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
The following discussion and analysis provides further detail to the financial condition and results of operations of the Company. The section should be read in conjunction with the notes and financial statements presented elsewhere in this report.
The Company's critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 30, 2012 have remained unchanged from the disclosures presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 under the section "Management's Discussion and Analysis of Financial Condition and Results of 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. Investors are cautioned that forward-looking statements, which are not historical fact, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements, including without limitation, the effect of changing regional and national economic conditions; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and associated interest rate sensitivity; sources of liquidity available to the parent company and its related subsidiary operations; potential future credit losses and the credit risk of commercial, real estate, and consumer loan customers and their borrowing activities; actions of the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and other regulatory bodies; potential legislative and federal and state regulatory actions and reform; competitive conditions in the financial services industry; rapidly changing technology affecting financial services, and/or other external developments materially impacting the Company's operational and financial performance. The Company does not assume any duty to update forward-looking statements.
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 $1,140,034 or $.69 per share for the six months ended June 30, 2012 compared to $959,042 or $.58 per share for the same period during 2011. The increase in net income for the six months ended June 30, 2012 as compared to the same period in 2011 of $180,992 or 18.9% was primarily the result of the increase in noninterest income combined with the decrease in the provision for loan losses, offset in part by the decrease in net interest income and the increases in noninterest expenses and in income tax expense. Noninterest income increased $133,950 or 16.1% primarily due to the increase in the net gains on sales of investment securities combined with the increase in other operating income, which were offset in part by the decline in service charges and fees earned on deposit accounts. The provision for loan losses decreased $600,000 during the six month period ended June 30, 2012 as compared to the same period in 2011 primarily due to a specific reserve allocation for one impaired commercial real estate loan in 2011. Net interest income decreased $506,299 or 11.1%, primarily due to the decrease in the interest earned on investment securities and in the interest and fees earned on loans offset in part by the decrease in the interest expense paid on interest bearing liabilities. Noninterest expenses increased $21,731 or .6% during the six month period ended June 30, 2012 as compared to the same period in 2011 primarily due to the increase in occupancy expenses, offset in part by the decreases in salary and employee benefits expenses and other operating expenses. The ROA was .79% for the six months ended June 30, 2012 as compared to .69% for the same period of the prior year. For the six months ended June 30, 2012 compared to June 30, 2011, the ROE was 7.31% and 6.39%, respectively.
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
For the second quarter of 2012, net income was $670,034 or $.41 per share as compared to $409,135 or $.25 per share for the same period in 2011. The increase in net income for the three months ended June 30, 2012 as compared to the same period in 2011 of $260,899 or 63.8% was primarily the result of the increase in noninterest income combined with the decrease in the provision for loan losses, offset in part by the decreases in net interest income and the increase in noninterest expenses and in income tax expense. Net interest income decreased $289,788 or 12.5%, primarily due to the decrease in the interest earned on investment securities and in the interest and fees earned on loans offset in part by the decrease in the interest expense paid on interest bearing liabilities. The provision for loan losses decreased $570,000 during the three month period ended June 30, 2012 as compared to the same period in 2011 primarily due to a specific reserve allocation for one impaired commercial real estate loan in 2011. Noninterest income increased $112,463 or 20.6% for the three months ended June 30, 2012 as compared to same period of the prior year and was primarily due to the increase in the net gains on sales of investment securities combined with the increase in other operating income, which were offset in part by the decline in service charges and fees earned on deposit accounts. Noninterest expenses increased $22,169 or 1.2% during the three month period ended June 30, 2012 as compared to the same period in 2011 primarily due to the increases in occupancy expenses and in other operating expenses, offset by the decline in salary and employee benefits expenses.
The sections that follow discuss in more detail the information contained in the summary of Selected Financial Data of the Company.
EARNINGS ANALYSIS - For the six months ended June 30, 2012
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 six months ended June 30, 2012 and 2011.
For the six months ended June 30, 2012, net interest income was $4,073,778, a decrease of $506,299 or 11.1%, from the same period in 2011. Net interest income declined primarily due to the decrease in the taxable equivalent net yield on earning assets offset in part by the increase in average volume of earning assets. The taxable equivalent net yield on earning assets decreased from 4.01% at June 30, 2011 to 3.54% at June 30, 2012. The average earning assets increased approximately $9.5 million or 3.6% from June 30, 2011 to 2012.
Interest income on investment securities during the first six months of 2012 fell $282,123 or 11.8% as compared to the same period of the prior year. The decrease in interest income on investment securities during the first six months of 2012 was primarily due to the decline in the yields earned which was partially offset by a rise in the average volume. The taxable equivalent yield on investment securities fell 53 basis points in 2012, from 4.13% at December 31, 2011 to 3.60% at June 30, 2012 and decreased 75 basis points from June 30, 2011. The average volume of investment securities have increased approximately $13.7 million or 10.1% since December 31, 2011.
Interest and fees on loans decreased $447,719 or 13.5%, from the same period in 2011 primarily due to the decrease in the average loan volume combined with the decline in the average yield on loans. The taxable equivalent yield on loans fell 22 basis points in 2012 from 5.93% at December 31, 2011 to 5.71% at June 30, 2012 and fell 30 basis points from June 30, 2011. The average loan volume decreased approximately $8.4 million or 7.3% since December 31, 2011.
During the six months ended June 30, 2012, interest expense declined $217,956 or 18.7% as compared to the same period in 2011. The decrease in the average yield paid on interest bearing liabilities, partially offset by an increase in the average volume of interest bearing liabilities primarily contributed to the decrease in interest expense during the six month period ended June 30, 2012. The average yield paid on interest bearing liabilities fell 16 basis points from 1.00% at December 31, 2011 to .84% at June 30, 2012 and decreased 22 basis points since June 30, 2011. The average volume of interest bearing liabilities increased approximately $4.7 million or 2.1% since December 31, 2011.
Noninterest Income
Noninterest income increased $133,950 or 16.1% for the six months ended June 30, 2012 as compared to same period of the prior year. The increase in noninterest income was primarily due to the increase in the net gains on sales of investment securities combined with the increase in other operating income, offset in part by the decline in service charges and other fee income.
The net gains on investment securities increased $74,403 or 27.8% for the six month period ended June 30, 2012 as compared to the same period in 2011. The increase in net gains 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 $9.6 million of mortgage-backed investment securities during the second quarter of 2012 in order to reinvest into mortgage backed investment securities with a slower more stable cash flow for the current market interest rate environment. The Company's subsidiary bank sold approximately $12.7 million of investment securities during the second quarter of 2011 to take advantage of the current market interest rate environment. The Company accounted for securities gains of $342,594 and securities losses of $315 during the six month period ended June 30, 2012 and securities gains of $283,795 and securities losses of $15,919 during the six month period ended June 30, 2011.
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 six month period ended June 30, 2012, other operating income increased $61,910 or 18.5% compared to the same period in 2011. The increase in other operating income was primarily due to increases in ATM fees and FHLB fee income, a gain on sale of other real estate owned and in the earnings related to the cash surrender value of the bank owned life insurance on its key officers, offset in part by decreases in checkbook sales and credit card fees other miscellaneous income.
Service charges and other fees represent charges that are earned from assessments made on checking and savings accounts. Service charges and other fee income fell $2,363 in the first six months of 2012 as compared to the same period in 2011, down 1.0%, from 2011.
First West Virginia Bancorp, Inc.
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 six months ended June 30, 2012 and 2011. Average balance sheet information for the periods ended June 30, 2012 and 2011 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 six months ended For the six months ended
June 30, 2012 June 30, 2011
Average Average Average Average
Volume Interest Rate Volume Interest Rate
ASSETS:
Investment securities:
U.S. Treasury and U. S. Government
agencies $ 35,914 $ 354 1.98 % $ 37,494 $ 555 2.99 %
Mortgage backed securities 70,913 904 2.56 % 61,184 1,125 3.71 %
States and political subdivisions 43,211 856 3.98 % 34,505 715 4.18 %
Other securities 114 1 1.76 % 204 2 1.98 %
Total Investment securities: 150,152 2,115 2.83 % 133,387 2,397 3.62 %
Interest bearing deposits 14,561 18 0.25 % 10,888 13 0.24 %
Loans, net of unearned income 107,014 2,879 5.41 % 117,775 3,327 5.70 %
Other earning assets 1,239 8 1.30 % 1,369 7 1.03 %
Total earning assets 272,966 5,020 3.70 % 263,419 5,744 4.40 %
Other assets 21,120 20,416
Allowance for loan losses (2,503 ) (2,019 )
Total Assets $ 291,583 $ 281,816
LIABILITIES
Time deposits $ 73,275 $ 612 1.68 % $ 77,701 $ 788 2.05 %
Savings deposits 89,727 164 0.37 % 82,298 203 0.50 %
Interest bearing demand deposits 44,879 27 0.12 % 44,463 33 0.15 %
Federal funds purchased and
repurchase agreements 16,184 56 0.70 % 13,825 51 0.74 %
FHLB and other long-term borrowings 3,671 87 4.77 % 3,755 89 4.78 %
Total interest bearing liabilities 227,736 946 0.84 % 222,042 1,164 1.06 %
Demand deposits 31,502 28,652
Other liabilities 998 855
Total Liabilities 260,236 251,549
STOCKHOLDERS' EQUITY 31,347 30,267
Total Liabilities and Stockholders'
Equity $ 291,583 $ 281,816
Net yield on earning assets $ 4,074 3.00 % $ 4,580 3.51 %
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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 six months ended June 30, 2012 and 2011, respectively. The effect of this adjustment is presented below.
Investment securities $ 150,152 $ 2,686 3.60 % $ 133,387 $ 2,875 4.35 % Loans 107,014 3,039 5.71 % 117,775 3,512 6.01 % Total earning assets $ 272,966 $ 5,751 4.24 % $ 263,419 $ 6,407 4.90 % Taxable equivalent net yield on earning assets $ 4,805 3.54 % $ 5,243 4.01 % |
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
EARNINGS ANALYSIS - For the six months ended June 30, 2012 (continued)
Noninterest Expense
Noninterest expense increased $21,731 or .6% for the six months ended June 30, 2012 as compared to same period of the prior year. The increase in noninterest expense was primarily due to the increase in occupancy expenses, offset in part by decreases in salary and employee benefits expenses and in other operating expenses.
Net occupancy expenses of premises increased $53,620 or 7.6% during the six months ended June 30, 2012 compared to the same period in 2011. Increases in real estate taxes, building and land lease expense, furniture and fixture depreciation expenses, and utilities, offset in part by the decline in banking house expenses and the decline in expenses associated with other real estate owned property contributed to the increase in occupancy expenses in 2012 as compared to 2011.
Other operating expenses for the six months ended June 30 included the following:
Net Increase Percent Increase
Unaudited 2012 2011 (Decrease) (Decrease)
Directors' fees $ 54,350 $ 58,050 $ (3,700 ) (6.4 )%
Stationery and supplies 76,165 76,901 (736 ) (1.0 )%
Regulatory assessment and deposit
insurance 135,577 208,303 (72,726 ) (34.9 )%
Advertising 107,073 58,369 48,704 83.4 %
Postage and transportation 85,618 87,263 (1,645 ) (1.9 )%
Other taxes 101,052 94,278 6,774 7.2 %
Service expense 221,450 190,822 30,628 16.1 %
Other 436,654 459,619 (22,965 ) (5.0 )%
. . .
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