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| FWV > SEC Filings for FWV > Form 10-Q on 13-Nov-2012 | All Recent SEC Filings |
13-Nov-2012
Quarterly Report
Table One
SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended Years ended
September 30, September 30, December 31,
2012 2011 2012 2011 2011 2010 2009
SUMMARY OF OPERATIONS
Total interest income $ 2,455 $ 2,807 $ 7,475 $ 8,551 11,207 11,858 $ 12,914
Total interest expense 430 546 1,377 1,710 2,229 3,056 4,328
Net interest income 2,025 2,261 6,098 6,841 8,978 8,802 8,586
Provision for loan losses - - - 600 600 220 184
Total other income 307 722 1,273 1,554 2,034 1,977 1,791
Total other expenses 1,870 1,894 5,702 5,705 7,626 7,723 7,592
Income before income taxes 462 1,089 1,669 2,090 2,786 2,836 2,601
Net income 483 859 1,623 1,818 2,454 2,339 2,305
PER SHARE DATA (1)
Net income $ 0.29 $ 0.52 $ 0.98 $ 1.10 1.48 1.42 $ 1.39
Cash dividends declared 0.19 0.19 0.57 0.57 0.76 0.73 0.73
Book value per share 21.75 20.47 21.75 20.47 20.89 18.82 18.64
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 103,539 $ 115,559 $ 105,846 $ 117,036 115,415 124,074 $ 128,206
Investment securities 158,684 135,203 153,017 133,999 136,409 116,990 112,142
Deposits - interest bearing 208,335 206,508 208,034 205,152 204,616 198,042 190,981
Stockholders' equity 31,747 30,514 31,481 30,351 30,498 29,415 28,192
Total assets 294,328 286,100 292,505 283,260 283,734 273,778 266,414
SELECTED RATIOS
Return on average assets 0.65 % 1.19 % 0.74 % 0.86 % 0.86 % 0.85 % 0.87 %
Return on average equity 6.05 % 11.17 % 6.89 % 8.01 % 8.05 % 7.95 % 8.18 %
Average equity to average assets 10.79 % 10.67 % 10.76 % 10.71 % 10.75 % 10.74 % 10.58 %
Dividend payout ratio (1) 65.52 % 36.54 % 58.16 % 51.82 % 51.35 % 51.41 % 52.52 %
Loan to Deposit ratio 42.09 % 48.54 % 42.09 % 48.54 % 45.75 % 53.12 % 58.12 %
September 30, December 31,
2012 2011 2011 2010 2009
BALANCE SHEET
Investments $ 166,464 $ 143,207 $ 150,961 $ 133,169 $ 115,997
Loans 100,726 114,286 109,428 121,367 128,581
Allowance for loan losses (2,513 ) (2,525 ) (2,504 ) (2,059 ) (1,894 )
Other assets 36,335 36,900 35,373 25,482 28,447
Total Assets $ 301,012 $ 291,868 $ 293,258 $ 277,959 $ 271,131
Deposits $ 239,321 $ 235,460 $ 239,177 $ 228,475 $ 221,246
Federal funds purchased and
repurchase agreements 18,570 16,912 14,013 13,477 11,025
FHLB borrowings 3,628 3,714 3,693 3,776 7,354
Other liabilities 3,537 1,955 1,848 1,130 700
Stockholders' equity 35,956 33,827 34,527 31,101 30,806
Total Liabilities and
Stockholders' equity $ 301,012 $ 291,868 $ 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 September 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 $1,622,860 or $.98 per share for the nine months ended September 30, 2012 compared to $1,817,974 or $1.10 per share for the same period during 2011. The decrease in net income for the nine months ended September 30, 2012 as compared to the same period in 2011 of $195,114 or 10.7% was primarily the result of the decrease in net interest income combined with the decrease in noninterest income, offset in part by the decrease in the provision for loan losses and in noninterest expenses and income tax expense. Net interest income decreased $742,622 or 10.9%, primarily due to decreases in the interest and fees earned on loans and in the interest earned on investment securities, offset in part by the decrease in the interest expense paid on interest bearing liabilities. Noninterest income decreased $281,395 or 18.1% primarily due to the decrease in the net gains on sales of investment securities combined with the decline in service charges and fees earned on deposit accounts, which were offset in part by the increase in other operating income. The provision for loan losses decreased $600,000 during the nine month period ended September 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 expenses decreased $2,644 or .1% during the nine month period ended September 30, 2012 as compared to the same period in 2011 primarily due to decreases in salary and employee benefits expenses and other operating expenses, offset in part by the increase in occupancy expenses. The ROA was .74% for the nine months ended September 30, 2012 as compared to .86% for the same period of the prior year. For the nine months ended September 30, 2012 compared to September 30, 2011, the ROE was 6.89% and 8.01%, respectively.
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
For the third quarter of 2012, net income was $482,826 or $.29 per share as compared to $858,932 or $.52 per share for the same period in 2011. The decrease in net income for the three months ended September 30, 2012 as compared to the same period in 2011 of $376,106 or 43.8% was primarily the result of the decrease in noninterest income combined with the decrease in net interest income, offset in part by the decrease in the provision for loan losses and the decrease in noninterest expenses and in income tax expense. Noninterest income fell $415,345 or 57.5% for the three months ended September 30, 2012 as compared to same period of the prior year and was primarily due to the decrease in the net gains on sales of investment securities combined with declines in other operating income and in service charges and fees earned on deposit accounts. Net interest income decreased $236,323 or 10.5%, primarily due to the decrease in the interest and fees earned on loans and in the interest earned on investment securities, offset in part by the decrease in the interest expense paid on interest bearing liabilities. There was no change in the provision for loan losses during the three month period ended September 30, 2012 as compared to the same period in 2011. Noninterest expenses decreased $24,375 or 1.3% during the three month period ended September 30, 2012 as compared to the same period in 2011 primarily due to the decline in salary and employee benefits expenses, offset by the increases in occupancy expenses and in other operating 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 nine months ended September 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 nine months ended September 30, 2012 and 2011.
For the nine months ended September 30, 2012, net interest income was $6,098,357, a decrease of $742,622 or 10.9%, from the same period in 2011. Net interest income declined primarily due to the decrease in the 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 44 basis points from 3.95% at September 30, 2011 to 3.51% at September 30, 2012. The average earning assets increased approximately $9.1 million or 3.4% from September 30, 2011 to 2012.
Interest income on investment securities during the first nine months of 2012 fell $402,920 or 11.3% as compared to the same period of the prior year. The decrease in interest income on investment securities during the first nine 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 62 basis points in 2012, from 4.13% at December 31, 2011 to 3.51% at September 30, 2012 and decreased 75 basis points from September 30, 2011. The average volume of investment securities have increased approximately $16.6 million or 12.2% since December 31, 2011.
Interest and fees on loans decreased $676,339 or 13.6%, 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 23 basis points in 2012 from 5.93% at December 31, 2011 to 5.70% at September 30, 2012 and fell 27 basis points from September 30, 2011. The average loan volume decreased approximately $9.6 million or 8.3% since December 31, 2011.
During the nine months ended September 30, 2012, interest expense declined $333,417 or 19.5% 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 nine month period ended September 30, 2012. The average yield paid on interest bearing liabilities fell 20 basis points from 1.00% at December 31, 2011 to .80% at September 30, 2012. The average volume of interest bearing liabilities increased approximately $5.6 million or 2.5% since December 31, 2011.
Noninterest Income
Noninterest income decreased $281,395 or 18.1% for the nine months ended September 30, 2012 as compared to same period of the prior year. The decrease in noninterest income was primarily due to the decrease in the net gains on sales of investment securities combined with the decline in service charges and other fee income, offset in part by the increase in other operating income.
The net gains on investment securities decreased $299,047 or 46.5% for the nine month period ended September 30, 2012 as compared to the same period in 2011. The change 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 $17.7 million of investment securities during the first nine months of 2011 to take advantage of the current market interest rate environment. The Company accounted for securities gains of $344,265 and securities losses of $315 during the nine month period ended September 30, 2012 and securities gains of $659,008 and securities losses of $16,011 during the nine month period ended September 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 nine month period ended September 30, 2012, other operating income increased $34,584 or 6.3% 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 the gains on sales of mortgage servicing rights, checkbook sales, safe deposit box rent and filing fee 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 $16,932 in the first nine months of 2012 as compared to the same period in 2011, down 4.7%, 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 nine months ended September 30, 2012 and 2011. Average balance sheet information for the periods ended September 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 nine months ended For the nine months ended
September 30, 2012 September 30, 2011
Average Average Average Average
Volume Interest Rate Volume Interest Rate
ASSETS:
Investment securities:
U.S. Treasury and U. S.
Government agencies $ 37,586 $ 539 1.92 % $ 38,025 $ 834 2.93 %
Mortgage backed securities 71,587 1,321 2.46 % 60,667 1,622 3.57 %
States and political
subdivisions 43,732 1,295 3.96 % 35,099 1,101 4.19 %
Other securities 112 2 2.39 % 208 3 1.93 %
Total Investment securities: 153,017 3,157 2.76 % 133,999 3,560 3.55 %
Interest bearing deposits 13,633 24 0.24 % 12,310 22 0.24 %
Loans, net of unearned income 105,846 4,282 5.40 % 117,036 4,958 5.66 %
Other earning assets 1,246 12 1.29 % 1,338 11 1.10 %
Total earning assets 273,742 7,475 3.65 % 264,683 8,551 4.32 %
Other assets 21,270 20,770
Allowance for loan losses (2,507 ) (2,193 )
Total Assets $ 292,505 $ 283,260
LIABILITIES
Time deposits $ 72,391 $ 876 1.62 % $ 77,154 $ 1,152 2.00 %
Savings deposits 90,226 241 0.36 % 83,126 295 0.47 %
Interest bearing demand
deposits 45,417 42 0.12 % 44,872 50 0.15 %
Federal funds purchased and
repurchase agreements 16,906 87 0.69 % 14,249 79 0.74 %
FHLB and other long-term
borrowings 3,660 131 4.78 % 3,744 134 4.79 %
Total interest bearing
liabilities 228,600 1,377 0.80 % 223,145 1,710 1.02 %
Demand deposits 31,464 28,864
Other liabilities 960 900
Total Liabilities 261,024 252,909
STOCKHOLDERS' EQUITY 31,481 30,351
Total Liabilities and
Stockholders' Equity $ 292,505 $ 283,260
Net yield on earning assets $ 6,098 2.98 % $ 6,841 3.46 %
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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, 2012 and 2011, respectively. The effect of this adjustment is presented below.
Investment securities $ 153,017 $ 4,020 3.51 % $ 133,999 $ 4,270 4.26 % Loans 105,846 4,518 5.70 % 117,036 5,227 5.97 % Total earning assets $ 273,742 $ 8,574 4.18 % $ 264,683 $ 9,530 4.81 % Taxable equivalent net yield on earning assets $ 7,197 3.51 % $ 7,820 3.95 % |
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
EARNINGS ANALYSIS - For the nine months ended September 30, 2012 (continued)
Noninterest Expense
Noninterest expense decreased $2,644 or .1% for the nine months ended September 30, 2012 as compared to same period of the prior year. The decrease in noninterest expense was primarily due to the decreases in salary and employee benefits expenses and in other operating expenses, offset in part by an increase in occupancy expenses.
Salary and employee benefits expenses fell $55,478 or 2.0% during the nine months ended September 30, 2012 over the same period in 2011. Salary and employee benefit expense in 2012 compared to 2011 decreased primarily as a result of a reduction in salary expenses, offset in part by increases in employee benefits expenses and payroll taxes.
Other operating expenses for the nine months ended September 30 included the following:
Net Increase Percent Increase
(Unaudited) 2012 2011 (Decrease) (Decrease)
Directors' fees $ 77,700 $ 84,150 $ (6,450 ) (7.7 )%
Stationery and supplies 127,958 113,030 14,928 13.2 %
Regulatory assessment and
deposit insurance 203,671 279,175 (75,504 ) (27.0 )%
Advertising 162,372 98,649 63,723 64.6 %
Postage and transportation 122,016 122,921 (905 ) (0.7 )%
Other taxes 126,322 129,430 (3,108 ) (2.4 )%
Service expense 356,172 289,953 66,219 22.8 %
Other 592,948 662,551 (69,603 ) (10.5 )%
Total $ 1,769,159 $ 1,779,859 $ (10,700 ) (0.6 )%
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