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FWV > SEC Filings for FWV > Form 10-Q on 15-May-2013All Recent SEC Filings

Show all filings for FIRST WEST VIRGINIA BANCORP INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for FIRST WEST VIRGINIA BANCORP INC


15-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition

SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)



                                         (Unaudited)
                                      Three Months Ended                              Years ended
                                          March  31,                                  December 31,
                                     2013           2012           2012           2011           2010           2009
SUMMARY OF OPERATIONS
Total interest income              $   2,303      $   2,531      $   9,838      $  11,207      $  11,858      $  12,914
Total interest expense                   387            488          1,789          2,229          3,056          4,328
Net interest income                    1,916          2,043          8,049          8,978          8,802          8,586
Provision for loan losses                 -              -            (248 )          600            220            184
Total other income                       272            308          2,352          2,034          1,977          1,791
Total other expenses                   1,891          1,903          7,604          7,626          7,723          7,592
Income before income taxes               297            448          3,045          2,786          2,836          2,601
Net income                               381            470          2,538          2,454          2,339          2,305
PER SHARE DATA (1)
Net income                         $    0.22      $    0.28      $    1.48      $    1.43      $    1.36      $    1.34
Cash dividends declared                 0.19           0.18           0.73           0.73           0.70           0.70
Book value per share                   20.40          20.12          20.77          20.09          18.10          17.92
AVERAGE BALANCE SHEET SUMMARY
Total loans, net                   $  98,281      $ 107,967        104,566      $ 115,415      $ 124,074      $ 128,206
Investment securities                171,013        145,284        154,755        136,409        116,990        112,142
Deposits - interest bearing          212,806        207,594        208,308        204,616        198,042        190,981
Stockholders' equity                  32,498         31,266         31,608         30,498         29,415         28,192
Total assets                         300,074        289,456        293,601        283,734        273,778        266,414
BALANCE SHEET
Investments                        $ 175,853      $ 161,371        178,208      $ 150,961      $ 133,169      $ 115,997
Loans                                100,806        106,396         99,387        109,428        121,367        128,581
Allowance for loan losses             (2,178 )       (2,497 )       (2,181 )       (2,504 )       (2,059 )       (1,894 )
Other assets                          39,344         35,802         31,133         35,373         25,482         28,447

Total Assets                       $ 313,825      $ 301,072        306,547      $ 293,258      $ 277,959      $ 271,131

Deposits                           $ 250,902      $ 243,792        246,462      $ 239,177      $ 228,475      $ 221,246
Federal funds purchased and
repurchase agreements                 18,155         17,705         18,767         14,013         13,477         11,025
FHLB borrowings                        3,584          3,672          3,606          3,693          3,776          7,354
Other liabilities                      6,127          1,325          2,009          1,848          1,130            700
Stockholders' equity                  35,057         34,578         35,703         34,527         31,101         30,806

Total Liabilities and
Stockholders' equity               $ 313,825      $ 301,072        306,547      $ 293,258      $ 277,959      $ 271,131

SELECTED RATIOS
Return on average assets                0.51 %         0.65 %         0.86 %         0.86 %         0.85 %         0.87 %
Return on average equity                4.75 %         6.05 %         8.03 %         8.05 %         7.95 %         8.18 %
Average equity to average assets       10.83 %        10.80 %        10.77 %        10.75 %        10.74 %        10.58 %
Dividend payout ratio (1)              86.36 %        64.29 %        49.32 %        51.05 %        51.47 %        52.24 %
Loan to Deposit ratio                  40.18 %        43.64 %        40.33 %        45.75 %        53.12 %        58.12 %

(1) Adjusted for the 4 percent common stock dividend to stockholders of record as of December 19, 2012, and the 4 percent common stock dividend to stockholders of record as of December 20, 2010.


Table of Contents

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 March 31, 2013 have remained unchanged from the disclosures presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 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 actual 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 Investment Securities: Investment 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 $381,337 or $.22 per share for the three months ended March 31, 2013 compared to $470,000 or $.28 per share for the same period during 2012. The decrease in net income for the three months ended March 31, 2013 as compared to the same period in 2012 of $88,663 or 18.9% was primarily the result of the decrease in net interest income and noninterest income, offset in part by the decreases in noninterest expenses and income tax expense. Net interest income fell $127,255 or 6.2%, primarily due to the decline in the interest and fees earned on loans combined with the decline in the interest earned on investment securities, offset in part by the reduction in the expense paid on interest bearing liabilities. Noninterest income decreased $35,730 or 11.6% primarily due to the decrease in other operating income combined with the decline in service charges and fees earned on deposit accounts. Noninterest expenses decreased $12,489 or .66% during the three month period ended March 31, 2013 as compared to the same period in 2012 primarily due to the decreases in other operating expenses, as well as decreases in salary and employee benefits expense, offset in part by an increase in occupancy expenses. Income tax expense decreased during the first quarter of 2013 as compared to the same period in 2012 primarily due to the decrease of $150,496 in pre-taxable income combined with the decrease in tax exempt income. The ROA was .51% for the three months ended March 31, 2013 as compared to .65% for the same period of the prior year. For the three months ended March 31, 2013 compared to March 31, 2012, the ROE was 4.75% and 6.05%, respectively. The sections that follow discuss in more detail the information contained in the summary of Selected Financial Data of the Company.


Table of Contents

First West Virginia Bancorp, Inc.

Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

EARNINGS ANALYSIS - For the three months ended March 31, 2013

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 borrowings. 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 One presents the average balance sheets and an interest rate analysis for the three months ended March 31, 2013 and 2012 and the year ended December 31, 2012.

For the three months ended March 31, 2013, net interest income declined $127,255 or 6.2%, from the same period in 2012. The decrease in net interest income was primarily due to the decrease in the interest earned on loans and the interest earned on investment securities, offset in part by 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 a taxable equivalent net yield on average earning assets of 3.30% for the three month period ended March 31, 2013 as compared to 3.58% for the same period in 2012. The average volume of earning assets increased $6.6 million or 2.4% from December 31, 2012 to March 31, 2013.

For the three months ended March 31, 2013, interest and fees on loans decreased $178,397 or 12.2%, from the same period in 2012 primarily due to the decline in the average loan volume combined with the decrease in the yield earned on loans. The taxable equivalent yield on loans fell 17 basis points, to 5.60% for the three month period ended March 31, 2013 as compared to 5.77% for the same period in 2012. The average balance on loans decreased $6.3 million or 6.0% since December 31, 2012 to March 31, 2013.

Interest income on investment securities fell $48,264 or 4.6% during the first quarter of 2013, as compared to the same period of the prior year. The decrease in interest income on investment securities was primarily due to the decline in the yield earned on investment securities, offset in part by the increase in the average volume. The taxable equivalent yield on investment securities declined 59 basis points, to 3.10% during the three month period ended March 31, 2013 as compared to 3.69% for the same period in 2012. The average volume of the investment portfolio increased approximately $16.3 million from December 31, 2012 to March 31, 2013.

Interest expense decreased $101,428 or 20.8% during the three months ended March 31, 2013 as compared to the same period in 2012. The decrease in interest expense was primarily due to the decline in the average yield 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 20 basis points, from .87% during the period ended March 31, 2012 to .67% during the period ended March 31, 2013, while the average volume grew $7.6 million or 3.4% 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 time deposits and savings deposits combined with a reduction in the average yield on FHLB and other long term borrowings.

Noninterest Income

Noninterest income decreased $35,730 or 11.6% for the three months ended March 31, 2013 as compared to the same period of the prior year. The decrease in noninterest income was primarily due to the decrease in other operating income combined with the decline in service charges and other fee income.

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 three month period ended March 31, 2013, other operating income decreased $23,493 or 11.9% compared to the same period in 2012. The decrease in other operating income during the three month period ended March 31, 2013 as compared to the same period in the prior year was primarily due to the decreases in ATM fees, sales of checkbooks, fee income earned on loans sold to the FHLB, credit life commissions and utility bill and collection fees and credit card fees, offset in part by increases in safe deposit box rentals, miscellaneous income and in the earnings related to the cash surrender value of the bank owned life insurance.

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 $12,251 or 11.1%, during the first three months of 2013 as compared to the same period in 2012.

Noninterest Expense

Noninterest expense decreased $12,489 or .66% for the three months ended March 31, 2013 as compared to same period of the prior year. The decrease in noninterest expense was primarily due to decreases in other operating expenses and salary and employee benefits expenses, offset in part by an increase in occupancy expenses. Other operating expense decreased $17,345, or 3.0%, compared to the same period of the prior year. The decrease in other operating expenses was primarily due to decreases in director fees, office supplies, advertising expenses, other taxes and other expenses, offset in part by the increases in regulatory assessments, postage and transportation expenses and service expenses during the three month period ended March 31, 2013 as compared to the same period in 2012.


Table of Contents

First West Virginia Bancorp, Inc.

Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

Table One 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, 2013 and 2012. Average balance sheet information for the periods ended March 31, 2013 and 2012 and 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)
                                                  March 31, 2013                               March 31, 2012
                                       Average                       Average        Average                       Average
                                       Volume         Interest        Rate          Volume         Interest        Rate
ASSETS:
Investment securities:
U.S. Treasury and U. S. Government
agencies                              $  45,981      $      202          1.78 %       34,932      $      180          2.07 %
Mortgage backed securities               76,356             345          1.83 %       68,250             451          2.66 %
States and political subdivisions        48,489             455          3.81 %       41,986             420          4.02 %
Other securities                            187               2          4.34 %          116               1          3.47 %

Total Investment securities:            171,013           1,004          2.38 %      145,284           1,052          2.91 %
Interest bearing deposits                10,494               7          0.27 %       15,805               9          0.23 %
Loans, net of unearned income            98,281           1,288          5.31 %      107,967           1,466          5.46 %
Other earning assets                      1,334               4          1.22 %        1,227               4          1.31 %

Total earning assets                    281,122           2,303          3.32 %      270,283           2,531          3.77 %
Other assets                             21,134                                       21,676
Allowance for loan losses                (2,182 )                                     (2,503 )

Total Assets                          $ 300,074                                      289,456

LIABILITIES
Time deposits                         $  70,564      $      222          1.28 %    $  73,814      $      316          1.72 %
Savings deposits                         94,063              77          0.33 %       88,681              87          0.39 %
Interest bearing demand deposits         48,179              14          0.12 %       45,099              14          0.12 %
Federal funds purchased and
repurchase agreements                    17,744              31          0.71 %       15,412              27          0.70 %
FHLB and other long-term borrowings       3,765              43          4.63 %        3,682              44          4.81 %

Total interest bearing liabilities      234,315             387          0.67 %      226,688             488          0.87 %
Demand deposits                          32,589                                       30,428
Other liabilities                           672                                        1,074

Total Liabilities                       267,576                                      258,190
STOCKHOLDERS' EQUITY                     32,498                                       31,266

Total Liabilities and Stockholders'
Equity                                $ 300,074                                    $ 289,456

Net yield on earning assets                          $    1,916          2.76 %                   $    2,043          3.04 %

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, 2013 and 2012. The effect of this adjustment is presented below.

Investment securities                      $ 171,013     $ 1,307       3.10 %    $ 145,284     $ 1,332       3.69 %
Loans                                         98,281       1,356       5.60 %      107,967       1,548       5.77 %

Total earning assets                       $ 281,122     $ 2,674       3.86 %    $ 270,283     $ 2,893       4.31 %

Taxable equivalent net yield on earning
assets                                                   $ 2,287       3.30 %                  $ 2,405       3.58 %


Table of Contents

First West Virginia Bancorp, Inc.

Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

EARNINGS ANALYSIS - For the three months ended March 31, 2013 (Continued)

Other operating expenses for the three months ended March 31 included the following:

        Unaudited                                       2013          2012
        Directors' fees                               $  25,150     $  29,600
        Stationery and supplies                          35,070        37,043
        Regulatory assessment and deposit insurance      69,316        68,576
        Advertising                                      38,677        49,929
        Postage and transportation                       45,113        40,240
        Other taxes                                      45,627        46,355
        Service expense                                 109,836        91,034
        Other                                           198,206       221,563

        Total                                         $ 566,995     $ 584,340

Salary and employee benefits represent the largest component of noninterest expense. Salary and employee benefits decreased $10,185 or 1.1% for the three months ended March 31, 2013 as compared to the same period in 2012. The decrease in salary and employee benefits expense in 2013 was primarily attributable to reductions in salary expenses, and payroll tax expense offset in part by an increase in employee benefit plan expenses. The Company had 95 full-time equivalent employees at March 31, 2013 and December 31, 2012.

Occupancy expenses increased $15,041 or 3.8% , compared to the same period of the prior year. Occupancy expenses increased for the three months ended March 31, 2013 as compared to the same period in 2012 primarily due to increases in building maintenance expenses, furniture and fixture expenses, depreciation expenses, insurance on bank premises, offset in part by the decrease in other real estate owned expenses and real estate taxes.

Income Taxes

Income tax expense fell during the three month period ended March 31, 2013, decreasing $61,833 compared to the same period in 2012. Income tax expense decreased primarily due to the decrease in pre-taxable income of $150,496 combined with the increase in tax-exempt income during the first three months of 2013 over the same period in 2012. Components of the income tax expense for March 31, 2013 were an income tax benefit of $94,230 for federal taxes and an income tax expense of $10,114 for West Virginia corporate net income taxes. Federal income tax rates remain consistent at 34% for the three months ended March 31, 2013 and 2012 and for the year ended December 31, 2012. West Virginia corporate net income tax rates were 7.75% for the three months ended March 31, 2013 and 2012 and for the year ended December 31, 2012.

Balance Sheet Analysis

Investments

Investment securities decreased approximately $2.4 million or 1.3% from December 31, 2012 to March 31, 2013. 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. Government agency and corporation securities, obligations of states and political subdivisions, corporate debt securities, mortgage-backed securities and equity securities. Taxable securities comprised 69.5% of total securities at March 31, 2013, as compared to 70.8% at December 31, 2012. Other than the normal risks inherent in purchasing 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 stockholders' equity until realized. Available for sale securities, at fair value, decreased 1.3% from December 31, 2012 and represented 100% of the investment portfolio at March 31, 2013. The decrease in the available for sale securities was primarily due to the maturities of obligations of U.S. Government agency and corporation securities and mortgage backed securities, offset in part by purchase of obligations of states and political subdivisions. The Company did not have any investment securities classified as held to maturity securities at March 31, 2013 and December 31, 2012. As the investment portfolio consists primarily of fixed rate debt securities, changes in the market rates of interest will affect the carrying value of securities available for sale, adjusted upward or downward and represent temporary adjustments in value. The carrying values of securities available for sale was above book value by $3,894,350 and $5,017,577 at March 31, 2013 and December 31, 2012, respectively.


Table of Contents

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