EXHIBIT 13.1
Annual Report to Shareholders
(FIRST WEST VIRGINIA BANCORP LETTERHEAD)
P.O. Box 6671
Wheeling, WV 26003
TO OUR SHAREHOLDERS:
I am pleased for the opportunity to present you with the financial performance contained in the 2005 Annual Report of First West Virginia Bancorp, Inc. Consolidated net income for 2005 was $2,262,265 or $1.48 per share, as compared to $2,637,325 or $1.73 per share a year earlier. Total assets for the Holding Company decreased 4.9% over the prior year to $266,213,400 at December 31, 2005 as compared to $279,801,745 at December 31, 2004. Total stockholders’ equity increased to $23,958,629 as compared to $23,953,036 reported in 2004. The book value per share was $15.68 at December 31, 2005 as compared to $15.67 a year earlier.
The Board of Directors declared and paid cash dividends of $.76 per share during 2005 and 2004.
The Company continues to make great strides in addressing the December, 2004 Formal Agreement between the Company’s subsidiary bank, Progressive Bank, N.A. and the Office of the Comptroller of the Currency. One part of the Formal Agreement required the Company’s subsidiary bank to achieve and maintain Tier 1 leverage and capital ratios of 7.5% and 13.0%, respectively. I am delighted to report that Progressive Bank’s capital ratios have exceeded the required minimums set forth in the agreement since June, 2005. The Board of Directors, as well as bank management, has taken considerable steps over the past year in resolving all of the items set forth in the agreement. Increased expenses in complying with the agreement had a material impact on the Company’s earnings throughout 2005. To this effort, it is with great resolve and determination, that we efficiently complete the requirements of the agreement and maintain our reputation as a strong and highly respected financial institution in the community.
Also, during the third quarter of 2005, our subsidiary bank entered into an agreement with the Federal Home Loan Bank of Pittsburgh to initiate the underwriting of secondary market loans. With the implementation of this program we believe our bank will remain competitive in the home mortgage market area.
Furthermore, Thomas L. Sable and Gary W. Glessner were added as directors to the Board of Directors of First West Virginia Bancorp, Inc. Mr. Sable is the owner of Bellaire Hardware and is a managing partner of The Summit Atlantic Group, LLC. He previously served on the board of directors of Farmers and Merchants Bank from 1989 to 1997 until the bank merged with Progressive Bank, N.A. and has served as a director on Progressive Bank’s board since the merger. Mr. Glessner is a Certified Public Accountant and is President/Owner of Glessner & Associates, PLLC, a local public accounting firm. He is also a registered representative with HD Vest Financial Services, a subsidiary of Wells Fargo Bank and is a licensed life and health insurance agent. We are certain their expertise and professionalism will augment our Board.
Once again it is with my sincere gratitude and deep appreciation I acknowledge our officers and employees for their passion, dedication, and perseverance demonstrated throughout the year. The loyalty of our customers, commitment and tenaciousness of our Board, and loyal support of our shareholders enabled us to accomplish many goals this year. We greet year 2006 with much confidence and vigor and anticipate emerging much stronger with a very defined vision and solid mission for our Company.
| Sincerely, |
| Sylvan J. Dlesk |
| Chairman of the Board |
| Interim President and Chief Executive Officer |
First West Virginia Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| ASSETS | ||||||||
Cash and due from banks | $ | 5,929,513 | $ | 5,474,000 | ||||
Due from banks - interest bearing | 1,066,142 | 491,166 | ||||||
Federal funds sold | 4,753,000 | 2,155,000 | ||||||
Total cash and cash equivalents | 11,748,655 | 8,120,166 | ||||||
Investment securities: | ||||||||
Available-for-sale (at fair value) | 106,222,137 | 103,736,472 | ||||||
Held-to-maturity (fair value of $1,810,834 and $2,927,330, respectively) | 1,776,295 | 2,824,579 | ||||||
Loans | 135,214,258 | 154,331,037 | ||||||
Less allowance for loan losses | (2,319,871 | ) | (2,356,101 | ) | ||||
Net loans | 132,894,387 | 151,974,936 | ||||||
Premises and equipment, net | 4,166,929 | 3,855,870 | ||||||
Accrued income receivable | 1,255,328 | 1,259,205 | ||||||
Other intangible assets | 192,295 | 281,046 | ||||||
Goodwill | 1,644,119 | 1,644,119 | ||||||
Bank owned life insurance | 3,193,977 | 3,080,724 | ||||||
Other assets | 3,119,278 | 3,024,628 | ||||||
Total assets | $ | 266,213,400 | $ | 279,801,745 | ||||
| LIABILITIES | ||||||||
Noninterest bearing deposits: | ||||||||
Demand | $ | 26,044,841 | $ | 26,288,924 | ||||
Interest bearing deposits: | ||||||||
Demand | 36,891,497 | 37,493,712 | ||||||
Savings | 70,288,524 | 86,900,317 | ||||||
Time | 85,592,439 | 85,488,054 | ||||||
Total deposits | 218,817,301 | 236,171,007 | ||||||
Federal funds purchased and securities sold under agreements to repurchase | 19,084,324 | 15,759,200 | ||||||
Federal Home Loan Bank borrowings | 2,384,893 | 2,425,111 | ||||||
Other long-term borrowings | 1,000,000 | — | ||||||
Accrued interest payable | 404,372 | 349,357 | ||||||
Other liabilities | 563,881 | 1,144,034 | ||||||
Total liabilities | 242,254,771 | 255,848,709 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
Common stock - 2,000,000 shares authorized at $5 par value: | ||||||||
1,538,443 shares issued at December 31, 2005 and 2004 | 7,692,215 | 7,692,215 | ||||||
Treasury stock - 10,000 shares at cost: | (228,100 | ) | (228,100 | ) | ||||
Surplus | 4,982,606 | 4,982,606 | ||||||
Retained earnings | 12,538,056 | 11,437,407 | ||||||
Accumulated other comprehensive income (loss) | (1,026,148 | ) | 68,908 | |||||
Total stockholders’ equity | 23,958,629 | 23,953,036 | ||||||
Total liabilities and stockholders’ equity | $ | 266,213,400 | $ | 279,801,745 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
2
First West Virginia Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
| Year Ended December 31, | |||||||||
| 2005 | 2004 | 2003 | |||||||
| INTEREST AND DIVIDEND INCOME | |||||||||
Loans, including fees: | |||||||||
Taxable | $ | 8,558,205 | $ | 8,930,710 | $ | 8,740,836 | |||
Tax-exempt | 649,553 | 641,440 | 587,579 | ||||||
Debt securities: | |||||||||
Taxable | 3,047,213 | 3,064,050 | 3,186,339 | ||||||
Tax-exempt | 637,600 | 660,330 | 688,191 | ||||||
Dividends | 16,452 | 10,864 | 16,592 | ||||||
Other interest income | 41,147 | 21,941 | 27,189 | ||||||
Interest on federal funds sold | 178,087 | 76,784 | 72,088 | ||||||
Total interest and dividend income | 13,128,257 | 13,406,119 | 13,318,814 | ||||||
| INTEREST EXPENSE | |||||||||
Deposits | 3,574,439 | 3,791,975 | 4,378,071 | ||||||
Federal funds purchased and repurchase agreements | 311,763 | 286,053 | 199,173 | ||||||
FHLB and other long-term borrowings | 184,299 | 116,561 | 25,738 | ||||||
Total interest expense | 4,070,501 | 4,194,589 | 4,602,982 | ||||||
Net interest income | 9,057,756 | 9,211,530 | 8,715,832 | ||||||
| PROVISION FOR LOAN LOSSES | 180,000 | 300,000 | 435,000 | ||||||
Net interest income after provision for loan losses | 8,877,756 | 8,911,530 | 8,280,832 | ||||||
| NONINTEREST INCOME | |||||||||
Service charges and other fees | 775,588 | 799,593 | 756,288 | ||||||
Net gains on available for sale securities | 118,433 | 4,765 | 213,718 | ||||||
Other operating income | 483,682 | 479,258 | 376,106 | ||||||
Total noninterest income | 1,377,703 | 1,283,616 | 1,346,112 | ||||||
| NONINTEREST EXPENSE | |||||||||
Salary and employee benefits | 3,768,693 | 3,563,858 | 3,356,659 | ||||||
Net occupancy expense of premises | 1,133,282 | 1,050,851 | 968,135 | ||||||
Other operating expenses | 2,549,450 | 2,132,098 | 2,016,949 | ||||||
Total noninterest expense | 7,451,425 | 6,746,807 | 6,341,743 | ||||||
Income before income taxes | 2,804,034 | 3,448,339 | 3,285,201 | ||||||
| INCOME TAXES | 541,769 | 811,014 | 766,960 | ||||||
Net income | $ | 2,262,265 | $ | 2,637,325 | $ | 2,518,241 | |||
| WEIGHTED AVERAGE SHARES OUTSTANDING | 1,528,443 | 1,528,443 | 1,537,292 | ||||||
| EARNINGS PER COMMON SHARE | $ | 1.48 | $ | 1.73 | $ | 1.64 | |||
The accompanying notes are an integral part of the consolidated financial statements.
3
First West Virginia Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Common Stock | Surplus | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (loss) | Comprehensive Income | Total | ||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||
| BALANCE, DECEMBER 31, 2002 | 1,538,443 | $ | 7,692,215 | $ | 4,982,606 | $ | 8,566,520 | — | $ | 1,218,292 | $ | 22,459,633 | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | — | — | — | 2,518,241 | — | — | $ | 2,518,241 | 2,518,241 | |||||||||||||||||||
Other comprehensive income, net of tax | ||||||||||||||||||||||||||||
Unrealized loss on securities net of reclassification adjustment (see disclosure) | — | — | — | — | — | (596,096 | ) | (596,096 | ) | (596,096 | ) | |||||||||||||||||
Comprehensive income | $ | 1,922,145 | ||||||||||||||||||||||||||
Cash dividend ($.73 per share) | — | — | — | (1,123,063 | ) | — | — | (1,123,063 | ) | |||||||||||||||||||
Treasury shares purchased (10,000 shares) | (228,100 | ) | (228,100 | ) | ||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2003 | 1,538,443 | 7,692,215 | 4,982,606 | 9,961,698 | (228,100 | ) | 622,196 | 23,030,615 | ||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | — | — | — | 2,637,325 | — | — | $ | 2,637,325 | 2,637,325 | |||||||||||||||||||
Other comprehensive income, net of tax | ||||||||||||||||||||||||||||
Unrealized loss on securities net of reclassification adjustment (see disclosure) | — | — | — | — | — | (553,288 | ) | (553,288 | ) | (553,288 | ) | |||||||||||||||||
Comprehensive income | $ | 2,084,037 | ||||||||||||||||||||||||||
Cash dividend ($.76 per share) | — | — | — | (1,161,616 | ) | — | — | (1,161,616 | ) | |||||||||||||||||||
BALANCE, DECEMBER 31, 2004 | 1,538,443 | 7,692,215 | 4,982,606 | 11,437,407 | (228,100 | ) | 68,908 | 23,953,036 | ||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | — | — | — | 2,262,265 | — | — | $ | 2,262,265 | 2,262,265 | |||||||||||||||||||
Other comprehensive income, net of tax | ||||||||||||||||||||||||||||
Unrealized loss on securities net of reclassification adjustment (see disclosure) | — | — | — | — | — | (1,095,056 | ) | (1,095,056 | ) | (1,095,056 | ) | |||||||||||||||||
Comprehensive income | $ | 1,167,209 | ||||||||||||||||||||||||||
Cash dividend ($.76 per share) | — | — | — | (1,161,616 | ) | — | — | (1,161,616 | ) | |||||||||||||||||||
BALANCE, DECEMBER 31, 2005 | 1,538,443 | $ | 7,692,215 | $ | 4,982,606 | $ | 12,538,056 | $ | (228,100 | ) | $ | (1,026,148 | ) | $ | 23,958,629 | |||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
Disclosure of reclassification amount: | ||||||||||||
Unrealized holding losses arising during the period | $ | (1,021,189 | ) | $ | (550,316 | ) | $ | (462,800 | ) | |||
Less reclassification adjustment for gains included in net income | 73,867 | 2,972 | 133,296 | |||||||||
Net unrealized losses on securities | $ | (1,095,056 | ) | $ | (553,288 | ) | $ | (596,096 | ) | |||
The accompanying notes are an integral part of the consolidated financial statements.
4
First West Virginia Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| OPERATING ACTIVITIES | ||||||||||||
Net income | $ | 2,262,265 | $ | 2,637,325 | $ | 2,518,241 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Provision for loan losses | 180,000 | 300,000 | 435,000 | |||||||||
Depreciation and amortization | 453,351 | 441,131 | 436,055 | |||||||||
Amortization of investment securities, net | 288,848 | 575,997 | 965,321 | |||||||||
Investment security gains | (118,433 | ) | (4,765 | ) | (213,718 | ) | ||||||
Gain on sales of assets | (9,835 | ) | (45,570 | ) | (436 | ) | ||||||
Increase in cash surrender value of bank-owned life insurance | (113,253 | ) | (80,724 | ) | — | |||||||
Decrease in interest receivable | 3,877 | 16,641 | 9,093 | |||||||||
Decrease (increase) in interest payable | 55,015 | (35,460 | ) | (108,452 | ) | |||||||
Other, net | (14,118 | ) | (450,299 | ) | (536,549 | ) | ||||||
Net cash provided by operating activities | 2,987,717 | 3,354,276 | 3,504,555 | |||||||||
| INVESTING ACTIVITIES | ||||||||||||
Net (increase) decrease in loans, net of charge-offs | 18,850,853 | (7,922,825 | ) | (10,104,870 | ) | |||||||
Proceeds from sales of securities available-for-sale | 3,142,149 | 8,408,557 | 9,792,306 | |||||||||
Proceeds from maturities of securities available-for-sale | 234,723,686 | 62,972,732 | 177,538,788 | |||||||||
Proceeds from maturities of securities held-to-maturity | 1,040,000 | 1,150,000 | 3,720,000 | |||||||||
Principal collected on mortgage-backed securities | 12,314,801 | 17,518,653 | 35,084,372 | |||||||||
Purchases of securities available-for-sale | (254,584,173 | ) | (75,114,282 | ) | (242,723,086 | ) | ||||||
Recoveries on loans previously charged-off | 49,696 | 53,515 | 9,099 | |||||||||
Purchase of bank owned life insurance | — | (3,000,000 | ) | — | ||||||||
Purchases of premises and equipment | (681,349 | ) | (290,874 | ) | (191,818 | ) | ||||||
Proceeds from sales of assets | 15,525 | 271,946 | 159,471 | |||||||||
Net cash provided by (used in) investing activities | 14,871,188 | 4,047,422 | (26,715,738 | ) | ||||||||
| FINANCING ACTIVITIES | ||||||||||||
Net increase (decrease) in deposits | (17,353,706 | ) | (5,776,323 | ) | 10,571,748 | |||||||
Dividends paid | (1,161,616 | ) | (1,161,616 | ) | (1,123,063 | ) | ||||||
Treasury shares purchased | — | — | (228,100 | ) | ||||||||
Proceeds from issuance of long term debt | 2,000,000 | — | — | |||||||||
Repayment of long term debt | (1,000,000 | ) | — | — | ||||||||
Increase in short-term borrowings | 3,325,124 | 670,366 | 6,051,032 | |||||||||
Increase (decrease) in FHLB borrowings | (40,218 | ) | (38,353 | ) | 2,463,464 | |||||||
Net cash provided by (used in) financing activities | (14,230,416 | ) | (6,305,926 | ) | 17,735,081 | |||||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 3,628,489 | 1,095,772 | (5,476,102 | ) | ||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 8,120,166 | 7,024,394 | 12,500,496 | |||||||||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 11,748,655 | $ | 8,120,166 | $ | 7,024,394 | ||||||
| Supplemental Disclosures: | ||||||||||||
Cash Paid for Interest | 4,015,486 | 4,230,049 | 4,711,434 | |||||||||
Cash Paid for Income Taxes | 645,000 | 990,000 | 950,000 | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
5
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows.
Nature of Operations and Basis of Presentation: First West Virginia Bancorp, Inc. (the “Company”) is a West Virginia Company. The Company provides a variety of banking services to individuals and businesses through the branch network of its affiliate bank (the “Bank”). The Bank operates ten full service branches located in Wheeling (3), Wellsburg, Moundsville (2), New Martinsville, Buckhannon, and Weston, West Virginia and Bellaire, Ohio. Primary deposit products consist of checking accounts, savings accounts, and certificates of deposit. Primary lending products consist of commercial and residential real estate loans, consumer loans, and business loans.
Principles of Consolidation: The consolidated financial statements of the Company include the financial statements of the parent and its wholly-owned subsidiary, Progressive Bank, N.A. All significant intercompany transactions and accounts have been eliminated in consolidation.
Reclassifications:Certain prior year amounts have been reclassified to conform to the 2005 presentation.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for loan losses and the valuation of deferred tax assets.
Cash Flows: Cash and cash equivalents consist of cash on hand and amounts due from banks and federal funds sold.
Investment Securities: Investment securities are classified at the time of purchase, based on management’s intention and ability, as securities available for sale or held to maturity. Debt securities classified as held to maturity are stated at cost adjusted for amortization of premium and accretion of discount which are computed using the interest method and recognized as adjustments of interest income. Certain other debt and equity securities have been classified as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available-for-sale securities are reported as a separate component of stockholders’ equity, net of tax, until realized. Realized securities gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income when earned.
Common stock of the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank represents ownership interest in institutions that are wholly owned by other financial institutions. These equity securities are accounted for at cost and are classified with other assets.
While temporary changes in the market value of available-for-sale securities are not recognized in earnings, a decline in fair value below amortized cost deemed to be other-than-temporary results in an adjustment to the cost basis of the investment, with a corresponding loss charged against earnings. Management evaluates the investment securities for other-than-temporary declines in estimated fair value on a quarterly basis. This analysis requires management to consider various factors in order to determine if a decline in estimated fair value is temporary or other-than-temporary. These factors include duration and magnitude of the decline in value, the financial condition of the issuer, and the company’s ability and intent to continue holding the investment for a period of time sufficient to allow for any anticipated recovery in market value. At December 31, 2005, there were no investment securities identified by management to be other-than-temporarily impaired. If investments decline in fair value due to adverse changes in the financial markets, charges to income could occur in future periods.
Loans: Interest income on loans is accrued based on the principal outstanding. It is the Company’s policy to discontinue the accrual of interest when either the principal or interest is past due 90 days or more, unless the loan is both well secured and in the process of collection. The Company accounts for impaired loans in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 114 and No. 118, “Accounting for Creditors for Impairment of a Loan.” It is the Company’s policy not to recognize interest income on specific impaired loans unless the likelihood of future loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the contractual life of the related loans or commitments as an adjustment of the related loan’s yield.
Allowance for Loan Losses: The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses that is charged to operations. The provision is based on management’s evaluation of the adequacy of the allowance for loan losses which encompasses the overall risk characteristics of the various portfolio segments, past experience with losses, the impact of economic conditions on borrowers, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to significant changes in the near term.
6
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impaired loans are commercial and commercial real estate loans for which it is probable the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company individually evaluates such loans for impairment and does not aggregate loans by major risk classifications. The definition of “impaired loans” is not the same as the definition of “nonaccrual loans,” although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility while not classifying the loan as impaired, provided the loan is not a commercial or commercial real estate classification. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.
Mortgage loans secured by one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances concerning the loan, the credit worthiness and payment history of the borrower, the length of the payment delay, and the amount of shortfall in relation to the principal and interest owed.
Individual loan reviews are based upon specific quantitative and qualitative criteria, including the size of the loan, loan quality ratings, value of collateral, repayment ability of borrowers, and historical experience factors. The historical experience factors utilized for individual loan reviews are based upon past loss experience, known trends in losses and delinquencies, the growth of loans in particular markets and industries, and known changes in economic conditions in the particular lending markets. Allowances for homogeneous loans (such as residential mortgage loans, personal loans, etc.) are evaluated based upon historical loss experience, trends in losses and delinquencies, growth of loans in particular markets, and known changes in economic conditions in each lending market. There can be no assurance the allowance for loan losses will be adequate to cover all losses, but management believes the allowance for loan losses in the amount of $2,319,871 at December 31, 2005, was adequate to provide for probable losses from existing loans based on information currently available. While management uses available information to provide for loan losses, the ultimate collectibility of a substantial portion of the loan portfolio, and the need for future additions to the allowance, will be based on changes in economic conditions and other relevant factors. As such, an adverse change in economic activity could reduce cash flows for both commercial and individual borrowers, which would likely cause the Company to experience increases in problem assets, delinquencies and losses on loans.
Premises and Equipment: Premises and equipment are stated at cost, less accumulated depreciation and amortization. Provisions for depreciation and amortization are computed generally using the straight-line method over the estimated useful lives of the assets.
When units of property are disposed of, the premises and equipment accounts are relieved of the cost and the accumulated depreciation related to such units. Any resulting gains or losses are credited to or charged against income. Cost of repairs and maintenance is charged to expense as incurred. Additions and improvements are capitalized at cost.
Goodwill and Other Intangible Assets The Company adopted SFAS No. 147, “Acquisitions of Certain Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9”. Except for transactions between two or more mutual enterprises, this Statement removes acquisitions of financial institutions from the scope of both SFAS No. 72, “Accounting for Certain Acquisitions of Banking and Thrift Institutions” and FASB Interpretation No. 9, “Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method. “SFAS No. 147 requires that these transactions be accounted for in accordance with FASB Statements No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” This statement also amends SFAS No. 144 to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower- relationship intangible assets and credit cardholder intangible assets.
Goodwill resulted from the Company’s purchase of a less-than-whole financial institution (the “branch”). Upon adoption of FASB No. 147, the Company reclassified approximately $1.6 million of previously unidentifiable intangible assets to goodwill and ceased the regularly scheduled amortization expense of those intangible assets. As such, goodwill value is supported ultimately by revenue that is driven by the volume of business transacted. A decline in earnings as a result of a lack of growth or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods.
An identifiable intangible asset resulted from the purchase of the core deposits of another financial institution in 2001 and, as such, are amortized into noninterest expense on the straight-line basis over the period the Company expects to benefit from such assets (7 years). The Company recognized amortization expense of $88,751 in the periods ending December 31, 2005, 2004 and 2003. The unamortized balance from the purchase of these core deposit intangible assets is $192,295 and $281,046 at December 31, 2005 and 2004, respectively. The estimated aggregate amortization expense for each of the succeeding years is as follows: $88,751 in 2006, $88,751 in 2007; and $14,793 in 2008. While management feels the assumptions and variables used to value the acquisition was reasonable, the use of different, but still reasonable, assumptions could produce different results.
Goodwill and other intangibles are periodically reviewed for impairment. No impairment losses were recognized. Additionally, future events could cause management to conclude that impairment indicators exist and that the goodwill is impaired, which would result in the Company recording an impairment loss. Any resulting impairment loss could have a material, adverse impact on the Company’s financial condition and results of operations.
7
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Bank-owned Life Insurance Bank owned life insurance consists of investments in life insurance policies on executive officers and other members of the bank’s management. The policies are carried at their net cash surrender value. Changes in the policy value are recorded as an adjustment to the carrying value with the corresponding amount recognized as non-interest income or expense. Earnings on these policies are based on the net earnings on the cash surrender value of the policies. The net cash surrender value of bank-owned life insurance was $3,193,977 and $3,080,724 at December 31, 2005 and 2004, respectively. The face value of the bank-owned life insurance at December 31, 2005 was $9.1 million. An agreement has been executed with all officers whereby a $40,000 death benefit is payable upon the participant’s death while employed by the Company to their designated beneficiary.
Other Real Estate Owned: Other real estate owned are carried at the lower of cost or their estimated current fair value, less estimated costs to sell and are included in other assets. Other real estate owned consist primarily of properties acquired through, or in lieu of foreclosures. Any subsequent declines in fair value, and gains or losses on the disposition of these assets are credited to or charged against income.
Income Taxes: The Company and its subsidiary file a consolidated federal income tax return. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Deferred income tax expenses or benefits are based on the changes in the deferred tax asset or liability from period to period.
Advertising Costs: Advertising costs are expensed as the costs are incurred. Advertising expenses amounted to $133,403, $189,855 and $172,598 for 2005, 2004, and 2003, respectively.
Earnings Per Common Share: Earnings per common share are calculated by dividing net income by the weighted-average number of shares of common stock outstanding during the year. The Company has no securities which would be considered potential common stock.
Comprehensive Income: The Company is required to present comprehensive income in a full set of general-purpose financial statements for all periods presented. Other comprehensive income comprises unrealized holding gains (losses) on the available-for-sale securities portfolio. The Company has elected to report the effects of other comprehensive income as part of the Consolidated Statement of Changes in Stockholders’ Equity.
The following table represents other comprehensive income before tax and net of tax:
| 2005 | 2004 | 2003 | ||||||||||
Before-tax amount | $ | (1,755,742 | ) | $ | (887,106 | ) | $ | (955,742 | ) | |||
Tax effect | 660,686 | 333,818 | 359,646 | |||||||||
Net of tax effect | $ | (1,095,056 | ) | $ | (553,288 | ) | $ | (596,096 | ) | |||
Recent Accounting Pronouncements: In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment(FAS No. 123R). FAS No. 123R revised FAS No. 123,Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, and its related implementation guidance. FAS No. 123R will require compensation costs related to share-based payment transactions to be recognized in the financial statement (with limited exceptions). The amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award.
In April 2005, the Securities and Exchange Commission adopted a new rule that amends the compliance dates for FAS No. 123R. The Statement requires that compensation cost relating to share-based payment transactions be recognized in financial statements and that this cost be measured based on the fair value of the equity or liability instruments issued. FAS No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The Company will adopt FAS No. 123R on January 1, 2006. The estimated compensation expense is not expected to be material to the Company’s results of operation or financial condition.
In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB No. 107”),Share-Based Payment, providing guidance on option valuation methods, the accounting for income tax effects of share-based payment arrangements upon adoption of FAS No. 123R, and the disclosures in MD&A subsequent to the adoption. The Company will provide SAB No. 107 required disclosures upon adoption of FAS No. 123R on January 1, 2006.
8
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
In December 2004, FASB issued FAS No. 153,Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29,Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. FAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of FAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early application is permitted and companies must apply the standard prospectively. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.
In June 2005, the FASB issued FAS No. 154,Accounting Changes and Errors Corrections, a replacement of APB Opinion No. 20 and FAS No. 3. The Statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. FAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impractical. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. FAS No.154 improves the financial reporting because its requirements enhance the consistency of financial reporting between periods. The provisions of FAS No. 154 are effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities are as follows at December 31, 2005 and 2004:
| December 31, 2005 | |||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||
| (Expressed in thousands) | |||||||||||||
Securities held-to-maturity: | �� | ||||||||||||
Obligations of states and political subdivisions | $ | 1,776 | $ | 35 | $ | — | $ | 1,811 | |||||
Total held-to-maturity | 1,776 | 35 | — | 1,811 | |||||||||
| Securities available-for-sale: | |||||||||||||
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | 41,351 | 21 | (782 | ) | 40,590 | ||||||||
Obligations of states and political subdivisions | 20,280 | 57 | (349 | ) | 19,988 | ||||||||
Mortgage-backed securities | 45,912 | 56 | (714 | ) | 45,254 | ||||||||
Equity securities | 324 | 85 | (19 | ) | 390 | ||||||||
Total available-for-sale | 107,867 | 219 | (1,864 | ) | 106,222 | ||||||||
Total | $ | 109,643 | $ | 254 | $ | (1,864 | ) | $ | 108,033 | ||||
| December 31, 2004 | |||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||
| (Expressed in thousands) | |||||||||||||
Securities held-to-maturity: | |||||||||||||
Obligations of states and political subdivisions | $ | 2,825 | $ | 102 | $ | — | $ | 2,927 | |||||
Total held-to-maturity | 2,825 | 102 | — | 2,927 | |||||||||
| Securities available-for-sale: | |||||||||||||
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | 43,744 | 113 | (267 | ) | 43,590 | ||||||||
Obligations of states and political subdivisions | 17,148 | 215 | (100 | ) | 17,263 | ||||||||
Corporate debt securities | 2,802 | 46 | — | 2,848 | |||||||||
Mortgage-backed securities | 39,348 | 228 | (186 | ) | 39,390 | ||||||||
Equity securities | 584 | 98 | (37 | ) | 645 | ||||||||
Total available-for-sale | 103,626 | 700 | (590 | ) | 103,736 | ||||||||
Total | $ | 106,451 | $ | 802 | $ | (590 | ) | $ | 106,663 | ||||
9
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at December 31, 2005 and 2004:
| 2005 | |||||||||||||||||||||
| Less than Twelve Months | Twelve Months or Greater | Total | |||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||
| (Expressed in thousands) | |||||||||||||||||||||
U.S. Treasury securities and U.S. Government corporations and agencies | $ | 16,217 | $ | (287 | ) | $ | 19,426 | $ | (491 | ) | $ | 35,643 | $ | (778 | ) | ||||||
Obligations of states and political subdivisions | 10,582 | (173 | ) | 5,317 | (176 | ) | 15,899 | (349 | ) | ||||||||||||
Mortgage-backed securities | 20,949 | (305 | ) | 13,999 | (413 | ) | 34,948 | (718 | ) | ||||||||||||
Total debt securities | 47,748 | (765 | ) | 38,742 | (1,080 | ) | 86,490 | (1,845 | ) | ||||||||||||
Equity securities | 89 | (1 | ) | 77 | (18 | ) | 166 | (19 | ) | ||||||||||||
Total | $ | 47,837 | $ | (766 | ) | $ | 38,819 | $ | (1,098 | ) | $ | 86,656 | $ | (1,864 | ) | ||||||
| 2004 | |||||||||||||||||||||
| Less than Twelve Months | Twelve Months or Greater | Total | |||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||
| (Expressed in thousands) | |||||||||||||||||||||
U.S. Treasury securities and U.S. Government corporations and agencies | $ | 29,549 | $ | (263 | ) | $ | — | $ | — | $ | 29,549 | $ | (263 | ) | |||||||
Obligations of states and political subdivisions | 6,313 | (83 | ) | 472 | (17 | ) | 6,785 | (100 | ) | ||||||||||||
Mortgage-backed securities | 18,443 | (133 | ) | 2,765 | (57 | ) | 21,208 | (190 | ) | ||||||||||||
Total debt securities | 54,305 | (479 | ) | 3,237 | (74 | ) | 57,542 | (553 | ) | ||||||||||||
Equity securities | 94 | (20 | ) | 109 | (17 | ) | 203 | (37 | ) | ||||||||||||
Total | $ | 54,399 | $ | (499 | ) | $ | 3,346 | $ | (91 | ) | $ | 57,745 | $ | (590 | ) | ||||||
The Company’s investment securities portfolio contains unrealized losses of direct obligations of the U.S. Treasury and U.S. Government agency securities, including mortgage-related instruments issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, and debt obligations of a U.S. state or political subdivision.
On a monthly basis, the Company evaluates the severity and duration of impairment for its investment securities portfolio unless the company has the ability to hold the security to maturity without incurring a loss. Generally, impairment is considered other than temporary when an investment security has sustained a decline in market value of ten percent or more for a period of six months.
The Company has concluded that any impairment of its investment securities portfolio is not other than temporary but is the result of interest rate changes, sector rating changes, or company-specific rating changes that are not expected to result in the noncollection of principal and interest, during the period. There are 81 positions that are temporarily impaired at December 31, 2005.
The amortized cost and estimated market value of investment securities at December 31, 2005, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
10
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
| Securities Held-to-Maturity | Securities Available-for-Sale | |||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||
| (Expressed in thousands) | ||||||||||||
Due in one year or less | $ | 645 | $ | 648 | $ | 10,093 | $ | 9,994 | ||||
Due after one year through five years | 1,034 | 1,058 | 36,699 | 35,998 | ||||||||
Due after five years through ten years | 97 | 105 | 7,893 | 7,759 | ||||||||
Due after ten years | — | — | 6,947 | 6,827 | ||||||||
| 1,776 | 1,811 | 61,632 | 60,578 | |||||||||
Mortgage-backed securities | — | — | 45,911 | 45,254 | ||||||||
Equity securities | — | — | 324 | 390 | ||||||||
Total | $ | 1,776 | $ | 1,811 | $ | 107,867 | $ | 106,222 | ||||
Proceeds from sales of securities available-for-sale during the years ended December 31, 2005, 2004, and 2003, were $3,142,149, $8,408,557, and $9,792,306, respectively. Gross gains of $144,771 and gross losses of $26,338 in 2005; gross gains of $14,277 and gross losses of $9,512 in 2004; and gross gains of $253,288 and gross losses of $39,570 in 2003, were realized on those sales. Assets carried at $44,021,000 and $37,778,000 at December 31, 2005 and 2004, respectively, were pledged to secure United States Government and other public funds and for other purposes as required or permitted by law.
NOTE 3 - LOANS AND LEASES
Loans outstanding at December 31, 2005 and 2004, are as follows:
| (Expressed in Thousands) | ||||||
| 2005 | 2004 | |||||
Real estate - construction | $ | 759 | $ | 1,841 | ||
Real estate - farmland | 405 | 263 | ||||
Real estate - residential | 44,042 | 49,754 | ||||
Real estate-secured by non-farm, non-residential | 46,587 | 51,699 | ||||
Commercial and industrial loans | 13,721 | 18,092 | ||||
Installment and other loans to individuals | 16,648 | 18,324 | ||||
Non-rated industrial development obligations | 13,213 | 14,538 | ||||
Other loans | 43 | 40 | ||||
Total | $ | 135,418 | $ | 154,551 | ||
Less unearned interest and deferred fees | 204 | 220 | ||||
Net loans | $ | 135,214 | $ | 154,331 | ||
Non-accrual loans amounted to $1,366,960 and $1,440,929 at December 31, 2005 and 2004, respectively. The amount of interest income that would have been recognized had the loans performed in accordance with their original terms was $117,900 and $105,700 for 2005 and 2004, respectively.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
| December 31, | |||||||||
| 2005 | 2004 | 2003 | |||||||
Balance at beginning of year | $ | 2,356,101 | $ | 2,304,868 | $ | 2,026,905 | |||
Additions charged to operating expense | 180,000 | 300,000 | 435,000 | ||||||
Recoveries | 49,696 | 53,515 | 9,099 | ||||||
Total | 2,585,797 | 2,658,383 | 2,471,004 | ||||||
Less loans charged-off | 265,926 | 302,282 | 166,136 | ||||||
Balance at end of year | $ | 2,319,871 | $ | 2,356,101 | $ | 2,304,868 | |||
11
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The following is a summary of information pertaining to impaired and non-accrual loans:
(Expressed in Thousands) December 31, | |||||||||
| 2005 | 2004 | 2003 | |||||||
Impaired loans without a valuation allowance | $ | 381 | $ | 343 | $ | 502 | |||
Impaired loans with a valuation allowance | 986 | 1,098 | 1,597 | ||||||
Total impaired loans | $ | 1,367 | $ | 1,441 | $ | 2,099 | |||
Valuation allowance related to impaired loans | $ | 80 | $ | 269 | $ | 507 | |||
| (Expressed in Thousands) December 31, | |||||||||
| 2005 | 2004 | 2003 | |||||||
Total non-accrual loans | $ | 1,367 | $ | 1,441 | $ | 2,099 | |||
Total loans past-due 90 days or more and still accruing | $ | 90 | $ | 17 | $ | 58 | |||
| (Expressed in Thousands) December 31, | |||||||||
| 2005 | 2004 | 2003 | |||||||
Average investment in impaired loans | $ | 1,840 | $ | 1,678 | $ | 2,406 | |||
Interest income recognized on impaired loans | — | — | — | ||||||
Interest income recognized on a cash basis on impaired loans | — | — | — | ||||||
No additional funds are committed to be advanced in connection with impaired loans.
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation, as follows:
| December 31, | Original Years | |||||||
| 2005 | 2004 | |||||||
Land | $ | 1,935,514 | $ | 1,496,503 | ||||
Land improvements | 296,527 | 296,527 | 20 | |||||
Leasehold improvements | 404,598 | 404,598 | 25 | |||||
Buildings | 3,766,478 | 3,760,650 | 20-50 | |||||
Furniture, fixtures & equipment | 3,322,215 | 3,106,187 | 3 - 8 | |||||
Total | 9,725,332 | 9,064,465 | ||||||
Less accumulated depreciation | 5,558,403 | 5,208,595 | ||||||
Premises and equipment, net | $ | 4,166,929 | $ | 3,855,870 | ||||
Charges to operations for depreciation approximated $364,600, $352,380, and $347,304 for 2005, 2004, and 2003, respectively.
12
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 6 - DEPOSITS
The composition of the Bank’s deposits at December 31 follows:
(Expressed in Thousands) 2005 | ||||||||||||
| Demand | Savings | Time | ||||||||||
| Noninterest Bearing | Interest Bearing | |||||||||||
Individuals, partnerships and corporations (includes certified and official checks) | $ | 25,339 | $ | 32,087 | $ | 68,597 | $ | 82,856 | ||||
United States Government | 29 | — | — | — | ||||||||
States and political subdivisions | 553 | 4,804 | 1,692 | 2,586 | ||||||||
Commercial banks and other depository institutions | 124 | — | — | 150 | ||||||||
Total | $ | 26,045 | $ | 36,891 | $ | 70,289 | $ | 85,592 | ||||
(Expressed in Thousands) 2004 | ||||||||||||
| Demand | Savings | Time | ||||||||||
| Noninterest Bearing | Interest Bearing | |||||||||||
Individuals, partnerships and corporations (includes certified and official checks) | $ | 25,545 | $ | 33,677 | $ | 84,696 | $ | 82,654 | ||||
United States Government | 26 | — | — | — | ||||||||
States and political subdivisions | 573 | 3,817 | 2,204 | 2,684 | ||||||||
Commercial banks and other depository institutions | 145 | — | — | 150 | ||||||||
Total | $ | 26,289 | $ | 37,494 | $ | 86,900 | $ | 85,488 | ||||
Time deposits include certificates of deposit issued in denominations of $100,000 or more which amounted to $22,355,000 and $20,126,000 at December 31, 2005 and 2004, respectively. Interest expense on certificates of deposit of $100,000 or more was $671,000, $675,000 and $889,000 at December 31, 2005, 2004, and 2003, respectively.
A maturity distribution of time certificates of deposit at December 31, 2005, follows:
| Amount | |||
Due in 2006 | $ | 46,900,000 | |
Due in 2007 | 17,288,000 | ||
Due in 2008 | 7,036,000 | ||
Due in 2009 | 7,421,000 | ||
Due in 2010 | 6,744,000 | ||
Due in 2011 and thereafter | 203,000 | ||
Total | $ | 85,592,000 | |
NOTE 7 - INCOME TAX
The provisions for income taxes at December 31 consist of:
| 2005 | 2004 | 2003 | |||||||||
Currently payable: | |||||||||||
Federal | $ | 422,522 | $ | 752,530 | $ | 794,312 | |||||
State | 116,913 | 191,962 | 168,432 | ||||||||
Deferred: | |||||||||||
Federal | 1,837 | (113,970 | ) | (166,936 | ) | ||||||
State | 497 | (19,508 | ) | (28,848 | ) | ||||||
Income tax expense | $ | 541,769 | $ | 811,014 | $ | 766,960 | |||||
13
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 7 - INCOME TAX (CONTINUED)
The following temporary differences gave rise to the deferred tax asset at December 31:
| 2005 | 2004 | |||||||
Allowance for loan losses | $ | 825,112 | $ | 810,475 | ||||
Deferred loan fees | 69,426 | 74,645 | ||||||
Accrued interest on nonperforming loans | 156,350 | 116,444 | ||||||
Deferred compensation | 113,382 | 212,550 | ||||||
Deferred directors’ fees | 9,588 | 9,588 | ||||||
Depreciation | 38,287 | 14,572 | ||||||
Amortization | 77,785 | 60,016 | ||||||
Deferred state income tax | (70,946 | ) | (71,406 | ) | ||||
Total deferred tax asset - federal | 1,218,984 | 1,226,884 | ||||||
Total deferred tax asset - state | 208,665 | 210,017 | ||||||
| 1,427,649 | 1,436,901 | |||||||
Deferred tax assets (liabilities) arising from market adjustments of securities available for sale: | ||||||||
Federal | 528,622 | (35,497 | ) | |||||
State | 90,489 | (6,077 | ) | |||||
Net deferred tax assets | $ | 2,046,760 | $ | 1,395,327 | ||||
A reconciliation between the amount of reported income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes for the year ended December 31 is as follows:
| 2005 | 2004 | 2003 | |||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||
Computed tax at statutory federal rate | $ | 953,372 | 34.0 | % | $ | 1,172,435 | 34.0 | % | $ | 1,116,968 | 34.0 | % | |||||||||
Plus state income taxes net of federal tax benefits | 77,491 | 2.8 | % | 98,892 | 2.9 | % | 93,672 | 2.8 | % | ||||||||||||
| 1,030,863 | 36.8 | % | 1,271,327 | 36.9 | % | 1,210,640 | 36.8 | % | |||||||||||||
Increase (decrease) in taxes resulting from: | |||||||||||||||||||||
Tax exempt income | (437,632 | ) | (15.6 | )% | (443,697 | ) | (12.9 | )% | (434,683 | ) | (13.2 | )% | |||||||||
Nontaxable goodwill | (37,267 | ) | (1.3 | )% | (37,267 | ) | (1.1 | )% | (37,267 | ) | (1.1 | )% | |||||||||
Nondeductible interest expense | 32,396 | 1.1 | % | 32,256 | 0.9 | % | 34,734 | 1.0 | % | ||||||||||||
Bank-owned life insurance | (38,506 | ) | (1.4 | )% | (27,446 | ) | (0.8 | )% | — | — | |||||||||||
Other - net | (8,085 | ) | (0.3 | )% | 15,841 | 0.5 | % | (6,464 | ) | (0.2 | )% | ||||||||||
Actual tax expense | $ | 541,769 | 19.3 | % | $ | 811,014 | 23.5 | % | $ | 766,960 | 23.3 | % | |||||||||
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company has a non-contributory profit sharing plan for employees meeting certain service requirements. The Company makes annual contributions to the profit sharing plan based on income of the Company as defined. Total expenses for the plan were $98,070, $172,000, and $162,000 for the years ended December 31, 2005, 2004, and 2003, respectively.
The Company also offers a 401(k) plan in which it matches a portion of the employee’s contribution up to 4 percent of their salary. The expense related to the 401(k) plan was $23,726, $24,209, and $22,934 in 2005, 2004, and 2003, respectively.
NOTE 9 - FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS
Federal funds purchased and repurchase agreements represent borrowings of a short duration, usually less than 30 days. For repurchase agreements, the securities underlying the agreements remained under the Bank’s control. Information related to repurchase agreements is summarized below:
| 2005 | 2004 | |||||||
Balance at end of year | $ | 19,084,324 | $ | 15,759,200 | ||||
Average balance during the year | 13,890,199 | 16,895,596 | ||||||
Maximum month-end balance | 19,084,324 | 21,915,762 | ||||||
Weighted-average rate during the year | 2.24 | % | 1.69 | % | ||||
Rate at December 31 | 2.80 | % | 1.79 | % | ||||
The subsidiary bank had no significant activity in federal funds purchased during 2005 and 2004.
14
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 10 - FEDERAL HOME LOAN BANK BORROWINGS
The subsidiary Bank is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”). The FHLB borrowings are secured by a blanket lien by the FHLB on certain residential real estate loans or securities with a market value at least equal to the outstanding balances. The remaining maximum borrowing capacity with the FHLB at December 31, 2005 was approximately $91.1 million subject to the purchase of additional FHLB stock. The subsidiary bank had FHLB borrowings of $2,384,893 and $ 2,425,111 at December 31, 2005 and 2004, respectively, with an interest rate of 4.76%. The subsidiary bank also has a one year line of credit agreement with the Federal Home Loan Bank (“FHLB”). The maximum credit available under this agreement is $7 million and expires December 2006.
Contractual maturities of FHLB borrowings as of December 31, 2005 were as follows:
December 31, 2006 | $ | 42,175 | |
December 31, 2007 | 44,226 | ||
December 31, 2008 | 46,378 | ||
December 31, 2009 | 48,634 | ||
December 31, 2010 | 50,999 | ||
Thereafter | 2,152,481 | ||
| $ | 2,384,893 | ||
NOTE 11 - OTHER BORROWINGS
The Company obtained a non-revolving line of credit in the amount of $3 million from a financial institution during the second quarter of 2005. The line of credit is secured by 126,200 shares of Progressive Bank, N.A. stock. The note bears an interest rate of prime and is adjustable quarterly. The note matures in May 2015. The Company’s initial borrowing under the loan amounted to $2 million. At December 31, 2005 outstanding borrowings amounted to $1,000,000 with an interest rate of 7.25%.
The subsidiary bank of the Company has a one year line of credit agreement with the Federal Home Loan Bank (“FHLB”). The maximum credit available under this agreement is $7 million and expires December 2006. There were no borrowings outstanding under this agreement at December 31, 2005 and 2004, respectively.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The subsidiary Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
The following represents financial instruments whose contract amounts represent credit risk:
| 2005 | 2004 | |||||
Commitments to extend credit | $ | 14,202,000 | $ | 19,979,000 | ||
Standby letters of credit | 539,000 | 602,000 | ||||
As of December 31, 2005, approximately $3,534,000 are fixed interest rate commitments and $11,207,000 are variable interest rate commitments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements. The standby letters of credit in the amount of $369,000 expire in 2006, $100,000 in 2009, $35,000 in 2012 and $35,000 in 2015. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
The Company and its subsidiary are parties to various legal and administrative proceedings and claims. Although any litigation contains an element of uncertainty, management believes that the outcome of these events will not have a material effect on the financial position of the Company.
15
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 13 - CONCENTRATIONS OF CREDIT RISK
Most of the affiliate Bank’s loans and commitments have been granted to customers in the Bank’s primary market area of Northern and Central West Virginia, Eastern Ohio, and Southwestern Pennsylvania. In the normal course of business, however, the Bank has purchased participations and originated loans outside of its primary market area. The aggregate loan balances outstanding in any one geographic area, other than the Bank’s primary lending areas, do not exceed 10 percent of total loans. Concentrations of credit are measured by categorizing loans by the North American Industry Classification codes. Loans equal to or exceeding 25% of Tier I Capital are considered concentrations of credit. At December 31, 2005 concentrations of credit were as follows:
| Amount | Percent of Tier 1 Capital | |||||
Lessors of Residential Buildings and Dwellings | $ | 13,928,392 | 60.2 | % | ||
Lessors of Nonresidential Buildings | 11,998,112 | 51.9 | % | |||
NOTE 14 - RELATED PARTY TRANSACTIONS
Directors and officers of the Company and its subsidiary, and their associates, were customers of, and had other transactions with the subsidiary bank in the normal course of business. All loans and commitments included in such transactions were made on substantially the same terms, including interest and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than the normal risk of collectibility. Such loans totaled $3,394,123 at December 31, 2005, and $4,978,829 at December 31, 2004.
The following is an analysis of loan activity to directors, executive officers, and associates of the Company and its subsidiary:
| December 31, | ||||||||
| 2005 | 2004 | |||||||
Balance, January 1 | $ | 4,978,829 | $ | 4,665,813 | ||||
New loans during the period | 631,503 | 2,245,527 | ||||||
Repayments during the period | (2,216,209 | ) | (1,932,511 | ) | ||||
Ending balance | $ | 3,394,123 | $ | 4,978,829 | ||||
The Company’s subsidiary bank entered into a lease agreement to rent property for use as banking premises from a company owned by one of the Company’s directors. The lease has an initial term of 5 years, at an annual rental fee of $57,600, with options to renew for eight 5-year terms.
NOTE 15 - LEASES
The Company’s Bank affiliates leased certain land used for banking purposes under long-term leases, expiring at various dates. These leases contain renewal options and generally provide that the Company will pay for insurance, taxes, and maintenance.
As of December 31, 2005, the future minimum rental payments required under noncancelable operating leases with initial terms in excess of one year are as follows:
December 31, 2006 | $ | 197,122 | |
December 31, 2007 | 90,282 | ||
December 31, 2008 | 85,482 | ||
December 31, 2009 | 85,482 | ||
December 31, 2010 | 43,302 | ||
Thereafter | 129,906 |
Rental expense under operating leases approximated $214,092 in 2005; $165,000 in 2004; and $164,000 in 2003.
NOTE 16 - OTHER OPERATING EXPENSES
Other operating expenses at December 31 included the following:
| 2005 | 2004 | 2003 | |||||||
Directors’ fees | $ | 178,575 | $ | 126,175 | $ | 114,575 | |||
Stationery and supplies | 170,350 | 141,031 | 155,236 | ||||||
Regulatory assessment and deposit insurance | 187,384 | 117,354 | 121,999 | ||||||
Advertising | 133,403 | 189,855 | 172,598 | ||||||
Postage and transportation | 220,214 | 207,795 | 208,344 | ||||||
Other taxes | 168,975 | 165,153 | 177,216 | ||||||
Service expense | 427,751 | 376,041 | 320,556 | ||||||
Other | 1,062,798 | 808,694 | 746,425 | ||||||
Total | $ | 2,549,450 | $ | 2,132,098 | $ | 2,016,949 | |||
16
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 17 - RESTRICTION ON CASH
The subsidiary bank is required to maintain an average reserve balance with the Federal Reserve Bank or in cash on hand. The average required reserve balances for the years ended December 31, 2005 and 2004, were $2,618,000 and $2,821,000, respectively.
NOTE 18 - LIMITATIONS ON DIVIDENDS
Under the terms of the Formal Agreement as discussed in Note 19, the subsidiary bank cannot declare a dividend in 2006 without approval of the Comptroller of the Currency. The subsidiary bank is the primary source of funds to pay dividends to the stockholders of First West Virginia Bancorp, Inc. As discussed later, the Company and the subsidiary bank are prohibited from paying dividends without regulatory approval.
NOTE 19 - REGULATORY MATTERS
The Company and its subsidiary bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk, weighting, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to adjusted total assets (as defined).
As of December 31, 2005, the most recent notifications from the Office of the Comptroller of the Currency categorized the bank as adequately capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes has changed the capital category. The capital ratios and the regulatory framework for adequately capitalized institutions are depicted as set forth in the following table:
| Actual | For Capital Adequacy Purposes | |||||||||||
(Amounts Expressed in Thousands)
| Amount | Ratio | Amount | Ratio | ||||||||
As of December 31, 2005 | ||||||||||||
Holding Company Total Capital (to Risk Weighted Assets) | $ | 25,073 | 16.08 | % | $ | 12,476 | 8.0 | % | ||||
Holding Company Tier I Capital (to Risk Weighted Assets) | 23,124 | 14.83 | % | 6,238 | 4.0 | % | ||||||
Holding Company Tier I Capital (to Adjusted Total Assets) | 23,124 | 8.83 | % | 10,480 | 4.0 | % | ||||||
Subsidiary Bank Total Capital (to Risk Weighted Assets) | $ | 25,701 | 16.53 | % | $ | 12,442 | 8.0 | % | ||||
Subsidiary Bank Tier I Capital (to Risk Weighted Assets) | 23,752 | 15.27 | % | 6,221 | 4.0 | % | ||||||
Subsidiary Bank Tier I Capital (to Adjusted Total Assets) | 23,752 | 9.09 | % | 10,449 | 4.0 | % | ||||||
As of December 31, 2004 | ||||||||||||
Holding Company Total Capital (to Risk Weighted Assets) | $ | 22,745 | 12.97 | % | $ | 14,033 | 8.0 | % | ||||
Holding Company Tier I Capital (to Risk Weighted Assets) | 20,561 | 11.72 | % | 7,016 | 4.0 | % | ||||||
Holding Company Tier I Capital (to Adjusted Total Assets) | 20,561 | 7.24 | % | 11,366 | 4.0 | % | ||||||
Subsidiary Bank Total Capital (to Risk Weighted Assets) | $ | 22,417 | 12.84 | % | $ | 13,965 | 8.0 | % | ||||
Subsidiary Bank Tier I Capital (to Risk Weighted Assets) | 20,233 | 11.59 | % | 6,983 | 4.0 | % | ||||||
Subsidiary Bank Tier I Capital (to Adjusted Total Assets) | 20,233 | 7.14 | % | 11,332 | 4.0 | % | ||||||
The “Formal Agreement” discussed below requires Tier 1 capital at least equal to thirteen percent (13%) of risk-weighted assets and Tier 1 capital at least equal to seven and one half percent (7.5%) of adjusted total assets by March 31, 2005.
In December, 2004, the Company’s subsidiary bank entered into an agreement with the Office of the Comptroller of the Currency (OCC) relating to the results of its most recent report of examination. The Formal Agreement contains certain required actions and certain restrictions. The agreement requires the subsidiary bank to develop plans, programs, policies, and procedures relating to management and board supervision, long-term strategic goals, loan portfolio, criticized assets, capital, internal audit and internal loan review by certain dates and then to implement and follow those plans, programs, policies and procedures. A review and evaluation of certain groups of loans and correction of deficiencies is also required. Additionally, the formal agreement mandates that the subsidiary bank achieve and maintain a 7.50% Tier 1 leverage ratio and 13.0% Tier 1 capital ratio by March 31, 2005. Under the terms of the formal agreement, the board of directors of the subsidiary bank is responsible for the proper and sound management of the Bank and must appoint a compliance committee from among their independent members, and report monthly to the OCC on the progress in complying with the agreement. The subsidiary bank board has appointed a compliance committee and has filed monthly reports with the OCC.
The Company’s board of directors also adopted a resolution with the Federal Reserve Bank of Cleveland, under authority given it by the Board of Governors of the Federal Reserve System, the federal regulatory agency for the Company. As with the agreement of the OCC, the Federal Reserve resolution necessitates certain actions and restrictions. Without prior Federal Reserve approval and a 30 day prior notice requirement, the resolution prohibits the Company from paying dividends, incurring debt, or participating in the acquisition of treasury stock. In addition, prior written approval is required before engaging in any non-bank activities. To date, the Company has taken, and intends to continue to take, all appropriate steps to comply with the Federal Reserve requirements.
17
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 20 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported fair values of financial instruments are based on a variety of factors. Where possible, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk. Intangible values assigned to customer relationships are not reflected in the reported fair values. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year end or that will be realized in the future.
The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amount for cash and cash equivalents is a reasonable estimate of fair value.
Investment Securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Loans: Fair values for net loans are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, real estate, and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories. The fair value is calculated by discounting scheduled cash flows through the estimated maturity using estimated discount rates which reflect credit and interest rate risks inherent to the loan.
Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value.
Deposits: The carrying amount for noninterest bearing and interest bearing demand deposits and savings deposits is considered to be a reasonable estimate of fair value. Fair values for time deposits are estimated using discounted cash flow analysis. Discount rates reflect rates currently offered for deposits of similar remaining maturities.
Federal Funds Purchased and Repurchase Agreements: The carrying amount for federal funds purchased and repurchase agreements are considered to be a reasonable estimate of fair value.
Federal Home Loan Bank and other long term borrowings: The fair value of FHLB and other long term borrowings is based on the interest rates currently charged for borrowings with similar terms and maturities.
Accrued Interest Payable: The carrying amount of accrued interest payable approximates it fair value.
Off-Balance-Sheet Instruments: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The amount of fees currently charged on commitments is determined to be insignificant and, therefore, the carrying value and fair value of off-balance-sheet instruments are not shown.
The estimates of fair values of financial instruments are summarized as follows at December 31:
| (Expressed in Thousands) | ||||||||||||
| 2005 | 2004 | |||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||
Financial assets: | ||||||||||||
Cash and cash equivalents | $ | 11,749 | $ | 11,749 | $ | 8,120 | $ | 8,120 | ||||
Investment securities | 107,998 | 108,033 | 106,561 | 106,664 | ||||||||
Loans | 132,894 | 130,642 | 151,975 | 150,896 | ||||||||
Accrued interest receivable | 1,255 | 1,255 | 1,259 | 1,259 | ||||||||
Financial liabilities: | ||||||||||||
Deposits | 218,817 | 216,859 | 236,171 | 235,564 | ||||||||
Federal funds purchased and repurchase agreements | 19,084 | 19,080 | 15,759 | 15,759 | ||||||||
FHLB and other long term borrowings | 3,385 | 3,385 | 2,425 | 2,424 | ||||||||
Accrued interest payable | 404 | 404 | 355 | 355 | ||||||||
18
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 21 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are the condensed statements of financial condition, statements of income, and statements of cash flows for First West Virginia Bancorp, Inc.
BALANCE SHEETS
| December 31, | |||||||
| 2005 | 2004 | ||||||
| ASSETS | |||||||
Cash | $ | 116,792 | $ | 79,876 | |||
Investment in common stock - Available-for-sale (at market value) | 399,308 | 654,030 | |||||
Investment in subsidiary Banks | 24,520,762 | 23,372,256 | |||||
Other assets | 106,242 | 475,319 | |||||
Total assets | $ | 25,143,104 | $ | 24,581,481 | |||
| LIABILITIES | |||||||
Accrued expenses | $ | (149,001 | ) | $ | 34,390 | ||
Deferred compensation | 333,476 | 594,055 | |||||
Other borrowings | 1,000,000 | — | |||||
Total liabilities | 1,184,475 | 628,445 | |||||
| STOCKHOLDERS’ EQUITY | 23,958,629 | 23,953,036 | |||||
Total liabilities and stockholders’ equity | $ | 25,143,104 | $ | 24,581,481 | |||
STATEMENTS OF INCOME
| Year Ended December 31, | |||||||||||
| 2005 | 2004 | 2003 | |||||||||
| INCOME | |||||||||||
Dividends from subsidiary Banks | $ | 2,090,512 | $ | 1,186,280 | $ | 1,534,344 | |||||
Gain (loss) on sale of investments | 47,469 | (1,708 | ) | (10,939 | ) | ||||||
Other income | 117,241 | 180,100 | 137,551 | ||||||||
Total income | 2,255,222 | 1,364,672 | 1,660,956 | ||||||||
| EXPENSES | |||||||||||
Salary and employee benefits | 69,192 | 48,994 | 44,868 | ||||||||
Interest expense | 69,778 | — | — | ||||||||
Other expenses | 153,447 | 142,334 | 146,923 | ||||||||
Total expenses | 292,417 | 191,328 | 191,791 | ||||||||
Income before income taxes and equity in undistributed income of subsidiary | 1,962,805 | 1,173,344 | 1,469,165 | ||||||||
| INCOME TAX BENEFIT | 52,930 | 974 | 32,391 | ||||||||
| EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY | 246,530 | 1,463,007 | 1,016,685 | ||||||||
Net income | $ | 2,262,265 | $ | 2,637,325 | $ | 2,518,241 | |||||
19
First West Virginia Bancorp, Inc. and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
NOTE 21 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| OPERATING ACTIVITIES | ||||||||||||
Net income | $ | 2,262,265 | $ | 2,637,325 | $ | 2,518,241 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Change in deferred tax benefit | 109,755 | (3,845 | ) | (5,918 | ) | |||||||
Undistributed earnings of affiliate | (246,530 | ) | (1,463,007 | ) | (1,016,685 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
Other assets | 257,529 | (41,936 | ) | (167,128 | ) | |||||||
Deferred compensation | (260,578 | ) | (20,388 | ) | 28,003 | |||||||
Other liabilities | (183,391 | ) | 51,552 | (15,066 | ) | |||||||
Gain (loss) on sale of securities | (47,469 | ) | 1,708 | 10,939 | ||||||||
Net cash provided by operating activities | 1,891,581 | 1,161,409 | 1,352,386 | |||||||||
| INVESTING ACTIVITIES | ||||||||||||
Payments for investments in subsidiary | (2,000,000 | ) | — | — | ||||||||
Proceeds from sale of securities | 406,440 | 73,046 | 91,050 | |||||||||
Purchase of investment securities | (99,489 | ) | (106,879 | ) | (129,183 | ) | ||||||
Net cash used in investing activities | (1,693,049 | ) | (33,833 | ) | (38,133 | ) | ||||||
| FINANCING ACTIVITIES | ||||||||||||
Purchase of treasury stock | — | — | (228,100 | ) | ||||||||
Proceeds from borrowings | 2,000,000 | — | — | |||||||||
Repayment of borrowings | (1,000,000 | ) | — | — | ||||||||
Dividends paid | (1,161,616 | ) | (1,161,616 | ) | (1,123,063 | ) | ||||||
Net cash used in financing activities | (161,616 | ) | (1,161,616 | ) | (1,351,163 | ) | ||||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 36,916 | (34,040 | ) | (36,910 | ) | |||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 79,876 | 113,916 | 150,826 | |||||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 116,792 | $ | 79,876 | $ | 113,916 | ||||||
Supplemental disclosures: | ||||||||||||
Cash paid for interest | $ | — | $ | — | $ | — | ||||||
Cash paid for income taxes | — | 500 | — | |||||||||
20
Management’s Responsibility For Financial Statements
The Company’s consolidated financial statements and the related information appearing in this Annual Report were prepared by management in accordance with generally accepted accounting principles and where appropriate reflect management’s best estimates and judgment. The financial statements and the information related to those statements contained in the Annual Report are the responsibility of management.
The accounting systems of the Company include internal accounting controls which safeguard the Company’s assets from material loss or misuse and ensure that transactions are properly authorized and recorded in its financial records, and designed to provide reasonable assurance as to the integrity and reliability of the financial records. There are inherent limitations in all systems of internal control based on the recognition that the cost of such systems should not exceed the benefits to be derived. The accounting system and related controls are reviewed by a program of internal audits performed by the internal auditor and independent auditors.
Our independent auditors are responsible for auditing the Company’s financial statements in accordance with generally accepted auditing standards and to provide an objective, independent review of the fairness of reported operating results and financial position of the Company.
The Company’s internal auditor and independent auditors have direct access to the Audit committee of the Board of Directors. This committee meets periodically with the internal auditor, the independent auditors, and management to ensure the financial accounting and audit process is properly conducted.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
First West Virginia Bancorp, Inc.
Wheeling, West Virginia
We have audited the accompanying consolidated balance sheets of First West Virginia Bancorp, Inc. and subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First West Virginia Bancorp, Inc. and subsidiary as of December 31, 2005 and 2004, and the results of its operations, and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.
S. R. Snodgrass, A.C.
Wheeling, West Virginia
February 18, 2006
S.R. Snodgrass, A.C.
980 National Road Wheeling, WV 26003-6400 Phone: 304-233-5030 Facsimile: 304-233-3062
21
Table One
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
| December 31, | ||||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
SUMMARY OF OPERATIONS | ||||||||||||||||||||
Total interest income | $ | 13,128 | $ | 13,406 | $ | 13,319 | $ | 14,309 | $ | 14,772 | ||||||||||
Total interest expense | 4,070 | 4,195 | 4,603 | 5,101 | 6,422 | |||||||||||||||
Net interest income | 9,058 | 9,211 | 8,716 | 9,208 | 8,350 | |||||||||||||||
Provision for loan losses | 180 | 300 | 435 | 540 | 573 | |||||||||||||||
Total other income | 1,378 | 1,284 | 1,346 | 1,033 | 942 | |||||||||||||||
Total other expenses | 7,451 | 6,747 | 6,342 | 6,062 | 5,324 | |||||||||||||||
Income before income taxes | 2,804 | 3,448 | 3,285 | 3,639 | 3,395 | |||||||||||||||
Net income | 2,262 | 2,637 | 2,518 | 2,674 | 2,412 | |||||||||||||||
PER SHARE DATA | ||||||||||||||||||||
Net income | $ | 1.48 | $ | 1.73 | $ | 1.64 | $ | 1.74 | $ | 1.57 | ||||||||||
Cash dividends declared | 0.76 | 0.76 | 0.73 | 0.69 | 0.68 | |||||||||||||||
Book value per share | 15.68 | 15.67 | 15.07 | 14.60 | 13.16 | |||||||||||||||
AVERAGE BALANCE SHEET SUMMARY | ||||||||||||||||||||
Total loans, net | $ | 144,528 | $ | 151,562 | $ | 137,826 | $ | 131,383 | $ | 118,224 | ||||||||||
Investment securities | 102,882 | 110,528 | 117,758 | 93,962 | 73,639 | |||||||||||||||
Deposits - interest bearing | 200,902 | 215,937 | 217,064 | 200,170 | 168,820 | |||||||||||||||
Stockholders’ equity | 24,409 | 23,092 | 21,884 | 20,302 | 18,902 | |||||||||||||||
Total assets | 270,500 | 284,930 | 277,952 | 252,543 | 217,006 | |||||||||||||||
BALANCE SHEET | ||||||||||||||||||||
Investments | $ | 107,998 | $ | 106,561 | $ | 119,245 | $ | 108,065 | $ | 82,202 | ||||||||||
Loans | 135,214 | 154,331 | 146,711 | 136,772 | 120,944 | |||||||||||||||
Other assets | 23,001 | 18,910 | 18,155 | 19,517 | 28,884 | |||||||||||||||
Total Assets | $ | 266,213 | $ | 279,802 | $ | 284,111 | $ | 264,354 | $ | 232,030 | ||||||||||
Deposits | $ | 218,817 | $ | 236,171 | $ | 241,947 | $ | 231,376 | $ | 203,772 | ||||||||||
Federal funds purchased and repurchase agreements | 19,084 | 15,759 | 15,089 | 9,038 | 6,538 | |||||||||||||||
FHLB borrowings | 2,385 | 2,425 | 2,464 | — | — | |||||||||||||||
Other long-term borrowings | 1,000 | — | — | — | — | |||||||||||||||
Other liabilities | 968 | 1,494 | 1,580 | 1,480 | 1,471 | |||||||||||||||
Stockholders’ equity | 23,959 | 23,953 | 23,031 | 22,460 | 20,249 | |||||||||||||||
Total Liabilities and Stockholders’ equity | $ | 266,213 | $ | 279,802 | $ | 284,111 | $ | 264,354 | $ | 232,030 | ||||||||||
SELECTED RATIOS | ||||||||||||||||||||
Return on average assets | 0.84 | % | 0.93 | % | 0.91 | % | 1.06 | % | 1.11 | % | ||||||||||
Return on average equity | 9.27 | % | 11.42 | % | 11.51 | % | 13.17 | % | 12.76 | % | ||||||||||
Average equity to average assets | 9.02 | % | 8.10 | % | 7.87 | % | 8.04 | % | 8.71 | % | ||||||||||
Dividend payout ratio | 51.35 | % | 43.93 | % | 44.51 | % | 39.66 | % | 43.31 | % | ||||||||||
Loan to Deposit ratio | 61.79 | % | 65.35 | % | 60.64 | % | 59.11 | % | 59.35 | % | ||||||||||
22
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
Forward-Looking Information: Certain information contained in this report, which are not historical facts, may be forward-looking statements that involve risks and uncertainties. These statements are subject to important factors that could cause action results to differ materially from those contemplated by such statements, including without limitation, the effect of changing economic conditions, changes in interest rates, changes in lending activities, changes in state and federal regulations, and other external factors which may materially impact the Company’s operational and financial performance.
Critical Accounting Policies: The Company’s accounting policies are integral to understanding the results reported. The accounting policies are described in detail in Note 1 of the Consolidated Financial Statements. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. Detailed policies and control procedures have been established and are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.
Other Than Temporary Impairment of Equity Securities:Equity securities are evaluated periodically to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent. It indicates that the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.
Allowance for Loan Losses: Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Company’s allowance for loan losses provides for probable losses based upon evaluations of known, and inherent risks in the loan portfolio. Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business environment; as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. For a full discussion of the Company’s methodology of assessing the adequacy of the reserve for loan losses, refer to Note 1 of the Consolidated Financial Statements.
Goodwill and Other Intangible Assets:As discussed in Note 1 of the notes to the Consolidated Financial Statements, the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows were less than the recorded goodwill and other intangible assets balances, we would be required to take a charge against earnings to write down the assets to the lower value.
Deferred Tax Assets: The Company uses an estimate of future earnings to support its position that the benefit of the deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced. The deferred tax assets are described further in Note 1 of the Consolidated Financial Statements.
OVERVIEW
Following is a discussion and analysis of the significant changes in the financial condition and results of operations of First West Virginia Bancorp, Inc., (the Company), and its subsidiary for the years ended December 31, 2005, 2004 and 2003. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes, thereto.
The Company reported net income of $2,262,265 or $1.48 per share for the year ended December 31, 2005 as compared to $2,637,325 or $1.73 per share for the year ended December 31, 2004. The decline of $375,060 or 14.2% in earnings during 2005 over 2004 was primarily the result of the increase in noninterest expenses combined with the decline in net interest income and were offset in part by the decrease in the provision for loan losses and the increase in noninterest income. Noninterest expenses rose $704,618 or 10.4% in 2005 over 2004 and was primarily due to increased operating expenses, salary and employee benefit costs and occupancy expenses. Operating expenses increased $417,352 or 19.6% in 2005, and was primarily due to the subsidiary bank’s compliance with the Formal Agreement resulting in additional nonrecurring service expenses and directors fees; compliance with the Sarbanes-Oxley Act Section 404 resulting in increased internal audit fees and legal expenses; a loss on the sale of other real estate owned; increased regulatory assessments; and the outsourcing of an investment securities portfolio advisor. Salary and employee benefits increased $204,835 or 5.8% in 2005 over 2004 and was primarily due to the hiring of additional personnel to enhance lending development and operations, increased employee benefit costs and normal annual merit adjustments. Occupancy expenses increased $82,431 or 7.8% in 2005 over 2004 and was primarily due to increased building and maintenance costs and equipment repair and maintenance costs. In 2005, the Company’s subsidiary bank leased office space for its executives which contributed to the increased building maintenance costs. During 2005 as compared to 2004, net interest income decreased $153,774 or 1.7% and was primarily attributable to the reduction in the interest earned on loans and investment securities, and was offset in part by the decline in the interest paid on interest bearing liabilities. The provision for loan losses decreased $120,000 in 2005 over 2004 and was primarily the result of the improvement in the asset quality of the loan portfolio. Noninterest income increased $94,087 or 7.3% and was primarily attributable to the nonrecurring gains on sales of investment securities offset in part by a decline in service charges and other fee income. The return on average assets was .84% as of December 31, 2005 compared to .93% in 2004. The return on average equity was 9.27% at December 31, 2005 compared to 11.42% in 2004. The Board of Directors declared and paid cash dividends of $.76 per share during 2005.
Table One is a five-year summary of Selected Financial Data of the Holding Company. The sections that follow discuss in more detail the information summarized in Table One.
23
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Table Two - Average Balance Sheets and Interest Rate Analysis
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 years ended December 31, 2005, 2004, and 2003. Average balance sheet information as of December 31, 2005, 2004, and 2003 was compiled using the daily average balance sheet. 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.
(dollars in thousands) | December 31, 2005 | December 31, 2004 | December 31, 2003 | |||||||||||||||||||||||||||
| Average Volume | Interest | Average Rate | Average Volume | Interest | Average Rate | Average Volume | Interest | Average Rate | ||||||||||||||||||||||
ASSETS: | ||||||||||||||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||||||||
U.S. Treasury and U. S Government agencies | $ | 45,684 | $ | 1,492 | 3.27 | % | $ | 47,484 | $ | 1,457 | 3.07 | % | $ | 46,358 | $ | 1,407 | 3.04 | % | ||||||||||||
Mortgage backed securities | 37,239 | 1,460 | 3.92 | % | 39,313 | 1,346 | 3.42 | % | 44,504 | 1,381 | 3.10 | % | ||||||||||||||||||
States and political subdivisions | 19,050 | 697 | 3.66 | % | 20,005 | 728 | 3.64 | % | 20,259 | 743 | 3.67 | % | ||||||||||||||||||
Other securities | 909 | 36 | 3.96 | % | 3,726 | 193 | 5.18 | % | 6,637 | 343 | 5.17 | % | ||||||||||||||||||
Total Investment securities: | 102,882 | 3,685 | 3.58 | % | 110,528 | 3,724 | 3.37 | % | 117,758 | 3,874 | 3.29 | % | ||||||||||||||||||
Interest bearing deposits | 881 | 29 | 3.29 | % | 993 | 11 | 1.11 | % | 1,721 | 16 | 0.93 | % | ||||||||||||||||||
Federal funds sold | 5,646 | 178 | 3.15 | % | 6,041 | 77 | 1.27 | % | 6,913 | 72 | 1.04 | % | ||||||||||||||||||
Loans, net of unearned income | 144,528 | 9,208 | 6.37 | % | 151,562 | 9,572 | 6.32 | % | 137,826 | 9,329 | 6.77 | % | ||||||||||||||||||
Other earning assets | 1,257 | 28 | 2.23 | % | 930 | 22 | 2.37 | % | 890 | 28 | 3.15 | % | ||||||||||||||||||
Total earning assets | 255,194 | 13,128 | 5.14 | % | 270,054 | 13,406 | 4.96 | % | 265,108 | 13,319 | 5.02 | % | ||||||||||||||||||
Cash and due from banks | 6,092 | 6,055 | 5,822 | |||||||||||||||||||||||||||
Bank premises and equipment | 4,111 | 3,876 | 4,019 | |||||||||||||||||||||||||||
Other assets | 7,566 | 7,221 | 5,110 | |||||||||||||||||||||||||||
Allowance for loan losses | (2,463 | ) | (2,276 | ) | (2,107 | ) | ||||||||||||||||||||||||
Total Assets | $ | 270,500 | $ | 284,930 | $ | 277,952 | ||||||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||||||||
Time deposits | $ | 83,666 | $ | 2,750 | 3.29 | % | $ | 87,972 | $ | 2,786 | 3.17 | % | $ | 94,156 | $ | 3,285 | 3.49 | % | ||||||||||||
Savings deposits | 78,648 | 704 | 0.90 | % | 88,786 | 879 | 0.99 | % | 86,322 | 952 | 1.10 | % | ||||||||||||||||||
Interest bearing demand deposits | 38,588 | 120 | 0.31 | % | 39,179 | 127 | 0.32 | % | 36,586 | 142 | 0.39 | % | ||||||||||||||||||
Federal funds purchased and repurchase agreements | 13,894 | 312 | 2.25 | % | 16,906 | 286 | 1.69 | % | 12,671 | 199 | 1.57 | % | ||||||||||||||||||
FHLB and other long-term borrowings | 3,501 | 184 | 5.26 | % | 2,444 | 117 | 4.79 | % | 544 | 26 | 4.78 | % | ||||||||||||||||||
Total interest bearing liabilities | 218,297 | 4,070 | 1.86 | % | 235,287 | 4,195 | 1.78 | % | 230,279 | 4,604 | 2.00 | % | ||||||||||||||||||
Demand deposits | 26,388 | 24,885 | 24,157 | |||||||||||||||||||||||||||
Other liabilities | 1,406 | 1,666 | 1,632 | |||||||||||||||||||||||||||
Total Liabilities | 246,091 | 261,838 | 256,068 | |||||||||||||||||||||||||||
STOCKHOLDERS’ EQUITY | 24,409 | 23,092 | 21,884 | |||||||||||||||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 270,500 | $ | 284,930 | $ | 277,952 | ||||||||||||||||||||||||
Net yield on earning assets | $ | 9,058 | 3.55 | % | $ | 9,211 | 3.41 | % | $ | 8,715 | 3.29 | % | ||||||||||||||||||
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 2005, 2004, and 2003, respectively. The effect of this adjustment is presented below.
|
| |||||||||||||||||||||||||||||
Investment securities | $ | 102,882 | $ | 4,110 | 3.99 | % | $ | 110,528 | $ | 4,165 | 3.77 | % | $ | 117,758 | $ | 4,333 | 3.68 | % | ||||||||||||
Loans | 144,528 | 9,641 | 6.67 | % | 151,562 | 10,000 | 6.60 | % | 137,826 | 9,720 | 7.05 | % | ||||||||||||||||||
Total earning assets | $ | 255,194 | $ | 13,986 | 5.48 | % | $ | 270,054 | $ | 14,275 | 5.29 | % | $ | 265,108 | $ | 14,169 | 5.34 | % | ||||||||||||
Taxable equivalent net yield on earning assets | $ | 9,916 | 3.89 | % | $ | 10,080 | 3.73 | % | $ | 9,565 | 3.61 | % | ||||||||||||||||||
24
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Table Three - Rate Volume Analysis of Changes in Interest Income and Expense
The effect on interest income and interest expense for the years ended December 31, 2005 and 2004 due to changes in average volume and rate from the prior year, is presented below. The effect of a change in average volume has been determined by applying the average rate to the change in volume. The change in rate has been determined by applying the average volume in the earlier year by the change in rate. The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of change in each.
(in thousands) | 2005 Compared to 2004 | 2004 Compared to 2003 | ||||||||||||||||||||||
Increase (Decrease) Due to Change in: | Increase (Decrease) Due to Change in: | |||||||||||||||||||||||
Average Volume | Rate | Net increase (decrease) | Average Volume | Rate | Net increase (decrease) | |||||||||||||||||||
INTEREST INCOME FROM: | ||||||||||||||||||||||||
U.S. Treasury and other U. S. Government agencies | $ | (55 | ) | $ | 90 | $ | 35 | $ | 34 | $ | 16 | $ | 50 | |||||||||||
Mortgage backed securities | (71 | ) | 185 | 114 | (161 | ) | 126 | (35 | ) | |||||||||||||||
Obligations of states and political subdivisions | (35 | ) | 4 | (31 | ) | (9 | ) | (6 | ) | (15 | ) | |||||||||||||
Other securities | (146 | ) | (11 | ) | (157 | ) | (150 | ) | — | (150 | ) | |||||||||||||
Total investment securities | (307 | ) | 268 | (39 | ) | (286 | ) | 136 | (150 | ) | ||||||||||||||
Interest bearing deposits | (1 | ) | 19 | 18 | (7 | ) | 2 | (5 | ) | |||||||||||||||
Federal funds sold | (5 | ) | 106 | 101 | (9 | ) | 14 | 5 | ||||||||||||||||
Loans, net of unearned income | (444 | ) | 80 | (364 | ) | 930 | (687 | ) | 243 | |||||||||||||||
Other earning assets | 7 | (1 | ) | 6 | 1 | (7 | ) | (6 | ) | |||||||||||||||
Total interest earned | (750 | ) | 472 | (278 | ) | 629 | (542 | ) | 87 | |||||||||||||||
INTEREST EXPENSE ON: | ||||||||||||||||||||||||
Time deposits | (136 | ) | 100 | (36 | ) | (216 | ) | (283 | ) | (499 | ) | |||||||||||||
Savings deposits | (100 | ) | (75 | ) | (175 | ) | 27 | (100 | ) | (73 | ) | |||||||||||||
Interest bearing demand deposits | (2 | ) | (5 | ) | (7 | ) | 10 | (25 | ) | (15 | ) | |||||||||||||
Federal funds purchased and repurchase agreements | (51 | ) | 77 | 26 | 67 | 20 | 87 | |||||||||||||||||
FHLB and other long-term borrowings | 50 | 17 | 67 | 91 | — | 91 | ||||||||||||||||||
Total interest paid | (239 | ) | 114 | (125 | ) | (21 | ) | (388 | ) | (409 | ) | |||||||||||||
Net interest differential | $ | (511 | ) | $ | 358 | $ | (153 | ) | $ | 650 | $ | (154 | ) | $ | 496 | |||||||||
Presented below is the effect on volume and rate variances of the adjustment of interest income on obligations of states and political subdivisions to the fully taxable equivalent basis using a combined Federal and State corporate income tax rate of 40% for the years ended 2005, 2004, and 2003, respectively.
|
| |||||||||||||||||||||||
Investment securities | $ | (288 | ) | $ | 233 | $ | (55 | ) | $ | (266 | ) | $ | 98 | $ | (168 | ) | ||||||||
Loans | (464 | ) | 105 | (359 | ) | 969 | (689 | ) | 280 | |||||||||||||||
Total interest earned | $ | (751 | ) | $ | 462 | $ | (289 | ) | $ | 688 | $ | (582 | ) | $ | 106 | |||||||||
Net interest differential | $ | (512 | ) | $ | 348 | $ | (164 | ) | $ | 709 | $ | (194 | ) | $ | 515 | |||||||||
25
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
EARNINGS ANALYSIS
Net Interest Income
Net interest income, which is the difference between interest earned on loans and investments and interest paid on deposits and other liabilities, is the primary source of earnings for the Company. 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. Tables Two and Three analyze the changes in net interest income for the three years ended December 31, 2005, 2004, and 2003.
Net interest income decreased $153,774 or 1.7% in 2005 from 2004, and follows an increase in 2004 of $495,698 or 5.7% from 2003. The decline in net interest income in 2005 was primarily due to a decrease in the interest earned on loans and investment securities, offset in part by a decrease in the average volume of interest bearing liabilities. The increase in net interest income in 2004 was primarily due to the decline in the interest rates paid on deposits combined with the increase in the interest earned on loans and was partially offset by the decline in the interest earned on investment securities. The changes in the volume and mix of earning assets and interest bearing liabilities combined with the changes in the market rates of interest resulted in taxable equivalent net interest yields on average earning assets of 3.89% for 2005, as compared to 3.73% and 3.61% earned during 2004 and 2003, respectively.
Interest and fees on loans decreased $364,392 or 3.8% from 2004 to 2005, after increasing $243,735 or 2.6% from 2003 to 2004. Interest and fees on loans declined in 2005 as compared to 2004 primarily due to the decline in the average volume of loans which was partially offset by an increase in the yield earned on the loan portfolio. The increase in interest and fees on loans in 2004 was primarily the result of the growth in the average loan volume offset in part by a reduction in the interest rates earned on loans. The taxable equivalent yield on loans increased .07% in 2005, from 6.60% in 2004 to 6.67% in 2005, after falling .45% in 2004, from 7.05% in 2003 to 6.60% in 2004. The average loan volume decreased $7.0 million or 4.6% in 2005 as compared to 2004 after increasing $13.7 million or 10.0% in 2004 as compared to 2003.
Interest income on investment securities during 2005 decreased $39,567 or 1.1% over 2004, and follows a decrease of $150,150 or 3.9% over 2003. The decline in the average volume of investment securities offset in part by the increase in the interest rates earned contributed to the decrease in interest earned on investment securities during 2005 and 2004. The taxable equivalent yield on investment securities rose .22% in 2005, from 3.77% in 2004 to 3.99% in 2005, and .09% in 2004, from 3.68% in 2003 to 3.77% in 2004. The average volume of investment securities decreased $7.6 million or 6.9% in 2005 as compared to 2004, and follows a decrease of $7.2 million or 6.1% in 2004 as compared to 2003.
Interest expense in 2005 decreased $124,088 or 3.0% from 2004, compared to a decrease in 2004 of $408,393 or 8.9% from 2003. In 2005, the decline in the average volume of interest bearing liabilities which was offset in part by the rise in interest rates primarily contributed to the overall decline in interest expense. The decrease in the interest rates paid on interest bearing liabilities primarily contributed to the decline in interest expense in 2004. The average yield paid on interest bearing liabilities during 2005 increased .08%, from 1.78% in 2004 to 1.86% in 2005, and follows a decrease in 2004 of .22%, from 2.00% in 2003 to 1.78% in 2004. The decline in the average volume of deposits and repurchase agreements combined with the decline in the average yield paid on savings deposits offset in part by the increase in the average yield paid on time deposits, repurchase agreements and other borrowings primarily resulted in the reduced interest expense. In 2004, the decline in the average yields paid on time deposits and savings deposits offset in part by the increase in the average volume of repurchase agreements and FHLB borrowings primarily contributed to the reduction in interest expense. The average volume of interest bearing deposits decreased $15.0 million or 7.0% in 2005 compared to 2004, after decreasing $1.1 million or .5% in 2004 as compared to 2003. The decrease in the average volume of interest bearing deposits during 2005 was primarily the result of the decline in time and savings deposits. In 2004 the decrease in the average volume of interest bearing deposits was primarily due to the decline in time deposits.
Noninterest Income
Noninterest income is comprised of service charges, investment securities gains and losses, and other operating income. Noninterest income increased $94,087 or 7.3%, in 2005 as compared to an decrease of $62,496 or 4.6% in 2004. During 2005, noninterest income primarily increased due to the nonrecurring gains on sales of investment securities offset in part by a decline in service charges and other fee income. The decrease in noninterest income in 2004 was primarily due to the nonrecurring gains recognized in 2003 on the sale of investment securities.
Sales of investment securities by the subsidiary bank are generally limited to the needs established under the liquidity policies. During 2005, the Company and its subsidiary bank accounted for securities gains of $144,770 and securities losses of $26,337 which were attributable to sales of securities available for sale. In 2004, the Company and its subsidiary bank accounted for securities gains of $14,277 and securities losses of $9,512 which were attributable to sales of securities available for sale. During 2003, securities gains of $253,288 and securities losses of $39,570 which were sales of securities available for sale were recorded by the Company and its subsidiary bank.
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, income earned on bank owned life insurance and various other charges and fees related to normal customer banking relationships. In 2005, other operating income was $483,682, an increase of $4,424 or .9% over 2004, and follows an increase of $103,152, or 27.4%, over 2003. The increase in other operating income resulted primarily from the earnings related to the cash surrender value of the bank owned life insurance on its key officers and ATM fees, offset in part by the nonrecurring gains on sales of assets and a decrease in income related to the sales of checkbooks and other credit card fees. During 2004, earnings on bank owned life insurance policies amounted to $80,700 combined with gains on sales of assets primarily contributed to the increase in other operating income during 2004.
Service charges and other fees represent the major component of noninterest income. These charges are earned from assessments made on checking and savings accounts. Service charges decreased $24,005 in 2005, down 3.0%, from 2004, as compared to an increase of 5.7% from 2003 to 2004. The decrease in service charges primarily resulted from a decline in the service charge fees and overdraft fees assessed on deposit accounts as compared to the prior year. The increases in service charges in 2004 was primarily due to the increase in the number of charges assessed on deposit accounts.
26
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Noninterest Expense
Noninterest expense increased $704,618 or 10.4% as compared to same period of the prior year. The increase in noninterest expense was primarily due to increases in other operating expenses, salary and employee benefits, and net occupancy expense.
The major components of other operating expenses include: stationery and supplies, directors’ fees, service expense, postage and transportation, other taxes, advertising, and regulatory assessments and deposit insurance. Other operating expense increased $417,352, or 19.6%, compared to the same period of the prior year and was attributable primarily to the subsidiary bank’s compliance with the Formal Agreement resulting in increased service expenses and directors fees; compliance with the Sarbanes-Oxley Act Section 404 which resulted in increased internal audit fees and legal expenses; a loss on the sale of other real estate owned which amounted to $59,032; increased regulatory assessments; and the outsourcing of investment securities portfolio management, offset in part by decreased advertising expense and other taxes. Other operating expenses increased $115,149 or 5.7% in 2004 over 2003. During 2004, the increase in other operating expenses was primarily due to the increase in directors’ fees, advertising, service expenses, and other expenses, offset by the decrease in regulatory assessments, stationery and supplies expense, and other taxes.
Salary and employee benefits represent the largest component of noninterest expense. Salary and employee benefits increased $204,835 or 5.8% in 2005 over 2004. During 2004, salary and employee benefits increased $207,199 or 6.2% as compared to the same period in 2003. The increased salary and employee benefit expense in 2005 compared to 2004 was primarily due to the hiring of additional personnel to enhance lending development and operations, increased employee benefit costs and normal annual merit adjustments. The increase in salary and employee benefits in 2004 was primarily due to the hiring of additional personnel at the subsidiary bank’s branch offices and normal annual merit adjustments.
Occupancy expenses increased $82,431 or 7.8% in 2005 over 2004, and follows a increase of $82,716 or 8.5% in 2004 over 2003. Increased building and maintenance costs and equipment repair and maintenance costs primarily contributed to the increase in occupancy expenses in 2005 as compared to 2004. In January 2005 the Company’s subsidiary bank leased office space for its executives in Wheeling, WV which contributed to the increased building and maintenance costs as compared to the prior year. The increase in occupancy expenses from 2003 to 2004 was primarily due to increased building maintenance costs, insurance and equipment repair and maintenance costs. The Company incurred additional maintenance costs with the operation of the internet web site and online banking program in 2004.
Income Taxes
Income tax expense for the period ended December 31, 2005 was $541,769, a decrease of $269,245 or 33.2% over 2004 as compared to the increase of $44,054 or 5.7% from 2003 to 2004. The decrease in pre-taxable income primarily contributed to the reduction in income tax expense in 2005. The increase in pre-taxable income offset in part by the increase in tax exempt income primarily contributed to the increase in income tax expense in 2004.
For federal income tax purposes, tax-exempt income is based on qualified state, county, and municipal bonds and loans. Tax-exempt income was $1,287,153 in 2005; $1,301,770 in 2004; and $1,275,770 in 2003. The state of West Virginia recognizes tax-exempt income based on the average of certain investments and loans held during the tax reporting period. Nontaxable items included are federal obligations and securities, obligations of West Virginia and West Virginia political subdivisions, investments of loans primarily secured by liens or security agreements on residential property and other real estate in the form of a mobile home, modular home or double-wide located in West Virginia. Nontaxable West Virginia income attributable to the foregoing items was approximately $1,271,000 in 2005; $1,602,000 in 2004; and $1,606,000 in 2003.
Components of the income tax expense for December 31, 2005 were $424,359 for federal taxes and $117,410 for West Virginia corporate net income taxes. Federal income tax rates and West Virginia corporate net income tax rates were consistent at 34% and 9%, respectively, for the years ended December 31, 2005, 2004 and 2003. Additional information regarding income taxes is contained in Note 7 to the Consolidated financial statements.
BALANCE SHEET ANALYSIS
Investments
Investment securities increased $1,437,381 or 1.4% from 2004, and followed a decrease in 2004 of $12,683,986 or 10.6% from 2003. The investment portfolio is managed to attempt to achieve an optimum mix of asset quality, liquidity and maximum yield on investment. The investment portfolio consists of U.S. Treasury securities, U.S. Government agency and corporation securities, obligations of states and political subdivisions, corporate debt securities, mortgage-backed securities and equity securities. Taxable securities comprised 79.6% of total securities at December 31, 2005, as compared to 82.3% at December 31, 2004. Other than the normal risks inherent in purchasing U.S. Treasury securities, U.S. Government agency and corporation 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 increased $2,485,665 or 2.4% from 2004, and represented 98% of the investment portfolio at December 31, 2005. The increase in the available for sale securities was primarily due to the purchase of mortgage-backed securities and obligations of states and political subdivisions, offset in part by the maturities and calls of the U.S. Treasury and other U.S. government agency and corporation securities, corporate debt securities and equity securities. Investment securities held to maturity are securities purchased with the intent and ability to hold until their maturity. Securities classified as held to maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts. The held to maturity securities decreased $1,048,284 or 37.1% from 2004 and represented 2% of the investment portfolio as of December 31, 2005. The decrease in the held to maturity securities was primarily the result of maturities and calls of tax exempt municipal securities. 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 under the requirements of FAS 115 and represent temporary adjustments in value. The carrying values of securities available for sale were decreased by $1,645,259 and increased by $110,482 at December 31, 2005 and 2004, respectively. The fair value of securities classified as held to maturity was above book value by $34,539 and by $102,751 at December 31, 2005 and 2004, respectively.
27
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Investments - Continued
Table Four - Investment Portfolio
The maturity distribution using book value including accretion of discounts and amortization of premiums and approximate yield of investment securities at December 31, 2005 and December 31, 2004 are presented in the following table. Tax equivalent yield basis was used on tax exempt obligations. Approximate yield was calculated using a weighted average of yield to maturities.
(dollars in thousands) | December 31, 2005 | December 31, 2004 | ||||||||||||||||||||||
Securities Held to Maturity | Securities Available for Sale | Securities Held to Maturity | Securities Available for Sale | |||||||||||||||||||||
| Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||
U. S. Treasury and other U.S. Government Agencies | ||||||||||||||||||||||||
Within One Year | $ | — | — | % | $ | 8,722 | 2.65 | % | $ | — | — | % | $ | 11,058 | 2.24 | % | ||||||||
After One But Within Five Years | — | — | 30,659 | 3.91 | — | — | 27,141 | 3.22 | ||||||||||||||||
After Five But Within Ten Years | — | — | 1,017 | 4.43 | — | — | 5,163 | 4.27 | ||||||||||||||||
After Ten Years | — | — | 192 | 4.39 | — | — | 228 | 2.39 | ||||||||||||||||
| — | — | 40,590 | 3.65 | — | — | 43,590 | 3.09 | |||||||||||||||||
States & Political Subdivisions | ||||||||||||||||||||||||
Within One Year | 645 | 5.74 | 1,272 | 5.46 | 1,049 | 5.96 | 536 | 4.29 | ||||||||||||||||
After One But Within Five Years | 1,034 | 6.91 | 5,339 | 4.71 | 1,679 | 6.46 | 6,597 | 4.42 | ||||||||||||||||
After Five But Within Ten Years | 97 | 7.95 | 6,742 | 5.21 | 97 | 7.95 | 8,009 | 5.14 | ||||||||||||||||
After Ten Years | — | — | 6,635 | 6.09 | — | — | 2,121 | 6.06 | ||||||||||||||||
| 1,776 | 6.54 | 19,988 | 5.38 | 2,825 | 6.33 | 17,263 | 4.95 | |||||||||||||||||
Corporate Debt Securities | ||||||||||||||||||||||||
Within One Year | — | — | — | — | — | — | 1,811 | 6.29 | ||||||||||||||||
After One But Within Five Years | — | — | — | — | — | — | 1,037 | 5.76 | ||||||||||||||||
| — | — | — | — | — | — | 2,848 | 6.10 | |||||||||||||||||
Mortgage-Backed Securities | — | — | 45,254 | 4.70 | — | 39,390 | 3.95 | |||||||||||||||||
Equity Securities | — | — | 390 | 2.57 | — | — | 645 | 2.13 | ||||||||||||||||
Total | $ | 1,776 | 6.54 | % | $ | 106,222 | 4.42 | % | $ | 2,825 | 6.33 | % | $ | 103,736 | 3.80 | % | ||||||||
28
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Loans
Loans represent the largest asset on the Company’s balance sheet. Total loans, net of unearned income, decreased $19,116,779 or 12.4% from 2004 to 2005. Total loans declined in 2005 primarily due to decreases in commercial loans, residential real estate loans, installment loans and other loans which decreased approximately $9,483,000, $6,652,000, $1,676,000 and $1,322,000, respectively. The Company’s subsidiary bank experienced an unusual decline in loan volume during 2005. This was primarily due to large paydowns and payoffs to competitors. Part of the reduction in loan volume was initiated to improve the asset quality of the loan portfolio. Other loans were participated to other financial institutions in order to restructure the bank’s balance sheet to achieve the minimum capital ratios set forth in the Formal Agreement. From 2003 to 2004, total loans increased $7,620,543 or 5.2%. The loan growth in 2004 was primarily due to an increase of $6,639,000 in commercial loans and $2,709,000 in other loans, offset in part by decreases of $1,121,000 in real estate loans and $563,000 in installment loans.
Real estate residential loans which include real estate construction, real estate farmland, real estate residential loans and multi-family residential properties comprised thirty-three percent (33%) of the loan portfolio. Commercial loans which include real estate secured by non-farm, non-residential properties and commercial and industrial loans comprised forty-five percent (45%) of the loan portfolio. Installment loans comprised twelve percent (12%) of the loan portfolio. Other loans which include non-rated industrial development obligations, direct financing leases and other loans comprised ten percent (10%) of the loan portfolio. The changes in the composition of the loan portfolio from 2004 to 2005 were a 1% increase in other loans and a 1% decrease in real estate residential loans. From 2003 to 2004, the changes in the composition of the loan portfolio were a 2% increase in commercial loans, a 1% increase in other loans, a 2% decrease in real estate residential loans and a 1% decrease in installment loans.
Table Five
Loan Portfolio - Maturities and sensitivities of Loans to Changes in Interest Rates
(dollars in thousands)
The following table presents the contractual maturities of loans other than installment loans and residential mortgages as of December 31, 2005 and 2004:
| December 31, 2005 | December 31, 2004 | |||||||||||||||||
In one Year or Less | After one Year Through Five Years | After Five Years | In one Year or Less | After one Year Through Five Years | After Five Years | |||||||||||||
Real estate construction | $ | 31 | $ | 369 | $ | 359 | $ | 515 | $ | 752 | $ | 574 | ||||||
Commercial real estate - secured by nonfarm, nonresidential property | 1,273 | 1,966 | 43,348 | 1,544 | 2,263 | 47,892 | ||||||||||||
Commercial and industrial | 559 | 7,205 | 5,957 | 1,310 | 7,866 | 8,916 | ||||||||||||
Nonrated industrial development obligations | 402 | 3,027 | 9,784 | 1,585 | 3,638 | 9,315 | ||||||||||||
Total | $ | 2,265 | $ | 12,567 | $ | 59,448 | $ | 4,954 | $ | 14,519 | $ | 66,697 | ||||||
The following table presents an analysis of fixed and variable rate loans as of December 31, 2005 and 2004 along with the contractual maturities of loans other than installment loans and residential mortgages:
| ||||||||||||||||||
| December 31, 2005 | December 31, 2004 | |||||||||||||||||
In one Year or Less | After one Year Through Five Years | After Five Years | In one Year or Less | After one Year Through Five Years | After Five Years | |||||||||||||
Fixed Rates | $ | 747 | $ | 7,805 | $ | 9,156 | $ | 2,951 | $ | 9,378 | $ | 12,817 | ||||||
Variable Rates | 1,518 | 4,762 | 50,292 | 2,003 | 5,141 | 53,880 | ||||||||||||
Total | $ | 2,265 | $ | 12,567 | $ | 59,448 | $ | 4,954 | $ | 14,519 | $ | 66,697 | ||||||
29
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Loans - Continued
Non-performing assets include non-accrual loans on which the collectibility of the full amount of interest is uncertain; loans which have been renegotiated to provide for a reduction or deferral of interest on principal because of a deterioration in the financial position of the borrower; loans past due ninety days or more as to principal or interest; and other real estate owned. A five-year summary of nonperforming assets is presented in Table Six.
Total non-performing loans were $1,510,000 at December 31, 2005 as compared to $1,642,000 at December 31, 2004. Non-performing loans decreased $132,000 in 2005, after decreasing $527,000 in 2004. Declines in both other real estate owned and non-accrual loans, offset by the increase in loans past due 90 days or more, primarily contributed to the overall reduction in non-performing loans in 2005.
Loans are placed in non-accrual when the principal or interest is past due 90 days or more, unless the loan is both well secured and in the process of collection. Non-accrual loans were $1,367,000 or 1.0% of total loans outstanding as of December 31, 2005, as compared to $1,441,000 or .9% of total loans at December 31, 2004. Loans past due 90 days or more and still accruing interest were $90,000 at December 31, 2005, as compared to $17,000 at December 31, 2004. Other real estate owned amounted to $53,000 at December 31, 2005 compared to $184,000 at December 31, 2004. At December 31, 2005 other real estate owned consists of residential real estate. Other real estate owned decreased $131,000 in 2005 over 2004, and follows an increase of $172,000 in 2004 over 2003. The increase in 2004 was primarily due to the addition of a commercial property by the subsidiary bank. Management continues to monitor the nonperforming assets to ensure against deterioration in collateral values.
Table Six - Risk Elements
Loans which are in the process of collection, but are contractually past due 90 days or more as to interest or principal, renegotiated, non-accrual loans and other real estate are as follows:
(dollars in thousands) | December 31, | ||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||
Past Due 90 Days or More: | |||||||||||||||||||
Real Estate - residential | $ | 85 | — | $ | 52 | $ | 61 | $ | 21 | ||||||||||
Commercial | — | 6 | — | — | 26 | ||||||||||||||
Installment | 5 | 11 | 6 | 15 | 26 | ||||||||||||||
| 90 | 17 | $ | 58 | $ | 76 | $ | 73 | ||||||||||||
Non-accrual: | |||||||||||||||||||
Real Estate - residential | $ | 64 | 74 | $ | 12 | $ | 115 | $ | 27 | ||||||||||
Commercial | 1,262 | 1,357 | 2,052 | 1,443 | 1,124 | ||||||||||||||
Installment | 41 | 10 | 35 | 9 | 33 | ||||||||||||||
| $ | 1,367 | 1,441 | $ | 2,099 | $ | 1,567 | $ | 1,184 | |||||||||||
Other Real Estate | $ | 53 | 184 | $ | 12 | $ | 39 | $ | 60 | ||||||||||
| �� | |||||||||||||||||||
Total non-performing assets | $ | 1,510 | 1,642 | $ | 2,169 | $ | 1,682 | $ | 1,317 | ||||||||||
Total non-performing assets to total loans and other real estate | 1.12 | % | 1.06 | % | 1.48 | % | 1.23 | % | 1.09 | % | |||||||||
Generally, all banks recognize interest income on the accrual basis, except for certain loans which are placed on a non - accrual status. Loans are placed on a non - accrual status, when in the opinion of management doubt exists as to its collectibility. In accordance with the Office of the Comptroller of the Currency Policy, banks may not accrue interest on any loan which either the principal or interest is past due 90 days or more unless the loan is both well secured and in the process of collection. The amount of interest income that would have been recognized on nonaccrual loans had the loans performed in accordance with their original terms was $117,900 and $105,700 for the periods ended December 31, 2005 and 2004, respectively.
30
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Allowance for Loan Losses
In all lending activities there is an inherent risk that borrowers will be unable to repay their obligations. The Company maintains an allowance for loan losses to absorb probable loan losses. Table Seven presents a five-year summary of the Allowance for Loan Losses. The Company has historically maintained the allowance for loan losses at a level greater than actual charge-offs. Although a subjective evaluation is determined by management, the Company believes it has appropriately assessed the risk of loans in the loan portfolio and has provided for an allowance which is adequate based on that assessment. Because the allowance is an estimate, any change in the economic conditions of the Company’s market area could result in new estimates which could affect the Company’s earnings. Management monitors the quality of the loan portfolio through reviews of past due loans and all significant loans which are considered to be potential problem loans on a monthly basis. The internal loan review function provides for an independent review of commercial, real estate, and installment loans in order to measure the asset quality of the portfolio. Management’s review of the loan portfolio has not indicated any material loans, not disclosed in the accompanying tables and discussions which are known to have possible credit problems that cause management to have serious doubts as to the ability of each borrower to comply with their present loan repayment terms.
The allowance for loan losses decreased $36,230 or 1.5%, between December 31, 2005 and December 31, 2004. The allowance for loan losses represented 1.7% and 1.5% of outstanding loans as of December 31, 2005 and 2004, respectively. Net loan charge-offs were $216,230 in 2005, compared to $248,767 in 2004 and $157,037 in 2003. The net loan charge-offs remain within historical ranges. The net loan charge-offs in 2005, 2004 and 2003 were primarily commercial and consumer loans. The provision for loan losses was $180,000 for the year ended December 31, 2005, compared to $300,000, and $435,000 at December 31, 2004 and 2003, respectively. The credit quality of the loan portfolio combined with the recent level of net charge-offs and nonperforming assets continue to be considered in the calculation of the provision for loan losses.
Table Seven - Analysis of Allowance for Possible Loan Losses
The following table presents a summary of loans charged off and recoveries of loans previously charged off by type of loan.
(dollars in thousands) | December 31, | |||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Balance at beginning of period: | $ | 2,356 | $ | 2,305 | $ | 2,027 | $ | 1,646 | $ | 1,302 | ||||||||||
Loans Charged Off: | ||||||||||||||||||||
Real Estate - residential | 12 | 3 | 13 | 2 | — | |||||||||||||||
Commercial | 183 | 229 | 77 | 134 | 95 | |||||||||||||||
Installment | 71 | 70 | 76 | 63 | 164 | |||||||||||||||
| 266 | 302 | 166 | 199 | 259 | ||||||||||||||||
Recoveries: | ||||||||||||||||||||
Real Estate - residential | — | 17 | 3 | — | 4 | |||||||||||||||
Commercial | 29 | 20 | — | 29 | 12 | |||||||||||||||
Installment | 21 | 16 | 6 | 11 | 14 | |||||||||||||||
| 50 | 53 | 9 | 40 | 30 | ||||||||||||||||
Net Charge - offs | 216 | 249 | 157 | 159 | 229 | |||||||||||||||
Additions Charged to Operations | 180 | 300 | 435 | 540 | 573 | |||||||||||||||
Balance at end of period: | $ | 2,320 | $ | 2,356 | $ | 2,305 | $ | 2,027 | $ | 1,646 | ||||||||||
Average Loans Outstanding | $ | 144,528 | $ | 151,562 | $ | 137,826 | $ | 131,383 | $ | 118,224 | ||||||||||
Ratio of net charge-offs to Average loans outstanding for the period | 0.15 | % | 0.16 | % | 0.11 | % | 0.12 | % | 0.19 | % | ||||||||||
Ratio of the Allowance for Loan Losses to Loans Outstanding for the period | 1.72 | % | 1.53 | % | 1.57 | % | 1.48 | % | 1.36 | % | ||||||||||
The additions to the allowance for loan losses are based on management’s evaluation of characteristics of the loan portfolio, current and anticipated economic conditions, past loan experiences, net loans charged - off, specific problem loans and delinquencies, and other factors. The Company has allocated the allowance for possible loan losses to specific portfolio segments based upon historical net charge-off experience, changes in the level of nonperforming assets, local economic conditions and management’s experience as presented in Table Eight.
31
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Table Eight
Loan Portfolio - Allocation of allowance for possible loan losses
The following table presents an allocation of the allowance for possible loan losses at each of the five year periods ended December 31, 2005. The allocation presented below is based on the historical average of net charge offs per category combined with the change in loan growth and management’s review of the loan portfolio.
(dollars in thousands) | December 31, | |||||||||||||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||||
| Amount | Percent of loans in each category to total loans | Amount | Percent of loans in each category to total loans | Amount | Percent of loans in each category to total loans | Amount | Percent of loans in each category to total loans | Amount | Percent of loans in each category to total loans | |||||||||||||||||||||
Real estate - residential | $ | 327 | 33.4 | % | $ | 325 | 33.5 | % | $ | 311 | 36.0 | % | $ | 276 | 37.5 | % | $ | 263 | 37.3 | % | ||||||||||
Commercial | 1,465 | 44.5 | % | 1,520 | 45.2 | % | 1,429 | 43.0 | % | 1,161 | 41.7 | % | 821 | 40.0 | % | |||||||||||||||
Installment | 507 | 12.3 | % | 490 | 11.9 | % | 544 | 12.9 | % | 569 | 12.9 | % | 541 | 16.1 | % | |||||||||||||||
Others | 21 | 9.8 | % | 21 | 9.4 | % | 21 | 8.1 | % | 21 | 7.9 | % | 21 | 6.6 | % | |||||||||||||||
Total | $ | 2,320 | 100.0 | % | $ | 2,356 | 100.0 | % | $ | 2,305 | 100.0 | % | $ | 2,027 | 100.0 | % | $ | 1,646 | 100.0 | % | ||||||||||
Deposits
A stable core deposit base is the major source of funds for the Holding Company’s subsidiary bank. The deposit mix depends upon many factors including competition from other financial institutions, depositor interest in certain types of deposits, changes in the interest rate and the Company’s need for certain types of deposit growth. Total deposits decreased approximately $17.4 million or 7.4% in 2005. The decrease in total deposits was primarily due to the decline in savings deposits. Savings deposits decreased approximately $16.6 million, or 19.1%, during 2005 as a result of deposit customers seeking higher yielding deposit products. Also, the Company’s subsidiary bank implemented a designed deposit runoff strategy in order to achieve the minimum capital ratios set forth in the Formal Agreement which contributed to the decline in deposits.
At December 31, 2005, noninterest bearing deposits comprised 12% of total deposits and interest bearing deposits which include NOW, money market, savings and time deposits comprised 88% of total deposits. The change in the deposit mix from December 31, 2004 to December 31, 2005 was a 1% increase in noninterest bearing deposits and a 1% decrease in interest bearing deposits.
Federal Funds Purchased and Repurchase Agreements
Federal funds purchased and repurchase agreements are short-term borrowings. There were no Federal funds purchased as of December 31, 2005 and 2004. Repurchase agreements increased $3,325,124 or 21.1%, from $15,759,200 at December 31, 2004 to $19,084,324 at December 31, 2005. The 2005 increase in repurchase agreements was primarily due to the addition of commercial customers.
Federal Home Loan Bank and Other Long-term Borrowings
Federal Home Loan Bank (“FHLB”) borrowings were $2,384,893 and $2,425,111 at December 31, 2005 and 2004, respectively, with an interest rate of 4.76%. The FHLB borrowings are collateralized by a blanket collateral agreement which assigns a security interest in capital stock, deposits, mortgage loans, securities and FHLB stock of the subsidiary bank. The borrowings will mature in 2018. The FHLB funding was utilized to mitigate the impact of rising interest rates for a long term fixed rate loan commitment.
During the second quarter of 2005, the Company obtained a $3 million non-revolving line of credit from a financial institution to provide for the capitalization of the subsidiary Bank as required under the terms of the Formal Agreement. The line of credit is secured by 126,200 shares of Progressive Bank, N.A. stock. The note bears an interest rate of prime and is adjusted on a quarterly basis. The line of credit expires in May 2015 and is to be repaid in quarterly interest only payments for the first three years and quarterly principal and interest payments thereafter. The Company’s initial borrowing on the note amounted to $2 million. At December 31, 2005 the outstanding borrowings amounted to $1,000,000 with an interest rate of 7.25%.
32
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Table Nine Contractual Maturities of Long term Obligations and Operating Leases
The following table presents the contractual maturities of long term obligations and operating leases:
(dollars in thousands) | Payments due by period | ||||||||||||||
| < 1 year | 1-3 years | 3-5 years | > 5 years | Total | |||||||||||
Contractual Obligations: | |||||||||||||||
Federal Home Loan Bank and other long term borrowings | $ | 42 | $ | 91 | $ | 100 | $ | 3,152 | $ | 3,385 | |||||
Operating Leases | 197 | 176 | 129 | 130 | 632 | ||||||||||
| $ | 239 | $ | 267 | $ | 229 | $ | 3,282 | $ | 4,017 | ||||||
Table Ten Contractual Maturities of Commitments and Contingencies
The following table presents the maturities of commitments and contingencies:
(dollars in thousands) | Amount of Commitment Expiration Per Period | ||||||||||||||
| < 1 year | 1-3 years | 3-5 years | > 5 years | Total | |||||||||||
Off-Balance Sheet arrangements: | |||||||||||||||
Commitments to extend credit | $ | 1,214 | $ | 3,262 | $ | 500 | $ | 9,226 | $ | 14,202 | |||||
Standby letters of credit | 369 | — | 100 | 70 | 539 | ||||||||||
| $ | 1,583 | $ | 3,262 | $ | 600 | $ | 9,296 | $ | 14,741 | ||||||
Capital Resources
Stockholders’ equity increased 4.6% in 2005 entirely from current year earnings after quarterly dividends, and a 4.6% decrease in accumulated other comprehensive income. The decrease in accumulated other comprehensive income is primarily attributable to the effect of the change in the net unrealized losses on available for sale investment securities. The increase in stockholders’ equity in 2005 follows an increase of 6.4% in 2004 entirely from current earnings after quarterly dividends, and an decrease of 2.4% resulting from the effect of the change in the net unrealized gain on available for sale investment securities. Stockholders’ equity amounted to 9.0% and 8.6% of total assets at the end of 2005 and 2004, respectively. The Company paid dividends of $.76 per share in 2005 and 2004.
The Holding Company’s primary source of funds for payment of dividends to shareholders is from the dividends from its subsidiary bank. As previously discussed in Note 18 of the Consolidated Financial Statements, the subsidiary bank entered into an agreement with the Office of the Comptroller of the Currency. Under the terms of the Formal Agreement, the subsidiary bank cannot declare a dividend in 2006 without approval of the Comptroller of the Currency. The Board of Directors also adopted a resolution with the Federal Reserve Bank of Cleveland which prohibits the Company from paying dividends or participating in the acquisition of treasury stock without prior Federal Reserve approval and a 30 day prior notice requirement. The Company has taken, and intends to continue to take, all appropriate steps to comply with the Federal Reserve requirements.
The Holding Company and its subsidiary bank are subject to regulatory risk-based capital guidelines administered by the Federal Reserve Board and the Office of the Comptroller of the Currency. These risk-based capital guidelines establish minimum capital ratios of Total capital, Tier 1 Capital, and Leverage to assess the capital adequacy of bank holding companies. Additional information on capital amounts, ratios and minimum regulatory requirements for the Company and its subsidiary bank can be found in Note 19 of the Consolidated Financial Statements.
Liquidity
Liquidity management ensures that funds are available to meet loan commitments, deposit withdrawals, and operating expenses. Funds are provided by loan repayments, investment securities maturities, or deposits, and can be raised by liquidating assets or through additional borrowings. The Company had investment securities with an estimated fair value of $106,222,137 classified as available for sale at December 31, 2005. These securities are available for sale at any time based upon management’s assessment in order to provide necessary liquidity should the need arise. In addition, the Company’s subsidiary bank, Progressive Bank, N.A., is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”). Membership in the FHLB provides an additional source of funding in the form of collateralized advances. At December 31, 2005, the subsidiary bank had a short term line of credit in the aggregate amount of approximately $7 million available with the FHLB. There were no short term borrowings outstanding pursuant to this agreement as of December 31, 2005. At December 31, 2005 and December 31, 2004, the Company had outstanding loan commitments and unused lines of credit totaling $14,741,000 and $20,581,000, respectively. As of December 31, 2005, management placed a high probability for required funding within one year of approximately $8.6 million. Approximately $3.6 million is principally unused home equity and credit card lines on which management places a low probability for required funding.
Interest Rate Risk
Changes in interest rates can affect the level of income of a financial institution depending on the repricing characteristics of its assets and liabilities. This is termed interest rate risk. If a financial institution is asset sensitive, more of its assets will reprice in a given time frame than liabilities. This is a favorable position in a rising rate environment and would enhance income. If an institution is liability sensitive, more of its liabilities will reprice in a given time frame than assets. This is a favorable position in a falling rate environment. Financial institutions allocate significant time and resources to managing interest rate risk because of the impact that changes in interest rates can have to earnings.
The initial step in the process of maintaining a Company’s interest rate sensitivity involves the preparation of a basic “gap” analysis of earning assets and interest bearing liabilities as reflected in the following table. The analysis measures the difference or the “gap” between the amount of assets and liabilities repricing within a given time period.
33
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Interest Rate Risk - Continued
This information is used to manage a Company’s asset and liability positions. Management uses this information as a factor in decisions made about maturities of investment of cash flows, classification of investment securities purchases as available-for-sale or held-to-maturity, emphasis of variable rate or fixed rate loans and short or longer term deposit products in marketing campaigns, and deposit account pricing to alter asset and liability repricing characteristics. The overall objective is to minimize the impact to the margin of any significant change in interest rates.
The information presented in the following Interest Rate Risk table contains assumptions and estimates used by management in determining repricing characteristics and maturity distributions. As noted in the following table, the cumulative gap at one year is negative at approximately $27,030,000, which indicates the Company’s interest bearing liabilities reprice sooner than earning assets at December 31, 2005. As the table presented is as of a point in time and conditions change on a daily basis, any conclusions made may not be indicative of future results.
The Company’s subsidiary bank uses an asset/liability model to measure the impact of changes in interest rates on net interest income on a periodic basis. Assumptions are made to simulate the impact of future changes in interest rates and/or changes in balance sheet composition. The effect of changes in future interest rates on the mix of assets and liabilities may cause actual results to differ from simulated results. Guidelines established by the Company’s subsidiary bank provides that the estimated net interest income may not change by more than 10% in a one year period given a +/- 200 basis point parallel shift in interest rates. Excluding the potential effect of interest rate changes on assets and liabilities of the Holding Company which are not deemed material, the anticipated impact on net interest income of the subsidiary bank at December 31, 2005 was as follows: given a 200 basis point increase scenario net interest income would be reduced by approximately 6.5%, and given a 200 basis point decrease scenario net interest income would be reduced by approximately 1.4%. The Asset Liability committee believes that a 200 basis point decline in interest rates is unlikely to occur, and have determined that a 100 basis point instantaneous change may be more realistic. Therefore, the results using a +/-100 basis point interest rate scenario are presented. Under the 100 basis point increase scenario net interest income would be reduced by approximately 3.1%, and given a 100 basis point decrease scenario net interest income would be increased by approximately 1.9%. The projections provided by the model are not intended as an actual forecast of the bank’s performance in a particular rate environment, and should not be relied upon. Actual changes in the interest rate environment normally do not take place instantaneously, but over a period of time, and do not occur in a parallel fashion. Additionally, the balance sheet composition, spread relationships for new dollars invested, non interest income and expenses, investment practices, and deposit practices all change as a result of changes in interest rates and would need to be considered by the Asset Liability committee.
Interest Rate Risk Table - December 31, 2005
(dollars in thousands)
| Less than Three Months | Four to Twelve Months | One to Three Years | Greater than Three Years | Non- Interest Bearing | Total | |||||||||||||||||||
ASSETS: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 5,819 | $ | — | $ | — | $ | — | $ | 5,930 | $ | 11,749 | ||||||||||||
Investment securities | 4,820 | 18,552 | 35,772 | 50,562 | (1,708 | ) | 107,998 | |||||||||||||||||
Loans | 20,423 | 27,929 | 51,617 | 34,082 | 1,163 | 135,214 | ||||||||||||||||||
Other assets | 3,194 | — | — | — | 10,378 | 13,572 | ||||||||||||||||||
Allowance for loan losses | — | — | — | — | (2,320 | ) | (2,320 | ) | ||||||||||||||||
Total assets | $ | 34,256 | $ | 46,481 | $ | 87,389 | $ | 84,644 | $ | 13,443 | $ | 266,213 | ||||||||||||
LIABILITIES AND CAPITAL | ||||||||||||||||||||||||
NOW and savings accounts | $ | 15,399 | $ | 6,384 | $ | 7,506 | $ | 58,932 | $ | — | $ | 88,221 | ||||||||||||
Money Market Accounts (MMDA’s) | 18,958 | — | — | — | — | 18,958 | ||||||||||||||||||
Certificates of deposit < $100,000 | 13,127 | 21,259 | 19,545 | 9,307 | — | 63,238 | ||||||||||||||||||
Certificates of deposit > $100,000 | 2,967 | 9,547 | 4,779 | 5,062 | — | 22,355 | ||||||||||||||||||
Noninterest bearing demand deposits | — | — | — | — | 26,045 | 26,045 | ||||||||||||||||||
Federal funds purchased and repurchase agreements | 19,084 | — | — | — | — | 19,084 | ||||||||||||||||||
FHLB borrowings | 10 | 32 | 90 | 2,253 | — | 2,385 | ||||||||||||||||||
Other long-term borrowings | 1,000 | — | — | — | — | 1,000 | ||||||||||||||||||
Other liabilities | — | — | — | — | 968 | 968 | ||||||||||||||||||
Stockholders’ equity | — | — | — | — | 23,959 | 23,959 | ||||||||||||||||||
Total liabilities and capital | $ | 70,545 | $ | 37,222 | $ | 31,920 | $ | 75,554 | $ | 50,972 | $ | 266,213 | ||||||||||||
GAP | (36,289 | ) | 9,259 | 55,469 | 9,090 | (37,529 | ) | |||||||||||||||||
GAP/ Total Assets | (13.63 | )% | 3.48 | % | 20.84 | % | 3.41 | % | (14.10 | )% | ||||||||||||||
Cumulative GAP | (36,289 | ) | (27,030 | ) | 28,439 | 37,529 | 0 | |||||||||||||||||
Cumulative GAP/Total Assets | (13.63 | )% | (10.15 | )% | 10.68 | % | 14.10 | % | 0.00 | % | ||||||||||||||
The above analysis contains repricing and maturity assumptions and estimates used by management.
34
Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations
Market Information of Common Stock
First West Virginia Bancorp, Inc’s common stock has been traded on the American Stock Exchange primary list since June 20, 1995, and began trading under the symbol of FWV. The following table sets forth the high and low sales prices of the common stock during the respective quarters.
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||
2005 | ||||||||||||
High | $ | 23.90 | $ | 21.40 | $ | 20.07 | $ | 19.35 | ||||
Low | $ | 20.81 | $ | 19.51 | $ | 18.10 | $ | 17.40 | ||||
2004 | ||||||||||||
High | $ | 24.85 | $ | 24.15 | $ | 23.40 | $ | 25.05 | ||||
Low | $ | 22.63 | $ | 22.00 | $ | 21.60 | $ | 21.65 | ||||
Summarized Quarterly Financial Information
A summary of selected quarterly financial information follows:
2005 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||
Total interest income | $ | 3,305,715 | $ | 3,271,283 | $ | 3,246,463 | $ | 3,304,796 | |||||||
Total interest expense | 987,271 | 1,009,855 | 1,008,387 | 1,064,988 | |||||||||||
Net interest income | 2,318,444 | 2,261,428 | 2,238,076 | 2,239,808 | |||||||||||
Provision for loan losses | 90,000 | 90,000 | — | — | |||||||||||
Investment securities gain (loss) | 77,856 | 2,390 | 38,309 | (122 | ) | ||||||||||
Total other income | 295,072 | 303,896 | 336,568 | 323,734 | |||||||||||
Total other expenses | 1,930,503 | 1,857,371 | 1,823,928 | 1,839,623 | |||||||||||
Income before income taxes | 670,869 | 620,343 | 789,025 | 723,797 | |||||||||||
Net income | 545,728 | 510,783 | 613,555 | 592,199 | |||||||||||
Net income per share | 0.36 | 0.33 | 0.40 | 0.39 | |||||||||||
2004 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||
Total interest income | $ | 3,312,275 | $ | 3,264,003 | $ | 3,428,544 | $ | 3,401,297 | |||||||
Total interest expense | 1,065,824 | 1,039,123 | 1,048,859 | 1,040,783 | |||||||||||
Net interest income | 2,246,451 | 2,224,880 | 2,379,685 | 2,360,514 | |||||||||||
Provision for loan losses | 30,000 | 90,000 | 90,000 | 90,000 | |||||||||||
Investment securities gain (loss) | (2,501 | ) | 6,427 | (880 | ) | 1,719 | |||||||||
Total other income | 289,355 | 301,170 | 336,408 | 351,918 | |||||||||||
Total other expenses | 1,624,134 | 1,628,201 | 1,707,810 | 1,786,662 | |||||||||||
Income before income taxes | 879,171 | 814,276 | 917,403 | 837,489 | |||||||||||
Net income | 658,740 | 625,579 | 707,973 | 645,033 | |||||||||||
Net income per share | 0.43 | 0.41 | 0.46 | 0.43 | |||||||||||
2003 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||
Total interest income | $ | 3,396,307 | $ | 3,331,171 | $ | 3,312,373 | $ | 3,278,963 | |||||||
Total interest expense | 1,204,535 | 1,170,228 | 1,126,618 | 1,101,601 | |||||||||||
Net interest income | 2,191,772 | 2,160,943 | 2,185,755 | 2,177,362 | |||||||||||
Provision for loan losses | 90,000 | 75,000 | 45,000 | 225,000 | |||||||||||
Investment securities gain | — | 105,200 | 8 | 108,510 | |||||||||||
Total other income | 265,118 | 264,732 | 311,285 | 291,259 | |||||||||||
Total other expenses | 1,549,416 | 1,531,582 | 1,659,473 | 1,601,272 | |||||||||||
Income before income taxes | 817,474 | 924,293 | 792,575 | 750,859 | |||||||||||
Net income | 619,471 | 690,729 | 608,923 | 599,118 | |||||||||||
Net income per share | 0.40 | 0.45 | 0.40 | 0.39 | |||||||||||
35
First West Virginia Bancorp, Inc.
DIRECTORS
| Nada E. Beneke | Registered Sanitarian,President, Beneke Corporation | |
| Sylvan J. Dlesk | Chairman, Interim President and Chief Executive Officer, First West Virginia Bancorp, Inc., Interim President and Chief Executive Officer, Progressive Bank, N.A., Owner, Dlesk Realty and Investments, President, Dlesk, Inc.,President, Ohio Valley Carpeting, Inc. | |
| Gary W. Glessner | Certified Public Accountant, President/Owner, Glessner & Associates, PLLC | |
| Laura G. Inman | Vice Chairman of the Board, First West Virginia Bancorp, Inc. | |
| James C. Inman, Jr. | Retired Bank Executive | |
| R. Clark Morton | Chairman of the Board, Progressive Bank, N.A., Attorney at Law | |
| Thomas A. Noice | Retired Bank Executive, Treasurer, Belmont Community Hospital | |
| William G. Petroplus | Attorney at Law, Member/Partner Petroplus & Gaudino | |
| Thomas L. Sable | Owner, Bellaire Hardware; Managing Partner, The Summit Atlantic Group, LLC | |
| OFFICERS | ||
| Sylvan J. Dlesk | Chairman, Interim President and Chief Executive Officer | |
| Laura G. Inman | Vice Chairman | |
| Francie P. Reppy | Executive Vice President, Chief Administrative Officer, Chief Financial Officer, Treasurer | |
| Nancy J. Ritter | Vice President | |
| Connie R. Tenney | Vice President | |
| Stephanie A. LaFlam | Secretary | |
| Nada E. Beneke | Assistant Secretary | |
Progressive Bank, N.A.
DIRECTORS | OFFICERS | |
Nada E. Beneke | ||
Dr. Clyde D. Campbell | R. Clark Morton,Chairman of the Board | |
Robert R. Cicogna | Sylvan J. Dlesk, Interim President/Chief Executive Officer | |
Sylvan J. Dlesk | Francie P. Reppy,Executive Vice President/Chief Administrative Officer/Chief Financial Officer | |
William L. Fury | Nancy J. Ritter,Senior Vice President Operations/Cashier | |
Gary W. Glessner | Connie R. Tenney,Senior Vice President | |
Elizabeth H. Hestick | Brad D. Winwood,Senior Vice President/Senior Accounting & Investment Officer | |
Robert B. Hunnell, Jr. | Michael J. Taylor,Vice President/Credit Administration | |
J. Burton Hunter, III | Gary S. Martin,Vice President/Retail Lending | |
James C. Inman, Jr. | David E. Wharton,Vice President/Information Technology Officer/Data Security Officer | |
Laura G. Inman | Deborah A. Kloeppner,Vice President/Compliance and CRA Officer | |
Tulane B. Mensore | Michele L. Stanley,Vice President/Bank Secrecy & OFAC Officer | |
R. Clark Morton | Susan E. Reinbeau,Vice President/Branch Administrator | |
Thomas A. Noice | Stephanie A. LaFlam,Vice President/Human Resource Manager/Secretary | |
William G. Petroplus | Laura A. Schmidt,Assistant Vice President/Accounting Officer | |
David R. Rexroad | James W. Gasperowich,Assistant Vice President/Credit Analyst | |
Dale F. Riggs | Todd J. Hayes,Assistant Vice President/Business Development Officer | |
Thomas L. Sable | Janey S. Longwell,Assistant Vice President/Office Manager New Martinsville | |
| Debra M. Tomlin,Assistant Vice President/Loan Officer | ||
| Rebecca A. Palmer,Assistant Vice President/Manager Data Processing | ||
DIRECTOR EMERITUS | Kimberly A. Hughes,Loan Review Officer | |
| Harold O. Thomas,Senior Business Development Officer | ||
Edward P. Otte | Brenda K. Bellville,Information Systems Officer | |
| Mitzi K. Mattern,Operations Officer | ||
| Beth A. Heyman,Office Manager Woodsdale | ||
| Tina M. Mehlman,Office Manager Warwood | ||
| Michelle R. Miller,Office Manager Bellaire | ||
| Johanna Sanders,Office Manager Wellsburg | ||
| Susan M. Scotka,Office Manager Bethlehem | ||
| Jacquie J. Fultz,Office Manager Weston | ||
| Vickie D. Poling,Loan Officer | ||
Nada E. Beneke,Assistant Secretary |
36
First West Virginia Bancorp, Inc. and Subsidiary
Corporate Information
Corporate Office:
First West Virginia Bancorp, Inc.
1701 Warwood Avenue
Wheeling, WV 26003
(304) 277-1100
Transfer Agent:
Any inquiries related to stockholder records, stock transfers, changes of ownership, and changes of address should be sent to the transfer agent at the following address:
Investor Relations Department
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-9982
(800) 368-5948
Stock Trading Information:
First West Virginia Bancorp, Inc.’s common stock is traded on the American Stock Exchange, Inc. primary list under the symbol FWV.
Annual Meeting
The Annual Meeting of Stockholders will be held at 4:00 p.m, on Tuesday, April 11, 2006, at the Warwood Office of Progressive Bank, N.A., 1701 Warwood Avenue, Wheeling, WV 26003
Form 10-K
Upon written request any shareholder of record on December 31, 2005, may obtain a copy of the Corporation’s 2005 Form 10-K Report (to be filed with the Securities and Exchange Commission before March 31, 2006) by writing to the Secretary, First West Virginia Bancorp, Inc., 1701 Warwood Avenue, Wheeling, WV 26003