First West Virginia Bancorp (FWV) 10-K 2011 FY Annual report

Exhibit 13.1

P.O. Box 6671

Wheeling, WV 26003

TO OUR SHAREHOLDERS:

I am pleased for the opportunity to present you the financial performance results contained in the 2011 Annual Report of First West Virginia Bancorp, Inc. Consolidated net income for 2011 was $2,454,145 or $1.48 per share, an increase of $114,864 or 4.9% as compared to $2,339,281 or $1.42 per share a year earlier. The increase in earnings in 2011 over the prior year was primarily the result of increases in net interest income and in noninterest income combined with the declines in noninterest expense and income tax expense, offset in part by the increase in the provision for loan losses.

The total assets for the Company increased 5.5% over the prior year to $293,258,090 at December 31, 2011 as compared to $277,958,652 at December 31, 2010. Total stockholders’ equity increased 11.0% to $34,526,510 as compared to $31,101,186 reported in 2010. The book value per share was $20.89 at December 31, 2011 as compared to $18.82 a year earlier.

During 2011, the Board of Directors declared and paid cash dividends to shareholders of $.76 per share compared to $.73 per share during 2010, which represents an increase of 4.1% over the prior year.

The year 2011 did not disappoint us with its continued challenges of a distraught economic climate affecting employment, investments and consumer confidence. All of which provide a strong headwind for our bank to operate successfully.

Nevertheless wesensed the right business course to follow and weseized many opportunities through innovative marketing strategies and products to cultivate strong customer relationships presented by our consecrated personnel.

We secured our bank’s safety and soundness position with our Board of Directors providing us with comprehensive policies and procedures to follow. Our shareholders demonstrated their confidence in our organization with their continued strong support.

We enter year 2012 with an abundance of confidence in our company’s ability to have another successful year.

Gratefully,

/s/    Sylvan J. Dlesk

Sylvan J. Dlesk

Chairman of the Board

President and Chief Executive Officer

First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS

	December 31,
	2011			2010
ASSETS
Cash and due from banks	$	6,671,293		$	4,622,677
Due from banks - interest bearing		14,245,480			5,309,936
Total cash and cash equivalents		20,916,773			9,932,613
Investment securities:
Available-for-sale (at fair value)		150,960,955			133,168,794
Loans		109,428,476			121,367,066
Less allowance for loan losses		(2,503,738	)		(2,059,025	)
Net loans		106,924,738			119,308,041
Premises and equipment, net		5,917,719			5,714,121
Accrued income receivable		1,140,273			1,094,835
Goodwill		1,644,119			1,644,119
Bank owned life insurance		3,518,450			3,415,247
Other assets		2,235,063			3,680,882
Total assets	$	293,258,090		$	277,958,652
LIABILITIES
Noninterest bearing deposits:
Demand	$	31,915,482		$	28,319,278
Interest bearing deposits:
Demand		47,890,988			42,112,794
Savings		85,579,615			78,678,200
Time		73,790,921			79,364,466
Total deposits		239,177,006			228,474,738
Federal funds purchased and securities sold under agreements to repurchase		14,013,506			13,477,420
Federal Home Loan Bank borrowings		3,693,014			3,775,583
Accrued interest payable		217,726			276,662
Other liabilities		1,630,328			853,063
Total liabilities		258,731,580			246,857,466
STOCKHOLDERS’ EQUITY
Common stock - 2,000,000 shares authorized at $5 par value:
1,662,814 shares issued at December 31, 2011 and 2010		8,314,070			8,314,070
Treasury stock - 10,000 shares at cost:		(228,100	)		(228,100	)
Surplus		6,288,403			6,288,403
Retained earnings		16,920,319			15,722,313
Accumulated other comprehensive income		3,231,818			1,004,500
Total stockholders’ equity		34,526,510			31,101,186
Total liabilities and stockholders’ equity	$	293,258,090		$	277,958,652

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,
	2011		2010		2009
INTEREST AND DIVIDEND INCOME
Loans, including fees:
Taxable	$	5,974,485	$	6,645,321	$	7,251,907
Tax-exempt		522,058		536,473		527,344
Debt securities:
Taxable		3,206,117		3,463,178		4,173,960
Tax-exempt		1,459,879		1,163,007		943,965
Other interest income		44,676		49,908		15,938
Federal funds sold		-		8		728
Total interest and dividend income		11,207,215		11,857,895		12,913,842
INTEREST EXPENSE
Deposits		1,942,354		2,657,832		3,731,052
Federal funds purchased and repurchase agreements		108,364		112,297		127,979
FHLB and other long-term borrowings		178,589		285,373		469,068
Total interest expense		2,229,307		3,055,502		4,328,099
Net interest income		8,977,908		8,802,393		8,585,743
PROVISION FOR LOAN LOSSES		600,000		220,000		183,942
Net interest income after provision for loan losses		8,377,908		8,582,393		8,401,801
NONINTEREST INCOME
Service charges and other fees		494,992		594,126		702,529
Net gains on available for sale securities		730,897		565,274		188,517
Other operating income		808,042		817,182		899,957
Total noninterest income		2,033,931		1,976,582		1,791,003
NONINTEREST EXPENSE
Salary and employee benefits		3,833,789		3,822,492		3,684,089
Net occupancy expense of premises		1,493,529		1,420,868		1,272,483
Other operating expenses		2,298,760		2,479,538		2,635,509
Total noninterest expense		7,626,078		7,722,898		7,592,081
Income before income taxes		2,785,761		2,836,077		2,600,723
INCOME TAXES		331,616		496,796		295,737
Net income	$	2,454,145	$	2,339,281	$	2,304,986
WEIGHTED AVERAGE SHARES OUTSTANDING		1,652,814		1,652,814		1,652,814
EARNINGS PER COMMON SHARE	$	1.48	$	1.42	$	1.39
DIVIDENDS PER COMMON SHARE	$	0.76	$	0.73	$	0.73

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 Compre- hensive Income (loss)			Compre- hensive Income			Total
	Shares		Amount
BALANCE, DECEMBER 31, 2008		1,599,411	$	7,997,055	$	5,609,357	$	14,492,736		($	228,100	)	$	865,510					$	28,736,558
Comprehensive income:
Net income		-		-		-		2,304,986			-			-		$	2,304,986			2,304,986
Other comprehensive income, net of tax
Unrealized gain on securities net of reclassification adjustment (see disclosure)		-		-		-		-			-			972,645			972,645			972,645
Comprehensive income																$	3,277,631
Cash dividend ($.73 per share)		-		-		-		(1,207,952	)		-			-						(1,207,952	)
BALANCE, DECEMBER 31, 2009		1,599,411		7,997,055		5,609,357		15,589,770			(228,100	)		1,838,155						30,806,237
Comprehensive income:
Net income		-		-		-		2,339,281			-			-		$	2,339,281			2,339,281
Other comprehensive income, net of tax
Unrealized loss on securities net of reclassification adjustment (see disclosure)		-		-		-		-			-			(833,655	)		(833,655	)		(833,655	)
Comprehensive income																$	1,505,626
Cash dividend ($.73 per share)		-		-		-		(1,207,952	)		-			-						(1,207,952	)
Cash Paid in Lieu of fractional shares on stock dividend		-		-		-		(2,725	)		-			-						(2,725	)
4% Common Stock Dividend at Par Value		63,403		317,015		679,046		(996,061	)		-			-						-
BALANCE, DECEMBER 31, 2010		1,662,814		8,314,070		6,288,403		15,722,313			(228,100	)		1,004,500						31,101,186
Comprehensive income:
Net income		-		-		-		2,454,145			-			-		$	2,454,145			2,454,145
Other comprehensive income, net of tax
Unrealized gain on securities net of reclassification adjustment (see disclosure)		-		-		-		-			-			2,227,318			2,227,318			2,227,318
Comprehensive income																$	4,681,463
Cash dividend ($.76 per share)		-		-		-		(1,256,139	)		-			-						(1,256,139	)
BALANCE, DECEMBER 31, 2011		1,662,814	$	8,314,070	$	6,288,403	$	16,920,319		($	228,100	)	$	3,231,818					$	34,526,510

	2011		2010			2009
Disclsosure of reclassification amount:
Unrealized holding gains (losses) arising during the period	$	2,683,179	$	(481,094	)	$	1,090,223
Less reclassification adjustment for gains included in net income		455,861		352,561			117,578
Net unrealized gains (losses) on securities	$	2,227,318	$	(833,655	)	$	972,645

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,
	2011			2010			2009
OPERATING ACTIVITIES
Net income	$	2,454,145		$	2,339,281		$	2,304,986
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in Provision for loan losses		600,000			220,000			183,942
Depreciation and amortization		486,179			496,618			444,208
Amortization (accretion) of investment securities, net		329,738			130,563			(68,440	)
Investment security gains		(730,897	)		(565,274	)		(188,517	)
Loss on disposal of assets		-			400			-
Decrease (increase) in cash surrender value of bank-owned life insurance		(103,203	)		(104,660	)		243,397
Decrease (increase) in interest receivable		(45,438	)		108,800			49,118
Decrease in interest payable		(58,936	)		(127,787	)		(162,141	)
Other, net		879,265			1,516,369			(2,140,193	)
Net cash provided by operating activities		3,810,853			4,014,310			666,360
INVESTING ACTIVITIES
Net (increase) decrease in loans, net of charge-offs		11,727,442			7,148,912			(4,177,926	)
Proceeds from sales of securities available-for-sale		24,092,900			17,588,511			11,355,204
Proceeds from maturities of securities available-for-sale		53,578,129			47,269,966			38,661,874
Proceeds from maturities of securities held-to-maturity		-			-			321,000
Principal collected on mortgage-backed securities		18,632,179			13,693,963			14,399,406
Purchases of securities available-for-sale		(110,123,074	)		(96,626,108	)		(66,551,785	)
Recoveries on loans previously charged-off		55,862			10,108			18,253
Purchases of premises and equipment		(689,777	)		(1,412,164	)		(529,286	)
Net cash used in investing activities		(2,726,339	)		(12,326,812	)		(6,503,260	)
FINANCING ACTIVITIES
Net increase in deposits		10,702,268			7,228,741			14,860,730
Dividends paid		(1,256,139	)		(1,210,677	)		(1,207,952	)
Increase in short-term borrowings		536,086			2,451,988			12,237
Repayment of FHLB borrowings		(82,569	)		(3,578,726	)		(3,575,060	)
Net cash provided by financing activities		9,899,646			4,891,326			10,089,955
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		10,984,160			(3,421,176	)		4,253,055
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		9,932,613			13,353,789			9,100,734
CASH AND CASH EQUIVALENTS, END OF YEAR	$	20,916,773		$	9,932,613		$	13,353,789
Supplemental Disclosures:
Cash Paid for Interest	$	2,288,243		$	3,183,289		$	4,490,240
Cash Paid for Income Taxes		367,036			391,918			453,853

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, 2011, 2010, AND 2009

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 nine full service branches located in Wheeling (3), Wellsburg, Moundsville, 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.

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 and cash equivalents: Cash and cash equivalents consist of cash on hand and amounts due from banks and federal funds sold with maturities of less than 90 days.

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.

Securities are periodically reviewed for other-than-temporary impairment based upon a number of factors, including, but not limited to, the length of time and extent to which the market value has been less than cost, the financial condition of the underlying issuer, the ability of the issuer to meet contractual obligations, the likelihood of the security’s ability to recover any decline in its market value, and management’s intent and ability to hold the security for a period of time sufficient to allow for a recovery in market value. Among the factors that are considered in determining management’s intent and ability is a review of the Company’s capital adequacy, interest rate risk position and liquidity. The assessment of a security’s ability to recover any decline in market value, the ability of the issuer to meet contractual obligations and management’s intent and ability requires considerable judgment. Once a decline in value is determined to be other than temporary, if the investor does not intend to sell the security, and it is more-likely-than-not that it will not be required to sell the security, before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. At December 31, 2011, 2010 and 2009, 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.

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. The Bank is a member of the FHLB and, as such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and, as such, is classified as restricted stock, carried at cost and evaluated by management. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of the decline in net assets of the FHLB as compared with the capital stock amount and the length of time this situation has persisted, (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB, and (d) the liquidity position of the FHLB.

6

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Investment Securities: (Continued)

The FHLB had incurred losses in 2009 and for parts of 2010 due primarily to other-than-temporary impairment credit losses on its private- label mortgage-backed securities portfolio. These securities were the most affected by the extreme economic conditions in place during the previous several years. As a result, the FHLB had suspended the payment of dividends and limited the amount of capital stock repurchases. The FHLB had reported net income for both the fourth quarter and the year ended December 31, 2011, and has declared a $.10 percent annualized dividend to its shareholders effective February 23, 2012. While the FHLB has not committed to regular dividend payments or future limited repurchases of excess capital stock, it will continue to monitor the overall financial performance of the FHLB in order to determine the status of limited repurchases of excess capital or dividends in the future. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein. More consideration was given to the long-term prospects for the FHLB as opposed to the recent stress caused by the extreme economic conditions the world is facing. Management also considered that the FHLB’s regulatory capital ratios have increased from the prior year, liquidity appears adequate, new shares of FHLB stock continue to exchange hands at $100 par value, and the resumption of dividends.

Loans and Loans Held for Sale: Loans are generally reported at the principal balance outstanding, net of unearned income. 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. 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. Nonaccrual loans may be returned to accrual status when none of its principal and interest payments are due and there has been a sustained period of repayment performance. 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. Loans held for sale are carried at the lower of cost or estimated market value in the aggregate. There were no loans held for sale as of December 31, 2011 and 2010, respectively.

The Company has entered into an agreement with the Federal Home Loan Bank of Pittsburgh (“FHLB”) under which the bank may sell conforming one-to-four family residential mortgage loans to the FHLB. The current agreement dated December 28, 2011 provides for a maximum commitment of $5,000,000. This commitment expires on December 28, 2012. Loans sold to the FHLB are sold with limited recourse or credit risk based upon utilization of the original commitment. The bank also maintains the servicing of these loans, for which it is paid a servicing fee. The total amount of loans sold and outstanding to the FHLB were $9,470,840 and $6,758,928 as of December 31, 2011 and 2010, respectively. These loans were also subject to recourse obligation or credit risk in the amount of $383,269 and $232,888 at December 31, 2011 and 2010, respectively. The amount of income recognized as of a result of this agreement was $79,965, $69,565 and $22,616 for the years ending December 31, 2011, 2010 and 2009, respectively.

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.

Management tracks and assigns a historical loss percentage for each loan rating category within each loan type. A rolling three-year historical loss ratio is used, calculated on a quarterly basis.

Management currently utilizes nine qualitative factors that are adjusted based on changes in the lending environment and economic conditions. The qualitative factors include the following: levels of and trends in delinquencies, non-accruals, and charge-offs; trends within the loan portfolio; changes in lending policies and procedures; experience of lending personnel and management oversight; national and local economic trends; concentrations of credit; external factors such as legal and regulatory requirements; changes in the quality of loan review and Board oversight; and changes in the value of underlying collateral. The number of qualitative factors can change. Factors can be added for new risks or taken away if the risk no longer applies. Each loan type will have its own risk profile and management will evaluate and adjust each qualitative factor for each loan type quarterly, if necessary. For example, if one area of the loan portfolio is experiencing sharp increases in growth, it is likely the qualitative factor for trends in the loan portfolio would be increased for that loan type. As levels of delinquencies and non-accrual loans decline for commercial real estate and commercial loans it is likely that factor would be reduced.

In terms of the Company’s loan portfolio, the commercial and industrial loans and commercial real estate loans are deemed to have more risk than the consumer real estate loans and other consumer loans in the portfolio. The commercial loans not secured by real estate are highly dependent on financial condition and are more dependent on economic conditions. The commercial loans secured by real estate are also dependent on economic conditions but generally have stronger forms of collateral. More recently, commercial real estate has been negatively impacted by devaluation so these commercial loans carry a higher qualitative factor for changes in the value of collateral. The commercial loans and commercial real estate loans have historically been responsible for the majority of the Company’s delinquencies, non-accrual loans, and charge-offs so both of these categories carry higher qualitative factors than consumer real estate loans and other consumer loans. The Company has historically experienced very low levels of consumer real estate and consumer loan charge-offs so these qualitative factors are set lower than the commercial real estate and commercial and industrial loans.

7

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Allowance for Loan Losses: (Continued)

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.

Impaired loans are 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.

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 $2,503,738 at December 31, 2011, 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.

Goodwill and Other Intangible Assets Goodwill resulted from the Company’s purchase of a less-than-whole financial institution (the “branch”). The goodwill value of $1.6 million 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.

Goodwill is 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.

Mortgage Servicing Rights (“MSRs”):The Company has agreements for the express purpose of selling loans in the secondary market. The Company maintains all servicing rights for these loans. Originated MSRs are recorded by allocating total costs incurred between the loan and servicing rights based on their relative fair values. MSRs are amortized in proportion to the estimated servicing income over the estimated life of the servicing portfolio. Impairment is evaluated based on the fair value of the right, based on portfolio interest rates and prepayment characteristics.

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 $3,518,450 and $3,415,247 at December 31, 2011 and 2010, respectively. The death benefit value of the bank-owned life insurance at December 31, 2011 and 2010 was $8.8 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

Advertising Costs: Advertising costs are expensed as the costs are incurred. Advertising expenses amounted to $154,380, $88,932 and $160,961 for 2011, 2010, and 2009, respectively.

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.

8

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

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. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Statement of Income. 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.

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.

Stock Dividend:On October 13, 2010, the Company declared a 4% stock dividend to stockholders of record on December 20, 2010. All common share data includes the effect of the stock dividend.

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:

	2011			2010			2009
Before-tax amount	$	3,523,606		$	(1,336,628	)	$	1,559,476
Tax effect		(1,325,933	)		502,973			(586,831	)
Net of tax effect		2,197,673			(833,655	)		972,645
Net income as reported		2,454,145			2,339,281			2,304,986
Total comprehensive income	$	4,651,818		$	1,505,626		$	3,277,631

Recent Accounting Pronouncements: In April 2011, the FASB issued ASU 2011-02,Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this Update provide additional guidance or clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The amendments in this Update are effective for the first interim or annual reporting period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The Company has provided the necessary disclosures in Note 3.

In April 2011, the FASB issued ASU 2011-03,Transfers and Services (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The main objective in developing this Update is to improve the accounting for repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The amendments in this Update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this Update apply to all entities, both public and nonpublic. The amendments affect all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The guidance in this Update is effective for the first interim or annual period beginning on or after December 15, 2011 and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

9

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements (Continued)

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011. Early application by public entities is not permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

In June 2011, the FASB issued ASU 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income.The amendments in this Update improve the comparability, clarity, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. All entities that report items of comprehensive income, in any period presented, will be affected by the changes in this Update. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The amendments in this Update should be applied retrospectively, and early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

In September 2011, the FASB issued ASU 2011-08,Intangibles – Goodwill and Other Topics (Topic 350), Testing Goodwill for Impairment. The objective of this update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in this Update apply to all entities, both public and nonpublic, that have goodwill reported in their financial statements and are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. This ASU is not expected to have a significant impact on the Company’s financial statements.

In September 2011, the FASB issued ASU 2011-09,Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80):Disclosures about an Employer’s Participation in a Multiemployer Plan. The amendments in this Update will require additional disclosures about an employer’s participation in a multiemployer pension plan to enable users of financial statements to assess the potential cash flow implications relating to an employer’s participation in multiemployer pension plans. The disclosures also will indicate the financial health of all of the significant plans in which the employer participates and assist a financial statement user to access additional information that is available outside the financial statements. For public entities, the amendments in this Update are effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. For nonpublic entities, the amendments are effective for annual periods of fiscal years ending after December 15, 2012, with early adoption permitted. The amendments should be applied retrospectively for all prior periods presented. This ASU is not expected to have a significant impact on the Company’s financial statements.

10

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements (Continued)

In December 2011, the FASB issued ASU 2011-10,Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification. The amendments in this Update affect entities that cease to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. Under the amendments in this Update, when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. The amendments in this Update should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

In December 2011, the FASB issued ASU 2011-11,Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this Update affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section 210-20-50. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this Update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In December 2011, the FASB issued ASU 2011-12,Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. In order to defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments, the paragraphs in this Update supersede certain pending paragraphs in Update 2011-05. Entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05. All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. This ASU is not expected to have a significant impact on the Company’s financial statements.

11

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 2 - INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities are as follows at December 31, 2011 and 2010:

	(Expressed in thousands) December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale:
Obligations of U.S. Government corporations and agencies	$	36,014	$	202	$	-		$	36,216
Obligations of states and political subdivisions		42,154		3,150		-			45,304
Mortgage-backed securities		67,402		1,820		(7	)		69,215
Equity securities		209		17		-			226
Total available-for-sale		145,779		5,189		(7	)		150,961
Total	$	145,779	$	5,189	$	(7	)	$	150,961

	(Expressed in thousands) December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale:
Obligations of U.S. Government corporations and agencies	$	36,024	$	120	$	(446	)	$	35,698
Obligations of states and political subdivisions		33,738		678		(125	)		34,291
Mortgage-backed securities		61,580		1,828		(458	)		62,950
Equity securities		216		14		-			230
Total available-for-sale		131,558		2,640		(1,029	)		133,169
Total	$	131,558	$	2,640	$	(1,029	)	$	133,169

The Company’s investment securities portfolio contains unrealized losses of direct obligations of the 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 quarterly basis, the Company evaluates the severity and duration of impairment for its investment securities portfolio and the Company’s ability to hold the securities till they recover. Generally, impairment is considered other than temporary when an investment security has sustained a decline in market value for a period of twelve 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 that are not expected to result in the noncollection of principal and interest during the period. There are 5 positions that are temporarily impaired at December 31, 2011.

12

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

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, 2011 and 2010:

		$0,000		$0,000			$0,000		$0,000			$0,000		$0,000
	(Expressed in thousands) 2011
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. Government corporations and agencies	$	-	$	-		$	-	$	-		$	-	$	-
Obligations of states and political subdivisions		-		-			-		-			-		-
Mortgage-backed securities		2,008		(6	)		112		(1	)		2,120		(7	)
Total debt securities		2,008		(6	)		112		(1	)		2,120		(7	)
Equity securities		-		-			-		-			-		-
Total	$	2,008	$	(6	)	$	112	$	(1	)	$	2,120	$	(7	)

		$00,000		$00,000			$00,000		$00,000			$00,000		$00,000
	(Expressed in thousands) 2010
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. Government corporations and agencies	$	15,542	$	(446	)	$	-	$	-		$	15,542	$	(446	)
Obligations of states and political subdivisions		6,056		(125	)		-		-			6,056		(125	)
Mortgage-backed securities		17,291		(457	)		266		(1	)		17,557		(458	)
Total debt securities		38,889		(1,028	)		266		(1	)		39,155		(1,029	)
Equity securities		-		-			-		-			-		-
Total	$	38,889	$	(1,028	)	$	266	$	(1	)	$	39,155	$	(1,029	)

The amortized cost and fair value of investment securities at December 31, 2011, 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.

	(Expressed in thousands)
	Securities Held-to-Maturity				Securities Available-for-Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	-	$	-	$	1,156	$	1,162
Due after one year through five years		-		-		13,334		13,471
Due after five years through ten years		-		-		35,895		36,929
Due after ten years		-		-		27,783		29,958
		-		-		78,168		81,520
Mortgage-backed securities		-		-		67,402		69,215
Equity securities		-		-		209		226
Total	$	-	$	-	$	145,779	$	150,961

Proceeds from sales of securities available-for-sale during the years ended December 31, 2011, 2010, and 2009, were $24,092,900, $17,588,511, and $11,355,204 respectively. Gross gains of $747,015 and gross losses of $16,118 in 2011; gross gains of $566,815 and gross losses of $1,541 in 2010; and gross gains of $298,319 and gross losses of $109,802 in 2009, were realized on those sales. Assets carried at $53,581,000 and $31,931,000 at December 31, 2011 and 2010, respectively, were pledged to secure United States Government and other public funds and for other purposes as required or permitted by law.

13

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 3 - LOANS AND LEASES

Loans outstanding at December 31, 2011 and 2010, are as follows:

	(Expressed in Thousands)
	2011		2010
Consumer Real Estate:
Construction	$	295	$	308
Farmland		213		246
Residential 1-4 Family		24,961		28,089
Home Equity Loans		2,380		2,976
Home Equity Lines of Credit		2,303		2,447
Total Consumer Real Estate		30,152		34,066
Commercial Real Estate:
Non-farm, non-residential		49,146		49,195
Multifamily (5 or more) residential properties		7,222		7,458
Total Commercial Real Estate		56,368		56,653
Commercial and Other Loans:
Commercial		4,354		7,033
Non-rated industrial development obligations		11,508		13,460
Other loans		76		39
Total Commercial and Other Loans		15,938		20,532
Consumer Loans:
Installment and other loans to individuals		6,484		9,696
Credit Cards		606		573
Total Consumer Loans		7,090		10,269
Total loans	$	109,548	$	121,520
Less unearned interest and deferred fees		119		153
Net loans	$	109,429	$	121,367

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. These policies and procedures are reviewed by management and approved by the Board of Directors on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentration of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

The Company originates direct and indirect consumer loans including principally residential real estate, home equity lines and loans, credit cards, and indirect vehicle loans using a credit analysis as part of the underwriting process. Each loan type has a separate underwriting criteria, which consists of several factors including debt to income, type of collateral, credit history and customer relationship with the Company.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably. Underwriting standards are designed to promote relationship banking rather than transactional banking. The Company’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of the borrower, however, may not be as expected and the collateral securing the loan may fluctuate in value. Minimum standards and underwriting guidelines have been established for commercial loan types.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by the general economy or conditions specific to the real estate market such as geography and/or property type.

Non-accrual loans amounted to $4,045,937 and $4,902,515 at December 31, 2011 and 2010, respectively. The amount of interest income that would have been recognized had the loans performed in accordance with their original terms was $353,340, $289,590 and $249,470 for 2011, 2010 and 2009, respectively.

14

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 3 - LOANS AND LEASES (CONTINUED)

The following tables present the contractual aging of the recorded investment in past due loans by class of loans (in thousands):

	December 31, 2011
	Current			Loans 30-59 days Past Due		Loans 60-89 days Past Due		Loans 90 or more days Past Due		Total Past Due		Non - Accrual		Total Loans
Commercial and Other Loans	$	15,642		$	257	$	-	$	-	$	257	$	39	$	15,938
Commercial real estate		52,474			325		36		-		361		3,533		56,368
Consumer real estate		29,449			116		140		-		256		447		30,152
Consumer		7,040			9		14		-		23		27		7,090
Unearned interest and deferred fees		(119	)		-		-		-		-		-		(119	)
Total	$	104,486		$	707	$	190	$	-	$	897	$	4,046	$	109,429
	December 31, 2010
	Current			Loans 30-59 days Past Due		Loans 60-89 days Past Due		Loans 90 or more days Past Due		Total Past Due		Non - Accrual		Total Loans
Commercial and Other Loans	$	20,369		$	109	$	-	$	-	$	109	$	54	$	20,532
Commercial real estate		52,451			29		26		-		55		4,147		56,653
Consumer real estate		33,247			103		-		28		131		688		34,066
Consumer		10,218			34		3		-		37		14		10,269
Unearned interest and deferred fees		(153	)		-		-		-		-		-		(153	)
Total	$	116,132		$	275	$	29	$	28	$	332	$	4,903	$	121,367

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Special Mention”, “Substandard”, and “Doubtful.” Substandard loans include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. Risk ratings are updated any time the situation warrants.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. The following tables present the risk category of loans by class of loans based on the most recent analysis performed and the contractual aging as of December 31, 2011 and 2010 (in thousands):

2011	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and Other	$	15,882	$	-	$	56	$	-	$	15,938
Commercial Real Estate		43,067		5,807		6,786		708		56,368
Construction and Land Development		508		-		-		-		508
Total	$	59,457	$	5,807	$	6,842	$	708	$	72,814
Current	$	59,164	$	5,807	$	3,653	$	-	$	68,624
Past Due 30-59 days		257		-		325		-		582
Past Due 60-89 days		36		-		-		-		36
Past Due 90 days or more		-		-		-		-		-
Non- accrual		-		-		2,864		708		3,572
Total	$	59,457	$	5,807	$	6,842	$	708	$	72,814

15

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 3 - LOANS AND LEASES (CONTINUED)

		$20,532		$20,532		$20,532		$20,532		$20,532
2010	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and Other	$	19,735	$	743	$	54	$	-		$    20,532
Commercial Real Estate		42,050		6,388		8,215		-		56,653
Construction and Land Development		399		-		155		-		554
Total	$	62,184	$	7,131	$	8,424	$	-	$	77,739
Current	$	62,184	$	7,131	$	4,194	$	-		$    73,509
Past Due 30-59 days		-		-		29		-		29
Past Due 60-89 days		-		-		-		-		-
Past Due 90 days or more		-		-		-		-		-
Non- accrual		-		-		4,201		-		4,201
Total	$	62,184	$	7,131	$	8,424	$	-		$    77,739

For consumer and residential real estate loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in those loan classes based on payment activity as of December 31, 2011 and 2010 (in thousands):

2011	Performing		Non-performing		Total
Consumer	$	7,063	$	27	$	7,090
Consumer Real Estate		29,705		447		30,152
Total	$	36,768	$	474	$	37,242

2010	Performing		Non-performing		Total
Consumer	$	10,255	$	14	$	10,269
Consumer Real Estate		32,796		716		33,512
Total	$	43,051	$	730	$	43,781

	(Expressed in Thousands)
	December 31,
	2011		2010		2009
Average investment in impaired loans	$	4,235	$	5,062	$	3,648
Related allowance for loan losses		836		256		10
Partial charge-offs		-		-		-
Interest income recognized on a cash basis on impaired loans		-		-		-

No additional funds are committed to be advanced in connection with impaired loans.

16

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 3 - LOANS AND LEASES (CONTINUED)

Year-end impaired loans are set forth in the following table. No interest income was recognized on impaired loans subsequent to their classification as impaired (in thousands):

	December 31, 2011
	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and Other Loans	$	46	$	39	$	7	$	46	$	7	$	46
Commercial real estate		3,533		1,056		2,477		3,533		829		3,807
Consumer real estate		312		312		-		312		-		382
Total	$	3,891	$	1,407	$	2,484	$	3,891	$	836	$	4,235

	December 31, 2010
	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and Other Loans	$	54	$	54	$	-	$	54	$	-	$	57
Commercial real estate		4,147		1,701		2,446		4,147		256		4,613
Consumer real estate		364		364		-		364		-		392
Total	$	4,565	$	2,119	$	2,446	$	4,565	$	256	$	5,062

Loan Modifications

The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonaccrual at the time of restructure and may only be returned to accrual status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDR’s on accrual status may remain in accrual status after they have been restructured as long as they continue to perform in accordance with their modified terms. There were no TDR’s in accrual status at December 31, 2011 and December 31, 2010.

When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan’s classification at origination.

17

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 3 - LOANS AND LEASES (CONTINUED)

The following tables include the recorded investment and number of modifications for modified loans, as of the respective dates. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured.

	December 31, 2011						December 31, 2010
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial and Other Loans		-	$	-	$	-		-	$	-	$	-
Commercial real estate		4		3,935		2,594		4		3,935		2,825
Consumer real estate		1		23		22		-		-		-
Total		5	$	3,958	$	2,616		4	$	3,935	$	2,825
Troubled Debt Restructurings That subsequently defaulted
Commercial and Other Loans		-	$	-	$	-		-	$	-	$	-
Commercial real estate		3		3,680		2,388		3		3,680		2,581
Consumer real estate		1		23		22		-		-		-
Total		4	$	3,703	$	2,410		3	$	3,680	$	2,581

No additional funds are committed to be advanced to customers whose loans were classified as TDR’s

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses is summarized as follows:

	December 31,
	2011		2010		2009
Balance at beginning of year	$	2,059,025	$	1,894,361	$	1,923,455
Additions charged to operating expense		600,000		220,000		183,942
Recoveries		55,862		10,108		18,253
Total		2,714,887		2,124,469		2,125,650
Less loans charged-off		211,149		65,444		231,289
Balance at end of year	$	2,503,738	$	2,059,025	$	1,894,361

The following table summarizes the primary segments of the ALL, segregated into the amount for loans individually evaluated for impairment by class of loans as of December 31, 2011 and 2010 (in thousands):

2011	Commercial and other			Commercial Real Estate			Consumer Real Estate			Consumer			Total
Allowance for Loan Losses:
Beginning Balance	$	212		$	1,511		$	272		$	64		$	2,059
Charge-offs		(8	)		(156	)		(28	)		(19	)		(211	)
Recoveries		2			45			-			9			56
Provision		(27	)		682			(51	)		(4	)		600
Ending Balance	$	179		$	2082		$	193		$	50		$	2,504
Loans individually evaluated for impairment	$	7		$	829		$	-		$	-		$	836
Loans collectively evaluated for impairment		172			1,253			193			50			1,668
Ending Balance	$	179		$	2,082		$	193		$	50		$	2,504

18

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 4 - ALLOWANCE FOR LOAN LOSSES (CONTINUED)

2010	Commercial and other			Commercial Real Estate		Consumer Real Estate		Consumer			Total
Allowance for Loan Losses:
Beginning Balance	$	203		$	1,345	$	267	$	79		$	1,894
Charge-offs		(14	)		-		-		(51	)		(65	)
Recoveries		-			-		-		10			10
Provision		23			166		5		26			220
Ending Balance	$	212		$	1511	$	272	$	64		$	2,059
Loans individually evaluated for impairment	$	-		$	256	$	-	$	-		$	256
Loans collectively evaluated for impairment		212			1,255		272		64			1,803
Ending Balance	$	212		$	1,511	$	272	$	64		$	2,059

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2011 and 2010 (in thousands):

2011	Commercial and Other		Commercial Real Estate		Consumer Real Estate		Consumer		Unearned Discounts			Total
Loans individually evaluated	$	46	$	3,533	$	312	$	-	$	-		$	3,891
Loans collectively evaluated		15,892		52,835		29,840		7,090		(119	)		105,538
Ending Balance	$	15,938	$	56,368	$	30,152	$	7,090	$	(119	)	$	109,429
2010
Loans individually evaluated	$	-	$	2,446	$	-	$	-	$	-		$	2,446
Loans collectively evaluated		20,532		54,207		34,066		10,269		(153	)		118,921
Ending Balance	$	20,532	$	56,653	$	34,066	$	10,269	$	(153	)	$	121,367

NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment are stated at cost, less accumulated depreciation, as follows:

	December 31,				Original Useful Life Years
	2011		2010
Land	$	1,973,014	$	1,973,014
Land improvements		338,069		338,069	15
Leasehold improvements		1,063,735		1,060,274	15
Buildings		5,193,157		4,991,799	39
Furniture, fixtures & equipment		5,130,953		4,668,757	3 - 7
Total		13,698,928		13,031,913
Less accumulated depreciation		7,781,209		7,317,792
Premises and equipment, net	$	5,917,719	$	5,714,121

Charges to operations for depreciation approximated $486,179, $496,618, and $444,208 for 2011, 2010, and 2009, respectively.

19

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 6 - DEPOSITS

The composition of the Bank’s deposits at December 31 follows:

	(Expressed in Thousands) 2011
	Demand
	Noninterest Bearing		Interest Bearing		Savings		Time
Individuals, partnerships and corporations (includes certified and official checks)	$	31,319	$	41,702	$	80,857	$	70,125
United States Government		1		-		-		-
States and political subdivisions		540		6,189		4,723		3,176
Commercial banks and other depository institutions		55		-		-		490
Total	$	31,915	$	47,891	$	85,580	$	73,791

	(Expressed in Thousands) 2010
	Demand
	Noninterest Bearing		Interest Bearing		Savings		Time
Individuals, partnerships and corporations (includes certified and official checks)	$	27,598	$	36,814	$	73,873	$	75,527
United States Government		12		-		-		-
States and political subdivisions		682		5,299		4,583		3,248
Commercial banks and other depository institutions		27		-		222		590
Total	$	28,319	$	42,113	$	78,678	$	79,365

Time deposits include certificates of deposit issued in denominations of $100,000 or more which amounted to $22,040,000 and $23,351,000 at December 31, 2011 and 2010, respectively. Interest expense on certificates of deposit of $100,000 or more was $438,000, $576,000 and $888,000 at December 31, 2011, 2010, and 2009, respectively.

The following table sets forth the remaining maturity of time certificates of deposits of $100,000 or more at December 31, 2011.

Due in 3 months or less	$	4,411,000
Due in over three through six months		3,719,000
Due in over six through twelve months		5,103,000
Due in over twelve months		8,807,000
Total	$	22,040,000

A maturity distribution of time certificates of deposit at December 31, 2011, follows:

Due in 2012	$	43,761,000
Due in 2013		10,066,000
Due in 2014		6,703,000
Due in 2015		6,373,000
Due in 2016		6,223,000
Due in 2017 and thereafter		665,000
Total		$      73,791,000

20

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 7 - 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 and federal funds purchased are summarized below:

	Repurchase Agreements						Federal Funds Purchased
	2011			2010			2011			2010
Balance at end of year	$	14,013,506		$	13,477,420		$	-		$	-
Average balance during the year		14,614,114			13,436,842			76,851			-
Maximum month-end balance		16,912,195			15,283,869			-			-
Weighted-average rate during the year		.74	%		.84	%		1.01	%		-
Rate at December 31		.68	%		.76	%		-			-

NOTE 8 - 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, 2011 was approximately $38.3 million subject to the purchase of additional FHLB stock. The subsidiary bank had FHLB borrowings of $3,693,014 and $3,775,583 at December 31, 2011 and 2010, respectively. At December 31, 2011 the subsidiary bank had three fixed rate amortizing advances which totaled $3,693,014 with a weighted average interest rate of 4.78% of which $2,099,000 will mature in 2018 and $1,594,014 will mature in 2023.

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 $7.0 million and expired in December 2011. There were no borrowings outstanding under this agreement at December 31, 2011 and 2010, respectively.

Contractual maturities of FHLB borrowings as of December 31, 2011 were as follows:

December 31, 2012	$	86,602
December 31, 2013		90,832
December 31, 2014		95,267
December 31, 2015		99,919
December 31, 2016		104,800
Thereafter		3,215,594
	$	3,693,014

NOTE 9 - 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, 2011 concentrations of credit were as follows:

	Amount		Percent of Tier 1 Capital
Lessors of Nonresidential Buildings	$	11,089,653	37.7%
Lessors of Residential Buildings and Dwellings	$	10,816,848	36.8%
General Government Support	$	9,598,973	32.6%

21

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 10 - 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 $115,000, $114,640, and $63,000 for the years ended December 31, 2011, 2010, and 2009, 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 $22,547, $24,128, and $22,628 in 2011, 2010, and 2009, respectively.

NOTE 11 - 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 $3,971,083 at December 31, 2011, and $1,923,847 at December 31, 2010.

The following is an analysis of loan activity to directors, executive officers, and associates of the Company and its subsidiary:

	December 31,
	2011			2010
Balance, January 1	$	1,923,847		$	2,626,186
New loans during the period		2,891,602			1,000,000
Repayments during the period		(844,366	)		(1,702,339	)
Ending balance	$	3,971,083		$	1,923,847

The Company’s subsidiary bank entered into a lease agreement to rent property for use as banking premises from a company owned by Mr. Dlesk, the Company’s executive officer. The lease was for an initial 5 year term at an annual rental fee of $57,600. This lease was renewed in 2007 for an additional 5-year term at an annual rental fee of $60,480 and has options to renew for seven 5-year terms.

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:

	2011		2010
Commitments to extend credit	$	15,191,000	$	12,592,000
Standby letters of credit		180,000		5,892,000

As of December 31, 2011, approximately $7,653,000 are fixed interest rate commitments and $7,718,000 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 $150,000 expire in 2012, $10,000 expire in 2015, and $20,000 expire in 2021. 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.

22

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 13 - 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, 2011 and 2010, were $2,736,000 and $2,519,000, respectively.

NOTE 14 - INCOME TAX

The provisions for income taxes at December 31 consist of:

	2011			2010			2009
Currently payable:
Federal	$	553,812		$	278,927		$	246,711
State		127,605			92,838			80,837
Deferred:
Federal		(321,387	)		150,577			(37,922	)
State		(28,414	)		(25,546	)		6,111
Income tax expense	$	331,616		$	496,796		$	295,737

The following temporary differences gave rise to the deferred tax asset (liability) at December 31:

	2011			2010
Allowance for loan losses	$	955,032		$	778,690
Deferred loan fees		40,570			52,138
Accrued interest on nonperforming loans		505,681			423,752
Deferred compensation		71,966			79,278
Depreciation		(267,652	)		(246,521	)
Amortization		58,674			72,756
Goodwill		(186,333	)		(149,067	)
AMT		552,961			397,563
Deferred state income tax		(65,267	)		(55,606	)
Other, net		(8,738	)		-
Total deferred tax asset - federal		1,674,370			1,352,983
Total deferred tax asset - state		191,962			163,548
		1,866,332			1,516,531
Deferred tax liabilities arising from market adjustments of securities available for sale:
Federal		(1,664,876	)		(517,469	)
State		(284,992	)		(88,580	)
Net deferred tax asset (liability)	$	(83,536	)	$	910,482

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:

	2011					2010					2009
	Amount			Percent		Amount			Percent		Amount			Percent
Computed tax at statutory federal rate		$    947,159			34.0%		$    964,266			34.0%		$    884,246			34.0%
Plus state income taxes net of federal tax benefits		68,802			2.5%		80,393			2.8%		55,872			2.2%
		1,015,961			36.5%		1,044,659			36.8%		940,118			36.2%
Increase (decrease) in taxes resulting from:
Tax exempt income		(673,431	)		(24.2)%		(577,597	)		(20.4)%		(497,619	)		(19.1)%
Nondeductible interest expense		25,349			1.0%		35,161			1.2%		38,797			1.5%
Bank-owned life insurance		(35,089	)		(1.3)%		(35,584	)		(1.3)%		(155,372	)		(6.0)%
Other - net		(1,174	)		(0.2)%		30,157			1.1%		(30,187	)		(2.0)%
Actual tax expense	$	331,616			11.8%	$	496,796			17.4%	$	295,737			10.6%

23

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

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, 2011, the future minimum rental payments required under noncancelable operating leases with initial terms in excess of one year are as follows:

December 31, 2012	$	152,306
December 31, 2013		115,033
December 31, 2014		90,000
December 31, 2015		90,000
December 31, 2016		82,500
Thereafter		-

Rental expense under operating leases approximated $226,069 in 2011; $250,339 in 2010; and $191,497 in 2009.

NOTE 16 - OTHER OPERATING EXPENSES

Other operating expenses at December 31 included the following:

	2011		2010		2009
Directors’ fees	$	115,250	$	118,675	$	104,325
Stationery and supplies		166,602		152,549		142,894
Regulatory assessment and deposit insurance		315,053		422,515		583,189
Advertising		154,380		88,932		160,961
Postage and transportation		164,616		162,462		167,842
Other taxes		176,843		141,095		186,910
Service Expense		382,837		349,319		384,489
Other		823,179		1,043,991		904,899
Total	$	2,298,760	$	2,479,538	$	2,635,509

NOTE 17 - LIMITATIONS ON DIVIDENDS

The approval of the Comptroller of the Currency is required to pay dividends if the total of all dividends declared by a national bank in any calendar year exceeds the total of its net profits (as defined) for the year, combined with its retained net profits of the preceding two years. Under this formula, the Company’s subsidiary bank can declare dividends in 2012, without approval of the Comptroller of the Currency, of approximately $2,396,000, plus an additional amount equal to the bank’s net profit for 2012 up to the date of any such dividend declaration. The subsidiary bank is the primary source of funds to pay dividends to the stockholders of First West Virginia Bancorp, Inc.

24

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 18 - 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, 2011, the most recent notifications from the Office of the Comptroller of the Currency categorized the bank as well 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 of the Company and its subsidiary bank, along with the regulatory framework for adequately capitalized and well capitalized institutions are depicted as set forth in the following table:

(Amounts Expressed in Thousands)	Actual				For Capital Adequacy Purposes				To be Well Capitalized Under Prompt Corrective Action Provisions
First West Virginia Bancorp, Inc.	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2011
Total Capital (to Risk Weighted Assets)	$	31,494		21.55%	$	11,691		8.0%	$	14,614		10.0%
Tier I Capital (to Risk Weighted Assets)		29,662		20.30%		5,845		4.0%		8,768		6.0%
Tier I Capital (to Adjusted Total Assets)		29,662		10.46%		11,340		4.0%		14,175		5.0%
As of December 31, 2010
Total Capital (to Risk Weighted Assets)	$	30,377		19.78%	$	12,289		8.0%	$	15,361		10.0%
Tier I Capital (to Risk Weighted Assets)		28,462		18.53%		6,144		4.0%		9,217		6.0%
Tier I Capital (to Adjusted Total Assets)		28,462		10.31%		11,045		4.0%		13,806		5.0%
Progressive Bank, N.A.
As of December 31, 2011
Total Capital (to Risk Weighted Assets)	$	31,269		21.43%	$	11,674		8.0%	$	14,592		10.0%
Tier I Capital (to Risk Weighted Assets)		29,437		20.17%		5,837		4.0%		8,755		6.0%
Tier I Capital (to Adjusted Total Assets)		29,437		10.39%		11,328		4.0%		14,160		5.0%
As of December 31, 2010
Total Capital (to Risk Weighted Assets)	$	30,121		19.68%	$	12,241		8.0%	$	15,302		10.0%
Tier I Capital (to Risk Weighted Assets)		28,206		18.43%		6,121		4.0%		9,181		6.0%
Tier I Capital (to Adjusted Total Assets)		28,206		10.23%		11,032		4.0%		13,789		5.0%

NOTE 19 - FAIR VALUE MEASUREMENTS

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels defined by U.S. generally accepted accounting principles are as follows:

•	Level I:	Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
•	Level II:	Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.
•	Level III:	Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. This hierarchy requires the use of observable market data when available.

25

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 19 - FAIR VALUE MEASUREMENTS - (CONTINUED)

Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loans include observable inputs employed by certified appraisers for similar assets classified as Level II inputs. Other real estate owned is measured at fair value, less cost to sell at the date of foreclosure. Valuations are periodically performed by management and the assets are carried at the lower of carrying amount, or fair value less cost to sell.

The following table presents the assets reported on the balance sheet at their fair value as of December 31, 2011 and December 31, 2010, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	December 31, 2011
(dollars in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Securities available for sale:
U.S. Government corporations and agencies	$	-	$	36,216	$	-	$	36,216
Obligations of states and political subdivisions		-		45,304		-		45,304
Mortgage-backed securities
U.S. sponsored entities		-		69,215		-		69,215
Private label		-		-		-		-
Subtotal mortgage-backed securities		-		69,215		-		69,215
Equity securities		226		-		-		226
Total securities available for sale:	$	226	$	150,735	$	-	$	150,957
Assets measured on a nonrecurring basis:
Other real estate loans	$	-	$	138	$	-	$	138
Impaired loans	$	-	$	3,891	$	-	$	3,891
	December 31, 2010
(dollars in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Securities available for sale:
U.S. Government corporations and agencies	$	-	$	35,698	$	-	$	35,698
Obligations of states and political subdivisions		-		34,291		-		34,291
Mortgage-backed securities
U.S. sponsored entities		-		62,950		-		62,950
Private label		-		-		-		-
Subtotal mortgage-backed securities		-		62,950		-		62,950
Equity securities		230		-		-		230
Total securities available for sale:	$	230	$	132,939	$	-	$	133,169
Assets measured on a nonrecurring basis:
Other real estate loans	$	-	$	8	$	-	$	8
Impaired loans	$	-	$	4,903	$	-	$	4,903

26

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

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: The fair value for net loans is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value.

Bank Owned Life Insurance: The carrying amount of bank owned life insurance represents the cash surrender value of the underlying insurance policies, if such policies were terminated. Management believes that the carrying amount approximates the fair value.

Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value.

Deposits: Noninterest bearing and interest bearing demand deposits and savings deposits are valued at the amount payable on demand as of year end. The fair values for time deposits are based on discounted value of cash flows. The discount rates are estimated using rates currently offered for similar instruments with 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 the carrying amount. Management believes that the carrying amount approximates the fair value.

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:

	2011				2010
(Amounts Expressed in Thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	20,917	$	20,917	$	9,933	$	9,933
Investment securities		150,961		150,961		133,169		133,169
Loans		106,925		105,733		119,308		120,493
Bank owned life insurance		3,518		3,518		3,415		3,415
Accrued interest receivable		1,140		1,140		1,095		1,095
Financial liabilities:
Deposits		239,177		227,662		228,475		208,813
Federal funds purchased and repurchase agreements		14,014		14,014		13,477		13,477
FHLB and other long term borrowings		3,693		3,693		3,776		3,776
Accrued interest payable		218		218		277		277

27

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 21 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

Presented below are the consolidated balance sheets, statements of income, and statements of cash flows for First West Virginia Bancorp, Inc.

BALANCE SHEETS

	December 31,
	2011		2010
ASSETS
Cash	$	113,387	$	137,375
Investment securities available-for-sale (at fair value)		228,654		247,558
Investment in subsidiary bank		34,301,866		30,845,369
Other assets		105,969		112,579
Total assets	$	34,749,876	$	31,342,881
LIABILITIES
Deferred compensation	$	211,664	$	233,170
Accrued expenses		11,702		8,525
Total liabilities		223,366		241,695
STOCKHOLDERS’ EQUITY		34,526,510		31,101,186
Total liabilities and stockholders’ equity	$	34,749,876	$	31,342,881

STATEMENTS OF INCOME

	Year Ended December 31,
	2011		2010		2009
INCOME
Dividends from subsidiary bank	$	1,256,952	$	1,211,520	$	1,211,520
Gains (losses) on sales of investment securities		1,248		4,258		(29,960	)
Other income		119,839		120,008		124,132
Total income		1,378,039		1,335,786		1,305,692
EXPENSES
Other expenses		178,963		171,246		124,352
Total expenses		178,963		171,246		124,352
Income before income taxes and undistributed net income of subsidiary		1,199,076		1,164,540		1,181,340
Income tax benefit		24,267		9,169		16,868
Equity in undistributed net income of subsidiary		1,230,802		1,165,572		1,106,778
NET INCOME	$	2,454,145	$	2,339,281	$	2,304,986

28

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011, 2010, AND 2009

NOTE 21 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2011			2010			2009
OPERATING ACTIVITIES
Net income	$	2,454,145		$	2,339,281		$	2,304,986
Adjustments to reconcile net income to net cash provided by operating activities:
Change in deferred tax benefit		8,093			7,365			22,752
Undistributed earnings of affiliate		(1,230,802	)		(1,165,572	)		(1,106,778	)
Changes in operating assets and liabilities:
Other assets		(2,462	)		9,355			24,495
Deferred compensation		(21,506	)		(19,569	)		(60,466	)
Other liabilities		3,177			2,976			(1,650	)
Net (gains) losses on sales of investment securities		(1,248	)		(4,258	)		29,960
Net cash provided by operating activities		1,209,397			1,169,578			1,213,299
INVESTING ACTIVITIES
Proceeds from sales of securities		77,332			91,426			150,914
Purchases of investment securities		(54,578	)		(67,599	)		(120,408	)
Net cash provided by investing activities		22,754			23,827			30,506
FINANCING ACTIVITIES
Dividends paid		(1,256,139	)		(1,210,677	)		(1,207,952	)
Net cash used in financing activities		(1,256,139	)		(1,210,677	)		(1,207,952	)
Net increase (decrease) in cash and cash equivalents		(23,988	)		(17,272	)		35,853
Cash and cash equivalents at beginning of year		137,375			154,647			118,794
Cash and cash equivalents at end of year	$	113,387		$	137,375		$	154,647
Supplemental disclosures:
Cash paid for interest	$	-		$	-		$	-
Cash paid for income taxes		-			-			-

29

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s management is responsible for the preparation and fair presentation of the consolidated financial statements and the related financial information included in this annual report. The financial statements and the information related to those statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s judgments and estimates concerning effects of events and transactions that are accounted for or disclosed.

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting includes those policies and procedures that pertain to the Company’s ability to record, process, summarize and report reliable financial data. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

In order to ensure that the Company’s internal control over financial reporting is effective, management is required to evaluate, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s internal control over financial reporting as of the end of each fiscal year and did so most recently for its financial reporting as of December 31, 2011. Management’s assessment of the effectiveness of the Company’s internal control over financial reporting was based on criteria for effective internal control over financial reporting described inInternal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, management has concluded that the internal control over financial reporting was effective as of December 31, 2011. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

The Board of Directors, acting through its Audit Committee, is responsible for the oversight of the Company’s accounting policies, financial reporting and internal control. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of management. The Audit Committee is responsible for the appointment and compensation of the independent auditor and approves decisions regarding the appointment or removal of the Company’s Internal Auditor. It meets periodically with management, the independent auditors and the internal auditors to ensure that they are carrying out their responsibilities. The Audit Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting and auditing procedures of the Company in addition to reviewing the Company’s financial reports. The independent auditors and the internal auditor have full and unlimited access to the Audit Committee, with or without management, to discuss the adequacy of internal control over financial reporting, and any other matter which they believe should be brought to the attention of the Audit Committee.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheets of First West Virginia Bancorp, Inc., and subsidiary as of December 31, 2011 and 2010, 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, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated 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, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/    S.R. Snodgrass

S.R. Snodgrass, A.C.

Wheeling, West Virginia

March 23, 2012

S.R. Snodgrass, A.C.

980 National Road Wheeling, WV 26003-6400 Phone: 304-233-5030 Facsimile: 304-233-3062

30

Table One

SELECTED FINANCIAL DATA

(Dollars in thousands, except per share data)

	December 31,
	2011			2010			2009			2008			2007
SUMMARY OF OPERATIONS
Total interest income	$	11,207		$	11,858		$	12,914		$	13,514		$	13,708
Total interest expense		2,229			3,056			4,328			5,275			5,431
Net interest income		8,978			8,802			8,586			8,239			8,277
Provision for loan losses		600			220			184			—			(100	)
Total other income		2,034			1,977			1,791			1,488			1,410
Total other expenses		7,626			7,723			7,592			7,009			7,272
Income before income taxes		2,786			2,836			2,601			2,718			2,515
Net income		2,454			2,339			2,305			2,206			2,036
PER SHARE DATA (1)
Net income	$	1.48		$	1.42		$	1.39		$	1.33		$	1.23
Cash dividends declared		0.76			0.73			0.73			0.71			0.70
Book value per share		20.89			18.82			18.64			17.39			16.47
AVERAGE BALANCE SHEET SUMMARY
Total loans, net	$	115,415		$	124,074		$	128,206		$	120,722		$	120,409
Investment securities		136,409			116,990			112,142			108,114			109,278
Deposits - interest bearing		204,616			198,042			190,981			182,450			182,682
Stockholders’ equity		30,498			29,415			28,192			27,295			26,223
Total assets		283,734			273,778			266,414			258,275			253,930
BALANCE SHEET
Investments	$	150,961		$	133,169		$	115,997		$	112,366		$	106,647
Loans		109,428			121,367			128,581			124,635			121,739
Allowance for loan losses		(2,504	)		(2,059	)		(1,894	)		(1,923	)		(2,043	)
Other assets		35,373			25,482			28,447			23,086			26,844
Total Assets	$	293,258		$	277,959		$	271,131		$	258,164		$	253,187
Deposits	$	239,177		$	228,475		$	221,246		$	206,385		$	203,127
Federal funds purchased and repurchase agreements		14,013			13,477			11,025			11,013			12,196
FHLB borrowings		3,693			3,776			7,354			10,929			9,298
Other liabilities		1,848			1,130			700			1,100			1,351
Stockholders’ equity		34,527			31,101			30,806			28,737			27,215
Total Liabilities and Stockholders’ equity	$	293,258		$	277,959		$	271,131		$	258,164		$	253,187
SELECTED RATIOS
Return on average assets		0.86	%		0.85	%		0.87	%		0.85	%		0.80	%
Return on average equity		8.05	%		7.95	%		8.18	%		8.08	%		7.76	%
Average equity to average assets		10.75	%		10.74	%		10.58	%		10.57	%		10.33	%
Dividend payout ratio (1)		51.35	%		51.41	%		52.52	%		53.38	%		56.91	%
Loan to Deposit ratio		45.75	%		53.12	%		58.12	%		60.39	%		59.93	%

(1) Adjusted for the 4 percent common stock dividend to stockholders of record as of December 20, 2010 and the 4 percent common stock dividend to shareholders of record on October 1, 2008.

31

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 actual results to differ materially from those contemplated by such statements, including without limitation, the effect of changing economic conditions, changes in interest rates, changes in lending activities, changes in state and federal regulations, and other external factors which may materially impact the Company’s operational and financial performance.

    Critical Accounting Policies: The Company’s accounting policies are integral to understanding the results reported. The accounting policies are described in detail in Note 1 of the Consolidated Financial Statements. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. Detailed policies and control procedures have been established and are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.

    Other Than Temporary Impairment of 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, 2011, 2010 and 2009. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes, thereto.

The Company reported net income of $2,454,145 or $1.48 per share for the year ended December 31, 2011 as compared to $2,339,281 or $1.42 per share for the year ended December 31, 2010. The increase in net income during 2011 over 2010 of $114,864 or 4.9% was primarily the result of the increases in net interest income and noninterest income combined with the decreases in noninterest expenses and income tax expense, offset in part by the increase in the provision for loan losses. Net interest income rose in 2011 as compared to 2010 primarily due to the decline in the interest expense paid on interest bearing liabilities and the increase in the interest earned on investment securities, offset in part by the decrease in the interest earned on loans. Noninterest income increased $57,349 or 2.9% and was primarily attributable to the increase in the gains on sales of investment securities, offset in part by a decrease in service charges and other fee income and in other operating income. Noninterest expenses fell $96,820 or 1.3% in 2011 over 2010 and was primarily due to the decrease in other operating expenses, offset in part by the increases in occupancy expenses and salary and employee benefit costs. The provision for loan losses was $600,000 in 2011, an increase of $380,000 over 2010, based upon the reserves required on nonperforming assets. The return on average assets was .86% and .85% as of December 31, 2011 and 2010, respectively. The return on average equity was 8.05% and 7.95% at December 31, 2011 and 2010, respectively. The Board of Directors declared and paid cash dividends of $.76 and $.73 per share during 2011 and 2010, respectively.

Table One is a summary of Selected Financial Data of the Company. The sections that follow discuss in more detail the information summarized in Table One.

32

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, 2011, 2010, and 2009. Average balance sheet information as of December 31, 2011, 2010, and 2009 was compiled using the daily average balance sheet. Total loans are gross of the allowance for loan losses, net of unearned income and include loans held for sale. Non-accrual loans were included in the average balance computations; however, no interest was included in income subsequent to the non-accrual status classification. 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.

(dollars in thousands)	December 31, 2011							December 31, 2010							December 31, 2009
	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	$	37,208	$	1,054		2.83	%	$	30,220	$	953		3.15	%	$	23,321	$	910		3.90	%
Mortgage backed securities		62,905		2,111		3.36	%		58,419		2,470		4.23	%		63,068		3,125		4.96	%
States and political subdivisions		36,087		1,497		4.15	%		28,116		1,199		4.26	%		23,993		989		4.12	%
Other securities		209		4		1.91	%		235		4		1.70	%		1,760		94		5.34	%
Total Investment securities:		136,409		4,666		3.42	%		116,990		4,626		3.95	%		112,142		5,118		4.56	%
Interest bearing deposits		1,307		29		2.22	%		12,416		35		0.28	%		1,403		1		0.07	%
Federal funds sold		-		-		-			58		-		0.00	%		7,115		1		0.01	%
Loans, net of unearned income		115,415		6,497		5.63	%		124,074		7,182		5.79	%		128,206		7,779		6.07	%
Other earning assets		1,311		15		1.14	%		1,481		15		1.01	%		1,476		15		1.02	%
Total earning assets		254,442		11,207		4.40	%		255,019		11,858		4.65	%		250,342		12,914		5.16	%
Other assets		29,292							18,759							16,072
Total Assets	$	283,734						$	273,778						$	266,414
LIABILITIES
Time deposits	$	76,434	$	1,498		1.96	%	$	83,399	$	2,085		2.50	%	$	92,544	$	3,100		3.35	%
Savings deposits		83,499		381		0.46	%		73,936		484		0.65	%		61,047		499		0.82	%
Interest bearing demand deposits		44,683		64		0.14	%		40,707		89		0.22	%		37,390		132		0.35	%
Federal funds purchased and repurchase agreements		14,691		108		0.74	%		13,437		112		0.83	%		12,623		128		1.01	%
FHLB and other long-term borrowings		3,734		179		4.79	%		5,799		286		4.93	%		9,377		469		5.00	%
Total interest bearing liabilities		223,041		2,230		1.00	%		217,278		3,056		1.41	%		212,981		4,328		2.03	%
Noninterest bearing demand deposits		29,235							26,030							24,252
Other liabilities		960							1,055							989
Total Liabilities		253,236							244,363							238,222
STOCKHOLDERS’ EQUITY		30,498							29,415							28,192
Total Liabilities and Stockholders’ Equity	$	283,734						$	273,778						$	266,414
Net yield on earning assets			$	8,977		3.53	%			$	8,802		3.45	%			$	8,586		3.43	%
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 2011, 2010, and 2009, respectively. The effect of this adjustment is presented below.
Investment securities	$	136,409	$	5,639		4.13	%	$	116,990	$	5,402		4.62	%	$	112,142	$	5,747		5.12	%
Loans		115,415		6,845		5.93	%		124,074		7,539		6.08	%		128,206		8,131		6.34	%
Total earning assets	$	254,442	$	12,528		4.92	%	$	255,019	$	12,991		5.09	%	$	250,342	$	13,895		5.55	%
Taxable equivalent net yield on earning assets			$	10,298		4.05	%			$	9,935		3.90	%			$	9,567		3.82	%

33

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, 2011, 2010, and 2009.

Net interest income increased $175,515 or 2.0% in 2011 compared to 2010, and follows an increase in 2010 of $216,650 or 2.5% from 2009. During 2011, the increase in net interest income was primarily due to the decreases in the interest paid on deposits, the interest paid on other borrowings and the interest paid on repurchase agreements combined with the increase in the interest earned on investment securities, offset in part by the decrease in the interest earned on loans. The increase in net interest income in 2010 was primarily due to a decline in the interest paid on deposits and on other borrowings combined with the decrease in the interest paid on repurchase agreements, offset in part by the decrease in the interest earned on investment securities and loans. 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 4.05% for 2011, as compared to 3.90% and 3.82% earned during 2010 and 2009, respectively.

Interest expense in 2011 decreased $826,195 or 27.0% from 2010, compared to the decrease of $1,272,597 or 29.4% from 2009 to 2010. In 2011, the decline in interest expense was primarily due to the declines in the yield and average volume of time deposits, the decline in the average volume of Federal Home Loan Bank and other long term borrowings and the decline in the yield of savings deposits, offset in part by a rise in the average volume of savings deposits. The decline in interest expense in 2010 was primarily due to the decreases in the yield and the average volume of time deposits and Federal Home Loan Bank and other long term borrowings combined with the decrease in the yield of savings deposits and federal funds purchased and repurchase agreements, offset in part by increases in the average volume of savings deposits. The average yield paid on interest bearing liabilities during 2011 fell 41 basis points, from 1.41% in 2010 to 1.00% in 2011, and follows a decrease in 2010 of 62 basis points, from 2.03% in 2009 to 1.41% in 2010. The average volume of interest bearing liabilities increased $5.8 million or 2.7% in 2011 compared to 2010, after increasing $4.3 million or 2.0% in 2010 as compared to 2009.

Interest and fees on loans decreased $685,251 or 9.5% from 2010 to 2011, after decreasing $597,457 or 7.7% from 2009 to 2010. Interest and fees on loans declined in 2011 as compared to 2010 primarily due to the decrease in the average volume of loans combined with the decline in the yield earned on loans. The taxable equivalent yield on loans declined 15 basis points in 2011, from 6.08% in 2010 to 5.93% in 2011, and follows a decrease of 26 basis points in 2010, from 6.34% in 2009 to 6.08% in 2010. The average loan volume decreased $8.7 million or 7.0% in 2011 as compared to 2010 and follows a decrease of $4.1 million or 3.2% in 2010 as compared to 2009. In 2010, the decline in interest and fees on loans was primarily due to the decrease in the average volume of loans combined with the decline in the yield earned on loans.

Interest income on investment securities in 2011 increased $39,811 or .9% over 2010, and follows a decrease of $491,740 or 9.6% over 2009. The increase in the average volume of investment securities which was partially offset by the decrease in the yield earned on investment securities contributed to the increase in interest income on investment securities. The taxable equivalent yield on investment securities fell 49 basis points in 2011, from 4.62% in 2010 to 4.13% in 2011, and follows a decrease in 2010 of 50 basis points, from 5.12% in 2009 to 4.62% in 2010. The activity of the investment securities portfolio increased with the average volume increasing $19.4 million or 16.6% in 2011 as compared to 2010, and follows an increase of $4.8 million or 4.3% in 2010 as compared to 2009. In 2010, the decrease in the yield earned on investment securities which was partially offset by an increase in the average volume of investment securities contributed to the decrease in interest income on investment securities.

Noninterest Income

Noninterest income is comprised of service charges, investment securities gains and losses, and other operating income. Noninterest income increased $57,349 or 2.9%, in 2011 as compared to an increase of $185,579 or 10.4% in 2010. The increase in noninterest income in 2011 as compared to 2010 was primarily due to the increase in the net gains on sales of investment securities which was offset in part by decreases in service charges and other fee income and other operating income. In 2010, noninterest income primarily increased due to the increase in the net gains on sales of investment securities and other operating income which was offset in part by a decrease in service charges and other fee income.

Sales of investment securities by the subsidiary bank are generally limited to the needs established under the liquidity policies. Net gains (losses) on sales of investment securities amounted to $730,897 in 2011, an increase of $165,623 as compared to 2010. The increase in net gains (losses) on sales of investment securities was primarily attributable to sales of securities available for sale recorded by the Company and its subsidiary bank. During 2011, the Company accounted for securities gains of $747,015 and securities losses of $16,118 which were attributable to sales of securities available for sale. In 2010, the Company accounted for securities gains of $566,815 and securities losses of $1,541 which were attributable to sales of securities available for sale. During 2009, the Company and its subsidiary bank accounted for securities gains of $298,319 and securities losses of $109,802 which were attributable to sales of securities available for sale.

34

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, 2011 and 2010 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)	2011 Compared to 2010									2010 Compared to 2009
	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	$	220		$	(119	)	$	101		$	269		$	(226	)	$	101
Mortgage backed securities		189			(548	)		(359	)		(230	)		(425	)		(655	)
Obligations of states and political subdivisions		340			(42	)		298			170			40			210
Other securities		-			-			-			(81	)		(9	)		(90	)
Total investment securities		749			(709	)		40			128			(620	)		(434	)
Interest bearing deposits		(31	)		25			(6	)		8			26			34
Federal funds sold		-			-			-			(1	)		-			(1	)
Loans, net of unearned income		(501	)		(184	)		(685	)		(251	)		(346	)		(597	)
Other earning assets		(2	)		2			-			-			-			-
Total interest earned		215			(866	)		(651	)		(116	)		(940	)		(998	)
INTEREST EXPENSE ON:
Time deposits		(174	)		(413	)		(587	)		(306	)		(709	)		(1,015	)
Savings deposits		63			(166	)		(103	)		105			(120	)		(15	)
Interest bearing demand deposits		9			(34	)		(25	)		12			(55	)		(43	)
Federal funds purchased and repurchase agreements		10			(14	)		(4	)		8			(24	)		(16	)
FHLB and other long-term borrowings		(102	)		(5	)		(107	)		(179	)		(4	)		(183	)
Total interest paid		(194	)		(632	)		(826	)		(360	)		(912	)		(1,272	)
Net interest differential	$	409		$	(234	)	$	175		$	244		$	(28	)	$	274
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 2011, 2010, and 2009, respectively.
Investment securities	$	897		$	(660	)	$	237		$	248		$	(593	)	$	(345	)
Loans		(526	)		(168	)		(694	)		(262	)		(330	)		(592	)
Total interest earned	$	338		$	(801	)	$	(463	)	$	(7	)	$	(897	)	$	(904	)
Net interest differential	$	532		$	(169	)	$	363		$	353		$	15		$	368

35

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

Service charges and other fees are earned from assessments made on checking and savings accounts. Service charges and other fee income fell $99,134 in 2011, down 16.7%, from 2010, as compared to the decrease of $108,403 or 15.4% from 2009 to 2010. The decrease in service charges in 2011 and 2010 was primarily due to a decline in overdraft charges combined with a decrease in service charges on deposit accounts.

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, 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. Other operating income decreased $9,140 or 1.1% in 2011 as compared to 2010. The decrease in other operating income in 2011 was primarily due to declines in nonrecurring gains on sales of assets, miscellaneous income, credit life commissions, and utility bill and collection fees, offset in part by an increase in checkbook sales, ATM fees, credit card fees, an increase in the earnings related to the cash surrender value of the bank owned life insurance on its key officers, and in the income earned on loans sold to the FHLB. Other operating income fell $82,775 or 9.2% in 2010 as compared to 2009. During 2010, the decrease in other operating income was primarily due to declines in miscellaneous income, credit life commissions, utility bill and collection fees, offset in part by an increase in checkbook sales, ATM fees, nonrecurring gains on sales of assets, credit card fees, an increase in the earnings related to the cash surrender value of the bank owned life insurance on its key officers, and in the income earned on loans sold to the FHLB.

Noninterest Expense

Noninterest expenses are comprised of salaries and employee benefits, net occupancy of premises and other operating expenses. In 2011, noninterest expenses decreased $96,820 or 1.3% over 2010, and follows a increase of $130,817 or 1.7% in 2010 over 2009. The decrease in noninterest expense in 2011 as compared to 2010 was primarily due to the decrease in other operating expenses, offset in part by increases in occupancy expenses and salary and employee benefits expenses. The increase in noninterest expense in 2010 as compared to 2009 was primarily due to increases in occupancy expenses and salary and employee benefits expenses, offset in part by the decrease in other operating expenses.

Occupancy expenses increased $72,661 or 5.1% in 2011 over 2010, and follows an increase of $148,385 or 11.7% in 2010 over 2009. Occupancy expenses increased in 2011 primarily due to increases in real estate taxes, insurance on bank premises, furniture and fixture expenses and other real estate owned expenses, offset in part by decreases in banking house lease expenses, building maintenance expenses and depreciation expenses. The increase in occupancy expenses in 2010 was primarily due to increases in banking house lease expenses, furniture and fixtures depreciation expenses, furniture and fixture expenses and other real estate owned expenses.

Salary and employee benefits represent the largest component of noninterest expense. Salary and employee benefits increased $11,297 or .3% in 2011 over 2010. The increase in salary and employee benefits expense in 2011 was primarily attributable to normal annual merit adjustments, offset in part by a reduction in employee benefit plan expenses. The Company had 98 full-time equivalent employees at December 31, 2011. During 2010, salary and employee benefits increased $138,403 or 3.8% as compared to the same period in 2009. The increase in salary and employee benefits expense in 2010 was primarily attributable to normal annual merit adjustments combined with the increase in employee benefit plan expenses.

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 decreased $180,778 or 7.3%, in 2011 as compared to the same period of the prior year. The decrease in other operating expense was primarily due to decreases in regulatory assessments and deposit insurance and other expenses, offset in part by increases in advertising expenses, service expenses, postage and transportation expense, other taxes, stationary and supplies expense and directors fees. During 2010, other operating expense decreased $155,971, or 5.9%, over 2009 and was primarily due to primarily due to decreases in regulatory assessments and deposit insurance, advertising expenses service expenses, postage and transportation expense and in other taxes, offset in part by increases in stationary and supplies expense, directors fees, and other expenses.

Income Taxes

Income tax expense for the period ended December 31, 2011 was $331,616, a decrease of $165,180 or 33.3% over 2010 as compared to the increase of $201,059 or 68.0% from 2009 to 2010. The decrease in taxable income combined with the increase in tax exempt income primarily contributed to the decrease in income tax expense in 2011. During 2010, the increase in taxable income offset in part by the increase in tax exempt income primarily contributed to the increase in income tax expense. Components of the income tax expense for December 31, 2011 were $227,695 for federal taxes and $103,921 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, 2011, 2010 and 2009. Additional information regarding income taxes is contained in Note 14 to the Consolidated financial statements.

For federal income tax purposes, tax-exempt income is based on qualified state, county, and municipal bonds and loans. Tax-exempt income was $1,981,937 in 2011; $1,699,480 in 2010; and $1,471,309 in 2009. 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 $1,404,000 in 2011; $1,450,000 in 2010; and $1,124,000 in 2009.

36

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

BALANCE SHEET ANALYSIS

Investments

Investment securities increased $17,792,161 or 13.4% during 2011, and followed an increase in 2010 of $17,171,750 or 14.8% from 2009. The investment portfolio is managed to attempt to achieve an optimum mix of asset quality, liquidity and maximum yield on investment. The investment portfolio consists of U.S. Government agency and corporation securities, obligations of states and political subdivisions, mortgage-backed securities and equity securities. Taxable securities comprised 70.0% of total securities at December 31, 2011, as compared to 74.6% at December 31, 2010. Other than the normal risks inherent in purchasing 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 13.4% from 2010, and represented 100% of the investment portfolio at December 31, 2011. The increase in the available for sale securities was primarily due to the purchase of obligations of U.S Government agency and corporation securities, obligations of states and political subdivisions and mortgage backed securities. The Company did not have any investment securities classified as held to maturity securities at December 31, 2011 and 2010. As the investment portfolio consists primarily of fixed rate debt securities, changes in the market rates of interest will affect the carrying value of securities available for sale, adjusted upward or downward and represent temporary adjustments in value. The carrying values of securities available for sale was above book value by $5,181,686 and $1,610,549 at December 31, 2011 and 2010, respectively.

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, 2011 and December 31, 2010 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, 2011										December 31, 2010
	Securities					Securities					Securities					Securities
	Held to Maturity					Available for Sale					Held to Maturity					Available for Sale
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
U. S. Treasury and other U.S. Government Agencies
Within One Year	$	-		-	%	$	11		0.80	%	$	-		-	%	$	18		0.20	%
After One But Within Five Years		-		-			11,558		1.68			-		-			10,090		2.79
After Five But Within Ten Years		-		-			24,644		2.36			-		-			25,586		2.92
After Ten Years		-		-			3		0.86			-		-			4		0.88
		-		-			36,216		2.14			-		-			35,698		2.88
States & Political Subdivisions
Within One Year		-		-			1,151		5.48			-		-			999		4.39
After One But Within Five Years		-		-			1,913		5.54			-		-			3,322		5.57
After Five But Within Ten Years		-		-			12,285		5.66			-		-			7,435		5.78
After Ten Years		-		-			29,955		6.07			-		-			22,535		6.38
		-		-			45,304		5.92			-		-			34,291		6.11
Mortgage-Backed Securities		-		-			69,215		3.03			-		-			62,950		3.98
Equity Securities		-		-			226		2.25			-		-			230		2.44
Total	$	-		-	%	$	150,961		3.68	%	$	-		-	%	$	133,169		4.23	%

37

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

Loans

Total loans, net of unearned income, declined $11,938,590 or 9.8% from 2010 to 2011. The decrease in total loans in 2011 was primarily due to the decreases in commercial and other loans, consumer real estate loans, consumer loans, and commercial real estate loans which decreased $4,594,000, $3,914,000, $3,179,000, and $285,000, respectively. Commercial loans declined during 2011 primarily due to decreases in commercial and industrial loans combined with the decline in non-rated industrial development obligations. The decrease in consumer real estate loans during 2011 was primarily in residential real estate loans. Consumer loans declined in 2011 primarily due to the decrease in installment loans to individuals. During 2011, the decrease in commercial real estate loans was primarily due to the decrease in multi-family residential loans as well as the decrease in loans secured by non-farm non-residential commercial real estate. During 2010, total loans decreased $7,214,356 or 5.6%. The decrease in total loans in 2010 was primarily due to the decreases in consumer loans, consumer real estate loans, commercial real estate loans and commercial and other loans which decreased $2,899,000, $2,235,000, $1,939,000 and $151,000, respectively. The decrease in consumer loans in 2010 was primarily due to the decline in installment loans to individuals. The decrease in consumer real estate loans during 2010 was primarily in construction and residential real estate loans. During 2010, the decrease in commercial real estate loans was primarily due to the decrease in multi-family residential loans as well as the decrease in loans secured by non-farm non-residential commercial real estate. Commercial loans declined during 2010 primarily due to decreases in commercial and industrial loans, offset in part by the increase in non-rated industrial development obligations.

Commercial real estate loans which include real estate loans secured by non-farm, non-residential properties and multi-family residential property loans comprised fifty-one percent (51%) of the loan portfolio. Consumer real estate loans which include construction, farmland, real estate residential loans, and home equity loans comprised twenty-eight percent (28%) of the loan portfolio. Commercial and other loans which include commercial and industrial loans and non-rated industrial development obligations comprised fifteen percent (15%) of the loan portfolio. Consumer loans which include installment and other loans to individuals and credit cards comprised six percent (6%) of the loan portfolio. The changes in the composition of the loan portfolio from 2010 to 2011 were a 4% increase in commercial real estate loans, a 2% decrease in commercial and other loans and a 2% decrease in consumer loans.

Table Five

Loan Portfolio - Maturities and sensitivities of Loans to Changes in Interest Rates

The following table presents the contractual maturities of loans other than installment loans and residential mortgages as of December 31, 2011 and 2010:

(dollars in thousands)	December 31, 2011						December 31, 2010
	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
Construction	$	-	$	13	$	282	$	155	$	21	$	132
Commercial real estate - nonfarm, nonresidential property		3,571		3,027		42,548		736		6,097		42,362
Commercial		657		2,572		1,125		1,519		2,875		2,639
Non-rated industrial development obligations		289		4,270		6,949		997		5,770		6,693
Total	$	4,517	$	9,882	$	50,904	$	3,407	$	14,763	$	51,826

The following table presents an analysis of fixed and variable rate loans as of December 31, 2011 and 2010 along with the contractual maturities of loans other than installment loans and residential mortgages:

(dollars in thousands)	December 31, 2011						December 31, 2010
	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	$	3,905	$	5,751	$	10,208	$	2,197	$	10,503	$	9,607
Variable Rates		612		4,131		40,696		1,210		4,260		42,219
Total	$	4,517	$	9,882	$	50,904	$	3,407	$	14,763	$	51,826

38

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

Loans Held for Sale

The Company has entered into an agreement with the Federal Home Loan Bank of Pittsburgh (“FHLB”) under which the bank may sell conforming one-to-four family residential mortgage loans to the FHLB. The current agreement provides for a maximum commitment of $5,000,000. Loans sold to the FHLB are sold with limited recourse or credit risk based upon utilization of the original commitment. The bank also maintains the servicing of these loans, for which it is paid a servicing fee. The total amount of loans sold under this agreement was $9,470,840 and $6,758,928 as of December 31, 2011 and 2010, respectively. The loans which were sold were also subject to a recourse obligation or credit risk in the amount of $383,269 and $232,888 at December 31, 2011 and 2010, respectively.

Non-performing Loans

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 $4,184,000 at December 31, 2011 as compared to $4,939,000 at December 31, 2010. Non-performing loans decreased $755,000 in 2011, after increasing $674,000 in 2010. The decrease in non-performing loans in 2011 as compared to 2010 was primarily due to the decline in non-accrual loans, offset in part by the increase in other real estate owned. The increase in non-performing loans in 2010 as compared to 2009 was primarily due to increases in non-accrual loans, offset in part by the decrease in other real estate owned.

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,
	2011			2010			2009			2008			2007
Past Due 90 Days or More:
Commercial and Other Loans	$	-		$	-		$	-		$	-		$	19
Commercial real estate		-			-			-			-			-
Consumer real estate		-			28			-			-			-
Consumer		-			-			-			-			7
		-			28			-			-			26
Non-accrual:
Commercial and Other Loans	$	39		$	54		$	2,254		$	111		$	79
Commercial real estate		3,533			4,147			1,195			2,866			2,165
Consumer real estate		447			688			624			282			192
Consumer		27			14			19			16			1
	$	4,046		$	4,903		$	4,092		$	3,275		$	2,437
Other Real Estate	$	138		$	8		$	173		$	8		$	-
Total non-performing assets	$	4,184		$	4,939		$	4,265		$	3,283		$	2,463
Total non-performing assets to total loans and other real estate		3.82	%		4.07	%		3.31	%		2.63	%		2.02	%

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 $4,045,937 or 3.7% of total loans outstanding as of December 31, 2011, as compared to $4,903,000 or 4.0% of total loans outstanding as of December 31, 2010. Non-accrual loans decreased in 2011 primarily due to loans transferring into other real estate owned and by payments applied to non-accrual loans. Non-accrual loans increased in 2010 over 2009 primarily due to the addition of one commercial real estate loan customer into non-accrual status. Loans past due 90 days or more and still accruing interest were $-0- and $28,000 at December 31, 2011 and 2010, respectively. Other real estate owned totaled $138,000 and $8,000 at December 31, 2011 and 2010, respectively. Management continues to monitor the nonperforming assets to ensure against deterioration in collateral values.

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 had the loans performed in accordance with their original terms was $353,340, $289,590 and $249,470 for 2011, 2010 and 2009, respectively.

39

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 increased $444,713 or 21.6%, between December 31, 2010 and December 31, 2011. The allowance for loan losses represented 2.3% and1.7% of outstanding loans as of December 31, 2011 and 2010. Net loan charge-offs were $155,287 in 2011, compared to $55,336 in 2010 and $213,036 in 2009. The net loan charge-offs remain within historical ranges. The net loan charge-offs in 2011, 2010, 2009 and 2008 were primarily commercial and consumer loans. In 2007, a negative provision in the amount of $100,000 was taken primarily as a result of the payoff of two commercial impaired loans. 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.

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.

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,
	2011			2010			2009			2008			2007
Allowance for loan losses:
Balance at beginning of period:	$	2,059		$	1,894		$	1,923		$	2,043		$	2,297
Loans Charged off:
Commercial and Other loans		8			14			10			150			98
Commercial real estate		156			-			155			15			13
Consumer real estate		28			-			-			-			29
Consumer		19			51			66			29			26
Total		211			65			231			194			166
Recoveries:
Commercial and Other loans		2			1			11			69			3
Commercial real estate		45			-			-			3			2
Consumer real estate		-			-			-			-			-
Consumer		9			9			7			2			7
Total		56			10			18			74			12
Net Charge-offs		155			55			213			120			154
Additions Charged to Operations		600			220			184			-			(100	)
Balance at end of period:	$	2,504		$	2,059		$	1,894		$	1,923		$	2,043
Average Loans Outstanding	$	115,415		$	124,074		$	128,206		$	120,722		$	120,409
Ratio of net charge-offs to Average loans outstanding for the period		0.13	%		0.04	%		0.17	%		0.10	%		0.13	%
Ratio of the Allowance for Loan Losses to Loans Outstanding for the period		2.29	%		1.70	%		1.47	%		1.54	%		1.68	%

40

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, 2011. 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,
	2011					2010					2009					2008					2007
			Percent of loans in each category to total loans					Percent of loans in each category to total loans					Percent of loans in each category to total loans					Percent of loans in each category to total loans					Percent of loans in each category to total loans
	Amount					Amount					Amount					Amount					Amount
Commercial and Other Loans	$	179		14.6	%	$	212		16.9	%	$	203		16.1	%	$	202		17.7	%	$	147		16.4	%
Commercial real estate		2,082		51.5	%		1,511		46.5	%		1,345		45.5	%		1,350		41.8	%		1,498		43.0	%
Consumer real estate		193		27.4	%		272		28.1	%		267		28.2	%		267		29.2	%		267		30.0	%
Consumer		50		6.5	%		64		8.5	%		79		10.2	%		104		11.3	%		131		10.6	%
Total	$	2,504		100.0	%	$	2,059		100.0	%	$	1,894		100.0	%	$	1,923		100.0	%	$	2,043		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 increased approximately $10.7 million or 4.7% in 2011. The increase in total deposits was primarily due to the increases in non interest bearing demand deposits, interest bearing demand deposits and savings deposits, offset by the decline in time deposits. Noninterest bearing demand deposits increased approximately $3.6 million or 12.7%, interest bearing demand deposits increased $5.8 million or 13.7% and savings deposits increased approximately $6.9 million, or 8.8%, during 2011 while time deposits decreased approximately $5.6 million, or 7.0%.

At December 31, 2011, noninterest bearing deposits comprised 13% of total deposits and interest bearing deposits which include NOW, money market, savings and time deposits comprised 87% of total deposits. The changes in the composition of the deposit mix since December 31, 2010 were 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, 2011 and 2010. Repurchase agreements increased approximately $536,086 or 4.0%, from $13,477,420 at December 31, 2010 to $14,013,506 at December 31, 2011. The increase in repurchase agreements in 2011 was primarily due to the increase in the balances maintained by commercial customers.

Federal Home Loan Bank and Other Long-term Borrowings

Federal Home Loan Bank (“FHLB”) borrowings were $3,693,014 and $3,775,583 at December 31, 2011 and 2010, respectively, with an interest rate of 4.78%. 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.

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 at December 31, 2011:

(dollars in thousands)	Payments due by period
Contractual Obligations:	< 1 year		1-3 years		3-5 years		> 5 years		Total
Federal Home Loan Bank and other long term borrowings	$	87	$	186	$	205	$	3,215	$	3,693
Operating Leases		234		394		362		13		1,003
	$	321	$	580	$	567	$	3,228	$	4,696

41

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

Off-Balance Sheet Arrangements

Table Ten Contractual Maturities of Commitments and Contingencies

The following table presents the maturities of commitments and contingencies at December 31, 2011:

(dollars in thousands)	Amount of Commitment Expiration Per Period
Off-Balance Sheet arrangements:	< 1 year		1-3 years		3-5 years		> 5 years		Total
Commitments to extend credit	$	7,390	$	4,215	$	650	$	2,936	$	15,191
Standby letters of credit		150		10		-		20		180
	$	7,540	$	4,225	$	650	$	2,956	$	15,371

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 $150,960,955 classified as available for sale at December 31, 2011. These securities are available for sale at any time based upon management’s assessment in order to provide necessary liquidity should the need arise. The fair value of temporarily impaired investment securities that the company has the intent and ability to hold until the anticipated recovery in market value is $2,120,000. In addition, the Company’s subsidiary bank, Progressive Bank, N.A., is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”) which provides an additional source of funding in the form of collateralized advances. At December 31, 2011, 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, 2011 and 2010. At December 31, 2011 and 2010, the Company had outstanding loan commitments and unused lines of credit totaling $15,371,000 and $18,484,000, respectively. Management placed a high probability for required funding within one year of approximately $6.9 million as of December 31, 2011. Approximately $7.0 million is principally unused overdraft, home equity and credit card lines on which management places a low probability for required funding.

Capital Resources

Stockholders’ equity increased 3.8% in 2011 entirely from current year earnings after quarterly dividends, and a 7.2% increase in accumulated other comprehensive income. The increase in accumulated other comprehensive income is primarily attributable to the effect of the change in the net unrealized gains on available for sale investment securities. The increase in stockholders’ equity in 2011 follows an increase of 3.7% in 2010 entirely from current earnings after quarterly dividends combined with an decrease of 2.7% resulting from the effect of the change in the net unrealized gains (losses) on available for sale investment securities. Stockholders’ equity amounted to 11.8% and 11.2% of total assets at December 31, 2011 and 2010, respectively. The Company paid dividends of $.76 and $.73 per share in 2011 and 2010, respectively. As of December 31, 2011, First West Virginia Bancorp, Inc. had 260 stockholders of record.

The Holding Company’s primary source of funds for payment of dividends to shareholders is from the dividends from its subsidiary bank. 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 18 of the Consolidated Financial Statements.

Market Information of Common Stock

First West Virginia Bancorp, Inc’s common stock is traded on the New York Stock Exchange Amex list 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
2011	High	$	19.10	$	18.01	$	16.11	$	15.82
	Low	$	14.57	$	15.20	$	13.10	$	13.31
2010	High	$	17.48	$	16.26	$	16.76	$	17.49
	Low	$	11.50	$	13.23	$	13.26	$	13.65

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.

42

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

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 positive at approximately $25,490,000, which indicates the Company’s earning assets reprice sooner than interest bearing liabilities at December 31, 2011. 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, 2011 was as follows: given a 200 basis point increase scenario net interest income would be reduced by approximately 2.8%, and given a 200 basis point decrease scenario net interest income would be reduced by approximately 2.5%. 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, 2011

(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	$	14,246		$	-		$	-		$	-		$	6,671		$	20,917
Investment securities		15,911			28,276			34,941			66,933			4,900			150,961
Loans		17,489			29,847			44,280			13,886			3,926			109,428
Other assets		4,744			-			-			-			9,712			14,456
Allowance for loan losses		-			-			-			-			(2,504	)		(2,504	)
Total assets	$	52,390		$	58,123		$	79,221		$	80,819		$	22,705		$	293,258
LIABILITIES AND CAPITAL
NOW and savings accounts	$	25,294		$	3,009		$	6,975		$	80,976		$	-		$	116,254
Money Market Accounts (MMDA’s)		12,052			-			5,165			-			-			17,217
Certificates of deposit < $100,000		9,791			20,738			12,920			8,302			-			51,751
Certificates of deposit > $100,000		4,411			8,822			3,849			4,958			-			22,040
Noninterest bearing demand deposits		-			-			-			-			31,915			31,915
Federal funds purchased and repurchase agreements		14,014			-			-			-			-			14,014
FHLB borrowings		21			64			189			3,419			-			3,693
Other liabilities		-			-			-			-			1,847			1,847
Stockholders’ equity		-			-			-			-			34,527			34,527
Total liabilities and capital	$	65,583		$	32,633		$	29,098		$	97,655		$	68,289		$	293,258
GAP		(13,193	)		25,490			50,123			(16,836	)		(45,584	)
GAP/ Total Assets		(4.50	)%		8.69	%		17.09	%		(5.74	)%		(15.54	)%
Cumulative GAP		(13,193	)		12,297			62,420			45,584			-
Cumulative GAP/Total Assets		(4.50	)%		4.19	%		21.29	%		15.54	%		0.00	%

The above analysis contains repricing and maturity assumptions and estimates used by management.

43

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

Summarized Quarterly Financial Information

A summary of selected quarterly financial information follows:

2011	First Quarter			Second Quarter		Third Quarter			Fourth Quarter
Total interest income	$	2,861,756		$	2,882,684	$	2,806,855		$	2,655,920
Total interest expense		602,421			561,942		545,953			518,991
Net interest income		2,359,335			2,320,742		2,260,902			2,136,929
Provision for loan losses		30,000			570,000		-			-
Investment securities gain (loss)		172			267,704		375,121			87,900
Total other income		286,336			278,170		346,891			391,637
Total other expenses		1,903,540			1,907,522		1,893,837			1,921,179
Income before income taxes		612,303			389,094		1,089,077			695,287
Net income		549,907			409,135		858,932			636,171
Net income per share		0.33			0.25		0.52			0.38
2010	First Quarter			Second Quarter		Third Quarter			Fourth Quarter
Total interest income	$	2,997,289		$	3,025,943	$	2,943,635		$	2,891,028
Total interest expense		871,185			783,922		738,435			661,960
Net interest income		2,126,104			2,242,021		2,205,200			2,229,068
Provision for loan losses		30,000			30,000		30,000			130,000
Investment securities gain (loss)		-			253,267		308,095			3,912
Total other income		294,915			323,699		487,379			305,315
Total other expenses		1,897,110			1,932,889		1,922,485			1,970,414
Income before income taxes		493,909			856,098		1,048,189			437,881
Net income		460,651			668,034		786,938			423,658
Net income per share		0.28			0.40		0.48			0.26
2009	First Quarter			Second Quarter		Third Quarter			Fourth Quarter
Total interest income	$	3,304,098		$	3,254,038	$	3,193,845		$	3,161,861
Total interest expense		1,193,530			1,105,757		1,054,974			973,838
Net interest income		2,110,568			2,148,281		2,138,871			2,188,023
Provision for loan losses		-			10,000		30,000			143,942
Investment securities gain (loss)		(7,393	)		185,945		(21,429	)		31,394
Total other income		296,901			302,979		341,091			661,515
Total other expenses		1,737,025			1,938,040		1,900,933			2,016,083
Income before income taxes		663,051			689,165		527,600			720,907
Net income		523,594			546,225		468,248			766,919
Net income per share		0.32			0.33		0.28			0.46

44

FIRST WEST VIRGINIA BANCORP, INC. DIRECTORS

Nada E. Beneke Assistant Secretary, First West Virginia
Bancorp, Inc. Assistant Secretary, Progressive Bank, N.A. Registered Sanitarian, Ohio County Health
Department   Sylvan J. Dlesk Chairman of the Board, First West Virginia
Bancorp, Inc. President and Chief Executive Officer, First
West Virginia Bancorp, Inc. President and Chief Executive Officer,
Progressive Bank, N.A Owner, Dlesk Realty and Investments President, Dlesk, Inc. President, Ohio Valley Carpeting, Inc.   Elizabeth H. Hestick Vice Chairman of the Board, First West
Virginia Bancorp, Inc. R. Clark Morton Chairman of the Board, Progressive
Bank, N.A. Attorney at Law Retired Partner, Herndon, Morton,
Herndon & Yaeger   Gary W. Glessner Certified Public Accountant Managing member, Glessner &
Associates, PLLC Licensed representative of HD Vest
Financial Services, a non-banking
subsidiary owned by Wells Fargo Managing member, Wheeling Coin, LLC Managing member, G & W Insurance
Group, LLC Managing member, GW Rentals, LLC Vice President, Windmill Truckers
Center, Inc. Vice President, Glessner Enterprises,
Inc. Member, Red Stripe & Associates, LLC Thomas L. Sable Managing Partner, The Summit
Atlantic Group, LLC Clerk/Treasurer, Village of Bellaire   William G. Petroplus Attorney at Law Member/Partner Petroplus & Gaudino Member, GWP Realty, LLC

FIRST WEST VIRGINIA BANCORP, INC. OFFICERS

Sylvan J. Dlesk Chairman, President and Chief Executive
Officer   Francie P. Reppy Executive Vice President and Chief
Financial Officer Chief Administrative Officer, Treasurer Brad D. Winwood Vice President Chief Operating Officer and Investment
Officer   Connie R. Tenney Vice President Deborah A. Kloeppner Secretary   Nada E. Beneke Assistant Secretary

PROGRESSIVE BANK, N.A. DIRECTORS

Nada E. Beneke Dr. Clyde D. Campbell Robert R. Cicogna Sylvan J. Dlesk Gary W. Glessner Elizabeth H. Hestick Robert B. Hunnell, Jr. Tulane B. Mensore R. Clark Morton William G. Petroplus Thomas L. Sable

DIRECTORS EMERITI: James C. Inman, Jr., David R. Rexroad

PROGRESSIVE BANK, N.A. OFFICERS

R. Clark Morton Chairman of the
Board   Sylvan J. Dlesk President Chief Executive
Officer   Francie P. Reppy Executive Vice
President Chief Administrative
Officer Chief Financial
Officer   Brad D. Winwood Senior Vice President,
Chief Operating
Officer & Investment Officer   Connie R. Tenney Senior Vice President Michael J. Taylor Vice President Credit
Administration   Gary S. Martin Vice President -
Retail Lending   David E.
Wharton Vice President Information
Technology Officer Data Security
Officer   Deborah A.
Kloeppner Vice President Compliance and
CRA Officer,
Secretary Susan E.
Reinbeau Vice President Branch
Administrator Office Manager
Woodsdale   Michele L.
Stanley Vice President Operations
Officer   Mark D.
Nicholson Assistant Vice
President Business
Development
Officer   Richard
Silverio, Jr. Assistant Vice
President Business
Development
Officer Laura A.
Schmidt Assistant Vice
President Accounting
Officer   Virginia L.
Shutler Financial
Analyst Kerrie A.
Weisenborn Accounting
Officer   Debra M. Banfi Assistant Vice
President Loan Officer   Susan M.
Scotka Human Resource
Manager   Rebecca A.
Palmer Assistant Vice
President Manager Data
Processing Kimberly A.
Hughes Assistant Vice
President Credit Analyst   James J.
Warman Assistant Vice
President Credit Analyst   Harold O.
Thomas Sr. Business
Development
Officer   Vickie D. Poling Loan Officer   Amanda M.
Schnelle Bank Secrecy &
OFAC Officer   Beth A.
Heyman Office Manager
Bethlehem/
Bellaire Nancy J. Farley Office Manager New Martinsville   Angie R. Pasco Office Manager Warwood   Michele L.
Thatcher Office Manager Moundsville   Brandon S.
Nickerson Office Manager Wellsburg   Nada E. Beneke Assistant
Secretary

STOCKHOLDER INFORMATION

Corporate Office:   First West Virginia Bancorp, Inc. 1701 Warwood Avenue Wheeling, WV 26003 Phone: (304) 277-1100 Fax: (304) 218-2458 www.progbank.com   Annual Meeting:   The Annual Meeting of Shareholders of
First West Virginia Bancorp, Inc. will be
held at the Corporate Office of Progressive
Bank, N.A., 590 National Road, Wheeling,
West Virginia, at 4:00 p.m., on May 8,
2012. Refreshments and hors d’oeuvres
specially prepared by Wheeling Country
Club served following the meeting. Stock Trading Information:   First West Virginia Bancorp, Inc.’s
common stock is traded on the New York
Stock Exchange AMEX list under the
symbol FWV.   Upon written request any shareholder of
record on December 31, 2011, may
obtain a copy of the Corporation’s 2011
Form 10-K Report by writing to the
Secretary, First West Virginia Bancorp,
Inc., 1701 Warwood Avenue, Wheeling,
WV 26003. An electronic version of
Form 10-K may also be obtained by
visitingwww.progbank.com in the
section entitled “Investor Relations” or at
the Securities and Exchange’s website at
www.sec.gov. Stock Registrar and 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 www.rtco.com

45