First West Virginia Bancorp (FWV) 10-Q 2013 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934

For the Quarterly Period Ended March 31, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             .

Commission File No. 1-13652

First West Virginia Bancorp, Inc.

(Exact name of registrant as specified in its charter)

West Virginia	55-6051901
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1701 Warwood Avenue

Wheeling, West Virginia 26003

(Address of principal executive offices)

Registrant’s telephone number, including area code: (304) 277-1100

N/A

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months ( or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days.     x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer , an accelerated filer or a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-accelerated filer	¨	Smaller Reporting Company	x

Indicate by check mark whether the Registrant is a shell company as defined by Rule 12b-2 of the Exchange Act.     ¨  Yes     x   No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ¨  Yes     ¨  No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practible date. The number of shares outstanding of the issuer’s common stock as of March 31, 2013: Common Stock, $5.00 Par Value, shares outstanding: 1,728,730 shares

FORM 10-Q INDEX

		Page No.
PART I - Financial Information
Item 1.	Financial Statements		3-28
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29-38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		39
Item 4.	Controls and Procedures		39
PART II - Other Information
Item 1.	Legal Proceedings		40
Item 1A.	Risk Factors		40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 3.	Defaults upon Senior Securities		40
Item 4.	Mine Safety Disclosures		40
Item 5.	Other Information		40
Item 6.	Exhibits		40
SIGNATURES			41

2

FIRST WEST VIRGINIA BANCORP, INC.

PART I

FINANCIAL INFORMATION

3

First West Virginia Bancorp, Inc.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2013			2012
	(Unaudited)
ASSETS
Cash and due from banks	$	5,057,183		$	5,365,856
Due from banks - interest bearing		18,883,471			10,510,655
Total cash and cash equivalents		23,940,654			15,876,511
Investment securities:
Available-for-sale (at fair value)		175,853,312			178,207,974
Loans held for sale					109,800
Loans		100,806,308			99,387,344
Less allowance for loan losses		(2,177,992	)		(2,181,451	)
Net loans		98,628,316			97,205,893
Premises and equipment, net		6,451,788			6,499,656
Accrued income receivable		1,168,736			1,127,940
Goodwill		1,644,119			1,644,119
Bank owned life insurance		3,651,044			3,625,013
Other assets		2,486,998			2,250,315
Total assets	$	313,824,967		$	306,547,221
LIABILITIES
Noninterest bearing deposits:
Demand	$	33,193,294		$	33,422,465
Interest bearing deposits:
Demand		49,920,755			48,423,471
Savings		98,142,259			93,903,196
Time		69,645,510			70,712,831
Total deposits		250,901,818			246,461,963
Federal funds purchased and securities sold under agreements to repurchase		18,155,128			18,766,590
Federal Home Loan Bank borrowings		3,584,108			3,606,411
Accrued interest payable		143,773			162,598
Other liabilities		5,983,146			1,846,886
Total liabilities		278,767,973			270,844,448
STOCKHOLDERS’ EQUITY
Common stock - 2,000,000 shares authorized at $5 par value:
1,728,730 shares issued at March 31, 2013 and December 31, 2012		8,643,650			8,643,650
Treasury stock - 10,000 shares at cost:		(228,100	)		(228,100	)
Surplus		6,966,020			6,966,020
Retained earnings		17,246,519			17,191,740
Accumulated other comprehensive income		2,428,905			3,129,463
Total stockholders’ equity		35,056,994			35,702,773
Total liabilities and stockholders’ equity	$	313,824,967		$	306,547,221

The accompanying notes are an integral part of the unaudited consolidated financial statements.

4

First West Virginia Bancorp, Inc.

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended,
	March 31,
	2013			2012
	(Unaudited)
INTEREST AND DIVIDEND INCOME
Loans, including fees:
Taxable	$	1,185,219		$	1,343,667
Tax-exempt		102,562			122,511
Debt securities:
Taxable		548,636			631,987
Tax-exempt		455,143			420,056
Dividends		832			247
Other interest income		10,379			12,986
Total interest and dividend income		2,302,771			2,531,454
INTEREST EXPENSE
Deposits		313,419			417,699
Federal funds purchased and repurchase agreements		30,801			26,908
Federal Home Loan Bank borrowings		42,982			44,023
Total interest expense		387,202			488,630
Net interest income		1,915,569			2,042,824
PROVISION FOR LOAN LOSSES		—			—
Net interest income after provision for loan losses		1,915,569			2,042,824
NONINTEREST INCOME
Service charges and other fees		98,404			110,655
Net gains on available for sale securities		14			—
Other operating income		173,847			197,340
Total noninterest income		272,265			307,995
NONINTEREST EXPENSE
Salary and employee benefits		915,541			925,726
Net occupancy expense of premises		408,077			393,036
Other operating expenses		566,995			584,340
Total noninterest expense		1,890,613			1,903,102
Income before income taxes		297,221			447,717
INCOME TAX EXPENSE (BENEFIT)		(84,116	)		(22,283	)
Net income	$	381,337		$	470,000
WEIGHTED AVERAGE SHARES OUTSTANDING		1,718,730			1,718,730
EARNINGS PER COMMON SHARE	$	0.22		$	0.28
DIVIDENDS PER COMMON SHARE	$	0.19		$	0.18

The accompanying notes are an integral part of the unaudited consolidated financial statements.

5

First West Virginia Bancorp, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended,
	March 31,
	2013			2012
	(Unaudited)
Net Income	$	381,337		$	470,000
Other comprehensive income:
Investment securities available for sale:
Unrealized holding gains (losses) arising during the period		(1,123,215	)		(167,627	)
Income tax effect		422,666			63,078
Reclassification of gains recognized in earnings		(14	)		—
Income tax effect		5			—
Total other comprehensive income (loss)		(700,558	)		(104,549	)
Comprehensive income (loss)	$	(319,221	)	$	365,451

The accompanying notes are an integral part of the unaudited consolidated financial statements.

6

First West Virginia Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

													Accumulated
													Other
	Common Stock						Retained			Treasury			Comprehensive
	Shares		Amount		Surplus		Earnings			Stock			Income			Total
BALANCE, DECEMBER 31, 2012		1,728,730	$	8,643,650	$	6,966,020	$	17,191,740		$	(228,100	)	$	3,129,463		$	35,702,773
Net income		—		—		—		381,337			—			—			381,337
Other comprehensive loss		—		—		—		—			—			(700,558	)		(700,558	)
Cash dividend ($.19 per share)		—		—		—		(326,558	)		—			—			(326,558	)
BALANCE, March 31, 2013		1,728,730	$	8,643,650	$	6,966,020	$	17,246,519		$	(228,100	)	$	2,428,905		$	35,056,994
													Accumulated
													Other
	Common Stock						Retained			Treasury			Comprehensive
	Shares		Amount		Surplus		Earnings			Stock			Income			Total
BALANCE, DECEMBER 31, 2011		1,662,814	$	8,314,070	$	6,288,403	$	16,920,319		$	(228,100	)	$	3,231,818		$	34,526,510
Net income		—		—		—		470,000			—			—			470,000
Other comprehensive loss		—		—		—		—			—			(104,549	)		(104,549	)
Cash dividend ($.18 per share)		—		—		—		(314,035	)		—			—			(314,035	)
BALANCE, March 31, 2012		1,662,814	$	8,314,070	$	6,288,403	$	17,076,284		$	(228,100	)	$	3,127,269		$	34,577,926

The accompanying notes are an integral part of the unaudited consolidated financial statements.

7

First West Virginia Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Three Months Ended
	March 31,
	2013			2012
OPERATING ACTIVITIES
Net income	$	381,337		$	470,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		141,164			123,389
Amortization of investment securities, net		117,197			141,383
Investment security gains		(14	)		—
Loss on disposal of premises and equipment		—			1,052
Increase in cash surrender value of bank-owned life insurance		(26,031	)		(25,960	)
Increase in interest receivable		(40,796	)		(54,946	)
Decrease in interest payable		(18,825	)		(27,741	)
Other, net		(1,056,022	)		(1,050,165	)
Net cash used in operating activities		(501,990	)		(422,988	)
INVESTING ACTIVITIES
Net (increase) decrease in loans, net of charge-offs		(1,424,433	)		3,023,818
Recoveries on loans previously charged-off		2,010			1,509
Proceeds from sales of securities available-for-sale		200			10,230
Proceeds from maturities of securities available-for-sale		10,007,816			11,612,345
Principal collected on mortgage-backed securities		3,274,033			4,289,084
Purchases of securities available-for-sale		(6,679,729	)		(26,051,903	)
Purchases of premises and equipment		(93,296	)		(217,156	)
Net cash provided by (used in) investing activities		5,086,601			(7,332,073	)
FINANCING ACTIVITIES
Net increase in deposits		4,439,855			4,614,728
Dividends paid		(326,558	)		(314,035	)
Increase (decrease) in short-term borrowings		(611,462	)		3,691,870
Repayment of Federal Home Loan Bank borrowings		(22,303	)		(21,265	)
Net cash provided by financing activities		3,479,532			7,971,298
INCREASE IN CASH AND CASH EQUIVALENTS		8,064,143			216,237
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		15,876,511			20,916,773
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	23,940,654		$	21,133,010
Supplemental Disclosures:
Cash Paid for Interest	$	406,027		$	516,371
Cash Paid for Income Taxes		—		$	50,000

The accompanying notes are an integral part of the unaudited consolidated financial statements.

8

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

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 March 31, 2013 and December 31, 2012, 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.

9

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 was one loan held for sale at December 31, 2012 amounting to $109,800. There were no loans held for sale as of March 31, 2013.

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, 2013. 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 $10,038,640 and $10,267,649 as of March 31, 2013 and December 31, 2012, respectively. These loans were also subject to recourse obligation or credit risk in the amount of $350,894 and $346,249 at March 31, 2013 and December 31, 2012, respectively. The amount of income recognized as of a result of this agreement was $10,761 and $24,597 for the three months ended March 31, 2013 and 2012, 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.

10

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

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 $2,177,992 at March 31, 2013, 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: 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 $3,651,044 and $3,625,013 at March 31, 2013 and December 31, 2012, respectively. The death benefit value of the bank-owned life insurance at March 31, 2013 and December 31, 2012 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 $38,677 and $49,929 for the three months ended March 31, 2013 and March 31, 2012, 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.

11

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

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.

Recent Accounting Pronouncements: In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 July, 2012, the FASB issued ASU 2012-02,Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment ASU 2012-02 give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 (early adoption permitted). This ASU is not expected to have a significant impact on the Company’s financial statements.

12

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements (Continued)

In January 2013, the FASB issued ASU 2013-01,Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815,Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The effective date is the same as the effective date of Update 2011-11. This ASU is not expected to have a significant impact on the Company’s financial statements.

In February 2013, the FASB issued ASU 2013-02,Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this Update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. For nonpublic entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. The Company has provided the necessary disclosures in Note 8.

In February 2013, the FASB issued ASU 2013-04,Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. The objective of the amendments in this Update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. generally accepted accounting principles (GAAP). Examples of obligations within the scope of this Update include debt arrangements, other contractual obligations, and settled litigation and judicial rulings. U.S. GAAP does not include specific guidance on accounting for such obligations with joint and several liability, which has resulted in diversity in practice. Some entities record the entire amount under the joint and several liability arrangement on the basis of the concept of a liability and the guidance that must be met to extinguish a liability. Other entities record less than the total amount of the obligation, such as an amount allocated, an amount corresponding to the proceeds received, or the portion of the amount the entity agreed to pay among its co-obligors, on the basis of the guidance for contingent liabilities. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2014, and interim periods and annual periods thereafter. This ASU is not expected to have a significant impact on the Company’s financial statements.

13

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 2 - INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities are as follows at March 31, 2013 and December 31, 2012:

	(Expressed in thousands)
	March 31, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities available-for-sale:
Obligations of U.S. Government corporations and agencies	$	45,593	$	101	$	(14	)	$	45,680
Obligations of states and political subdivisions		50,608		3,183		(107	)		53,684
Mortgage-backed securities		75,573		1,037		(336	)		76,274
Equity securities		185		30		—			215
Total available-for-sale	$	171,959	$	4,351	$	(457	)	$	175,853
	(Expressed in thousands)
	December 31, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities available-for-sale:
Obligations of U.S. Government corporations and agencies		47,101	$	201	$	(7	)	$	47,295
Obligations of states and political subdivisions		48,393		3,692		(55	)		52,030
Mortgage-backed securities		77,513		1,218		(53	)		78,678
Equity securities		183		22		—			205
Total available-for-sale		173,190		5,133		(115	)		178,208

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 37 positions that are temporarily impaired at March 31, 2013.

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 March 31, 2013 and December 31, 2012:

	(Expressed in thousands)
	March 31, 2013
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Government corporations and agencies	$	7,986	$	(14	)	$	—	$	—		$	7,986	$	(14	)
Obligations of states and political subdivisions		5,568		(107	)		—		—			5,568		(107	)
Mortgage-backed securities		37,400		(335	)		76		(1	)		37,476		(336	)
Total	$	50,954	$	(456	)	$	76	$	(1	)	$	51,030	$	(457	)

14

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 2 - INVESTMENT SECURITIES (CONTINUED)

	(Expressed in thousands)
	December 31, 2012
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Government corporations and agencies		6,993	$	(7	)	$	—	$	—		$	6,993	$	(7	)
Obligations of states and political subdivisions		2,721		(55	)		—		—			2,721		(55	)
Mortgage-backed securities		23,752		(52	)		82		(1	)		23,834		(53	)
Total	$	33,466	$	(114	)	$	82	$	(1	)	$	33,548	$	(115	)

The amortized cost and fair value of investment securities available for sale at March 31, 2013, 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)
	March 31, 2013
	Amortized		Fair
	Cost		Value
Due in one year or less	$	973	$	986
Due after one year through five years		7,480		7,570
Due after five years through ten years		61,196		62,390
Due after ten years		26,552		28,418
		96,201		99,364
Mortgage-backed securities		75,573		76,274
Equity securities		185		215
Total	$	171,959	$	175,853

Proceeds from sales of securities available-for-sale during the three month periods ended March 31, 2013 and 2012, were $200 and $10,230, respectively. Gross gains of $14 and gross losses of $-0- were realized during the three months ended March 31, 2013 and gross gains of $297 and gross losses of $297 were realized during the three months ended March 31, 2012. Assets carried at $63,469,000 and $65,418,000 at March 31, 2013 and December 31, 2012, respectively, were pledged to secure United States Government and other public funds and for other purposes as required or permitted by law.

The maturity distribution using book value including accretion of discounts and amortization of premiums and approximate yield of investment securities at March 31, 2013 and December 31, 2012 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. 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.

15

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 2 - INVESTMENT SECURITIES (CONTINUED)

(dollars in thousands)	March 31, 2013							December 31, 2012
	Amortized		Fair					Amortized		Fair
	Cost		Value		Yield			Cost		Value		Yield
U.S. Government corporations and agencies
Within One Year	$	2	$	2		0.01	%	$	10	$	10		0.01	%
After One But Within Five Years		6,000		6,011		1.88			6,000		6,034		1.88
After Five But Within Ten Years		39,588		39,664		1.70			41,088		41,248		1.75
After Ten Years		3		3		0.86			3		3		0.87
		45,593		45,680		1.72			47,101		47,295		1.77
States & Political Subdivisions
Within One Year		971		983		4.99			970		990		4.98
After One But Within Five Years		1,480		1,560		6.13			1,101		1,158		5.92
After Five But Within Ten Years		21,608		22,726		5.14			19,439		20,633		5.23
After Ten Years		26,549		28,415		5.77			26,883		29,249		5.90
		50,608		53,684		5.50			48,393		52,030		5.62
Mortgage-Backed Securities		75,573		76,274		2.10			77,513		78,678		2.01
Equity Securities		185		215		3.81			183		205		1.97
Total	$	171,959	$	175,853		3.04	%	$	173,190	$	178,208		3.00	%

NOTE 3 - LOANS AND LEASES

Loans outstanding at March 31, 2013 and December 31, 2012, are as follows:

	(Expressed in Thousands)
	March 31, 2013		December 31, 2012
Consumer Real Estate:
Construction	$	710	$	730
Farmland		230		239
Residential 1-4 Family		24,567		22,439
Home Equity Loans		1,860		1,960
Home Equity Lines of Credit		3,176		3,157
Total Consumer Real Estate		30,543		28,525
Commercial Real Estate:
Non-farm, non-residential		41,954		41,164
Multifamily (5 or more) residential properties		8,956		8,986
Total Commercial Real Estate		50,910		50,150
Commercial and Other Loans:
Commercial		5,452		5,626
Non-rated industrial development obligations		9,495		9,954
Other loans		21		23
Total Commercial and Other Loans		14,968		15,603
Consumer Loans:
Installment and other loans to individuals		4,022		4,668
Credit Cards		491		563
Total Consumer Loans		4,513		5,231
Total loans	$	100,934	$	99,509
Less unearned interest and deferred fees		128		122
Net loans	$	100,806	$	99,387

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.

16

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 3 - LOANS AND LEASES (CONTINUED)

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 $3,465,224 and $3,550,640 at March 31, 2013 and December 31, 2012, respectively. The amount of interest income that would have been recognized had the loans performed in accordance with their original terms was $42,301, $60,400 and $216,468 for three months ended March 31, 2013 and 2012 and for the year ended December 31, 2012, respectively.

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

	March 31, 2013
	Current			30-59 Days Past Due		60-89 Days Past Due		90 Days or more Past Due		Total Past Due		Total Loans			90 Days or more Past Due and Accruing
Commercial and Other Loans	$	14,946		$	—	$	—	$	22	$	22	$	14,968		$	—
Commercial real estate		47,765			285		—		2,860		3,145		50,910			—
Consumer real estate		30,332			180		12		19		211		30,543			—
Consumer		4,500			7		—		6		13		4,513			—
Unearned interest and deferred fees		(128	)		—		—		—		—		(128	)		—
Total loans	$	97,415		$	472	$	12	$	2,907	$	3,391	$	100,806		$	—
Non-accrual loans included above are as follows:
Commercial and Other Loans	$	7		$	—	$	—	$	22	$	22	$	29		$	—
Commercial real estate		202			181		—		2,860		3,041		3,243			—
Consumer real estate		13			136		12		19		167		180			—
Consumer		7			—		—		6		6		13			—
Total non-accrual loans	$	229		$	317	$	12	$	2,907	$	3,236	$	3,465		$	—

17

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 3 - LOANS AND LEASES (CONTINUED)

	December 31, 2012
	Current			30-59 Days Past Due		60-89 Days Past Due		90 Days or more Past Due		Total Past Due		Total Loans			90 Days or more Past Due and Accruing
Commercial and Other Loans	$	15,515		$	65	$	—	$	23	$	88	$	15,603		$	—
Commercial real estate		47,261			31		—		2,858		2,889		50,150			—
Consumer real estate		28,006			139		295		85		519		28,525			—
Consumer		5,214			4		7		6		17		5,231			—
Unearned interest and deferred fees		(122	)		—		—		—		—		(122	)		—
Total loans	$	95,874		$	239	$	302	$	2,972	$	3,513	$	99,387		$	—
Non-accrual loans included above are as follows:
Commercial and Other Loans	$	8		$	—	$	—	$	23	$	23	$	31		$	—
Commercial real estate		257			—		—		2,858		2,858		3,115			—
Consumer real estate		195			108		—		85		193		388			—
Consumer		10			—		1		6		7		17			—
Total non-accrual loans	$	470		$	108	$	1	$	2,972	$	3,081	$	3,551		$	—

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.

18

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 3 - LOANS AND LEASES (CONTINUED)

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 March 31, 2013 and December 31, 2012 (in thousands):

March 31, 2013	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and Other	$	14,937	$	—	$	31	$	—	$	14,968
Commercial Real Estate		41,245		2,961		6,704		—		50,910
Construction and Land Development		940		—		—		—		940
Total	$	57,122	$	2,961	$	6,735	$	—	$	66,818
Current	$	56,967	$	2,961	$	3,659	$	—	$	63,587
Past Due 30-59 days		155		—		—		—		155
Past Due 60-89 days		—		—		—		—		—
Past Due 90 days or more		—		—		—		—		—
Non- accrual		—		—		3,076		—		3,076
Total	$	57,122	$	2,961	$	6,735	$	—	$	66,818
December 31, 2012	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and Other	$	15,572	$	—	$	31	$	—	$	15,603
Commercial Real Estate		39,873		3,465		6,812		—		50,150
Construction and Land Development		969		—		—		—		969
Total	$	56,414	$	3,465	$	6,843	$	—	$	66,722
Current	$	56,349	$	3,465	$	3,728	$	—	$	63,542
Past Due 30-59 days		65		—		—	��	—		65
Past Due 60-89 days		—		—		—		—		—
Past Due 90 days or more		—		—		—		—		—
Non- accrual		—		—		3,115		—		3,115
Total	$	56,414	$	3,465	$	6,843	$	—	$	66,722

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 March 31, 2013 and December 31, 2012 (in thousands):

March 31, 2013	Performing		Non-performing		Total
Consumer	$	4,499	$	14	$	4,513
Consumer Real Estate		28,539		1,064		29,603
Total	$	33,038	$	1,078	$	34,116
December 31, 2012	Performing		Non-performing		Total
Consumer	$	5,214	$	17	$	5,231
Consumer Real Estate		28,247		388		28,635
Total	$	33,461	$	405	$	33,866

19

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 3 - LOANS AND LEASES (CONTINUED)

Impaired loans at March 31, 2013 and December 31, 2012 are set forth in the following tables (in thousands):

	March 31, 2013
	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Commercial and Other Loans	$	30	$	8	$	22	$	30	$	22
Commercial real estate		3,045		513		2,532		3,045		574
Consumer real estate		220		220		—		220		—
Total	$	3,295	$	741	$	2,554	$	3,295	$	596
	December 31, 2012
	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Commercial and Other Loans	$	31	$	8	$	23	$	31	$	23
Commercial real estate		3,115		537		2,578		3,115		619
Consumer real estate		226		226		—		226		—
Total	$	3,372	$	771	$	2,601	$	3,372	$	642

The average recorded investment in impaired loans at March 31, 2013 and March 31, 2012 are set forth below in the following table. No interest income was recognized on impaired loans subsequent to their classification as impaired (in thousands):

	Average Recorded Investment
	March 31, 2013		March 31, 2012
Commercial and Other Loans	$	30	$	35
Commercial real estate		3,081		3,180
Consumer real estate		223		573
Total	$	3,334	$	3,788

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 March 31, 2013 and December 31, 2012.

20

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 3 - LOANS AND LEASES (CONTINUED)

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.

The Company did not have any new TDR’s originate during the three month periods ended March 31, 2013 and 2012. There were no TDR’s that defaulted during the three month periods ended March 31, 2013 and 2012.

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

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

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 March 31, 2013 and March 31, 2012 (in thousands):

March 31, 2013	Commercial and other		Commercial Real Estate		Consumer Real Estate		Consumer			Total
Allowance for Loan Losses:
Beginning Balance	$	179	$	1,762	$	193	$	47		$	2,181
Charge-offs		—		—		—		(5	)		(5	)
Recoveries		—		—		—		2			2
Provision		—		—		—		—			—
Ending Balance	$	179	$	1,762	$	193	$	44		$	2,178
Loans individually evaluated for impairment	$	22	$	574	$	—	$	—		$	596
Loans collectively evaluated for impairment		157		1,188		193		44			1,582
Ending Balance	$	179	$	1,762	$	193	$	44		$	2,178

21

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 4 - ALLOWANCE FOR LOAN LOSSES (CONTINUED)

March 31, 2012	Commercial and other			Commercial Real Estate			Consumer Real Estate		Consumer			Total
Allowance for Loan Losses:
Beginning Balance	$	179		$	2,082		$	193	$	50		$	2,504
Charge-offs		—			(3	)		—		(5	)		(8	)
Recoveries		—			—			—		1			1
Provision		(31	)		(7	)		41		(3	)		—
Ending Balance	$	148		$	2,072		$	234	$	43		$	2,497
Loans individually evaluated for impairment	$	—		$	797		$	—	$	—		$	797
Loans collectively evaluated for impairment		148			1,275			234		43			1,700
Ending Balance	$	148		$	2,072		$	234	$	43		$	2,497

The following table presents loans individually and collectively evaluated for impairment by class of loans as of March 31, 2013 and December 31, 2012 (in thousands):

March 31, 2013	Commercial and other		Commercial Real Estate		Consumer Real Estate		Consumer		Unearned Discounts			Total
Loans individually evaluated	$	31	$	3,046	$	220	$	—	$	—		$	3,297
Loans collectively evaluated		14,937		47,864		30,323		4,513		(128	)		97,509
Ending Balance	$	14,968	$	50,910	$	30,543	$	4,513	$	(128	)	$	100,806
December 31, 2012
Loans individually evaluated	$	31	$	3,115	$	226	$	—	$	—		$	3,372
Loans collectively evaluated		15,572		47,035		28,409		5,231		(122	)		96,125
Ending Balance	$	15,603	$	50,150	$	28,635	$	5,231	$	(122	)	$	99,497

NOTE 5 - PREMISES AND EQUIPMENT

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

	March 31, 2013		December 31, 2012		Original Useful Life Years
Land	$	1,974,527	$	1,974,527
Land improvements		493,195		493,195	15
Leasehold improvements		1,083,051		1,083,051	15
Buildings		5,511,438		5,440,002	39
Furniture, fixtures & equipment		5,169,218		5,147,358	3 - 7
Total		14,231,429		14,138,133
Less accumulated depreciation		7,779,641		7,638,477
Premises and equipment, net	$	6,451,788	$	6,499,656

Charges to operations for depreciation approximated $141,164 and $123,389 for the three months ended March 31, 2013 and 2012, respectively.

22

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 6 - DEPOSITS

The composition of the Bank’s deposits at March 31, 2013 and December 31, 2012 follows:

	(Expressed in Thousands)
	March 31, 2013
	Demand
	Noninterest		Interest
	Bearing		Bearing		Savings		Time
Individuals, partnerships and corporations (includes certified and official checks)	$	32,515	$	43,358	$	94,305	$	65,983
States and political subdivisions		519		6,563		3,732		2,933
Commercial banks and other depository institutions		159		—		105		730
Total	$	33,193	$	49,921	$	98,142	$	69,646

	(Expressed in Thousands)
	December 31, 2012
	Demand
	Noninterest		Interest
	Bearing		Bearing		Savings		Time
Individuals, partnerships and corporations (includes certified and official checks)	$	32,614	$	42,866	$	90,252	$	67,254
States and political subdivisions		646		5,558		3,546		2,969
Commercial banks and other depository institutions		162		—		105		490
Total	$	33,422	$	48,424	$	93,903	$	70,713

A maturity distribution of time certificates of deposit at March 31, 2013 and December 31, 2012, follows:

(dollars in thousands)	Maturities of Time Deposits
	March 31, 2013		December 31, 2012
Due in 2013	$	26,067	$	37,271
Due in 2014		20,891		13,279
Due in 2015		8,792		8,040
Due in 2016		6,625		6,262
Due in 2017		5,777		5,660
Due in 2018 and thereafter		1,494		201
Total	$	69,646	$	70,713

Time deposits include certificates of deposit issued in denominations of $100,000 or more which amounted to $22,615,000 and $22,720,000 at March 31, 2013 and December 31, 2012, respectively. Interest expense on certificates of deposit of $100,000 or more was $88,723 and $113,000 for the three months ended March 31, 2013 and 2012, respectively.

The following table presents other time deposits of $100,000 or more issued by domestic offices by time remaining until maturity of 3 months or less; over 3 through 6 months; over 6 through 12 months; and over 12 months.

	Maturities of Time Deposits in Excess of $100,000
(dollars in thousands)	March 31, 2013		December 31, 2012
Three Months or Less	$	4,899	$	5,008
Over Three and Less than Six Months		1,248		3,356
Over Six and Less than Twelve Months		6,381		3,039
Over Twelve Months		10,087		11,317
Total	$	22,615	$	22,720

23

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 7 - FEDERAL HOME LOAN BANK BORROWINGS

The subsidiary Bank is a member of the Federal Home Loan Bank of Pittsburgh. 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 March 31, 2013 was approximately $37.0 million subject to the purchase of additional FHLB stock. The subsidiary bank had FHLB borrowings of $3,584,108 and $3,606,411 at March 31, 2013 and December 31, 2012, respectively. At March 31, 2013 the subsidiary bank had three fixed rate amortizing advances which totaled $3,584,108 with a weighted average interest rate of 4.78% of which $2,028,476 will mature in 2018 and $1,555,632 will mature in 2023.

The subsidiary bank also has a one year line of credit agreement with the Federal Home Loan Bank. The maximum credit available under this agreement is $7.0 million. There were no borrowings outstanding under this agreement at March 31, 2013 and December 31, 2012, respectively.

Contractual maturities of FHLB borrowings as of March 31, 2013 were as follows:

Due in 2013	$	68,529
Due in 2014		95,267
Due in 2015		99,919
Due in 2016		104,800
Due in 2017		109,918
Due in 2018 and thereafter		3,105,675
Total	$	3,584,108

NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME

The activity in accumulated other comprehensive income for the three months ended March 31, 2013 and 2012 is as follows:

	Accumulated Other Comprehensive Income (1)
(dollars in thousands)	Unrealized Gains (Losses) on Securities Available for Sale
Balance at December 31, 2012	$	3,130
Other comprehensive income before reclassifications		(701	)
Amounts reclassified from accumulated other comprehensive income		—
Period Change		(701	)
Balance at March 31, 2013	$	2,429
Balance at December 31, 2011	$	3,232
Other comprehensive income before reclassifications		(105	)
Amounts reclassified from accumulated other comprehensive income		—
Period Change		(105	)
Balance at March 31, 2012	$	3,127

⁽¹⁾  All amounts are net of tax. Related income tax expense or benefit is calculated using a combined Federal and State income tax rate approximating 39.5%.

24

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 9 - 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 March 31, 2013, 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
	Amount		Ratio			Amount		Ratio			Amount		Ratio
First West Virginia Bancorp, Inc.
As of March 31, 2013
Total Capital (to Risk Weighted Assets)	$	32,821		22.52	%	$	11,660		8.0	%	$	14,575		10.0	%
Tier I Capital (to Risk Weighted Assets)		30,998		21.27	%		5,830		4.0	%		8,745		6.0	%
Tier I Capital (to Adjusted Total Assets)		30,998		10.39	%		11,937		4.0	%		14,921		5.0	%
As of December 31, 2012
Total Capital (to Risk Weighted Assets)	$	32,792		22.13	%	$	11,856		8.0	%	$	14,821		10.0	%
Tier I Capital (to Risk Weighted Assets)		30,938		20.88	%		5,928		4.0	%		8,892		6.0	%
Tier I Capital (to Adjusted Total Assets)		30,938		10.48	%		11,809		4.0	%		14,761		5.0	%
Progressive Bank, N.A.
As of March 31, 2013
Total Capital (to Risk Weighted Assets)	$	32,632		22.42	%	$	11,642		8.0	%	$	14,552		10.0	%
Tier I Capital (to Risk Weighted Assets)		30,809		21.17	%		5,821		4.0	%		8,731		6.0	%
Tier I Capital (to Adjusted Total Assets)		30,809		10.33	%		11,925		4.0	%		14,907		5.0	%
As of December 31, 2012
Total Capital (to Risk Weighted Assets)	$	32,608		22.04	%	$	11,838		8.0	%	$	14,798		10.0	%
Tier I Capital (to Risk Weighted Assets)		30,754		20.78	%		5,919		4.0	%		8,879		6.0	%
Tier I Capital (to Adjusted Total Assets)		30,754		10.43	%		11,798		4.0	%		14,747		5.0	%

25

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 10 - 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:

Ÿ	Level I:	Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Ÿ	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.
Ÿ	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.

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 III 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 March 31, 2013 and December 31, 2012, 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.

(dollars in thousands)	March 31, 2013
	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Securities available for sale:
U.S. Government corporations and agencies	$	—	$	45,680	$	—	$	45,680
Obligations of states and political subdivisions		—		53,684		—		53,684
Mortgage-backed securities		—		76,274		—		76,274
Equity securities		215		—		—		215
Total securities available for sale:	$	215	$	175,638	$	—	$	175,853
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	3,297	$	3,297
Other real estate	$	—	$	—	$	—	$	—
Mortgage servicing rights	$	—	$	—	$	44	$	44

(dollars in thousands)	December 31, 2012
	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Securities available for sale:
U.S. Government corporations and agencies	$	—	$	47,295	$	—	$	47,295
Obligations of states and political subdivisions		—		52,030		—		52,030
Mortgage-backed securities		—		78,678		—		78,678
Equity securities		205		—		—		205
Total securities available for sale:	$	205	$	178,003	$	—	$	178,208
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	2,730	$	2,730
Other real estate	$	—	$	—	$	—	$	—
Mortgage servicing rights	$	—	$	—	$	47	$	47

26

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 10 - FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Level 3 inputs were used in determining fair value.

(dollars in thousands)	Quantitative Information about Level 3 Fair Value  Measurements
March 31, 2013	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted         Average)
Impaired Loans	$	3,297	Appraisal of collateral (1)	Appraisal adjustments (2) Liquidation expenses (2)	0% to -63.8% (-9.5%) 1.6% to 30.0% (10.4%)
Mortgage Servicing Rights	$	44	Discounted Cash Flow	Remaining term Discount rate	2.9 years to 7 years (3.49 years) 9.5% to 10.5% (10%)

(1) The fair value is determined through independent appraisals by certified appraisers of the underlying collateral.

(2) Appraisals may be adjusted by management for qualitative factors and estimated liquidation expenses. The range and weighted average of liquidation expenses are expressed as a percent of discounted collateral value and other appraisal adjustments are presented as a percentage of the appraised amounts.

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 Held for Sale: Loans held for sale are carried at cost. The fair value is based on what the secondary market would offer for loans with similar characteristics.

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.

27

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 AND 2012

(Unaudited)

NOTE 10 - FAIR VALUE MEASUREMENTS (CONTINUED)

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 borrowings: The fair value of Federal Home Loan Bank borrowings is generally carried at amortized cost. We are required to estimate the fair value of these long-term borrowings. The discounted cash flow method is used to estimate the fair value of Federal Home Loan Bank borrowings.

Accrued Interest Payable: The carrying amount of accrued interest payable approximates its 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 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 or that will be realized in the future.

The estimates of fair values of financial instruments are summarized as follows at March 31, 2013 and December 31, 2012:

	March 31, 2013
(Amounts Expressed in Thousands)	Level I		Level II		Level III		Total Fair Value
Financial assets:
Cash and cash equivalents	$	23,941	$	—	$	—	$	23,941
Investment securities		215		175,638		—		175,853
Loans held for sale
Loans		—		—		101,645		101,645
Bank owned life insurance		3,651		—		—		3,651
Accrued interest receivable		1,169		—		—		1,169
Financial liabilities:
Deposits		167,763		70,290		—		238,053
Federal funds purchased and repurchase agreements		18,155		—		—		18,155
Federal Home Loan Bank borrowings		—		4,136		—		4,136
Accrued interest payable		144		—		—		144
	March 31, 2013				December 31, 2012
(Amounts Expressed in Thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	23,941	$	23,941	$	15,877	$	15,877
Investment securities		175,853		175,853		178,208		178,208
Loans held for sale		—		—		110		110
Loans		100,806		101,645		97,206		98,303
Bank owned life insurance		3,651		3,651		3,625		3,625
Accrued interest receivable		1,169		1,169		1,128		1,128
Financial liabilities:
Deposits		250,902		238,053		246,462		235,036
Federal funds purchased and repurchase agreements		18,155		18,155		18,767		18,767
Federal Home Loan Bank borrowings		3,584		4,136		3,606		4,199
Accrued interest payable		144		144		163		163

28

First West Virginia Bancorp, Inc.

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

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

	(Unaudited)
	Three Months Ended March  31,						Years ended December 31,
	2013			2012			2012			2011			2010			2009
SUMMARY OF OPERATIONS
Total interest income	$	2,303		$	2,531		$	9,838		$	11,207		$	11,858		$	12,914
Total interest expense		387			488			1,789			2,229			3,056			4,328
Net interest income		1,916			2,043			8,049			8,978			8,802			8,586
Provision for loan losses		—			—			(248	)		600			220			184
Total other income		272			308			2,352			2,034			1,977			1,791
Total other expenses		1,891			1,903			7,604			7,626			7,723			7,592
Income before income taxes		297			448			3,045			2,786			2,836			2,601
Net income		381			470			2,538			2,454			2,339			2,305
PER SHARE DATA (1)
Net income	$	0.22		$	0.28		$	1.48		$	1.43		$	1.36		$	1.34
Cash dividends declared		0.19			0.18			0.73			0.73			0.70			0.70
Book value per share		20.40			20.12			20.77			20.09			18.10			17.92
AVERAGE BALANCE SHEET SUMMARY
Total loans, net	$	98,281		$	107,967			104,566		$	115,415		$	124,074		$	128,206
Investment securities		171,013			145,284			154,755			136,409			116,990			112,142
Deposits - interest bearing		212,806			207,594			208,308			204,616			198,042			190,981
Stockholders’ equity		32,498			31,266			31,608			30,498			29,415			28,192
Total assets		300,074			289,456			293,601			283,734			273,778			266,414
BALANCE SHEET
Investments	$	175,853		$	161,371			178,208		$	150,961		$	133,169		$	115,997
Loans		100,806			106,396			99,387			109,428			121,367			128,581
Allowance for loan losses		(2,178	)		(2,497	)		(2,181	)		(2,504	)		(2,059	)		(1,894	)
Other assets		39,344			35,802			31,133			35,373			25,482			28,447
Total Assets	$	313,825		$	301,072			306,547		$	293,258		$	277,959		$	271,131
Deposits	$	250,902		$	243,792			246,462		$	239,177		$	228,475		$	221,246
Federal funds purchased and repurchase agreements		18,155			17,705			18,767			14,013			13,477			11,025
FHLB borrowings		3,584			3,672			3,606			3,693			3,776			7,354
Other liabilities		6,127			1,325			2,009			1,848			1,130			700
Stockholders’ equity		35,057			34,578			35,703			34,527			31,101			30,806
Total Liabilities and Stockholders’ equity	$	313,825		$	301,072			306,547		$	293,258		$	277,959		$	271,131
SELECTED RATIOS
Return on average assets		0.51	%		0.65	%		0.86	%		0.86	%		0.85	%		0.87	%
Return on average equity		4.75	%		6.05	%		8.03	%		8.05	%		7.95	%		8.18	%
Average equity to average assets		10.83	%		10.80	%		10.77	%		10.75	%		10.74	%		10.58	%
Dividend payout ratio (1)		86.36	%		64.29	%		49.32	%		51.05	%		51.47	%		52.24	%
Loan to Deposit ratio		40.18	%		43.64	%		40.33	%		45.75	%		53.12	%		58.12	%

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

29

First West Virginia Bancorp, Inc.

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

The following discussion and analysis provides further detail to the financial condition and results of operations of the Company. The section should be read in conjunction with the notes and financial statements presented elsewhere in this report.

The Company’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2013 have remained unchanged from the disclosures presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-Looking Information: Certain information contained in this report, which are not historical facts, may be forward-looking statements that involve risks and uncertainties. These statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements, including without limitation, the effect of changing economic conditions, changes in interest rates, changes in lending activities, changes in state and federal regulations, and other external factors which may materially impact the Company’s operational and financial performance.

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

Other Than Temporary Impairment of Investment Securities: Investment securities are evaluated periodically to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent. It indicates that the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

Allowance for Loan Losses: Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Company’s allowance for loan losses provides for probable losses based upon evaluations of known, and inherent risks in the loan portfolio. Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business environment; as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. For a full discussion of the Company’s methodology of assessing the adequacy of the reserve for loan losses, refer to Note 1 of the Consolidated Financial Statements.

Goodwill and Other Intangible Assets: As discussed in Note 1 of the notes to the Consolidated Financial Statements, the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows were less than the recorded goodwill and other intangible assets balances, we would be required to take a charge against earnings to write down the assets to the lower value.

Deferred Tax Assets: The Company uses an estimate of future earnings to support its position that the benefit of the deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced. The deferred tax assets are described further in Note 1 of the Consolidated Financial Statements.

OVERVIEW

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

30

First West Virginia Bancorp, Inc.

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

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

Net Interest Income

Net interest income, which is the primary source of earnings for the Company, is the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Changes in the volume and mix of earning assets and interest bearing liabilities combined with changes in market rates of interest greatly effect net interest income. Table One presents the average balance sheets and an interest rate analysis for the three months ended March 31, 2013 and 2012 and the year ended December 31, 2012.

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

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

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

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

Noninterest Income

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

Other operating income represents fees from safe deposit box rentals, sales of checkbooks, sales of cashiers’ checks and money orders, utility collections, ATM charges and card fees, home equity credit line fees, credit life commissions, credit card fees and commissions and various other charges and fees related to normal customer banking relationships. For the three month period ended March 31, 2013, other operating income decreased $23,493 or 11.9% compared to the same period in 2012. The decrease in other operating income during the three month period ended March 31, 2013 as compared to the same period in the prior year was primarily due to the decreases in ATM fees, sales of checkbooks, fee income earned on loans sold to the FHLB, credit life commissions and utility bill and collection fees and credit card fees, offset in part by increases in safe deposit box rentals, miscellaneous income and in the earnings related to the cash surrender value of the bank owned life insurance.

Service charges and other fees represent charges that are earned from assessments made on checking and savings accounts. Service charges and other fee income fell $12,251 or 11.1%, during the first three months of 2013 as compared to the same period in 2012.

Noninterest Expense

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

31

First West Virginia Bancorp, Inc.

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

Table One Average Balance Sheets and Interest Rate Analysis(dollars in thousands)

The following table presents an average balance sheet, interest earned on interest bearing assets, interest paid on interest bearing liabilities, average interest rates and interest differentials for the three months ended March 31, 2013 and 2012. Average balance sheet information for the periods ended March 31, 2013 and 2012 and was compiled using the daily averages. Loan fees and unearned discounts were included in income for average rate calculation purposes. Average yields on investment securities available for sale have been calculated based on amortized cost. Non-accrual loans were included in the average balance computations; however, no interest was included in income subsequent to the non-accrual status classification.

	(Unaudited)								(Unaudited)
	March 31, 2013								March 31, 2012
	Average Volume			Interest		Average Rate			Average Volume			Interest		Average Rate
ASSETS:
Investment securities:
U.S. Treasury and U. S. Government agencies	$	45,981		$	202		1.78	%		34,932		$	180		2.07	%
Mortgage backed securities		76,356			345		1.83	%		68,250			451		2.66	%
States and political subdivisions		48,489			455		3.81	%		41,986			420		4.02	%
Other securities		187			2		4.34	%		116			1		3.47	%
Total Investment securities:		171,013			1,004		2.38	%		145,284			1,052		2.91	%
Interest bearing deposits		10,494			7		0.27	%		15,805			9		0.23	%
Loans, net of unearned income		98,281			1,288		5.31	%		107,967			1,466		5.46	%
Other earning assets		1,334			4		1.22	%		1,227			4		1.31	%
Total earning assets		281,122			2,303		3.32	%		270,283			2,531		3.77	%
Other assets		21,134								21,676
Allowance for loan losses		(2,182	)							(2,503	)
Total Assets	$	300,074								289,456
LIABILITIES
Time deposits	$	70,564		$	222		1.28	%	$	73,814		$	316		1.72	%
Savings deposits		94,063			77		0.33	%		88,681			87		0.39	%
Interest bearing demand deposits		48,179			14		0.12	%		45,099			14		0.12	%
Federal funds purchased and repurchase agreements		17,744			31		0.71	%		15,412			27		0.70	%
FHLB and other long-term borrowings		3,765			43		4.63	%		3,682			44		4.81	%
Total interest bearing liabilities		234,315			387		0.67	%		226,688			488		0.87	%
Demand deposits		32,589								30,428
Other liabilities		672								1,074
Total Liabilities		267,576								258,190
STOCKHOLDERS’ EQUITY		32,498								31,266
Total Liabilities and Stockholders’ Equity	$	300,074							$	289,456
Net yield on earning assets				$	1,916		2.76	%				$	2,043		3.04	%

The fully taxable equivalent basis of interest income from obligations of states and political subdivisions has been determined using a combined Federal and State corporate income tax rate of 40% for the three months ended March 31, 2013 and 2012. The effect of this adjustment is presented below.

Investment securities	$	171,013	$	1,307	3.10	%	$	145,284	$	1,332	3.69	%
Loans		98,281		1,356	5.60	%		107,967		1,548	5.77	%
Total earning assets	$	281,122	$	2,674	3.86	%	$	270,283	$	2,893	4.31	%
Taxable equivalent net yield on earning assets			$	2,287	3.30	%			$	2,405	3.58	%

32

First West Virginia Bancorp, Inc.

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

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

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

Unaudited	2013		2012
Directors’ fees	$	25,150	$	29,600
Stationery and supplies		35,070		37,043
Regulatory assessment and deposit insurance		69,316		68,576
Advertising		38,677		49,929
Postage and transportation		45,113		40,240
Other taxes		45,627		46,355
Service expense		109,836		91,034
Other		198,206		221,563
Total	$	566,995	$	584,340

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

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

Income Taxes

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

Balance Sheet Analysis

Investments

Investment securities decreased approximately $2.4 million or 1.3% from December 31, 2012 to March 31, 2013. The investment portfolio is managed to attempt to achieve an optimum mix of asset quality, liquidity and maximum yield on investment. The investment portfolio consists of U.S. Government agency and corporation securities, obligations of states and political subdivisions, corporate debt securities, mortgage-backed securities and equity securities. Taxable securities comprised 69.5% of total securities at March 31, 2013, as compared to 70.8% at December 31, 2012. Other than the normal risks inherent in purchasing U.S. Government agency and corporation securities, corporate debt securities, mortgage-backed securities and obligations of states and political subdivisions, i.e., interest rate risk, management has no knowledge of other market or credit risk involved in these investments. The Company does not have any high risk hybrid/derivative instruments.

Investment securities that are classified available for sale are available for sale at any time based upon management’s assessment of changes in economic or financial market conditions. These securities are carried at fair value and the unrealized holding gains and losses, net of taxes, are reflected as a separate component of stockholders’ equity until realized. Available for sale securities, at fair value, decreased 1.3% from December 31, 2012 and represented 100% of the investment portfolio at March 31, 2013. The decrease in the available for sale securities was primarily due to the maturities of obligations of U.S. Government agency and corporation securities and mortgage backed securities, offset in part by purchase of obligations of states and political subdivisions. The Company did not have any investment securities classified as held to maturity securities at March 31, 2013 and December 31, 2012. As the investment portfolio consists primarily of fixed rate debt securities, changes in the market rates of interest will affect the carrying value of securities available for sale, adjusted upward or downward and represent temporary adjustments in value. The carrying values of securities available for sale was above book value by $3,894,350 and $5,017,577 at March 31, 2013 and December 31, 2012, respectively.

33

First West Virginia Bancorp, Inc.

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

Loans

Total loans, net of unearned income, increased $1,418,964 or 1.4% from December 31, 2012 to March 31, 2013. The increase in total loans in 2013 was primarily due to the increases in consumer real estate loans and commercial real estate loans which increased $2,018,000 and $760,000, respectively, offset in part by decreases in consumer loans and commercial and other loans which decreased $718,000 and $635,000, respectively. During the first quarter of 2013, the increase in consumer real estate loans was primarily in residential real estate loans. The increase in commercial real estate loans was primarily due to the increase in loans secured by non-farm non-residential commercial real estate, offset in part by a slight decrease in multi-family residential loans. The decrease in consumer loans during the first quarter of 2013 was primarily due to the declines in installment loans to individuals and credit cards. Commercial loans declined during 2013 primarily in commercial loans and 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 thirty percent (30%) 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 four percent (4%) of the loan portfolio. The changes in the composition of the loan portfolio from December 31, 2012 to March 31, 2013 were a 1% increase in commercial real estate loans, a 1% increase in consumer real estate loans, a 1% decrease in commercial loans and a 1% decrease in consumer loans.

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 March 31, 2013 and December 31, 2012:

	(Unaudited)						(Unaudited)
(dollars in thousands)	March 31, 2013						December 31, 2012
	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	$	5	$	596	$	109	$	5	$	615	$	110
Commercial real estate - nonfarm, nonresidential property		2,724		3,052		36,178		2,802		2,829		35,533
Commercial		751		3,230		1,471		634		3,314		1,678
Nonrated industrial development obligations		1,203		1,838		6,454		665		2,762		6,527
Total	$	4,683	$	8,716	$	44,212	$	4,106	$	9,520	$	43,848

The following table presents an analysis of fixed and variable rate loans as of March 31, 2013 and December 31, 2012 along with the contractual maturities of loans other than installment loans and residential mortgages:

	(Unaudited)						(Unaudited)
(dollars in thousands)	March 31, 2013						December 31, 2012
	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	$	3,670	$	5,865	$	8,699	$	3,545	$	6,068	$	8,851
Variable Rates		1,013		2,851		35,513		561		3,452		34,997
Total	$	4,683	$	8,716	$	44,212	$	4,106	$	9,520	$	43,848

34

First West Virginia Bancorp, Inc.

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 is $10,038,640 and $10,267,649 as of March 31, 2013 and December 31, 2012, respectively. The loans which were sold were also subject to a recourse obligation or credit risk in the amount of $350,894 and $346,249 at March 31, 2013 and December 31, 2012, 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 summary of nonperforming assets is presented in the following table. Total non-performing loans were $3,465,000 at March 31, 2013 as compared to $3,551,000 at December 31, 2012. Non-performing loans decreased $86,000 in 2013. The decrease in non-performing loans in 2013 was primarily due to the decrease in non-accrual loans.

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)	March 31,			December 31,
	2013			2012			2011			2010			2009
Past Due 90 Days or More, still accruing:
Commercial and Other Loans	$	—		$	—		$	—		$	—		$	—
Commercial real estate		—			—			—			—			—
Consumer real estate		—			—			—			28			—
Consumer		—			—			—			—			—
		—			—			—			28			—
Non-accrual:
Commercial and Other Loans	$	29		$	31		$	39		$	54		$	2,254
Commercial real estate		3,243			3,115			3,533			4,147			1,195
Consumer real estate		180			388			447			688			624
Consumer		13			17			27			14			19
	$	3,465		$	3,551		$	4,046		$	4,903		$	4,092
Other Real Estate	$	—		$	—		$	138		$	8		$	173
Total non-performing assets	$	3,465		$	3,551		$	4,184		$	4,939		$	4,265
Total non-performing assets to total loans and other real estate		3.44	%		3.57	%		3.82	%		4.07	%		3.31	%

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 $3,465,000 or 3.4% of total loans outstanding as of March 31, 2013, as compared to $3,551,000 or 3.6% of total loans outstanding as of December 31, 2012. Non-accrual loans decreased in 2013 primarily due to the payments received on nonaccrual loans. There were no loans past due 90 days or more and still accruing interest at March 31, 2013 and December 31, 2012. Management continues to monitor the nonperforming assets to ensure against deterioration in collateral values.

35

First West Virginia Bancorp, Inc.

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. The Company has historically maintained the allowance for loan losses at a level greater than actual charge-offs. Although a subjective evaluation is determined by management, the Company believes it has appropriately assessed the risk of loans in the loan portfolio and has provided for an allowance which is adequate based on that assessment. Because the allowance is an estimate, any change in the economic conditions of the Company’s market area could result in new estimates which could affect the Company’s earnings. Management monitors the quality of the loan portfolio through reviews of past due loans and all significant loans which are considered to be potential problem loans on a monthly basis. The internal loan review function provides for an independent review of commercial, real estate, and installment loans in order to measure the asset quality of the portfolio. Management’s review of the loan portfolio has not indicated any material loans, not disclosed in the accompanying tables and discussions which are known to have possible credit problems that cause management to have serious doubts as to the ability of each borrower to comply with their present loan repayment terms. The allowance for loan losses decreased $3,459 or .2%, since December 31, 2012. The allowance for loan losses represented 2.2% of outstanding loans as of March 31, 2013 and at December 31, 2012. Net loan charge-offs amounted to $3,459 for the three month period ended March 31, 2013, compared to loan charge-offs of $6,736 for the same period in 2012. There was no provision made to the allowance for loan losses during the three months ended March 31, 2013 and March 31, 2012. 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 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.

The following table presents an allocation of the allowance for possible loan losses at each of the four year periods ended December 31, 2012, and the three month period ended March 31, 2013. 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.

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)	March 31,			December 31,
	2013			2012			2011			2010			2009
Allowance for loan losses:
Balance at beginning of period:	$	2,181		$	2,504		$	2,059		$	1,894		$	1,923
Loans Charged off:
Commercial and Other loans		—			—			8			14			10
Commercial real estate		—			87			156			—			155
Consumer real estate		—			—			28			—			—
Consumer		5			9			19			51			66
Total		5			96			211			65			231
Recoveries:
Commercial and Other loans		—			—			2			1			11
Commercial real estate		—			15			45			—			—
Consumer real estate		—			—			—			—			—
Consumer		2			6			9			9			7
Total		2			21			56			10			18
Net Charge-offs		3			75			155			55			213
Additions Charged to Operations		—			(248	)		600			220			184
Balance at end of period:	$	2,178		$	2,181		$	2,504		$	2,059		$	1,894
Average Loans Outstanding	$	98,281		$	104,566		$	115,415		$	124,074		$	128,206
Ratio of net charge-offs to Average loans outstanding for the period		0.00	%		0.07	%		0.13	%		0.04	%		0.17	%
Ratio of the Allowance for Loan Losses to Loans Outstanding for the period		2.16	%		2.19	%		2.29	%		1.70	%		1.47	%

36

First West Virginia Bancorp, Inc.

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 March 31, 2013 and each of the four year periods ended December 31, 2012. 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.

	March 31,					December 31,
	2013					2012					2011					2010					2009
(dollars in thousands)	Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans
Commercial and other loans	$	179		14.8	%	$	179		15.7	%	$	179		14.6	%	$	212		16.9	%	$	203		16.1	%
Commercial real estate		1,762		50.5	%		1,762		50.4	%		2,082		51.5	%		1,511		46.5	%		1,345		45.5	%
Consumer real estate		193		30.3	%		193		28.6	%		193		27.4	%		272		28.1	%		267		28.2	%
Consumer		44		4.4	%		47		5.3	%		50		6.5	%		64		8.5	%		79		10.2	%
Total	$	2,178		100.0	%	$	2,181		100.0	%	$	2,504		100.0	%	$	2,059		100.0	%	$	1,894		100.0	%

Deposits

A stable core deposit base is the major source of funds for the 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 $4.4 million or 1.8% during the first three months of 2013. Since year end the increase in total deposits was primarily due to increases in interest bearing demand deposits and savings deposits which increased approximately $1,497,000 and $4,239,000, respectively, offset in part by decreases in noninterest bearing demand deposits and certificates of deposit which fell $229,000 and $1,067,000, respectively. At March 31, 2013, 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 from December 31, 2012 to March 31, 2013 were a 1% increase in interest bearing deposits and a 1% decrease in noninterest bearing deposits.

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. There were no Federal funds purchased at March 31, 2013. Federal funds purchased were $2,000,000 at December 31, 2012. Federal funds purchased and repurchase agreements decreased $611,462 or 3.3%, from December 31, 2012 to March 31, 2013. The decrease since year end was primarily due to the decrease in federal funds purchased offset in part by the increase in the balances maintained by existing repurchase agreement customers.

Other Liabilities

Other liabilities increased approximately $4.1 million during the three month period ended March 31, 2013 primarily due to investment purchases recorded based on trade dates.

Capital Resources

Stockholders’ equity increased .2% during the three month period ended March 31, 2013 entirely from current earnings after quarterly dividends, and a 2.0% decrease in accumulated other comprehensive income. The decrease in accumulated other comprehensive income is primarily attributable to the effect of the change in the net unrealized gain on securities available for sale. Stockholders’ equity amounted to 11.2% and 11.6% of total assets at March 31, 2013 and December 31, 2012, respectively. The Company paid dividends of $.19 and $.18 per share during the three month periods ended March 31, 2013 and 2012, respectively.

The Company’s primary source of funds for payment of dividends to shareholders is from the dividends from its subsidiary bank. 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 2013, without approval of the Comptroller of the Currency, of approximately $2,552,000, plus an additional amount equal to the bank’s net profit for 2013 up to the date of any such dividend declaration.

37

First West Virginia Bancorp, Inc.

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

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 $175,853,312 classified as available for sale at March 31, 2013. 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 $51,030,000. In addition, the Company’s subsidiary bank, Progressive Bank, N.A., is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”). Membership in the FHLB provides an additional source of funding in the form of collateralized advances. The remaining maximum borrowing capacity with the FHLB at March 31, 2013 was approximately $37.0 million subject to the purchase of additional FHLB stock. At March 31, 2013, 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 March 31, 2013. At March 31, 2013 and December 31, 2012, the Company had outstanding loan commitments and unused lines of credit totaling $14,292,000 and $20,723,000, respectively. As of March 31, 2013, management placed a high probability for required funding within one year of approximately $6.0 million. Approximately $7.5 million is principally unused overdraft, home equity and credit card lines on which management places a low probability for required funding.

38

FIRST WEST VIRGINIA BANCORP, INC.

PART I

Item 3 Quantitative and Qualitative Disclosures About Market Risk

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 March 31, 2013 was as follows: given a 200 basis point increase scenario net interest income would be reduced by approximately 2.2%, and given a 200 basis point decrease scenario net interest income would be decreased by approximately 5.3%. The results using a +/-100 basis point interest rate scenario are also presented. Under the 100 basis point increase scenario net interest income would be decreased by approximately .3%, and given a 100 basis point decrease scenario net interest income would be decreased by 3.1%. 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.

Item 4 Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Chairman, President and Chief Executive Officer, Sylvan J. Dlesk, and Executive Vice President, Chief Administrative Officer and Chief Financial Officer, Francie P. Reppy, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days prior to the filing of this report (the “Evaluation Date”), have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Controls

During the quarter, there were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s disclosure controls and procedures subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company’s internal controls. As a result, no corrective actions were required or undertaken.

39

FIRST WEST VIRGINIA BANCORP, INC.

PART II

OTHER INFORMATION

Item 1 Legal Proceedings

The nature of the business of the Holding Company’s subsidiary generates a certain amount of litigation involving matters arising in the ordinary course of business. The Company is unaware of any litigation other than ordinary routine litigation incidental to the business of the Company, to which it or its subsidiary is a party or of which any of their property is subject.

Item 1A Risk Factors

Not applicable to Smaller Reporting Companies

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

Inapplicable

Item 3 Defaults Upon Senior Securities

Inapplicable

Item 4 Mine Safety Disclosures

Inapplicable

Item 5 Other Information

Inapplicable

Item 6 Exhibits and Reports on Form 8-K

(a) Reports on Form 8-K

On March 27, 2013 a report on Form 8-K was filed which contained a press release dated March 25, 2013 that reported the announcement of First West Virginia Bancorp Inc.’s fourth quarter and year end earnings.

(b) Exhibits

The exhibits listed in the Exhibit Index on page 42 of this FORM 10-Q are incorporated by reference and/or filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

First West Virginia Bancorp, Inc.                      (Registrant)
By:	/s/ Sylvan J. Dlesk
	Sylvan J. Dlesk
	Chairman, President and Chief Executive Officer
By:	/s/ Francie P. Reppy
	Francie P. Reppy
	Executive Vice President, Chief Administrative Officer and Chief Financial Officer

Dated: May 14, 2013

41

EXHIBIT INDEX

The following exhibits are filed herewith and/or are incorporated herein by reference.

			Incorporated by Reference
Exhibit Number	Description	Filed Herewith	Form		File No.		Exhibit		Filing Date
3.1	Certificate and Articles of Incorporation of First West Virginia Bancorp, Inc.			10-K		001-13652		3.1		3/31/10
3.2	Amended and Restated Bylaws of First West Virginia Bancorp, Inc.			10-K		001-13652		3.1		3/31/12
10.3	Lease dated July 20, 1993 between Progressive Bank, N.A., formerly known as “First West Virginia Bank, N.A.”, and Angela I. Stauver.			10-K		001-13652		10.3		3/31/10
10.4	Lease dated March 7, 2006 between Progressive Bank, N.A. and O. V. Smith & Sons of Big Chimney, Inc.			10-K		001-13652		10.4		3/31/10
10.5	Lease dated May 12, 2001 between Progressive Bank, N.A. and Sylvan J. Dlesk and Rosalie J. Dlesk doing business as Dlesk Realty & Investment Company.			10-K		001-13652		10.5		3/31/10
10.7	Lease dated December 1, 2009 between Progressive Bank, N.A. and Richard J. Dlesk, Sr. And Sharon G Neis-Dlesk.			10-K		001-13652		10.7		3/31/10
10.8	Amendment to Lease and Notice of Exercise dated July 3, 2012 between Progressive Bank, N.A., formerly known as “First West Virginia Bank, N.A.”, and Angela I. Stauver.			10-K		001-13652		10.8		3/31/13
11.1	Statement regarding computation of per share earnings.	X
13.3	Summarized Quarterly Financial Information	X
15	Letter re unaudited interim financial information. See Part 1, Notes to Consolidated Financial Statements.	X
31.1	Rule 13a-14(a) / 15d/14(a) Certifications - Certification of Chief Executive Officer	X
31.2	Rule 13a-14(a) / 15d/14(a) Certifications - Certification of Chief Financial Officer	X
32	Section 1350 Certifications of the Chief Executive Officer and Chief Financial Officer	X
99.1	Independent Accountant’s Report.	X
101	Interactive Data File	X

42