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 September 30, 2001
[ ] 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 (I.R.S. Employer
incorporation or organization) Identification No.)
1701 Warwood Avenue
Wheeling, West Virginia 26003
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (304) 277-1100
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N/A
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(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
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 [X] N/A
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 November 6,
2001: Common Stock, $5.00 Par Value, shares outstanding 1,538,443 shares
FIRST WEST VIRGINIA BANCORP, INC.
PART I
FINANCIAL INFORMATION
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, September 30,
2001 2000 2000
-------------- ------------- -------------
ASSETS
Cash and due from banks $ 5,031,050 $ 4,944,650 $ 4,572,134
Due from banks - interest bearing 9,531,325 7,491,600 4,657,756
------------ ------------ ------------
Total cash and cash equivalents 14,562,375 12,436,250 9,229,890
Federal funds sold 7,063,000 4,396,000 4,004,000
Investment securities
Available for sale (at fair value) 62,737,106 61,364,015 64,596,662
Held to maturity - fair value of
$9,810,862 at September 30, 2001;
$10,920,799 at December 31, 2000;
and $11,272,632 at September 30, 2000 9,549,351 10,878,166 11,312,170
Loans 120,345,876 114,053,003 113,762,560
Less allowance for possible loan losses (1,562,003) (1,302,044) (1,239,475)
------------ ------------ ------------
Net loans 118,783,873 112,750,959 112,523,085
Premises and equipment, net 3,947,362 2,754,739 2,722,449
Accrued income receivable 1,367,763 1,543,124 1,474,451
Other assets 2,142,119 1,769,956 2,186,560
------------ ------------ ------------
Total assets $220,152,949 $207,893,209 $208,049,267
============ ============ ============
LIABILITIES
Noninterest bearing deposits:
Demand $18,505,022 $ 16,518,451 $14,421,462
Interest bearing deposits:
Demand 28,371,907 24,055,457 25,433,511
Savings 65,483,509 59,943,940 58,208,036
Time 78,602,772 73,150,730 75,082,154
------------ ------------ ------------
Total deposits 190,963,210 173,668,578 173,145,163
------------ ------------ ------------
Federal funds purchased and
repurchase agreements 7,623,043 14,526,328 16,170,808
Accrued interest on deposits 580,201 598,235 607,628
Other liabilities 879,039 874,968 835,475
------------ ------------ ------------
Total liabilities 200,045,493 189,668,109 190,759,074
------------ ------------ ------------
STOCKHOLDERS' EQUITY
Common Stock - 2,000,000 shares authorized at
$5 par value 1,538,443 shares issued at
September 30, 2001 and December 31, 2000;
shares issued at September 30, 2000 7,692,215 7,542,630 1,508,526
Surplus 4,982,606 4,982,606 4,739,381
Retained Earnings 6,627,602 5,587,967 5,662,993
Accumulated other comprehensive income 805,033 (37,688) (654,811)
------------ ------------ ------------
Total stockholders' equity 20,107,456 18,225,100 17,290,193
------------ ------------ ------------
Total liabilities and stockholders' equity $220,152,949 $207,893,209 $208,049,267
============ ============ ============
The accompanying notes are an integral part of the financial statements
2
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans:
Taxable $2,431,494 $2,451,089 $ 7,312,112 $ 7,177,690
Tax-exempt 102,379 66,666 261,911 173,687
Investment securities:
Taxable 846,400 970,153 2,727,784 2,695,488
Tax-exempt 169,046 134,765 458,196 392,636
Dividends 8,777 8,958 26,727 26,296
Other interest income 68,080 101,258 254,488 286,571
Interest on federal funds sold 46,502 97,797 203,284 228,094
--------- ---------- ----------- -----------
Total interest income 3,672,678 3,830,686 11,244,502 10,980,462
INTEREST EXPENSE
Deposits 1,549,602 1,708,586 4,801,538 4,758,706
Other borrowings 42,709 172,077 258,520 431,995
--------- ---------- ----------- -----------
Total interest expense 1,592,311 1,880,663 5,060,058 5,190,701
--------- ---------- ----------- -----------
Net interest income 2,080,367 1,950,023 6,184,444 5,789,761
PROVISION FOR POSSIBLE LOAN LOSSES 141,000 100,500 423,000 295,500
--------- ---------- ----------- -----------
Net interest income after provision
for possible loan losses 1,939,367 1,849,523 5,761,444 5,494,261
NONINTEREST INCOME
Service charges and other fees 156,472 146,666 438,599 396,791
Securities gains (losses) -- -- 7,891 23,443
Other operating income 101,161 84,784 267,982 233,202
--------- ---------- ---------- -----------
Total noninterest income 257,633 231,450 714,472 653,436
NONINTEREST EXPENSES
Salary and employee benefits 687,666 657,144 1,994,914 1,940,706
Net occupancy and equipment expenses 205,325 191,746 628,594 589,381
Other operating expenses 409,097 355,549 1,271,722 1,106,232
--------- ---------- ---------- -----------
Total noninterest expense 1,302,088 1,204,439 3,895,230 3,636,319
--------- ---------- ---------- -----------
Income before income taxes 894,912 876,534 2,580,686 2,511,378
--------- ---------- ---------- -----------
INCOME TAXES 256,054 272,594 756,445 763,035
--------- ---------- ---------- -----------
Net income $ 638,858 $ 603,940 $1,824,241 $ 1,748,343
========== ========== ========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,538,443 1,538,443 1,538,443 1,538,443
========== ========== ========== ===========
EARNINGS PER COMMON SHARE $ 0.42 $ 0.39 $ 1.19 $ 1.14
========== ========== ========== ===========
The accompanying notes are an integral part of the financial statements
3
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated
Common Stock Other
---------------------- Retained Comprehensive Comprehensive
Shares Amount Surplus Earnings Income Income Total
----------- ----------- ----------- ----------- ------------- ------------- -----------
Balance, December 31, 2000 1,538,443 $7,692,215 $4,982,606 $5,587,967 $(37,688) $ $18,225,100
Comprehensive income
Net income for the nine months
ended September 30, 2001 -- -- -- 1,824,241 -- 1,824,241 1,824,241
Other comprehensive income,
net of tax
Unrealized gains (losses) on
securities, net of
reclassification adjustment
(see disclosure) -- -- -- -- 842,721 842,721 842,721
----------
Comprehensive income $2,666,962
==========
Cash dividend
($.51 per share) -- -- -- (784,606) -- (784,606)
---------- ---------- ---------- ---------- -------- -----------
Balance, September 30, 2001 1,538,443 $7,692,215 $4,982,606 $6,627,602 $805,033 $20,107,456
========== ========== ========== ========== ======== ===========
Accumulated
Common Stock Other
---------------------- Retained Comprehensive Comprehensive
Shares Amount Surplus Earnings Income Income Total
----------- ----------- ----------- ----------- ------------- ------------- -----------
Balance, December 31, 1999 1,508,526 $7,542,630 $ 4,739,381 $4,638,742 $(865,281) $ $ 16,055,472
Comprehensive income
Net income for the nine months
ended September 30, 2000 -- -- -- 1,748,343 -- 1,748,343 1,748,343
Other comprehensive income,
net of tax
Unrealized gains (losses) on
securities, net of reclassification
adjustment (see disclosure) -- -- -- -- 210,470 210,470 210,470
----------
Comprehensive income $1,958,813
==========
Cash dividend
($.47 per share) -- -- -- (724,092) -- (724,092)
---------- ---------- ---------- ---------- --------- -----------
Balance, September 30, 2000 1,508,526 $7,542,630 $4,739,381 $5,662,993 $(654,811) $17,290,193
========== ========== ========== ========== ========= ===========
For the nine months ended
September 30,
-------------------------
2001 2000
---------- ----------
Disclosure of reclassification amount, net of tax:
Unrealized holding gains (losses)
arising during the period $847,667 $225,164
Less: reclassification adjustment for
gains (losses) included in net income 4,946 14,694
-------- ---------
Net unrealized gains (losses) on securities $842,721 $210,470
======== =========
The accompanying notes are an integral part of the financial statements
4
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
-----------------------------------
2001 2000
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OPERATING ACTIVITIES
Net Income $ 1,824,241 $ 1,748,343
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 423,000 295,500
Depreciation and amortization 283,237 253,066
Amortization (accretion) of investment securities, net (89,010) (247,172)
Investment security losses (gains) (7,891) (23,443)
Loss(gain)on disposal of premises and equipment (3,110) 579
Decrease (increase) in interest receivable 175,361 (118,032)
Increase (decrease) in interest payable (18,034) 108,276
Other, net (300,361) (320,277)
------------ ------------
Net cash provided by operating activities 2,287,433 1,696,840
------------ ------------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold (2,667,000) (1,519,000)
Net (increase) decrease in loans, net of charge offs (6,483,709) (3,504,232)
Proceeds from sales of securities available for sale 1,862,382 886,964
Proceeds from maturities of securities available for sale 69,554,000 34,614,000
Proceeds from maturities of securities held to maturity 1,330,000 1,200,000
Principal collected on mortgage-backed securities 7,102,543 2,417,699
Purchases of securities available for sale (78,451,822) (53,160,453)
Purchases of securities held to maturity -- (1,867,819)
Recoveries on loans previously charged-off 27,795 26,359
Cash acquired in purchase of branch office 8,990,870 --
Purchases of premises and equipment (1,424,089) (134,757)
Proceeds from sales of premises and equipment 3,110 --
------------ ------------
Net cash used by investing activities (155,920) (21,041,239)
------------ ------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 17,294,632 11,587,231
Deposits acquired in purchase of branch office (9,612,129) --
Dividends paid (784,606) (724,092)
Increase (decrease) in short term borrowings (6,903,285) 5,896,883
------------ ------------
Net cash provided by financing activities $ (5,388) $ 16,760,022
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,126,125 (2,584,377)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,436,250 11,814,267
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,562,375 $ 9,229,890
============ =============
The accompanying notes are an integral part of the financial statements
5
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 AND 2000
Note 1 - BASIS OF PRESENTATION
The consolidated financial information of First West Virginia Bancorp, Inc. (the
"Corporation") and its subsidiaries included herein is unaudited. However, in
the opinion of management, such information reflects all adjustments ( all of
which are normal and recurring in nature) necessary to present fairly the
financial position and the results of operations for the interim period. The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information. The notes to the financial statements contained in the annual
report for December 31, 2000, should be read in conjunction with these financial
statements.
The provision for income taxes is at a rate which management believes will
approximate the effective rate for the year.
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
6
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
First West Virginia Bancorp, Inc., a West Virginia corporation headquartered in
Wheeling, West Virginia commenced operations in July, 1973 and has two
wholly-owned subsidiaries: Progressive Bank, N.A., which operates in Wheeling,
Wellsburg, Moundsville, and New Martinsville, West Virginia and Bellaire, Ohio;
and Progressive Bank, N.A.-Buckhannon, which operates in Buckhannon and Weston,
West Virginia. Following is a discussion and analysis of the significant changes
in the financial condition and results of operations of First West Virginia
Bancorp, Inc., (the Holding Company), and its subsidiaries for the three and
nine months ended September 30, 2001 and 2000. This discussion and analysis
should be read in conjunction with the Consolidated Financial Statements, Notes,
and tables contained in this report, as well as with the Holding Company's 2000
financial statements, the notes thereto and the related Management's Discussion
and Analysis.
OVERVIEW
The Holding Company reported net income of $638,858 for the three months ended
September 30, 2001 as compared to $603,940 for the same period during 2000. The
increase in earnings during the third quarter of 2001 over 2000 was primarily
attributed to an increase in net interest income and noninterest income offset
in part by an increase in noninterest expenses and the provision for loan
losses. Earnings per share were $.42 in the third quarter of 2001, as compared
to $.39 earned during the third quarter of 2000.
Net income for the nine months ended September 30, 2001 was $1,824,241 compared
to $1,748,343 for the same period during 2000. The increase in earnings for the
nine months ended September 30, 2001 as compared to the same period in 2000 was
primarily due to increased net interest income and noninterest income, offset in
part by increased operating expenses and the provision for loan losses. Earnings
per share were $1.19 for the first nine months of 2001 as compared to $1.14
earned during the same period during 2000.
During the three month period ended September 30, 2001, net interest income
increased primarily from the decrease in interest paid on savings deposits
combined with the increase in the average volume of savings and time deposits,
offset in part by the increase in the average volume of investment securities
and loans.
For the nine month period ended September 30, 2001, the increase in net interest
income was primarily due to the increased interest earned on the average volume
of investment securities and loans, offset in part by the increase in the
average volume of savings and time deposits combined with the decrease in the
interest rates paid on savings deposits.
Return on average assets (ROA) measures the effectiveness of asset utilization
to produce net income. ROA was 1.16% for the three month period ended September
30, 2001 and for the three month period ended September 30, 2000. For the nine
months ended September 30, 2001 compared to September 30, 2000, ROA was 1.13%
and 1.16%, respectively. Return on average equity (ROE) measures the return on
the stockholders' investment. The holding company's ROE was 13.31% for the three
months ended September 30, 2001 and 13.58% at September 30, 2000. For the nine
months ended September 30, 2001 compared to September 30, 2000, ROE was 13.02%
and 13.44%, respectively.
During the third quarter of 2001, Progressive Bank, N.A., subsidiary bank of
First West Virginia Bancorp, Inc., filed an application with the Office of the
Comptroller of the Currency requesting permission to establish a new branch
office in Wheeling, West Virginia. The branch office will be located on
Bethlehem Boulevard in Wheeling. The office is currently under construction and
is expected to be completed in December 2001.
The Holding Company as of September 30, 2001 had total assets of $220,152,949 an
increase of 5.9% over the $207,893,209 reported for the year ended December 31,
2000. Loans net of reserves grew by $6,032,914 to $118,783,873, as compared to
$112,750,959 reported at December 31, 2000. Total deposits increased in 2001 by
$17,294,632, from $173,668,578 at December 31, 2000 to $190,963,210 at September
30, 2001. The allowance for loan losses amounted to 1.3% of total loans at
September 30, 2001, compared to 1.1% of total loans at December 31, 2000.
Table One is a summary of Selected Financial Data of the holding company. The
sections that follow discuss in more detail the information summarized in Table
One.
7
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Table One
SELECTED FINANCIAL DATA
(Unaudited, in thousands, except per share data)
First West Virginia Bancorp, Inc.
Three months ended Nine months ended Years ended
September 30, September 30, December 31,
---------------------- --------------------- -----------------------------------
2001 2000 2001 2000 2000 1999 1998
--------- -------- --------- -------- --------- --------- --------
SUMMARY OF OPERATIONS
Total interest income $ 3,672 $ 3,831 $ 11,244 $ 10,980 $ 14,869 $ 13,207 $12,452
Total interest expense 1,592 1,881 5,060 5,191 7,155 5,602 5,324
Net interest income 2,080 1,950 6,184 5,789 7,714 7,605 7,128
Provision for loan losses 141 100 423 295 436 348 256
Total other income 258 231 715 653 880 1,073 787
Total other expenses 1,302 1,204 3,895 3,636 4,816 4,740 4,674
Income before income taxes 895 877 2,581 2,511 3,341 3,590 2,985
Net income 639 604 1,824 1,748 2,326 2,450 2,033
PER SHARE DATA (1)
Net income $ 0.42 $ 0.39 $ 1.19 $ 1.14 $ 1.51 $ 1.59 $ 1.32
Cash dividends declared 0.17 0.15 0.51 0.47 0.64 0.54 0.48
Book value per share 13.07 11.24 13.07 11.24 11.85 10.44 10.05
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $119,768 $113,762 $117,399 $112,371 $112,579 $105,775 $ 99,345
Investment securities 73,285 72,544 73,440 68,651 69,548 59,716 47,911
Deposits - interest bearing 171,883 158,622 166,840 154,040 155,172 141,768 127,520
Stockholders' equity 19,046 17,693 18,727 17,374 17,448 16,087 14,697
Total assets 217,684 207,611 215,006 201,054 203,529 183,436 164,630
SELECTED RATIOS
Return on average assets 1.16% 1.16% 1.13% 1.16% 1.14% 1.34% 1.23%
Return on average equity 13.31% 13.58% 13.02% 13.44% 13.33% 15.23% 13.83%
Average equity to average assets 8.75% 8.52% 8.71% 8.64% 8.57% 8.77% 8.93%
Dividend payout ratio (1) 40.48% 38.46% 42.86% 41.23% 42.38% 33.96% 36.36%
Loan to Deposit ratio 63.02% 65.70% 63.02% 65.70% 65.67% 68.39% 70.07%
BALANCE SHEET September 30, December 31,
------------------- -------------------------------
2001 2000 2000 1999 1998
-------- -------- ------- ------- -------
Investments $72,286 $ 75,909 $ 72,242 $ 59,394 $ 54,080
Loans 120,346 113,762 114,053 110,489 103,555
Other assets 27,521 18,378 21,598 19,290 13,760
-------- -------- ---------- --------- --------
Total Assets $220,153 $208,049 $207,893 $189,173 $171,395
======== ======== ======== ======== ========
Deposits $190,963 $173,145 $173,669 $161,558 $147,785
Federal funds purchased and
repurchase agreements 7,623 16,171 14,526 10,274 6,994
Other liabilities 1,460 1,443 1,473 1,285 1,155
Stockholders' equity 20,107 17,290 18,225 16,056 15,461
-------- -------- -------- -------- --------
Total Liabilities and
Stockholders' Equity $220,153 $208,049 $207,893 $189,173 $171,395
======== ======== ======== ======== ========
(1) Adjusted for the 2 percent common stock dividend to stockholders of record
as of December 1, 2000, a 6 for 5 stock split in the effect of a twenty
(20) percent common stock dividend, declared October 12, 1999 to
shareholders of record as of November 1, 1999, a 4 percent common stock
dividend to stockholders of record as of October 1, 1998.
8
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
EARNINGS ANALYSIS
Net Interest Income
Changes in the volume and mix of earning assets and interest bearing liabilities
combined with changes in market rates of interest greatly effect net interest
income. Tables Two and Three present the average balance sheet and interest rate
analysis for the three and nine months ended September 30, 2001 and 2000.
Net interest income increased $130,344 or 6.7%, during the three months ended
September 30, 2001 as compared to the same period in 2000. The reduction in
interest expense primarily contributed to the overall increase in net interest
income. Interest expense decreased $288,352 or 15.3% primarily due to the
decrease in the rates paid on interest bearing liabilities. Interest on
investment securities decreased $89,472 or 8.1%, for the three months ended
September 30, 2001 over 2000 primarily due to the decrease in the average rates
earned on investment securities. Interest and fees on loans increased $16,118 or
.6% during the three month period ended September 30, 2001 as compared to the
same period in 2000 and resulted primarily from an increase in average loan
volume.
Net interest income was $6,184,444 and $5,789,761 during the nine months ended
September 30, 2001 and 2000, respectively, an increase of $394,683 or 6.8%. The
increase in net interest income was primarily attributable to increases in loans
and investment securities combined with the decrease in interest expense on
interest bearing liabilities. Interest and fees on loans increased $222,646 or
3.0% for the nine month period ended September 30, 2001 as compared the same
period in 2000. The increased interest income on loans resulted primarily from
an increase in the average loan volume which was partially offset by a decrease
in average rates earned. Increases in commercial loans and in other loans
primarily contributed to the loan growth. The average yield on loans decreased
from 8.75% at December 31, 2000 to 8.63% at September 30, 2001. Interest income
on investment securities increased $97,856 or 3.2% during the nine months ended
September 30, 2001 over 2000. The increased interest income on investment
securities was primarily due to an increase in the average volume, offset in
part by a decrease in the average rates earned on investment securities. The
average yield on investment securities decreased .23%, from 6.03% at December
31, 2000 to 5.80% at September 30, 2001. During the nine months ended September
30, 2001, interest expense decreased $130,643 or 2.5% as compared to the same
period in 2000. Interest expense decreased as a result of the decrease in the
average interest rates paid on interest bearing liabilities. The average yield
paid on interest bearing liabilities decreased .42%, from 4.23% at December 31,
2000 to 3.81% at September 30, 2001.
Noninterest Income
Noninterest income was $257,633 for the three months ended September 30, 2001,
an increase of $26,183, or 11.3% as compared to the same period of the prior
year. Other operating income increased $16,377, or 19.3% over the same period in
2000. Service charges increased $9,806 during the three months ended September
30, 2001, up 6.7%, from the same period in 2000.
For the nine months ended September 30, 2001, noninterest income was $714,472,
an increase of $61,036, or 9.3% as compared to the same period of the prior
year. The increase in noninterest income resulted primarily from increased other
operating income and service charges. Other operating income increased $34,780
or 14.9% compared to the same period in 2000 primarily due to an increase in ATM
fees. Service charges and other fees increased $41,808 or 10.5% over the same
period in 2001. Sales of investment securities for the nine months ended
September 30, 2001, and 2000 were primarily the result of sales by the holding
company. The holding company accounted for securities gains of $21,018 and
securities losses of $11,859 during the nine months ended September 30, 2001 and
securities gains of $37,940 and a securities loss of $14,508 during 2000. The
holding company sales were attributable to sales of marketable equity
securities.
9
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Non-Interest Expense
Noninterest expense increased $97,649 or 8.1% for the three months ended
September 30, 2001 as compared to the same period of the prior year. During the
quarter ended September 30, 2001, salary and employee benefits increased $30,522
or 4.6%. The increase was primarily attributable to the hiring of additional
personnel and normal annual merit adjustments in salaries. The major components
of other operating expenses include: office supplies, directors fees, service
expense, postage and transportation, other taxes, advertising, and regulatory
assessment and deposit insurance. Other operating expenses increased $53,548, or
15.1%, for the three months ended September 30, 2001 as compared to the same
period in the prior year. Increased other operating expense and service expense
primarily contributed to the overall increase in operating expenses during the
three months ended September 30, 2001.
For the nine months ended September 30, 2001, noninterest expense increased
$258,911 or 7.1% as compared to the same period of the prior year. Salary and
employee benefits increased $54,208 or 2.8%. The increase was primarily
attributable to the hiring of personnel at the Moundsville and New Martinsville
branch offices and normal annual merit adjustments in salaries. Other operating
expenses increased $165,490 or 15.0%, for the nine month period ended September
30, 2001 as compared to the same period in the prior year. Increased other
operating expenses, stationery and supplies expense, other taxes, service
expense, and postage expense primarily contributed to the increase in other
operating expenses in 2001.
Income Taxes
Income tax expense for the three months ended September 30, 2001 was $256,054, a
decrease of 6.1% over the same period in 2000. The increase in tax exempt income
on loans and investment securities primarily resulted in the decrease of income
tax expense for the three months ended September 30, 2001 compared to 2000.
Components of income tax expense for the three months ended September 30, 2001
were $210,528 for federal taxes and $45,526 for West Virginia corporate net
income taxes. For the nine months ended September 30, 2001, income tax expense
decreased .9% compared to the same period in 2000. The increase in tax exempt
income on loans and investment securities primarily resulted in the decrease of
income tax expense for the nine month period ended September 30, 2001 compared
to 2000.
For federal income tax purposes, tax-exempt income is based on qualified state,
county, and municipal bonds and loans. Tax-exempt income was $271,425 and
$201,431 for the three month periods ended September 30, 2001 and 2000,
respectively. For the nine months ended September 30, 2001 and 2000, tax exempt
income was $720,107 and $566,323, respectively.
Federal income tax rates and West Virginia corporate net income tax rates remain
consistent at 34% and 9%, respectively, for the three and nine months ended
September 30, 2001 and 2000 and for the year ended December 31, 2000.
10
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Table Two
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and
Interest Differential The following table presents an average balance sheet,
interest earned on interest bearing assets, interest paid on interest bearing
liabilities, average interest rates and interest differentials for the nine
months ended September 30, 2001 and September 30, 2000 and the year ended
December 31, 2000. Average balance sheet information as of September 30, 2001
and September 30, 2000 and the year ended December 31, 2000 was compiled using
the daily average balance sheet. Loan fees and unearned discounts were included
in income for average rate calculation purposes. Non-accrual loans were included
in the average balance computations; however, no interest was included in income
subsequent to the non-accrual status classification. Average rates were
annualized for the nine month periods ended September 30, 2001 and 2000.
For the nine For the nine
months ended months ended
September 30, 2001 December 31, 2000 September 30, 2000
---------------------------- ------------------------------ ----------------------------
Average Average Average Average Average Average
Volume Interest Rate Volume Interest Rate Volume Interest Rate
-------- -------- ------- ------- -------- -------- -------- -------- ------
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 30,559 $ 1,335 5.84% $ 42,503 $ 2,675 6.29% $ 43,387 $ 2,018 6.21%
Mortgage-backed securities 21,989 1,075 6.54% 12,123 778 6.42% 10,326 518 6.70%
Obligations of states and
political subdivisions 15,238 522 4.58% 12,431 576 4.63% 12,269 422 4.59%
Other securities 5,654 254 6.01% 2,491 162 6.50% 2,669 130 6.51%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total Investment securities: 73,440 3,186 5.80% 69,548 4,191 6.03% 68,651 3,088 6.01%
Interest bearing deposits 7,331 246 4.49% 6,375 398 6.24% 6,039 278 6.15%
Federal funds sold 6,254 203 4.34% 6,041 380 6.29% 4,913 228 6.20%
Loans, net of unearned income 117,399 7,574 8.63% 112,579 9,853 8.75% 112,371 7,351 8.74%
Other earning assets 706 35 6.63% 702 47 6.70% 702 35 6.66%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total earning assets 205,130 11,244 7.33% 195,245 14,869 7.62% 192,676 10,980 7.61%
Cash and due from banks 4,758 4,602 4,635
Bank premises and equipment 3,719 2,777 2,777
Other assets 2,879 2,148 2,189
Allowance for possible loan losses (1,480) (1,243) (1,223)
-------- -------- --------
Total Assets $215,006 $203,529 $201,054
======== ======== ========
LIABILITIES
Certificates of deposit $ 76,677 $ 3,247 5.66% $ 73,128 $ 4,065 5.56% $ 72,599 $ 2,973 5.47%
Savings deposits 63,791 1,338 2.80% 56,940 2,080 3.65% 56,270 1,501 3.56%
Interest bearing demand deposits 26,372 217 1.10% 25,104 374 1.49% 25,171 285 1.51%
Federal funds purchased and
Repurchase agreements 10,737 258 3.21% 14,067 637 4.53% 13,097 432 4.41%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest bearing liabilities 177,577 5,060 3.81% 169,239 7,156 4.23% 167,137 5,191 4.15%
Demand deposits 17,375 15,301 15,066
Other liabilities 1,327 1,541 1,477
-------- -------- --------
Total Liabilities 196,279 186,081 183,680
STOCKHOLDERS' EQUITY 18,727 17,448 17,374
-------- -------- --------
Total Liabilities
and Stockholders' Equity $215,006 $203,529 $201,054
======== ======== ========
Net yield on earning assets $ 6,184 4.03% $ 7,713 3.95% $ 5,789 4.01%
======= ===== ======= ===== ======= =====
The fully taxable equivalent basis of interest income from obligations of states
and political subdivisions has been determined using a combined Federal and
State corporate income tax rate of 40% for the nine months ended September 30,
2001 and 2000, and the year ended December 31, 2000, respectively. The effect of
this adjustment is presented below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 15,238 $ 827 7.26% $ 12,431 $ 925 7.44% $ 12,269 $ 683 7.44%
Loans 117,399 7,749 8.82% 112,579 10,012 8.89% 112,371 7,467 8.88%
======== ======= ===== ======== ======= ===== ======== ======= =====
Total earning assets $205,130 $11,724 7.64% $195,245 $15,377 7.88% $192,676 $11,357 7.87%
======== ======= ===== ======== ======= ===== ======== ======= =====
Taxable equivalent net yield on
earning assets $ 6,664 4.34% $ 8,221 4.21% $ 6,166 4.27%
======= ===== ======= ===== ======= =====
11
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Table Three
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and
Interest Differential (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 September 30, 2001 and September 30, 2000. Average
balance sheet information as of September 30, 2001 and September 30, 2000 was
compiled using the daily average balance sheet. Loan fees and unearned discounts
were included in income for average rate calculation purposes. Non-accrual loans
were included in the average balance computations; however, no interest was
included in income subsequent to the non-accrual status classification. Average
rates were annualized for the three month periods ended September 30, 2001 and
2000.
For the Three For the Three
Months ended Months ended
September 30, 2001 September 30, 2000
---------------------------------- -------------------------------
Average Average Average Average
Volume Interest Rate Volume Interest Rate
---------- -------- ------- ----------- -------- -------
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 24,082 $ 321 5.29% $ 43,637 $ 690 6.29%
Mortgage backed securities 25,607 408 6.32% 13,212 219 6.59%
Obligations of states and
political subdivisions 17,006 189 4.41% 12,941 151 4.64%
Other securities 6,590 97 5.84% 2,754 45 6.50%
-------- ------ ----- -------- ------ -----
Total Investment Securities 73,285 1,015 5.49% 72,544 1,105 6.06%
Interest bearing deposits 7,797 65 3.31% 6,021 98 6.48%
Federal funds sold 5,841 46 3.12% 5,988 98 6.51%
Loans, net of unearned income 119,768 2,534 8.39% 113,762 2,518 8.81%
Other earning assets 706 12 6.74% 703 12 6.79%
-------- ------ ----- -------- ------ -----
Total earning assets 207,397 3,672 7.02% 199,018 3,831 7.66%
Cash and due from banks 4,928 4,825
Bank premises and equipment 3,884 2,743
Other earning assets 3,064 2,290
Allowance for possible loan losses (1,589) (1,265)
-------- --------
Total Assets $217,684 $207,611
======== ========
LIABILITIES
Certificates of deposit $ 78,502 $1,080 5.46% $ 74,967 $1,066 5.66%
Savings deposits 65,030 394 2.40% 57,458 544 3.77%
Interest bearing demand deposits 28,351 75 1.05% 26,197 99 1.50%
Federal funds purchased and
Repurchase agreements 7,140 43 2.39% 14,615 172 4.68%
-------- ------ ----- -------- ------ -----
Total interest bearing liabilities 179,023 1,592 3.53% 173,237 1,881 4.32%
Demand deposits 18,012 15,093
Other liabilities 1,603 1,588
-------- --------
Total Liabilities 198,638 189,918
SHAREHOLDERS' EQUITY 19,046 17,693
-------- --------
Total Liabilities
and Shareholders' Equity $217,684 $207,611
======== ========
Net yield on earning assets $2,080 3.98% $1,950 3.90%
====== ====== ====== ======
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 September 30,
2001 and 2000, respectively. The effect of this adjustment is presented below
(in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 17,006 $ 302 7.05% $ 12,941 $ 241 7.41%
Loans 119,768 2,602 8.62% 113,762 2,562 8.96%
======== ====== ===== ======== ====== =====
Total earning assets $207,397 $3,853 7.37% $199,018 $3,965 7.93%
======== ====== ===== ======== ====== =====
Taxable equivalent net yield on
earning assets $2,261 4.33% $2,084 4.17%
====== ===== ====== =====
12
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Balance Sheet Analysis
Investments
- -----------
Investment securities increased $44,276 or .1% from $72,242,181 at December
31, 2000, to $72,286,457 at September 30, 2001. Taxable securities comprised
78.0% of total securities at September 30, 2001, as compared to 84.3% at
December 31, 2000. Other than the normal risks inherent in purchasing U.S.
Treasury securities, U.S. Government corporation and agencies 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 corporation does not have any high risk hybrid/derivative
instruments.
Available for sale securities, at market value increased $1,373,091 or 2.2%
from December 31, 2000, and represented 87% of the investment portfolio at
September 30, 2001. The increase was primarily due to the purchase of mortgage
backed securities, municipal securities and corporate debt securities. The held
to maturity securities decreased $1,328,815 or 12.2% from December 31, 2000 and
represented 13% of the investment portfolio as of September 30, 2001. The
decrease was primarily the result of maturities of taxable municipal securities.
As the investment portfolio consists primarily of fixed rate debt securities,
changes in the market rates of interest will effect the carrying value of
securities available for sale, adjusted upward or downward under the
requirements of FAS 115 and represent temporary adjustments in values. The
carrying value of securities available for sale was increased by $1,284,349 and
decreased by $60,128 at September 30, 2001 and December 31, 2000, respectively.
The market value of securities classified as held to maturity was above book
value by $261,511 and $42,633 at September 30, 2001 and December 31, 2000,
respectively.
Table Four
Investment Portfolio
The following table presents the book values of investment securities:
(in thousands) (Unaudited):
September 30, December 31, September 30,
2001 2000 2000
------------- ------------ -------------
Securities held to maturity:
Obligations of states
and political subdivisions $9,549 $10,878 $11,312
------ ------- -------
Total held to maturity $9,549 $10,878 $11,312
------ ------- -------
Securities available for sale:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies 22,928 $43,047 $ 47,756
Obligations of states
and political subdivisions 7,521 2,051 1,628
Corporate debt securities 6,251 592 101
Mortgage-backed securities 25,595 15,286 14,728
Equity Securities 442 388 384
------- ------- -------
Total available for sale 62,737 61,364 64,597
------- ------- -------
Total $72,286 $72,242 $75,909
======= ======= =======
13
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Table Five
Investment Portfolio ( Continued)
(in thousands)
The maturity distribution using book value including accretion of discounts and
amortization of premiums (expressed in thousands) and approximate yield of
investment securities at September 30, 2001 and December 31, 2000 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.
September 30, 2001 December 31, 2000
----------------------------------------- ----------------------------------------
Securities Securities Securities Securities
Held to Maturity Available for Sale Held to Maturity Available for Sale
----------------- ------------------- ------------------ ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------- ----- ------- ----- ------- -----
(Unaudited)
U.S. Treasury and other U.S.
Government Agencies
Within One Year $ -- --% $ 5,206 4.63% $ -- --% $ 8,843 6.13%
After One But
Within Five Years -- -- 12,531 4.98 -- -- 24,422 6.20
After Five But
Within Ten Years -- -- 3,790 6.48 -- -- 9,782 6.57
After Ten Years -- -- 1,401 3.98 -- -- -- --
------ ---- ------- ---- ------- ---- ------- ----
-- -- 22,928 5.09 -- -- 43,047 6.27
States & Political Subdivisions
Within One Year 1,285 6.04 1,130 4.59 2,008 6.74 -- --
After One But
Within Five Years 3,762 6.24 4,843 5.93 3,745 6.28 985 7.39
After Five But
Within Ten Years 4,502 6.63 1,295 6.14 5,029 6.52 1,066 6.93
After Ten Years -- -- 253 6.43 96 7.82 -- --
------ ---- ------- ---- ------- ---- ------- ----
9,549 6.40 7,521 5.78 10,878 6.49 2,051 7.15
Corporate Debt Securities
Within One Year -- -- 253 6.18 -- -- 100 8.44
After One But
Within Five Years -- -- 5,025 5.48 -- -- 492 7.36
After Five But
Within Ten Years -- -- 973 6.97 -- -- -- --
------ ---- ------- ---- ------- ---- ------- ----
-- -- 6,251 5.74 -- -- 592 7.54
Mortgage-Backed Securities -- -- 25,595 6.16 -- -- 15,286 7.01
Equity Securities -- -- 442 2.71 -- -- 388 2.94
------ ---- ------- ---- ------- ---- ------- ----
Total $9,549 6.40% $62,737 5.66 % $10,878 6.49% $61,364 6.47%
====== ==== ======= ==== ======= ==== ======= ====
14
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Loans
- -----
Loans net of unearned income increased $6,292,873 or 5.5% from December 31,
2000. The additional growth in the loan portfolio during the first nine months
of 2001 was primarily due to increases in commercial loans, other loans, and
residential real estate loans, offset in part by the decrease in installment
loans.
Real estate residential loans which include real estate construction, real
estate farmland, and real estate residential loans comprise thirty-seven percent
(37%) of the loan portfolio. Commercial loans which include real estate secured
by non-farm, non residential and commercial and industrial loans comprise
thirty-nine percent (39%) of the loan portfolio. Installment loans comprise
eighteen percent (18%) of the loan portfolio. Other loans include nonrated
industrial development obligations and other loans comprise six percent (6%) of
the loan portfolio. The changes in the composition of the loan portfolio from
December 31, 2000 to September 30, 2001 were a 2% increase in commercial loans,
a 2% increase in other loans, a 3% decrease in installment loans and a 1%
decrease in residential real estate loans.
The loan portfolio is not dominated by concentrations of credit within any
one industry; therefore, the impact of a weakening economy on any particular
industry should be minimal. Management believes that the loan portfolio does not
contain any excessive or abnormal elements of risk.
Table Six
Loan Portfolio
(Unaudited)
Loans outstanding are as follows (in thousands):
September 30, December 31,
---------------------- ------------
2001 2000 2000
--------- --------- ------------
Real Estate - Residential
Real estate-construction $ 191 $ 100 $ 119
Real estate-farmland 120 89 106
Real estate-residential 43,995 42,168 42,960
-------- -------- --------
$ 44,306 $ 42,357 $ 43,185
-------- -------- --------
Commercial
Real estate-secured by
nonfarm, nonresidential $ 33,133 $ 28,837 $ 28,391
Commercial & industrial 14,027 14,109 13,845
-------- -------- --------
$ 47,160 $ 42,946 $ 42,236
-------- -------- --------
Installment
Installment and other
loans to individuals $ 21,594 $ 23,691 $ 23,896
-------- -------- --------
Others
Nonrated industrial
development obligations $ 7,202 $ 4,587 $ 4,610
Other loans 176 270 216
-------- -------- --------
$ 7,378 $ 4,857 $ 4,826
-------- -------- --------
Total 120,438 113,851 114,143
Less unearned interest 92 89 90
-------- -------- --------
$120,346 $113,762 $114,053
======== ======== ========
15
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Table Seven
Loan Portfolio - Maturities and sensitivities of Loans to Changes in
Interest Rates
The following table presents the contractual maturities of loans other than
installment loans and residential mortgages for all banks as of September 30,
2001 and December 31, 2000 (in thousands) (Unaudited):
September 30, 2001
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $1,631 $6,142 $6,254
Real Estate - construction 144 7 40
------ ------ ------
Total $1,775 $6,149 $6,294
====== ====== ======
December 31, 2000
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 746 $5,815 $7,284
Real Estate - construction 119 -- --
------ ------ ------
Total $ 865 $5,815 $7,284
====== ====== ======
The following table presents an analysis of fixed and variable rate loans as of
September 30, 2001 and December 31, 2000 along with the contractual maturities
of loans other than installment loans and residential mortgages (in thousands)
(Unaudited):
September 30, 2001
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Fixed Rates $1,587 $4,505 $1,666
Variable Rates 188 1,644 4,628
------ ------ ------
Total $1,775 $6,149 $6,294
====== ====== ======
December 31, 2000
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Fixed Rates $ 802 $4,380 $ 638
Variable Rates 63 1,435 6,646
------ ------ ------
Total $ 865 $5,815 $7,284
====== ====== ======
16
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Total non-performing loans were $1,670,000 at September 30, 2001 and
$2,283,000 at December 31, 2000. Loans classified as non-accrual were $1,257,000
or 1.0% of total loans as of September 30, 2001, as compared to $1,248,000 or
1.1% of total loans at December 31, 2000. There were no loans classified as
renegotiated as of September 30, 2001 and December 31, 2000. The loans past due
90 days or more decreased $628,000 from year end to $276,000 at September 30,
2001. Other real estate owned was $137,000 at September 30, 2001 as compared to
$131,000 at December 31, 2000. Management continues to monitor the
non-performing assets to ensure against deterioration in collateral values.
Table Eight
Risk Elements
(UNAUDITED)
The following table presents loans which are in the process of collection, but
are contractually past due 90 days or more as to interest or principal,
non-accrual loans and other real estate ( in thousands):
September 30, December 31,
-------------------- ------------
2001 2000 2000
------- ------ ------------
Past Due 90 Days or More:
Real Estate - residential $ 54 $ 9 $ 48
Commercial 88 22 711
Installment 134 97 145
------ ---- ------
$ 276 $128 $ 904
------ ---- ------
Non-accrual:
Real Estate - residential $ 27 $ 1 $ 14
Commercial 1,174 232 1,202
Installment 56 43 32
------ ---- ------
$1,257 $276 $1,248
------ ---- ------
Other Real Estate $ 137 $146 $ 131
------ ---- ------
Total non-performing assets $1,670 $550 $2,283
====== ==== ======
Total non-performing assets
to total loans and
other real estate 1.39% 0.48% 2.00%
Generally, all Banks recognize interest income on the accrual basis, except for
certain loans which are placed on a non-accrual status. Loans are placed on a
non-accrual status, when in the opinion of management doubt exists as to its
collectibility. In accordance with the Office of the Comptroller of the Currency
Policy, banks may not accrue interest on any loan which either the principal or
interest is past due 90 days or more unless the loan is both well secured and in
the process of collection.
The amount of interest income that would have been recognized had the loans
performed in accordance with their original terms was approximately $76,700 and
$26,100 for the periods ended September 30, 2001 and 2000, respectively.
As of September 30, 2001, there are no loans known to management other than
those previously disclosed about which management has any information about
possible credit problems of borrowers which causes management to have serious
doubts as to the borrower's ability to comply with present loan repayment terms.
17
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Allowance for Possible Loan Losses
- ----------------------------------
The corporation maintains an allowance for possible loan losses to absorb
probable loan losses. The provision for loan losses was $423,000 during the nine
months ended September 30, 2001, as compared to $295,500 during the same period
of the prior year. The allowance for possible loan losses represented 1.3% and
1.1% of total loans outstanding at September 30, 2001 and December 31, 2000,
respectively. Net loan charge-offs for the nine months ended September 30, 2001
were primarily consumer loans. Personal bankruptcies continues to contribute to
the increase in net charge-offs on consumer type loans. The reserve for possible
loan losses is considered to be adequate to provide for future losses in the
portfolio. The amount charged to earnings is based upon management's evaluations
of the loan portfolio, as well as current and anticipated economic conditions,
net loans charged off, past loan experiences, changes in character of the loan
portfolio, specific problem loans and delinquencies and other factors. The
reserve for possible loan losses is considered to be adequate to provide for
future losses in the portfolio. The amount charged to earnings is based upon
management's evaluations of the loan portfolio, as well as current and
anticipated economic conditions, net loans charged off, past loan experiences,
changes in character of the loan portfolio, specific problem loans and
delinquencies and other factors.
Table Nine
Analysis of Allowance for Possible Loan Losses
(UNAUDITED)
The following table presents a summary of loans charged off and recoveries of
loans previously charged off by type of loan (in thousands).
Summary of Loan Loss Experience
---------------------------------------
September 30, December 31,
---------------------- ------------
2001 2000 2000
---------- --------- ------------
Balance at Beginning of period
Allowance for Possible
Loan Losses $ 1,302 $ 1,148 $ 1,148
Loans Charged Off:
Real Estate - residential -- 20 20
Commercial 79 68 107
Installment 111 142 189
-------- -------- --------
190 230 316
Recoveries:
Real Estate - residential 4 -- --
Commercial 11 -- 5
Installment 12 26 29
-------- -------- --------
27 26 34
Net Charge-offs 163 204 282
Additions Charged to Operations 423 295 436
-------- -------- --------
Balance at end of period: $ 1,562 $ 1,239 $ 1,302
======== ======== ========
Average Loans Outstanding $117,399 $112,371 $112,579
======== ======== ========
Ratio of net charge-offs
to Average loans
outstanding for the period .14% .18% .25%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.30% 1.09% 1.14%
18
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Allowance for Possible Loan Losses - continued
- ----------------------------------------------
The corporation has allocated the allowance for possible loan losses to specific
portfolio segments based upon historical net charge-off experience, changes in
the level of non-performing assets, local economic conditions and management
experience as presented in Table Ten. The Corporation has historically
maintained the allowance for loan losses at a level greater than actual
charge-offs. In determining the allocation of the allowance for possible loan
losses, charge-offs for 2001 are anticipated to be within the historical ranges.
Although a subjective evaluation is determined by management, the corporation
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 corporation's market area could result in new estimates which could affect
the corporation's earnings. Management monitors loan quality 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 amount of 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.
Table Ten
Loan Portfolio - Allocation of allowance for possible loan losses
The following table presents an allocation of the allowance for possible loan
losses at each of the five year periods ended December 31, 2000, and the nine
month period ended September 30, 2001 ( expressed in thousands). 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.
September 30, December 31,
---------------- -------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996
---------------- ---------------- ---------------- ---------------- ---------------- -----------------
Percent Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans of loans
in each in each in each in each in each in each
category category category category category category
to total to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans Amount loans
------ -------- ------ -------- ------ -------- ------ -------- ------- -------- ------ --------
Real estate -
residential $ 250 36.8% $ 241 37.9% $ 238 36.2% $ 208 34.2% $ 202 34.6% $ 192 36.5%
Commercial 779 39.2 549 37.0 490 38.7 490 37.8 622 38.0 619 39.1
Installment 513 17.9 492 20.9 400 22.2 374 23.8 343 23.6 298 21.6
Others 20 6.1 20 4.2 20 2.9 20 4.2 20 3.8 20 2.8
Unallocated -- -- -- -- -- -- 31 -- 31 -- 31 -
------ ----- ------ ----- ------ ----- ------ ----- ------ ------ ------ -----
Total $1,562 100.0% $1,302 100.0% $1,148 100.0% $1,123 100.0% $1,218 100.0% $1,160 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== ====== ====== =====
19
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Deposits
- --------
Total deposits were $190,963,210 at September 30, 2001 as compared to
$173,668,578 at December 31, 2000, an increase of 10.0%. Approximately $9.6
million or 5.5% of the increase in deposits during 2001 primarily was due to the
acquisition of the deposits of United National Bank's New Martinsville branch
office. Deposit growth increased primarily in savings and time deposits. At
September 30, 2001, noninterest bearing deposits comprised 10% of total deposits
and interest bearing deposits which include NOW, money market, savings and time
deposits comprised 90% of total deposits. There were no changes in the deposit
mix from December 31, 2000 to September 30, 2001.
Table Eleven
Deposits
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. (Unaudited)
September 30, 2001
Maturities of Time Deposits in Excess of $100,000
------------------------------------------------------------
In Three Over Three Over Six Over
Months And Less Than And Less Than Twelve
Or Less Six Months Twelve Months Months TOTAL
-------- ------------- --------------- ------ ------
(Expressed in Thousands)
Time Certificates
of Deposit $3,947 $3,486 $3,792 $6,561 $17,786
December 31, 2000
Maturities of Time Deposits in Excess of $100,000
-------------------------------------------------------------
In Three Over Three Over Six Over
Months And Less Than And Less Than Twelve
Or Less Six Months Twelve Months Months TOTAL
-------- ------------- --------------- ------ ------
(Expressed in Thousands)
Time Certificates
of Deposit $4,614 $2,808 $3,863 $6,171 $17,456
Federal funds purchased and repurchase agreements
- -------------------------------------------------
Federal funds purchased and repurchase agreements are short-term
borrowings, of which repurchase agreements represent the largest component.
Repurchase agreements were $7,623,043 at September 30, 2001, a decrease of
$6,903,285, as compared to December 31, 2000. The decrease of repurchase
agreements was primarily due to the reduction in the balance maintained by one
existing commercial customer.
20
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- --------------------------------------------------------------------------------
Capital Resources
- -----------------
A strong capital base is vital to continued profitability because it
promotes depositor and investor confidence and provides a solid foundation for
future growth. Stockholders' equity increased 5.7% during the first nine months
of 2001 entirely from current earnings after quarterly dividends, and an
increase of 4.6% resulting from the effect of the change in the net unrealized
gain (loss) on securities available for sale. Stockholders' equity amounted to
9.1% of total assets at September 30, 2001 as compared to 8.8% at December 31,
2000.
The Holding Company's primary source of funds for payment of dividends to
shareholders is from the dividends from its subsidiary banks. Earnings from
subsidiary bank operations are expected to remain adequate to fund payment of
stockholders' dividends and internal growth. In management's opinion, the
subsidiary banks have the capability to upstream sufficient dividends to meet
the cash requirements of the Holding Company.
The Holding Company is subject to regulatory risk-based capital guidelines
administered by the Federal Reserve Board. These risk-based capital guidelines
establish minimum capital ratios of Total capital, Tier 1 Capital, and Leverage
to assess the capital adequacy of bank holding companies.
The following chart shows the regulatory capital levels for the company at
September 30, 2001, September 30, 2000, and December 31, 2000:
September 30, Dec. 31
-------------- -------
Ratio Minimum 2001 2000 2000
- ----- ------- ------ ----- ------
Leverage Ratio 3% 8.5 8.2 8.3
Risk Based Capital
Tier 1 (core) 4% 13.2 13.9 14.3
Tier 2 (total) 8% 14.3 14.9 15.4
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 corporation
had investment securities with an estimated market value of $62,737,106
classified as available for sale at September 30, 2001. These securities are
available for sale at any time based upon management's assessment in order to
provide necessary liquidity should the need arise. In addition, the Holding
Company's subsidiary banks, Progressive Bank, N.A., and Progressive Bank, N.A.-
Buckhannon, are members of the Federal Home Loan Bank of Pittsburgh (FHLB).
Membership in the FHLB provides an additional source of short-term and long-term
funding, in the form of collateralized advances. The subsidiary banks had an
available line with the FHLB in the aggregate amount of $10,446,000 at September
30, 2001. As of September 30, 2001 there were no borrowings outstanding pursuant
to these agreements.
At September 30, 2001 and December 31, 2000, the Holding Company had
outstanding loan commitments and unused lines of credit totaling $18,775,000 and
$14,307,000, respectively. As of September 30, 2001, management placed a high
probability for required funding within one year of approximately $13,863,000.
Approximately $3,365,000 is principally unused home equity and credit card lines
on which management places a low probability for required funding.
21
FIRST WEST VIRGINIA BANCORP, INC.
PART I
Item 3 Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
The Company's subsidiary banks use 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 banks provide 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 banks at September
30, 2001 were as follows: given a 200 basis point increase scenario net interest
income would be increased by approximately .8%, and given a 200 basis point
decrease scenario net interest income would be reduced by approximately 6.9%.
Under both interest rate scenarios the subsidiary banks were within the
established guideline.
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
- ---------------------------
The nature of the business of the Holding Company's subsidiaries 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 any
of its subsidiaries is a party or of which any of their property is subject.
Item 2 Changes in Securities
- -------------------------------
Inapplicable
Item 3 Defaults Upon Senior Securities
- -----------------------------------------
Inapplicable
Item 4 Submission of Matters to Vote of Security Holders
- -----------------------------------------------------------
Inapplicable
Item 5 Other Information
- ---------------------------
Inapplicable
Item 6 Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Financial
---------
The consolidated financial statements of First West Virginia Bancorp, Inc.
and subsidiaries, for the three and nine month periods ended September 30, 2001,
are incorporated by reference in Part I:
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed during the quarter ended September
30, 2001.
(c) Exhibits
--------
The exhibits listed in the Exhibit Index on page 26 of this FORM 10-Q are
incorporated by reference and/or filed herewith.
22
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/ Charles K. Graham
-----------------------------------------------------
Charles K. Graham
President and Chief Executive Officer/Director
By: /s/ Francie P. Reppy
-----------------------------------------------------
Francie P. Reppy
Senior Vice President and Chief Financial Officer
Dated: October 31, 2001
23
EXHIBIT INDEX
The following exhibits are filed herewith and/or are incorporated herein by
reference.
Exhibit
Number Description
- ------- -----------
10.1 Employment Contract dated December 31, 2000 between
First West Virginia Bancorp, Inc. and Charles K. Graham.
Filed herewith and incorporated herein by reference.
10.2 Employment Contract dated December 31, 2000 between
First West Virginia Bancorp, Inc. and Beverly A. Barker.
Filed herewith and incorporated herein by reference.
10.4 Lease dated July 20, 1993 between Progressive Bank, N.A., formerly
known as "First West Virginia Bank, N.A.", and Angela I. Stauver.
Incorporated herein by reference.
10.5 Banking Services License Agreement dated October 26, 1994 between
Progressive Bank, N.A., formerly known as "First West Virginia Bank,
N.A.", and The Kroger Co. Incorporated herein by reference.
10.6 Lease dated November 14, 1995 between Progressive Bank, N.A.
- Buckhannon and First West Virginia Bancorp, Inc. and O. V. Smith
& Sons of Big Chimney, Inc. Incorporated herein by reference.
10.7 Lease dated May 20, 1998 between Progressive Bank, N.A.
and Robert Scott Lumber Company. Incorporated herein by reference.
10.8 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. Filed herewith and incorporated herein by
reference.
11.1 Statement regarding computation of per share earnings.
Filed herewith and incorporated herein by reference.
13.3 Summarized Quarterly Financial Information.
Filed herewith and incorporated herein by reference.
15 Letter re unaudited interim financial information. Incorporated
herein by reference. See Part 1, Notes to Consolidated Financial
Statements
99.1 Independent Accountant's Report. Filed herewith and incorporated
herein by reference
24