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, 1996
[ ] 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
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(Address of principal executive offices)
Registrant's telephone number, including area code: (304) 277-1100
----------------
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 5,
1996: Common Stock, $5.00 Par Value, shares outstanding 775,268 shares
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FIRST WEST VIRGINIA BANCORP, INC.
PART I
FINANCIAL INFORMATION
2
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, December 31, September 30,
1996 1995 1995
-------------- -------------- --------------
ASSETS
Cash and Due From Banks $ 5,262,975 $ 4,179,849 $ 4,995,601
Due From Banks - interest bearing 1,058,330 82,015 58,330
Federal Funds Sold 1,636,000 2,278,000 2,202,000
-------------- -------------- --------------
Total cash and cash equivalents 7,957,305 6,539,864 7,255,931
Investment Securities
Held to Maturity - Market value of
$5,576,246 at September 30, 1996 ;
$5,058,118 at December 31, 1995;
and $24,875,711 at September 30, 1995 5,576,457 5,001,638 25,219,508
Available for Sale (at market value) 46,281,258 40,993,844 20,765,111
Loans 76,819,205 72,006,276 69,071,025
Less allowance for possible loan losses (1,182,238) (1,148,692) (1,154,974)
-------------- -------------- --------------
Net loans 75,636,967 70,857,584 67,916,051
Premises and equipment, net 3,314,612 3,103,214 2,948,290
Accrued Income Receivable 1,170,138 923,323 1,067,096
Other assets 601,687 496,341 581,988
Intangible assets 12,713 39,374 48,261
-------------- -------------- --------------
Total Assets $ 140,551,137 $ 127,955,182 $ 125,802,236
============== ============== ==============
LIABILITIES
Noninterest bearing deposits:
Demand deposits $ 12,001,582 $ 11,938,594 $ 10,911,287
Interest bearing deposits
Demand Deposits 24,754,656 22,849,052 22,571,685
Savings 38,384,091 41,659,007 41,338,405
Time deposits 48,026,846 38,448,501 38,334,171
-------------- -------------- --------------
Total Deposits 123,167,175 114,895,154 113,155,548
-------------- -------------- --------------
Repurchase agreements 4,452,047 749,224 627,333
Accrued Interest on Deposits 319,854 314,607 283,847
Other Liabilities 321,663 286,990 320,898
-------------- -------------- --------------
Total Liabilities 128,260,739 116,245,975 114,387,626
-------------- -------------- --------------
STOCKHOLDERS' EQUITY
Common Stock - 2,000,000 shares authorized at
$5 par value 775,268 shares issued at
September 30, 1996 and December 31, 1995 and
760,232 shares issued at September 30, 1995 3,876,340 3,876,340 3,801,160
Surplus 3,166,340 3,166,340 2,918,246
Retained Earnings 5,409,335 4,621,049 4,662,950
Net Unrealized Loss on securities available for sale (161,617) 45,478 32,254
-------------- -------------- --------------
Total stockholders' equity 12,290,398 11,709,207 11,414,610
-------------- -------------- --------------
Total liabilities and stockholders' equity $ 140,551,137 $ 127,955,182 $ 125,802,236
============== ============== ==============
The accompanying notes are an integral part of the financial statements
3
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans and lease financing:
Taxable $1,704,911 $1,566,805 $4,955,222 $4,379,905
Tax-exempt 27,242 22,912 78,289 55,021
Investment Securities:
Taxable 662,236 589,563 1,891,269 1,721,023
Tax-exempt 63,384 62,371 180,650 183,621
Dividends 5,203 5,111 15,135 14,541
Other interest income 26,246 608 74,484 1,661
Interest on Federal Funds Sold 66,998 64,717 207,003 214,832
--------- ---------- --------- ----------
Total interest income 2,556,220 2,312,087 7,402,052 6,570,604
INTEREST EXPENSE
Deposits 951,633 896,187 2,789,668 2,500,004
Interest on Fed Funds Purchased and
securities sold under agreements to
repurchase 42,069 5,932 78,799 11,725
Other borrowings -- -- -- --
--------- ---------- --------- ----------
Total interest expense 993,702 902,119 2,868,467 2,511,729
--------- ---------- --------- ----------
Net interest income 1,562,518 1,409,968 4,533,585 4,058,875
PROVISION FOR POSSIBLE LOAN LOSSES 16,800 3,800 45,600 46,600
--------- ---------- --------- ----------
Net interest income after provision
for possible loan losses 1,545,718 1,406,168 4,487,985 4,012,275
NONINTEREST INCOME
Service charges and other fees 97,511 105,889 270,933 282,935
Securities gains (losses) -- -- (711) 65,475
Other operating income 47,927 45,992 145,363 148,076
--------- ---------- --------- ----------
Total noninterest income 145,438 151,881 415,585 496,486
NONINTEREST EXPENSES
Salary and employee benefits 538,000 495,119 1,584,808 1,471,296
Net occupancy expense of premises 74,339 64,060 236,406 203,091
Other operating expenses 422,494 357,463 1,261,907 1,221,524
--------- ---------- --------- ----------
Total noninterest expense 1,034,833 916,642 3,083,121 2,895,911
--------- ---------- --------- ----------
Income before income taxes 656,323 641,407 1,820,449 1,612,850
--------- ---------- --------- ----------
INCOME TAXES 221,277 222,918 605,765 541,536
--------- ---------- --------- ----------
Net income $ 435,046 $ 418,489 $1,214,684 $1,071,314
========= ========== ========= ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 775,268 775,268 775,268 775,268
========= ========== ========= ==========
EARNINGS PER COMMON SHARE $ 0.56 $ 0.54 $ 1.57 $ 1.38
========= ========== ========= ==========
The accompanying notes are an integral part of the financial statements
4
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Net Unrealized
Gain (Loss) on
Securities
Common Retained Available
Stock Surplus Earnings for Sale Total
------------ ------------ ------------ -------------- -----------------
Balance, December 31, 1995 $ 3,876,340 $ 3,166,340 $ 4,621,049 $ 45,478 $ 11,709,207
Net income for the nine months
ended September 30, 1996 -- -- 1,214,684 -- 1,214,684
Cash dividend
($ .55 per share) (426,398) (426,398)
Change in fair value of securities
available for sale,
net of deferred tax -- -- -- (207,095) (207,095)
----------- ----------- ----------- ---------- ------------
Balance, September 30, 1996 (Unaudited) $ 3,876,340 $ 3,166,340 $ 5,409,335 $ (161,617) $ 12,290,398
=========== =========== =========== ========== ============
Balance, December 31, 1994 $ 3,801,160 $ 2,918,246 $ 3,888,127 $ (239,690) $ 10,367,843
Net income for the nine months
ended September 30, 1995 -- -- 1,071,314 -- 1,071,314
Cash dividend
($ .38 per share) (296,491) (296,491)
Change in fair value of securities
available for sale,
net of deferred tax -- -- -- 271,944 271,944
------------ ------------ ----------- ----------- -------------
Balance, September 30, 1995 (Unaudited) $ 3,801,160 $ 2,918,246 $ 4,662,950 $ 32,254 $ 11,414,610
=========== =========== =========== =========== ==============
The accompanying notes are an integral part of the financial statements
5
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
1996 1995
----------------- ---------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net Income $ 1,214,684 $ 1,071,314
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 45,600 46,600
Depreciation and amortization 292,576 221,715
Amortization of investment securities, net (2,661) 26,634
Investment security losses (gains) 711 (65,475)
Decrease (increase) in interest receivable (246,815) (251,357)
Increase (decrease) in interest payable 5,247 51,704
Other, net 47,493 33,974
----------------- ---------------
Net cash provided by operating activities 1,356,835 1,135,109
----------------- ---------------
INVESTING ACTIVITIES
Net (increase) decrease in loans, net of charge offs (4,848,489) (7,448,908)
Proceeds from sales of securities available for sale 1,250,156 72,075
Proceeds from maturities of securities available for sale 11,925,000 8,902,400
Proceeds from maturities of securities held to maturity 225,000 2,975,000
Principal collected on mortgage-backed securities 304,470 279,441
Purchases of securities available for sale (19,083,582) (11,766,729)
Purchases of securities held to maturity (806,587) (430,000)
Recoveries on loans previously charged-off 23,505 206,780
Purchases of premises and equipment (477,314) (260,327)
----------------- ---------------
Net cash used by investing activities (11,487,841) (7,470,268)
----------------- ---------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 8,272,021 7,425,312
Dividends paid (426,397) (296,491)
Increase (decrease) in short term borrowings 3,702,823 522,139
----------------- ---------------
Net cash provided by financing activities $ 11,548,447 $ 7,650,960
----------------- ---------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,417,441 1,315,801
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 6,539,864 5,940,130
----------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 7,957,305 $ 7,255,931
================ ==============
The accompanying notes are an integral part of the financial statements
6
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 AND 1995
1. The accompanying financial statements are unaudited. However in the opinion
of management, they contain the adjustments ( all of which are normal and
recurring in nature) necessary to present fairly the financial position and the
results of operations. The notes to the financial statements contained in the
annual report for December 31, 1995, should be read in conjunction with these
financial statements.
2. The provision for income taxes is at a rate which management believes will
approximate the effective rate for the year.
3. Effective January 1, 1995, Statement of Financial Accounting Standards No.
114, "Accounting by creditors for Impairment of a Loan", as amended by Statement
No. 118, was adopted by the Corporation. This Statement requires recognition of
impairment of a loan when it is probable that principal and interest are not
collectible in accordance with the terms of the loan agreement. Measurement of
impairment is based upon the present value of expected cash flows discounted at
the loan's effective interest rate, or as a practical expedient, at the loan's
market price or the fair value of the collateral, if known. At September 30,
1996, the corporation did not have any impaired loans which met the criteria of
Statement No. 114.
4. Effective December 15, 1995, Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights" was adopted by the Corporation.
This Statement requires institutions to allocate the total cost of originating
or purchasing mortgage loans between the mortgage servicing rights and the
related loans sold. The allocation will be made based on the relative fair
values of the mortgage servicing rights and the loans (without servicing
rights), if it is practicable to estimate those fair values. If, not practible,
the cost of acquiring the loans should be allocated to the mortgage loans only.
Presently, the Corporation does not sell or securitize mortgage loans while
retaining servicing rights, therefore adoption of this statement would have no
effect on the corporation.
5. Certain prior year amounts have been reclassified to conform to the 1996
presentation.
7
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 three wholly-owned subsidiaries: Progressive Bank, N.A., which operates in
Wheeling, Wellsburg, and Moundsville, West Virginia; Progressive Bank, N.A.-
Buckhannon which operates in Buckhannon and Weston, West Virginia; and
Progressive Bank, N.A. - Bellaire in Bellaire, Ohio. 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 months ended September 30, 1996 and 1995. 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 1995 financial statements, the notes thereto and the
related Management's Discussion and Analysis.
OVERVIEW
The Holding Company reported net income of $435,046 for the three
months ended September 30, 1996 as compared to $418,489 for the same period
during 1995. The increase in earnings during the third quarter of 1996 over
1995 can be primarily attributed to increased net interest income due to the
growth in the loan portfolio offset in part by the decrease in non-interest
income and the increases in non-interest expense and the provision for loan
losses. Operational earnings improved with net interest income increasing
$152,550 or 10.8%, to $1,562,518 for the three months ended September 30,
1996 as compared to the same period in 1995.
Net income for the nine months ended September 30, 1996 was
$1,214,684 compared to $1,071,314 for the same period during 1995. The
increase in earnings for the nine months ended September 30, 1996 as compared to
the same period in 1995 was primarily due to increased net interest income
offset in part by decreased noninterest income and increased noninterest
expenses. During the nine month period ended September 30, 1996, the increase
in net interest income was primarily due to the growth in the loan portfolio.
The increase in noninterest expenses can be primarily attributed to increased
salary and employee benefits and increased other operating expenses.
The decrease in noninterest income was primarily due to the decrease in
securities gains realized for the nine months ended September 30, 1996
as compared to 1995. Earnings per share were $.56 in the third quarter of 1996
an increase of 3.7% over the $.54 earned during the third quarter of 1995. For
the first nine months of 1996, earnings per share were $1.57, an increase of
13.8%, as compared to $1.38 earned during the same period during 1995.
Return on average assets (ROA) measures the effectiveness of asset
utilization to produce net income. ROA decreased during the three month period
ended September 30, 1996 to 1.24%, down from 1.31% in 1995. For the nine
months ended September 30, 1996 and 1995, the ROA was 1.20% and 1.16%,
respectively. Return on average equity (ROE) measures the return on the
stockholders' investment. The Holding Company's ROE was 14.38% for the three
months ended September 30, 1996 and 14.78% at September 30, 1995. For the nine
months ended September 30, 1996 compared to September 30, 1995, ROE was 13.67%
and 13.13%, respectively.
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.
8
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, figures 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,
---------------------- --------------------- ----------------------------------
1996 1995 1996 1995 1995 1994 1993
--------- -------- --------- -------- --------- --------- --------
SUMMARY OF OPERATIONS
Total interest income $ 2,556 $ 2,312 $ 7,402 $ 6,571 $ 8,937 $ 7,783 $ 8,054
Total interest expense 993 902 2,868 2,512 3,421 2,868 3,319
Net interest income 1,563 1,410 4,534 4,059 5,516 4,915 4,735
Provision for loan losses 17 4 46 47 50 77 116
Total other income 145 152 415 497 720 725 666
Total other expenses 1,035 917 3,083 2,896 3,988 3,641 3,528
Income before income taxes 656 641 1,820 1,613 2,198 1,922 1,757
Net income 435 418 1,215 1,071 1,470 1,288 1,193
PER SHARE DATA (1)
Net income $ .56 $ .54 $ 1.57 $ 1.38 $ 1.90 $ 1.66 1.54
Cash dividends declared (2) .19 .15 .55 .38 .54 .58 .53
Book value per share 15.85 14.72 15.85 14.72 15.10 13.37 12.58
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 75,235 $ 67,953 $ 73,071 $ 64,776 $ 66,058 $ 56,991 $ 56,264
Investment securities 50,002 46,407 47,836 46,247 46,020 50,282 47,755
Deposits - Interest Bearing 109,932 102,239 107,902 99,682 100,488 95,980 94,852
Long-term debt -- -- -- -- -- 44 754
Stockholders' equity 12,038 11,224 11,874 10,902 11,170 10,253 9,252
Total Assets 139,862 126,201 135,513 122,975 124,145 117,996 115,765
SELECTED RATIOS
Return on average assets 1.24% 1.31% 1.20% 1.16% 1.18% 1.09% 1.03%
Return on average equity 14.38% 14.78% 13.67% 13.13% 13.16% 12.56% 12.89%
Average equity to average assets 8.61% 8.89% 8.76% 8.87% 9.00% 8.69% 7.99%
Dividend payout ratio (1) (2) 33.93% 27.78% 35.03% 27.54% 28.42% 34.94% 34.42%
BALANCE SHEET September 30, December 31,
--------------------- ---------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- --------- ----------
Investments $ 51,858 $ 45,985 $ 45,996 $ 45,551 $ 50,099
Loans 76,819 69,071 72,006 61,667 55,838
Other Assets 11,874 10,746 9,953 9,445 10,303
---------- --------- ---------- --------- ----------
Total Assets $ 140,551 $ 125,802 $ 127,955 $ 116,663 $ 116,240
========= ========= ========= ========= =========
Deposits $ 123,167 $ 113,156 $ 114,895 $ 105,730 $ 105,791
Other Liabilities 5,094 1,231 1,351 565 694
Shareholders' Equity 12,290 11,415 11,709 10,368 9,755
---------- --------- ---------- --------- ----------
Total Liabilities and
Shareholders' Equity $ 140,551 $ 125,802 $ 127,955 $ 116,663 $ 116,240
========= ========= ========= ========= =========
(1) Adjusted for the 2% common stock dividend to stockholders of record as of
December 1, 1995 and the two-for-one stock split effective April 15, 1994.
(2) Cash dividends and the related payout ratio are based on historical
results of the Holding Company and do not include cash dividends of
acquired subsidiaries prior to the dates of consummation.
On January 4, 1993, the Holding Company acquired 100% of the Common Stock of the
Wellsburg Banking and Trust Company (Wellsburg) with a combination of cash and
securities. The acquisition was accounted for using the purchase method of
accounting. Accordingly, the results of operations of the former Wellsburg Bank
are included in the information presented above from the date of acquisition
forward, and prior year balance sheets have not been restated for such
transactions.
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9
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
- -------------------
The primary source of earnings for the Holding Company is net interest
income, which is the difference between interest earned on loans and investments
and interest paid on deposits and other liabilities. Changes in the volume and
mix of earning assets and interest bearing liabilities combined with changes in
market rates of interest greatly affect net interest income. Tables Two and
Three analyze the changes in net interest income for the three months ended
September 30, 1996 and 1995 and for the nine months ended September 30, 1996 and
1995, respectively.
The net interest margin for the third quarter of 1996 was 4.69%, a
decrease over the 4.70% earned at September 30, 1995. Net interest income
increased $152,550 or 10.8%, during the three month period ended September 30,
1996 as compared to 1995. The increase in net interest income resulted
primarily from increased loan growth. Interest and fees on loans increased
$142,436 or 9.0% during the three month period ended September 30, 1996 as
compared to the same period in 1995 due to the increase in average loan
volume. Interest expense increased $91,583, or 10.2%, during the three month
period ended September 30, 1996, as compared to the same period in 1995
primarily due to the increase in the average volume of interest bearing
liabilities.
For the nine months ended September 30, 1996, net interest income
increased $474,710 or 11.7%, as compared to the same period of the prior year.
This increase was largely due to the increase in the average loan volume.
Comparing the nine month period ended September 30, 1996 to September 30, 1995,
interest and fees on loans increased $598,585, or 13.5%. Cash flows from
increased deposit growth were used to fund increased loan demand.
Provision for Possible Loan Losses
- ----------------------------------
The provision for possible loan losses is an amount added to the reserve
against which loan losses are charged. Management determines an appropriate
provision based upon its evaluation of the size and the risk characteristics of
the loan portfolio, current and anticipated economic conditions, specific
problem loans and delinquencies, loan loss experience and other related factors.
For the quarter ended September 30, 1996, the provision for possible loan
losses was $16,800, compared to $3,800 at September 30, 1995. Net charge offs
were approximately $16,000 and $25,000 for the three months ended September 30,
1996 and 1995, respectively. For the nine months ended September 30, 1996, the
provision for loan losses was $45,600 compared to $46,600 at September 30, 1995.
Net charge offs were approximately $12,000 and $(162,000) for the nine months
ended September 30, 1996 and 1995, respectively. Total non-performing loans,
comprised of past due 90 days or more, renegotiated loans, non-accrual loans,
and other real estate owned were $1,238,000 at September 30, 1996 and $414,000
at September 30, 1995.
Non-Interest Income
- -------------------
Service charges represent the major component of non-interest income. These
charges are earned from assessments made on checking and savings accounts.
Service charges decreased $8,378 or 7.9%, during the three months ended
September 30, 1996 as compared to the same period of the prior year. For the
nine months ended September 30, 1996, service charges decreased $12,002 or 4.2%
as compared to the same period in 1995.
Sales of securities by the subsidiary banks are generally limited to the
needs established under the liquidity policies. There were no securities gains
(losses)
during the three month period September 30, 1996 and September 30, 1995. For
the nine months ended September 30, 1996, securities losses were $711 and were
attributable to the sales of securities available for sale by a subsidiary bank.
Securities gains were $65,475 for the nine months ended September 30, 1995 and
were attributable to the holding company's sale of marketable equity securities
available for sale.
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 three months ended September
30, 1996 and September 30, 1995. Average balance sheet information as of
September 30, 1996 and September 30, 1995 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, 1996 and 1995.
For the Three For the Three
Months ended Months ended
September 30, 1996 September 30, 1995
---------------------------------- -------------------------------
Average Average Average Average
Volume Interest Rate Volume Interest Rate
---------- -------- ------- ----------- ------- -------
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 43,657 $ 644 5.87% $ 39,719 $ 570 5.69%
Obligations of states and
political subdivisions 5,010 63 5.00% 4,813 64 5.28%
Other securities 1,335 24 7.15% 1,874 22 4.66%
Interest bearing deposits 2,063 26 5.01% 230 1 1.72%
Federal funds sold 5,057 67 5.27% 4,326 65 5.96%
Loans, net of unearned income 75,235 1,732 9.16% 67,953 1,590 9.28%
---------- -------- ------- ----------- ------- -------
Total interest earning assets 132,357 2,556 7.68% 118,915 2,312 7.71%
Cash and due from banks 4,073 3,896
Bank premises and equipment 3,365 2,884
Other assets 1,242 1,674
Allowance for possible loan losses (1,175) (1,168)
---------- -----------
Total Assets $ 139,862 $ 126,201
========= ==========
LIABILITIES
Certificates of deposit $ 46,540 $ 577 4.93% $ 37,747 $ 476 5.00%
Savings deposits 39,099 245 2.49% 41,417 284 2.72%
Interest bearing demand deposits 24,293 130 2.13% 23,075 136 2.34%
Federal funds purchased and
Repurchase agreements 4,888 42 3.42% 653 6 3.65%
Long-term debt -- -- -- -- -- --
---------- -------- ------- ----------- ------- -------
Total interest bearing liabilities 114,820 994 3.44% 102,892 902 3.48%
Demand deposits 12,269 11,408
Other liabilities 735 677
---------- -----------
Total Liabilities 127,824 114,977
SHAREHOLDERS' EQUITY 12,038 11,224
---------- -----------
Total Liabilities
and Shareholders' Equity $ 139,862 $ 126,201
========= ==========
Net interest revenue as a percentage of
average earning assets $ 1,562 4.69% $ 1,410 4.70%
======= ====== ====== ======
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,
1996 and 1995, respectively. The effect of this adjustment is presented below
(in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 5,010 $ 105 8.34% $ 4,813 $ 107 8.79%
Loans 75,235 1,750 9.26% 67,953 1,605 9.37%
======= ======= ====== ========== ====== ======
Total interest earning assets $ 132,357 $2,616 7.86% $ 118,915 $ 2,370 7.91%
======= ======= ====== ========== ====== ======
Net interest revenue as a percentage
of average earning assets $1,622 4.88% $ 1,468 4.90%
======= ====== ====== ======
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
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, 1996 and September 30, 1995 and the year ended December 31, 1995. Average
balance sheet information as of September 30, 1996 and September 30, 1995 and
the year ended December 31, 1995 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, 1996 and 1995.
For the Nine For the Nine
Months ended Months ended
September 30, 1996 December 31, 1995 September 30, 1995
----------------------------- ------------------------------ ----------------------------
Average Average Average Average Average Average
Volume Interest Rate Volume Interest Rate Volume Interest Rate
-------- -------- ------- ------- -------- -------- -------- -------- ------
(expressed in thousands)
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 41,510 $ 1,824 5.87% $ 39,411 $ 2,206 5.60% $ 39,643 $1,651 5.57%
Obligations of states and
political subdivisions 4,736 181 5.11% 4,666 248 5.32% 4,636 184 5.31%
Other securities 1,590 82 6.89% 1,943 122 6.28% 1,968 84 5.71%
Interest bearing deposits 1,917 74 5.16% 88 5 5.68% 100 2 2.67%
Federal funds sold 5,220 207 5.30% 4,835 287 5.94% 4,784 215 6.01%
Loans, net of unearned income 73,071 5,034 9.20% 66,058 6,069 9.19% 64,776 4,435 9.15%
-------- ------- ------- -------- -------- ------- ------- ----- --------
Total interest earning assets 128,044 7,402 7.72% 117,001 8,937 7.64% 115,907 6,571 7.58%
Cash and due from banks 3,997 3,747 3,749
Bank premises and equipment 3,321 2,928 2,872
Other assets 1,322 1,552 1,508
Allowance for possible loan losses (1,171) (1,083) (1,061)
-------- -------- --------
Total Assets $135,513 $ 124,145 $122,975
======== ======== ========
LIABILITIES
Certificates of deposit $ 44,138 $ 1,647 4.98% $ 36,080 $ 1,734 4.81% $ 35,379 $ 1,248 4.72%
Savings deposits 40,091 758 2.53% 42,326 1,152 2.72% 42,582 870 2.73%
Interest bearing demand deposits 23,673 384 2.17% 22,082 518 2.35% 21,721 382 2.35%
Federal funds purchased and
Repurchase agreements 3,089 79 3.42% 462 17 3.68% 425 12 3.78%
Long-term debt -- -- -- -- -- -- -- -- --
-------- ------- ----- ------- -------- ------- ------- -------- ------
Total interest bearing liabilities 110,991 2,868 3.45% 100,950 3,421 3.39% 100,107 2,512 3.35%
Demand deposits 11,943 11,387 11,370
Other liabilities 705 638 596
-------- ------- --------
Total Liabilities 123,639 112,975 112,073
SHAREHOLDERS' EQUITY 11,874 11,170 10,902
-------- ------- --------
Total Liabilities
and Shareholders' Equity $135,513 $ 124,145 $122,975
======== ========= ========
Net interest revenue as a percentage of
average earning assets $ 4,534 4.73% $ 5,516 4.71% $ 4,059 4.68%
======= ====== ======= ====== ======= =====
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,
1996 and 1995 and the year ended December 31, 1995. respectively. The effect of
this adjustment is presented below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 4,736 $ 302 8.51% $ 4,666 $ 413 8.86% $ 4,636 $ 307 8.84%
Loans 73,071 5,086 9.30% 66,058 6,124 9.27% 64,776 4,472 9.23%
========= ======= ====== ========= ======== ====== ========== ======= =====
Total interest earning assets $ 128,044 $ 7,575 7.90% $ 117,001 $ 9,157 7.83% $ 115,907 $ 6,730 7.76%
========= ======= ====== ========= ======== ====== ========== ======= =====
Net interest revenue as a percentage
of average earning assets $ 4,707 4.91% $ 5,736 4.90% $ 4,218 4.87%
======= ====== ======== ====== ======= =====
- --------------------------------------------------------------------------------
12
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Non-Interest Income - continued
- -------------------------------
Other operating income is comprised of fees from safe deposit box rentals,
sales of cashier's checks and money orders, utility collections, ATM charges and
card fees, home equity credit line fees, credit life commissions, and credit
card fees and commissions and various other charges and fees related to normal
customer banking relationships. For the three month period ended September 30,
1996 other operating income was $47,927, an increase of $1,935, or 4.2%, over
the same period in 1995. The increase was primarily due to increased fees and
charges. For the nine month period ended September 30, 1996, other operating
income was $145,363, a decrease of $2,713 or 1.8%, over the same period in 1995.
The decrease was primarily due to a non-recurring premium for lease servicing
due to the early sale of equipment which was received during 1995.
Non-Interest Expense
- --------------------
Salary and employee benefits is the largest component of non-interest
expense. During the quarter ended September 30, 1996, salary and employee
benefits increased $42,881 or 8.7% as compared to the same period of the prior
year. For the nine month period ended September 30, 1996, as compared to the
same period in 1995, salary and employee benefits increased $113,512 or 7.7%.
The increase in salary and benefits was primarily due to the hiring of
additional personnel by a subsidiary bank for a branch office which opened in
April, 1996 and normal annual merit adjustments in salaries.
The major components of other operating expenses include: equipment expense,
stationery and supplies, directors fees, advertising, postage and
transportation, regulatory assessment and deposit insurance, and insurance.
Other operating expenses increased $65,031 or 18.2%, for the three month period
ended September 30, 1996 as compared to the same period in the prior year. For
the nine months ended September 30, 1996, other operating expenses increased
$40,383 or 3.3% as compared to the same period in 1995. The increase in other
operating expenses primarily relates to increased equipment expenses,
advertising, stationery and supplies expenses, and other taxes, offset in
part by the decreases in the FDIC insurance assessment and in other expenses.
The increased operating costs were primarily the result of opening a subsidiary
bank branch office and the expanding asset base of the holding company,
offset in part by the reduction in the Federal Deposit Insurance Corporation
(FDIC) insurance assessment. During 1995, the costs incurred in the
registration of First West Virginia Bancorp, Inc.'s common stock with the
Securities and Exchange Commission and the American Stock Exchange contributed
to the increase in other expenses.
Income Taxes
- ------------
Income tax expense for the three month period ended September 30, 1996 was
$221,277, a decrease of $1,641 over the same period in 1995. For the nine
month period ended September 30, 1996, income tax expense was $605,765, an
increase of $64,229 over the same period in 1995. The increase was primarily
due to the increase in pre-taxable income of $207,599.
For federal income tax purposes, tax-exempt income is based on qualified
state, county, and municipal bonds and loans. Tax-exempt income was $90,626 and
$85,283 for the three month period ended September 30, 1996 and 1995,
respectively. For the nine month period ended September 30, 1996 and 1995, tax
exempt income was $258,939 and $238,642, respectively.
Federal income tax rates were consistent at 34% for the quarter ended
September 30, 1996 and 1995. West Virginia corporate net income tax rates also
were consistent at 9.0% in 1996 and 1995.
13
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Balance Sheet Analysis
Investments
- -----------
Effective January 1, 1994, the Holding Company adopted the provisions of
Statement of Financial Accounting Standards (FAS) No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". Under FAS No. 115,
investment securities in the portfolio are classified as either available for
sale or held to maturity. FAS 115 requires banks to classify debt and equity
securities into one of three categories: held to maturity, available for sale,
or trading. The corporation does not currently conduct short term purchase and
sale transactions of investment securities which would be classified as trading
securities. The initial determination of investments classified as available
for sale was based principally on the corporation's asset liability position and
potential liquidity needs.
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 market value
and the unrealized holding gains and losses, net of taxes, are reflected as a
separate component of stockholders' equity until realized. Investment
securities held to maturity are securities purchased with the intent and ability
to hold until their maturity. Securities classified as held to maturity are
carried at cost, adjusted for amortization of premiums and accretion of
discounts. In classifying debt securities as available for sale, management
generally selected securities with actual maturities of two years or less. All
other debt securities were classified as held to maturity. All equity
securities were classified as available for sale. Accordingly, the presentation
of investment securities on the Consolidated Balance Sheet shows securities
classified as available for sale and held to maturity as of September 30, 1996
and September 30, 1995.
In November, 1995, the Financial Accounting Standards Board (FASB) issued
implementation guidance on accounting for investment securities on FAS No. 115.
Effective November 15, 1995 the FASB permitted a one time opportunity for
financial institutions to reassess the appropriateness of the classifications of
all its investment securities. Financial institutions were allowed to transfer
securities from their held to maturity portfolio to their available for sale
portfolio before calendar year end 1995, without calling into question their
intent to hold other securities to maturity. As a result, investment securities
with an amortized cost of $18,411,939 and unrealized loss of $112,961 were
transferred from the held to maturity category to the available for sale
category in December, 1995. As of September 30, 1996, the corporation had
approximately 89% of the investment portfolio classified as available for sale,
while 11% was classified as held to maturity.
In total, investment securities increased by $5,873,096 or 12.8% from
$45,984,619 at September 30, 1995, to $51,857,715 at September 30, 1996. The
increase in investment securities was attributed primarily to the increased
deposit growth from September 30, 1995 to September 30, 1996.
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. Market rates of interest have continued to decline and
the corporation has reduced the carrying value of securities available for sale
by $253,517 at September 30, 1996. As of September 30, 1995, the carrying value
of securities available for sale was increased by $50,976 as a result of a
slight increase in market rates. The market value of securities classified as
held to maturity were below book value by $211 and $343,797, at September 30,
1996 and September 30, 1995, respectively.
14
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Table Four
Investment Portfolio
Book values of investment securities at September 30, 1996 and 1995 and at
December 31, 1995 are as follows
(in thousands) (Unaudited):
September 30, December 31, September 30,
1996 1995 1995
----------- ----------- ------------
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 800 $ 800 $ 19,137
Obligations of states
and political subdivisions 4,777 4,202 4,435
Corporate debt securities -- -- 415
Mortgage-backed securities -- -- 1,233
Equity Securities -- -- --
------- ------ ---------
Total held to maturity $ 5,577 $ 5,002 $ 25,220
------- ------ ---------
Securities available for sale :
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies 41,813 $36,563 $ 17,870
Obligations of states
and political subdivisions 503 511 506
Corporate debt securities 849 1,400 971
Mortgage-backed securities 2,598 2,039 875
Equity Securities 518 481 543
------- ------- ---------
Total available for sale 46,281 40,994 20,765
------- ------- ---------
Total $51,858 $45,996 $ 45,985
======= ======= ========
- -------------------------------------------------------------------------------
15
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, 1996 and December 31, 1995 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, 1996 December 31, 1995
--------------------------------------------- ----------------------------------------
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 $ -- -- % $ 12,197 5.08 % $ -- -- % $ 11,236 4.95 %
After One But
Within Five Years 800 5.02 25,672 6.28 800 5.02 20,505 5.93
After Five But
Within Ten Years -- -- 3,944 7.06 -- -- 4,822 6.54
After Ten Years -- -- -- -- -- -- -- --
------- ----- ------- ------ -------- ------ -------- -----
800 5.02 41,813 6.00 800 5.02 36,563 5.71
States & Political Subdivisions
Within One Year 200 7.57 -- -- 225 8.14 -- --
After One But
Within Five Years 2,624 7.57 -- -- 1,883 7.36 -- --
After Five But
Within Ten Years 1,790 7.82 503 7.64 2,094 7.70 262 7.49
After Ten Years 163 7.72 -- -- -- -- 249 7.57
------- ----- ------- ------ -------- ------ -------- -----
4,777 7.67 503 7.64 4,202 7.57 511 7.53
Corporate Debt Securities
Within One Year -- -- 640 7.82 -- -- 770 7.97
After One But
Within Five Years -- -- 209 7.80 -- -- 518 7.43
After Five But
Within Ten Years -- -- -- -- -- -- 112 7.62
After Ten Years -- -- -- -- -- -- -- --
------- ----- ------- ------ -------- ------ -------- -----
-- -- 849 7.82 -- -- 1,400 7.74
Mortgage-Backed Securities -- -- 2,598 7.78 -- -- 2,039 8.01
Equity Securities -- -- 518 6.53 -- -- 481 6.26
------- ----- ------- ------ -------- ------ -------- -----
Total $ 5,577 7.29 % $ 46,281 6.16 % $ 5,002 7.16 % $ 40,994 5.92 %
======= ===== ======= ===== ======= ====== ======== =====
- ------------------------------------------------------------------------------
16
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Investments - continued
- -----------------------
The investment portfolio is managed to attempt to achieve an optimum mix of
asset quality, liquidity and maximum yield on investment. The investment
portfolio is comprised of U.S. Treasury securities, U.S. Government corporations
and agencies securities, obligations of states and political subdivisions,
corporate debt securities, mortgage-backed securities and equity securities.
Taxable securities comprised 89.8% of total securities at September 30, 1996, as
compared to 89.3% at September 30, 1995. The corporation does not have any
issues in the investment portfolio which exceed 10% of stockholders' equity as
of September 30, 1996. 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.
Loans
- -----
Loans increased as of September 30, 1996 as compared to September 30, 1995 as
loans outstanding increased $7,748,180 or 11.2%, to $76,819,205. The loan
growth can be attributed primarily to increases in commercial loans, installment
loans and residential real estate loans which increased approximately
$4,641,000, $2,432,000, and $453,000, respectively. Expansion of local
businesses in the area contributed to the increase in commercial loans. Loan
growth was funded principally through the increase in deposits. The loan to
deposit ratio at September 30, 1996 was 62.4% which was higher than the 61.0%
reported at September 30, 1995. Management recognizes that future earnings
growth depends upon increasing the loan to deposit ratio.
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
twenty-one percent (21%) of the loan portfolio. Other loans include nonrated
industrial development obligations, direct financing leases and other loans
comprise three percent (3%) of the loan portfolio. The changes in the
composition of the loan portfolio from September 30, 1995 to September 30, 1996
were a 3% increase in commercial loans, a 1% increase in installment loans, and
a 4% decrease in 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.
Non-performing assets consist of: 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 non-performing assets is presented in Table Eight.
Total non-performing loans increased $824,000, to $1,238,000 at September 30,
1996 as compared to $414,000 at September 30, 1995. Loans classified as
non-accrual and renegotiated increased $134,000 to $384,000 or .5% of total
loans as of September 30, 1996, as compared to $250,000 or .4% of total loans at
September 30, 1995. The loans past due 90 days or more increased $736,000 to
$805,000 at September 30, 1996 as compared to $69,000 at September 30, 1995.
The increase in loans past due 90 days or more is primarily due to the addition
of one commercial loan. This commercial loan is 80% guaranteed by the Small
Business Administration. Management continues to monitor the non-performing
assets to ensure against deterioration in collateral values.
17
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Table Six
Loan Portfolio
(Unaudited)
Loans outstanding are as follows (in thousands) :
September 30, December 31,
------------------------- ----------
1996 1995 1995
Real Estate - Residential
Real estate-construction $ 199 $ -- $ 16
Real estate-farmland 13 16 15
Real estate-residential 28,167 27,910 28,697
---------- ---------- ----------
$ 28,379 $ 27,926 $ 28,728
---------- ---------- ----------
Commercial
Real estate-secured by
nonfarm, nonresidential $ 20,233 $ 18,354 $ 18,105
Commercial & industrial 9,483 6,721 8,192
---------- ---------- ----------
$ 29,716 $ 25,075 $ 26,297
---------- ---------- ----------
Installment
Installment and other
loans to individuals $ 16,272 $ 13,840 $ 14,467
---------- ---------- ----------
Others
Nonrated industrial
development obligations $ 1,798 $ 1,403 $ 1,684
Direct Financing Leases 351 633 575
Other loans 394 270 334
---------- ---------- ----------
$ 2,543 $ 2,306 $ 2,593
---------- ---------- ----------
Total 76,910 69,147 72,085
Less unearned interest 91 76 79
---------- ---------- ----------
$ 76,819 $ 69,071 $ 72,006
========= ========= =========
- ------------------------------------------------------------------------------
18
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,
1996 and December 31, 1995 (in thousands) (Unaudited):
September 30, 1996
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 1,009 $ 5,256 $ 3,218
Real Estate - construction 100 30 69
--------- --------- ---------
Total $ 1,109 $ 5,286 $ 3,287
======== ======== ========
December 31, 1995
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 642 $ 4,075 $ 3,475
Real Estate - construction -- 0 16
--------- --------- ---------
Total $ 642 $ 4,075 $ 3,491
======== ======== ========
The following table presents an analysis of fixed and variable rate loans as of
September 30, 1996 and December 31, 1995 along with the contractual maturities
of loans other than installment loans and residential mortgages (in thousands)
(Unaudited):
September 30, 1996
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ -----------
Fixed Rates $ 419 $ 4,287 $ 1,299
Variable Rates 690 999 1,988
--------- --------- ---------
Total $ 1,109 $ 5,286 $ 3,287
======== ======== ========
December 31, 1995
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
---------------------------- ----------
Fixed Rates $ 299 $ 3,063 $ 1,458
Variable Rates 343 1,012 2,033
--------- --------- ---------
Total $ 642 $ 4,075 $ 3,491
======== ======== ========
- ---------------------------------------------------------------------------
19
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Table Eight
Risk Elements
(UNAUDITED)
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 ( in thousands):
September 30, December 31,
----------------- ------------
1996 1995 1995
Past Due 90 Days or More:
Real Estate - residential $ 146 $ 24 $ 33
Commercial 586 4 -
Installment 73 41 60
------- ------- ------------
$ 805 $ 69 $ 93
------- ------- ------------
Renegotiated:
Real Estate - residential $ -- $ -- $ --
Commercial -- -- --
Installment -- -- --
------- ------- ------------
$ -- $ -- $ --
------- ------- ------------
Non-accrual:
Real Estate - residential $ 61 $ 27 $ 56
Commercial 302 204 256
Installment 21 19 39
------- ------- ------------
$ 384 $ 250 $ 351
------- ------- ------------
Other Real Estate $ 49 $ 95 $ 64
------- ------- ------------
Total non-performing assets $ 1,238 $ 414 $ 508
====== ====== ===========
Total non-performing assets
to total loans and
other real estate 1.61% 0.60% 0.70%
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 Comptoller 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 $24,000 and
$20,000 for the periods ended September 30, 1996 and 1995, respectively.
As of September 30, 1996, 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.
Most of the affiliate banks' loans and commitments have been granted to
customers in the banks' primary market areas of northern and central West
Virginia and eastern Ohio. In the normal course of business, however, the
banks have purchased and originated loans outside of their primary market
areas. The aggregate loan balances outstanding in any one geographic area,
other than the banks' primary lending areas, do not exceed 10% of total loans.
No specific industry concentrations exceed 10% of total loans.
- ------------------------------------------------------------------------------
20
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Loans - continued
- -----------------
Effective January 1, 1995, the Holding Company adopted the provisions of
Statement of Financial Accounting Standards (FAS) No. 114, "Accounting by
Creditors for Impairment of a Loan", which was subsequently amended by FAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income and Recognition
of Disclosures." It is the corporation's policy not to recognize interest on
specific impaired loans unless the future loss is remote. Interest payments
received on such loans are applied as a reduction of the loan principal balance.
Since the adoption of FAS 114 and 118, the corporation had no loans which
management has determined to be impaired.
Allowance for Possible Loan Losses
- ----------------------------------
The corporation maintains an allowance for possible loan losses to absorb
probable loan losses. Table Nine presents a summary of the Allowance for
Possible Loan Losses. Net loan charge offs were $12,000 and $(162,000) at
September 30, 1996 and 1995, respectively. The net charge offs during the nine
month period ended September 30, 1996 were primarily consumer loans. During
1995, the net charge offs were primarily due to a recovery received on one
commercial loan in bankruptcy. The provision for loan losses increased to
$16,800 during the three months ended September 30, 1996, from $3,800 during
the same period of the prior year. The allowance for possible loan losses
represented 1.5% and 1.7% of loans outstanding as of September 30, 1996 and
September 30, 1995, respectively. The ratio of net charge-offs to average
outstanding loans at September 30, 1996 was .0% compared to (.3%) for
September 30, 1995. The ratio of non-accrual loans plus loans delinquent more
than 90 days to total loans was 1.5% and .5% at September 30, 1996 and
September 30, 1995, respectively. Net loan charge-offs were 1.0% and (14.0%) of
the allowance for loan losses as of September 30, 1996 and September 30, 1995,
respectively. 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 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 possible loan losses at a level
greater than actual charge-offs. In determining the allocation of the allowance
for possible loan losses, charge-offs for 1996 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.
21
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
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,
------------------- ------------
1996 1995 1995
Balance at Beginning of period
Allowance for Possible
Loan Losses $ 1,149 $ 947 $ 947
Loans Charged Off:
Real Estate - residential -- -- 1
Commercial -- 11 11
Installment 36 35 44
-------- -------- ----------
36 46 56
Recoveries:
Real Estate - residential -- -- --
Commercial 1 194 194
Installment 23 14 15
-------- -------- ----------
24 208 209
Net Charge-offs 12 (162) (153)
Purchased Reserves -- -- --
Additions Charged to Operations 45 46 49
-------- -------- ----------
Balance at end of period: $ 1,182 $ 1,155 $ 1,149
======= ======= =========
Average Loans Outstanding $ 73,071 $ 64,776 $ 66,058
======= ======= =========
Ratio of net charge-offs
to Average loans
outstanding for the period .02% -.25% -.23%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.54% 1.67% 1.60%
The additions to the allowance for loan losses are based on management's
evaluation of characteristics of the loan portfolio, current and anticipated
economic conditions, past loan experiences, net loans charged-off, specific
problem loans and delinquencies, and other factors.
- ------------------------------------------------------------------------------
22
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
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, 1995 , and the nine
month period ended September 30, 1996 ( 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,
--------------- -----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------------- --------------- ---------------- -------------- ---------------- ------------------
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 $ 215 36.9% $ 215 39.9% $216 43.1% $216 43.1% $190 38.3% $196 36.8%
Commercial 619 38.7 618 36.5 420 34.7 382 35.9 353 38.8 310 41.0
Installment 297 21.1 265 20.0 260 19.3 248 17.6 157 18.9 72 20.3
Others 20 3.3 20 3.6 20 2.9 20 3.4 20 4.0 13 1.9
Unallocated 31 -- 31 -- 31 -- 30 -- 30 -- -- -
------ ----- ------ ----- ---- ----- ---- ----- ---- ------ ---- ------
Total $1,182 100.0% $1,149 100.0% $947 100.0% $896 100.0% $750 100.0% $591 100.0%
====== ===== ====== ===== ==== ===== ==== ===== ==== ====== ==== ======
23
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
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, 1996
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 $ 4,966 $ 1,175 $ 1,969 $ 2,426 $ 10,536
December 31, 1995
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 $ 1,357 $ 331 $ 1,210 $ 1,595 $ 4,493
- ------------------------------------------------------------------------------
Table Twelve
Return on Equity and Assets
The following financial ratios are presented: (Unaudited)
Three months ended Nine months ended Year Ended
September 30, September 30, December 31,
------------------------ ----------------- -----------
1996 1995 1996 1995 1995
----------- ------- ------- ------- -----------
Return on Assets :
(Net income / Average Total Assets) 1.24% 1.31% 1.20% 1.16% 1.18%
Return on Equity :
(Net income /
Average Shareholders Equity) 14.38% 14.78% 13.67% 13.13% 13.16%
Dividend Payout Ratio :
(Dividend Declared Per Share /
Net Income Per Share) 33.93% 27.78% 35.03% 27.54% 28.42%
Equity to Asset Ratio :
(Average Equity / Average Total Assets) 8.61% 8.89% 8.76% 8.87% 9.00%
- ------------------------------------------------------------------------------
24
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Deposits
- --------
A stable core deposit base is the major source of funds for Holding Company
subsidiaries. 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 corporation's need for certain
types of deposit growth. Total deposits were $123.2 million at September 30,
1996 as compared to $113.2 million at September 30, 1995, an increase of 8.8%.
Deposit growth increased primarily in time deposits. Time deposits grew by $9.7
million or 25.3% at September 30, 1996 as compared to September 30, 1995. As
of September 30, 1996, time deposits included a $3 million certificate of
deposit with a 30 day term which contributed to the deposit growth. Special
promotions offered by the subsidiary banks during the first nine months of 1996
contributed to the growth in time deposits. With interest rates increasing,
depositors primarily selected deposit products with longer maturities in order
to take advantage of current interest rates. As reflected in Table 3, average
rates paid on interest bearing deposit accounts increased to 3.5% during the
nine month period of 1996 as compared to 3.4% during the same period of the
prior year. At September 30, 1996, non-interest bearing demand 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 September 30, 1995 to September 30,
1996.
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 9.4% in 1996 entirely from current
earnings after quarterly dividends, and a decrease of 1.7% resulting from the
effect of the change in the net unrealized gain (loss) on securities available
for sale. Stockholders equity amounted to 8.7% of total assets as of
September 30, 1996 as compared to 9.1% at September 30, 1995.
As a bank holding company, the Holding Company is subject to regulation by
the Federal Reserve Board under the Bank Holding Company Act of 1956. The
Federal Reserve Board's minimum ratio of qualified total capital to risk-
weighted assets is 8 percent, at least half of the total capital is required to
be comprised of Tier 1 capital, or the company's common stockholders' equity
less intangibles. The remainder (Tier 2 Capital) may consist of certain other
prescribed instruments and a limited amount of loan loss reserves.
In addition, the Federal Reserve Board has established minimum leverage ratio
(Tier 1 capital to quarterly average tangible assets) guidelines for bank
holding companies. These guidelines provide for minimum ratio of 3 percent for
bank holding companies that meet certain specified criteria. All other bank
holding companies are required to maintain a leverage ratio of 3 percent plus an
additional cushion of at least 100 to 200 basis points. The guidelines also
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets.
25
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Capital Resources - continued
- -----------------------------
The following chart shows the regulatory capital levels for the company at
September 30, 1996, September 30, 1995, and December 31, 1995:
September 30, Dec. 31
-------------- -------
Ratio Minimum 1996 1995 1995
- ---------------------- -------- ------- ----- -----
Leverage Ratio 3% 9.00 9.00 9.20
Risk Based Capital
Tier 1 (core) 4% 14.96 14.77 15.12
Tier 2 (total) 8% 16.17 16.02 16.37
Earnings from subsidiary bank operations are expected to remain adequate to
fund payment of stockholders' dividends and internal growth. In management's
opinion, subsidiary banks have the capability to upstream sufficient dividends
to meet the cash requirements of the Holding Company.
Interest Rate Risk
- ------------------
Changes in interest rates can affect the level of income of a financial
institution depending on the repricing characteristics of its assets and
liabilities. This is termed interest rate risk. If a financial institution is
asset sensitive, more of its assets will reprice in a given time frame than
liabilities. This is a favorable position in a rising rate environment and
would enhance income. If an institution is liability sensitive, more of its
liabilities will reprice in a given time frame than assets. This is a favorable
position in a falling rate environment. Financial institutions allocate
significant time and resources to managing interest rate risk because of the
impact that changes in interest rates can have to earnings.
The initial step in the process of maintaining a corporation's interest rate
sensitivity involves the preparation of a basic "gap" analysis of earning assets
and interest bearing liabilities as reflected in the following table. The
analysis measures the difference or the "gap" between the amount of assets and
liabilities repricing within a given time period. This information is used to
manage a corporation's asset and liability positions. Management uses this
information as a factor in decisions made about maturities of investment of cash
flows, classification of investment securities purchases as available-for-sale
or held-to-maturity, emphasis of variable rate or fixed rate loans and short or
longer term deposit products in marketing campaigns, and deposit account pricing
to alter asset and liability repricing characteristics. The overall objective
is to minimize the impact to the margin of any significant change in interest
rates.
The information presented in the following Interest Rate Risk table contains
assumptions and estimates used by management in determining repricing
characteristics and maturity distributions. As noted in the following table,
the cumulative gap at one year is approximately $(6,130,000), which indicates
the corporation's interest bearing liabilities are more than earning assets at
September 30, 1996. As the table presented is as of a point in time and
conditions change on a daily basis, any conclusions made may not be indicative
of future results.
26
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Interest Rate Risk - continued
- ------------------------------
Interest Rate Risk Table - September 30, 1996
(less (greater Non-
than) 3 3 - 12 1 - 3 than) 3 Interest
Months Months Years Years Bearing Total
------- ------- ------ ------- ------- -------
ASSETS:
Fed Funds Sold $ 1,636 $ $ $ $ $ 1,636
Investments 9,941 6,763 15,902 19,252 51,858
Loans 14,793 15,965 18,699 26,968 394 76,819
Other Assets 1,058 10,362 11,420
Allowance for Loan
and Lease Losses (1,182) (1,182)
-------- -------- ------- ------- ------- --------
TOTAL ASSETS: $ 27,428 $ 22,728 $34,601 $46,220 $ 9,574 $140,551
======== ======== ======= ======= ======= ========
NOW $ 1,254 $ 3,762 $ 3,962 $15,777 $ $24,755
MMDA 4,727 4,727
SAVINGS 2,368 7,076 6,435 17,830 33,709
CD's (less than) 100,000 6,977 17,560 6,579 6,323 37,439
CD's (greater than) 100,000 4,966 3,144 1,575 851 10,536
Demand Deposits 12,001 12,001
Other Liabilities 642 642
Repurchase Agreements 4,452 4,452
Stockholders' Equity 12,290 12,290
-------- -------- ------- ------- ------- --------
TOTAL LIABILITIES
AND CAPITAL: $24,744 $31,542 $18,551 $40,781 $24,933 $140,551
======= ======= ======= ======== ======= ========
GAP 2,684 (8,814) 16,050 5,439 (15,359)
GAP/ Total Assets 1.91% (6.27%) 11.42% 3.87% (10.93%)
Cumulative GAP 2,684 (6,130) 9,920 15,359 0
Cum. GAP/Total Assets 1.91% (4.36%) 7.06% 10.93% 0.00%
The above analysis contains repricing and maturity assumptions and estimates
used by management.
27
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 corporation
had investment securities with an estimated market value of $46,281,258
classified as available for sale at September 30, 1996. 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. At September 30, 1996,
Progressive Bank, N.A. and Progressive Bank, N.A.- Buckhannon, had a maximum
borrowing capacity (MBC) amounting to approximately $18,780,000 and $5,570,000,
respectively, from the FHLB at prevailing interest rates, subject to satisfying
the additional capital stock provisions, as defined, in their respective
agreements with the FHLB. As of September 30, 1996, Progressive Bank, N.A. and
Progressive Bank, N.A. - Buckhannon had an available line of approximately
$1,870,000 and $560,000, respectively, without purchasing any additional capital
stock from the FHLB. As of September 30, 1996, there were no borrowings
outstanding pursuant to these agreements.
At September 30, 1996 and September 30, 1995, the Holding Company had out-
standing loan commitments and unused lines of credit totaling $8,306,000 and
$7,968,000, respectively. As of September 30, 1996, management placed a high
probability for required funding within one year of approximately $6,507,000.
Approximately $1,599,000 is principally unused home equity and credit card lines
on which management places a low probability for required funding.
28
FIRST WEST VIRGINIA BANCORP, INC.
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. However, there are no proceedings now pending or threatened before
any court or administrative agency to which the Holding Company or its
subsidiaries are a party or to which 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
- -------------------------------------------------------------------
a. Inapplicable
b. Inapplicable
c. Inapplicable
d. Inapplicable
Item 5 Other Information
- -----------------------------------
Inapplicable
29
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 month period ended September 30, 1996, 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,
1996.
(c) Exhibits
--------
The exhibits listed in the Exhibit Index on page 32 of this FORM 10-Q are
incorporated by reference and/or filed herewith.
30
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/ Ronald L. Solomon
---------------------------------------------------------------
Ronald L. Solomon
President and Chief Executive Officer/Director
By: /s/ Francie P. Reppy
---------------------------------------------------------------
Francie P. Reppy
Controller
Dated: November 5, 1996
31
EXHIBIT INDEX
The following exhibits are filed herewith and/or are incorporated herein by
reference.
Exhibit
Number Description
- ------- -----------
10.1 Employment Contract dated January 2, 1996 between
First West Virginia Bancorp, Inc. and Ronald L. Solomon.
Incorporated herein by reference.
10.2 Employment Contract dated January 2, 1996 between
First West Virginia Bancorp, Inc. and Charles K. Graham.
Incorporated herein by reference.
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.
Incorporated herein by reference.
10.4 Lease dated March 26, 1992 between First West Virginia Bancorp, Inc.
and the estate of Thomas L. Stockert, Jr., and the Tom Stockert
Corporation. Incorporated herein by reference.
10.5 Lease dated February 1, 1989 between First West Virginia Bancorp,
Inc. and Progressive Bank, N.A. -Bellaire, formerly known as "Farmers
and Merchants National Bank in Bellaire." Incorporated herein by
reference.
10.6 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.
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
19 Report furnished to security holders Filed herewith and incorporated
herein by reference.
22 Proxy statement for the Annual Shareholders meeting held April 9, 1996
Incorporated herein by reference.
32