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
EXCHANGE ACT of 1934
For the Quarterly Period Ended March 31, 1997
[ ] 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
----------------
N/A
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months ( or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
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 practicable date.
The number of shares outstanding of the issuer's common stock as of May 5,
1997:
Common Stock, $5.00 Par Value, shares outstanding 806,107 shares
- ---------------------------------------------------------------------
1
FIRST WEST VIRGINIA BANCORP, INC.
PART I
FINANCIAL INFORMATION
2
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31, December 31, March 31,
1997 1996 1996
-------------- -------------- --------------
ASSETS
Cash and Due From Banks $ 4,820,609 $ 4,589,502 $ 4,196,356
Due From Banks - interest bearing 1,552,903 81,558 3,046,932
-------------- -------------- --------------
Total cash and cash equivalents 6,373,512 4,671,060 7,243,288
Federal Funds Sold 6,405,000 5,461,000 5,032,000
Investment Securities
Available for Sale (at market value) 45,807,114 44,875,887 41,874,527
Held to Maturity - Market value of
$6,390,130 at March 31, 1997;
$5,587,466 at December 31, 1996;
and $ 4,966,206 at March 31, 1996 6,399,647 5,564,302 4,949,270
Loans, net of unearned income 81,032,143 80,416,680 71,273,418
Less allowance for possible loan losses (1,169,918) (1,160,302) (1,170,199)
-------------- -------------- --------------
Net loans 79,862,225 79,256,378 70,103,219
Premises and equipment, net 3,213,726 3,249,425 3,242,761
Accrued income receivable 1,215,820 948,026 1,078,236
Other assets 829,749 511,536 639,259
Intangible assets 7,084 8,096 30,487
-------------- -------------- --------------
Total assets $ 150,113,877 $ 144,545,710 $ 134,193,047
============== ============== ==============
LIABILITIES
Noninterest bearing deposits:
Demand $ 13,102,522 $ 12,359,041 $ 11,121,891
Interest bearing deposits:
Demand 25,758,795 23,560,313 24,429,075
Savings 38,631,124 38,219,101 40,816,061
Time 53,255,460 51,132,614 43,912,321
-------------- -------------- --------------
Total deposits 130,747,901 125,271,069 120,279,348
-------------- -------------- --------------
Repurchase agreements 5,756,675 5,930,691 1,503,137
Accrued interest on deposits 364,933 385,289 294,227
Other liabilities 552,257 309,383 362,412
-------------- -------------- --------------
Total liabilities 137,421,766 131,896,432 122,439,124
-------------- -------------- --------------
STOCKHOLDERS' EQUITY
Common Stock - 2,000,000 shares authorized at
$5 par value 806,107 shares issued at
March 31, 1997 and December 31, 1996 and
775,268 shares issued at March 31, 1996 4,030,535 4,030,535 3,876,340
Surplus 3,764,000 3,764,000 3,166,340
Retained Earnings 5,250,689 4,935,303 4,863,614
Net Unrealized Loss on securities available for sale (353,113) (80,560) (152,371)
-------------- -------------- --------------
Total stockholders' equity 12,692,111 12,649,278 11,753,923
-------------- -------------- --------------
Total liabilities and stockholders' equity $ 150,113,877 $ 144,545,710 $ 134,193,047
============== ============== ==============
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
March 31,
1997 1996
---------- ----------
(Unaudited)
INTEREST INCOME
Interest and fees on loans and lease financing:
Taxable $1,771,968 $1,614,850
Tax-exempt 24,319 26,001
Investment Securities:
Taxable 701,399 593,826
Tax-exempt 70,715 59,343
Dividends 5,174 5,186
Other interest income 18,215 10,109
Interest on Federal Funds Sold 106,549 63,062
---------- ----------
Total interest income 2,698,339 2,372,377
INTEREST EXPENSE
Deposits 1,035,731 910,087
Other borrowings 52,238 5,925
---------- ----------
Total interest expense 1,087,969 916,012
---------- ----------
Net interest income 1,610,370 1,456,365
PROVISION FOR POSSIBLE LOAN LOSSES 25,500 14,400
---------- ----------
Net interest income after provision
for possible loan losses 1,584,870 1,441,965
NONINTEREST INCOME
Service charges and other fees 91,324 81,306
Securities gains (losses) -- (1,050)
Other operating income 76,710 51,315
---------- ----------
Total noninterest income 168,034 131,571
NONINTEREST EXPENSE
Salary and employee benefits 578,056 523,381
Net occupancy expense of premises 82,893 82,551
Other operating expenses 377,866 406,965
---------- ----------
Total noninterest expense 1,038,815 1,012,897
---------- ----------
Income before income taxes 714,089 560,639
---------- ----------
INCOME TAXES 237,482 186,278
---------- ----------
Net income $ 476,607 $ 374,361
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 806,107 806,107
========== ==========
NET INCOME PER COMMON SHARE $ 0.59 $ 0.47
========== ==========
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, 1996 $ 4,030,535 $ 3,764,000 $ 4,935,303 $ (80,560) $ 12,649,278
Net income for the three months
ended March 31, 1997 -- -- 476,607 -- 476,607
Cash dividend
($ .20 per share) -- -- (161,221) -- (161,221)
Change in fair value of securities
available for sale,
net of deferred tax -- -- -- (272,553) (272,553)
----------- ----------- ----------- ---------- ------------
Balance, March 31, 1997 (Unaudited) $ 4,030,535 $ 3,764,000 $ 5,250,689 $ (353,113) $ 12,692,111
=========== =========== =========== ========== ============
Balance, December 31, 1995 $ 3,876,340 $ 3,166,340 $ 4,621,049 $ 45,478 $ 11,709,207
Net income for the three months
ended March 31, 1996 -- -- 374,361 -- 374,361
Cash dividend
($ .16 per share) -- -- (131,796) -- (131,796)
Change in fair value of securities
available for sale,
net of deferred tax -- -- -- (197,849) (197,849)
----------- ----------- ----------- ---------- ------------
Balance, March 31, 1996 (Unaudited) $ 3,876,340 $ 3,166,340 $ 4,863,614 $ (152,371) $ 11,753,923
=========== =========== =========== =========== ============
The accompanying notes are an integral part of the financial statements
5
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
1997 1996
----------------- ---------------
(Unaudited)
OPERATING ACTIVITIES
Net Income $ 476,607 $ 374,361
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 25,500 14,400
Depreciation and amortization 91,668 96,648
Amortization of investment securities, net (13,793) 4,134
Investment security losses (gains) 1,050
Decrease (increase) in interest receivable (267,794) (154,113)
Increase (decrease) in interest payable (20,356) (20,380)
Other, net 80,823 41,878
----------------- ---------------
Net cash provided by operating activities 372,655 357,978
----------------- ---------------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold (944,000) (2,754,000)
Net (increase) decrease in loans, net of charge offs (636,251) 726,591
Proceeds from sales of securities available for sale 499,800
Proceeds from maturities of securities available for sale 3,500,000 4,100,000
Proceeds from maturities of securities held to maturity 100,000 50,000
Principal collected on mortgage-backed securities 146,028 94,721
Purchases of securities available for sale (4,990,119) (5,887,528)
Purchases of securities held to maturity (937,404)
Recoveries on loans previously charged-off 4,904 13,374
Purchases of premises and equipment (54,957) (225,823)
----------------- ---------------
Net cash used by investing activities (3,811,799) (3,382,865)
----------------- ---------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 5,476,833 5,384,194
Dividends paid (161,221) (131,796)
Increase (decrease) in short term borrowings (174,016) 753,913
----------------- ---------------
Net cash provided by financing activities $ 5,141,596 $ 6,006,311
----------------- ---------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,702,452 2,981,424
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,671,060 4,261,864
----------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 6,373,512 $ 7,243,288
================= ===============
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
March 31, 1997 AND 1996
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, 1996, 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 March 31, 1997, the corporation did not have any
impaired loans which met the criteria of Statement No. 114.
4. Certain prior year amounts have been reclassified to conform to the 1997
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 March 31, 1997 and
1996. 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 1996 financial statements, the notes
thereto and the related Management's Discussion and Analysis.
OVERVIEW
The Holding Company reported net income of $476,607 for the three
months ended March 31, 1997 as compared to $374,361 for the same period
during 1996. The increase in earnings during 1997 over 1996 can be primarily
attributed 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 $.59 in 1997, a increase of 25.5% over the $.47
earned in 1996.
Return on average assets (ROA) measures the effectiveness of asset
utilization to produce net income. For the three month period ended March 31,
1997, the ROA was 1.31%, up from 1.16% during the same period in 1996. Return
on average equity (ROE) measures the return on the stockholders' investment.
The ROE was 14.99% for the three months ended March 31, 1997 and 12.69% at
March 31, 1996.
Net interest income increased $154,005 during the first quarter of
1997. Increases in the average volume of loans and the average rates earned
on investments, offset by an increase in the average volume of time deposits
primarily contributed to the increased net interest income. The fully taxable
equivalent net interest margin decreased to 4.83% during the first quarter of
1997 as compared to 4.96% for the same period in the prior year.
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 Years ended
March 31, December 31,
---------------------- ----------------------------------------------
1997 1996 1996 1995 1994 1993
--------- -------- -------- --------- --------- --------
SUMMARY OF OPERATIONS
Total interest income $ 2,698 $ 2,372 $ 10,067 $ 8,937 $ 7,783 $ 8,054
Total interest expense 1,088 916 3,925 3,421 2,868 3,319
Net interest income 1,610 1,456 6,142 5,516 4,915 4,735
Provision for loan losses 25 14 71 50 77 116
Total other income 168 132 550 720 725 666
Total other expenses 1,039 1,013 4,164 3,988 3,641 3,528
Income before income taxes 714 561 2,457 2,198 1,922 1,757
Net income 477 374 1,644 1,470 1,288 1,193
PER SHARE DATA (1)
Net income $ .59 $ .47 $ 2.04 $ 1.82 $ 1.60 1.48
Cash dividends declared (2) .20 .16 .71 .51 .56 .51
Book value per share 15.74 14.58 15.69 14.53 12.86 12.10
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 79,828 $ 71,565 $ 74,469 $ 66,058 $ 56,991 $ 56,264
Investment securities 51,073 45,701 48,557 46,020 50,282 47,755
Deposits - Interest Bearing 115,606 105,184 112,768 100,488 95,980 94,852
Long-term debt -- -- -- -- 44 754
Stockholders' equity 12,902 11,855 12,186 11,170 10,253 9,252
Total Assets 148,235 130,070 137,810 124,145 117,996 115,765
BALANCE SHEET
Investments $ 52,207 $ 46,824 $ 50,440 $ 45,996 $ 45,551 $ 50,099
Loans 81,032 71,273 80,417 72,006 61,667 55,838
Other Assets 16,875 16,096 13,689 9,953 9,445 10,303
--------- ------- ------- --------- --------- -------
Total Assets $ 150,114 $134,193 $144,546 $ 127,955 $ 116,663 $ 116,240
========= ======= ======= ========= ======== =======
Deposits $ 130,748 $120,279 $125,271 $ 114,895 $ 105,730 $ 105,791
Repurchase Agreements 5,757 1,503 5,931 749 105 --
Other Liabilities 917 657 695 602 460 694
Shareholders' Equity 12,692 11,754 12,649 11,709 10,368 9,755
-------- ------- ------- --------- -------- -------
Total Liabilities and
Shareholders' Equity $ 150,114 $134,193 $144,546 $ 127,955 $ 116,663 $ 116,240
======== ======= ======= ========= ======== ========
SELECTED RATIOS
Return on average assets 1.31% 1.16% 1.19% 1.18% 1.09% 1.03%
Return on average equity 14.99% 12.69% 13.49% 13.16% 12.56% 12.89%
Average equity to average assets 8.70% 9.11% 8.84% 9.00% 8.69% 7.99%
Dividend payout ratio (1) (2) 33.90% 34.04% 34.80% 28.02% 35.00% 34.46%
Loan to Deposit ratio 61.98% 59.26% 64.19% 62.67% 58.32% 52.78%
(1) Adjusted for a 4% percent common stock dividend to stockholders of record
as of December 2, 1996, a 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.
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 month periods ended March 31, 1997 and 1996.
The net interest margin for the first quarter of 1997 was 4.83%, a
decrease over the 4.90% earned at December 31, 1996 and the 4.96% earned at
March 31, 1996. Net interest income increased $154,005 or 10.6%, during the
3 month period ended March 31, 1997 as compared to 1996. The increase in net
interest income resulted primarily from the increased average loan volume and
the average rates earned on investments, offset by an increase in the average
volume of time deposits. Interest and fees on loans increased $155,436 or
9.5% during the three month period ended March 31, 1997 as compared to the
same period in 1996 due to the increased loan growth. Average rates paid on
interest bearing liabilities increased from 3.5% in 1996 to 3.6% in 1997.
Interest expense increased $171,957 or 18.8% as compared to the same period
in 1996 primarily due to the increase in the average volume of time deposits.
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 March 31, 1997, the provision for possible loan
losses was $25,500 compared to $14,400 at March 31, 1996. Net charge offs
were approximately $15,000 and $(7,000) for the three month periods ended
March 31, 1997 and 1996, respectively. Total non-performing loans, comprised
of past due 90 days or more, renegotiated loans, non-accrual loans, and other
real estate owned were $582,000 at March 31, 1997 and $503,000 at March 31,
1996. The increased loan growth combined with the increase in non-performing
assets has prompted the increase in the provision for loan losses during this
period.
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 increased $10,018 or 12.3%, during the
three months ended March 31, 1997 as compared to the same period of the prior
year.
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
March 31, 1997 and March 31, 1996 and the year ended December 31, 1996.
Average balance sheet information as of March 31, 1997 and March 31, 1996 and
the year ended December 31, 1996 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 March 31, 1997 and 1996.
For the Three For the Three
Months ended Months ended
March 31, 1997 December 31, 1996 March 31, 1996
--------------------------- --------------------------- ----------------------------
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 $ 44,245 $ 689 6.32% $ 42,203 $ 2,501 5.93% $ 39,268 $ 568 5.82%
Obligations of states and
political subdivisions 5,664 71 5.08% 4,869 247 5.07% 4,657 59 5.10%
Other securities 1,164 18 6.27% 1,485 101 6.80% 1,776 31 7.02%
Interest bearing deposits 1,414 18 5.16% 1,556 81 5.21% 629 10 6.39%
Federal funds sold 8,224 106 5.23% 5,590 295 5.28% 4,813 63 5.26%
Loans, net of unearned income 79,828 1,796 9.12% 74,469 6,842 9.19% 71,565 1,641 9.22%
-------- -------- ------- -------- -------- ------- ------- ------- -------
Total interest earning assets 140,539 2,698 7.79% 130,172 10,067 7.73% 122,708 2,372 7.77%
Cash and due from banks 4,031 4,000 3,806
Bank premises and equipment 3,241 3,313 3,188
Other assets 1,592 1,496 1,531
Allowance for possible loan losses (1,168) (1,171) (1,163)
-------- -------- --------
Total Assets $148,235 $137,810 $130,070
======== ======== ========
LIABILITIES
Certificates of deposit $ 52,448 $ 672 5.20% $ 45,579 $ 2,286 5.02% $ 40,834 $ 516 5.08%
Savings deposits 38,035 233 2.48% 39,594 997 2.52% 41,232 266 2.59%
Interest bearing demand deposits 25,123 131 2.11% 23,880 515 2.16% 23,118 128 2.23%
Federal funds purchased and
Repurchase agreements 6,159 52 3.42% 3,715 127 3.42% 765 6 3.15%
Long-term debt -- -- -- -- -- -- -- -- --
-------- -------- ------- -------- -------- ------- -------- -------- -------
Total interest bearing liabilities 121,765 1,088 3.62% 112,768 3,925 3.48% 105,949 916 3.48%
Demand deposits 12,709 12,128 11,604
Other liabilities 859 728 662
-------- -------- --------
Total Liabilities 135,333 125,624 118,215
SHAREHOLDERS' EQUITY 12,902 12,186 11,855
-------- -------- --------
Total Liabilities
and Shareholders' Equity $148,235 $137,810 $130,070
======== ======== ========
Net interest revenue as a percentage of
average earning assets $ 1,610 4.65% $ 6,142 4.72% $ 1,456 4.77%
======== ======= ======== ======= ======== =======
The fully taxable equivalent basis of interest income from obligations of
states and political subdivisions has been determined using a combined Federal
and State corporate income tax rate of 40% for the three months ended March
31, 1997 and 1996 and the year ended December 31, 1996. respectively. The
effect of this adjustment is presented below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 5,664 $ 118 8.47% $ 4,869 $ 412 8.46% $ 4,657 $ 98 8.49%
Loans 79,828 1,812 9.21% 74,469 6,912 9.28% 71,565 1,658 9.32%
========= ======= ====== ========= ======== ====== ========== ======= ======
Total interest earning assets $ 140,539 $ 2,761 7.97% $ 130,172 $ 10,302 7.91% $ 122,708 $ 2,428 7.96%
========= ======= ====== ========= ======== ====== ========== ======= ======
Net interest revenue as a percentage
of average earning assets $ 1,673 4.83% $ 6,377 4.90% $ 1,512 4.96%
======= ====== ======== ====== ======= ======
11
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Table Three
Rate Volume Analysis of Changes in Interest Income and Expense
(in thousands)
The effect on interest income and interest expense for the three months ended
March 31, 1997 and March 31, 1996 due to changes in average volume and rate
from the prior year, is presented below. The effect of a change in average
volume has been determined by applying the average rate to the change in
volume. The change in rate has been determined by applying the average
volume in the earlier year by the change in rate. The change in interest due
to both rate and volume has been allocated to volume and rate changes in
proportion to the relationship of the absolute dollar amounts of change in
each.
For the Three Months period For the Three Months period
ended March 31, 1997 ended March 31, 1996
Increase (Decrease) Increase (Decrease)
Due to Change in: Due to Change in:
----------------------------- ------------------------------
Net Net
Average Increase Average increase
Volume Rate (decrease) Volume Rate (decrease)
-------- -------- -------- -------- -------- --------
(Expressed in thousands)
INTEREST INCOME FROM:
- ---------------------
U.S. Treasury and other U. S.
Government agencies $ 121 $ 172 $ 293 $ (8) $ 86 $ 78
Obligations of states and
political subdivisions 40 1 41 -- (10) (10)
Other securities (22) (6) (28) (10) 13 3
Interest bearing deposits (7) (1) (8) 31 4 35
Federal funds sold 139 (4) 135 (1) (33) (34)
Loans, net of unearned income 492 (50) 442 506 25 531
-------- -------- -------- -------- -------- --------
Total interest earned 763 112 875 518 85 603
INTEREST EXPENSE ON:
- -----------------------
Time deposits 345 94 439 228 113 341
Savings deposits (39) (13) (52) (30) (52) (82)
Interest bearing demand deposits 27 (11) 16 24 (27) (3)
Federal funds purchased and
Repurchase agreements 84 -- 84 11 (4) 7
-------- -------- -------- -------- -------- --------
Total interest paid 417 70 487 233 30 263
-------- -------- -------- -------- -------- --------
Net interest differential $ 346 $ 42 $ 388 $ 285 $ 55 $ 340
======== ======== ======== ======== ======== ========
Presented below is the effect on volume and rate variances of the adjustment
of interest income on obligations of states and political subdivisions to the
fully taxable equivalent basis using a combined Federal and State corporate
income tax rate of 40% for the three months ended March 31, 1997 and 1996,
and for the years ended 1996, and 1995, respectively.
Obligations of states and
political subdivisions:
Investment securities $ 67 $ (1) $ 66 $ (1) $ (17) $ (18)
Loans 497 (60) 437 510 34 544
======== ======== ======== ======== ======== ========
Total interest earned $ 795 $ 100 $ 895 $ 521 $ 87 $ 608
======== ======== ======== ======== ======== ========
Net interest differential $ 378 $ 30 $ 408 $ 288 $ 57 $ 345
======== ======== ======== ======== ======== ========
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
- -------------------------------
Sales of securities by the subsidiary banks are generally limited to
the needs established under the liquidity policies. There were no investment
securities gains or losses during the first quarter of 1997. Securities
losses were $1,050 during the three months ended March 31, 1996. During
1996, the subsidiary banks accounted for the $1,050 loss on sale of
securities.
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 March 31, 1997 other operating income was $76,710, an increase of
$25,395 over the same period in 1996. The increase was primarily
attributable to a membership insurance rebate from an insurance carrier and
increased fees which were received during the first quarter of 1997.
Non-Interest Expense
- --------------------
Salary and employee benefits is the largest component of non-
interest expense. During the quarter ended March 31, 1997, salary and
employee benefits increased $54,675 or 10.4%. The increase for 1997 was
primarily attributable to the hiring of additional personnel for a subsidiary
branch office which opened in April, 1996 and normal annual merit adjustments
in salaries.
The major components of other operating expenses include: equipment
expense, other taxes, stationery and supplies, directors fees, service
expense, and postage and transportation expense. Other operating expenses
decreased $29,099, or 7.1%, for the three month period ended March 31, 1997
as compared to the same period in the prior year.
Income Taxes
- ------------
Income tax expense for the three month period ended March 31,
1997 was $237,482, an increase of $51,204 over the same period in 1996. The
increase was primarily due to the increase in pre-taxable income of $153,450.
For federal income tax purposes, tax-exempt income is based on
qualified state, county, and municipal bonds and loans. Tax-exempt income was
$95,034 and $85,344 for the three month period ended March 31, 1997 and 1996.
Federal income tax rates were consistent at 34% for the quarter
ended March 31, 1997 and 1996. West Virginia corporate net income tax rates
also were consistent at 9.0% for the three months periods ended 1997 and 1996.
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
- -----------
In total, investment securities increased by $5,382,964 or 11.5%
from $46,823,797 at March 31, 1996, to $52,206,761 at March 31, 1997. The
increase in investment securities was attributed primarily to the increased
deposit growth from March 31, 1996 to March 31, 1997.
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 88.3% of total securities at March
31, 1997, as compared to 91.1% at March 31, 1996. The corporation does not
have any issues in the investment portfolio which exceed 10% of stockholders'
equity as of March 31, 1997. 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.
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 March
31, 1997 and March 31, 1996.
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 March 31, 1997 and 1996 and at
December 31, 1996 are as follows (in thousands) (Unaudited):
March 31, December 31, March 31,
1997 1996 1996
----------- ----------- ------------
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 800 $ 800 $ 800
Obligations of states
and political subdivisions 5,600 4,764 4,149
----------- ----------- ------------
Total held to maturity $ 6,400 $ 5,564 $ 4,949
----------- ----------- ------------
Securities available for sale :
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 40,441 $ 39,495 $ 37,651
Obligations of states
and political subdivisions 505 507 505
Corporate debt securities 508 614 1,285
Mortgage-backed securities 3,743 3,741 1,927
Equity Securities 610 519 507
----------- ----------- ------------
Total available for sale 45,807 44,876 41,875
----------- ----------- ------------
Total $ 52,207 $ 50,440 $ 46,824
=========== =========== ============
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 March 31, 1997 and December 31, 1996 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.
March 31, 1997 December 31, 1996
--------------------------------------------- ----------------------------------------
Securities Securities Securities Securities
Held to Maturity Available for Sale Held to Maturity Available for Sale
-------------------- -------------------- -------------------- --------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------ -------- ------ -------- ------ -------- ------
U.S. Treasury and other U.S.
Government Agencies
Within One Year $ -- -- % $ 4,790 6.09 % $ -- -- % $ 6,714 5.74 %
After One But
Within Five Years 800 5.02 32,205 6.33 800 5.02 29,280 6.27
After Five But
Within Ten Years -- -- 3,446 6.93 -- -- 3,501 6.83
After Ten Years -- -- -- -- -- -- -- --
-------- ------ -------- ------ -------- ------ -------- ------
800 5.02 40,441 6.35 800 5.02 39,495 6.23
States & Political Subdivisions
Within One Year 300 7.06 -- -- 200 7.57 -- --
After One But
Within Five Years 3,285 7.33 -- -- 2,723 7.53 -- --
After Five But
Within Ten Years 1,852 7.80 505 7.61 1,678 7.89 507 7.58
After Ten Years 163 7.72 -- -- 163 7.72 -- --
-------- ------ -------- ------ -------- ------ -------- ------
5,600 7.48 505 7.61 4,764 7.66 507 7.58
Corporate Debt Securities
Within One Year -- -- 302 8.01 -- -- 404 7.60
After One But
Within Five Years -- -- 206 7.91 -- -- 210 7.78
-------- ------ -------- ------ -------- ------ -------- ------
-- -- 508 7.97 -- -- 614 7.66
Mortgage-Backed Securities -- -- 3,743 7.02 -- -- 3,741 6.95
Equity Securities -- -- 610 5.26 -- -- 519 6.15
-------- ------ -------- ------ -------- ------ -------- ------
Total $ 6,400 7.17 % $ 45,807 6.42 % $ 5,564 7.28 % $ 44,876 6.32 %
======== ====== ======== ====== ======== ====== ======== ======
16
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Investments - continued
- -----------------------
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 March 31, 1997 and March
31, 1996, the corporation had approximately 88% and 89% of the investment
portfolio classified as available for sale, while 12% and 11% were classified
as held to maturity, respectively.
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. The corporation has reduced the carrying value of
securities available for sale by $554,685 at March 31, 1997 and by $238,815 at
March 31, 1996. The market value of securities classified as held to maturity
was below book value by $9,517 at March 31, 1997 and above book value by
$16,936 at March 31, 1996.
Loans
- -----
Loans increased as of March 31, 1997 as compared to March 31, 1996
as loans outstanding increased $9,758,725 or 13.7%, to $81,032,143. The loan
growth can be attributed primarily to increases in commercial loans,
installment loans and residential real estate loans which increased
approximately $5,046,000, $3,478,000, and $1,713,000, 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 March 31, 1997 was 62.0% which was
higher than the 59.3% reported at March 31, 1996. 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-eight percent (38%) of the loan portfolio.
Installment loans comprise twenty-two percent (22%) 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 March 31,
1996 to March 31, 1997 were a 1% increase in commercial loans, a 2% increase
in installment loans, and a 3% decrease in real estate residential 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.
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) :
March 31, December 31,
------------------------- ----------
1997 1996 1996
Real Estate - Residential
Real estate-construction $ 592 $ 430 $ 418
Real estate-farmland 11 14 12
Real estate-residential 29,667 28,113 28,920
---------- ---------- ----------
$ 30,270 $ 28,557 $ 29,350
---------- ---------- ----------
Commercial
Real estate-secured by
nonfarm, nonresidential $ 21,054 $ 17,970 $ 21,145
Commercial & industrial 10,030 8,068 10,338
---------- ---------- ----------
$ 31,084 $ 26,038 $ 31,483
---------- ---------- ----------
Installment
Installment and other
loans to individuals $ 17,739 $ 14,261 $ 17,379
---------- ---------- ----------
Others
Nonrated industrial
development obligations $ 1,435 $ 1,612 $ 1,593
Direct Financing Leases 225 517 334
Other loans 369 336 368
---------- ---------- ----------
$ 2,029 $ 2,465 $ 2,295
---------- ---------- ----------
Total 81,122 71,321 80,507
Less unearned interest 90 79 90
---------- ---------- ----------
$ 81,032 $ 71,242 $ 80,417
========== ========== ==========
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 March 31, 1997
and December 31, 1996 (in thousands) (Unaudited):
March 31, 1997
------------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ------------
Commercial $ 807 $ 6,122 $ 3,101
Real Estate - construction 565 27 --
------------ ------------ ------------
Total $ 1,372 $ 6,149 $ 3,101
============ ============ ============
December 31, 1996
------------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ------------
Commercial $ 957 $ 5,444 $ 3,937
Real Estate - construction 312 28 78
------------ ------------ ------------
Total $ 1,269 $ 5,472 $ 4,015
============ ============ ============
The following table presents an analysis of fixed and variable rate loans as
of March 31, 1997 and December 31, 1996 along with the contractual maturities
of loans other than installment loans and residential mortgages (in thousands)
(Unaudited):
March 31, 1997
------------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ------------
Fixed Rates $ 711 $ 5,524 $ 1,290
Variable Rates 661 625 1,811
------------ ------------ ------------
Total $ 1,372 $ 6,149 $ 3,101
============ ============ ============
December 31, 1996
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ------------
Fixed Rates $ 509 $ 4,767 $ 1,498
Variable Rates 760 705 2,517
------------ ------------ ------------
Total $ 1,269 $ 5,472 $ 4,015
============ ============ ============
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):
March 31, December 31,
----------------------- ----------
1997 1996 1996
---------- ---------- ----------
Past Due 90 Days or More:
Real Estate - residential $ 123 $ 87 $ 250
Commercial 7 35 2
Installment 51 29 48
---------- ---------- ----------
$ 181 $ 151 $ 300
---------- ---------- ----------
Renegotiated:
Real Estate - residential $ -- $ -- $ --
Commercial -- -- --
Installment -- -- --
---------- ---------- ----------
$ -- $ -- $ --
---------- ---------- ----------
Non-accrual:
Real Estate - residential $ 24 $ 59 $ 26
Commercial 292 195 299
Installment 36 34 28
---------- ---------- ----------
$ 352 $ 288 $ 353
---------- ---------- ----------
Other Real Estate $ 49 $ 64 $ 49
---------- ---------- ----------
Total non-performing assets $ 582 $ 503 $ 702
========== ========== ==========
Total non-performing assets
to total loans and
other real estate 0.72% 0.71% 0.87%
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 $7,800 and
$6,000 for the periods ended March 31, 1997 and 1996, respectively.
As of March 31, 1997, 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
- -----------------
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 15.7% to $582,000 at March 31,
1997 as compared to $503,000 at March 31, 1996. Loans classified as non-
accrual increased $64,000 to $352,000 or .4% of total loans as of March 31,
1997, as compared to $288,000 or .4% of total loans at March 31, 1996. There
were no loans classified as renegotiated as of March 31, 1997 and 1996,
respectively. The loans past due 90 days or more increased $30,000 to
$181,000 at March 31, 1997 as compared to $151,000 at March 31, 1996.
Management continues to monitor the non-performing assets to ensure against
deterioration in collateral values.
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. The provision for loan losses increased
to $25,500 during the three months ended March 31, 1997, from $14,400 during
the same period of the prior year. The allowance for possible loan losses
represented 1.4% and 1.6% of loans outstanding as of March 31, 1997 and March
31, 1996, respectively. Net loan charge-offs were $15,000 an $(7,000) during
the first quarter of 1997 and 1996. The net charge-offs during the three
month period ended March 31, 1997 and 1996 were primarily consumer loans.
The ratio of loan losses to average outstanding loans at March 31, 1997 was
.02% compared to (.01)% for March 31, 1996. The ratio of non-accrual loans
plus loans delinquent more than 90 days to total loans was .7% and .6% at
March 31, 1997 and March 31, 1996, respectively. Net loan charge-offs were
1.3% and (.6)% of the allowance for loan losses as of March 31, 1997 and
March 31, 1996, 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.
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
------------------------------------
March 31, December 31,
----------------------- ----------
1997 1996 1996
---------- ---------- ----------
Balance at Beginning of period
Allowance for Possible
Loan Losses $ 1,160 $ 1,149 $ 1,149
Loans Charged Off:
Real Estate - residential -- -- 35
Commercial -- -- --
Installment 20 6 49
---------- ---------- ----------
20 6 84
Recoveries:
Real Estate - residential -- -- --
Commercial 3 1 1
Installment 2 12 24
---------- ---------- ----------
5 13 25
Net Charge-offs 15 (7) 59
Additions Charged to Operations 25 14 70
---------- ---------- ----------
Balance at end of period: $ 1,170 $ 1,170 $ 1,160
========== ========== ==========
Average Loans Outstanding $ 79,828 $ 71,565 $ 74,469
========== ========== ==========
Ratio of net charge-offs
to Average loans
outstanding for the period .02% -.01% .08%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.44% 1.64% 1.44%
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, 1996 , and the
three month period ended March 31, 1997 ( 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.
March 31, December 31,
---------------- --------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
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 $ 192 37.3% $ 192 36.5% $ 215 39.9% $ 216 43.1% $ 216 43.1% $ 190 38.3%
Commercial 622 38.3 619 39.1 618 36.5 420 34.7 382 35.9 353 38.8
Installment 305 21.9 298 21.6 265 20.0 260 19.3 248 17.6 157 18.9
Others 20 2.5 20 2.8 20 3.6 20 2.9 20 3.4 20 4.0
Unallocated 31 -- 31 -- 31 -- 31 -- 30 -- 30 --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total $ 1,170 100.0% $ 1,160 100.0% $ 1,149 100.0% $ 947 100.0% $ 896 100.0% $ 750 100.0%
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
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)
Three Months Ended March 31, 1997
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 $ 4,849 $ 901 $ 2,083 $ 2,857 $ 10,690
Year Ended December 31, 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 $ 4,683 $ 1,237 $ 1,447 $ 3,108 $ 10,475
Table Twelve
Return on Equity and Assets
The following financial ratios are presented: (Unaudited)
Three months ended Year Ended
March 31, December 31,
----------------------- ----------
1997 1996 1996
---------- ---------- ----------
Return on Assets :
(Net income / Average Total Assets) 1.31% 1.16% 1.19%
Return on Equity :
(Net income /
Average Shareholders Equity) 14.99% 12.69% 13.49%
Dividend Payout Ratio :
(Dividend Declared Per Share /
Net Income Per Share) 33.90% 34.04% 34.80%
Equity to Asset Ratio :
(Average Equity / Average Total Assets) 8.70% 9.11% 8.84%
24
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 possible loan losses
at a level greater than actual charge-offs. Although non-performing loans
have declined during the past several years, the corporation continues to
reserve in the allowance for loan losses, provisions associated with these
loans. In determining the allocation of the allowance for possible loan
losses, charge-offs for 1997 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.
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 $130.7 million at March
31, 1997 as compared to $120.3 million at March 31, 1996, an increase of 8.7%.
Deposit growth increased primarily in time deposits. Time deposits grew by
$9.3 million or 21.3% at March 31, 1997 as compared to March 31, 1996. The
increase in time deposits was primarily the result of special promotions
offered by the subsidiary banks throughout 1996 and during the first quarter
of 1997. As reflected in Table 2, average rates paid on interest bearing
liabilities increased to 3.6% during the first quarter of 1997 as compared to
3.5% during the same period of the prior year.
The increase in time deposits resulted in a change in the deposit
mix during the first quarter of 1997 as compared to the same period of the
prior year. At March 31, 1997, 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. The
changes in the deposit mix from March 31, 1996 to March 31, 1997 were a 1%
increase in noninterest bearing demand deposits and a 1% decrease in interest
bearing deposits.
Repurchase Agreements
- ----------------------
Repurchase agreements represent short-term borrowings, usually
overnight to 30 days. Repurchase agreements were $5,756,675 at March 31,
1997, an increase of $4,253,538, as compared to March 31, 1996. The increase
in repurchase agreements was primarily due to the increase in the number of
commercial customers which used repurchase agreements as an alternative money
market instruments for cash management.
25
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 9.7% in 1997 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 8.5% of total assets as
of March 31, 1997, as compared to 8.8% at March 31, 1996.
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 Federal Reserve Board's minimum ratio of qualified total
capital to risk-weighted assets is 8 percent, of which 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 and deferred tax assets
disallowed. The remainder (Tier 2 Capital) may consist of certain other
prescribed instruments and a limited amount of loan loss reserves.
Additionally, 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 a 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 provided that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels.
The following chart shows the regulatory capital levels for the
company at March 31, 1997, March 31, 1996, and December 31, 1996:
March 31, Dec. 31
--------------- ------
Ratio Minimum 1997 1996 1996
- ----- ------- ------ ------ ------
Leverage Ratio 3% 8.59 8.96 8.63
Risk Based Capital
Tier 1 (core) 4% 14.70 15.34 14.74
Tier 2 (total) 8% 15.91 16.57 15.95
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.
The Corporation does not anticipate any material capital expenditures during
1997.
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.
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
- ------------------------------
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 $(8,826,000), which indicates
the corporation's interest bearing liabilities are more than earning assets at
March 31, 1997. 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.
Interest Rate Risk Table - March 31, 1997
Non-
<3 3 - 12 1 - 3 >3 Interest
Months Months Years Years Bearing Total
-------- -------- -------- -------- -------- --------
ASSETS:
Fed Funds Sold $ 6,405 $ -- $ -- $ -- $ -- $ 6,405
Investments 4,915 4,844 19,757 22,691 -- 52,207
Loans 14,099 16,299 18,664 31,600 370 81,032
Other Assets 1,552 -- -- -- 10,088 11,640
Allowance for Loan
and Lease Losses -- -- -- -- (1,170) (1,170)
-------- -------- -------- -------- -------- --------
TOTAL ASSETS: $ 26,971 $ 21,143 $ 38,421 $ 54,291 $ 9,288 $150,114
======== ======== ======== ======== ======== ========
NOW $ 1,298 $ 3,888 $ 4,091 $ 16,482 $ -- $ 25,759
MMDA 4,504 -- -- -- -- 4,504
SAVINGS 2,397 7,162 6,517 18,051 -- 34,127
CD's (less than) 100,000 7,644 16,457 9,416 9,048 -- 42,565
CD's (greater than) 100,000 4,849 2,984 2,081 776 -- 10,690
Demand Deposits -- -- -- -- 13,103 13,103
Other Liabilities -- -- -- -- 917 917
Repurchase Agreements 5,757 -- -- -- -- 5,757
Stockholders' Equity -- -- -- -- 12,692 12,692
-------- -------- -------- -------- -------- --------
TOTAL LIABILITIES
AND CAPITAL: $ 26,449 $ 30,491 $ 22,105 $ 44,357 $ 26,712 $150,114
======== ======== ======== ======== ======== ========
GAP 522 (9,348) 16,316 9,934 (17,424)
GAP/ Total Assets .35% (6.23%) 10.87% 6.62% (11.61%)
Cumulative GAP 522 (8,826) 7,490 17,424 0
Cumulative GAP/ Total Assets .35% (5.88%) 4.99% 11.61% 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
$45,807,114 classified as available for sale at March 31, 1997. 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
March 31, 1997, Progressive Bank, N.A. and Progressive Bank, N.A.- Buckhannon,
had a maximum borrowing capacity (MBC) amounting to approximately $18,355,000
and $5,510,000, 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. At March 31, 1997, 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 March 31, 1997, there were no
borrowings outstanding pursuant to these agreements.
At March 31, 1997 and March 31, 1996, the Holding Company had
outstanding loan commitments and unused lines of credit totaling $7,441,000
and $6,588,000, respectively. As of March 31, 1997, management placed a high
probability for required funding within one year of approximately $5,506,000.
Approximately $1,935,000 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. The matters discussed in 4c. were submitted to a vote of security
holders at the April 8, 1997, Annual Meeting of Shareholders.
b. Inapplicable
c. Election of Directors
SHARES VOTED
-----------------------------------------------
Against/ Abstentions
NAME For Withheld Broker Non-Votes
------------------------------------------------------------------------
Sylvan J. Dlesk 669,995 486
Benjamin R. Honecker 669,995 486
James C. Inman, Jr. 669,995 486
Thomas A. Noice 669,995 486
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 March 31, 1997, 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 March 31,
1997.
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: May 5, 1997
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, 1997 between
First West Virginia Bancorp, Inc. and Ronald L. Solomon.
Incorporated herein by reference.
10.2 Employment Contract dated January 2, 1997 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.
10.7 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.
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.
27 Financial Data Schedule. Filed herewith and incorporated herein by
reference.