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 June 30, 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
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(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 practible date.
The number of shares outstanding of the issuer's common stock as of July 29,
1997:
Common Stock, $5.00 Par Value, shares outstanding 806,107 shares
- ---------------------------------------------------------------------
FIRST WEST VIRGINIA BANCORP, INC.
PART I
FINANCIAL INFORMATION
2
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, December 31, June 30,
1997 1996 1996
-------------- -------------- --------------
ASSETS
Cash and Due From Banks $ 4,564,501 $ 4,589,502 $ 4,212,794
Due From Banks - interest bearing 80,999 81,558 3,078,987
-------------- -------------- --------------
Total cash and cash equivalents 4,645,500 4,671,060 7,291,781
Federal Funds Sold 1,986,000 5,461,000 3,643,000
Investment Securities
Available for Sale (at market value) 48,564,245 44,875,887 43,819,899
Held to Maturity - (market value of
$5,549,659 at June 30, 1997 ;
$5,587,466 at December 31, 1996;
and $ 5,103,719 at June 30, 1996) 5,522,065 5,564,302 5,117,027
Loans, net of unearned income 86,142,661 80,416,680 74,020,562
Less allowance for possible loan losses (1,189,645) (1,160,302) (1,182,088)
-------------- -------------- --------------
Net loans 84,953,016 79,256,378 72,838,474
Premises and equipment, net 3,153,863 3,249,425 3,390,800
Accrued income receivable 1,112,938 948,026 961,162
Other assets 677,335 511,536 614,747
Intangible assets 6,072 8,096 21,600
-------------- -------------- --------------
Total assets $ 150,621,034 $ 144,545,710 $ 137,698,490
============== ============== ==============
LIABILITIES
Noninterest bearing deposits:
Demand $ 12,588,960 $ 12,359,041 $ 12,661,814
Interest bearing deposits:
Demand 21,985,330 23,560,313 22,358,580
Savings 44,009,051 38,219,101 39,695,873
Time 54,820,977 51,132,614 45,620,217
-------------- -------------- --------------
Total deposits 133,404,318 125,271,069 120,336,484
-------------- -------------- --------------
Repurchase agreements 3,153,100 5,930,691 4,885,612
Accrued interest on deposits 383,327 385,289 324,428
Other liabilities 375,364 309,383 225,529
-------------- -------------- --------------
Total liabilities 137,316,109 131,896,432 125,772,053
-------------- -------------- --------------
STOCKHOLDERS' EQUITY
Common Stock - 2,000,000 shares authorized at
$5 par value 806,107 shares issued at
June 30, 1997 and December 31, 1996 and
775,268 shares issued at June 30, 1996 4,030,535 4,030,535 3,876,340
Surplus 3,764,000 3,764,000 3,166,340
Retained Earnings 5,563,952 4,935,303 5,121,590
Net Unrealized Loss on securities available for sale (53,562) (80,560) (237,833)
-------------- -------------- --------------
Total stockholders' equity 13,304,925 12,649,278 11,926,437
-------------- -------------- --------------
Total liabilities and stockholders' equity $ 150,621,034 $ 144,545,710 $ 137,698,490
============== ============== ==============
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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
--------- ---------- --------- ----------
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans and lease financing:
Taxable $1,890,729 $1,635,461 $3,662,697 $3,250,311
Tax-exempt 29,054 25,046 53,373 51,047
Investment securities:
Taxable 760,015 635,207 1,461,414 1,229,033
Tax-exempt 66,252 57,923 136,967 117,266
Dividends 5,371 4,746 10,545 9,932
Interest on deposits in banks 6,014 38,129 24,229 48,238
Interest on federal funds sold 87,730 76,943 194,279 140,005
--------- ---------- --------- ----------
Total interest income 2,845,165 2,473,455 5,543,504 4,845,832
INTEREST EXPENSE
Deposits 1,109,993 927,948 2,145,724 1,838,035
Other borrowings 51,359 30,805 103,597 36,730
--------- ---------- --------- ----------
Total interest expense 1,161,352 958,753 2,249,321 1,874,765
--------- ---------- --------- ----------
Net interest income 1,683,813 1,514,702 3,294,183 2,971,067
PROVISION FOR POSSIBLE LOAN LOSSES 36,000 14,400 61,500 28,800
--------- ---------- --------- ----------
Net interest income after provision
for possible loan losses 1,647,813 1,500,302 3,232,683 2,942,267
NONINTEREST INCOME
Service charges 104,717 92,116 196,041 173,422
Securities gains (losses) -- 339 -- (711)
Other operating income 42,968 46,121 119,678 97,436
--------- ---------- --------- ----------
Total noninterest income 147,685 138,576 315,719 270,147
NONINTEREST EXPENSES
Salary and employee benefits 567,580 519,095 1,142,502 1,038,401
Net occupancy and equipment expenses 202,326 213,697 400,866 420,488
Other operating expenses 315,601 302,599 580,954 589,399
--------- ---------- --------- ----------
Total noninterest expense 1,085,507 1,035,391 2,124,322 2,048,288
--------- ---------- --------- ----------
Income before income taxes 709,991 603,487 1,424,080 1,164,126
--------- ---------- --------- ----------
INCOME TAXES 235,506 198,210 472,988 384,488
--------- ---------- --------- ----------
Net income $ 474,485 $ 405,277 $ 951,092 $ 779,638
========= ========== ========= ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 806,107 806,107 806,107 806,107
========= ========== ========= ==========
EARNINGS PER COMMON SHARE $ 0.59 $ 0.50 $ 1.18 $ 0.97
========= ========== ========= ==========
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) $12,649,278
Net income for the six months
ended June 30, 1997 - - 951,092 - 951,092
Cash dividend
($ .40 per share) - - (322,443) - (322,443)
Change in fair value of securities
available for sale,
net of deferred tax - - - 26,998 26,998
----------- ----------- ----------- ------------ -----------
Balance, June 30, 1997 (Unaudited) $ 4,030,535 $ 3,764,000 $ 5,563,952 $ (53,562) $13,304,925
=========== =========== =========== ============ -----------
Balance, December 31, 1995 $ 3,876,340 $ 3,166,340 $ 4,621,049 $ 45,478 $11,709,207
Net income for the six months
ended June 30, 1996 - - 779,638 - 779,638
Cash dividend
($ .35 per share) - - (279,097) - (279,097)
Change in fair value of securities
available for sale,
net of deferred tax - - - (283,311) (283,311)
----------- ----------- ----------- ------------ -----------
Balance, June 30, 1996 (Unaudited) $ 3,876,340 $ 3,166,340 $ 5,121,590 $ (237,833) $11,926,437
=========== =========== =========== ============ ===========
The accompanying notes are an integral part of the financial statements
5
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
1997 1996
------------ ------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net Income $ 951,092 $ 779,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 61,500 28,800
Depreciation and amortization 183,335 192,214
Amortization of investment securities, net (19,567) 3,479
Investment security losses (gains) - 711
Decrease (increase) in interest receivable (164,912) (37,839)
Increase (decrease) in interest payable (1,962) 9,821
Other, net (115,084) (18,841)
------------ ------------
Net cash provided by operating activities 894,402 957,983
------------ ------------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 3,475,000 (1,365,000)
Net (increase) decrease in loans, net of charge offs (5,765,663) (2,024,472)
Proceeds from sales of securities available for sale - 1,250,868
Proceeds from maturities of securities available for sale 6,550,000 7,700,000
Proceeds from maturities of securities held to maturity 1,200,000 225,000
Principal collected on mortgage-backed securities 353,965 160,340
Purchases of securities available for sale (10,524,617) (12,381,278)
Purchases of securities held to maturity (1,163,639) (345,000)
Recoveries on loans previously charged-off 7,525 14,881
Purchases of premises and equipment (85,749) (462,026)
------------ ------------
Net cash used by investing activities (5,953,178) (7,226,687)
------------ ------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 8,133,250 5,441,330
Dividends paid (322,443) (279,097)
Increase (decrease) in short term borrowings (2,777,591) 4,136,388
------------ ------------
Net cash provided by financing activities $ 5,033,216 $ 9,298,621
------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (25,560) 3,029,917
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,671,060 4,261,864
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 4,645,500 $ 7,291,781
============ ============
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
June 30, 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 June 30, 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 June 30, 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 $474,485, an increase of
$69,208 or 17.1%, for the three months ended June 30, 1997 as compared to the
same period during 1996. The increase in earnings during the second quarter
of 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. Net interest income increased $169,111 or 11.2%,
for the three months ended June 30, 1997 as compared to the same period in
1996. During the three month period ended June 30, 1997, net interest income
increased primarily due to the increased interest earned on the average volume
of loans and investments, offset by the increased interest paid on the average
volume of time deposits. The increase in noninterest expenses can be
attributed primarily to increased salary and employee benefits.
Net income for the six months ended June 30, 1997 was $951,092
compared to $779,638 for the same period during 1996. The increase in
earnings for the six months ended June 30, 1997 as compared to the same period
in 1996 was primarily due to increased net interest income and noninterest
income, offset in part by increased noninterest expenses and the provision for
loan losses. During the six month period ended June 30, 1997, the increase in
net interest income was primarily due to the increased interest earned on the
average volume of loans and investment securities, offset in part by the
increase in the interest paid on the average volume of time deposits. The
increase in noninterest expenses can be primarily attributed to increased
salary and employee benefits.
Earnings per share were $.59 in the second quarter of 1997, an
increase of 18.0% over the $.50 earned during the second quarter of 1996. For
the first six months of 1997, earnings per share were $1.18, an increase of
21.6%, as compared to $.97 earned during the same period during 1996.
Return on average assets (ROA) measures the effectiveness of asset
utilization to produce net income. ROA increased during the three month
period ended June 30, 1997 to 1.25%, up from 1.19% in 1996. For the six
months ended June 30, 1997 and 1996, the ROA was 1.28% and 1.18%,
respectively. Return on average equity (ROE) measures the return on the
stockholders' investment. The Holding Company's ROE was 14.39% for the three
months ended June 30, 1997 and 13.82% at June 30, 1996. For the six months
ended June 30, 1997 compared to June 30, 1996, ROE was 14.69% and 13.27%,
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 Six months ended Years ended
June 30, June 30, December 31,
---------------------- --------------------- ----------------------------------
1997 1996 1997 1996 1996 1995 1994
--------- -------- --------- -------- --------- --------- --------
SUMMARY OF OPERATIONS
Total interest income $ 2,845 $ 2,473 $ 5,543 $ 4,846 $ 10,067 $ 8,937 $ 7,783
Total interest expense 1,161 959 2,249 1,875 3,925 3,421 2,868
Net interest income 1,684 1,514 3,294 2,971 6,142 5,516 4,915
Provision for loan losses 36 14 62 29 71 50 77
Total other income 148 138 316 270 550 720 725
Total other expenses 1,086 1,035 2,124 2,048 4,164 3,988 3,641
Income before income taxes 710 603 1,424 1,164 2,457 2,198 1,922
Net income 474 405 951 780 1,644 1,470 1,288
PER SHARE DATA (1)
Net income $ 0.59 $ 0.50 $ 1.18 $ 0.97 $ 2.04 $ 1.90 1.66
Cash dividends declared (2) 0.20 0.19 0.40 0.35 0.71 0.54 0.58
Book value per share 16.51 14.80 16.51 14.80 15.69 15.10 13.37
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 83,860 $ 72,389 $ 81,855 $ 71,977 $ 74,469 $ 66,058 $ 56,991
Investment securities 54,007 47,782 52,548 46,742 48,557 46,020 50,282
Deposits - Interest Bearing 120,021 108,571 117,826 106,875 112,768 100,488 95,980
Long-term debt -- -- -- -- -- -- 44
Stockholders' equity 13,209 11,789 13,056 11,822 12,186 11,170 10,253
Total Assets 152,450 136,568 150,354 133,318 137,810 124,145 117,996
SELECTED RATIOS
Return on average assets 1.25% 1.19% 1.28% 1.18% 1.19% 1.18% 1.09%
Return on average equity 14.39% 13.82% 14.69% 13.27% 13.49% 13.16% 12.56%
Average equity to average assets 8.66% 8.63% 8.68% 8.87% 8.84% 9.00% 8.69%
Dividend payout ratio (1) (2) 33.90% 38.00% 33.90% 36.08% 34.80% 28.42% 34.94%
Loan to Deposit ratio 64.57% 61.51% 64.57% 61.51% 64.19% 62.67% 58.32%
BALANCE SHEET June 30, December 31,
---------------------- ---------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- --------- ----------
Investments $ 54,086 $ 48,937 $ 50,440 $ 45,996 $ 45,551
Loans 86,143 74,021 80,417 72,006 61,667
Other Assets 10,392 14,740 13,689 9,953 9,445
---------- --------- ---------- --------- ----------
Total Assets $ 150,621 $ 137,698 $ 144,546 $ 127,955 $ 116,663
========== ========= ========= ========= =========
Deposits $ 133,404 $ 120,336 $ 125,271 $ 114,895 $ 105,730
Repurchase agreements 3,153 4,886 5,931 749 105
Other Liabilities 759 550 695 602 460
Shareholders' Equity 13,305 11,926 12,649 11,709 10,368
---------- --------- ---------- --------- ----------
Total Liabilities and
Shareholders' Equity $ 150,621 $ 137,698 $ 144,546 $ 127,955 $ 116,663
========= ========= ========= ========= =========
(1) Adjusted for the 4 percent common stock dividend to stockholders of
record as of December 2, 1996, a 2 percent 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.
- ------------------------------------------------------------------------------
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 June 30, 1997 and 1996 and for the six months ended June 30, 1997
and 1996, respectively.
Net interest income increased $169,111 or 11.2%, during the three
month period ended June 30, 1997 as compared to 1996. The increase in net
interest income resulted primarily from the increased interest earned on loans
and investment securities offset in part by the increased interest paid on
time deposits. Interest and fees on loans increased $259,276 or 15.6% during
the three month period ended June 30, 1997 as compared to the same period in
1996 due to the increase in average loan volume. Interest and dividend income
on investment securities increased $133,762, or 19.2% for the three months
ended June 30, 1997 as compared to the same period in 1996 primarily due to
the increase in the average volume of investments. Interest expense increased
$202,599, or 21.1%, during the three month period ended June 30, 1997, as
compared to the same period in 1996 primarily due to the increase in the
average volume of time deposits.
For the six months ended June 30, 1997, net interest income
increased $323,116 or 10.9%, as compared to 1996. This increase was largely
due to the increase in the interest earned on loans and investment securities
offset in part by the increase in the interest paid on time deposits.
Comparing the six month period ended June 30, 1997 to the same period in 1996,
interest and fees on loans increased $414,712 or 12.6% primarily due to the
increase in the average loan volume. The increase in the average volume of
investment securities also contributed to the increase in net interest income.
For the six months ended June 30, 1997, interest and dividends on investment
securities increased $252,695 or 18.6% as compared to the same period in 1996.
Interest expense for the six months ended June 30, 1997 increased $374,556 or
20.0% 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 June 30, 1997, the provision for possible loan losses
was $36,000, compared to $14,400 at June 30, 1996. Net charge offs were
approximately $17,000 and $3,000 for the three months ended June 30, 1997 and
1996, respectively. For the six months ended June 30, 1997, the provision for
loan losses was $61,500 compared to $28,800 at June 30, 1996. Net charge offs
were approximately $32,000 and $(4,000) for the six months ended June 30, 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 approximately $852,000 at June 30, 1997 and $1,138,000 at June 30,
1996.
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 $12,601 or 13.7%, during the three months
ended June 30, 1997 as compared to the same period of the prior year. For the
six months ended June 30, 1997, service charges increased $22,619 or 13.0% as
compared to the same period in 1996.
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 three and six month periods ended June
30, 1997. Securities gains were $339 for the three month period ended June 30,
1996. The gain on sale of securities during the three months ended June 30,
1996 was accounted for by a subsidiary bank. For the six months ended June
30, 1996, securities losses were $711 and were attributable to the sales of
securities available for sale by a subsidiary bank.
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
June 30, 1997 and June 30, 1996. Average balance sheet information as of June
30, 1997 and June 30, 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 June 30, 1997 and 1996.
For the Three For the Three
Months ended Months ended
June 30, 1997 June 30, 1996
--------------------------------- ---------------------------------
Average Average Average Average
Volume Interest Rate Volume Interest Rate
--------- --------- --------- --------- --------- ---------
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 47,244 $ 747 6.34% $ 41,584 $ 612 5.92%
Obligations of states and
political subdivisions 5,615 66 4.71% 4,536 58 5.14%
Other securities 1,148 18 6.29% 1,662 28 6.78%
Interest bearing deposits 440 6 5.47% 3,059 38 5.00%
Federal funds sold 6,347 88 5.56% 5,791 77 5.35%
Loans, net of unearned income 83,860 1,920 9.18% 72,389 1,660 9.22%
--------- --------- --------- --------- --------- ---------
Total interest earning assets 144,654 2,845 7.89% 129,021 2,473 7.71%
Cash and due from banks 4,020 4,109
Bank premises and equipment 3,196 3,415
Other assets 1,761 1,198
Allowance for possible loan losses (1,181) (1,175)
--------- ---------
Total Assets $ 152,450 $ 136,568
========= =========
LIABILITIES
Certificates of deposit $ 54,806 $ 720 5.27% $ 45,014 $ 554 4.95%
Savings deposits 40,638 260 2.57% 39,956 247 2.49%
Interest bearing demand deposits 24,577 130 2.12% 23,601 127 2.16%
Federal funds purchased and
Repurchase agreements 5,312 51 3.85% 3,594 31 3.47%
Long-term debt - - - - - -
--------- --------- --------- --------- --------- ---------
Total interest bearing liabilities 125,333 1,161 3.72% 112,165 959 3.44%
Demand deposits 13,005 11,982
Other liabilities 903 632
--------- ---------
Total Liabilities 139,241 124,779
SHAREHOLDERS' EQUITY 13,209 11,789
--------- ---------
Total Liabilities
and Shareholders' Equity $ 152,450 $ 136,568
========= =========
Net interest revenue as a percentage of
average earning assets $ 1,684 4.67% $ 1,514 4.72%
========= ========= ========= =========
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 June 30,
1997 and 1996, respectively. The effect of this adjustment is presented below
(in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 5,615 $ 110 7.86% $ 4,536 $ 97 8.60%
Loans 83,860 1,939 9.27% 72,389 1,677 9.32%
========= ========= ========= ========= ========= =========
Total interest earning assets $ 144,654 $ 2,908 8.06% $ 129,021 $ 2,529 7.88%
========= ========= ========= ========= ========= =========
Net interest revenue as a percentage
of average earning assets $ 1,747 4.84% $ 1,570 4.89%
========= ========= ========= =========
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 six months ended
June 30, 1997 and June 30, 1996 and the year ended December 31, 1996. Average
balance sheet information as of June 30, 1997 and June 30, 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 six
month periods ended June 30, 1997 and 1996.
For the Six For the Six
Months ended Months ended
June 30, 1997 December 31, 1996 June 30, 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 $ 45,753 $ 1,436 6.33% $ 42,203 $ 2,501 5.93% $ 40,426 $ 1,180 5.87%
Obligations of states and
political subdivisions 5,638 137 4.90% 4,869 247 5.07% 4,597 118 5.16%
Other securities 1,157 36 6.27% 1,485 101 6.80% 1,719 59 6.90%
Interest bearing deposits 924 24 5.24% 1,556 81 5.21% 1,844 48 5.23%
Federal funds sold 7,280 194 5.37% 5,590 295 5.28% 5,302 140 5.31%
Loans, net of unearned income 81,855 3,716 9.15% 74,469 6,842 9.19% 71,977 3,301 9.22%
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total interest earning assets 142,607 5,543 7.84% 130,172 10,067 7.73% 125,865 4,846 7.74%
Cash and due from banks 4,031 4,000 3,957
Bank premises and equipment 3,219 3,313 3,301
Other assets 1,671 1,496 1,364
Allowance for possible loan losses (1,174) (1,171) (1,169)
-------- -------- --------
Total Assets $150,354 $137,810 $133,318
======== ======== ========
LIABILITIES
Certificates of deposit $ 53,633 $ 1,392 5.23% $ 45,579 $ 2,286 5.02% $ 42,924 $ 1,070 5.01%
Savings deposits 39,344 493 2.53% 39,594 997 2.52% 40,592 514 2.55%
Interest bearing demand deposits 24,849 261 2.12% 23,880 515 2.16% 23,359 254 2.19%
Federal funds purchased and
Repurchase agreements 5,733 103 3.62% 3,715 127 3.42% 2,180 37 3.41%
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total interest bearing liabilities 123,559 2,249 3.67% 112,768 3,925 3.48% 109,055 1,875 3.46%
Demand deposits 12,858 12,128 11,792
Other liabilities 881 728 649
-------- -------- --------
Total Liabilities 137,298 125,624 121,496
SHAREHOLDERS' EQUITY 13,056 12,186 11,822
-------- -------- --------
Total Liabilities
and Shareholders' Equity $150,354 $137,810 $133,318
======== ======== ========
Net interest revenue as a percentage of
average earning assets $ 3,294 4.66% $ 6,142 4.72% $ 2,971 4.75%
======== ======== ======== ======== ======== ========
The fully taxable equivalent basis of interest income from obligations of
statesand political subdivisions has been determined using a combined Federal
andState corporate income tax rate of 40% for the six months ended June 30,
1997and 1996 and the year ended December 31, 1996. respectively. The effect
of thisadjustment is presented below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 5,638 $ 228 8.17% $ 4,869 $ 412 8.46% $ 4,597 $ 197 8.60%
Loans 81,855 3,752 9.24% 74,469 6,912 9.28% 71,977 3,335 9.32%
======== ======== ====== ======== ======== ====== ======== ======= =====
Total interest earning assets $142,607 $ 5,670 8.02% $130,172 $ 10,302 7.91% $125,865 $ 4,959 7.92%
======== ======== ====== ======== ======== ====== ======== ======= =====
Net interest revenue as a percentage
of average earning assets $ 3,421 4.84% $ 6,377 4.90% $ 3,084 4.93%
======== ====== ======== ====== ======= =====
- --------------------------------------------------------------------------------
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 June 30, 1997 other operating income was $42,968, a decrease of $3,153
or 6.8% over the same period in 1996. The decrease during the three month
period was primarily the result of a membership rebate from an insurance
carrier which was received during the second quarter of 1996. For the six
month period ended June 30, 1997, other operating income was $119,678, an
increase of $22,242 or 22.8%, over the same period in 1996.
Non-Interest Expense
- --------------------
Salary and employee benefits is the largest component of non-interest
expense. During the quarter ended June 30, 1997, salary and employee benefits
increased $48,485 or 9.3% as compared to the same period of the prior year.
For the six month period ended June 30, 1997, as compared to the same period
in 1996, salary and employee benefits increased $104,101 or 10.0%. The
increase in salary and benefits was primarily due to the hiring of additional
personnel by a subsidiary bank and normal annual merit adjustments in
salaries.
During the second quarter of 1997, net occupancy and equipment expense
decreased $11,371 or 5.3% as compared to the same period in the prior year.
For the six month period ended June 30, 1997, net occupancy and equipment
expenses decreased $19,622 or 4.7%, as compared to the same period in 1996.
The decrease was primarily the result of an overall decrease in equipment
and occupancy expenses.
The major components of other operating expenses include: directors fees,
stationery and supplies, service expense, other taxes, postage and
transportation, and advertising expense. Other operating expenses were up
$13,002 or 4.3%, for the three month period ended June 30, 1997 as compared to
the same period in the prior year. The increase was primarily due to increases
in general operating expenses. For the six months ended June 30, 1997, other
operating expenses decreased $8,445 or 1.4% as compared to the same period in
1996.
Income Taxes
- ------------
Income tax expense for the three month period ended June 30, 1997 was
$235,506, and increase of $37,296 over the same period in 1996. The increase
was primarily due to the increase in pre-taxable income of $106,504. For the
six month period ended June 30, 1997, income tax expense was $472,988, an
increase of $88,500 over the same period in 1996. The increase was primarily
due to the increase in pre-taxable income of $259,954.
For federal income tax purposes, tax-exempt income is based on qualified
state, county, and municipal bonds and loans. Tax-exempt income was $95,306
and $82,969 for the three month period ended June 30, 1997 and 1996,
respectively. For the six month period ended June 30, 1997 and 1996, tax
exempt income was `190,340 and $168,313, respectively.
Federal income tax rates were consistent at 34% for the quarter ended June
30, 1997 and 1996. West Virginia corporate net income tax rates also were
consistent at 9.0% in 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 $5,149,384 or 10.5%
from $48,936,926 at June 30, 1996, to $54,086,310 at June 30, 1997. The
increase in investment securities was attributed primarily to the increased
deposit growth from June 30, 1996 to June 30, 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 89.8% of total securities at June 30,
1997, as compared to 90.2% at June 30, 1996. The corporation does not have
any issues in the investment portfolio which exceed 10% of stockholders'
equity as of June 30, 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 June
30, 1997 and June 30, 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 June 30, 1997 and 1996 and at December
31, 1996 are as follows
(in thousands) (Unaudited):
June 30, December 31, June 30,
1997 1996 1996
---------- ---------- ----------
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 500 $ 800 $ 800
Obligations of states
and political subdivisions 5,022 4,764 4,317
---------- ---------- ----------
Total held to maturity $ 5,522 $ 5,564 $ 5,117
---------- ---------- ----------
Securities available for sale :
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies 42,845 $ 39,495 $ 39,897
Obligations of states
and political subdivisions 509 507 499
Corporate debt securities 508 614 1,077
Mortgage-backed securities 4,080 3,741 1,841
Equity Securities 622 519 506
---------- ---------- ----------
Total available for sale 48,564 44,876 43,820
---------- ---------- ----------
Total $ 54,086 $ 50,440 $ 48,937
========== ========== ==========
- -------------------------------------------------------------------------------
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 June 30, 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.
June 30, 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
------- ------- ------- ------- ------- ------- ------- -------
(Unaudited)
U.S. Treasury and other U.S.
Government Agencies
Within One Year $ - -% $ 6,785 6.19% $ - -% $ 6,714 5.74%
After One But
Within Five Years 500 5.03 33,561 6.33 800 5.02 29,280 6.27
After Five But
Within Ten Years - - 2,499 7.14 - - 3,501 6.83
After Ten Years - - - - - - - -
------- ------- ------- ------- ------- ------- ------- -------
500 5.03 42,845 6.36 800 5.02 39,495 6.23
States & Political Subdivisions
Within One Year 339 6.11 - - 200 7.57 - -
After One But
Within Five Years 2,742 7.13 - - 2,723 7.53 - -
After Five But
Within Ten Years 1,778 7.59 509 7.55 1,678 7.89 507 7.58
After Ten Years 163 7.72 - - 163 7.72 - -
------- ------- ------- ------- ------- ------- ------- -------
5,022 7.24 509 7.55 4,764 7.66 507 7.58
Corporate Debt Securities
Within One Year - - 300 8.04 - - 404 7.60
After One But
Within Five Years - - 208 7.85 - - 210 7.78
------- ------- ------- ------- ------- ------- ------- -------
- - 508 7.96 - - 614 7.66
Mortgage-Backed Securities - - 4,080 7.00 - - 3,741 6.95
Equity Securities - - 622 5.22 - - 519 6.15
------- ------- ------- ------- ------- ------- ------- -------
Total $ 5,522 7.04% $48,564 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 June 30, 1997 and June
30, 1996, the corporation had approximately 90% of the investment portfolio
classified as available for sale, while 10% was classified as held to
maturity.
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 $83,705 at June 30, 1997 and by $373,405 at
June 30, 1996. The market value of securities classified as held to maturity
was above book value by $27,594 at June 30, 1997 and below book value by
$13,308 at June 30, 1996.
Loans
- -----
Loans increased as of June 30, 1997 as compared to June 30, 1996 as loans
outstanding increased $12,122,099 or 16.4%, to $86,142,661. The loan growth
can be attributed primarily to increases in commercial loans, installment
loans and residential real estate loans which increased approximately
$5,940,000, $4,690,000, and $1,698,000, 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 June 30, 1997 was 64.6% which was higher than the 61.5%
reported at June 30, 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-six
percent (36%) 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-three percent (23%) 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 June 30, 1996 to June
30, 1997 were a 1% increase in commercial loans, a 2% increase in installment
loans, and a 3% 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 decreased 25.1% to $852,000 at June 30, 1997
as compared to $1,138,000 at June 30, 1996. Loans classified as non-accrual
increased $31,000 to $304,000 or .4% of total loans as of June 30, 1997, as
compared to $273,000 or .4% of total loans at June 30, 1996. There were no
loans classified as renegotiated as of June 30, 1997 and 1996, respectively.
The loans past due 90 days or more decreased $317,000 to $499,000 at June 30,
1997 as compared to $816,000 at June 30, 1996. 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) :
June 30, December 31,
------------------------- ----------
1997 1996 1996
Real Estate - Residential
Real estate-construction $ 357 $ 265 $ 418
Real estate-farmland 125 14 12
Real estate-residential 30,248 28,753 28,920
---------- ---------- ----------
$ 30,730 $ 29,032 $ 29,350
---------- ---------- ----------
Commercial
Real estate-secured by
nonfarm, nonresidential $ 22,068 $ 19,223 $ 21,145
Commercial & industrial 11,020 7,925 10,338
---------- ---------- ----------
$ 33,088 $ 27,148 $ 31,483
---------- ---------- ----------
Installment
Installment and other
loans to individuals $ 20,131 $ 15,441 $ 17,379
---------- ---------- ----------
Others
Nonrated industrial
development obligations $ 2,045 $ 1,779 $ 1,593
Direct Financing Leases 206 412 334
Other loans 39 295 368
---------- ---------- ----------
$ 2,290 $ 2,486 $ 2,295
---------- ---------- ----------
Total 86,239 74,107 80,507
Less unearned interest 96 86 90
---------- ---------- ----------
$ 86,143 $ 74,021 $ 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 June 30, 1997
and December 31, 1996 (in thousands) (Unaudited):
June 30, 1997
----------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ---------- ----------
Commercial $ 698 $ 7,305 $ 3,017
Real Estate - construction 332 25 -
-------- -------- --------
Total $ 1,030 $ 7,330 $ 3,017
======== ======== ========
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 June 30, 1997 and December 31, 1996 along with the contractual maturities
of loans other than installment loans and residential mortgages (in thousands)
(Unaudited):
June 30, 1997
----------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ---------- ----------
Fixed Rates $ 746 $ 6,608 $ 1,031
Variable Rates 284 722 1,986
-------- -------- --------
Total $ 1,030 $ 7,330 $ 3,017
======== ======== ========
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):
June 30, December 31,
----------------- ------------
1997 1996 1996
Past Due 90 Days or More:
Real Estate - residential $ 304 $ 162 $ 250
Commercial 139 621 2
Installment 56 33 48
------- ------- --------
$ 499 $ 816 $ 300
------- ------- --------
Renegotiated:
Real Estate - residential $ - $ - $ -
Commercial - - -
Installment - - -
------- ------- --------
$ - $ - $ -
------- ------- --------
Non-accrual:
Real Estate - residential $ 120 $ 28 $ 26
Commercial 170 191 299
Installment 14 54 28
------- ------- --------
$ 304 $ 273 $ 353
------- ------- --------
Other Real Estate $ 49 $ 49 $ 49
------- ------- --------
Total non-performing assets $ 852 $ 1,138 $ 702
======= ======= ========
Total non-performing assets
to total loans and
other real estate 0.99% 1.54% 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 Comptroller of the
Currency Policy, banks may not accrue interest on any loan which either the
principal or interest is past due 90 days or more unless the loan is both well
secured and in the process of collection.
The amount of interest income that would have been recognized had the loans
performed in accordance with their original terms was approximately $9,200 and
$9,000 for the periods ended June 30, 1997 and 1996, respectively. As of June
30, 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.
- ------------------------------------------------------------------------------
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 $ 32,000 and $(4,000) at June
30, 1997 and 1996, respectively. The net charge offs during the six month
period ended June 30, 1997 were primarily consumer loans. The provision for
loan losses increased to $36,000 during the three months ended June 30, 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 June
30, 1997 and June 30, 1996, respectively. The ratio of loan losses to average
outstanding loans at June 30, 1997 was .04% compared to (.01)% for June 30,
1996. The ratio of non-accrual loans plus loans delinquent more than 90 days
to total loans was .9% and 1.5% at June 30, 1997 and June 30, 1996,
respectively. Net loan charge-offs were 2.7% and (.3)% of the allowance for
loan losses as of June 30, 1997 and June 30, 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.
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 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.
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
-----------------------------------
June 30, 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 1 - -
Installment 39 11 49
-------- -------- ----------
40 11 84
Recoveries:
Real Estate - residential - - -
Commercial 3 1 1
Installment 5 14 24
-------- -------- ----------
8 15 25
Net Charge-offs 32 (4) 59
Additions Charged to Operations 62 29 70
-------- -------- ----------
Balance at end of period: $ 1,190 $ 1,182 $ 1,160
======== ======== ==========
Average Loans Outstanding $ 83,860 $ 71,977 $ 74,469
======== ======== ==========
Ratio of net charge-offs
to Average loans
outstanding for the period .04% -.01% .08%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.38% 1.60% 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 six
month period ended June 30, 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.
June 30, 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 35.6% $ 192 36.5% $ 215 39.9% $ 216 43.1% $ 216 43.1% $ 190 38.3%
Commercial 621 38.4 619 39.1 618 36.5 420 34.7 382 35.9 353 38.8
Installment 326 23.3 298 21.6 265 20.0 260 19.3 248 17.6 157 18.9
Others 20 2.7 20 2.8 20 3.6 20 2.9 20 3.4 20 4.0
Unallocated 31 - 31 - 31 - 31 - 30 - 30 -
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total $ 1,190 100.0% $ 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)
June 30, 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 $ 3,457 $ 815 $ 3,094 $ 3,067 $10,433
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 Six months ended Year Ended
June 30, June 30, December 31,
------------------- ------------------- --------
1997 1996 1997 1996 1996
-------- -------- -------- -------- --------
Return on Assets :
(Net income / Average Total Assets) 1.25% 1.19% 1.28% 1.18% 1.19%
Return on Equity :
(Net income /
Average Shareholders Equity) 14.39% 13.82% 14.69% 13.27% 13.49%
Dividend Payout Ratio :
(Dividend Declared Per Share /
Net Income Per Share) 33.90% 38.00% 33.90% 36.08% 34.80%
Equity to Asset Ratio :
(Average Equity / Average Total Assets) 8.66% 8.63% 8.68% 8.87% 8.84%
- ------------------------------------------------------------------------------
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 $133.4 million at June
30, 1997 as compared to $120.3 million at June 30, 1996, an increase of 10.9%.
Deposit growth increased primarily in time deposits. Time deposits grew by
$9.2 million or 20.2% at June 30, 1997 as compared to June 30, 1996. Special
promotions offered by the subsidiary banks have contributed to the growth in
time deposits. As reflected in Table 3, average rates paid on interest
bearing deposit accounts increased to 3.7% during the six month period 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 second quarter of 1997 as compared to the same period of the prior
year. At June 30, 1997, non-interest bearing demand deposits comprised 9.4%
of total deposits and interest bearing deposits which include NOW, money
market, savings and time deposits comprised 90.6% of total deposits. The
changes in the deposit mix from June 30, 1996 to June 30, 1997 were a 1%
decrease in noninterest bearing demand deposits and a 1% increase in interest
bearing deposits.
Repurchase Agreements
- ----------------------
Repurchase agreements represent short-term borrowings, usually overnight
to 30 days. Repurchase agreements were $3,153,100 at June 30, 1997, a
decrease of $1,732,512, as compared to June 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. From June 30, 1996 to June 30, 1997, stockholders' equity
increased 10.0%, entirely from current earnings after quarterly dividends, and
increased 1.5% which resulted from the effect of the change in the net
unrealized gain (loss) on securities available for sale. Stockholders equity
amounted to 8.8% of total assets as of June 30, 1997, as compared to 8.7% at
June 30, 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.
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 June 30, 1997, June 30, 1996, and December 31, 1996:
June 30, Dec. 31
-------------- ------
Ratio Minimum 1997 1996 1996
- ---------------------- ------- ------ ------ ------
Leverage Ratio 3% 8.57 8.92 8.63
Risk Based Capital
Tier 1 (core) 4% 14.56 15.14 14.74
Tier 2 (total) 8% 15.81 16.35 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.
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 $(18,750,000), which indicates
the corporation's interest bearing liabilities are more than earning assets at
June 30, 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.
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 - June 30, 1997
(less (greater Non-
than) 3 3 - 12 1 - 3 than)3 Interest
Months Months Years Years Bearing Total
-------- -------- -------- -------- -------- --------
ASSETS:
Fed Funds Sold $ 1,986 $ - $ - $ - $ - $ 1,986
Investments 4,123 7,880 19,875 22,208 54,086
Loans 7,946 15,553 26,276 36,025 343 86,143
Other Assets 81 9,515 9,596
Allowance for Loan
and Lease Losses (1,190) (1,190)
-------- -------- -------- -------- -------- --------
TOTAL ASSETS: $ 14,136 $ 23,433 $ 46,151 $ 58,233 $ 8,668 $150,621
======== ======== ======== ======== ======== ========
NOW $ 1,102 $ 3,302 $ 3,440 $ 14,141 $ $ 21,985
MMDA 8,244 8,244
SAVINGS 2,511 7,510 6,822 18,921 35,764
CD's (less than) 100,000 9,224 13,907 10,840 10,417 44,388
CD's (greater than) 100,000 3,457 3,909 2,293 774 10,433
Demand Deposits 12,590 12,590
Other Liabilities 759 759
Repurchase Agreements 3,153 3,153
Stockholders' Equity 13,305 13,305
-------- -------- -------- -------- -------- --------
TOTAL LIABILITIES
AND CAPITAL: $ 27,691 $ 28,628 $ 23,395 $ 44,253 $ 26,654 $150,621
======== ======== ======== ======== ======== ========
GAP (13,555) (5,195) 22,756 13,980 (17,986)
GAP/ Total Assets (9.00%) (3.45%) 15.11% 9.28% (11.94%)
Cumulative GAP (13,555) (18,750) 4,006 17,986 0
Cum. GAP/Total Assets (9.00%) (12.45%) 2.66% 11.94% 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
$48,564,245 classified as available for sale at June 30, 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
June 30, 1997, Progressive Bank, N.A. and Progressive Bank, N.A.- Buckhannon,
had a maximum borrowing capacity (MBC) amounting to $18,949,000 and
$5,722,000, 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 June 30, 1997, Progressive Bank,
N.A. and Progressive Bank, N.A. - Buckhannon had an available line of
$1,835,000 and $551,000, respectively, without purchasing any additional
capital stock from the FHLB. As of June 30, 1997, there were no borrowings
outstanding pursuant to these agreements.
At June 30, 1997 and June 30, 1996, the Holding Company had outstanding
loan commitments and unused lines of credit totaling $9,608,000 and
$6,408,000, respectively. As of June 30, 1997, management placed a high
probability for required funding within one year of approximately $7,294,000.
Approximately $2,077,000 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 June 30, 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 June 30,
1997.
(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: July 29, 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.