UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the Quarterly Period Ended September 30, 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 practible date.
The number of shares outstanding of the issuer's common stock as of
November 4, 1997:
Common Stock, $5.00 Par Value, shares outstanding 1,209,085 shares
- ----------------------------------------------------------------------------
FIRST WEST VIRGINIA BANCORP, INC.
PART I
FINANCIAL INFORMATION
2
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, December 31, September 30,
1997 1996 1996
-------------- -------------- --------------
ASSETS
Cash and Due From Banks $ 4,498,189 $ 4,589,502 $ 5,262,975
Due From Banks-interest bearing 88,112 81,558 1,058,330
-------------- -------------- --------------
Total cash and cash equivalents 4,586,301 4,671,060 6,321,305
Federal Funds Sold 4,374,000 5,461,000 1,636,000
Investment Securities
Available for Sale (at market value) 47,933,408 44,875,887 46,281,258
Held to Maturity - (market value of
$4,777,946 at September 30, 1997;
$5,587,466 at December 31, 1996;
and $ 5,576,246 at September 30, 1996) 4,719,493 5,564,302 5,576,457
Loans, net of unearned income 91,476,574 80,416,680 76,819,205
Less allowance for possible loan losses (1,197,027) (1,160,302) (1,182,238)
-------------- -------------- --------------
Net loans 90,279,547 79,256,378 75,636,967
Premises and equipment, net 3,105,589 3,249,425 3,314,612
Accrued income receivable 1,276,644 948,026 1,170,138
Other assets 650,803 511,536 601,687
Intangible assets 5,060 8,096 12,713
-------------- -------------- --------------
Total assets $ 156,930,845 $ 144,545,710 $ 140,551,137
============== ============== ==============
LIABILITIES
Noninterest bearing deposits:
Demand $ 14,384,482 $ 12,359,041 $ 12,001,582
Interest bearing deposits:
Demand 23,022,897 23,560,313 24,754,656
Savings 43,892,293 38,219,101 38,384,091
Time 56,450,631 51,132,614 48,026,846
-------------- -------------- --------------
Total deposits 137,750,303 125,271,069 123,167,175
-------------- -------------- --------------
Repurchase agreements 4,494,987 5,930,691 4,452,047
Accrued interest on deposits 419,828 385,289 319,854
Other liabilities 469,646 309,383 321,663
-------------- -------------- --------------
Total liabilities 143,134,764 131,896,432 128,260,739
-------------- -------------- --------------
STOCKHOLDERS' EQUITY
Common Stock - 2,000,000 shares authorized at
$5 par value 1,209,085 shares issued at September 30, 1997,
806,107 shares issued at December 31, 1996, and
775,268 shares issued at September 30, 1996 6,045,425 4,030,535 3,876,340
Surplus 3,764,000 3,764,000 3,166,340
Retained Earnings 3,890,518 4,935,303 5,409,335
Net Unrealized Gain (Loss) on securities available for sale 96,138 (80,560) (161,617)
-------------- -------------- --------------
Total stockholders' equity 13,796,081 12,649,278 12,290,398
-------------- -------------- --------------
Total liabilities and stockholders' equity $ 156,930,845 $ 144,545,710 $ 140,551,137
============== ============== ==============
The accompanying notes are an integral part of the financial statements
3
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans and lease financing:
Taxable $2,019,749 $1,704,911 $5,682,446 $4,955,222
Tax-exempt 35,099 27,242 88,472 78,289
Investment securities:
Taxable 749,512 662,236 2,210,926 1,891,269
Tax-exempt 63,831 63,384 200,798 180,650
Dividends 6,109 5,203 16,654 15,135
Interest on deposits in banks 3,564 26,246 27,793 74,484
Interest on federal funds sold 76,858 66,998 271,137 207,003
---------- ---------- ---------- ----------
Total interest income 2,954,722 2,556,220 8,498,226 7,402,052
INTEREST EXPENSE
Deposits 1,185,351 951,633 3,331,075 2,789,668
Other borrowings 38,834 42,069 142,431 78,799
---------- ---------- ---------- ----------
Total interest expense 1,224,185 993,702 3,473,506 2,868,467
---------- ---------- ---------- ----------
Net interest income 1,730,537 1,562,518 5,024,720 4,533,585
PROVISION FOR POSSIBLE LOAN LOSSES 34,500 16,800 96,000 45,600
---------- ---------- ---------- ----------
Net interest income after provision
for possible loan losses 1,696,037 1,545,718 4,928,720 4,487,985
NONINTEREST INCOME
Service charges 108,016 97,511 304,057 270,933
Securities gains (losses) -- -- -- (711)
Other operating income 54,132 47,927 173,810 145,363
---------- ---------- ---------- ----------
Total noninterest income 162,148 145,438 477,867 415,585
NONINTEREST EXPENSES
Salary and employee benefits 569,043 535,426 1,711,545 1,573,827
Net occupancy and equipment expenses 212,594 204,627 613,460 625,115
Other operating expenses 324,239 294,780 905,193 884,179
---------- ---------- ---------- ----------
Total noninterest expense 1,105,876 1,034,833 3,230,198 3,083,121
---------- ---------- ---------- ----------
Income before income taxes 752,309 656,323 2,176,389 1,820,449
---------- ---------- ---------- ----------
INCOME TAXES 249,632 221,277 722,620 605,765
---------- ---------- ---------- ----------
Net income $ 502,677 $ 435,046 $1,453,769 $1,214,684
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,209,085 1,209,085 1,209,085 1,209,085
========== ========== ========== ==========
EARNINGS PER COMMON SHARE * $ 0.42 $ 0.36 $ 1.20 $ 1.01
========== ========== ========== ==========
[FN]
* Restated to reflect a 3 for 2 stock split effected in the form of a 50%
common stock dividend, payable October 27, 1997 to shareholders of record
October 1, 1997.
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 nine months
ended September 30, 1997 -- - 1,453,769 - 1,453,769
Cash dividend
($ .40 per share) -- - (483,664) - (483,664)
50% Common Stock Dividend 2,014,890 - (2,014,890) - -
Change in fair value of securities
available for sale,
net of deferred tax - - - 176,698 176,698
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1997 (Unaudited) $ 6,045,425 $ 3,764,000 $ 3,890,518 $ 96,138 $ 13,796,081
============ ============ ============ ============ ============
Balance, December 31, 1995 $ 3,876,340 $ 3,166,340 $ 4,621,049 $ 45,478 $ 11,709,207
Net income for the nine months
ended September 30, 1996 - - 1,214,684 - 1,214,684
Cash dividend
($ .35 per share) - - (426,398) - (426,398)
Change in fair value of securities
available for sale,
net of deferred tax - - - (207,095) (207,095)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1996 (Unaudited) $ 3,876,340 $ 3,166,340 $ 5,409,335 $ (161,617) $ 12,290,398
============ ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements
5
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
1997 1996
------------- -------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net Income $ 1,453,769 $ 1,214,684
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 96,000 45,600
Depreciation and amortization
276,002 292,576
Amortization of investment securities, net (33,855) (2,661)
Investment security losses (gains) - 711
Decrease (increase) in interest receivable (328,618) (246,815)
Increase (decrease) in interest payable 34,539 5,247
Other, net (80,803) 47,493
------------- -------------
Net cash provided by operating activities 1,417,034 1,356,835
------------- -------------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 1,087,000 642,000
Net (increase) decrease in loans, net of charge offs (11,130,037) (4,848,489)
Proceeds from sales of securities available for sale - 1,250,156
Proceeds from maturities of securities available for sale 10,250,000 11,925,000
Proceeds from maturities of securities held to maturity 2,000,000 225,000
Principal collected on mortgage-backed securities 620,678 304,470
Purchases of securities available for sale (13,607,139) (19,083,582)
Purchases of securities held to maturity (1,163,900) (806,587)
Recoveries on loans previously charged-off 10,868 23,505
Purchases of premises and equipment (129,130) (477,314)
------------- -------------
Net cash used by investing activities (12,061,660) (10,845,841)
------------- -------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 12,479,235 8,272,021
Dividends paid (483,664) (426,397)
Increase (decrease) in short term borrowings (1,435,704) 3,702,823
------------- -------------
Net cash provided by financing activities $ 10,559,867 $ 11,548,447
------------- -------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (84,759) 2,059,441
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,671,060 4,261,864
------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 4,586,301 $ 6,321,305
============= =============
The accompanying notes are an integral part of the financial statements
6
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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. On September 9, 1997, the corporation declared a 3 for 2 stock split in
the effect of a fifty percent (50%) common stock dividend to stockholders of
record on October 1, 1997, payable October 27, 1997. Accordingly, the
corporation issued 402,978 shares of common stock. The stock dividend
increased common stock and reduced retained earnings by $2,014,890. The
average shares outstanding and per share amounts have been restated to reflect
the stock dividend.
3. The provision for income taxes is at a rate which management believes will
approximate the effective rate for the year.
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 two wholly-owned subsidiaries: Progressive Bank, N.A., which operates
in Wheeling, Wellsburg, and Moundsville, West Virginia and Bellaire, Ohio; and
Progressive Bank, N.A.-Buckhannon which operates in Buckhannon and Weston,
West Virginia. Following is a discussion and analysis of the significant
changes in the financial condition and results of operations of First West
Virginia Bancorp, Inc., (the Holding Company), and its subsidiaries for the
three months ended September 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 $502,677, an increase of
$67,631 or 15.5%, for the three months ended September 30, 1997 as compared to
the same period during 1996. The increase in earnings during the third
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
$168,019 or 10.8%, for the three months ended September 30, 1997 as compared
to the same period in 1996. During the three month period ended September 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 nine months ended September 30, 1997 was
$1,453,769 compared to $1,214,684 for the same period during 1996. The
increase in earnings for the nine months ended September 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 nine month period ended September
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 $.42 in the third quarter of 1997, an
increase of 16.7% over the $.36 earned during the third quarter of 1996. For
the first nine months of 1997, earnings per share were $1.20, an increase of
18.8%, as compared to $1.01 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 September 30, 1997 to 1.29%, up from 1.24% in 1996. For the nine
months ended September 30, 1997 and 1996, the ROA was 1.28% and 1.20%,
respectively. Return on average equity (ROE) measures the return on the
stockholders' investment. The Holding Company's ROE was 14.69% for the three
months ended September 30, 1997 and 14.38% at September 30, 1996. For the
nine months ended September 30, 1997 compared to September 30, 1996, ROE was
14.81% and 13.67%, respectively.
Table One is a summary of Selected Financial Data of the Holding
Company. The sections that follow discuss in more detail the information
summarized in Table One.
8
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Table One
SELECTED FINANCIAL DATA
(Unaudited, figures in thousands, except per share data)
First West Virginia Bancorp, Inc.
Three months ended Nine months ended Years ended
September 30, September 30, December 31,
---------------------- --------------------- ----------------------------------
1997 1996 1997 1996 1996 1995 1994
--------- -------- --------- -------- --------- --------- --------
SUMMARY OF OPERATIONS
Total interest income $ 2,955 $ 2,556 $ 8,498 $ 7,402 $ 10,067 $ 8,937 $ 7,783
Total interest expense 1,224 993 3,474 2,868 3,925 3,421 2,868
Net interest income 1,731 1,563 5,024 4,534 6,142 5,516 4,915
Provision for loan losses 35 17 96 46 71 50 77
Total other income 162 145 478 415 550 720 725
Total other expenses 1,106 1,035 3,230 3,083 4,164 3,988 3,641
Income before income taxes 752 656 2,176 1,820 2,457 2,198 1,922
Net income 503 435 1,454 1,215 1,644 1,470 1,288
PER SHARE DATA (1)
Net income $ 0.42 $ 0.36 $ 1.20 $ 1.01 $ 1.36 $ 1.22 1.07
Cash dividends declared (2) 0.13 0.12 0.40 0.35 0.47 0.34 0.37
Book value per share 11.41 10.17 11.41 10.17 10.46 9.68 8.58
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 88,575 $ 75,235 $ 84,120 $ 73,071 $ 74,469 $ 66,058 $ 56,991
Investment securities 52,824 50,002 52,641 47,836 48,557 46,020 50,282
Deposits - Interest Bearing 123,226 109,932 119,646 107,902 112,768 100,488 95,980
Long-term debt -- -- -- -- -- -- 44
Stockholders' equity 13,583 12,038 13,128 11,874 12,186 11,170 10,253
Total Assets 155,139 139,862 151,860 135,513 137,810 124,145 117,996
SELECTED RATIOS
Return on average assets 1.29% 1.24% 1.28% 1.20% 1.19% 1.18% 1.09%
Return on average equity 14.69% 14.38% 14.81% 13.67% 13.49% 13.16% 12.56%
Average equity to average assets 8.76% 8.61% 8.64% 8.76% 8.84% 9.00% 8.69%
Dividend payout ratio (1) (2) 30.95% 33.33% 33.33% 34.65% 34.56% 27.87% 34.58%
Loan to Deposit ratio 66.41% 62.37% 66.41% 62.37% 64.19% 62.67% 58.32%
BALANCE SHEET September 30, December 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
Investments $ 52,653 $ 51,858 $ 50,440 $ 45,996 $ 45,551
Loans 91,477 76,819 80,417 72,006 61,667
Other Assets 12,801 11,874 13,689 9,953 9,445
--------- --------- --------- --------- ---------
Total Assets $ 156,931 $ 140,551 $ 144,546 $ 127,955 $ 116,663
========= ========= ========= ========= =========
Deposits $ 137,750 $ 123,167 $ 125,271 $ 114,895 $ 105,730
Repurchase agreements 4,495 4,452 5,931 749 105
Other Liabilities 890 642 695 602 460
Shareholders' Equity 13,796 12,290 12,649 11,709 10,368
--------- --------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity $ 156,931 $ 140,551 $ 144,546 $ 127,955 $ 116,663
========= ========= ========= ========= =========
[FN]
(1) Adjusted for the 3 for 2 stock split in the effect of a fifty (50)
percent common stock dividend, declared September 9, 1997, payable on
October 27, 1997 to shareholders of record as of October 1, 1997; 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 September 30, 1997 and 1996 and for the nine months ended
September 30, 1997 and 1996, respectively.
Net interest income increased $168,019 or 10.8%, during the three
month period ended September 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 $322,695 or 18.6%
during the three month period ended September 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 $88,629, or 12.1% for the
three months ended September 30, 1997 as compared to the same period in 1996.
Interest expense increased $230,483 or 23.2%, during the three month period
ended September 30, 1997, as compared to the same period in 1996 primarily due
to the increase in the average volume of time deposits.
For the nine months ended September 30, 1997, net interest income
increased $491,135 or 10.8%, 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 nine month period ended September 30, 1997 to the same period in
1996, interest and fees on loans increased $737,407 or 14.6% 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 nine months ended September 30, 1997, interest and dividends
on investment securities increased $341,324 or 16.4% as compared to the same
period in 1996. Interest expense for the nine months ended September 30, 1997
increased $605,039 or 21.1% 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 September 30, 1997, the provision for possible
loan losses was $34,500, compared to $16,800 at September 30, 1996. Net
charge offs were approximately $27,000 and $16,000 for the three months ended
September 30, 1997 and 1996, respectively. For the nine months ended
September 30, 1997, the provision for loan losses was $96,000 compared to
$45,600 at September 30, 1996. Net charge offs were approximately $59,000 and
$12,000 for the nine months ended September 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 $1,044,000 at September 30, 1997 and $1,238,000 at September 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 $10,505 or 10.8%, during the three
months ended September 30, 1997 as compared to the same period of the prior
year. For the nine months ended September 30, 1997, service charges increased
$33,124 or 12.2% 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 nine month periods ended
September 30, 1997. There were no securities gains or losses during the three
month period ended September 30, 1996. For the nine months ended September 30,
1996, securities losses were $711 and were attributable to the sales of
securities available for sale by a subsidiary bank.
10
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Table Two
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates
and Interest Differential
The following table presents an average balance sheet, interest earned on
interest bearing assets, interest paid on interest bearing liabilities,
average interest rates and interest differentials for the three months ended
September 30, 1997 and 1996. Average balance sheet information as of
September 30, 1997 and September 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 September 30, 1997 and 1996.
For the Three For the Three
Months ended Months ended
September 30, 1997 September 30, 1996
--------------------------------- ---------------------------------
Average Average Average Average
Volume Interest Rate Volume Interest Rate
--------- --------- ------- --------- --------- -------
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 46,211 $ 738 6.34% $ 43,657 $ 644 5.87%
Obligations of states and
political subdivisions 5,381 64 4.72% 5,010 63 5.00%
Other securities 1,232 18 5.80% 1,335 24 7.15%
Interest bearing deposits 201 3 5.92% 2,063 26 5.01%
Federal funds sold 5,564 77 5.49% 5,057 67 5.27%
Loans, net of unearned income 88,575 2,055 9.20% 75,235 1,732 9.16%
--------- --------- ------- --------- --------- -------
Total interest earning assets 147,164 2,955 7.97% 132,357 2,556 7.68%
Cash and due from banks 4,193 4,073
Bank premises and equipment 3,140 3,365
Other assets 1,843 1,242
Allowance for possible loan losses (1,201) (1,175)
--------- ---------
Total Assets $ 155,139 $ 139,862
========= =========
LIABILITIES
Certificates of deposit $ 55,893 $ 757 5.37% $ 46,540 $ 577 4.93%
Savings deposits 43,779 302 2.74% 39,099 245 2.49%
Interest bearing demand deposits 23,554 126 2.12% 24,293 130 2.13%
Federal funds purchased and
Repurchase agreements 4,129 39 3.75% 4,888 42 3.42%
Long-term debt - - - - - -
--------- --------- ------- --------- --------- -------
Total interest bearing liabilities 127,355 1,224 3.81% 114,820 994 3.44%
Demand deposits 13,231 12,269
Other liabilities 970 735
--------- ---------
Total Liabilities 141,556 127,824
SHAREHOLDERS' EQUITY 13,583 12,038
--------- ---------
Total Liabilities
and Shareholders' Equity $ 155,139 $ 139,862
========= =========
Net interest revenue as a percentage of
average earning assets $ 1,731 4.67% $ 1,562 4.69%
========= ======= ========= =======
The fully taxable equivalent basis of interest income from obligations
of states and political subdivisions has been determined using a
combined Federal and State corporate income tax rate of 40% for the
three months ended September 30, 1997 and 1996, respectively. The
effect of this adjustment is presented below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 5,381 $ 107 7.86% $ 5,010 $ 105 8.34%
Loans 88,575 2,078 9.31% 75,235 1,750 9.26%
========= ========= ======= ========= ========= =======
Total interest earning assets $ 147,164 $ 3,021 8.14% $ 132,357 $ 2,616 7.86%
========= ========= ======= ========= ========= =======
Net interest revenue as a percentage
of average earning assets $1,797 4.84% $ 1,622 4.88%
========= ======= ========= =======
11
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Table Three
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates
and Interest Differential
The following table presents an average balance sheet, interest earned on
interest bearing assets, interest paid on interest bearing liabilities,
average interest rates and interest differentials for the nine months ended
September 30, 1997 and September 30, 1996 and the year ended December 31,
1996. Average balance sheet information as of September 30, 1997 and
September 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 nine month periods ended September 30,
1997 and 1996.
For the Nine For the Nine
Months ended Months ended
September 30, 1997 December 31, 1996 September 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 $ 45,904 $ 2,174 6.33% $ 42,203 $ 2,501 5.93% $ 41,510 $ 1,824 5.87%
Obligations of states and
political subdivisions 5,551 201 4.84% 4,869 247 5.07% 4,736 181 5.11%
Other securities 1,186 54 6.09% 1,485 101 6.80% 1,590 82 6.89%
Interest bearing deposits 680 27 5.31% 1,556 81 5.21% 1,917 74 5.16%
Federal funds sold 6,702 271 5.41% 5,590 295 5.28% 5,220 207 5.30%
Loans, net of unearned income 84,120 5,771 9.17% 74,469 6,842 9.19% 73,071 5,034 9.20%
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total interest earning assets 144,143 8,498 7.88% 130,172 10,067 7.73% 128,044 7,402 7.72%
Cash and due from banks 4,086 4,000 3,997
Bank premises and equipment 3,192 3,313 3,321
Other assets 1,623 1,496 1,322
Allowance for possible loan losses (1,184) (1,171) (1,171)
-------- -------- --------
Total Assets $151,860 $137,810 $135,513
======== ======== ========
LIABILITIES
Certificates of deposit $ 54,395 $ 2,149 5.28% $ 45,579 $ 2,286 5.02% $ 44,138 $ 1,647 4.98%
Savings deposits 40,838 796 2.61% 39,594 997 2.52% 40,091 758 2.53%
Interest bearing demand deposits 24,412 387 2.12% 23,880 515 2.16% 23,673 384 2.17%
Federal funds purchased and
Repurchase agreements 5,193 142 3.66% 3,715 127 3.42% 3,089 79 3.42%
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total interest bearing liabilities 124,838 3,474 3.72% 112,768 3,925 3.48% 110,991 2,868 3.45%
Demand deposits 12,983 12,128 11,943
Other liabilities 911 728 705
-------- -------- --------
Total Liabilities 138,732 125,624 123,639
SHAREHOLDERS' EQUITY 13,128 12,186 11,874
-------- -------- --------
Total Liabilities
and Shareholders' Equity $151,860 $137,810 $135,513
======== ======== ========
Net interest revenue as a percentage of
average earning assets $ 5,024 4.66% $ 6,142 4.72% $ 4,534 4.73%
======== ====== ======== ====== ======= ======
The fully taxable equivalent basis of interest income from obligations of
states and political subdivisions has been determined using a combined
Federal and State corporate income tax rate of 40% for the nine months ended
September 30, 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 $ 5,551 $ 335 8.07% $ 4,869 $ 412 8.46% $ 4,736 $ 302 8.51%
Loans 84,120 5,830 9.27% 74,469 6,912 9.28% 73,071 5,086 9.30%
======== ======== ====== ======== ======== ====== ======== ======== ======
Total interest earning assets $144,143 $ 8,691 8.06% $130,172 $ 10,302 7.91% $128,044 $ 7,575 7.90%
======== ======== ====== ======== ======== ====== ======== ======== ======
Net interest revenue as a percentage
of average earning assets $ 5,217 4.84% $ 6,377 4.90% $ 4,707 4.91%
======== ====== ======== ====== ======= ======
- --------------------------------------------------------------------------------
12
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Non-Interest Income - continued
- -------------------------------
Other operating income is comprised of fees from safe deposit box
rentals, sales of cashier's checks and money orders, utility collections, ATM
charges and card fees, home equity credit line fees, credit life commissions,
and credit card fees and commissions and various other charges and fees
related to normal customer banking relationships. For the three month period
ended September 30, 1997 other operating income was $54,132, an increase of
$6,205 or 12.9% over the same period in 1996. For the nine month period ended
September 30, 1997, other operating income was $173,810, an increase of
$28,447 or 19.6%, 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 September 30, 1997, salary and
employee benefits increased $33,617 or 6.3% as compared to the same period of
the prior year. For the nine month period ended September 30, 1997, as
compared to the same period in 1996, salary and employee benefits increased
$137,718 or 8.8%. The increase in salary and benefits was primarily due to
the normal annual merit adjustments in salaries.
During the third quarter of 1997, net occupancy and equipment
expense increased 3.9% as compared to the same period in the prior year. For
the nine month period ended September 30, 1997, net occupancy and equipment
expenses decreased $11,655 or 1.9%, as compared to the same period in 1996.
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
$29,459 or 10.0%, for the three month period ended September 30, 1997 as
compared to the same period in the prior year. For the nine months ended
September 30, 1997, other operating expenses increased $21,014 or 2.4% as
compared to the same period in 1996.
Income Taxes
- ------------
Income tax expense for the three month period ended September 30,
1997 was $249,632, an increase of $28,355 over the same period in 1996. The
increase was primarily due to the increase in pre-taxable income of $95,986.
For the nine month period ended September 30, 1997, income tax expense was
$722,620, an increase of $116,855 over the same period in 1996. The increase
was primarily due to the increase in pre-taxable income of $355,940.
For federal income tax purposes, tax-exempt income is based on
qualified state, county, and municipal bonds and loans. Tax-exempt income was
$98,930 and $90,626 for the three month period ended September 30, 1997 and
1996, respectively. For the nine month period ended September 30, 1997 and
1996, tax exempt income was $289,270 and $258,939, respectively.
Federal income tax rates were consistent at 34% for the quarter
ended September 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 $795,186 or 1.5% from
$51,857,715 at September 30, 1996, to $52,652,901 at September 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 90.1% of total securities at September 30, 1997,
as compared to 89.8% at September 30, 1996. The corporation does not have any
issues in the investment portfolio which exceed 10% of stockholders' equity as
of September 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.
As of September 30, 1997, the corporation had approximately 91% of
the investment portfolio classified as available for sale, while 9% 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 carrying value of securities available for sale
was increased by $152,527 at September 30, 1997 and reduced by $253,517 at
September 30, 1996. The market value of securities classified as held to
maturity was above book value by $58,453 at September 30, 1997 and below book
value by $211 at September 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 September 30, 1997 and 1996 and at
December 31, 1996 are as follows
(in thousands) (Unaudited):
September 30, December 31, September 30,
1997 1996 1996
-------- -------- --------
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ - $ 800 $ 800
Obligations of states
and political subdivisions 4,720 4,764 4,777
-------- -------- --------
Total held to maturity $ 4,720 $ 5,564 $ 5,577
-------- -------- --------
Securities available for sale :
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies 40,897 $ 39,495 $ 41,813
Obligations of states
and political subdivisions 514 507 503
Corporate debt securities 1,202 614 849
Mortgage-backed securities 4,698 3,741 2,598
Equity Securities 622 519 518
-------- -------- --------
Total available for sale 47,933 44,876 46,281
-------- -------- --------
Total $ 52,653 $ 50,440 $ 51,858
======== ======== ========
- -------------------------------------------------------------------------------
15
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Table Five
Investment Portfolio ( Continued)
(in thousands)
The maturity distribution using book value including accretion of
discounts and amortization of premiums (expressed in thousands)
and approximate yield of investment securities at September 30, 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.
September 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 $ - -% $ 8,346 6.17% $ - -% $ 6,714 5.74%
After One But
Within Five Years - - 29,292 6.34 800 5.02 29,280 6.27
After Five But
Within Ten Years - - 3,259 7.09 - - 3,501 6.83
After Ten Years - - - - - - - -
--------- ------ --------- ------ --------- ------ --------- ------
- - 40,897 6.37 800 5.02 39,495 6.23
States & Political Subdivisions
Within One Year 338 6.25 - - 200 7.57 - -
After One But
Within Five Years 2,742 7.17 - - 2,723 7.53 - -
After Five But
Within Ten Years 1,477 7.37 514 7.48 1,678 7.89 507 7.58
After Ten Years 163 7.72 - - 163 7.72 - -
--------- ------ --------- ------ --------- ------ --------- ------
4,720 7.19 514 7.48 4,764 7.66 507 7.58
Corporate Debt Securities
Within One Year - - 993 5.65 - - 404 7.60
After One But
Within Five Years - - 209 7.81 - - 210 7.78
--------- ------ --------- ------ --------- ------ --------- ------
- - 1,202 6.03 - - 614 7.66
Mortgage-Backed Securities - - 4,698 6.67 - - 3,741 6.95
Equity Securities - - 622 5.44 - - 519 6.15
--------- ------ --------- ------ --------- ------ --------- ------
Total $ 4,720 7.19% $ 47,933 6.39% $ 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
- ------------------------------------------------------------------------------
Loans
- -----
Loans increased as of September 30, 1997 as compared to September
30, 1996 as loans outstanding increased $14,657,369 or 19.1%, to $91,476,574.
The loan growth can be attributed primarily to increases in installment loans,
commercial loans and residential real estate loans which increased
approximately $5,385,000, $5,110,000, and $3,433,000, respectively. Loan
growth was funded principally through the increase in deposits. The loan to
deposit ratio at September 30, 1997 was 66.4% which was higher than the 62.4%
reported at September 30, 1996.
Real estate residential loans which include real estate
construction, real estate farmland, and real estate residential loans comprise
thirty-five percent (35%) 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-four percent (24%) of the loan portfolio.
Other loans include nonrated industrial development obligations, direct
financing leases and other loans comprise three percent (3%) of the loan
portfolio. The changes in the composition of the loan portfolio from
September 30, 1996 to September 30, 1997 were a 3% increase in installment
loans, a 1% decrease in commercial loans, and a 2% 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 15.7% to $1,044,000 at
September 30, 1997 as compared to $1,238,000 at September 30, 1996. Loans
classified as non-accrual decreased $96,000 to $288,000 or .3% of total loans
as of September 30, 1997, as compared to $384,000 or .5% of total loans at
September 30, 1996. There were no loans classified as renegotiated as of
September 30, 1997 and 1996, respectively. The loans past due 90 days or more
decreased $134,000 to $671,000 at September 30, 1997 as compared to $805,000
at September 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) :
September 30, December 31,
------------------------ ----------
1997 1996 1996
---------- ---------- ----------
Real Estate-Residential
Real estate-construction $ 333 $ 199 $ 418
Real estate-farmland 129 13 12
Real estate-residential 31,350 28,167 28,920
---------- ---------- ----------
$ 31,812 $ 28,379 $ 29,350
---------- ---------- ----------
Commercial
Real estate-secured by
nonfarm, nonresidential $ 22,878 $ 20,233 $ 21,145
Commercial & industrial 11,948 9,483 10,338
---------- ---------- ----------
$ 34,826 $ 29,716 $ 31,483
---------- ---------- ----------
Installment
Installment and other
loans to individuals $ 21,657 $ 16,272 $ 17,379
---------- ---------- ----------
Others
Nonrated industrial
development obligations $ 3,172 $ 1,798 $ 1,593
Direct Financing Leases 93 351 334
Other loans 21 394 368
---------- ---------- ----------
$ 3,286 $ 2,543 $ 2,295
---------- ---------- ----------
Total 91,581 76,910 80,507
Less unearned interest 104 91 90
---------- ---------- ----------
$ 91,477 $ 76,819 $ 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 September 30,
1997 and December 31, 1996 (in thousands) (Unaudited):
September 30, 1997
----------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
----------- ----------- -----------
Commercial $ 1,033 $ 7,476 $ 3,439
Real Estate-construction 333 - -
----------- ----------- -----------
Total $ 1,366 $ 7,476 $ 3,439
=========== =========== ===========
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 September 30, 1997 and December 31, 1996 along with the contractual
maturities of loans other than installment loans and residential mortgages (in
thousands) (Unaudited):
September 30, 1997
----------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
----------- ----------- -----------
Fixed Rates $ 918 $ 6,019 $ 1,235
Variable Rates 448 1,457 2,204
----------- ----------- -----------
Total $ 1,366 $ 7,476 $ 3,439
=========== =========== ===========
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):
September 30, December 31,
--------------------- ---------
1997 1996 1996
--------- --------- ---------
Past Due 90 Days or More:
Real Estate-residential $ 532 $ 146 $ 250
Commercial 83 586 2
Installment 56 73 48
--------- --------- ---------
$ 671 $ 805 $ 300
--------- --------- ---------
Non-accrual:
Real Estate-residential $ 80 $ 61 $ 26
Commercial 164 302 299
Installment 44 21 28
--------- --------- ---------
$ 288 $ 384 $ 353
--------- --------- ---------
Other Real Estate $ 85 $ 49 $ 49
--------- --------- ---------
Total non-performing assets $ 1,044 $ 1,238 $ 702
========= ========= =========
Total non-performing assets
to total loans and
other real estate 1.14% 1.61% 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 $14,500
and $24,000 for the periods ended September 30, 1997 and 1996, respectively.
As of September 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 $59,000 and $12,000 at
September 30, 1997 and 1996, respectively. The net charge offs during the
nine month period ended September 30, 1997 were primarily consumer loans. The
provision for loan losses was $34,500 during the three months ended September
30, 1997, as compared to $16,800 during the same period of the prior year.
The allowance for possible loan losses represented 1.3% and 1.5% of loans
outstanding as of September 30, 1997 and September 30, 1996, respectively.
The ratio of loan losses to average outstanding loans at September 30, 1997
was .07% compared to .02% for September 30, 1996. The ratio of non-accrual
loans plus loans delinquent more than 90 days to total loans was 1.0% and 1.5%
at September 30, 1997 and September 30, 1996, respectively. Net loan
charge-offs were 4.9% and 1.0% of the allowance for loan losses as of
September 30, 1997 and September 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
---------------------------------
September 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 18 - 35
Commercial - - -
Installment 52 36 49
--------- --------- ---------
70 36 84
Recoveries:
Real Estate-residential - - -
Commercial 3 1 1
Installment 8 23 24
--------- --------- ---------
11 24 25
Net Charge-offs 59 12 59
Additions Charged to Operations 96 45 70
--------- --------- ---------
Balance at end of period: $ 1,197 $ 1,182 $ 1,160
========= ========= =========
Average Loans Outstanding $ 84,120 $ 73,071 $ 74,469
========= ========= =========
Ratio of net charge-offs
to Average loans
outstanding for the period .07% .02% .08%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.31% 1.54% 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 nine
month period ended September 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.
September 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 $ 194 34.7% $ 192 36.5% $ 215 39.9% $ 216 43.1% $ 216 43.1% $ 190 38.3%
Commercial 622 38.1 619 39.1 618 36.5 420 34.7 382 35.9 353 38.8
Installment 330 23.6 298 21.6 265 20.0 260 19.3 248 17.6 157 18.9
Others 20 3.6 20 2.8 20 3.6 20 2.9 20 3.4 20 4.0
Unallocated 31 - 31 - 31 - 31 - 30 - 30 -
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $1,197 100.0% $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)
September 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 $ 3,190 $ 1,798 $ 1,928 $ 3,324 $ 10,240
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 Nine months ended Year Ended
September 30, September 30, December 31,
----------------------- ----------------------- ---------
1997 1996 1997 1996 1996
--------- --------- --------- --------- ---------
Return on Assets :
(Net income/Average Total Assets) 1.29% 1.24% 1.28% 1.20% 1.19%
Return on Equity :
(Net income/Average Shareholders Equity) 14.69% 14.38% 14.81% 13.67% 13.49%
Dividend Payout Ratio :
(Dividend Declared Per Share/
Net Income Per Share) 30.95% 33.33% 33.33% 34.65% 34.56%
Equity to Asset Ratio :
(Average Equity/Average Total Assets) 8.76% 8.61% 8.64% 8.76% 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 $137.8 million at
September 30, 1997 as compared to $123.2 million at September 30, 1996, an
increase of 11.8%. Deposit growth increased primarily in time deposits. Time
deposits grew by $8.4 million or 17.5% at September 30, 1997 as compared to
September 30, 1996. Special promotions offered by the subsidiary banks have
contributed to the growth in time deposits.
The increase in time deposits resulted in a change in the deposit
mix during the third quarter of 1997 as compared to the same period of the
prior year. At September 30, 1997, non-interest bearing demand deposits
comprised 10.4% of total deposits and interest bearing deposits which include
NOW, money market, savings and time deposits comprised 89.6% of total
deposits. The changes in the deposit mix from September 30, 1996 to September
30, 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 $4,494,987 at September 30,
1997, an increase of $42,940, as compared to September 30, 1996.
Capital Resources
- -----------------
A strong capital base is vital to continued profitability because it
promotes depositor and investor confidence and provides a solid foundation for
future growth. From September 30, 1996 to September 30, 1997, stockholders'
equity increased 10.2%, entirely from current earnings after quarterly
dividends, and increased 2.1% 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 September 30, 1997, as compared
to 8.7% at September 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
September 30, 1997, September 30, 1996, and December 31, 1996:
September 30, Dec. 31
---------------- -------
Ratio Minimum 1997 1996 1996
- ---------------------- -------- ------- ------- -------
Leverage Ratio 3% 8.60 9.00 8.63
Risk Based Capital
Tier 1 (core) 4% 13.99 14.96 14.74
Tier 2 (total) 8% 15.24 16.17 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.
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
$47,933,408 classified as available for sale at September 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
September 30, 1997, Progressive Bank, N.A. and Progressive Bank, N.A.-
Buckhannon, had a maximum borrowing capacity (MBC) amounting to $19,092,000
and $6,002,000, respectively, from the FHLB at prevailing interest rates,
subject to satisfying the additional capital stock provisions, as defined, in
their respective agreements with the FHLB. As of September 30, 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 September 30, 1997, there
were no borrowings outstanding pursuant to these agreements.
At September 30, 1997 and September 30, 1996, the Holding Company
had outstanding loan commitments and unused lines of credit totaling
$7,631,000 and $8,306,000, respectively. As of September 30, 1997, management
placed a high probability for required funding within one year of
approximately $5,279,000. Approximately $2,063,000 is principally unused home
equity and credit card lines on which management places a low probability for
required funding.
26
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
Item 6 Exhibits and Reports on Form 8-K
- -------------------------------------------------------------------
(a) Financial
----------
The consolidated financial statements of First West Virginia
Bancorp, Inc. and subsidiaries, for the three month period ended September 30,
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
September 30, 1997.
(c) Exhibits
--------
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule. Filed herewith and incorporated herein by
reference.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
First West Virginia Bancorp, Inc
- --------------------------------
(Registrant)
By: /s/ Ronald L. Solomon
-----------------------------
Ronald L. Solomon
President and Chief Executive Officer/Director
By: /s/ Francie P. Reppy
----------------------------------
Francie P. Reppy
Controller
Dated: November 4, 1997
28