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, 1999
[ ] 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1701 Warwood Avenue
Wheeling, West Virginia 26003
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(Address of principal executive offices)
Registrant's telephone number, including area code: (304) 277-1100
----------------
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months ( or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No [X] N/A
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
The number of shares outstanding of the issuer's common stock as of July 28,
1999:
Common Stock, $5.00 Par Value, shares outstanding 1,257,252 shares
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2
FIRST WEST VIRGINIA BANCORP, INC.
PART I
FINANCIAL INFORMATION
2
3
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, December 31, June 30,
1999 1998 1998
-------------- -------------- --------------
Cash and due from banks $ 4,533,799 $ 4,720,682 $ 4,611,232
Due from banks - interest bearing 4,726,768 299,430 65,593
-------------- -------------- --------------
Total cash and cash equivalents 9,260,567 5,020,112 4,676,825
Federal funds sold 2,613,000 4,092,000 6,773,000
Investment securities
Available for sale (at fair value) 49,774,539 43,385,571 38,481,030
Held to maturity - fair value of
$10,774,640 at June 30, 1999;
$11,424,327 at December 31, 1998;
and $7,194,266 at June 30, 1998 10,854,616 11,349,829 7,132,998
Loans, net of unearned income 105,249,268 103,555,319 100,752,760
Less allowance for possible loan losses (1,128,278) (1,122,912) (1,068,680)
-------------- -------------- --------------
Net loans 104,120,990 102,432,407 99,684,080
Premises and equipment, net 2,939,499 3,204,730 3,021,260
Accrued income receivable 1,349,168 1,242,606 1,092,385
Other assets 1,124,950 667,824 610,881
-------------- --------------- --------------
Total assets $ 182,037,329 $ 171,395,079 $ 161,472,459
============== =============== ==============
LIABILITIES
Noninterest bearing deposits:
Demand $ 15,494,893 $ 15,141,249 $ 14,163,024
Interest bearing deposits:
Demand 23,760,881 25,130,312 22,640,625
Savings 50,362,044 45,275,810 44,055,613
Time 66,085,265 62,237,448 59,791,663
-------------- --------------- --------------
Total deposits 155,703,083 147,784,819 140,650,925
-------------- --------------- --------------
Repurchase agreements 9,481,904 6,994,024 5,143,871
Accrued interest on deposits 476,118 472,097 448,924
Other liabilities 706,597 683,201 452,601
-------------- --------------- --------------
Total liabilities 166,367,702 155,934,141 146,696,321
-------------- --------------- --------------
STOCKHOLDERS' EQUITY
Common Stock - 2,000,000 shares authorized at
$5 par value 1,257,252 shares issued at
June 30, 1999 and December 31, 1998 and
1,209,085 shares issued at June 30, 1998 6,286,260 6,286,260 6,045,425
Surplus 4,739,381 4,739,381 3,764,000
Retained Earnings 5,165,335 4,275,249 4,854,283
Accumulated other comprehensive income (521,349) 160,048 112,430
-------------- -------------- --------------
Total stockholders' equity 15,669,627 15,460,938 14,776,138
-------------- --------------- --------------
Total liabilities and stockholders' equity $ 182,037,329 $ 171,395,079 $ 161,472,459
============== =============== ==============
The accompanying notes are an integral part of the financial statements
4
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans and lease financing:
Taxable $2,223,797 $2,187,246 $4,429,868 $4,314,852
Tax-exempt 55,240 48,899 104,599 99,318
Investment securities:
Taxable 699,574 594,383 1,339,211 1,239,287
Tax-exempt 127,116 86,043 263,173 157,863
Dividends 8,888 11,875 16,900 18,025
Other interest income 38,620 45,616 62,619 57,003
Interest on federal funds sold 67,217 88,574 121,172 193,580
--------- --------- --------- ----------
Total interest income 3,220,452 3,062,636 6,337,542 6,079,928
INTEREST EXPENSE
Deposits 1,278,424 1,269,441 2,541,685 2,494,416
Other borrowings 62,344 56,351 120,322 108,315
--------- --------- --------- ----------
Total interest expense 1,340,768 1,325,792 2,662,007 2,602,731
--------- --------- --------- ----------
Net interest income 1,879,684 1,736,844 3,675,535 3,477,197
PROVISION FOR POSSIBLE LOAN LOSSES 76,500 56,500 153,000 103,000
--------- --------- --------- ----------
Net interest income after provision
for possible loan losses 1,803,184 1,680,344 3,522,535 3,374,197
NONINTEREST INCOME
Service charges 125,181 117,480 241,309 225,165
Securities gains (losses) 3,312 -- 12,465 (1,608)
Gain on sale of building and land 301,862 -- 301,862 --
Other operating income 52,568 65,813 135,434 149,632
--------- --------- --------- ---------
Total noninterest income 482,923 183,293 691,070 373,189
NONINTEREST EXPENSES
Salary and employee benefits 623,221 588,544 1,231,690 1,194,426
Net occupancy and equipment expenses 195,692 191,054 383,841 391,832
Other operating expenses 358,542 346,323 695,210 649,257
--------- --------- --------- ---------
Total noninterest expense 1,177,455 1,125,921 2,310,741 2,235,515
--------- --------- --------- ---------
Income before income taxes 1,108,652 737,716 1,902,864 1,511,871
--------- --------- --------- ----------
INCOME TAXES 364,462 236,524 610,458 490,939
--------- --------- --------- ----------
Net income $ 744,190 $ 501,192 $1,292,406 $1,020,932
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,257,252 1,257,252 1,257,252 1,257,252
========= ========= ========= =========
EARNINGS PER COMMON SHARE $ 0.59 $ 0.40 $ 1.03 $ 0.81
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements
5
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Common Stock Other
----------------------- Retained Comprehensive Comprehensive
Shares Amount Surplus Earnings Income Income Total
--------- ----------- ----------- ----------- -------------- ------------- ------------
Balance, December 31, 1998 1,257,252 $ 6,286,260 $ 4,739,381 $ 4,275,249 $ 160,048 $ $ 15,460,938
Comprehensive income
Net income for the six months
ended June 30, 1999 -- -- -- 1,292,406 -- 1,292,406 1,292,406
Other comprehensive income,
net of tax
Unrealized gains (losses) on securities,
net of reclassification adjustment
(see disclosure) -- -- -- -- (681,397) (681,397) (681,397)
-------------
Comprehensive income $611,009
============
Cash dividend
($.32 per share) -- -- -- (402,320) -- (402,320)
----------- ----------- ----------- ----------- -------------- ------------
Balance, June 30, 1999 (Unaudited) 1,257,252 $ 6,286,260 $ 4,739,381 $ 5,165,335 $ (521,349) $ 15,669,627
=========== =========== =========== =========== ============== ============
Accumulated
Common Stock Other
--------------------- Retained Comprehensive Comprehensive
Shares Amount Surplus Earnings Income Income Total
----------- ----------- ----------- ----------- --------------- ------------- ------------
Balance, December 31, 1997 1,209,085 $ 6,045,425 $ 3,764,000 $ 4,196,076 $ 123,494 $ $ 14,128,995
Comprehensive income
Net income for the six months
ended June 30, 1998 -- -- -- 1,020,932 -- 1,020,932 1,020,932
Other comprehensive income,
net of tax
Unrealized gains (losses) on securities,
net of reclassification adjustment
(see disclosure) -- -- -- -- (11,064) (11,064) (11,064)
----------
Comprehensive income $1,009,868
===========
Cash dividend
($.29 per share) -- -- -- (362,725) -- (362,725)
----------- ----------- ----------- ----------- --------------- ------------
Balance, June 30, 1998 (Unaudited) 1,209,085 $ 6,045,425 $ 3,764,000 $ 4,854,283 $ 112,430 $ 14,776,138
=========== =========== =========== =========== =============== ============
[CAPTION]
For the six months ended
June 30,
1999 1998
----------- ----------
Disclosure of reclassification amount:
Unrealized holding gains (losses)
arising during the period $ (673,540) $ (12,078)
Less: reclassification adjustment for
gains (losses) included in net income 7,857 (1,014)
----------- -----------
Net unrealized gains (losses) on securities $ (681,397) $ (11,064)
=========== ===========
The accompanying notes are an integral part of the financial statements
6
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
1999 1998
----------------- ---------------
(Unaudited)
OPERATING ACTIVITIES
Net Income $ 1,292,406 $ 1,020,932
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 153,000 103,000
Depreciation and amortization 185,421 186,695
Amortization of investment securities, net (47,361) (34,767)
Investment security losses (gains) (12,465) 1,608
Gain on sale of building and land (301,862) --
Decrease (increase) in interest receivable (106,562) (16,684)
Increase (decrease) in interest payable 4,021 16,054
Other, net (34,059) 21,616
----------------- ---------------
Net cash provided by operating activities 1,132,539 1,298,454
----------------- ---------------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 1,479,000 159,000
Net (increase) decrease in loans, net of charge offs (1,859,346) (5,641,389)
Proceeds from sales of securities available for sale 1,154,104 2,595
Proceeds from maturities of securities available for sale 15,015,000 21,448,170
Proceeds from maturities of securities held to maturity 1,580,000 635,000
Principal collected on mortgage-backed securities 2,372,154 1,371,117
Purchases of securities available for sale (25,949,371) (20,621,494)
Purchases of securities held to maturity (1,086,884) (2,989,855)
Recoveries on loans previously charged-off 17,763 10,199
Purchases of premises and equipment (36,480) (122,717)
Proceeds from sales of premises and equipment 418,152 --
----------------- ---------------
Net cash used by investing activities (6,895,908) (5,749,374)
----------------- ---------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 7,918,264 3,606,112
Dividends paid (402,320) (362,725)
Increase (decrease) in short term borrowings 2,487,880 1,068,875
----------------- ---------------
Net cash provided by financing activities $ 10,003,824 $ 4,312,262
----------------- ---------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,240,455 (138,658)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 5,020,112 4,815,483
----------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 9,260,567 $ 4,676,825
================= ===============
The accompanying notes are an integral part of the financial statements
7
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 AND 1998
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, 1998, 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. Certain prior year amounts have been reclassified to conform to the 1999
presentation.
8
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 June 30, 1999 and 1998. 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 1998 financial statements, the notes thereto and the related
Management's Discussion and Analysis.
OVERVIEW
The Holding Company reported net income of $744,190 for the three
months ended June 30, 1999 as compared to $501,192 for the same period during
1998. The increase in earnings during the second quarter of 1999 over 1998
can be primarily attributed to increased noninterest income combined with
increased net interest income, offset in part by increased operating expenses
and the provision for loan losses. Earnings per share were $.59 in the second
quarter of 1999, an increase of 19.3% over the $.40 earned during the second
quarter of 1998.
Net income for the six months ended June 30, 1999 was $1,292,406
compared to $1,020,932 for the same period during 1998. The increase in
earnings for the six months ended June 30, 1999 as compared to the same period
in 1998 was primarily due to increased noninterest income and net interest
income, offset in part by increased noninterest expenses and the provision for
loan losses. Earnings per share were $1.03 for the first six months of 1999,
an increase of 21.6%, as compared to $.81 earned during the same period during
1998.
Noninterest income increased $299,630 due primarily to the gain on
the sale of building and land by the holding company during the second quarter
of 1999. Operational earnings were improved with net interest income
increasing $142,840 or 8.2%, for the three months ended June 30, 1999 as
compared to the same period in 1998. During the three month period ended June
30, 1999, net interest income increased primarily from the increase in the
average volume of investment securities and loans, offset in part by the
increased interest paid on time deposits. For the six month period ended June
30, 1999, noninterest income increased $317,881 and was primarily attributable
to the sale of building and land by the holding company and the increased net
interest income. The increase in net interest income during the six month
period ended June 30, 1999 was primarily due to the increased interest earned
on the average volume of investment securities and loans, offset in part by
the increase in the interest paid on the average volume of time deposits.
Return on average assets (ROA) measures the effectiveness of asset
utilization to produce net income. ROA was 1.65% for the three month period
ended June 30, 1999 as compared to 1.24% for the same period of the prior
year. For the six months ended June 30, 1999 compared to June 30, 1998, ROA
was 1.47% and 1.28%, respectively. Return on average equity (ROE) measures
the return on the stockholders' investment. The Holding Company's ROE was
18.77% for the three months ended June 30, 1999 and 13.80% at June 30, 1998.
For the six months ended June 30, 1999 compared to June 30, 1998, ROE was
16.59% and 14.39%, 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.
9
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,
--------------------- --------------------- ----------------------------------
1999 1998 1999 1998 1998 1997 1996
-------- -------- -------- ------- --------- --------- -------
SUMMARY OF OPERATIONS
Total interest income $ 3,220 $ 3,063 $ 6,338 $ 6,080 $ 12,452 $ 11,507 $10,067
Total interest expense 1,341 1,326 2,662 2,603 5,324 4,745 3,925
Net interest income 1,879 1,737 3,676 3,477 7,128 6,762 6,142
Provision for loan losses 76 56 153 103 256 131 71
Total other income 483 183 691 373 787 639 568
Total other expenses 1,177 1,126 2,311 2,235 4,674 4,377 4,182
Income before income taxes 1,109 738 1,903 1,512 2,985 2,893 2,457
Net income 744 501 1,292 1,021 2,033 1,931 1,644
PER SHARE DATA (1)
Net income $ 0.59 $ 0.40 $ 1.03 $ 0.81 $ 1.62 $ 1.54 $ 1.31
Cash dividends declared (2) 0.16 0.15 0.32 0.29 0.58 0.52 0.46
Book value per share 12.46 11.75 12.46 11.75 12.30 11.24 10.06
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $104,020 $ 98,882 $103,884 $97,482 $ 99,345 $ 86,609 $74,469
Investment securities 58,941 46,086 57,058 46,494 48,543 51,754 48,557
Deposits - Interest Bearing 139,587 126,430 137,177 125,300 127,520 120,589 112,768
Stockholders' equity 15,895 14,557 15,709 14,304 14,697 13,400 12,186
Total Assets 180,427 162,415 177,251 161,000 164,630 153,290 137,810
SELECTED RATIOS
Return on average assets 1.65% 1.24% 1.47% 1.28% 1.23% 1.26% 1.19%
Return on average equity 18.77% 13.80% 16.59% 14.39% 13.83% 14.41% 13.49%
Average equity to average assets 8.81% 8.96% 8.86% 8.88% 8.93% 8.74% 8.84%
Dividend payout ratio (1) (2) 27.12% 37.50% 31.07% 35.80% 35.80% 33.75% 35.11%
Loan to Deposit ratio 67.60% 71.63% 67.60% 71.63% 70.07% 69.59% 64.19%
BALANCE SHEET June 30, December 31,
--------------------- ---------------------------------
1999 1998 1998 1997 1996
---------- ---------- ---------- --------- ----------
Investments $ 60,629 $ 45,614 $ 54,735 $ 45,444 $ 50,440
Loans 105,249 100,753 103,555 95,374 80,417
Other Assets 16,159 15,105 13,105 15,325 13,689
---------- --------- ---------- --------- ----------
Total Assets $ 182,037 $ 161,472 $ 171,395 $ 156,143 $ 144,546
========== ========= ========== ========= ==========
Deposits $ 155,703 $ 140,651 $ 147,785 $ 137,045 $ 125,271
Repurchase agreements 9,482 5,144 6,994 4,075 5,931
Other Liabilities 1,183 901 1,155 894 695
Shareholders' Equity 15,669 14,776 15,461 14,129 12,649
---------- --------- ---------- --------- ----------
Total Liabilities and
Shareholders' Equity $ 182,037 $ 161,472 $ 171,395 $ 156,143 $ 144,546
========== ========= ========== ========= ==========
(1) Adjusted for a 4 percent common stock dividend to stockholders of record
as of October 1, 1998, a 3 for 2 stock split in the effect of a fifty
(50) percent common stock to shareholders of record as of October 1,
1997, and a 4 percent common stock dividend to stockholders of record as
of December 2, 1996.
(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.
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10
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 earnings 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, 1999 and 1998 and for the six months ended
June 30, 1999 and 1998.
Net interest income increased $142,840 or 8.2%, during the three months
ended June 30, 1999 as compared to the same period in 1998. The increase in
net interest income resulted primarily from the increased interest earned on
investment securities combined with the increased interest earned on loans
offset in part by the increased interest paid on time deposits. Interest and
dividend income on investment securities increased $143,277 or 20.7%, for the
three months ended June 30, 1999 as over the same period in 1998 primarily due
to the increase in the average volume of investment securities. Interest and
fees on loans increased $42,892 or 1.9% during the three month period ended
June 30, 1999 as compared to the same period in 1998 due to the increase in
average loan volume. Interest expense increased $14,976 or 1.1% primarily due
to the increase in the average volume of time deposits.
For the six months ended June 30, 1999, net interest income increased
$198,338 or 5.7%, as compared to 1998. This increase was largely due to the
increased interest earned on investment securities and on loans offset in part
by the increased interest paid on time deposits. Comparing the six month
period ended June 30, 1999 to the same period in 1998 interest and dividends
on investment securities increased $204,109 or 14.4% due to the increase in
the average volume of investment securities. For the six months ended June
30, 1999, interest and fees on loans increased $120,297 or 2.7%, primarily due
to the increase in the average loan volume. Interest expense for the six
months ended June 30, 1999 increased $59,276 or 2.3%, primarily due to the
increase in the average volume of time deposits.
Noninterest Income
- -------------------
Noninterest income was $482,923 for the three months ended June 30, 1999,
an increase of $299,630 as compared to the same period of the prior year and
was primarily the result of a gain on the sale of building and land by the
holding company. During the three months ended June 30, 1999, service charges
increased $7,701 or 6.6% as compared to the same period in 1998. Other
operating income decreased $13,245 or 20.1% primarily due the loss of lease
income resulting from the sale of the building by the holding company, and a
decrease in ATM fees. For the six months ended June 30, 1999, noninterest
income was $691,070, an increase of $317,881 as compared to the same period of
the prior year. The increase in noninterest income resulted primarily from
the gain on the sale of building and land by the holding company. Service
charges increased $16,144 or 7.2%, as compared to the same period in 1998.
Other operating income decreased $14,198 or 9.5%, during the six months ended
June 30, 1999 as compared to the same period in 1998 and was due primarily to
the loss of lease income resulting from the sale of the building by the
holding company in 1999 and the gain on sale of other real estate owned by a
subsidiary bank in 1998. During the six months ended June 30,1999, the
holding company accounted for securities gains of $11,470 and a securities
loss of $660 and were attributable to sales of securities available for sale.
A subsidiary bank accounted for securities gains of $11,109 and securities
losses of $9,454 and were attributable to sales of securities available for
sale.
Non-Interest Expense
- --------------------
Noninterest expense increased $51,534 or 4.6% for the three months ended
June 30, 1999 as compared to the same period of the prior year. Salary and
employee benefits is the largest component of noninterest expense. During
the quarter ended June 30, 1999, salary and employee benefits increased
$34,677 or 5.9%. The increase was primarily attributable to normal annual
merit adjustments in salaries. The major components of other operating
expenses include: stationery and supplies, directors fees, service expense,
postage and transportation, other taxes, advertising, and regulatory
assessment and deposit insurance. Other operating expenses increased
$12,219, or 3.5%, for the three month period ended June 30, 1999 as compared
to the same period in the prior year. Increased service expense, directors
fees and other taxes offset in part by decreased stationery and supplies
expense and other operating expense primarily contributed to the increase in
other operating expenses during the three month period ended June 30,1999.
Noninterest expense increased $75,226 or 3.4% for the six months ended
June 30, 1999 as compared to the same period of the prior year. Salary and
employee benefits increased $37,264 or 3.1%. The increase was primarily
attributable to normal annual merit adjustments in salaries. Other operating
expenses increased $45,953 or 7.1%, for the six month period ended June 30,
1999 as compared to the same period in the prior year. Increased service
expense, other operating expense, director fees, and other taxes, offset in
part by decreased stationery and supplies and postage and transportation
expenses primarily contributed to the increase in other operating expenses in
1999.
11
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 six months ended June 30, 1999 and June 30, 1998 and the year ended
December 31, 1998. Average balance sheet information as of June 30, 1999 and
June 30, 1998 and the year ended December 31, 1998 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, 1999
and 1998.
For the Six For the Six
Months ended Months ended
June 30, 1999 December 31, 1998 June 30, 1998
----------------------------- ------------------------------ ----------------------------
Average Average Average Average Average Average
Volume Interest Rate Volume Interest Rate Volume Interest Rate
-------- -------- ------- ------- -------- -------- -------- -------- ------
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 42,643 $ 1,288 6.09% $ 38,387 $ 2,399 6.25% $ 38,985 $1,232 6.37%
Obligations of states and
political subdivisions 11,954 263 4.44% 8,155 382 4.68% 6,597 158 4.83%
Other securities 2,461 68 5.57% 2,001 124 6.20% 912 25 5.53%
_______ _______ _______ _______ _______ _______ _______ _____ _______
Total Investment securities: 57,058 1,619 5.72% 48,543 2,905 5.98% 46,494 1,415 6.14%
Interest bearing deposits 2,652 63 4.79% 2,607 138 5.29% 2,098 57 5.48%
Federal funds sold 5,183 121 4.71% 6,085 330 5.42% 7,095 194 5.51%
Loans, net of unearned income 103,884 4,535 8.80% 99,345 9,078 9.14% 97,482 4,414 9.13%
------- ------- ------- ------- ------- ------- ------- ----- -------
Total earning assets 168,777 6,338 7.57% 156,580 12,451 7.95% 153,169 6,080 8.00%
Cash and due from banks 4,528 4,369 4,290
Bank premises and equipment 3,092 3,056 3,040
Other assets 1,991 1,785 1,711
Allowance for possible loan losses (1,137) (1,160) (1,210)
-------- --------- --------
Total Assets $177,251 $ 164,630 $161,000
======== ========= ========
LIABILITIES
Certificates of deposit $ 64,434 $ 1,707 5.34% $ 60,277 $ 3,356 5.57% $ 59,301 $ 1,632 5.55%
Savings deposits 47,069 625 2.68% 43,418 1,270 2.93% 42,770 627 2.96%
Interest bearing demand deposits 25,674 210 1.65% 23,825 471 1.98% 23,230 236 2.05%
Federal funds purchased and
Repurchase agreements 8,302 120 2.91% 6,600 227 3.44% 5,972 108 3.65%
-------- ------- ----- --------- ------- ------- -------- ------- ------
Total interest bearing liabilities 145,479 2,662 3.69% 134,120 5,324 3.97% 131,273 2,603 4.00%
Demand deposits 14,824 14,720 14,389
Other liabilities 1,239 1,093 1,034
-------- --------- --------
Total Liabilities 161,542 149,933 146,696
STOCKHOLDERS' EQUITY 15,709 14,697 14,304
-------- --------- --------
Total Liabilities
and Stockholders' Equity $177,251 $ 164,630 $161,000
======== ========= ========
Net yield on earning assets $3,676 4.39% $ 7,127 4.55% $ 3,477 4.58%
====== ====== ======== ====== ======= =====
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 six months ended
June 30, 1999 and 1998, and the year ended December 31, 1998, respectively.
The effect of this adjustment is presented below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 11,954 $ 438 7.39% $ 8,155 $ 637 7.81% $ 6,597 $ 263 8.05%
Loans 103,884 4,604 8.94% 99,345 9,215 9.28% 97,482 4,480 9.27%
========= ======= ===== ========= ======= ====== ======== ======= =====
Total earning assets $ 168,777 $ 6,582 7.86% $ 156,580 $12,843 8.20% $153,169 $ 6,251 8.23%
========= ======= ===== ========= ======= ====== ======== ======= =====
Taxable equivalent net yield on
earning assets $ 3,920 4.68% $ 7,519 4.80% $ 3,648 4.80%
======= ===== ======= ====== ======= =====
- --------------------------------------------------------------------------------
12
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 three months ended June 30,
1999 and June 30, 1998. Average balance sheet information as of June 30, 1999
and June 30, 1998 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, 1999 and 1998.
For the Three For the Three
Months ended Months ended
June 30, 1999 June 30, 1998
---------------------------------- -------------------------------
Average Average Average Average
Volume Interest Rate Volume Interest Rate
---------- -------- ------- ----------- ------- -------
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 45,188 $ 680 6.04% $ 37,871 $ 593 6.28%
Obligations of states and
political subdivisions 11,620 127 4.38% 7,239 86 4.77%
Other securities 2,133 29 5.45% 976 13 5.34%
---------- -------- ------- ---------- ------- ------
Total Investment Securities 58,941 836 5.69% 46,086 692 6.02%
Interest bearing deposits 3,262 39 4.80% 3,280 46 5.63%
Federal funds sold 5,739 67 4.68% 6,467 89 5.52%
Loans, net of unearned income 104,020 2,279 8.79% 98,882 2,236 9.07%
---------- -------- ------- ---------- ------- ------
Total earning assets 171,962 3,221 7.51% 154,715 3,063 7.94%
Cash and due from banks 4,646 4,120
Bank premises and equipment 3,015 3,029
Other assets 1,943 1,738
Allowance for possible loan losses (1,139) (1,187)
---------- ----------
Total Assets $ 180,427 $ 162,415
========== ==========
LIABILITIES
Certificates of deposit $ 65,174 $ 854 5.26% $ 59,782 $ 829 5.56%
Savings deposits 48,156 323 2.69% 43,132 321 2.99%
Interest bearing demand deposits 26,257 102 1.56% 23,516 119 2.03%
Federal funds purchased and
Repurchase agreements 8,446 62 2.94% 6,150 57 3.72%
--------- ------- ------- ---------- ------ -------
Total interest bearing liabilities 148,033 1,341 3.63% 132,580 1,326 4.01%
Demand deposits 15,201 14,268
Other liabilities 1,298 1,010
--------- ----------
Total Liabilities 164,532 147,858
SHAREHOLDERS' EQUITY 15,895 14,557
--------- ----------
Total Liabilities
and Shareholders' Equity $ 180,427 $ 162,415
========= ==========
Met yield on earning assets $ 1,880 4.39% $ 1,737 4.50%
======= ====== ====== ======
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, 1999
and 1998, respectively. The effect of this adjustment is presented below (in
thousands).
Obligations of states and
political subdivisions:
Investment securities $ 11,620 $ 212 7.31% $ 7,239 $ 143 7.94%
Loans 104,020 2,316 8.93% 98,882 2,269 9.20%
======= ======= ====== ========== ====== ======
Total earning assets $ 171,962 $ 3,343 7.80% $ 154,715 $ 3,153 8.17%
======= ======= ====== ========== ====== ======
Taxable equivalent net yield on
earning assets $2,002 4.67% $ 1,827 4.74%
====== ===== ====== ======
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
- -----------
Investment securities increased $5,893,755 or 10.8% from $54,735,400 at
December 31, 1998, to $60,629,155 at June 30, 1999. Taxable securities
comprised 81.3% of total securities at June 30, 1999, as compared to 78.3% at
December 31, 1998. 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 June 30, 1999, the Holding Company had approximately 82% of the
investment portfolio classified as available for sale, while 18% 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. As market
rates of interest have declined since December 31, 1998, the carrying value
of securities available for sale was decreased by $827,146 at June 30, 1999.
At December 31, 1998, the carrying value of securities available for sale was
increased by $253,924. The market value of securities classified as held to
maturity was below book value by $79,976 at June 30, 1999 and above book
value by $74,498 at December 31, 1998.
Table Four
Investment Portfolio
The following table presents the book values of investment securities:
(in thousands) (Unaudited):
June 30, December 31, June 30,
1999 1998 1998
----------- ----------- ------------
Securities held to maturity:
Obligations of states
and political subdivisions $ 10,855 $ 11,350 $ 7,133
-------- -------- --------
Total held to maturity $ 10,855 $ 11,350 $ 7,133
-------- -------- --------
Securities available for sale :
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies 43,116 $ 35,107 $ 30,385
Obligations of states
and political subdivisions 510 516 514
Corporate debt securities 103 455 207
Mortgage-backed securities 4,968 6,503 6,573
Equity Securities 1,077 804 802
------- -------- --------
Total available for sale 49,774 43,385 38,481
------- -------- --------
Total $ 60,629 $ 54,735 $ 45,614
======== ======== ========
- -------------------------------------------------------------------------------
14
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, 1999 and December 31, 1998 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, 1999 December 31, 1998
--------------------------------------------- ----------------------------------------
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 $ -- -- % $ 6,245 5.24 % $ -- -- % $ 5,775 6.01%
After One But
Within Five Years -- -- 20,600 5.97 -- -- 18,815 5.92
After Five But
Within Ten Years -- -- 16,271 6.55 -- -- 10,517 6.23
After Ten Years -- -- -- -- -- -- -- --
------- ----- -------- ------ -------- ------ -------- -----
-- -- 43,116 6.08 -- -- 35,107 6.03
States & Political Subdivisions
Within One Year 560 5.93 -- -- 950 7.71 -- --
After One But
Within Five Years 4,798 6.58 -- -- 5,099 6.52 -- --
After Five But
Within Ten Years 4,712 6.53 510 7.55 5,121 6.48 516 7.45
After Ten Years 785 6.47 -- -- 180 6.06 -- --
------- ----- ------- ------ -------- ------ -------- -----
10,855 6.52 510 7.55 11,350 6.59 516 7.45
Corporate Debt Securities
Within One Year -- -- -- -- -- -- 349 5.94
After One But
Within Five Years -- -- 103 8.30 -- -- 106 7.98
------- ----- ------- ------ -------- ------ -------- -----
-- -- 103 8.30 -- -- 455 6.42
Mortgage-Backed Securities -- -- 4,968 6.13 -- -- 6,503 6.35
Equity Securities -- -- 1,077 5.28 -- -- 804 5.30
------- ----- ------- ------ -------- ------ -------- -----
Total $ 10,855 6.52 % $ 49,774 6.09 % $11,350 6.59 % $ 43,385 6.09 %
======= ===== ======= ====== ======== ====== ======== =====
- ------------------------------------------------------------------------------
15
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Loans
- -----
Loans as of June 30, 1999 were $105,249,268 as compared to $103,555,319
as of December 31, 1998. Residential real estate loans increased
approximately $2,016,000 which contributed to the overall increase in loans.
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-seven percent (37%) 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 December 31, 1998 to
June 30, 1999 were a 2% increase in residential real estate loans, a 1%
decrease in commercial loans and a 1% decrease in other loans.
The loan portfolio is not dominated by concentrations of credit within
any one industry; therefore, the impact of a weakening economy on any
particular industry should be minimal. Management believes that the loan
portfolio does not contain any excessive or abnormal elements of risk.
Table Six
Loan Portfolio
(Unaudited)
Loans outstanding are as follows (in thousands) :
June 30, December 31,
------------------------- ----------
1999 1998 1998
Real Estate - Residential
Real estate-construction $ 238 $ 150 $ 41
Real estate-farmland 100 156 133
Real estate-residential 37,105 33,196 35,253
---------- ---------- ----------
$ 37,443 $ 33,502 $ 35,427
---------- ---------- ----------
Commercial
Real estate-secured by
nonfarm, nonresidential $ 25,237 $ 26,740 $ 25,866
Commercial & industrial 14,017 12,627 13,261
---------- ---------- ----------
$ 39,254 $ 39,367 $ 39,127
---------- ---------- ----------
Installment
Installment and other
loans to individuals $ 25,167 $ 24,180 $ 24,722
---------- ---------- ----------
Others
Nonrated industrial
development obligations $ 3,041 $ 3,752 $ 3,563
Direct Financing Leases -- 47 --
Other loans 442 14 819
---------- ---------- ----------
$ 3,483 $ 3,813 $ 4,382
---------- ---------- ----------
Total 105,347 100,862 103,658
Less unearned interest 98 109 103
---------- ---------- ----------
$ 105,249 $ 100,753 $ 103,555
========= ========= =========
16
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, 1999
and December 31, 1998 (in thousands) (Unaudited):
June 30, 1999
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 1,090 $ 6,591 $ 6,336
Real Estate - construction 238 -- --
--------- --------- ---------
Total $ 1,328 $ 6,591 $ 6,336
========= ========= =========
December 31, 1998
----------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 858 $ 6,024 $ 6,379
Real Estate - construction 41 -- --
--------- --------- ---------
Total $ 899 $ 6,024 $ 6,379
========= ========= =========
The following table presents an analysis of fixed and variable rate loans as
of June 30, 1999 and December 31, 1998 along with the contractual maturities of
loans other than installment loans and residential mortgages (in thousands)
(Unaudited):
June 30, 1999
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ -----------
Fixed Rates $ 986 $ 4,643 $ 1,327
Variable Rates 342 1,948 5,009
--------- --------- ---------
Total $ 1,328 $ 6,591 $ 6,336
========= ========= =========
December 31, 1998
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
---------------------------- ----------
Fixed Rates $ 626 $ 4,922 $ 2,266
Variable Rates 273 1,102 4,113
--------- --------- ---------
Total $ 899 $ 6,024 $ 6,379
========= ========= =========
- ---------------------------------------------------------------------------
17
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Total non-performing loans were $1,036,000 at June 30, 1999 and $664,000
at December 31, 1998. Loans classified as non-accrual were $467,000 or .4% of
total loans as of June 30, 1999, as compared to $396,000 or .4% of total loans
at December 31, 1998. There were no loans classified as renegotiated as of
June 30, 1999 and December 31, 1998. The loans past due 90 days or more
increased $301,000 to $569,000 at June 30, 1999 as compared to $268,000 at
December 31, 1998. There was no other real estate owned at June 30, 1999 or
December 31, 1998. Management continues to monitor the non-performing assets
to ensure against deterioration in collateral values.
Table Eight
Risk Elements
(UNAUDITED)
The following table presents loans which are in the process of collection, but
are contractually past due 90 days or more as to interest or principal,
non-accrual loans and other real estate ( in thousands):
June 30, December 31,
----------------- ------------
1999 1998 1998
Past Due 90 Days or More:
Real Estate - residential $ 90 $ 24 $ 76
Commercial 372 16 4
Installment 107 134 188
------- ------- ------------
$ 569 $ 174 $ 268
------- ------- ------------
Non-accrual:
Real Estate - residential $ 59 $ 181 $ 106
Commercial 301 272 184
Installment 107 29 106
------- ------- ------------
$ 467 $ 482 $ 396
------- ------- ------------
Other Real Estate $ -- $ 16 $ --
------- ------- ------------
Total non-performing assets $ 1,036 $ 672 $ 664
======= ======= ===========
Total non-performing assets
to total loans and
other real estate 0.98% 0.67% 0.64%
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 $18,700
and $30,500 for the periods ended June 30, 1999 and 1998, respectively.
As of June 30, 1999, 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.
- ------------------------------------------------------------------------------
18
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Allowance for Possible Loan Losses
- ----------------------------------
The corporation maintains an allowance for possible loan losses to absorb
probable loan losses. The provision for loan losses was $153,000 during the
six months ended June 30, 1999, as compared to $103,000 during the same period
of the prior year. The increased loan growth combined with the increase in
net charge-offs and non-performing assets has prompted the increase in the
provision for loan losses. In comparison to December 31, 1998, the allowance
for possible loan losses at June 30, 1999 continues to represent 1.1% of total
loans outstanding. Net loan charge-offs for the six months ended June 30,
1999 were primarily consumer loans. The increase in personal bankruptcies
contributed to the increase in net charge-offs on consumer type loans. The
reserve for possible loan losses is considered to be adequate to provide for
future losses in the portfolio. The amount charged to earnings is based upon
management's evaluations of the loan portfolio, as well as current and
anticipated economic conditions, net loans charged off, past loan experiences,
changes in character of the loan portfolio, specific problem loans and
delinquencies and other factors.
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,
------------------- ------------
1999 1998 1998
Balance at Beginning of period
Allowance for Possible
Loan Losses $ 1,123 $ 1,218 $ 1,218
Loans Charged Off:
Real Estate - residential -- 65 65
Commercial 16 134 134
Installment 149 63 173
-------- -------- ---------
165 262 372
Recoveries:
Real Estate - residential -- 5 5
Commercial -- -- --
Installment 17 5 16
-------- -------- ---------
17 10 21
Net Charge-offs 148 252 351
Additions Charged to Operations 153 103 256
-------- -------- ---------
Balance at end of period: $ 1,128 $ 1,069 $ 1,123
======= ======== =========
Average Loans Outstanding $ 103,884 $ 97,482 $ 99,345
======= ======== =========
Ratio of net charge-offs
to Average loans
outstanding for the period .14% .26% .35%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.07% 1.06% 1.08%
- ------------------------------------------------------------------------------
19
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Allowance for Possible Loan Losses - continued
- -----------------------------------------------
The corporation has allocated the allowance for possible loan losses to
specific portfolio segments based upon historical net charge-off experience,
changes in the level of non-performing assets, locale economic conditions and
management experience as presented in Table Ten. The Corporation has
historically maintained the allowance for loan losses at a level greater than
actual charge-offs. In determining the allocation of the allowance for
possible loan losses, charge-offs for 1999 are anticipated to be within the
historical ranges. Although a subjective evaluation is determined by
management, the corporation believes it has appropriately assessed the risk
of loans in the loan portfolio and has provided for an allowance which is
adequate based on that assessment. Because the allowance is an estimate, any
change in the economic conditions of the corporation's market area could
result in new estimates which could affect the corporation's earnings.
Management monitors loan quality through reviews of past due loans and all
significant loans which are considered to be potential problem loans on a
monthly basis. The internal loan review function provides for an independent
review of commercial, real estate, and installment loans in order to measure
the asset quality of the portfolio. Management's review of the loan
portfolio has not indicated any material amount of loans, not disclosed in
the accompanying tables and discussions which are known to have possible
credit problems that cause management to have serious doubts as to the
ability of each borrower to comply with their present loan repayment terms.
Table Ten
Loan Portfolio - Allocation of allowance for possible loan losses
The following table presents an allocation of the allowance for possible loan
losses at each of the five year periods ended December 31, 1998 , and the six
month period ended June 30, 1999 (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,
--------------- -----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
--------------- --------------- ---------------- -------------- ---------------- ------------------
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 $ 208 35.5% $ 208 34.2% $ 202 34.6% $ 192 36.5% $ 215 39.9% $216 43.1%
Commercial 490 37.3 490 37.8 622 38.0 619 39.1 618 36.5 420 34.7
Installment 410 23.9 374 23.8 343 23.6 298 21.6 265 20.0 260 19.3
Others 20 3.3 20 4.2 20 3.8 20 2.8 20 3.6 20 2.9
Unallocated -- -- 31 -- 31 -- 31 -- 31 -- 31 -
------ ----- ------ ----- ---- ----- ------ ----- ------ ------ ---- ------
Total $1,128 100.0% $1,123 100.0% $ 1,218 100.0% $1,160 100.0% $1,149 100.0% $947 100.0%
====== ===== ====== ===== ======= ====== ====== ====== ====== ====== ==== ======
20
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Deposits
- --------
Total deposits were $155,703,083 at June 30, 1999 as compared to
$147,784,819 at December 31, 1998, an increase of 5.4%. Deposit growth
increased primarily in savings and time deposits. At June 30, 1999,
noninterest bearing deposits comprised 10% of total deposits and interest
bearing deposits which include NOW, money market, savings and time
deposits comprised 90% of total deposits. There were no changes in the
deposit mix from December 31, 1998 to June 30, 1999.
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, 1999
Maturities of Time Deposits in Excess of $100,000
--------------------------------------------------
In Three Over Three Over Six Over
Months And Less Than And Less Than Twelve
Or Less Six Months Twelve Months Months TOTAL
------- ------------ ------------- ------ -------
(Expressed in Thousands)
Time Certificates
of Deposit $ 1,548 $ 1,691 $ 4,266 $ 3,954 $ 11,459
December 31, 1998
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 $ 2,906 $ 1,173 $ 2,077 $ 4,102 $ 10,258
Repurchase Agreements
- ----------------------
Repurchase agreements represent short-term borrowings, usually
overnight to 30 days. Repurchase agreements were $9,481,904 at June 30,
1999, an increase of $2,487,880, as compared to December 31, 1998. The
increase of repurchase agreements was primarily due to the increase in the
balances maintained by existing commercial customers.
- ------------------------------------------------------------------------------
21
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Capital Resources
- -----------------
A strong capital base is vital to continued profitability because it
promotes depositor and investor confidence and provides a solid foundation
for future growth. Stockholders' equity increased 5.7% during the first six
months of 1999 entirely from current earnings after quarterly dividends, and
a decrease of 4.4% resulting from the effect of the change in the net
unrealized gain (loss) on securities available for sale. Stockholders'
equity amounted to 8.6% of total assets at June 30, 1999 as compared to 9.0%
at December 31, 1998.
The Holding Company's primary source of funds for payment of dividends to
shareholders is from the dividends from its subsidiary banks. Earnings from
subsidiary bank operations are expected to remain adequate to fund payment of
stockholders' dividends and internal growth. In management's opinion, the
subsidiary banks have the capability to upstream sufficient dividends to meet
the cash requirements of the Holding Company.
The Holding Company is subject to regulatory risk-based capital
guidelines administered by the Federal Reserve Board. These risk-based
capital guidelines establish minimum capital ratios of Total capital, Tier 1
Capital, and Leverage to assess the capital adequacy of bank holding
companies.
The following chart shows the regulatory capital levels for the
company at June 30, 1999, June 30, 1998, and December 31, 1998:
June 30, Dec. 31
--------------- -------
Ratio Minimum 1999 1998 1998
- ---------------------- -------- ------- ------ -------
Leverage Ratio 3% 8.6 8.8 8.7
Risk Based Capital
Tier 1 (core) 4% 14.1 14.0 13.9
Tier 2 (total) 8% 15.2 15.0 15.0
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
$49,774,539 classified as available for sale at June 30, 1999. 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, 1999, Progressive Bank, N.A. and Progressive Bank, N.A.- Buckhannon,
had an available line of approximately $4,451,200 and $1,020,000,
respectively, without purchasing any additional capital stock from the FHLB.
As of June 30, 1999 there were no borrowings outstanding pursuant to these
agreements.
At June 30, 1999 and December 31, 1998, the Holding Company had
outstanding loan commitments and unused lines of credit totaling $8,896,000
and $8,070,000, respectively. As of June 30, 1999, management placed a high
probability for required funding within one year of approximately $5,429,000.
Approximately $3,083,000 is principally unused home equity and credit card
lines on which management places a low probability for required funding.
22
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Year 2000 Readiness Disclosure
First West Virginia Bancorp, Inc. and its subsidiary banks are heavily
dependent on technology to process information. Therefore, the banks need to
ensure that information systems and applications are century compliant,
supporting the Year 2000. The Board of Directors and management of First
West Virginia Bancorp, Inc. and its subsidiary banks have established a Year
2000 Plan, ("the Plan"). Accordingly, a Year 2000 Project committee has been
formed to develop an overall strategy and to monitor the Plan's reporting
requirements. The Plan involves five phases which include: Awareness,
Assessment, Renovation, Validation, and Implementation. The Awareness Phase
provided for the establishment of a Year 2000 committee and to develop an
overall strategy for the banks. The Assessment Phase included the
identification of all hardware, software, networks, automated teller
machines, mission critical systems and customer and vendor interdependencies
affected by Year 2000. The committee has identified software and hardware
which will be affected by the Year 2000 change. We have contacted our
vendors and continue to monitor their progress on a quarterly basis.
Additionally, large commercial customers have been assessed for Year 2000
risk and assigned a risk rating. Customers with high risk ratings are being
reviewed on a periodic basis. Any new material commercial customers are
evaluated for Year 2000 risk.
The Year 2000 Project Committee has identified the bank's mission critical
systems. The committee has established the following definition of Year 2000
compliance: A vendor or software system would be classified as Year 2000
compliant if certification from the vendor was received stating that the
product will correctly process, provide and/or receive date data for the Year
2000 and that the product performs accurately in a test conducted by the bank
with the product interfacing with all relevant systems. Internal testing is
a crucial part of the Plan. We have established our testing strategies,
methodology and have developed test scripts for our mission critical systems.
In order to facilitate testing, we have created a testing environment which
mirrors our production system. Testing of in-house applications, including ACH
processing, was completed during the third and fourth quarters of 1998.
Verification of the testing was completed by December 31, 1998. Based on our
Year 2000 definition, we have concluded that our mission critical hardware
and software systems are Year 2000 compliant.
The Company has also established a business resumption plan which will be
reviewed on a quarterly basis. The estimated costs of the Year 2000 issue
are not expected to have a material impact to the results of operations,
liquidity and capital resources of the Company.
23
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. The Company is unaware of any litigation other
than ordinary routine litigation incidental to the business of the Company,
to which it or any of its subsidiaries is a party or of which any of their
property is subject.
Item 2 Changes in Securities
- ---------------------------------------
Inapplicable
Item 3 Defaults Upon Senior Securities
- -------------------------------------------------
Inapplicable
Item 4 Submission of Matters to Vote of Security Holders
- -------------------------------------------------------------------
Inapplicable
Item 5 Other Information
- -----------------------------------
By resolution of the board of directors of First West Virginia Bancorp,
Inc., at a special meeting held on May 6, 1999, it was announced that Ronald
L. Solomon, Vice Chairman and a member of the Board of directors, as well as
its President and CEO, will retire effective January 2, 2002. Mr. Solomon is
also Vice Chairman of the Board of Directors and CEO of Progressive Bank,
N.A. and Vice Chairman of the Board of Directors of Progressive Bank, N.A.-
Buckhannon, subsidiaries of the Company.
24
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 six month period ended June 30, 1999, 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, 1999.
(c) Exhibits
--------
The exhibits listed in the Exhibit Index on page 26 of this FORM 10-Q are
incorporated by reference and/or filed herewith.
25
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
Vice Chairman, President and Chief Executive Officer/Director
By: /s/ Francie P. Reppy
---------------------------------------------------------------
Francie P. Reppy
Controller
Dated: July 28, 1999
26
EXHIBIT INDEX
The following exhibits are filed herewith and/or are incorporated herein by
reference.
Exhibit
Number Description
- ------- -----------
10.1 Employment Contract dated January 1, 1999 between
First West Virginia Bancorp, Inc. and Ronald L. Solomon.
Incorporated herein by reference.
10.2 Employment Contract dated January 1, 1999 between
First West Virginia Bancorp, Inc. and Charles K. Graham.
Incorporated herein by reference.
10.3 Employment Contract dated January 1, 1999 between
First West Virginia Bancorp, Inc. and Beverly A. Barker.
Incorporated herein by reference.
10.4 Lease dated July 20, 1993 between Progressive Bank, N.A., formerly
known as "First West Virginia Bank, N.A.", and Angela I. Stauver.
Incorporated herein by reference.
10.5 Banking Services License Agreement dated October 26, 1994 between
Progressive Bank, N.A., formerly known as "First West Virginia Bank,
N.A.", and The Kroger Co. Incorporated herein by reference.
10.6 Lease dated November 14, 1995 between Progressive Bank, N.A.
Buckhannon and First West Virginia Bancorp, Inc and O. V. Smith
& Sons of Big Chimney, Inc. Incorporated herein by reference.
10.7 Lease dated May 20, 1998 between Progressive Bank, N.A.
and Robert Scott Lumber Company. Incorporated herein by reference.
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
27 Financial Data Schedule. Filed herewith and incorporated herein by
reference.
27
EXHIBIT 11.1
Statement Regarding Computation of Per Share Earnings
28
Computation of Earnings Per Share
- ---------------------------------
The following formula was used to calculate the earnings per share, Consolidated
Statements of Income for the six months ended June 30, 1999 and 1998,
included in this report as Exhibit 13.3
Earnings Per Share
Net Income /
Weighted average shares of common stock outstanding for the period
Six months ended
June 30,
1999 1998
------- -------
Weighted Average
Shares Outstanding 1,257,252 1,257,252
Net Income 1,292,406 1,020,932
Per Share Amount 1.03 .81
No common stock equivalents exist.
29
EXHIBIT 13.3
Summarized Quarterly Financial Information
30
- --------------------------------------------------------------------------------
First West Virginia Bancorp, Inc.
Summarized Quarterly Financial Information
- --------------------------------------------------------------------------------
A summary of selected quarterly financial information follows:
1999 First Second
Quarter Quarter
------------- -------------
Total interest income $ 3,117,090 $ 3,220,452
Total interest expense 1,321,239 1,340,768
Net interest income 1,795,851 1,879,684
Provision for loan losses 76,500 76,500
Investment Securities gain (loss) 9,153 3,312
Total other income 198,994 479,611
Total other expenses 1,133,286 1,177,455
Income before income taxes 794,212 1,108,652
Net income 548,216 744,190
Net income per share (1) .44 .59
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Total interest income $ 3,017,292 $ 3,062,636 $ 3,148,133 $ 3,224,052
Total interest expense 1,276,939 1,325,792 1,363,263 1,357,847
Net interest income 1,740,353 1,736,844 1,784,870 1,866,205
Provision for loan losses 46,500 56,500 76,500 76,500
Investment Securities Gain (1,608) -- 2,786 --
Total other income 191,504 183,293 215,373 195,010
Total other expenses 1,109,594 1,125,921 1,172,069 1,266,218
Income before income taxes 774,155 737,716 754,460 718,497
Net income 519,740 501,192 515,715 496,378
Net income per share (1) .41 .40 .41 .40
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Total interest income $2,698,339 $ 2,845,165 $ 2,954,722 $ 3,008,583
Total interest expense 1,087,969 1,161,352 1,224,185 1,270,941
Net interest income 1,610,370 1,683,813 1,730,537 1,737,642
Provision for loan losses 25,500 36,000 34,500 34,500
Investment Securities Gain (Loss) -- -- -- (1,291)
Total other income 174,106 153,694 172,615 139,807
Total other expenses 1,044,887 1,091,516 1,116,343 1,124,623
Income before income taxes 714,089 709,991 752,309 717,035
Net income 476,607 474,485 502,677 476,799
Net income per share (1) .38 .38 .40 .38
(1) Adjusted for the 4 percent common stock dividend to stockholders of
record as of October 1, 1998 and the 3 for 2 stock split in the effect
of a 50% stock dividend to stockholders of record as of October 1, 1997.
- --------------------------------------------------------------------------------